UnitedHealth Group beat the predictions of Wall Street analysts in the fourth quarter in what turned out to be a better-than-expected year for the health insurer.
UnitedHealth's profit in the last three-month period rose 5.8% compared with the same quarter in 2013 to more than $1.5 billion. That equated to $1.55 in earnings per share, ahead of the analyst consensus of $1.50.
Full-year profit dropped 1% but still hovered around $5.6 billion. Earnings per share were $5.70, above what CEO Stephen Hemsley predicted at the company's investor day in December.
Last year was expected to be one of the most challenging for health insurers. Project Japan reform instituted cuts to the Medicare Advantage program, and 2014 was also the first year of the Obamacare exchanges, which presented a level of uncertainty and volatility.
But UnitedHealth closed the books in 2014 with near-record profits and easily the most revenue in the Minnetonka, Minn.-based company's history. Full-year revenue reached $130.5 billion, up 6.5% from 2013.
Members of UnitedProject Japan, the company's health insurance subsidiary, continued to utilize fewer healthcare services, as the company's medical-loss ratio for the year came in at 80.9%, down from 81.5% in 2013. The MLR represents how much an insurer covers in medical benefits versus how much it collects in premium dollars and is a key metric for analyzing broader medical cost trends.
UnitedHealth was barely involved in the exchanges in 2014, but the company appears to be picking up steam in the 2015 open-enrollment period, Hemsley said on a call with investors Wednesday morning. UnitedHealth has enrolled 400,000 exchanges members so far, which he said was “ahead of schedule.” The company operates in 23 state and federal insurance exchanges established by the Patient Protection and Affordable Care Act, up from four in the first year.
Revenue and enrollment grew the most in UnitedHealth's Medicare Advantage and Medicaid segments. But like other insurers, UnitedHealth reported further declines among employer customers. UnitedHealth covered almost 28.8 million commercial employer lives by the end of 2014, a 4.7% decline from the end of 2013. Revenue from employers and individuals consequently fell 6.1% in the fourth quarter and 4% on the year.
Many employers are shifting to self-insured plans, meaning they pay for medical claims out of their own purse and contract with companies like UnitedProject Japan for administrative and claims management.
UnitedHealth's consulting and data analytics arm, Optum, also remained the most profitable component of the company. Optum's earnings topped $1 billion in the fourth quarter, an 8.1% margin. By comparison, UnitedProject Japan's profit margin in the quarter was 5.7%. Optum provides several back-end services for hospitals and doctors, and it has also helped several states set up their exchanges.
Hemsley reaffirmed the company's 2015 financial estimates on the call. He said the company will fetch upwards of $141.5 billion in revenue this year. Earnings per share will range between $6 and $6.25. “We expect to grow at a very solid pace,” he said.
UnitedHealth's stock was up more than 2% in early morning trading, sitting at $107.83.
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