UnitedHealth 3rd-qtr profit, revenue surpass estimates but commercial enrollment falls

Associated Press
October 20, 2009

Managed care company UnitedHealth Group Inc. saw its third-quarter profit jump 13 percent, as growth in several businesses helped balance another enrollment decline and fight off a touch of swine flu ....

Managed care company UnitedHealth Group Inc. saw its third-quarter profit jump 13 percent, as growth in several businesses helped balance another enrollment decline and fight off a touch of swine flu.

The Minnetonka, Minn.-based insurer said Tuesday it also saw revenue rise 8 percent, with enrollment in its Medicare Advantage and Medicaid plans growing about 20 percent each.

But UnitedHealth saw enrollment in its higher-margin plans sold to employers fall by 6 percent to 24.8 million compared with the same quarter last year. That follows a 6 percent decline in the second quarter.

Attrition in these plans has been a problem for several insurers during the recession as companies cut jobs and reduce the number of covered workers.

"Unemployment continues to rise, and the debate over additional stimulus spending suggests the government's concerned that renewed economic strength is not imminent," CEO Stephen J. Hemsley told analysts Tuesday.

But Hemsley said the insurer expects those enrollment losses to improve in the fourth quarter and slow "meaningfully" next year compared with 2009.

The insurer spent $60 million on swine flu-related costs in the third quarter, up from $50 million the quarter before. Company executives said they expect flu spending to continue to rise and could be a "significant factor" in the fourth quarter.

UnitedHealth said it earned $1.04 billion, or 89 cents per share, in the quarter ended in September, compared with $920 million, or 75 cents per share, a year ago. Analysts expected 76 cents per share, according to Thomson Reuters.

Revenue rose to $21.7 billion, ahead of Wall Street's estimate of $21.56 billion.

Revenue for the company's Ovations segment, which handles its Medicare Advantage and Medicare supplement business, rose 19 percent to $7.9 billion.

The company also reported a $190 million benefit in the quarter due to lower-than-expected medical costs left over from the first half of this year and 2008.

"That's a significant amount for them," Edward Jones analyst Steve Shubitz said. "That really helped the outperformance."

Unlike commercial enrollment, total public and senior enrollment _ which includes Medicaid, Medicare Advantage and Medicare supplement business _ rose to 7.2 million from 6.3 million.

The company also is still seeing an increase in the number of people who chose to continue their employer-based health insurance under the federal law known as COBRA after they leave their jobs.

Federal subsidies started earlier this year help pay a portion of the cost of COBRA coverage, which normally represents a huge price hike from what someone would pay while employed.

COBRA-based coverage made up 1.5 percent of UnitedHealth's total enrollment at the start of the year, but that has climbed past 2 percent and contributed to rising medical costs, company officials said.

People who continue their coverage through COBRA typically do so because they need it to cover ongoing health conditions. This can hurt insurers because they wind up spending more on claims than they receive in premiums.

For the full year, UnitedHealth said it expects to earn $3.15 per share, at the high end of its previous guidance. Analysts expect $3.09 per share, on average.

But Hemsley warned analysts that next year may be more difficult.

"Effective medical cost management and operating cost control will be key to preserving our margins," he said.

The CEO said the company expects revenue to grow "somewhere in a range centered on $89 billion," and earnings per share to be in a broad range of $2.90 to $3.10. But operating earnings are expected to decline year-over-year.

The projections fell below the expectations of analysts. They predict, on average, earnings of $3.16 per share on $91.5 billion in revenue.

Company shares rose 4.2 percent, or $1.04, to close at $25.96 Tuesday.

UnitedHealth is seen by many analysts as a bellwether for the managed care sector. It is the largest U.S. health insurer by revenue, and the first to report earnings each quarter.

AP Business Writer Marley Seaman in New York contributed to this report.

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