UnitedHealth’s profit surges, Affordable Care Act still drags

Published 9:41 am Wednesday, July 20, 2016

UnitedHealth’s second-quarter earnings jumped 11 percent to beat investor expectations even though the nation’s largest health insurer took a bigger hit than expected from coverage linked to the Affordable Care Act.

The Minnetonka company said Tuesday that losses from its ACA-compliant individual business came in $200 million above projections, which means the company now expects to lose around $850 million this year from what amounts to a small slice of its total operation.

But another strong gain from UnitedHealth’s Optum segment helped push the company’s total net income up to $1.75 billion from $1.59 billion in the previous year’s quarter.

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Health insurance remains UnitedHealth’s largest business, but the company has been focusing more on growing Optum, which provides pharmacy benefits management and technology services and also operates clinics and doctor’s offices. Operating earnings from that segment surged 46 percent to $1.26 billion in the second quarter, helped by the acquisition of pharmacy benefits manager Catamaran Corp.

Meanwhile, operating earnings fell 4 percent for the company’s UnitedHealthcare segment, which sells individual and employer-sponsored benefits.

UnitedHealth and several other insurers have reported struggles with business sold on the ACA’s exchanges, which opened for enrollment in the fall of 2013. The exchanges delivered a customer base that generated more claims than expected initially. Companies also have been hurt by a shortfall from temporary government support programs and by high-cost patients who signed up for coverage outside regular enrollment windows.

UnitedHealth said earlier this year that it was planning drastic cutbacks in its participation in the ACA’s exchanges in 2017. The insurer had expanded rapidly into the market and sold coverage on exchanges in 34 states this year. But it only plans so far to offer policies in three next year: Nevada, Virginia and New York.

UnitedHealth’s new Harken Health subsidiary will sell coverage on exchanges in Chicago, Atlanta and South Florida.

CEO Stephen Hemsley told analysts Tuesday morning his company would have “no meaningful exposure” next year to the exchanges.

UnitedHealth covered about 820,000 people on the exchanges at the end of the second quarter, which is less than 2 percent of its total enrollment of 48 million.

Overall, UnitedHealth Group Inc.’s earnings, adjusted for amortization costs, totaled $1.96 per share.

Analysts expected, on average, earnings of $1.89 per share, according to Zacks Investment Research.

Analysts strip out one-time items and factors not central to the operation of a company’s business when they estimate earnings.

UnitedHealth’s total revenue grew 28 percent to $46.49 billion, while analysts expected $45.35 billion.

The insurer also said Tuesday that it raised the bottom end of its 2016 adjusted earnings forecast range by a nickel, and now expects $7.80 to $7.95 per share.

Shares of UnitedHealth fell 12 cents to $140.57 Tuesday in late-morning trading, while broader indexes also slipped.

The stock has advanced about 20 percent so far this year, more than tripling the 6 percent increase posted by the Standard & Poor’s 500 index.

UnitedHealth is the first health insurer to report earnings every quarter and it serves as an industry bellwether.