UnitedHealth shares jump 7 percent as insurer puts Obamacare effects behind

As UnitedHealth Group winds down money-losing business in government health exchanges, executives said Tuesday the company's financial performance should gain speed next year, particularly its Optum division for health services.

Leaders of the nation's largest insurer raised their outlook after the company's third-quarter profit beat expectations. Investors responded with a buying frenzy that lifted UnitedHealth's shares 7 percent to near the all-time high set in August.

Next year, the Minnetonka-based company plans on avoiding financial potholes by dropping out of most exchange markets that are part of the Affordable Care Act. Executives said they were comfortable with Wall Street analysts' current estimates for 2017 earnings, adding the outlook could become "modestly stronger" if current momentum continues.

"Our commentary today was an attempt to be pretty positive about 2017," Stephen Hemsley, chief executive, said during a conference call with investors.

For the quarter, UnitedHealth Group posted a $1.97 billion profit, up 23 percent over the same period last year. It came on $46.3 billion in revenue — up from $41.5 billion in revenue in the year-ago quarter.

The medical cost trend grew at a slower rate than expected, said Sheryl Skolnick, an analyst with Mizuho Securities USA.

UnitedHealthcare did better than expected enrolling subscribers in Medicare Advantage plans, fully-insured commercial products and state Medicaid programs, Ana Gupte, analyst with Leerink, wrote in a note to investors. And at Optum, revenue grew and profit margins expanded in all three primary segments, Gupte said.

The division's MedExpress business, for example, is the nation's largest urgent care provider, and launched during the third quarter an expansion into the Twin Cities. The company has plans for up to 19 urgent care centers in Minnesota by the end of 2017.

As a health care provider, Optum is in the midst of expanding into more than 75 local markets, including the Twin Cities. "Optum's growth remains robust, especially in care delivery," Skolnick wrote Tuesday in a note to investors.

Optimism for 2017 stems from the company's growth prospects, said Dave Wichmann, the president of UnitedHealth Group. Optum is winning important contracts as a pharmaceutical benefit manager, he said, and as a consultant to health care providers on how to collect medical bills. He noted, for example, that the billing business last month struck a deal with lab testing giant Quest Diagnostics.

Also, the UnitedHealthcare insurance division won't be saddled with losses from the individual market, which is undergoing a sweeping change with the Affordable Care Act.

The individual market is the portion of the health insurance world that serves people who are self-employed or don't get coverage from an employer or government program. Before ACA changes in 2014, insurers could deny coverage to people in the market who had preexisting health conditions. Since the practice was eliminated by the health law, health plans have struggled to generate profits as patients use more care than expected.

During the third quarter, UnitedHealthcare's loss of about $200 million in the individual market fell within expectations. That signals something of an improvement, since UnitedHealth lost more money than expected on the business during the second quarter.

Policymakers are watching the signals from UnitedHealth and other insurers as they assess if the ACA is working.

When UnitedHealthcare signaled problems last year, it noted a high rate of people buying coverage outside the open enrollment period, and then using expensive care. On Tuesday, it saw a slightly smaller share of members in the third quarter buying through "special enrollment periods."

At the end of the third quarter, UnitedHealthcare provided coverage to about 770,000 people through policies sold on health exchanges, and another 210,000 individuals who purchased off-exchange coverage.

It was providing coverage to 44.1 million people in the U.S. at the end of the third quarter, up from 43.9 million subscribers at the end of June and 42.3 million people a year ago.

UnitedHealth expects full-year adjusted earnings to be about $8 a share, up from its previous forecast that was a range of $7.80 to $7.95 a share. It's the second quarter in a row that the company has become more optimistic about its full-year performance.

Christopher Snowbeck • 612-673-4744