UnitedHealth Beats Analysts’ Expectations With 23% Increase In Earnings

The nation’s largest health insurer, UnitedHealth Group, beat analysts’ expectations in announcing a 23 percent increase in third-quarter earnings Tuesday morning.

Net income was $1.56 billion, or $1.50 per diluted share, compared with $1.27 billion, or $1.17 per share during the same period a year before. On Oct. 8, UnitedHealth revised its expected net earnings to be at least $1.45 per share, and analysts polled by Thomson Reuters were expecting $1.25 per share.

Goldman Sachs & Co. analysts Matthew Borsch and Sam Wass said the earnings were 2 cents per share more than they expected. The Oct. 8 projected earnings revision coincided with UnitedHealth Group’s announcement that is spending $4.9 billion to acquire 90 percent of Brazil’s largest health-care company, Amil Participações S.A.

The future of the health care industry in the U.S. depends partly on the outcome of the presidential election on Nov. 6.

“While earnings still matter, the elections matter more and we continue to think re-election for President Obama implying current reform moving forward will cap UNH (UnitedHealth Group) upside, while a Mitt Romney victory would spark a strong and sustained MCO (managed care organization) rally,” Borsch and Wass wrote in a research note.

UnitedHealth Group is based in Minnetonka, Minn., and employs about 4,200 in Connecticut at subsidiaries Optum and UnitedHealthcare.

The company’s revenue from premiums increased to $24.6 billion, up from $22.8 billion during the same quarter in 2011. Investment revenue was down slightly to $145 million from $170 million. Revenue from services was up 11 percent to $1.8 billion from $1.6 billion.

A key measure for health insurers is the medical loss ratio, a percentage of how much the insurer pays on medical expenses for patients divided by premiums. UnitedHealth reported a medical-loss ratio of 79 percent. Health insurers are required by the Affordable Care Act to pay a minimum of 80 cents per dollar of premium revenue from large-group health plans on medical expenses for people in the plan and 85 cents per dollar on patients in small-group health plans. The insurer pays rebates to customers if medical costs are lower than the minimum amount required by federal law. 

The company increased its membership rolls on commercial accounts, which is employer-based health insurance, by 4 percent to 26.9 million policyholders as of Sept. 30 compared with 25.8 million a year before.

The health insurer has boosted its membership rolls in public-sector health-care plans, such as Medicaid for disabled Americans and Medicare for people 65 and older. Both of the programs are funded by the federal government. In the case of Medicaid contracts, UnitedHealth Group is acting as an administrator of the public plan in certain regions of the country. Medicare Advantage is a federally subsidized program administered by private health insurers, including UnitedHealth.

UnitedHealth increased its total enrollment in privately-managed Medicare Advantage and Medicare Supplemental plans, as well as Medicaid plans, by 12 percent to 9.6 million from 8.6 million. The insurer, however, saw a 12 percent decline in enrollment in its prescription-drug stand-alone plan for people 65 and older — called Medicare Part D — to 4.2 million from 4.8 million.

The company increased its outlook for 2012 net earnings to a range of $5.20-to-$5.25 per share. Analysts polled by Thomson Reuters were expecting $5.12 per share.

Shares of UnitedHealth were down 61 cents to $56.88 Tuesday.