July 17, 2014 / 11:50 AM / in 4 years

UPDATE 3-UnitedHealth plans to be major Obamacare player in 2015

(Adds analyst comment, updates share movement)

By Ransdell Pierson

July 17 (Reuters) - UnitedHealth Group Inc, after wading cautiously into Obamacare insurance exchanges this year, on Thursday vowed to become a major player, participating in as many as two dozen state exchanges in 2015 and growing from there.

Shares of the largest U.S. health insurer, which reported sharply higher-than-expected second-quarter results earlier in the day, were up 2.8 percent at $86.14 in afternoon trading after hitting a 52-week high of $87.22.

UnitedHealth participates in about a dozen exchanges under the federal Affordable Care Act, President Barack Obama’s signature healthcare legislation. The company offers insurance to both individuals and small groups.

“This is a good long-term market,” Gail Boudreaux, who runs the company’s healthcare business, said on a conference call with analysts. She estimated that more than 75 percent of potential insurees from various state exchanges had yet to emerge.

Chief Executive Officer Stephen Hemsley said he expected the exchanges to become an established sector in the healthcare marketplace that UnitedHealth can ill afford to pass up.

“By participating moderately this year and then watching closely and listening, we have learned about pricing, networks, regulatory structure, distribution, and the consumer’s mindset regarding public exchanges,” Hemsley said.

Morningstar analyst Vishnu Lekraj said business from the exchanges would be less profitable for UnitedHealth and its rivals than their other business segments. “But the companies all have to be there if they want to drive membership growth and revenue growth.”

UnitedHealth said its second-quarter results had benefited from cost cuts, the addition of 270,000 healthcare members and strong growth in its Optum health technology division.

The company specializes in employer-based plans and government health programs, as well as health technology.

Leerink Swann analyst Ana Gupte said UnitedHealth’s profit beat analysts’ estimates largely due to investment income and cost cuts, rather than favorable trends within core operations.

“Overall, they had a profit beat, but it’s mainly from (controlled) sales, general and administrative expenses,” Gupte said.

The company’s medical loss ratio, the percentage of premiums spent on healthcare expenses, rose slightly to 81.6 percent.

UnitedHealth said costs within its commercial business were moderate and consistent with expectations.

Gupte called that “a good signal for the rest of managed care” as other companies report results in coming weeks. But she said profitability of the commercial business was worse than she expected, likely due to pricing pressures in New York and the $84,000 cost of Gilead Sciences Inc’s new Sovaldi pill for hepatitis C.

UnitedHealth earned $1.42 per share, excluding special items, well above the average forecast of $1.26 from analysts surveyed by Thomson Reuters I/B/E/S.

Company revenue rose 7 percent to $32.6 billion. Wall Street expected $32 billion.

UnitedHealth raised the low end of its full-year profit outlook to $5.50 per share from $5.40 while keeping the high end at $5.60. (Additional reporting by Shailesh Kuber in Bangalore; Editing by Lisa Von Ahn)

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