(This story was updated at 2:50 p.m. ET.)
UnitedHealth Group, the largest health insurance and services company in the country, beat Wall Street's profit estimates in the second quarter and grew revenue by more than 28%, even though the conglomerate continued to bleed money from the Affordable Care Act's exchanges.
UnitedHealth's profit increased 11% in the second quarter to $1.75 billion, leading to adjusted earnings per share of $1.96. Revenue reached $46.5 billion, as every health plan line and its consulting arm grew by double digits year over year.
However, UnitedHealth reported an additional $200 million of losses from the ACA's public exchanges, which dragged down the profit margin within its employer and individual business. The Minnetonka, Minn.-based insurer has now lost approximately $1.3 billion in 2015 and 2016 from the new marketplaces, a reflection of the sicker-than-average population but also of UnitedHealth's missteps as it expanded heavily into the market.
Despite those losses, UnitedHealth raised premium prices and controlled costs in other areas to solidify its fundamental business. Earnings from UnitedHealth's operations totaled $3.2 billion in the quarter and $6.2 billion in the first half of this year.
“The core operating strength was more than enough to offset significant losses on exchanges,” Josh Raskin, a Barclays Research analyst, wrote in an investor note Tuesday. But, he said, “It is clear that the exchanges are offsetting some of that strength.”
UnitedHealth has pulled out of most of the exchanges for 2017. Although its Harken Health subsidiary is expanding, UnitedHealth CEO Stephen Hemsley confirmed the company's limited participation in the marketplaces going forward.
“We do not expect any meaningful financial exposure on 2017 business from the three or fewer exchange markets where we currently plan to remain,” Hemsley said during a conference call Tuesday. UnitedHealth ended the second quarter with 820,000 exchange consumers and expects to end 2016 with around 750,000. Because of the market exits, UnitedHealth's ACA enrollment will fall heavily by the start of next year as people shop for new plans.
UnitedHealth's entire insurance arm ended the second quarter with almost 48 million members, up 305,000 from this year's first quarter and an increase of more than 2.1 million people from the same time last year. Most of the recent boost is a result of UnitedHealthcare starting its managed Medicaid contract in Iowa.
Consequently, revenue rose heavily within UnitedHealth's employer, Medicare and Medicaid segments. The company's medical-loss ratio, the percentage of premiums that were spent on medical care, was 82% in the quarter. That was slightly higher than the 81.4% ratio recorded in the second quarter of 2015, due entirely to the higher claims costs from the ACA health plans.
Optum, UnitedHealth's fastest-growing segment that has also become a major driver of earnings, grew its revenue 7% in the quarter. Optum works with hospitals, doctors, other insurers and employers on almost every facet of healthcare, ranging from drug pricing and administrative services to data analytics and population health.