UnitedHealth’s Profit Surges, Yet Affordable Care Act Drags

UnitedHealth’s second-quarter earnings jumped 11 percent to trump expectations even though the nation’s largest health insurer took a bigger hit than expected from coverage linked to the Affordable Care Act.

The Minnetonka-based company said Tuesday that losses from its ACA-compliant individual business came in $200 million above projections, which means the company now expects to lose around $850 million this year from what is essentially a small slice of its total operation.

That hit contributed to a drop in operating earnings for the insurer’s largest business segment, UnitedHealthcare, which sells individual and employer-sponsored benefits.

UnitedHealth and several other insurers have said the exchanges, which opened for enrollment in the fall of 2013, delivered a customer base that generated more claims than expected initially. Companies also have been hurt by a shortfall from temporary government support programs and by high-cost patients who signed up for coverage outside regular enrollment windows.

UnitedHealth had said earlier this year that it was planning drastic cutbacks in its participation in the ACA’s exchanges in 2017. The insurer had expanded rapidly into the market and sold coverage on exchanges in 34 states this year. But it only plans so far to offer policies in three next year: Nevada, Virginia and New York.

UnitedHealth’s new Harken Health subsidiary will sell coverage on exchanges in Chicago, Atlanta and South Florida.

Outside the exchange business, revenue from the company’s Optum segment soared more than 50 percent, to $20.6 billion in the second quarter.

Health insurance remains its largest business, but UnitedHealth has been focusing more on growing its Optum segment, which provides pharmacy benefits management and technology services and also operates clinics and doctor’s offices.

Overall, UnitedHealth Group Inc.’s earnings jumped to $1.75 billion from $1.59 billion in the previous year’s quarter. Adjusted results totaled $1.96 per share in the most recent quarter.

Revenue grew 28 percent to $46.49 billion.

Analysts expected earnings of $1.89 per share on $45.35 billion in revenue, according to Zacks Investment Research.

The insurer also Tuesday that it raised the bottom end of its 2016 adjusted earnings forecast range by a nickel, and now expects $7.80 to $7.95 per share.

Analysts expect, on average, earnings of $7.90 per share, according to FactSet.

Shares of UnitedHealth slipped $2.18 to $138.57 early Tuesday, before markets opened.

The stock had advanced 20 percent so far this year, more than tripling the 6 percent increase posted by the Standard & Poor’s 500 index.

UnitedHealth is the first health insurer to report earnings every quarter and it serves as an industry bellwether.

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