UnitedHealth Group Inc posted a bigger-than-expected rise in quarterly profit as it enrolled more people in private and government-sponsored health insurance plans and said it expects long-term growth after U.S. healthcare reform takes effect.
Shares rose nearly 6 percent on Thursday as the company said it was "strongly positive" about the future despite near-term challenges tied to decreased funding for its privately run Medicare Advantage health plans for seniors and costs related to President Barack Obama's healthcare law.
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UnitedHealth, the largest U.S. health insurer, and competitors are preparing to enroll new members, and cope with new taxes next year, as key elements of "Obamacare" take effect. The government will expand the Medicaid program for the poor in many states, and state-based health exchanges will start selling subsidized insurance to individuals. About 7 million people are expected to sign up for insurance next year.
UnitedHealth is planning to sell insurance plans on only about a dozen exchanges next year but said it sees the exchanges as a possible growth market in the future.
Describing private Medicare as "seriously underfunded" based on previously announced cuts in government payments, UnitedHealth's CEO, Stephen Hemsley, said the company was still committed to the program.
"The company took a more balanced view on Medicare Advantage than it had on the first-quarter conference call," said Chris Rigg, analyst at Susquehanna Financial. "Given that Medicare Advantage has been a growth-driver, those comments are obviously helping the stock."
UnitedHealth reported a profit of $1.44 billion, or $1.40 per share, in the second quarter, outstripping expectations. That compared with $1.34 billion or $1.27 per share a year earlier.
Analysts had forecast earnings of $1.25 per share according to ThomsonReuters I/B/E/S.
Revenue rose to $30.4 billion. Analysts had expected $30.5 billion.
The results pulled up shares of UnitedHealth competitors, including WellPoint Inc , which reports earnings next week, Aetna Inc and Cigna Corp . Shares of Humana Inc , which mostly sells private Medicare plans, were up 2.9 percent at $87.92 at midday on Thursday.
TIGHTENS FORECAST FOR 2013
UnitedHealth raised the low end of its 2013 outlook by 10 cents a share to $5.35 while keeping the high end at $5.50. Analysts had forecast $5.44.
It said the number of people enrolled in its insurance plans, including through small businesses, large corporations, the military, Medicare Advantage and Medicaid, was 89.2 million at the end of June, up from 86 million at the end of March.
The company said it had spent 81.5 percent of its premiums on medical claims during the quarter, an increase of 20 basis points from a year earlier.
In its commercial business where it sells insurance to employers, the company said this ratio fell.
The health reform law sets targets for this ratio. It has also required many insurance plans to include more free preventative services.
Even so, insurers have continued to book profits as they benefited from Americans' reduced use of medical services over the past several years, which means fewer claims to pay.
Operating earnings were flat in the company's insurance business and increased in the Optum health technology unit, UnitedHealth said.
The government's decision early this month to roll back a portion of the health law that would have required employers with more than 50 workers to provide insurance or pay a fine has had no significant impact on its business, a top UnitedHealth executive said.
"Employers who currently offer insurance are going to continue to do that," said Gail Boudreaux, who runs that business. "There is a lot of change coming to the marketplace and the intense focus is around affordability."
The company recently announced plans to expand the number of enrolled members in plans that are based on some sort of shared cost savings, such as accountable care organizations.
A shift to more products with high deductibles in which consumers bear more up-front health costs, called consumer-directed health care products, continued as membership in these plans grew 18 percent year-over-year to 5.7 million consumers at the end of June, the company said.
UnitedHealth shares were up 5.9 percent at $70.13 at midday Thursday on the New York Stock Exchange.
(Editing by Lisa Von Ahn and Matthew Lewis)