(Story updated at 1:45 p.m. ET.)
UnitedHealth Group is rolling as one of the biggest winners in the Affordable Care Act era. The health insurer and services company posted significant first-quarter gains across all of its business lines.
Profit jumped almost 29% year over year in the first quarter, totaling more than $1.4 billion. UnitedHealth's revenue increased 13% to $35.8 billion. First-quarter earnings per share were $1.46, beating Wall Street's consensus of $1.35.
UnitedHealth is often viewed as the bellwether of health insurance earnings, and financial experts raved about the first-quarter results. “We believe this report will be received as a positive surprise and will likely be enough to drive the managed-care group higher, despite the outperformance year to date,” Joshua Raskin, a managing director and senior analyst at Barclays Capital, wrote in a research note Thursday.
UnitedHealthcare, the company's insurance subsidiary, expanded its presence on the Affordable Care Act's insurance exchanges this year from four to 23 states. Executives said there was a “positive market response” to the company's individual public-exchange products. The insurer added 570,000 public-exchange customers in the first quarter, but those health plans are not expected to have a meaningful financial impact this year, since the pricing and utilization trends are still unclear, UnitedHealth President and Chief Financial Officer David Wichmann said on an earnings call Thursday morning.
Medicare Advantage revenue in the first quarter grew by 11%, but UnitedHealthcare's Medicaid segment grew by an even-larger 33%. Medicaid membership rose by 750,000 people year over year. UnitedHealth covers 45.8 million people worldwide.
Wichmann and UnitedHealth Group CEO Stephen Hemsley lamented Medicare's recent 1.25% rate hike for 2016 Advantage plans earlier this month, saying the pay boost “simply did not keep up” with the pace of projected medical-cost increases. UnitedHealthcare covered 3.2 million Medicare Advantage members and recorded $12.8 billion in Medicare revenue in the first quarter.
Despite the sizeable growth in government-sponsored plans, which generally have sicker patients, UnitedHealth's medical-loss ratio (MLR) decreased year over year. The MLR was 81.1% in the first quarter, down 1.4% from the first quarter of 2014, temporarily putting aside investor concerns that rising healthcare volumes and medical costs are eating into insurer profits.
Hospital chain HCA said Wednesday its inpatient and emergency department admissions were up significantly in the first quarter of this year, which lends credence to preliminary economic data that show hospital and healthcare spending is accelerating after historically low growth rates. People in the health insurance space are concerned that could mean insurers will be paying out more in medical claims.
UnitedHealth's lower MLR, paired with HCA's increased volumes, could indicate a couple of dynamics. Both companies could be gaining market share in areas where they don't overlap, said Sheryl Skolnick, a managing director at Mizuho Securities USA. But UnitedHealth, like other insurers, is also continuing to place more out-of-pocket costs on patients through higher deductibles and coinsurance rates.
UnitedHealth was “very pleased with our medical cost performance,” said UnitedHealthcare CFO Dan Schumacher. He added there is “no acceleration” in underlying utilization trends because of the “greater consumer responsibility” in health plans.
Optum, UnitedHealth's health services and technology arm, increased revenue by 15% to $12.8 billion. The company's pharmacy benefits division OptumRx represented about two-thirds of that revenue, which will become even larger once it closes on its $12.8 billion acquisition of Catamaran Corp.
UnitedHealth raised its year-end earnings per-share target range to between $6.15 and $6.30, up from $6 to $6.25. Revenue is also expected to be $2 billion higher, totaling $143 billion.
Investors liked UnitedHealth's quarterly results. Shares were trading up 3.5% Thursday morning. Stock prices for other health insurers were also higher.