UnitedHealth Group Inc. will double its participation in state-run insurance exchanges over the next year, executives said Thursday, a step by the nation’s biggest insurer that signifies the staying power of new marketplaces that arrived under the federal health care law.
The announcement, which came along with quarterly results that surpassed investor expectations and pushed the firm’s stock to an intraday record, added new details to UnitedHealth’s slow but steady adjustment to the Affordable Care Act.
The exchanges that debuted last fall on the federal level and in several states like Minnesota are “going to be an established sector in the health care benefits marketplace,” UnitedHealth Chief Executive Stephen Hemsley said in a conference call with investment analysts.
“We want to make sure we don’t go in too late,” Hemsley said. “We’re thinking this is about the right time.”
Health care reform has created both costs and opportunities for the Minnetonka-based company. For instance, in discussing its latest results, UnitedHealth noted that new taxes under the law had reduced its after-tax profit margin by nearly a full percentage point to 4.3 percent.
At the same time, the law’s requirement that all Americans be insured has opened up a new customer base for UnitedHealth, notably among individuals buying insurance for themselves. The company said it plans to be operating on two dozen state exchanges next year, up from a dozen now.
Consumer response to the exchanges, which present information and products from multiple insurers, factored into UnitedHealth’s plans, Hemsley said.
UnitedHealth approached the exchanges more slowly than some big insurers in part because its existing business with individual customers is considerably smaller than the work it does providing insurance through employers. As well, it wanted to know more about the riskiness of the customers drawn to buy insurance through the government-run marketplaces.
Hemsley said the company has learned about pricing, regulations and consumer attitudes while taking a “prudent first-year position” on the public exchanges. He suggested that, as more people use the exchanges in 2015, the risk will go down for insurers.
“We see the next 18 months as important given that, by January 2016, the ACA will largely be in place, and we will be entering an election cycle that will set the stage for shaping the next phases of health reform,” Hemsley said.
In the April-to-June quarter, UnitedHealth’s net profit fell to $1.41 billion from $1.44 billion a year earlier. It rose on a per-share basis to $1.42 from $1.40 and far exceeded analysts’ forecasts of $1.26. Revenue grew 7 percent to $32.6 billion, led by gains in payments from government programs, pharmacy services and data services.
UnitedHealth shares, which have been trading at record levels for much of this year, reached a new intraday high of $87.24 Thursday before dipping in the afternoon as news of Israel’s ground invasion of the Gaza Strip pushed markets lower. Still, the stock closed at $85.11, up 1.6 percent for the day.
The company’s data-services unit, Optum, experienced a 28 percent jump in revenue in the latest period. The business, which was hired to fix several of the flawed websites of federal and state exchanges, now accounts for one-third of the sales and operating profit of the entire company.
Its speedy growth has been visible to Twin Cities residents over the last year in the rapid construction of new office buildings for the business in Minnetonka and Eden Prairie.
UnitedHealth also said that medical cost trends “remained moderate and consistent with expectations” in the latest quarter. Its medical care ratio, the portion of insurance premiums used for health care, rose to 81.6 percent in the quarter from 81.5 percent a year ago.
Executives told investors to expect full-year revenue of around $130 billion, up from their previous guidance of $128 billion. They narrowed the company’s profit range to $5.50 to $5.60 a share, the upper half of its previous guidance of $5.40 to $5.60 a share.