UNH UnitedHealth Group Inc

By Anna Wilde Mathews 

UnitedHealth Group Inc. said its projected losses on the Affordable Care Act exchanges for 2016 deepened, as enrollment grew despite the company's efforts to damp sign-ups.

The biggest U.S. health insurer said it is now expecting losses of more than $500 million on its 2016 ACA plans, compared with previous projections that amounted to $400 million to $425 million in losses.

UnitedHealth had taken steps to pull back on its exchange business in anticipation of losses, including reducing marketing and slashing commissions to health-insurance agents. But enrollment nevertheless grew, widening the company's exposure. UnitedHealth Group Chief Executive Stephen J. Hemsley said the new projection reflected "prudence," as the company sought to ensure it had covered all possible losses.

The exchange plans represent a tiny share of UnitedHealth Group's total business. On Tuesday the company reiterated its overall financial outlook for 2016, saying it expected $7.60 to $7.80 in adjusted earnings per share and at least $180 billion in revenue. Its shares closed up 3% at $112.58, as investors shrugged off the exchange comments amid strong results elsewhere in the company's portfolio.

But UnitedHealth's move comes amid continued worries about the exchange business--concerns that the company jump-started in November, when it disclosed expected 2016 losses and said it would consider withdrawing from the health-law marketplaces, a decision expected later this year.

Humana Inc. added another note of apprehension on Jan. 8, when it said it too would set aside a "premium deficiency reserve" at the end of 2015 to account for losses expected on its 2016 ACA business. The company hasn't yet put a number on its projected results.

The Obama administration has signaled that it will take steps to address one of the issues that insurers have blamed for their problems. Last week, a top federal health official said regulators will tighten the rules for people who enroll in insurance through the federal HealthCare.gov site outside of official enrollment periods. Insurers have complained that the current rules can allow people to wait to sign up when they expect to have health-care costs.

And so far, other major insurers haven't publicly moved to create reserves against expected 2016 exchange losses. Aetna Inc. said last week it had losses on its exchange business in 2015 and was aiming for a "mid-single digits" profit in 2016, but likely wouldn't "get all the way there." Anthem Inc. said enrollment in its individual business came in lower than expected, and it expects its 2016 margins to be better than last year's, though still not at its target range of 3% to 5%.

UnitedHealth said Tuesday its enrollment through the ACA exchanges was approximately 700,000. At the end of 2015, the figure was about 500,000. UnitedHealth said it had losses of around $475 million on its 2015 ACA-plan business.

Of its anticipated 2016 ACA-plan losses, UnitedHealth said it had booked $245 million in 2015, as part of a "premium deficiency reserve."

The company in November said it expected $200 million in 2016 ACA-plan losses that it would book in 2015, as well as between $200 million and $225 million that would affect its results in 2016.

Before the problems with ACA business became fully clear, UnitedHealth had earlier decided to expand the number of markets where it offers exchange plans for 2016, a likely reason for its growing enrollment despite recent efforts to damp sign-ups.

In addition, UnitedHealth said its efforts to improve results on the ACA plans, which included increased premiums and product tweaks such as withdrawing rich "platinum" plans, had helped squeeze its loss margin from around 15% to the "low double digits."

Overall, UnitedHealth Group reported a profit of $1.22 billion, or $1.26 a share for the fourth quarter of 2015, down from $1.51 billion, or $1.55, a year earlier. Excluding certain items, per-share profit declined to $1.40 from $1.64. Revenue increased 30% to $43.60 billion. Analysts expected earnings of $1.38 a share on revenue of $43.23 billion. During the quarter, UnitedHealth added 315,000 health-insurance customers, bringing its tally to about 46.4 million.

The exchange business "is not something that is core to what they do," said Chris Rigg, an analyst with Susquehanna Financial Group, who said investors were likely also reassured that the tweaked exchange projection was tied to enrollment, not a change in the company's understanding of the risks.

Ana Gupte, an analyst with Leerink Partners LLC, said UnitedHealth is offering a conservative outlook for its exchange business that it might then beat over the course of the year.

UnitedHealth saw continuing strength from its health-services arm, Optum, in the fourth quarter. Revenue there jumped 70% to $21.9 billion, representing half of the company's top line, powered by Optum's prescription segment. The business has been buoyed by UnitedHealth's acquisition of pharmacy-benefit manager Catamaran Corp., which closed in July.

Write to Anna Wilde Mathews at anna.mathews@wsj.com

(END) Dow Jones Newswires

January 19, 2016 17:45 ET (22:45 GMT)

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