2Q Profits of UnitedHealth Surge 31 Percent

Published: Tue 20 Jul 2010

Larry Roth

Health insurance company UnitedHealth Group announced on Tuesday that its second-quarter profits rose by 31 percent as costs and enrollment both performed better than expected on Wall Street.

The insurer, headquartered in Minnetonka, Minnesota, reported earnings of $1.12 billion, or 99 cents per share, during the three months that ended June 30. That number is substantially higher than the $859 million, or 73 cents per share, during the same period in 2009. Revenue increased by seven percent to $23.26 billion.

A Thomson Reuters poll of analysts forecasted earnings of $23 billion in revenue, or 75 cents per share.

The insurance company "delivered another stellar quarter," beating Wall-Street expectations partially because of its enrollment numbers and medical-loss ratio, which tracks the percentage of premiums devoted to medical expenses, surpassed expectations, Ana Gupte, an analyst for Sanford Bernstein explained in a research note.

UnitedHealth's commercial enrollment, which includes individual and employer-sponsored health coverage, dropped by 440,000 from one year ago. That translates to a decline of less than two percent from 2009 and a small increase relative to the first quarter of 2010.

Commercial health insurance comprises over 75 percent of UnitedHealth's medical enrollment. Health insurance companies have faced losses in the commercial market as employers eliminated jobs during the recession, but that pattern seems to be slowing.

Total enrollment at UnitedHealth rose roughly one percent to 32.5 million compared to 2009, as gains in Medicare and Medicaid businesses mitigated the losses in the commercial sector.

In general, enrollment growth looked strong and helped propel the health insurer to a "very strong" performance, Jason Gurda, an analyst for Leerink Swann, wrote in a research note.

United Health spent 82.2 percent of its revenue from premiums on health care for its commercial insurance. That number is down two percent from 2009 but up from 79 percent in FQ 2010.

The medical-loss ratio provides analysts with an idea of whether health insurance is correctly priced. The health care overhaul passed earlier this year will force insurers to devote at least 85 percent of premiums to medical expenses for group coverage plans and 80 percent for small group and individual plans.

Specifics of that portion of the law are still being worked out, but Carl McDonald, a Citi analyst, said the insurer's profit margins will probably have to fall in 2011, when the new law's minimums are put into effect.

UnitedHealth increased its profit forecast for 2010. Now, the insurer expects to earn $3.40-$3.60 per share compared to its former prediction of $3.15-$3.35 per share on $93 billion of revenue.