UnitedHealth's Core Units Gain Despite ACA Exit -- WSJ

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (October 18, 2017).

UnitedHealth Group Inc.'s core insurance and health-services businesses grew in its latest quarter, despite a dent in revenue caused by the company's decision to pull out of most Affordable Care Act markets.

The latest quarterly results from the nation's largest health insurer come as the market is facing policy changes related to the ACA. President Donald Trump last week signed an executive order seeking to provide lower-cost plans in the individual insurance market, and he has said his administration will end payments to insurers that offset subsidies to low-income consumers.

Guiding the company through the shifting landscape is David Wichmann, the former UnitedHealth president who took the reins as chief executive Sept. 1. Former CEO Stephen Hemsley now serves as executive chairman.

During a call with analysts, Mr. Wichmann said UnitedHealth has "a great deal of experience in the areas covered" in the president's executive order, which are short-term health policies, association plans and health-reimbursement arrangements. UnitedHealth said it has around 300,000 people currently enrolled in association plans and the "performance is strong." The insurer also said it was seeing an "incredible increase in the growth" of short-term plans before the Obama administration capped their duration at three months, and the company would be "excited" to see the Trump administration expand the length again, as the executive order suggested.

Mr. Wichmann also said he expects "any impact to be extremely small" related to the Trump administration's move to end the cost-sharing reduction payments to insurers. Two senators on Thursday outlined a bipartisan deal that would extend the payments, but it's still far from clear legislation will pass.

Shares closed up 5.5% at $203.89, a new high.

UnitedHealth also said Tuesday it expects 2017 earnings on an adjusted per-share basis to "approach" $10, up from its prior forecast of $9.75 to $9.90.

For 2018, Mr. Wichmann said that earnings could be affected by an ACA tax on health plans that is slated to return next year after being suspended. If the tax isn't reinstated, Mr. Wichmann said UnitedHealth earnings next year will likely grow in the 13%-to-16% range. If the tax does return next year, the impact on earnings-per-share growth would be roughly 75 cents, the company said. Overall, the CEO said that UnitedHealth expects adjusted per-share earnings for next year "within a typically sized range, with the top side of that range" in line with analysts' current consensus estimates.

UnitedHealth has grown in recent months after it bought Surgical Care Affiliates Inc. and confirmed last month it was exploring the purchase of Banmedica, a health-care company in Chile, in what analysts estimate could be a $2.8 billion deal.

The Advisory Board Co. recently announced it was selling its health care business to Optum, UnitedHealth's health-services business, in a deal that is expected to close at the end of this year or early next year.

Revenue from the Optum business increased 8.4% to $22.9 billion in the latest quarter, compared with $21.1 billion in the same period last year. The division's operating margin expanded to 7.4%, from 6.9% a year ago. Revenue at OptumRx, the division's prescription business, increased 4.7% to $16 billion. Expansion in delivery of care drove a 21% increase in revenue from the division's OptumHealth business, to $5.3 billion.

Revenue from the UnitedHealthcare insurance business grew 9.6% from a year earlier to $40.7 billion, driven by increased enrollment in employer-sponsored plans, as well as Medicare, Medicaid and international programs.

Overall, UnitedHealth reported adjusted net earnings of $2.6 billion, or $2.66 per share, compared with $2.1 billion this time last year. Analysts were predicting $2.56 per share.

Revenue rose 8.7% to $50.3 billion, but consolidated revenue took a $1.6 billion-dollar hit from ACA-related factors, including the withdrawal from markets and a health-insurance tax deferral.

Write to Anna Wilde Mathews at anna.mathews@wsj.com

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October 18, 2017 02:47 ET (06:47 GMT)