UnitedHealth: 2013 rates to include PPACA tax

By Allison Bell

October 16, 2012

UnitedHealth Group Inc. (NYSE:UNH) did well in the third quarter, but company executives said they are reluctant to try to give many details about how they think the company will do in 2013.

Stephen Hemsley, the president of UnitedHealth, emphasized the headwinds that could be facing the company in the coming year today during a conference call with securities analysts.

"Given the weak business climate and employment outlook in the United States, and the mounting pressures on federal and state budgets, to mention just a few of the challenges, we continue to be cautious about 2013 earnings performance," Hemsley said.

The current year has been a great year for the company, and the company is in as good or better position than it was a year ago, Hemsley said.

But "we are being cautious, and we think the market should be cautious as well," Hemsley said.

UnitedHealth is reporting $1.6 billion in net income for the third quarter on $27 billion in revenue, up from $1.3 billion in net income on $26 billion in revenue for the third quarter of 2011.

The company ended the quarter providing or administering health coverage for 36.5 million people, up 6.1 percent from the number it was covering a year earlier.

The growth came from increases in Medicaid and Medicare program enrollment, and in expansion in the large, self-funded employer health plans administered by UnitedHealth.

Enrollment in traditional, "risk-based" commercial health insurance programs fell 2.1 percent, to 9.3 million.

Hemsley said UnitedHealth expects to continue to lose "moderate levels of risk-based membership in the near term" as it sticks to "disciplined" pricing levels.

Hemsley and other executives said 2013 rates will reflect changes related to the Patient Protection and Affordable Care Act of 2010 (PPACA) as well as a general interest in maintaining profit margins.

The PPACA exchanges -- Web-based insurance supermarkets that are supposed to begin selling coverage to individuals and small groups in 2014 -- will likely "just be another distribution channel," executives said.

Executives expressed much more concern about the PPACA health insurance tax (HIT) provision, which is supposed to raise $8 billion from health insurers in 2014 alone.

PPACA drafters said they included the tax because a provision in PPACA requiring many individuals to own a minimum level of health coverage or else pay a penalty should send private health insurers a flood of new businesses. Health insurers should contribute a share of that new revenue to help fund PPACA coverage expansion efforts, provision supporters argued.

Provision critics have argued that, ultimately, the tax will simply increase commercial health coverage prices, and also increase what government agencies spend on providing Medicare and Medicaid coverage.

Even though UnitedHealth will not have to pay the tax until 2014, many customers have annual policies that will start in February 2013 or later, and that coverage will continue to be in effect until 2014, executives said.

The company will have to price the 2013-2014 policies to reflect the cost of the PPACA HIT tax, executives said.

The company also is getting ready to have conversations about the PPACA HIT tax will affect the Medicare and Medicaid bidding processes, executives said.

Hemsley talked briefly about the possibility that PPACA could be repealed or changed.

Whatever happens to the law, "we don't think the underlying issue has changed," Hemsley said. "The fact of the matter is that coverage needs to be better considered. The cost needs to be addressed more effectively. The system needs to operate more efficiently.... All of those elements are things that basically work to our competencies and the strengths of our businesses. So we will just adapt, if you will, to those kinds of changes."