- The Washington Times - Tuesday, April 21, 2009

INDIANAPOLIS (AP) - UnitedHealth Group Inc. topped analyst expectations when it reported a slightly smaller first-quarter profit Tuesday, but company leaders say the sour economy is offsetting some of the gains the health insurer made.

Declining enrollment in employer-sponsored plans and rising enrollment in less-profitable government-sponsored and senior plans also squeezed profit margins.

Shares of the Minnetonka, Minn.-based company fell Tuesday after the insurer said earnings dipped to $984 million, or 81 cents per share, down from $994 million, or 78 cents per share, in last year’s first quarter. The company’s outstanding common shares also decreased by 68 million over the same period.

Revenue rose more than 8 percent to $22 billion from $20.3 billion because of the growth in senior and government plans, as well as acquisitions.

Analysts were expecting earnings of 68 cents per share on revenue of $21.37 billion.

Enrollment fell 4 percent in the higher-margin commercial business of employer-sponsored plans but rose in less-profitable government-sponsored business, which includes Medicaid and Medicare Advantage plans.

Strong growth in these public and senior benefits programs likely will drive full-year revenue past $86 billion, Chief Executive Stephen J. Hemsley said during a Tuesday morning conference call.

The company said its Medicare Advantage enrollment rose 16 percent to 1.7 million people.

But Hemsley said declining employment for customers of its commercial health care benefits and wellness companies may offset this.

“We continue to be appropriately circumspect about the economic environment and the impact it may have on our businesses,” he said.

As unemployment has risen, many insurers have seen their employer-sponsored business shrink or grow more slowly.

The company said investment income fell 43 percent to $158 million because of the difficult market. That reduced earnings by six cents per share.

The medical care ratio, or the percentage of premiums paid to cover medical claims, for the company’s largest business segment, UnitedHealthcare, improved to 81.5 percent from 82.5 due in part to a lighter flu season this past winter.

Operating profit margins in the company’s health care benefits segment, which includes UnitedHealthcare, fell eight-tenths of a percentage point to 6.4 percent due to the investment income drop and the shift from privately sponsored plans and growth in senior and government plans.

Hemsley said UnitedHealth expects second-quarter earnings to be “markedly lower” than the first quarter, like they were last year. He attributed this to seasonally higher medical expenses, among other reasons.

Shares of UnitedHealth and several other insurers dipped earlier this year after President Barack Obama unveiled a proposed budget that includes smaller Medicare Advantage payments to insurers.

Earlier this month, the federal government released information for 2010 Medicare Advantage payment rates that many analysts say will lead to a payment reduction of nearly 5 percent.

The possibility of reduced payments for these rapidly growing, privately administered plans remains a concern.

The sector has also been hit by broader worries about Obama’s effort to rework the U.S. health care system and what effect it might have on private insurers.

UnitedHealth shares fell $1.41, or 5.8 percent, to close at $22.80 Tuesday, while the Standard and Poor’s 500 index rose 2.1 percent.

The shadow of the weak economy and possible health care reform may still be hanging over the stock, said BMO Capital analyst Dave Shove, who found the drop puzzling.

“The earns came from solid execution across just about everything and better than expected medical costs, and those are all good things,” he said.

UnitedHealth backed its outlook for full-year earnings of $2.90 to $3.15 per share, though it said the broad range reflected the uncertain economy.

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