UnitedHealth Group wasn't a major player when the federal government and some states launched new health insurance exchanges in late 2013.
It'll be a different story this fall, however, as the Minnetonka-based insurer plans to offer insurance products in nearly two dozen states through online marketplaces that were created by the federal Affordable Care Act.
During a conference call with investors Thursday, company executives suggested the new market could generate profit margins in the range of 3 to 5 percent in the long run.
"This is really just our introduction," said Gail Boudreaux, chief executive of the company's UnitedHealthcare division. "We expect to participate. We expect to grow. But we're not expecting tremendous profit out of that first year of participation."
On Thursday, UnitedHealth Group investors likely weren't focused on such forward-looking commentary as much as on third-quarter results that beat estimates for earnings per share. The company boosted its full-year earnings guidance, and shares traded up nearly 5 percent.
Medical costs were lower than expected during the quarter — news that likely helped other health insurer stocks trade up Thursday, when the broader market was flat.
"We're always worried in this space about medical costs, and whether or not there's any real change in utilization of health care," said David Heupel, senior health care analyst at Thrivent Financial in Minneapolis. The lower cost trend "drove the earnings upside for the quarter," Heupel said.
The federal health law has offered a mixed bag for health insurance companies.
On one hand, the Affordable Care Act is fundamentally changing health insurance markets, imposing new taxes on insurers, reducing payments to companies with Medicare health plans and restricting insurance company profits. Even so, the law's mandate for most Americans to have coverage creates new customers for insurers, and a large expansion of Medicaid helps carriers like UnitedHealth that are contractors with the state-federal health insurance program.
For insurers, exchanges represent a major opportunity for covering the previously uninsured.
"We remain on course to participate in nearly two dozen state exchanges in 2015," said Stephen Hemsley, the UnitedHealth chief executive.
UnitedHealth Group officials aren't saying exactly which health exchanges they expect to enter this fall, but the company won't be an option on Minnesota's MNsure marketplace.
Did insurer miss the boat?
The jury is still out, analysts say, on whether UnitedHealth's strategy to largely stay out of the exchanges in 2014 will pay off. Other insurers had a bigger presence during the first year, and those carriers might be in a stronger position to retain customers who are new to coverage.
"If they do a lot of switching and shopping around, then maybe United is OK," said Ana Gupte, an analyst with Leerink Partners. "If not, then maybe [United has] given up a sizable piece of the pie in year one."
But there are reasons to think the strategy might work, Gupte said. UnitedHealth avoided much of the risk and the technical difficulties that came with last year's launch of the exchanges. Plus, more uninsured people are expected to come into the market for the first time in 2015, Gupte said. There's also likely to be growth if employers continue the trend of dropping group coverage and directing workers to individual policies.
Initially, the health law primarily meant pressure on profits for health insurers like UnitedHealth, Gupte said, but now the chances for revenue growth are coming into view.
"The growth is good from a top-line perspective," she said.
During the third quarter, net earnings at UnitedHealth Group came in at $1.6 billion, or $1.63 on a per-share basis. That was 7 percent better, the company said, than earnings per share of $1.53 during the same quarter last year. Revenue for the quarter was $32.8 billion, up 7 percent from the $30.6 billion last year.
Analysts surveyed by Thomson Reuters expected earnings per share of $1.53 and $32.7 billion in revenue.
UnitedHealth Group said it now expects full-year earnings of $5.60 to $5.65 per share, up from previous guidance of $5.50 to $5.60.
The company's shares closed Thursday at $86.14, up $3.98.
Christopher Snowbeck • 612-673-4744
Twitter: @chrissnowbeck
