“Many will take this as the all-clear sign that medical-cost trend is tame and that results will be strong across the group,” Citigroup analyst Carl McDonald wrote in a research note Thursday.
The mild medical expenses contrasts with Nashville-based HCA's announcement from late Wednesday. HCA, the country's largest hospital operator by revenue and a similar bellwether for healthcare companies during earnings season, said same-facility admissions and equivalent admissions each increased sizably compared with previous quarters. However, UnitedHealth CEO Stephen Hemsley said on an investor call Thursday that inpatient utilization was down across its businesses as many people continue to put off medical needs because of tight finances or high-deductible health plans.
UnitedHealth reaffirmed its commitment to enter the exchange market next year. The company said it will offer health plans on two dozen exchanges established by the Patient Protection and Affordable Care Act, and 19 of the states will be new territory for UnitedHealth, Hemsley said. He also indicated exchange plans are expected to nab a profit margin between 3% and 5%.
Medicare Advantage and Medicaid represented the biggest areas of growth in the quarter for the insurer. Medicare Advantage revenues grew 4% year-over-year, and Medicaid revenues soared 34%. UnitedHealthcare added 250,000 low-income beneficiaries to its Medicaid rolls in the third quarter, reaping the benefits of the ACA's Medicaid expansion.
Although UnitedHealthcare represents a vast majority of the company's revenue, Optum is its most profitable business line. Optum provides consulting, management and data analytics services to hospitals, payers and other healthcare companies. It tallied a 7.2% operating margin in the third quarter, while UnitedHealthcare's margin was 6.8%. Optum is set to be even larger after it agreed in September to acquire MedSynergies, an outsourcing firm for physician practices.
“Optum's growth should continue to be strong,” Hemsley said.
UnitedHealth covered 88.5 million people, or more than a quarter of all Americans, as of Sept. 30. About 27,000 UnitedHealth members receive care at hospitals every day, Hemsley said.
Follow Bob Herman on Twitter: @MHbherman