Profits at UnitedHealth Group, Minnetonka, Minn., the nation's second-largest health insurer and an industry bellwether, climbed 21% in the quarter ended Sept. 30 reflecting strong membership gains and slowing medical cost growth. The first major health insurer to report third-quarter earnings, UnitedHealth said net income reached $842 million, or 64 cents per share, up from $698 million, or 52 cents per share, in the year-ago quarter. Goldman Sachs analyst Matthew Borsch said the results bode well for the sector. "We expect another strong back half for managed care," Borsch said in a research note. UnitedHealth's enrollment rose 7% over the year-ago quarter to 23.5 million members, driven by internal growth and the Sept. 19 acquisition of 130,000-member Neighborhood Health Partnership, Miami. Medical costs consumed 78% of commercial premium revenue, down from 78.6% in the 2004 third quarter. Revenue rose 15% to $11.32 billion.
UnitedHealth said 2005 earnings at $2.48 per share should be 26% higher than in 2004. The company expects to add 2 million to 3 million new members next year because of the Medicare prescription-drug benefit that takes effect Jan. 1. Its $9.2 billion acquisition of Medicare HMO giant PacifiCare Health Systems would add an additional 3.2 million members. The deal is expected to close by year-end or early 2006. -- by Laura B. Benko