UnitedHealth Profit Jumps as Medicare, Medicaid Grow
UnitedHealth Group CEO Stephen Hemsley. Photographer: Jay Mallin/Bloomberg
UnitedHealth Group Inc., the biggest U.S. health insurer by sales, raised its full-year profit forecast after increased enrollments and lower-than-projected medical costs lifted second-quarter earnings 30 percent.
The insurer forecast 2010 profit of $3.40 to $3.60 a share compared with a previous projection of $3.15 to $3.35, citing growth in sales or membership for all business units. Net income rose to $1.12 billion, or 99 cents a share, for the quarter, from $859 million, or 73 cents, a year earlier, the company said today. The earnings and forecast topped estimates.
Chief Executive Officer Stephen Hemsley boosted enrollment in Medicare Advantage, the U.S.-backed program for the elderly. Weakness in the economic recovery in the U.S. also helped, by keeping people away from doctors and hospitals, said Jason Gurda, a Leerink Swann & Co. analyst in New York. UnitedHealth did better than expected for commercial enrollment, taking business from rival insurers, he said.
“If the consumers are tapped out and not getting as many elected procedures and pushing off care, that’s ultimately better for UnitedHealth,” Gurda said in a telephone interview. “As long as the job market and consumer confidence remain soft, hospital volumes and physician visits are likely to remain soft as well.”
Forecast Raised
The company, based in Minnetonka, Minnesota, raised its 2010 revenue forecast by $1 billion, to $93 billion. Sixteen analysts surveyed by Bloomberg had estimated $92.2 billion, on average, and $3.32 a share in annual earnings.
UnitedHealth gained 1 cent to $30.83 at 4 p.m. in New York Stock Exchange composite trading. The company’s shares climbed 24 percent in the past 12 months.
Investors may worry that the earnings results will prompt government to impose stricter rules on the industry, said Matthew Borsch, a Goldman Sachs Group Inc. analyst in New York, in a note to clients today.
The health-care law passed in March requires insurers to spend at least 80 percent of the premiums they collect on members’ medical care and gives states more money to scrutinize “unreasonable” rate increases. State and federal regulators are writing regulations to implement those provisions, Borsch said.
“With criticism of the industry still intense and reform regulations not finalized, market reaction may be mixed” to UnitedHealth’s numbers, he said.
Sales Increase
Second-quarter revenue rose 7.4 percent to $23.3 billion, the company said. That included increased sales in UnitedHealth’s Prescription Solutions unit, which manages drug- benefits for employers, and Ingenix, which analyzes health costs to hospitals, employers and insurance companies.
The insurer sees health-services businesses as ripe for growth under the new legislation because the overhaul puts a premium on businesses that figure out ways to contain medical costs, Hemsley said on a conference call with analysts today. UnitedHealth announced the creation of a unit to invest in such programs, including startups outside the company.
“Health-care reform has put a new kind of dynamic into the marketplace around affordability and the need to modernize and simplify” medical care, Hemsley said. “We’re pretty positive as to what the prospects could be.”
Enrollment in UnitedHealth’s medical-benefit plans increased to 32.5 million, from 32.1 million. Membership in Medicare Advantage policies climbed 17 percent while Medicaid enrollment rose 14 percent, the company said. Medicaid is a federal and state program for the poor.
UnitedHealth said it spent 81.5 percent of the premiums it collected for the quarter on medical care, down from 83.6 percent a year earlier.
To contact the reporter on this story: Alex Nussbaum in New York anussbaum1@bloomberg.net
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