UnitedHealth earnings drop fails to dismay Wall Street

After finally clearing the decks of a series of high-profile lawsuits, UnitedHealth Group is focused on regaining its momentum as America's biggest health insurer.

Now if only the economy would cooperate.

The Minnetonka-based health insurer Thursday reported a 40 percent drop in earnings to $726 million, or 78 cents a share, for the three months ended Dec. 31. That doesn't include an 18 cents per share charge to settle a class-action lawsuit brought by the American Medical Association over payments to doctors, which knocked earnings per share down to 60 cents.

Revenue for the quarter, however, was up 9 percent to $20.45 billion. While the weak economy hurt the insurer's commercial insurance business as employers shed workers, it also boosted the company's government business, particularly its AmeriChoice Medicaid unit.

Despite the sharp fall in earnings, the fourth-quarter numbers met analysts' expectations and the market applauded the lack of surprises.

"Boring is beautiful," was the title of a report on the earnings by Oppenheimer & Co. "Solid in most areas," wrote Justin Lake, an analyst with UBS Investment Research.

In these days of economic doom and gloom, that's as good as it gets.

'Encouraging results'

For all of 2008, earnings were down 36 percent to $2.98 billion, or $2.95 per share, which worked out to $2.40 a share after legal and other adjustments. Revenue was up 7 percent to $81.19 billion.

"Stepping back from the economic turmoil of 2008, these are encouraging results for our business overall," chief executive Stephen Hemsley said in a conference call Thursday with analysts.

As the economy worsened in the fourth quarter and employers continued to cut jobs, UnitedHealth lost 135,000 members in its more profitable risk-based insurance business. But it gained 10,000 members in less-profitable fee-based businesses. The company still expects to lose 1 million to 1.5 million commercial members in 2009, most of them in the first quarter.

However, UnitedHealth's seniors business, Ovations, and its Medicaid business, AmeriChoice, did well, posting significant membership gains.

Hemsley reaffirmed a previous earnings projection of $2.90 to $3.15 per share for 2009. Those are "ranges that remain wide," he said, "but the economic uncertainties remain so as well."

Leadership changes

Hemsley also announced some leadership changes.

Former Ovations chief executive Simon Stevens will take on a new role overseeing health reform and international businesses. Larry Renfro, formerly with Fidelity Investments and AARP Services Inc., will take his place at Ovations.

Stevens, once a health adviser to former British Prime Minister Tony Blair, will focus on UnitedHealth's strategy as the Obama administration tackles major health care reform. He will start and lead a UnitedHealth Center for Health Reform.