UnitedHealth Looks Beyond Obamacare for Growth
Healthcare reform has been a priority among lawmakers in Congress, but they've thus far failed in their efforts to get rid of the Affordable Care Act. Health-insurance company UnitedHealth Group (NYSE: UNH) hasn't waited for Washington to plot a path forward, instead choosing to take steps to protect itself from Obamacare's less favorable provisions and keeping an eye on what's happening on Capitol Hill to anticipate any changes to how Americans get their healthcare coverage.
Coming into Tuesday's third-quarter financial report, UnitedHealth investors had high hopes that the company would be able to keep growing despite the challenges posed by healthcare policy. Yet even the most optimistic among those following the stock were pleased with the extent to which UnitedHealth has managed to keep its upward momentum recently, even amid considerable uncertainty. Let's take a closer look at UnitedHealth to see how the insurer is plotting its course for the future.
UnitedHealth stays on the rise
UnitedHealth's third-quarter results showed just how much growth the insurance giant continues to produce. Revenue of $50.32 billion represented a nearly 9% rise from what UnitedHealth posted in the third quarter of 2016, matching up well against what most investors were expecting to see from the insurer. Net income of $2.49 billion was higher by more than 25%, and after allowing for some extraordinary items, adjusted earnings of $2.66 per share beat the consensus forecast among those following the stock by $0.10.
Taking a closer look at the report, the most noteworthy figure that UnitedHealth highlighted was the roughly $1.6 billion in sales that the company gave up by withdrawing from the Affordable Care Act (ACA) individual marketplace. That withdrawal cost UnitedHealth 4 percentage points of potential revenue growth, but it also insulated the insurer from the losses that its presence in the marketplace had caused in past periods.
The UnitedHealthcare insurance division's performance was quite solid, even with headwinds from its Obamacare pullout. Segment sales were higher by nearly 10%, as huge gains in Medicare and retirement, community and state, and commercial group benefit offerings offset the negative impact of ACA withdrawals. Operating earnings from the segment were up double-digit percentages as a result of its more favorable mix of business.
Yet the true health of UnitedHealth's financial performance came from the Optum services unit. Optum revenue was up just 8%, but a 16% rise in operating earnings accompanied more favorable margin. In particular, the OptumHealth unit saw the biggest gains, making up for solid, but still less impressive, performance from the OptumRx pharmacy benefit division and the OptumInsight business. OptumHealth expanded to serve about 9 million more consumers than it did this time last year, with total customer counts approaching 90 million.
UnitedHealth CEO David Wichmann put the quarter's results in simple terms. "We have been fortunate to serve the healthcare needs of more customers and consumers in increasingly diverse ways," Wichmann said, "and we expect the opportunities to do so will grow even further in 2018, 2019, and beyond."
Can UnitedHealth keep climbing?
UnitedHealth is also optimistic about its future. The company said that it now expects adjusted earnings to reach the $10 per-share mark, up between $0.10 and $0.25 per share from its previously stated range. Looking further out, UnitedHealth thinks that 2018 earnings will grow between 13% and 16% from 2017 levels.
One key element of future success for UnitedHealth could come from Medicare Advantage. The alternative to traditional Medicare has gained in popularity in recent years, and the insurer sees that market remaining strong. OptumCare's Medicare Advantage patients will all be in plans that are rated four stars or higher for 2018, and as Medicare open enrollment begins, UnitedHealth is excited that the way that the insurance business interacts with Optum will provide strong partnerships and cross-selling opportunities.
UnitedHealth shareholders were ecstatic about the results, and the stock finished the day up almost 6% following the Tuesday morning announcement. There's still plenty of uncertainty about healthcare reform, but United Health seems to be on top of prevailing trends, and wants to keep finding ways to grow in the years to come.
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Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool recommends UnitedHealth Group. The Motley Fool has a disclosure policy.