UnitedHealth Group raised its financial outlook after beating analyst estimates for the first quarter, as the nation’s largest health insurer grew its Medicare business and moved beyond losses related to the federal Affordable Care Act.
The Minnetonka-based company’s UnitedHealthcare insurance division saw revenue increase by 12 percent due in part to growth of 670,000 enrollees in the company’s Medicare health plans.
The quarter was the first for UnitedHealthcare after dropping most of the 34 government-run insurance exchanges where the insurer reported significant financial losses in 2016.
The exchanges were launched as part of the federal health law, which Republicans in Washington have not yet been able to repeal and replace as promised. Stephen Hemsley, the UnitedHealth Group chief executive, said his company has talked about possible changes with elected officials, but focused his comments Tuesday on tax aspects of the Affordable Care Act (ACA).
“We hope Congress acts soon to permanently repeal the health insurance tax before it further worsens consumers’ premiums, state budgets and seniors’ benefits,” he said during a conference call with investors.
Hemsley said the tone of health care policy discussions in Washington has improved, and gives him hope for changes that will improve coverage and spur innovation.
As for what might actually happen, the CEO said: “I think it’s really more around what is politically possible, maybe in contrast to what might be the most effective policy that could be applied.”
In the first quarter alone, UnitedHealthcare picked up 1.5 million additional health insurance customers, before factoring a reduction of 765,000 subscribers through individual policies under the ACA. Business grew from both the Medicare and Medicaid government health insurance programs.
First-quarter 2017 earnings from operations at the insurance business came in at $2.1 billion, up 15 percent from the previous year.
“It’s hard to find a nit,” Sheryl Skolnick, an analyst with Mizuho Securities USA, wrote in a note to investors. “The real star, we think, was the health plan biz.”
UnitedHealth also saw growth from its Optum division for health services including pharmacy benefits management, IT services and direct patient care.
Optum grew earnings from operations by $173 million year-over-year, a 16 percent earnings growth rate. Operating margins expanded to 6 percent overall and earnings from operations grew year-over-year by double digit percentages for each reporting segment, said Larry Renfro, chief executive of the Optum division.
In January, Optum announced a $2.3 billion acquisition that would make it one of the largest operators of surgery centers in the country.
Overall, UnitedHealth Group saw first-quarter revenue grow 9.4 percent to $48.7 billion. Earnings of $2.17 billion grew nearly 35 percent compared with the same quarter last year.
Adjusted earnings per share of $2.37 beat analysts’ estimates by 20 cents, according to figures from Thomson Reuters.
UnitedHealth now expects adjusted net earnings of $9.65 to $9.85 per share for the year, up from previous guidance of $9.30 to $9.60 per share. The increase stems in part from an improved tax rate, said Dave Wichmann, the UnitedHealth Group president.
The company expects 2017 revenue of about $200 billion.
UnitedHealth Group shares closed Tuesday at $168.59, up less than 1 percent for the day.
Christopher Snowbeck • 612-673-4744