UnitedHealth Group, the nation's largest health insurance company by revenue, is predicting sizable profit growth next year and beyond as the rollout of the Patient Protection and Affordable Care Act becomes more entrenched.
Speaking at its annual investor conference in New York City Tuesday, UnitedHealth CEO Stephen Hemsley reaffirmed the company's net earnings per share of $5.60 to $5.65 by year-end. He also confirmed that UnitedHealth has big goals for 2015 and 2016, setting a long-term growth target of 13% to 16% in earnings per share.
“We see our future squarely in the 13% to 16% range,” Hemsley said. By the end of 2015, UnitedHealth expects to post net earnings of $6 to $6.25 per share, which would give it high-end growth in the short term of almost 12%.
UnitedHealth's outlook created excitement on Wall Street. Analysts set stock price targets between $101 and $110 by the end of next year. And some believe UnitedHealth, considered to be a bellwether for health insurer performance, could grow even more because its executives are usually conservative in their predictions.
“Looking back historically, UnitedHealth's actual results surpassed its initial guidance in 10 of the last 11 years,” Barclays analyst Josh Raskin said in a research note. “We think this speaks volumes about the company's positioning and perhaps also speaks to the political environment for health insurance companies.”
UnitedHealth subsidiary UnitedHealthcare is offering health plans on 23 of the ACA's insurance exchanges for 2015, 19 more than this year. Although executives expect profits will be slim at first, they believe exchange plans will produce a 3% to 5% margin as the marketplaces mature. The ACA's open enrollment has been ongoing for more than two weeks now, and UnitedHealth stands to grab market share in the exchanges because many of its silver-level plans, the most popular plan tier, are priced favorably in several markets compared with competitors' offerings.
But the commercial segment is not expected to be the company's primary growth driver, executives and analysts said. Instead, UnitedHealth expects to benefit most from the government line of business and Optum, its consulting and technology division.
UnitedHealth offers several Medicaid and Medicare Advantage managed-care plans. Medicare Advantage, also known as Medicare Part C, is a private health option for seniors. If the health insurer breaks $141 billion in revenue in 2015, like it predicts, that means its Medicaid and Medicare Advantage products will see double-digit growth from 2014 to 2015, analysts said. That's possible as more states expand Medicaid eligibility to more low-income people and as more baby boomers enroll in Medicare. Margins on UnitedHealth's Medicare plans have averaged 6% so far in 2014.
Hemsley said Optum will also carry a ton of weight for the company going forward. Optum, which provides a host of consulting and analytics services to providers, payers, governments and employers, represents about a third of UnitedHealth's revenue. It's also the company's most profitable segment, and it's growing.
UnitedHealth's outlook could quickly change, however, if the Supreme Court interrupts the traction in the marketplaces with an ACA ruling next summer. The court will decide if premium subsidies in federally run insurance marketplaces are legal. The case, King v. Burwell, centers on language in the law that says Americans can receive premium tax credits if they obtain coverage in “an exchange established by the state.” Thirty-seven states opted to default to HealthCare.gov or created a partnership with the federal government. Many legal experts say if the Supreme Court strikes down the subsidies, the exchanges could potentially crumble because many people will be unable to afford coverage.
UnitedHealth's stock is up more than 32% on the year, trading around $99.50 per share.
Follow Bob Herman on Twitter: @MHbherman
