UNH UnitedHealth Group Inc

By Anna Wilde Mathews and Joshua Jamerson 

UnitedHealth Group Inc. reported a 56% increase in profit in the latest quarter, with results fueled by growth in its core insurance unit and its Optum health-services arm, as well as reduced impact from its money-losing Affordable Care Act business.

The Minnetonka, Minn., company reported net income of $1.90 billion, or $1.96 a share, compared with $1.22 billion, or $1.26, in the year-ago quarter. Excluding items, UnitedHealth earned $2.11 a share, compared with $1.40 a year ago. Analysts surveyed by Thomson Reuters anticipated $2.07 a share. In research notes, several analysts attributed the better-than-expected profit partly to strong investment income.

Revenue rose 9% to $47.52 billion in the fourth quarter of 2016, compared with $47.26 billion projected by analysts.

The large year-over-year gain in net income was tied partly to UnitedHealth's move in the fourth quarter of 2015 to set aside a reserve against expected losses on its ACA exchange business, which pressured the year-ago results. The company said its enrollment in individual plans dropped sequentially in the fourth quarter of 2016, and it is largely exiting the ACA marketplaces this year, improving its outlook.

On a call with analysts, UnitedHealth Chief Executive Stephen J. Hemsley stopped short of speculating about how Republicans would overhaul the health law, but he dropped some hints about the goals of the No. 1 U.S. health insurer. He spoke positively about "state-based health-care markets offering flexible commercial benefits." The comment seemed to cut against the strong federal regulatory role in the ACA, which included coverage and plan-design mandates.

Mr. Hemsley also spoke approvingly about "flexible Medicaid available to eligible as well as paying beneficiaries," as well as about high-risk pools, which are insurance plans offered in the past by states to cover people with costly health conditions. Republican plans include a return to high-risk pools, which were phased out under the ACA. The health law guaranteed that unhealthy people couldn't be denied regular plans in the individual market, and ensured they couldn't be charged more for coverage based on their likelihood of requiring costly care.

At Optum, the company's health-services unit, revenue rose 1.2%. Declines in its OptumRx division partially offset growth from the health-care delivery businesses. The Optum arm recently announced that it will purchase Surgical Care Affiliates Inc. for about $2.3 billion, deepening UnitedHealth's role in providing health care.

On its call with analysts, UnitedHealth offered some new details about the impact of the deal, which it said aimed to accelerate a move of surgical procedures out of the costly inpatient setting and into outpatient centers.

UnitedHealth's Optum has been rapidly expanding its health-care-provider footprint, and executives said the Surgical Care deal will add 17 new markets to its current 28. The company said it expects to grow into roughly four to six new areas annually, as it pushes toward its goal of providing primary-care and ambulatory services in 75 U.S. markets. UnitedHealth also disclosed that around half of Optum's health-care provider business is from the company's own UnitedHealthcare insurance unit, and about 12% of Surgical Care's.

The insurer's medical-loss ratio -- the percentage of premiums paid in claims -- declined 190 basis points year-over-year to 80.8% in the fourth quarter.

UnitedHealth said revenue from its employer-based and individual plans rose 12% to $13.5 billion in the quarter. Growth in employer-sponsored groups offset the decrease in individual benefit coverage.

The company backed its outlook for earnings this year, projecting a range of $9.30 to $9.60 a share.

Shares were down about 1.6% in late morning trading, to $159.25.

Write to Anna Wilde Mathews at anna.mathews@wsj.com and Joshua Jamerson at joshua.jamerson@wsj.com

(END) Dow Jones Newswires

January 18, 2017 02:48 ET (07:48 GMT)

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