With all the fulminations in the insurance industry over the federal health care law, the mood at UnitedHealth Group Inc. seems to have settled into business as usual now that the most sweeping changes are just months away.
“Apparently it’s not going to be a complete disaster,” deadpanned Stifel health care analyst Thomas Carroll, as the Minnetonka-based insurance giant posted better-than-expected earnings Thursday.
UnitedHealth signed up almost 10 million new members during the second quarter and medical claims came in lower than projected, a combination that helped boost revenue and profits.
Even with acknowledged challenges ahead as the most sweeping of Affordable Care Act measures take hold in 2014, UnitedHealth Group raised its earnings outlook.
“Regardless of the environment, this is a managed care company that is so diversified and so well-run that it can weather these storms,” said David Heupel, senior health care analyst at Thrivent Financial in Minneapolis. “People gained comfort that the overall tone wasn’t as dour as it could have been.”
Net income at the nation’s largest insurance company jumped 7.4 percent to $1.44 billion, or $1.40 a share, outpacing analysts’ estimates by about 15 cents, according to Bloomberg. Revenue rose 12 percent to $30.4 billion.
UnitedHealth raised the lower end of its 2013 forecast, saying it now expects profit of $5.35 to $5.50 per share.
In a morning conference call, UnitedHealth Group CEO Stephen Hemsley told analysts that the insurer maintains a measured outlook that is “strongly positive in the long term, with familiar near-term challenges coming in 2014 and 2015.”
Starting next year, millions more Americans will need to buy insurance. But insurers will be forced to cover more health conditions without the same ability to charge extra-high deductibles or premiums as they can today.
UnitedHealth opted on a wait-and-see approach to the new state-based health insurance exchanges, which will help individuals and small businesses sign up for coverage. The company will offer plans in just a dozen states when the exchanges go online on Oct. 1.
Hemsley predicts that the next phase of the Affordable Care Act will bring growth to the company’s Optum unit and its Medicaid business, particularly in states that are expanding coverage.
But UnitedHealth will face increased competition to sign up seniors, while facing declining government reimbursements. The insurer already has pulled out of some markets and reduced its plan offerings and benefits in the majority of markets it serves.
Even though more than 3 million American seniors are becoming eligible for Medicare each year, Hemsley warned that the new enrollment growth UnitedHealth has enjoyed in recent years will moderate.
This strategy of honing robust markets while pulling back on weaker ones will play out among all of the national players, Thrivent’s Heupel said.
“You’ll have to find pockets of strength and grow your base,” he said.
UnitedHealth Group is the first of the national insurance companies to report earnings, and is seen as a bellwether for how the industry is faring.
UnitedHealth turned in “a clean quarter, with growth coming from all parts of the business,” Carroll said.
Enrollment surged by 25 percent, with 45 million people around the world now carrying UnitedHealthcare cards in their wallets.
The gains came from employer plans as well as government-backed health plans that cover seniors on Medicare and low-income Americans on Medicaid. The company also saw a rise in enrollment through a new Tricare military contract and its acquisition last year of Brazil’s largest health care company.
Medical claims came in lower than expected, a trend that has worked in UnitedHealthcare’s favor since the start of the recession four years ago. The company shifted $310 million from its reserves to pump up earnings by $100 million more than the previous year.
Optum, which provides health information-technology, drug-benefits management services and wellness programs, saw revenue increase 21 percent, accounting for about a quarter of the company’s operating earnings.
“Optum is a juggernaut,” Heupel said. “It’s a unique situation in managed care, and the crown jewel at United.”
UnitedHealth shares finished up 6 percent, at $70.55.