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UnitedHealth Group Headquarters in Minnetonka.

Glen Stubbe, Star Tribune

UnitedHealth profit jumps 23%

  • Article by: JACKIE CROSBY
  • Star Tribune
  • October 16, 2012 - 8:31 PM

Even though the housing and employment markets are starting to improve, consumers still aren't running up doctor's bills and cutting into insurers' profits in the process.

Lower-than-expected claims combined with a significant increase in membership to boost the latest quarter's profit for UnitedHealth Group Inc., the nation's largest health insurer said Tuesday. That continued a trend in which co-pays and deductibles have made customers less inclined to seek treatment when they have a choice.

"All key metrics in health benefits look solid," Ana Gupte, an analyst with Bernstein Research, said in a morning note to analysts, highlighting "well-managed medical costs and favorable reserve development" that improved year-over-year.

The Minnetonka-based company said third-quarter profit rose 23 percent to $1.56 billion, or $1.50 per share, for the quarter that ended Sept. 30. Revenue increased 8 percent to $27.3 billion.

Buoyed by growth in its Optum health services division and rising enrollment in government-based health plans, the company raised full-year earnings guidance to $5.20 to $5.25 per share. That was up from $4.90 to $5 in July and $4.55 to $4.75 at the beginning of the year.

UnitedHealth is the first of the national insurers to report earnings and often is a bellwether for the health care market.

CEO Stephen Hemsley cautioned "considerable challenge" for the coming year, however, raising concerns over how the outcome of the November election will affect health care reform and an increasingly competitive landscape that is putting pressure on pricing.

The comments put a blanket on Wall Street expectations, with shares of United falling about 1 percent to $56.88.

Leerink Swann analyst Jason Gurda said he wasn't "reading that much" into the cautious commentary because the company "likes to guide conservatively and their final earnings usually exceed initial projections."

Thrivent Financial's senior health care analyst, David Heupel, likewise sees the company as well-positioned for the long term. "Bottom line, there's nothing there that reform is going to hurt," Heupel said.

The Optum business "actually benefits from changes in how things are done," he added, "because they sell systems and services that are going to be needed. That's an area that makes United unique, and why they trade at a valuation above their peers and, frankly, why they grow at a rate typically above their peers."

The company still earns the bulk of its income from its insurance division, UnitedHealthcare, which sells health plans to individuals and families, businesses and governments. Revenue for that business grew 8 percent to $25.5 billion, with earnings growing 26 percent to $2.2 billion. In all, 2.1 million more customers were enrolled in its medical plans than a year ago.

United's strongest gains came from providing coverage to people eligible for Medicare, the government plan for seniors, and Medicaid, the state-federal program for low-income people. Revenue from its Medicare Advantage plans rose 13 percent compared with the same period a year ago.

During the quarter, the company ended its contract with the state of Wisconsin, which provided insurance to 175,000 people in the Milwaukee area.

United's Optum division, based in Eden Prairie, saw earnings from operations grow 28 percent, to $408 million, compared with the same quarter a year ago. Revenue at the division, which sells wellness plans, health IT software and runs a pharmacy benefits management operation, was $7.2 billion.

Optum "should remain rock-solid on its plan and continue to increase its contribution to our overall performance," Hemsley said in a morning call with analysts.

Jackie Crosby • 612-673-7335

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