UnitedHealth 2nd-quarter profit rises, but commercial enrollment slide continues

Tom Murphy

July 21st, 2009

UnitedHealth 2Q profit rises, enrollment slides

INDIANAPOLIS — UnitedHealth Group Inc. reported a soaring second-quarter profit Tuesday, but uncertainty surrounding the health care overhaul debate in Congress helped keep the managed care company’s shares grounded.

The Minnetonka, Minn.-based company said its profit more than doubled compared to the same quarter last year, when hefty legal charges weighed down earnings. UnitedHealth also said revenue rose 7 percent, as it saw strong growth in its public and senior health insurance.

But the company also said commercial enrollment continued to slide.

Shares rose only modestly in Tuesday trading.

“They could have blown out numbers today and there still would be a limit as to how high the stock would run,” Edward Jones analyst Steve Shubitz said.

Washington is scrambling to tame rising health care costs and cover the nation’s estimated 46 million uninsured people. As part of that debate, Congress is considering the creation of a government-run health plan to compete with private health insurers and other measures that could hurt the industry.

With the specter of that debate, it was hard to see earnings “generating a lot of momentum for these stocks” without a big positive like an increase in guidance, Oppenheimer analyst Carl McDonald said in a research note.

UnitedHealth did not oblige, although it did raise the lower end of its 2009 earnings guidance. The company now forecasts $3 to $3.15 per share. Prior guidance was for earnings of $2.90 to $3.15 per share.

Analysts predict net income of $3.07 per share for the year.

Miller Tabak analyst Les Funtleyder said he liked the company’s conservative guidance. He noted that it keeps the insurer from becoming a target of critics by projecting fat profits in the middle of the overhaul debate. It also allows for some upside to the stock if reform turns out worse than expected for the industry.

“There’s no benefit to them being aggressive,” he said. “I don’t think the market will reward them.”

UnitedHealth earned $859 million, or 73 cents per share, for the quarter that ended June 30. That’s up from $337 million, or 27 cents per share, a year earlier. Last year’s second-quarter results included settlements in two class action lawsuits.

Revenue rose to $21.66 billion from $20.27 billion on increased premiums, which grew partly due to price increases. UnitedHealth is the largest commercial health insurer based on revenue.

The company trumped Wall Street expectations for both revenue and profit. Analysts polled by Thomson Reuters forecast, on average, a profit of 70 cents per share on revenue of $21.77 billion.

The insurer’s commercial health insurance enrollment fell to 25 million in the second quarter. That represents a 6 percent decline from the same quarter last year. UnitedHealth attributed that mainly to economic pressures that forced clients to either cut jobs or trim benefits.

Commercial enrollment, which includes employer-sponsored coverage, has already fallen by 1.3 million people this year.

But the company’s public and senior business, which includes Medicaid and Medicare coverage, grew 15 percent year over year to 7.1 million people in the second quarter.

“We expect this year’s revenue growth in public and senior business to continue to more than offset the potential for further pressure from the employer market,” UnitedHealth CEO Stephen J. Hemsley said in a conference call with analysts.

UnitedHealth shares rose 3 percent, or 75 cents, to close at $25.59 Tuesday.

AP Business Writer Michelle Chapman contributed to this report from New York.

UnitedHealth brought to front of health-care debate

By Dan Haugen | Published Thu, Aug 20 2009 4:01 pm

The nation's health-reform debate shouting match has shifted attention to UnitedHealth group over the last 36 hours or so.

First came a letter leaked to Talking Points Memo (and covered here by MinnPost's Casey Selix) in which the company urged its employees to get out and participate in the "historic debate" taking place at town hall meetings across the country.

That report (which a UnitedHealth spokesman has denied) and a Daily Beast column comparing UnitedHealth's profit margins to those of Las Vegas casinos became talk show fodder for Keith Olbermann, whose guest, a former Cigna official, commented on the tactic.

"It goes on all the time. I used to do that when I was at Cigna. All the companies do that," said Wendell Potter, a former communications director for Cigna who has recently spoken out against the health-insurance industry's lobbying tactics. (See an in-depth interview here.)

Today, the Motley Fool writes that the larger insurers, including UnitedHealth, have a "near-monopoly" on health insurance, and that a public option is needed to inject competition into the marketplace, which currently doesn't exist. Yet, the Fool also says Aetna and UnitedHealth have been unfairly scapegoated in the debate:

"By all accounts, they've given the Obama administration many concessions; in return, they get to, well, stay alive. Recently, though, they've been increasingly vilified by Obama and those who support his plan, simply because the politicians feel the need for a common bogeyman to help rally support."

Matt Taibbi on Goldman Sachs

CounterSpin (8/21/09-8/27/09)

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This week on CounterSpin: Goldman Sachs, Wall Street profiteering and... vampire squids. Wait... what was that last one? Journalist Matt Taibbi wrote a long takedown of the venerable Wall Street firm in Rolling Stone. Business journalists pronounced themselves mostly unimpressed with Taibbi's analysis, and troubled by his language—like calling the company 'a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.' Subtle it is not. But what should we make of the reaction to the piece, from Wall Street and from other reporters? And does reporting like Taibbi's shine a different sort of light on the financial industry, or—as some of Taibbi's critics have it—distract us from more important matters? We'll put those questions to Matt Taibbi today on a special edition of CounterSpin.