UnitedHealth Profit Rises 13%, Topping Estimates

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UnitedHealth Group said Tuesday that its net income rose 13 percent in the third quarter, beating market expectations, as growth in its Medicare and Medicaid businesses offset the loss of private sector members in a bad economy.

The news came against the backdrop of the tense health care debate in Washington, where some advocates are seeking legislation that could reduce the profits of private insurance companies in the future.

But for now, the picture is still rosy.

America's biggest health insurer said net income for the quarter rose to $1.04 billion, or 89 cents per share, up from $920 million, or 75 cents per share, a year earlier. Analysts had expected income of 76 cents per share.

Revenue was up 8 percent to $21.7 billion. The company's closely watched medical cost ratio -- or how much of every premium dollar gets spent on medical care -- was 30 basis points higher at 82.0 percent because of the cost of treating H1N1 flu cases.

Total membership was down slightly at 31.98 million at the end of September compared to 32.90 million a year earlier.

The health insurer's ancillary businesses -- pharmacy benefits, technology and disease management -- also did well.

Chief Executive Stephen Hemsley described the quarter as "solid and consistent" and confirmed that 2009 earnings would come in at about $3.15 per share.

But he said the weak economy continued to be a challenge and said any recovery seemed "uneven at best."

As the first major health insurer to report earnings for the quarter ended Sept. 30, UnitedHealth is a bellwether for the industry.

It's an industry where share prices have been whipsawed in recent months by the legislative struggles in Congress. That's because myriad proposals on the table could both reward and hurt insurers.
Proposed payment cuts to Medicare Advantage, a branch of the Medicare program in which private insurers offer comprehensive benefit plans, would hurt UnitedHealth, which has the biggest share of that market. Proposed employer mandates and individual mandates could deliver millions of new customers -- but maybe not if private insurers have to compete with a new government-run health plan.

After months of expressing support for health reform, the insurance industry last week angered lawmakers and President Obama by releasing a report warning of sharply higher costs to consumers if health legislation goes through. The president hit back during his weekly address Saturday. He accused insurers of making a "last-ditch effort to stop reform" even as they were "earning these profits and bonuses while enjoying a privileged exception from our antitrust laws, a matter that Congress is rightly reviewing."

Advocacy groups have also targeted UnitedHealth and other big insurers such as Aetna and Cigna, with protesters showing up in recent weeks at the headquarters of UnitedHealth in Minnetonka and even Hemsley's home.

On the conference call with Wall Street analysts Tuesday, Hemsley said reform proposals, in particular new taxes on so-called Cadillac benefits and Medicare payment cuts to doctors and hospitals, would result in cost-shifting to private sector insurance customers.

He declined to go into specifics on industry lobbying efforts, except to say he was in Washington last week and would be back this week.

UnitedHealth stock closed 4 percent higher Tuesday at $25.96.

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