UnitedHealth Group has cut its full-year profit outlook and missed first quarter targets, blaming an economic downturn, lost membership and higher-than-expected costs.
The health insurance giant lost 530,000 commercial members in the first quarter, including 250,000 from PacifiCare, which has been under fire from California regulators for claims handling. Enrollment in Medicare Part D fell by 390,000 people. The company continued to raise premiums in 2006 and 2007, which likely contributed to the loss of commercial customers.
The premium rates didnt offset higher than expected medical costs, however, and a severe flu season resulted in $80 million in extra costs. The Minnetonka, Minn.-based insurer said it earned $994 million in the first quarter, up 7.2% from $927 million the same period a year ago, but below expectations. Revenue for 2008 is expected to be between $81 billion and $82 billion. It lowered 2008 profit outlook by 40 cents per share to a range of $3.55 to $3.60.
We are clearly being impacted by the declining national economic outlook including employment levels, interest-rate environment and inflation trends, which combine to create pressures not seen for many years, Stephen Hemsley, president and chief executive officer, said during an investor call.
Hemsley called the results unacceptable and said the company was taking immediate action to change the direction of these trends. -- by Rebecca Vesely