Health

Max Nisen is a Bloomberg Gadfly columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

UnitedHealth Group Inc. on Tuesday was the first of the big health insurers to report fourth-quarter earnings, and it largely demurred on the industry's burning question: What does Donald Trump mean for health care? 

CEO Stephen Hemsley emphasized that the company has "no better sense" than anybody else about what might happen to the Affordable Care Act.  

Though it may deny extra insight, the company seems to have made better preparations. Its profit beat analysts' expectations, helped by an early pullback from the ACA's individual exchange markets and a push for diversification. The insurer looks better positioned than many rivals for whatever might come.

Still Scared
UnitedHealth shares fell even though earnings beat expectations as investors expressed skittishness about Trump-related uncertainty
Source: Bloomberg
Intraday times are displayed in ET.

The highlight of the quarter was the outperformance of the company's Optum unit, which does everything from managing prescription drug benefits to providing urgent care. Its operating earnings gained 18 percent in the fourth quarter and accounted for the majority of the company's overall operating profit. The only other time that happened was in the fourth quarter of 2015, when the insurance business took a large charge in anticipation of Obamacare-related losses.

Optum may not give up that position. UnitedHealth is doubling down on the business with its $3.2 billion purchase of Surgical Care Affiliates, which could bolster the unit's margins and revenue and will give it a presence in the growing outpatient surgery market. Other large insurers derive a greater portion of their revenue and profit from insurance alone. Optum's diversification and growth prospects are even more valuable in the face of potential Trump-related disruption to the industry. 

Change of the Guard
UnitedHealth's Optum unit provided a higher percentage of operating earnings than the company's insurance business in the fourth quarter
Source: Bloomberg Intelligence

While other big insurers were relatively slow to pull back from the ACA's individual insurance exchanges as their losses mounted, UnitedHealth started taking steps to limit its losses in late 2015 and announced a near-total exit in April 2016. That's paying dividends.

The company does not expect to lose money on the exchanges in 2017 after suffering large losses last year. Its withdrawal is helping push down its medical loss ratio, an important metric that tracks the percentage of premiums an insurance company spends on health care. A higher ratio means lower profits. The company's quick decision-making should both boost performance this year and help limit exposure to the ultimate fate of the ACA. 

Stop-Loss
UnitedHealth's retreat from Obamacare's individual exchanges is helping lower its medical costs
Source: Bloomberg

The overall focus of the company's insurance operation should also be stabilizing. Optum may be the star, but the insurance business posted a 13 percent gain in both revenue and operating profit in 2016. UnitedHealth has concentrated on increasing its share of enrollment in privately administered Medicare plans, adding 625,000 members in 2016 without any acquisitions. Some combination of the GOP's traditional fondness for privatization and Trump's pledge to mostly leave Medicare alone should help that effort continue to pay off. The company is also the country's biggest provider of insurance to employers, which should also be relatively safe in the event of an ACA repeal. 

Nice Mix
UnitedHealth's insurance business focuses on employers and Medicare, both likely safter bets over the course of the Trump administration
Source: Bloomberg

Medicaid may see greater disruption given that it was expanded under the ACA. The fact that it's a smaller piece of the pie for UnitedHealth may come as something of a relief. 

It's tough to plan for something as unpredictable as a Trump presidency. But whether it's by intent, luck, or a bit of both, UnitedHealth appears set to weather it better than most. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Max Nisen in New York at mnisen@bloomberg.net

To contact the editor responsible for this story:
Daniel Niemi at dniemi1@bloomberg.net