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Medicare Is Simple
Thursday, October 20, 2016
UnitedHealth earnings: Three things to watch
Monday, 17 Oct 2016 | 3:13 PM ET
As the nation's largest health insurer, UnitedHealth
Group's earnings traditionally serve as an industry bellwether, but
these days the insurance giant is also an outlier because its biggest insurance
rivals are mired in antitrust issues.
With no merger-related headwinds, UnitedHealth's shares are up
nearly 14 percent year to date, outperforming the health care sector, which is
down nearly 4 percent for the year. By contrast, shares of Aetna
are flat on the year, while its merger partner Humana's
stock is down nearly 9 percent. Anthem and Cigna
have also seen regulatory opposition to their proposed deal, also weighing on
their stocks, which both are seeing a double-digit decline year to date.
Analysts are looking for UnitedHealth to report adjusted
earnings of $2.08 per share for its third quarter on revenue of $46.1 billion,
according to Thomson Reuters.
The insurer raised the lower end of its full year 2016 earnings
guidance in July to $7.80 to $7.95 per share, from $7.75 to $7.95 per share.
Here's what to watch:
UnitedHealth said medical cost growth was manageable in the
first two quarters of the year, beyond the costs associated with its
money-losing Obamacare plans.
Its medical loss ratio — the percentage of premiums paid in
medical claims — edged up to 82 percent in the second quarter. Two of the areas
where costs had picked up were emergency-room utilization and specialty pharmacy
The analysts estimate for UnitedHealth's third quarter MLR is
The company reports the same morning that the government
releases its latest consumer price index data, which of late has shown
increased consumer spending on health care.
UnitedHealth has been a bellwether on Obamacare plans this year.
In April, it announced it would drop out of all but a handful of Affordable
Care Act exchanges for 2017, citing larger-than-expected medical costs
associated with ACA plans. By late summer, many of its rivals followed suit.
In the second quarter, the insurer estimated full year losses on
Obamacare plans would top $650 million in 2016. Any increase in that guidance
will likely have a negative read-through for its largest ACA exchange rivals,
Anthem, Cigna, Aetna and Centene.
UnitedHealth generally does not provide forecasts for the
following year until its analyst day in December, but analysts expect that
dropping Obamacare plans will provide a tailwind to the bottom line in 2017.
While UnitedHealth's Medicare and Medicare businesses are
producing growth in its insurance membership, it is the Optum division that has
been the biggest driver of overall growth.
In both the first and second quarters, Optum revenue grew more
than 50 percent year over year, driven by growth of nearly 70 percent in the
OptumRx pharmacy benefit management unit.
However, the PBM business is now under scrutiny, in light of
rising drug costs. This month, some UnitedHealth members filed a lawsuit
accusing the insurance giant of setting high co-pays for drugs, which had been
bought cheaply through its PBM, in order pocket higher profits.
UnitedHealth reports third-quarter results Tuesday morning, and
has scheduled a conference call to discuss results starting at 8:45 a.m. ET.