Fourth-quarter profit soared at UnitedHealth Group, despite looming uncertainty surrounding the future of the Affordable Care Act and the individual insurance market.
The Minnetonka, Minn.-based healthcare conglomerate grew revenue by 9% to $47.5 billion in the fourth quarter of 2016. For the full year, UnitedHealth recorded revenue of $184.8 billion, up 17.6% year over year, driven by strong growth in both its UnitedHealthcare insurance arm and Optum consulting business.
Moreover, the nation's largest insurer added 2.2 million members during the year across its Medicare, Medicaid and commercial product lines, helping to boost net income to $1.93 billion in the fourth quarter, up 54% over the same time last year. Net income totaled $7.3 billion for the full year 2016, up 23.3% year over year.
“As the story has been throughout the year, customer retention and expanding relationships played a central role in our revenue growth for both UnitedHealthcare and Optum,” the insurer's CEO Stephen Hemsley told investors during a conference call Tuesday.
Those relationships include deals like UnitedHealth's acquisition of Surgical Care Affiliates announced last week, which expands the insurer's ability to put patients in a low-cost provider setting, creating value and cost savings for customers.
UnitedHealth also struck up partnerships with Walgreens, Quest Diagnostics and CVS Health during the year to deliver more value to customers.
“The momentum inside our businesses comes from the growth and depth of these relationships and the breadth of sustainable value we can offer,” said Optum CEO Larry Renfro.
Optum, the insurer's health services subsidiary, recorded revenue of $22.2 billion in the quarter, an increase of just 1.2% over the same time last year as the pharmacy benefit manager OptumRx suffered from customer losses that occurred before the 2015 acquisition of Catamaran. But for the full year, Optum revenue jumped 23.7% to $83.6 billion.
Insurer UnitedHealthcare's revenue grew 15.5% during the fourth quarter to $37.9 billion. Its 2016 revenue totaled $148.6 billion, up 13.2% year over year due to membership growth.
UnitedHealth recorded an overall medical loss ratio of 80.8% in the fourth quarter year over year. In a research note, Barclays analyst Joshua Raskin said UnitedHealth posted one of the best medical loss ratios he's seen in years.
In 2016, UnitedHealthcare added 1.1 million commercial members and 1.2 million members in its government sector, including Medicare Advantage, Medicare supplement and Medicaid. Its Medicare Advantage segment grew the most, adding 395,000 seniors. UnitedHealthcare is the largest Medicare Advantage insurer in the nation, with total enrollment reaching 3.6 million at year's end.
As expected, UnitedHealth lost members in its individual business as it continues to remove itself from the ACA exchanges, but the premium deficiency reserve was sufficient to cover the losses, the insurer said. Its individual market member numbers on and off the exchanges will continue to drop in 2017 when UnitedHealth members switch plans. The insurer will remain in just a handful of ACA exchanges next year after losing about $1.3 billion in 2015 and 2016.
During the conference call, Hemsley, who has been vocal about the shortcomings of the exchanges and the healthcare law, said he sees opportunity for a stronger state-based healthcare system, featuring state-run high-risk pools for people with pre-existing conditions and more flexible commercial and Medicaid benefits—an approach that would be “simpler, offering more flexibility, more choice and more affordability to both consumers and state and federal sponsors,” he said.