Optum drives UnitedHealth Group's Q4, yearly earnings increases
UnitedHealth Group enjoyed revenue growth of 12% for 2018 compared to the previous year, according to earnings released Tuesday. It ended the quarter with $58.4 billion, including $226 billion for the year. That revenue growth included Optum, which beat company expectations and surpassed $100 billion in revenue for the first time in 2018.
Earnings from operations increased 14% or $2.1 billion to $17.3 billion for the entire year.
The nation's largest commercial insurer increased its revenues from $41.6 billion to $46.2 billion year over year in the quarter while revenues improved by 12.4% to $183.5 billion for the year.
UnitedHealth Group kicked off payers' fourth quarter earnings reports with another strong showing. In what is expected to be a strong quarter and year for payers, UnitedHealth saw revenue and membership growth in many areas.
The Q4 numbers reflect "consistent results at UnitedHealthCare and strong growth and margin expansion at Optum, the health services subsidiary," Moody's Investors Service Vice President Dean Ungar said in a note. "UnitedHealth Group, through Optum, continues to demonstrate the promise of vertical integration as a way to diversify revenues and, ultimately, to lower the cost of healthcare."
The company's medical care ratio decreased 50 basis points year over year to 81.6%. UnitedHealth credited the decrease to the return of the health insurance tax. The tax offset a larger government program business, including Medicaid, which often has a higher medical care ratio.
UnitedHealth Group CEO David Wichmann said the higher ratio for Medicaid is isolated to five markets. He added that the payer improved on the ratio during the second half of the year and he expects improved results in 2019. The Medicaid business is profitable for the payer, but below the company's 3% to 5% target range. Wichmann said he hopes to see the Medicaid business get into the lower part of that range this year and improve further next year.
UnitedHealthcare grew its membership by 2.4 million people in 2018. Its employer and individual full-year revenues increased $2.7 billion to $54.8 billion.
Echoing the value-based trend in the industry, the payer's commercial risk-based offerings increased for the fourth straight year. Risk-based products grew by 75,000 people for the year, including 45,000 in the fourth quarter. That came at the same time that fee-based products decreased.
There were nearly 8.5 million risk-based members at the end of the fourth quarter. Fee-based members dropped to 18.4 million people compared to almost 18.6 million a year ago.
Total commercial decreased from 27 million at the end of 2017 to 26.9 million at the end of 2018.
However, UnitedHealthcare saw enrollment growth in its Medicare and retirement business, particularly in Medicare Advantage and medical supplemental plans. At the end of 2018, the payer served 9.5 million people with medical benefit products in that area. That increased led to higher Medicare and retirement revenues, which jumped 14.4% to $75.5 billion for the year.
One negative was that the payer's Medicare Part D plan membership declined. UnitedHealthcare ended the year with 4.7 million standalone Part D plans, which was a decrease from 4.9 million a year ago.
The total public and senior segment increased membership from about 15.6 million in 2017 to 15.9 million at the end of 2018.
Meanwhile, the company's community and state revenues increased 16% to $43.4 billion. That's despite the payer serving 255,000 fewer people in 2018. It experienced a drop in membership after states added new carriers and the end of its New Mexico contract in the third quarter.
UnitedHealthcare's global offerings continued to grow. UnitedHealth has expanded its footprint in South America through acquisitions over the past years.
In 2018, global revenue increased by 26.6% to $9.8 billion. The payer said its margin in that area also improved because of "advancements in clinical management, health system operating performance and reduced operating costs."
Global membership increased from 4 million people at the end of 2017 to 6.2 million at the end of 2018. Overall, UnitedHealthcare's domestic and global membership increased from a little less than 47 million to 49 million over the year.
One potential area of growth is association health plans. The Trump administration's policies are expanding AHPs and UnitedHealthcare CEO Steve Nelson said UnitedHealth sees that as a growth opportunity in 2019.
Meanwhile, Optum continued its positive growth. OptumHealth's revenues improved by 17.4% to $24.1 million year over year through "diversified growth in care delivery, behavioral health services, digital consumer engagement and health financial services." OptumHealth grew to serve about 93 million people for the year, which was nearly 5 million more people served.
OptumInsight's revenues also increased by 11.4% to $9 billion and OptumRx's revenues increased 9.1% to $69.5 billion. OptumRx filled 348 million adjusted scripts in the quarter, which was an increase over 331 million in the third quarter and 333 million a year ago.