Financial Performance

UnitedHealth Beats Estimates Despite Flu Costs

The nation's largest health insurer benefited from its ability to control medical costs and its diversified revenue stream.
Matthew HellerApril 17, 2018

UnitedHealth Group posted better-than-expected quarterly results on Tuesday that benefited from its ability to control medical costs and the strong performance of its Optum health services business.

The nation’s largest health insurer said net earnings for the first quarter rose to $2.84 billion, or $2.87 per share, from $2.17 billion, or $2.23 per share, a year earlier. Excluding items, it earned $3.04 per share while total revenue rose 13.3% to $55.19 billion.

Analysts, on average, expected earnings of $2.89 per share on revenue of $54.86 billion, according to Thomson Reuters I/B/E/S.

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UnitedHealth’s shares jumped 2.75% to $236.64 in trading Tuesday as the company also raised its full-year outlook. “We enter 2018 with both growth momentum and opportunity as a result of our focus on improving the experience of those we serve, combined with actions taken to deepen our capabilities and presence in strategic markets,” CEO David Wichmann said in a news release.

As Reuters reports, investors had been concerned that UnitedHealth’s first-quarter results would be hurt by the bad flu season, which raised insurer costs as more patients visited doctors and were admitted to the hospital.

But UnitedHealth mitigated that impact in part by improving its medical care ratio — the percentage of premiums paid out for medical services — to 81.4% from 82.4% a year earlier.

“UNH did a good job at gaming out the proper premiums to charge its members,” Fortune said, adding that the improved medical care ratio “may not sound like much, but it makes a big difference for a firm with more than 130 million global customers.”

Additionally, operating profits from the Optum unit, which includes everything from pharmacy benefits management to data analytics and technology services, grew nearly 30% to $1.7 billion. Optum has grown in part through acquisitions, including the purchase of DaVita’s medical unit for $4.9 billion in December.

“Other potential negatives for UnitedHealth — such as federal regulation of the pharmacy benefit management business, drug pricing reform and the feared entry of Amazon.com Inc into the pharmacy distribution business — have not materialized,” Reuters said.

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