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UnitedHealth Raises Forecast on Contained Medical Costs

A Sign Sits Outside The UnitedHealth Group Inc Headquarters
UnitedHealth Group Inc., the biggest U.S. health insurer, raised its 2012 profit forecast in a sign that medical spending isn’t expected to hurt earnings as employment picks up in the U.S. Photographer: Dawn Villella/Bloomberg

Oct. 16 (Bloomberg) -- UnitedHealth Group Inc., the biggest U.S. health insurer, raised its 2012 profit forecast as enrollment in its Medicare and Medicaid plans surged in the third quarter and medical costs stayed stable.

Earnings may reach $5.20 to $5.25 a share this year, the Minnetonka, Minnesota-based company said in a statement today. That would miss the $5.28 average of seven analyst estimates compiled by Bloomberg. The insurer also said its quarterly earnings rose 23 percent to $1.50 a share, or 5 cents higher than in a preliminary report it gave last week.

UnitedHealth added 2.1 million customers to its medical plans from a year earlier, and the share of customer premiums spent on health care dropped. While revenue and profit will grow, reaching analyst’s 2013 estimates may be a “considerable challenge,” Chief Executive Officer Stephen Hemsley said.

“We expect strong execution to continue in 2013,” Hemsley said on a conference call today. Still, “given the weak business climate and employment outlook in the United States, the mounting pressures on federal and state budgets -- to mention just a few of the challenges -- we continue to be cautious about 2013 earnings performance.”

Analysts anticipate profit of $5.73 a share in 2013 and $119.4 billion in revenue, according to estimates compiled by Bloomberg. UnitedHealth fell 1.1 percent to $56.88 at the close in New York. Shares have gained 12 percent this year.

Last Year

UnitedHealth’s third-quarter net income rose to $1.56 billion from $1.27 billion, or $1.17 a share, a year earlier. Revenue gained 8 percent to $27.3 billion.

The numbers showed a “flawless quarter” with “better-than-expected medical costs across” UnitedHealth’s plans, said Brian Wright, a Monness Crespi Hardt & Co. analyst in New York, in a note to clients. The 2012 forecast “continues to leave room for upside, as has been the case all year.”

The insurer released preliminary results on Oct. 8 when the company said it agreed to acquire Brazilian insurer and hospital operator Amil Participacoes SA for $4.9 billion to expand abroad. It’s the first big health insurer to announce earnings this quarter. Hartford, Connecticut-based Aetna Inc., the No. 3 health plan, is scheduled to report on Oct. 25.

The company also boosted earnings by 28 percent at its Optum unit, which provides consulting and technology services to hospitals, governments and other clients and manages drug-benefit plans for employers. Chief Executive Officer Stephen Hemsley has said the company wants to double profit from the services unit by 2015.

U.S. Elections

Quarterly results will probably have less of an effect on insurer stocks than U.S. elections next month that may determine the fate of President Barack Obama’s health-care law, said Matthew Borsch, a Goldman Sachs Group Inc. analyst in New York. Obama faces Republican candidate Mitt Romney in the election.

“Earnings still matter, as does 2013 guidance, but the election outcomes are likely to overshadow everything else,” he said in a note to clients yesterday. “If President Obama wins, we expect investors will stay on the sidelines on uncertainty over health reform. If Mr. Romney wins, we expect a significant rally.”

Medical costs for customers accounted for 79 percent of premiums collected in the quarter, compared with 81 percent a year earlier, according to the statement. Enrollment in the company’s medical plans was 36.5 million, compared with 34.4 million a year earlier.

Unemployment was close to a four-year low at 7.8 percent in September, the U.S. Labor Department said Oct 11.

The Amil acquisition should add “slightly” to profit in 2013, UnitedHealth said last week. UnitedHealth said it’s buying the company, Brazil’s biggest managed-care insurer, to expand its international presence as new taxes and regulations threaten to crimp profit margins in the U.S.

To contact the reporter on this story: Alex Nussbaum in New York at anussbaum1@bloomberg.net

To contact the editor responsible for this story: Reg Gale at rgale5@bloomberg.net

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