UnitedHealth's 3Q profit rises 23 percent

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Posted: Oct 19, 2010 4:57 PM
UnitedHealth's 3Q profit rises 23 percent

Insurer UnitedHealth Group Inc. said Tuesday its third-quarter profit jumped 23 percent, as revenue from premiums rose and consumers used the health care system less.

At the same time, the company also raised its 2010 profit expectation for the third time this year.

UnitedHealth, based in Minnetonka, Minn., is the first big health insurer to report earnings every quarter. Its strong performance may stoke public relations headaches in an industry that has faced heavy government criticism for raising individual insurance prices while continuing to rake in profits.

The performance, coupled with the big profit guidance increase, "couldn't come at a worse time politically," Citi analyst Carl McDonald said in a research note.

The Health and Human Services Department continues to iron out details for the health care overhaul, working with providers, businesses and insurers to implement the law's provisions. Big profits make it harder for government officials "to be sympathetic to the industry in terms of giving them more favorable regulations," McDonald said in an interview.

UnitedHealth earned $1.28 billion, or $1.14 per share, in the three months that ended Sept 30. That's up from the $1.04 billion, or 89 cents per share, it earned in the same quarter last year.

Revenue was up 9 percent to $23.67 billion.

The profit trounced Wall Street expectations. Analysts polled by Thomson Reuters forecast earnings of 84 cents per share on about $23 billion in revenue.

Premiums, the main form of revenue for UnitedHealth, rose 9 percent to $21.47 billion, as total health benefits enrollment climbed 2 percent to 32.7 million compared with the same quarter last year.

The insurer's commercial enrollment, which includes employer-sponsored group coverage and individual plans, fell less than 1 percent to 24.7 million compared with the same quarter last year but rose slightly from the second quarter.

Commercial insurance is the biggest portion of UnitedHealth's business, but the company also sells Medicaid and Medicare-related coverage, and care and pharmacy benefits management services.

UnitedHealth said a reduction in the use of health care helped push down its commercial medical loss ratio to 80.9 percent from 84.6 percent. That measures the percentage of revenue from premiums the insurer spends on claims for its commercial insurance.

These normally obscure ratios have been spotlighted by the health care law, which will require insurers to meet minimum percentages next year or offer rebates to consumers. The details of that provision have yet to be completed.

Recessions tend to increase health care use at first because people can be motivated to get care while they still have insurance or before they lose a job. But that use tends to fall as consumers put off expensive procedures or shop around for the best bargain.

Dave Shove, an analyst for BMO Capital, said he thinks the market is still feeling that effect, and he expects that to continue.

"Recessions are always deflationary both on cost and utilization," he said. "And this recession's a bad one."

The company said it now expects 2010 earnings per share to range from $3.85 to $3.95 for the full year, up from a previous forecast of $3.40 to $3.60 per share.

Analysts polled by Thomson Reuters expect, on average, full-year earnings of $3.60 per share.

Shares of UnitedHealth fell 95 cents, or 2.6 percent to $35.30, while broader trading indexes closed down more than 1 percent.

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AP Business Writer Dorothea Degen contributed to this story from New York.