UnitedHealth Results Top Expectations on Revenue Growth -- 4th Update

By Michael Calia 

UnitedHealth Group Inc. reported a better-than-expected 5.8% increase in earnings for its December quarter, as the health-care company continued to benefit from the growth in premium revenue outpacing medical costs.

Shares of UnitedHealth rose 2.4% in morning trading to $108.15. Earlier Wednesday, the stock hit a new all-time high of $108.98.

UnitedHealth, like its fellow health insurers, has sought to contain costs related to medical care, particularly as expensive, high-profile treatments for hepatitis C and cancer enter the market. Meanwhile, the company has benefited from growth in its government-sponsored plans as well as its health-services arm.

Overall, for the period ended Dec. 31, UnitedHealth posted earnings of $1.51 billion, or $1.55 a share, up from $1.43 billion, or $1.41 a share, a year earlier. Revenue improved 7.4% to $33.43 billion.

Analysts had projected a per-share profit of $1.50 and revenue of $33.1 billion.

As the biggest insurer and the first to report, UnitedHealth is seen as a bellwether, and its views on spending trends are closely monitored.

UnitedHealth said its medical-care ratio, a key industry metric that reflects the portion of insurance premiums used for patient care, fell to 79.8% in the fourth quarter from 81.2% a year earlier and was virtually flat from the 79.7% in the third quarter.

The company said medical-cost trends were "well controlled," with lower hospital use per capita. The company is assuming a "moderate increase" in health-care utilization this year, but it is "not seeing any indication" of an uptick in January, said Dan Schumacher, chief financial officer of UnitedHealthcare. UnitedHealthcare also is expecting an increase in costs related to treatments for hepatitis C, he said.

Analysts had been watching hospital usage, amid reports of strong volumes by hospital companies, and for signs of an increase in health-care spending related to the flu.

Revenue from premiums rose 6% to $29.38 billion, while medical costs increased 4.1% to $23.43 billion.

The company said it served 88.5 million individuals across all of its businesses as of Dec. 31, up from 88.2 million a year ago.

UnitedHealth said its insurance arm has enrolled more than 400,000 people through the health law exchanges, ahead of its schedule, and it expects its sign-ups to be close to 500,000, the upper end of its projected range. UnitedHealthcare increased its presence in the marketplaces to 23 states this year and plans to "expand our footprint" next year, though it will only be in a few markets in California, said Jeff Alter, who heads the insurer's employer and individual business.

The insurer also is seeing a "few percent" of the small-business market dropping off into the new marketplaces, it said. "We have not seen a significant erosion of our small group business," Mr. Alter said.

UnitedHealth's Medicare Advantage business added 15,000 customers year over year, while its community and state business grew its Medicaid enrollment by 1 million people in the past year. Fourth-quarter revenue rose 5% in its division that includes Medicare and 29% in the segment with Medicaid.

"The government businesses likely continued to come in better than expected," Sterne Agee analyst Brian Wright said. "We believe [UnitedHealth's] solid government results will boost the shares of the Medicaid and Medicare-focused plans today."

In its call with analysts, UnitedHealth also emphasized that it is continuing to increase the share of its contracts with health-care providers that tie reimbursement to efficiency and quality goals. Spending under such contracts will be more than $43 billion this year, up from around $36 billion in 2014, the company said, adding that it is seeing cost savings from such provider deals.

Optum, UnitedHealth's health-services arm, saw revenue rise 23% in the fourth quarter to $12.9 billion.

"The upside [in UnitedHealth's fourth quarter] was driven by the company's Optum business," Mr. Wright said.

For the new year, UnitedHealth reiterated its forecast for per-share earnings between $6 to $6.25 and revenue of $140.5 billion to $141.5 billion. Analysts polled by Thomson Reuters are expecting earnings of $6.17 a share and revenue of $140.9 billion.

Write to Anna Wilde Mathews at [e-mail] and Michael Calia at [e-mail]

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