UnitedHealthcare leads health insurer stocks lower as markets speculate about more scrutiny following CEO shooting

• UnitedHealth Group shares have dropped as much as 10% since the fatal shooting of one of its CEOs.
• The response on social media revealed Americans' deep dissatisfaction with the US health system.
• "This incident amplified debates over healthcare companies' business models," a source told BI.

Last week's fatal shooting of UnitedHealthcare CEO Brian Thompson has sent insurers' stock lower as markets wonder about the potential for the event to bring greater scrutiny to the industry and its business model.

Shares of UnitedHealth Group, the parent company of UnitedHealthcare, declined by as much as 10% since Wednesday's shooting, and other health insurance stocks are down as well.

Shares of the next two biggest health insurance companies by market value, Elevance Health and Cigna Group, have declined by about 4% and 7%, respectively, since the murder.

The bullets used by Luigi Mangione, who was arrested this week and has been charged with second-degree murder, had the words "delay," "deny," and "depose" etched into them, which is thought to refer to the denial of coverage to patients by health insurance companies.

According to Mark Malek, CIO at Siebert, the sell-off in health insurance stocks in the last week is tied to investors' worry that the industry will see more scrutiny as a result of the killing.

"When reports surfaced that the empty bullet casings were etched with the words 'delay,' 'deny,' and 'depose,' scrutiny of the industry grew sharper. This incident amplified debates over healthcare companies' business models, increasing the likelihood of more and potentially unknown regulations," Malek told Business Insider on Monday.

Malek added that more regulation "rarely translates into higher profitability", which is creating "a clear risk-off setup" for the health insurance industry.

The response to the shooting across the internet and on social media pointed to Americans' deep dissatisfaction with the US healthcare system — but there could also be appetite from the government to see healthcare costs come down, Malek said, pointing to inflation.

"Do you know what other services inflation consistently runs hot, well above the 2% guideline? HEALTHCARE!" Malek said in a note to clients on Monday.

The healthcare-driven pressure on inflation is exacerbated by the fact that, unlike other goods and services, or even home prices, the Federal Reserve's monetary policy has little to no impact on reining in healthcare costs.

"A strong belief persists that this subgroup of the healthcare sector is a major contributor to runaway healthcare costs, which remain stubbornly evident in the sticky components of services inflation," Malek said.

UnitedHealth Group has grown its profits to record highs over the past 10 years, with its stock price rising 546%. The shares traded at $567.08 late in Tuesday's trading session.

Mangione was in court for an extradition hearing in Pennsylvania on Tuesday. He is expected to be extradited to New York where he'll face a murder charge.