(Reuters) - UnitedHealth Group Inc (UNH.N), the largest U.S. health insurer, beat Wall Street estimates for fourth-quarter profit on Tuesday, driven largely by growth in its Optum services business, including its pharmacy benefits unit.
UnitedHealth maintained its previous profit forecast for 2019 adjusted earnings of $14.40 to $14.70 per share, and said higher than expected medical costs in the fourth quarter were limited to states for which it manages their Medicaid benefits, the government program for low income Americans.
“I don’t want to overplay Medicaid here. We have a short-term issue that will take us a little bit of time to work our way out of,” Chief Executive David Wichmann told analysts on a conference call to discuss the results.
That eased Wall Street worries that medical services utilization might be on the rise broadly for insurers, and helped push UnitedHealth and rival insurer shares higher, Evercore ISI analyst Michael Newshel said. The company is the first to report earnings for the sector.
“Usually United reporting has an influence on the sector, and they did have a good quarter, so that could be why the sector is up today. We thought there were a lot of bullish points,” Piper Jaffray analyst Sarah James said.
Analysts said the company’s medical care ratio - the percentage of premiums paid for medical services - of 82.2 percent in the quarter fell short of their estimates.
However, the company earned $3.28 per share excluding items, exceeding analysts’ average expectations by 7 cents, according to IBES data from Refinitiv.
Total revenue rose about 12 percent to $58.42 billion in the quarter, topping Wall Street forecasts of $58.01 billion.
UnitedHealth reported $27.56 billion in revenue from its Optum unit, a 13 percent rise from last year.
Optum is UnitedHealth’s fastest-growing unit, but is set to face tough competition this year after rivals Cigna and Aetna Inc AET.N combined with Optum’s two largest rivals, Express Scripts Holding EXRX.O and CVS Health Corp (CVS.N), respectively.
Optum benefited from growth in its care delivery, behavioral health and health financial services, the company said.
UnitedHealth’s main business selling health insurance plans brought in $46.23 billion in sales, an 11.1 percent rise from a year earlier.
Net earnings attributable to shareholders fell 16 percent from a year ago to $3.04 billion, or $3.10 per share, related to changes in U.S. corporate tax laws.
Reporting by Tamara Mathias in Bengaluru and Caroline Humer in New York; Editing by Shounak Dasgupta and Bill Berkrot