Third-quarter revenue at health insurer and services company UnitedHealth Group boomed, but profit mostly stayed the same. UnitedHealth continues to offer more Medicare and Medicaid health plans, which have higher costs and lower margins than the employer business.
UnitedHealth's profit in the third quarter of this year was mostly flat, hitting $1.6 billion, or down $5 million from the same period a year ago. Earnings per share totaled $1.65, which slightly beat analysts' expectations. UnitedHealth reaffirmed its projection that earnings per share would fall between $6.25 and $6.35 this year.
UnitedHealthcare, the company's prominent health insurance division, posted a lower operating margin year over year. The 5.7% margin, compared with last year's 6.8% margin, was due to higher costs from its public exchange and Medicare Advantage plans, UnitedHealth said. The company sold individual health plans on 23 different Affordable Care Act state and federal exchanges last year. Most of the Medicare Advantage costs stemmed from investments to boost its star ratings for 2016, a growing priority for insurers because of the star rating's financial incentives.
The third-quarter medical-loss ratio, which shows how much of the insurance premiums was spent on healthcare services, increased by almost 1% to 80.6%. However, UnitedHealth tried to quell investor fears, saying in a release that "medical cost trends remained consistent with expectations."
Revenue soared 27% in the quarter to $41.5 billion. The large uptick came from the acquisition of pharmacy benefits management company Catamaran Corp. That $12.8 billion move closed over the summer and was integrated into UnitedHealth's health services and consulting division, Optum. UnitedHealth collected $113.5 billion in the first nine months of the year.
Optum remained UnitedHealth's most profitable venture, but its 5.9% margin was lower year over year because of the Catamaran transaction. Executives have repeatedly said that much of the company's future growth will come from Optum.
Roughly 46.1 million people have medical coverage through UnitedHealthcare. Workers are still the company's largest base, but seniors and low-income Medicaid enrollees are growing at a much faster clip.
