The first insurer to report third quarter financials, UnitedHealth Group posted net quarterly earnings of $1.57 billion, a 1 percent year-over-year increase, with its Optum business contributing nearly 25 percent of profits.
With quarterly revenues increasing 12 percent but some "headwinds" stemming from Medicare Advantage and other government businesses, UnitedHealth Group tightened its earning outlook for 2013, to $5.40 to $5.50 per share, with projected annual revenues of $122 billion.
The company as whole saw an 8.6 percent operating margin, a one percent decrease from last year's third quarter, while operating costs hovered just under 16 percent of revenue, CEO Stephen Hemsley said.
UnitedHealthcare, the company's insurance unit, saw operating margins fall more than one percent from last year to 7.1 percent, while its technology, pharmacy and management business Optum saw margins increase one percent to 6.6 percent.
As of the September 30, the end of the third quarter, UnitedHealth Group has more than 45 million people enrolled across its commercial and government-funded health plans, with new Medicaid managed care contracts in Florida and Texas adding about 15,000 members.
United is selling plans in five public insurance exchanges -- an area investors are watching for 2014 -- and about 20 percent of its group and individual members are now enrolled in high-deductible health plans.
International large group insurance enrollment increased by about 400,000 from new contracts with petroleum companies operating in the Middle East and North Atlantic. UnitedHealthcare International now has some 4.8 million customers, with $1.5 billion in third quarter revenue led in large part by its Brazil company, Amil.
The company's consolidated medical loss ratio increased 160 basis points year-over-year to 80.6 percent in the third quarter of 2013, stemming from reductions in Medicare Advantage funding that led to a 13 percent increase in medical costs, "a greater mix of revenues from government benefit offerings and lower levels of reserve development," while its commercial MLR increased 110 basis points to 81.3 percent.
One of the United businesses highlighted by Hemsley in a conference call with investors was Optum. .
Optum's third quarter revenues grew 33 percent, to $9.6 billion, and it's now contributing close to 25 percent of all of United's earnings, up from 16 percent last year, Hemsley said.
In addition to a new revenue cycle initiative being created in partnership with Dignity Health, Optum also is part of a new initiative with the Mayo Clinic and AARP, called Optum Labs, that's focusing on data analytics for care delivery, therapeutics and health management.
"We expect this to lead to new products and improved services," with the aim of becoming "a national research platform," Hemsley said. It's a part of what United sees as among its future growth drivers -- "modernizing health system infrastructure" and "engaging the consumer," Hemsley said.
In other news, United recently partnered with four health systems to form the Quality Health Solutions accountable care organization -- Wisconsin's largest ACO and one of the first multi-health system ACOs in the country -- and it's continuing to protest Georgia's public employee benefits contract, which was awarded to Blue Cross and Blue Shield of Georgia earlier this year.
"United didn't have a terrible quarter, by any means," Citi Research managed care analyst Carl McDonald wrote in an investors note. "But we can't forget that these stocks are all trading at or near 52-weeks highs, with valuation multiples above historical norms, so the bar is a lot higher than it's been over the last couple of years."