* UnitedHealth lowers 2013 revenue outlook
* CEO: 2014 outlook affected by sequestration, Medicare
* Shares down 3.8 pct
(Adds CEO comments, details of Medicare Advantage cuts, updates
By Caroline Humer
April 18 Lower government payments for private
Medicare services and prescriptions for older people dragged
down UnitedHealth Group Inc's first-quarter profits, the
company said on Thursday.
Chief Executive Officer Stephen Hemsley also warned during a
conference call that planned cuts to payments for Medicare
Advantage would be one of its most significant challenges in
2014 and that the company may pull out of some markets.
The largest U.S. health insurer has been coping with changes
to the insurance industry for several years related to the
Affordable Care Act, which sets profit margins for companies and
outlines mandatory coverage requirements. In 2014, it will begin
paying new insurance premium taxes and start selling insurance
on health exchanges.
The government regularly tries to cut payments, or
reimbursements, to healthcare companies as part of its drive to
lower spending on healthcare. Lab testing company Quest
Diagnostics Inc on Wednesday missed analyst
expectations, saying it had been hurt by reimbursement pressure.
The U.S. government recently outlined its payment policy for
insurers who sell private Medicare plans to older people
and while not as big a cut as it had first
proposed, Hemsley said the decline was still more than they
"We will take the time to fairly assess the implications to
our 2014 UnitedHealth Group growth outlook - and whether our
growth expectations for 2014 can be sustained in light of the
continuation of both sequestration and a significantly greater
rate setback than anyone could have expected," Hemsley said on a
He said the company may pull out of some markets for this
UnitedHealth's shares were down 3.8 percent at $59.66 on
Thursday afternoon on the New York Stock Exchange. Shares of
smaller competitor Humana Inc were down 2.7 percent at
The company said first-quarter net profit was $1.2 billion,
or $1.16 per share, down from $1.4 billion, or $1.31 per share a
Analysts on average had been expecting earnings of $1.14 per
share, according to Thomson Reuters I/B/E/S.
Investors may have been surprised that the company did not
beat earnings by more given that some hospital groups have
reported low use of services this quarter, which typically
benefits insurers, said Chris Rigg, an analyst at Susquehanna
Financial Group. Hospital groups HCA Holdings Inc and
Health Management Associates Inc both warned that
admissions were weak in the first quarter.
"The data points we've gotten from the providers would have
suggested a larger beat in the quarter," Rigg said.
The company also lowered its 2013 revenue expectation by
$2.5 billion to $122 billion because a major public-sector
customer had switched out of a full-risk plan to a self-funded
insurance plan. In the latter, the customer pays for its
employee healthcare and UnitedHealth administers the plan.
UnitedHealth, which provides these services to many large
companies, receives lower revenue in that fee-based business.
The switch comes as employers and insurance providers brace
for the next wave of implementation of the Affordable Care Act.
"There is an adverse incentive in the Affordable Care Act to
move from full-risk insurance to a service, self-insurance type
model," Jefferies & Co analyst David Windley said. Moving to a
self-funded plan can enable employers to avoid the new insurance
premium tax next year, he said.
For 2013, UnitedHealth said it still expected earnings of
$5.25 to $5.50 per share, but the government sequestration would
affect the top end of the range. Analysts are expecting earnings
of $5.52 per share in 2013. Under sequestration, Medicare
program receive an automatic 2 percent cut in government
Revenue rose to $30.3 billion from $27.3 billion a year ago,
helped by membership growth. The company added 1.1 million new
members during the quarter to total 86 million as of March 31.
The company said that 5.6 million consumers were in its
consumer-directed health-care products in the first quarter, up
18 percent year over year. In those plans consumers pay directly
for a larger share of medical costs.
(Reporting by Caroline Humer in New York; editing by Lisa Von
Ahn, Maureen Bavdek and Matthew Lewis)