Insurers' strong financial performance continues in Q3 as they brace for a potentially rocky Q4

A stock ticker showing Q3 results
Insurers continued to turn a significant profit in the third quarter, though the results were more subdued than they were in the first half of the year. (iQoncept/Shutterstock)

Major national health insurers continued to largely turn a significant profit in the third quarter, though numbers didn't quite reach the sky-high figures reported in the first half of the year.

And some warned that the fourth quarter could be ugly, with pent-up utilization and costs related to COVID-19 coming to a head.

As with the prior quarter, UnitedHealth Group led the way on profit, bringing in $3.2 billion in earnings. That's down slightly from the third quarter of 2019, where the company earned $3.5 billion in profit, and halved from the second quarter, when UnitedHealth posted an eye-popping $6.6 billion in profit.

Cigna came in second for profitability in the quarter, reporting $1.4 billion in profit. Humana was close behind at $1.3 billion, as was CVS Health at $1.2 billion.

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Those companies all saw profit declines from the second quarter as well, where CVS posted $3 billion in profit and Cigna and Humana both reported $1.8 billion in earnings.

Anthem brought in $222 million in profit and, while that represents a massive decline from its $2.3 billion in earnings for the second quarter, it still beat Wall Street estimates. Centene Corporation and Molina Healthcare also reported declines in profits from the prior quarter, bringing in $568 million and $185 million, respectively.

Across the board, insurers said that the drop in profitability compared to the beginning of 2020 reflects care utilization returning to levels near those seen before the COVID-19 pandemic. Earlier in the year, most warned that while they were hugely profitable at the time, that was likely to change as utilization ticked back up.

Some are bracing for even stormier skies in the fourth quarter, too. Humana, for instance, gave investors a heads-up about an expected loss in the quarter as use continues to rebound and COVID-19-related costs increase.

Humana Chief Financial Officer Brian Kane said the company is expecting to pay $1 billion in COVID-19 treatment and testing costs alone this year.

CVS lead the pack on revenue for the quarter, bringing in $67.1 billion, followed closely by UnitedHealth, which reported $65.1 billion in revenue.

Cigna brought in $41 billion in revenue. Anthem and Centene were neck-and-neck for the quarter, reporting $31.2 billion in revenue and $29.1 billion in revenue, respectively.

Humana brought in $20.1 billion in revenue, and Molina lands in last place for revenue with $4.8 billion reported.

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Here are two more trends to watch in the final quarter of 2020:

PBM subsidiaries leading the way

Both UnitedHealth and Cigna have reported substantial growth in their pharmacy benefit management subsidiaries over the course of this year. Optum has been UnitedHealth's growth leader of late, and in the third quarter posted 21% growth.

Much of Optum's growth has been concentrated in its OptumHealth segment, which includes the company's large provider footprint at OptumCare. OptumHealth providers treated 98 million patients in the third quarter, an increase of 3 million year over year, with revenue per customer served up 25% compared to the third quarter of 2019.

In addition, OptumRx has invested heavily in growing its pharmacy services, including in specialty pharmacy, e-commerce and home infusion, UnitedHealth Group said.

Cigna also touted the performance of its newly rebranded Evernorth subsidiary in its earnings, a company that includes the nation's largest PBM in Express Scripts. Evernorth's revenues were up 20% in the third quarter compared to the second quarter, Cigna said.

Cigna is continuing to design and launch new solutions at Evernorth, CEO David Cordani said during an appearance at HLTH in October, with an eye on continued business growth.

Pandemic's long-term impact on enrollment remains fuzzy

As shutdowns to prevent the spread of COVID-19 led to significant job losses, the healthcare industry braced for large numbers of people to become uninsured in the process.

However, insurers have found over the past several months that membership losses in the employer-sponsored segments were largely offset by growth in Medicaid and individual market enrollment.

What impact does this potentially have on the current open enrollment period for the Affordable Care Act's exchanges? Centene CEO Michael Neidorff said enrollment has "been bouncing around a lot."

The variability suggests we won't have a clear picture of the pandemic's long-term impacts on payer mix for some time.

“It is just a swinging variable and too many factors,” Neidorff said.