Dive Brief:
- UnitedHealth Group announced Q3 2014 profits this week amounting to more than $1.6 billion on nearly $32.8 billion in revenue, a margin of 4.9%. The profit per share was higher than expected, mainly because of lower-than-expected medical costs—79.7% of premiums collected in the third quarter went towards medical spending, as opposed to 80.6% in Q3 2013. The company had $1.57 billion in profit and $30.6 billion in revenue in the third quarter 2013.
- Net earnings for UnitedHealth were $1.63 per share, as opposed to an expected $1.53 per share. The company’s year-end profit estimate is up about $0.10 to $5.65 a share.
- The largest growth areas for the insurer were Medicare Advantage and Medicaid, up 4% and a whopping 34% respectively from this time last year. UnitedHealth gained 250,000 Medicaid customers this quarter, largely due to insurance expansion under the Affordable Care Act. The consulting and management arm known as Optum is where the company reaps most of its profits, with a 7.2% operating margin this quarter. The company also plans to enter ACA private exchanges next year, which could produce profit margins of 3% to 5%.
Dive Insight:
UnitedHealth was not the only insurer to make gains in the Medicaid market. The implementation of the ACA and the subsequent surge in consumers purchasing insurance has been a huge boon to health insurers' market penetration.
This was something that experts predicted before states began expanding Medicaid. In 2012, the Center on Budget Policy and Priorities released a report on the topic, estimating that $46.3 billion in state Medicaid spending would go to managed care plans in the 27 states that expanded Medicaid between 2014 and 2018. If all states expanded, it could add up to 17 million new beneficiaries for the program by 2016, accounting for $40 billion to $45 billion in new revenue to insurers.