UnitedHealth profits raise hopes about economy

While unemployment numbers remain dismal, news from UnitedHealth Group Inc. on Tuesday may hint at a forthcoming break in the dark clouds.

The Minnetonka-based company said its insurance division, UnitedHealthcare, added more than 180,000 people to its rolls during the second quarter, led by gains in employer-sponsored coverage. It's an indication that businesses are expanding benefits, said Thomas Carroll, an analyst with Stifel Nicolaus.

"That's sizable volume for a large managed-care company like UnitedHealthcare, and a favorable comment that it is scratching out some actual, organic growth," he said. "I view that as an early reflection on an improving economy."

United has added 1.2 million enrollees in the first half of the year, a 5 percent boost over the same period last year. In fact, enrollment has grown for six consecutive quarters, ranking it "among the strongest growth periods for our company," CEO Stephen Hemsley said during a conference call with analysts.

Profit at UnitedHealth Group rose 13 percent in the second quarter from a year earlier, enhanced by those new customers as well as a continued decline in costs, as people with high deductibles and tight household budgets continue to hold off medical care amid the still-slinking economy.

The Minnetonka-based company raised its profit guidance for the second quarter in a row.

Jason Gurda of Leerink Swann Research said in a report that he "remains positive on the sector's longer-term outlook," based on the better-than-expected results from lower medical costs and across-the-board growth in enrollment.

UnitedHealth is the nation's largest insurer by revenue and the first of the major health insurers to report earnings. Its results were being watched as an indicator of how the industry is adjusting to a new health care reform provision aimed at limiting profits.

That rule, which kicked in six months ago, requires managed-care companies to spend at least 80 percent of premiums on care or rebate the difference to patients, beginning next year.

United said it expects health care spending to pick up in the second half of the year, assuming a normal flu season and pent-up needs from those who began putting off doctors' visits when the economy hit the skids.

Insurers set premium rates at the beginning of the year based on expected claims. But with consumers still shy to dip into wallets for health expenses, United and others insurers overestimated how many claims would come in.

United said its $180 million gain in reserves also comes because of better cost management through "aligning customer engagement with clinical-care management."

UnitedHealth earned $1.27 billion, or $1.16 per share, in the three months that ended June 30. That's up from $1.12 billion, or 99 cents per share, in the same quarter last year. Revenue rose 8 percent to $25.23 billion.

United's insurance benefits division saw revenue rise by 8 percent while sales at Optum, the company's wellness and health services business, grew by 19 percent to $7 billion.

UnitedHealth revised its full-year earnings forecast upward by 20 cents a share to $4.15 to $4.25 a share.