UnitedHealth Increases Revenue, Net Income

By Allison Bell

July 19, 2012

Executives at UnitedHealth Group Inc. (NYSE:UNH) say the cost of implementing the Patient Protection and Affordable Care Act of 2010 (PPACA) could start to accelerate later this year.

David Wichmann, the chief financial officer at UnitedHealth, Minnetonka, Minn., discussed PPACA implementation costs today during an analyst call.

UnitedHealth is reporting $1.34 billion in net income for the second quarter on $27 billion in revenue, up from $1.27 billion in net income on $25 billion in revenue for the second quarter of 2011.

The company ended the quarter providing or administering health coverage for 36 million, up from 34 million people a year earlier.

Enrollment in commercial plans increased 2.8%, to 26 million.

Enrollment in insured commercial plans fell to 9.3 million, from 9.5 million; enrollment in employer-sponsored self-insured plans increased to 17 million, from 16 million.

Enrollment in plans that incorporate health savings accounts or health reimbursement arrangements increased 25%, to 4.8 million.

"The fully insured versions of these offerings have been the company's strongest source of risk-based commercial growth in recent quarters," the company says in a comment on its results.

UnitedHealth executives said several times during the company's earnings call that competitors seem to be thinking about the PPACA minimum medical loss ratio (MLR) rules when setting prices.

PPACA now requires health insurers to spend 85% of large group revenue and 80% of individual and small group revenue on health care and quality improvement efforts or else pay rebates.

Another PPACA provisions calls for states to set up exchanges, or Web-based health insurance supermarkets, by 2014, or else have the federal government provide exchange services for their residents.

With respect to UnitedHealth's efforts to respond to PPACA, "we see those costs accelerating towards the last half of the year as we prepare for the exchanges and the payment of rebates and things of that nature," Wichmann said during the call. "So, you can expect an acceleration there. As we get to the last innings, if you will, in preparation for that, we're hiring people. We're moving members onto our systems and incurring a lot of the operating costs in those final steps."

The announcements of the up-front costs might sound bad, "but they're all related to the superior response that UnitedHealthcare has been able to put in place," Wichmann said.