The Minnetonka-based health giant, seen as a bellwether, saw its profit increase but predicts that claim costs this year will, too.
UnitedHealth Group Inc. offered a cautious outlook for 2012 on Thursday, giving Wall Street a case of the jitters and eclipsing the company's better-than expected fourth-quarter earnings report.
Shares dropped 3 percent to $52.32 after the Minnetonka-based health care giant said it expects claim costs to rise in the year ahead as Americans use more medical services. Levels may be closer to those seen before a dropoff in 2010, as people stayed away from the doctor's office and put off elective surgeries to save cash.
CEO Stephen Hemsley told analysts in a morning conference call that the company is maintaining its profit outlook and is taking an "appropriately cautious posture" for the year ahead.
UnitedHealth is the first of the major health insurers to report quarterly results, and is considered an early indicator of how the industry is faring, particularly so under the new health reform law. Insurers who don't spend 80 to 85 percent of their premiums to care for patients must offer rebates to consumers, a key reason Hemsley believes UnitedHealth's revenue will be under pressure in 2012.
Shares of other health care companies, including Aetna and WellPoint, also dropped.
Jason Gurda, an analyst with Leerink Swann, said he still thinks UnitedHealth's stock is on the upswing, and raised his price target for the year to a range of $59 to $64, up from $54 to $59.
"Medical cost trends remain subdued ... and management didn't sound as concerned about rising physician and outpatient utilization as they did last quarter," Gurda wrote in a report.
During the fourth quarter, UnitedHealth said it increased the number of people enrolled in its insurance plans and kept operating costs down, which drove profit gains of 21 percent compared with a year earlier.
Net income rose to $1.26 billion, or $1.17 a share, beating analysts' consensus estimate of $1.04.
The company added about 175,000 new members to its insurance rolls, which boosted revenue in the fourth quarter 7.9 percent to $25.9 billion.
Much of the enrollment growth came from government programs: Medicaid, which covers low-income and disabled people, and Medicare, which covers seniors.
But as employers added jobs and offered benefits to more workers, United saw an uptick in its commercial business as well. For the year, the company said it posted the strongest growth in that business in a decade.
Gail Beaudreaux, CEO of the company's insurance division, said the rise in commercial enrollment had more to do with employers seeking "more value-based benefit designs, things that encourage health and wellness" rather than a stronger business environment.
United has increased enrollment in all of its products from quarter-to-quarter for seven quarters, according to Gurda.
United's fast-growing health services division, Optum, which sells wellness and health management programs, business technology services and pharmacy benefits management, posted operating profits of $279 million.
Analyst Carl McDonald of Citi Investment and Research called it a "pretty volatile quarter for United's non-insurance business." The OptumHealth unit, which focuses on wellness plans, "saw earnings essentially get cut in half relative to the third quarter."
For the year, UnitedHealth Group's profit increased 5 percent over 2010, with earnings of $5.1 billion, or $4.73 per share. Revenue hit $102 billion, an 8 percent increase.
While analysts were hoping United would boost its full-year earnings outlook for 2012, the company stood by its $4.55 to $4.75 per share forecast.
Jackie Crosby • 612-673-7335