UnitedHealth Group grew revenue in the fourth quarter and full-year 2018 as its health insurance arm, UnitedHealthcare, and health services subsidiary, Optum, both posted strong top-line growth.
Minnetonka, Minn.-based UnitedHealthcare added more Medicare Advantage members and international insurance customers during the year, helping to boost its revenue. But the company's management told investment analysts Tuesday that it struggled with high medical costs in parts of its Medicaid business in a handful of states.
Optum, as usual, showed no signs of weakness and cracked the $100 billion annual revenue mark for the first time in 2018. The fastest-growing UnitedHealth subsidiary experienced revenue growth across each of its three segments, including its pharmacy benefit management business; data and analytics company; and its care delivery unit, Optum Health, which is in the middle of a bid to acquire DaVita Medical Group.
"2018 was a strong year, with advances in our businesses, improvements in service and net promoter scores, and compelling financial performance," UnitedHealth Group CEO David Wichmann said during the conference call Tuesday to discuss fourth-quarter financial results. "But there is much yet to be done to fully realize our potential to reimagine healthcare for the benefit of society in the U.S. and globally."
Across both of its business segments, UnitedHealth Group recorded consolidated revenue of $58.4 billion in the three months ended Dec. 31, up 12.2% over the same quarter in 2017. But its net income decreased by about 15% year over year to $3.2 billion in the fourth quarter.
Insurance arm UnitedHealthcare posted fourth-quarter revenue of $46.2 billion, up 11.1% year over year. For the full year 2018, its revenue rose 12.4% to $183.5 billion compared with 2017.
UnitedHealthcare picked up 2.4 million more members during 2018, bringing its total membership at Dec. 31 to 49.1 million, an increase of 5.1% from 2017. The insurer added members in its Medicare Advantage and international segments, but lost Medicaid and commercial insurance membership.
Medicaid was a slight blemish on UnitedHealthcare's record and contributed to higher-than-expected medical costs in the quarter. Those higher costs were concentrated in the temporary assistance for needy families, or TANF, program in five markets, Wichmann said. The rest of the Medicaid business is "performing quite nicely," he assured investment analysts.
UnitedHealthcare also served 255,000 fewer Medicaid beneficiaries in 2018 as states reduced Medicaid enrollment and added new managed-care companies to their programs. UnitedHealthcare also sold its New Mexico plan to Presbyterian Health Plan in August.
Higher Medicaid costs were the leading contributor to the higher-than-expected medical loss ratio of 82.2% in the fourth quarter. The MLR represents the portion of every premium dollar that is spent on healthcare and quality improvement activities. Still, UnitedHealthcare reported a lower consolidated 2018 MLR of 81.6%, down by 50 basis points, driven by the return of the health insurer tax.
Optum, meanwhile, reported fourth-quarter revenue of $27.6 billion, up 13% year over year. Its earnings from operations totaled $2.7 billion in the three months ended Dec. 31, an increase of 21.9% over the same quarter in 2017.
For the full year, Optum's revenue rose 11.1% to $101.3 billion, while its earnings from operations rose 22.6% to $8.2 billion.
Optum's revenue increased across each of its three segments. OptumHealth, the care delivery segment that has amassed a growing army of employed physicians in the past several years, grew revenue the fastest by 17% in the fourth quarter to $6.4 billion. OptumHealth's latest conquest is DaVita Medical Group. The companies last month lowered the purchase price to expedite the deal's approval by the Federal Trade Commission.
UnitedHealth Group reported consolidated revenue across UnitedHealthcare and Optum of $226.2 billion in 2018, an increase of 12.5% year over year. Consolidated net income grew 14.4% to $12.4 billion.
