By Caroline Humer
Jan 16 UnitedHealth Group Inc said on
Thursday implementing Obamacare and private Medicare funding
cuts will eat into 2014 profit but the government-paid insurance
business will drive growth as more people sign up.
UnitedHealth, the largest U.S. health insurer, reported
fourth-quarter profit a beat higher than analyst expectations,
but its shares and those of major competitors fell anyway as
investors focused on costs.
"It's rare that United stock doesn't go down on earnings
day," said Sheryl Skolnick, an analyst for CRT Capital. "I think
what the Street did see was that the medical cost ratio was a
bit higher than folks thought."
The company said the medical cost ratio, which reflects the
percentage of premiums paid out in claims to cover customer
procedures and doctor visits, was "well controlled" and within
expectations. It rose 1.1 percentage points in the quarter
compared with a year earlier to 81.5 percent.
UnitedHealth shares fell 2.5 percent to $73.05 while
WellPoint, Aetna, Cigna and Humana also fell.
UnitedHealth said that funding cuts for private Medicare
would negatively effect 2014 and that it was still in
discussions with the government on the 2015 funding levels. The
Centers for Medicare and Medicaid Services is due to announce a
proposed funding rate in February.
"They've done their best to offset them, but there's
pressures on their book, particularly in Medicare," Leerink
Swann analyst Ana Gupte said.
The fourth quarter marked the beginning of sales of new
individual plans created under the national healthcare reform
law often called Obamacare, coverage which went into effect for
the first customers on Jan. 1.
UnitedHealth has limited its participation in selling those
new plans so far to three states and provided few details about
how it was going.
"We will continue to closely study the development of the
individual public exchanges in 2014 and will be selective in our
approaches for 2015," Chief Executive Officer Stephen Hemsley
said during a conference call.
Strong growth for the company will come from expansion of
Medicaid under healthcare reform law, growth in traditional
Medicaid as more people sign up, and the development of programs
for people eligible for both Medicare and Medicaid, he said.
The technology for HealthCare.gov, the federal website that
sells plans to individuals in 36 states, has had many problems
and negatively affected enrollment. The other 14 states run
their own websites and some have also had issues.
UnitedHealth said it held onto more small business and
individual customers during the fourth quarter than usual
because it had extended some existing small group plans that
were due to expire into 2014 rather than canceling them.
The Patient Protection and Affordable Care Act requires that
plans that do not meet the law's benefit requirements be
cancelled. President Barack Obama has asked insurers to extend
those to give people more time to sign up because of technology
problems and as Americans complained the new plans were too
costly compared with previous coverage.
NET INCOME RISES
UnitedHealth said fourth-quarter net income rose to $1.4
billion, or $1.41 per share, from $1.2 billion, or $1.20 per
share, a year earlier.
The insurer is the first to report its results in a group
that also includes WellPoint Inc and Aetna Inc.
Employer-based plans and government health programs, as well as
a fast-growing health technology division, make up the bulk of
UnitedHealth's annual sales.
UnitedHealth also added new members in its government plans
for seniors and for the poor, for a total of 45,445,000 medical
customers at the end of 2013.
The company said that revenue rose to $31.12 billion, up
from $28.77 billion a year earlier.
Both earnings and revenue came in slightly ahead of analyst
expectations, which were for earnings of $1.40 per and revenue
of $31.07 billion, according to ThomsonReuters I/B/E/S.
United Health said it continues to expect revenue of $128
billion to $129 billion and earnings of $5.40 to $5.60 per share
The company's private Medicare business, which provides
managed care plans to seniors, experienced government funding
cuts that decreased its profitability, UnitedHealth said.
It was helped, however, by an overall lower medical spending
trend as fewer customers checked into hospital, reducing
expenditure on reimbursing providers.
UnitedHealth said that profit improved in its technology
business, which includes the QSSI unit that has been working on
fixing problems with the federal website for new health
insurance for individuals called HealthCare.gov. Optum, which
includes many other health technology related businesses, had
earnings from operations of $2.3 billion, up from $875 million a