MINNEAPOLIS _ As UnitedHealth Group winds down money-losing business in government health exchanges, executives said Tuesday the company's financial performance should gain speed next year, particularly its Optum division for health services.
Leaders of the nation's largest insurer raised their outlook after the company's third-quarter profit beat expectations. Investors responded with a buying frenzy that lifted UnitedHealth's shares almost 7 percent to near the all-time high set in August.
Next year, UnitedHealthcare plans on avoiding financial potholes by dropping out of most exchange markets that part of the federal Affordable Care Act. Executives said they were comfortable with Wall Street analysts' current estimates for 2017 earnings, adding the outlook could become "modestly stronger" if current momentum continues.
"Our commentary today was an attempt to be pretty positive about 2017," Stephen Hemsley, chief executive, said during a conference call with investors.
For the quarter, UnitedHealth Group posted a $1.97 billion profit that was up 23 percent over the same period last year. It came on $46.3 billion in revenue _ up from $41.5 billion in revenue in the year-ago quarter.
The medical cost trend grew at a slower rate than expected, said Sheryl Skolnick, an analyst with Mizuho Securities USA.
UnitedHealthcare, headquartered in suburban Minneapolis, did better than expected enrolling subscribers in Medicare Advantage plans, fully-insured commercial products and state Medicaid programs, Ana Gupte, analyst with Leerink, wrote in a note to investors. And at Optum, revenue grew and profit margins expanded in all three primary segments, Gupte said.
Health plans hire Optum to manage the pharmaceutical portion of the insurance benefits they provide. The division also sells IT services to insurers, clinics and hospitals. Optum provides direct care through clinics that it owns and partnerships with physician practices.
The division's MedExpress business, for example, is the nation's largest urgent care provider, and launched during the third quarter an expansion into the Twin Cities. The company has plans for up to 19 urgent care centers in Minnesota by the end of 2017.
As a health care provider, Optum is in the midst of expanding into more than 75 local markets. "Optum's growth remains robust, especially in care delivery," Skolnick wrote Tuesday in a note to investors.
Optimism for 2017 stems from the company's growth prospects, said Dave Wichmann, the president of UnitedHealth Group. Optum is winning important contracts as a pharmaceutical benefit manager, he said, and as a consultant to health care providers on how to collect medical bills. Wichman noted, for example, that the billing business last month struck a deal with lab testing giant Quest Diagnostics.
In addition, the UnitedHealthcare insurance division won't be saddled with losses from the individual market, which is undergoing a sweeping change with the Affordable Care Act.
The individual market is the portion of the health insurance world that serves people who are self-employed or don't get coverage from an employer or government program. Before ACA changes in 2014, insurers could deny coverage to people in the market who had pre-existing health conditions. Since the practice was eliminated by the health law, health plans have struggled to generate profits as patients use more care than expected.
This year, UnitedHealthcare expects to lose about $850 million on ACA-compliant policies sold to individuals both on and off the new exchanges.
"The reduced loss position on the ACA ... clearly will aid earnings in 2017," Wichmann said.
During the third quarter, UnitedHealthcare's loss of about $200 million in the individual market fell within expectations. That signals something of an improvement, since UnitedHealth lost more money than expected on the business during the second quarter.
Policymakers are closely watching the signals from UnitedHealth and other insurers as they assess whether the ACA is working.
When UnitedHealthcare first signaled problems late last year, the company noted a high rate of people buying coverage outside the standard open enrollment period, and then using lots of expensive care. On Tuesday, UnitedHealth said it saw a slightly smaller share of its members in the third quarter buying through "special enrollment periods" compared with last year.
At the end of the third quarter, UnitedHealthcare provided coverage to about 770,000 people through policies sold on health exchanges, and another 210,000 individuals who purchased off-exchange coverage. That's a small fraction of the insurer's overall enrollment.
It was providing coverage to 44.1 million people in the U.S. at the end of the third quarter, up from 43.9 million subscribers at the end of June and 42.3 million people a year ago.
On a per-share basis, UnitedHealth Group's adjusted earnings came in at $2.17 for the third quarter, which exceeded the $2.08 per share that was the consensus forecast of analysts surveyed at Thomson Reuters.
UnitedHealth said it now expects full-year adjusted earnings to be about $8 a share, up from its previous forecast that was a range of $7.80 to $7.95 a share. It's the second quarter in a row that the company has become more optimistic about its full-year performance.
UnitedHealth is the Minnesota's largest publicly-traded firm by revenue and market capitalization and employs about 15,000 in the state.
