UnitedHealth Group reported a mixed bag in its first quarter financial report.
UnitedHealth Group posted first quarter net earnings of $1.1 billion, or $1.10 per share, down a bit from $1.16 per share in first quarter 2013, but in line with guidance forecasting some $0.35 per share being consumed by the ACA insurance tax and other reform changes.
"This has really been the first quarter under the full ACA," said Stephen Hemsley, UnitedHealth Group president and CEO, during an earnings call. "Everything else for the past three years has been a preamble."
The company brought in total revenue of $31.7 billion for the three months ending March 31 – $1 billion more than in last year's first quarter. Of the $31.7 billion, $28.1 billion came from insurance premiums, compared to $27.2 billion in first quarter 2013. Revenue from services and products, including the Optum technology division, also grew, from $2.86 billion to $3.4 billion.
Net earnings, however, fell year over year from $1.2 billion to $1.09 billion. Along with premiums, medical costs grew, too, from $22.5 billion in first quarter 2013 to $23.2 billion in this year's first quarter.
UHG's commercial medical loss ratio improved by 100 basis points compared to last year's first quarter, at 77.3 percent, while the public sector MLR was fairly stable at just above 85 percent, making for a consolidated MLR of 82.5 percent.
Among some high areas of medical costs were specialty medications to treat hepatitis. Hepatitis drugs like the new drug Sovaldi can cure most patients with the hepatitis C virus and prevent liver disease at the cost of about $1,000 per pill and upwards of $70,000 for a multi-week treatment course.
Across its commercial and public sector insurance segments, UHG said it spent about $100 million treating hepatitis C in the first quarter. In Medicare Part D, some of the company's hepatitis C treatment costs are being offset by the reinsurance program, as patients quickly surpass the "donut hole" threshold, and in Medicaid, the company is hoping to end up recouping some of what it's spending as well.
"It is a cost to the program that wasn't priced in," UnitedHealthcare CEO Gail Boudreaux said of hep. C spending in Medicaid. "We're working with states on that funding gap and ... expecting that it will be reimbursed."
UnitedHealthcare, the main insurance part of UHG, posted an operating margin of 4.8 percent this past first quarter, down from 5.7 percent in first quarter 2013, and Optum also took a decline, from 6.2 percent to 5.8 percent. UHG posted a consolidated operating margin of 6.5 percent, down from 7.1 percent in last year's first quarter.
Total membership grew compared to last year's first quarter, but slipped from 2013's total, from 45.4 million as of December 31 to 44.6 million this past first quarter, including 4.6 million international insureds.
Total public and senior membership grew by about 400,000 lives to 10.9 million, with Medicaid membership growing by about 255,000 to 4.2 million and supplemental Medicare growing by 170,000 to 3.6 million, while Medicare Advantage declined by 5,000 lives, to 2.98 million.
Commercial membership took the bulk of the decline, losing about 1 million lives, about 700,000 from ASO fee-based membership (falling to 18.3 million) and about 345,000 from risk-based membership (falling to 7.8 million).
Some of that commercial membership may have been lost due to turnover from cancelled pre-ACA health plans, and some may have been lost to competitors.
"We have seen intensified pricing in several markets," Hemsley said, singling out the small group market in New York. New entrants there seem to be "pricing well below costs, which we believe is unsustainable," Hemsley said.
Aside from that pressure on commercial membership and the declines in Medicare Advantage rates, Hemsley and other UHG leaders see opportunities in public sector insurance and in the provider technology and services spaces that Optum is serving.
"There's a growing number of people in government programs yet to benefit from managed care," Hemsley said. UHG confirmed six new or renewed state Medicaid contracts in the first quarter, he added, solidifying the company's Medicaid footprint in 24 states plus Washington D.C.
Optum, the division that includes everything from health system analytics to the QSSI company that's helped fix state insurance exchanges, is also expecting more growth.
The OptumHealth provider services unit is trying to target five growth areas, Hemsley said: prevention, intervention, financial services, consumer distribution services and next generation analytics that combine administrative and clinical data.
On the consumer engagement end, Optum recently bought a majority stake in a digital wellness startup that, as UHG CFO David Wichmann put it, helps the company pursue "people across virtually every healthcare channel."
And less than two years out from buying a 90 percent stake in Anil Participacoes, Brazil's largest private insurer and operator of health clinics, United is also looking abroad for growth.
Hemsley said UHG is seeing growth opportunities beyond the U.S., with other countries facing similar problems – aging populations, increasing chronic disease burdens and rising spending – if not on the same scale.
For the full year 2014, UnitedHealth Group is projecting earnings of between $5.40 and $5.60 per share.
This story is based on a report appearing on Healthcare Payer News.