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Stephen Hemsley, CEO of United­Health Group Inc

Stephen Crowley, Associated Press - Nyt

UnitedHealth CEO remains upbeat

  • Article by: JACKIE CROSBY
  • Star Tribune
  • January 17, 2013 - 10:31 PM

For all of the hand-wringing over the effects the Affordable Care Act, the chief executive of the nation's largest health care company said Thursday he sees the coming year -- and into 2014, 2015 and beyond -- as a time of great potential and profits.

Stephen Hemsley, CEO of UnitedHealth Group Inc., said that despite "significant unknowns," the federal law "actually intensifies the demand for core competencies we deliver through our businesses."

The comments came as the Minnetonka-based company reported that net income fell by 1 percent during the fourth quarter compared with a year ago, as medical costs grew faster than revenue. The results were in line with analysts estimates.

By offering an unusually long view into the future, Hemsley aimed to tackle Wall Street's lingering concerns about profits amid rising medical cost trends, increased government oversight and a more competitive marketplace.

The company has seen "limited disruptions" as elements of the Affordable Care Act, or ACA, has rolled out, he said. The law now limits profits from premiums and forces coverage for children with pre-existing conditions and young adults under 26 who qualify for their parents' plans.

Costs are under control, enrollment is growing and the company's Optum services side continues explosive growth, Hemsley said.

"Over the last several years, we have shaped our enterprise as a uniquely adaptable construct of market-facing businesses that serve the critical markets that the ACA is expanding," Hemsley said. "This is a different company than it was a decade ago, different than just three years ago, and it will be predictably different three or more years from now."

United maintained its full-year forecast for 2013 earnings of $5.25 to $5.50 per share, made on Nov. 26. Its Optum health services division is expected to continue rapid growth, with operating earnings forecast to grow 35 to 40 percent in 2013.

"I think they're feeling pretty good about themselves right now," said David Heupel, senior health care analyst at Thrivent Financial in Minneapolis. "They offered some reassurance that with the big regulatory changes, exchanges and they like, they can manage through these changes."

United will take a state-by-state look at whether to offer plans in new health insurance exchanges, which are supposed to be ready for open enrollment in Oct. 1.

Hemsley speculated that the company could participate in 10 to 25 or more state exchanges, adding he was making "absolutely no firm commitment to that range." Just 10 percent of total earnings come from the individuals and small group markets, the two groups that will be using the new exchanges to shop around for insurance coverage.

During the quarter that ended Dec. 31, UnitedHealth earned $1.24 billion, or $1.20 a share. During the same period a year ago, the company posted profits of $1.26 billion, or $1.17 a share.

Revenue rose 11 percent to $28.8 billion, while the cost of covering medical care for its enrollees climbed 12 percent to $20.8 billion. An early flu season sent more consumers to the doctor, but the company said it managed costs effectively.

As the first insurer to report earnings every quarter, United is considered a indicator for the health care sector, particularly as health reform efforts roll out.

"Overall, a solid quarter with few surprises, but less impressive than the company's performance earlier in the year," Leerink Swann analyst Jason Gurda said in a research report.

UnitedHealth continued to see enrollment in its benefits plans rise in both company-based plans as well as government-backed plans for seniors using its Medicare Advantage plans and low-income Americans covered by Medicaid.

Enrollment grew to 40.9 million, a boost of almost a fifth. About 4 million of the gains came from UnitedHealth's $4.9 billion acquisition of Brazil's top insurance company, Amil Participacoes, which also operates hospitals and clinics.

Earnings for United's health services division, Optum, climbed 65 percent with higher-margin products and cost-reduction efforts.

Dave Shove of BMO Capital Markets called it a "solid quarter" and "right on the money" in a research note.

For the year, UnitedHealth posted revenue of $110.6 billion, with earnings of $5.53 billion, or $5.28 per share.

Shares finished the day up 1.4 percent at $54.40. That reversed a trend where the stock has underperformed on earnings days in five of the past six quarters, Heupel pointed out.

Jackie Crosby • 612-673-7335

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