UnitedHealth Group posted better-than-expected first quarter results Thursday as the company ascribed financial health to everything from low medical costs to growth providing services to patients and competitors.
The commentary on medical costs from the nation's largest health insurer pushed back against fears among stock analysts about a possible jump in the use of medical services.
More than 1 million people were added to the rolls of UnitedHealthcare insurance products in the first quarter, the company said, including about 570,000 people who purchased through new government-run health insurance exchanges.
Earnings growth came from the company's Optum division for health services, despite costs related to its $12.8 billion acquisition of Illinois-based Catamaran Corp., announced last month.
"This quarter builds on second half 2014 momentum," said Stephen Hemsley, the UnitedHealth Group chief executive, during a conference call with investors. "We expect that momentum to continue."
UnitedHealth Group is the state's largest publicly traded company by revenue, and employs about 14,000 people in Minnesota.
The federal Affordable Care Act has been a mixed bag for health insurers, providing a shot at more business plus new taxes on the industry. The upside has been coming more clearly into view for UnitedHealth Group in recent quarters.
The expansion of coverage might also explain why some hospitals also have been reporting stronger financial results, Hemsley suggested during the Thursday conference call.
Stock analysts on Wednesday started to worry about a possible surprise jump in use of medical services after HCA Holdings Inc., a large Tennessee-based hospital operator, announced surprisingly strong hospital admissions during the first quarter. But the fears didn't line up with what United saw on medical costs, said Dan Schumacher, chief financial officer at the UnitedHealthcare insurance division.
When the federal government and more than a dozen states launched health insurance exchanges in 2014, UnitedHealthcare was just a small player. This year, the company expanded its presence by selling exchange policies in 23 states, but doesn't yet expect a significant financial impact.
While UnitedHealthcare is the nation's largest health insurer, the company's Optum health service business has attracted the interest of many analysts.
Other health insurers hire Optum for help with technology services, such as establishing new payment arrangements that ask hospitals and clinics to take some risk for health costs. The division's business for managing pharmacy benefit costs has primarily served people with UnitedHealthcare insurance in the past, but increasingly will derive outside revenue with the Catamaran deal.
"The addition … will be the first sizable experiment in thwarting the conflict of interest associated with Optum serving [UnitedHealth Group] competitors," wrote Thomas Carroll, an analyst with Stifel Research, in a note to investors.
Sheryl Skolnick, an analyst with Mizuho Securities, said she saw signs in the first quarter results that other insurers "have decided to continue to trust Optum," she wrote in a research note.
Optum operates a growing network of clinics, and provides management services to physician practices. UnitedHealth saw more growth from these outside sources during the quarter, Skolnick said in an interview, adding that she believes the insurance side of the business also benefited from Optum's influence.
"We're beginning to see … the influence of these transformative technologies and services that Optum has — that they're busy selling to everybody else — actually make a difference at home," she said.
UnitedHealth posted a profit of $1.41 billion on revenue of $35.76 billion for the first quarter. During the same period last year, Minnetonka-based UnitedHealth had earnings of nearly $1.1 billion on $31.7 billion in revenue.
On a per share basis, UnitedHealth's earnings came in at $1.46, which was better than the $1.35 per share expected among analysts surveyed by Thomson Reuters.
Strong first quarter results mean UnitedHealth Group now expects earnings this year of between $6.15 and $6.30 per share — a higher range than previously announced, even with the costs of the Catamaran acquisition.
Investors applauded the results, sending UnitedHealth Group shares up more than 3 percent, to a closing price of $121.60.
Christopher Snowbeck • 612-673-4744
Twitter: @chrissnowbeck
