June 14, 2023: UnitedHealth dropped by 8%; the stock market has been doing well lately, but today the Dow Jones Industrial Average didn’t have such good luck. It started the day on a lower note, and the main reason behind it is the steep decline in UnitedHealth Group’s stock. Causing a significant loss in points for the Dow. This article will explain what happened to health insurance stocks and why the industry might face more challenges.
UnitedHealth’s Impact UnitedHealth is not the most valuable component of the Dow Jones Industrial Average in terms of market capitalization, but its stock price greatly influenced the index. Its weight within the Dow is nearly three times that of an equal-weighted index of all 30 components. So when UnitedHealth’s stock price dropped by $40 per share, it put around 275 to 300 points of downward pressure on the Dow. Since the Dow was down by approximately 200 points, the entire drop can be attributed to UnitedHealth’s troubles.
What’s Causing Problems in the Health Insurance Industry? UnitedHealth’s decline can be traced back to a presentation at a healthcare industry conference. A senior executive from UnitedHealth was on a panel discussing the industry’s current state. He highlighted a change in behavior among older patients that could be costly for the health insurer.
During the early years of the COVID-19 pandemic, many Americans chose to postpone elective procedures or were unable to schedule them. This reduction in processes benefited UnitedHealth’s earnings because it meant less demand for medical care. Despite the specific costs associated with COVID-19, the decline in procedures helped the insurer’s profitability.
However, now that patients are starting to reschedule their postponed procedures, UnitedHealth expects medical costs to rise, impacting its profit growth. This news didn’t only affect UnitedHealth’s stock; other health insurance companies also experienced significant drops. Humana, Centene, Elevance Health, and CVS Health saw their stock prices fall by 5% to 13%.
A Shift in Investor Preferences? UnitedHealth has been a strong performer in the Dow for years, outpacing the index’s growth over the past decade. Its focus on wellness initiatives and healthcare services has complemented its core insurance business and provided increasing dividends to its shareholders.
However, defensive investments such as healthcare stocks might lose favor as investors increasingly focus on high-growth areas like artificial intelligence. If this trend continues, the decline in UnitedHealth’s stock might last longer than just a few days.