- UnitedHealth Group's $60.4 billion in revenue in the third quarter, up 6.7% year over year, was primarily driven by double digit growth in its health services arm Optum, the Minnetonka, Minnesota-based healthcare behemoth reported Tuesday. Optum reported revenue of $28.8 billion, up 13.3% year over year.
- The nation's largest private payer reported revenue of $48.1 billion in the quarter, up 4.7% year over year. Once again, the deferral of the Affordable Care Act's health insurance tax to 2020 improved UnitedHealthcare's operating cost ratio and strengthened its medical cost ratio to 82.4%.
- The company handily beat Wall Street earnings and revenue expectations, sending stock up 8% in late morning trade. UnitedHealth upped its guidance for the full year on the results, with CEO David Wichmann saying the company is "approaching 2020 with optimism" despite the volatile regulatory and financial environment.
UnitedHealth kicked off managed care organizations' earning season with a profitable start, reporting a net income of $3.5 billion in the quarter, up 11% year over year. The company saw a healthy cash flow from operations at $3.2 billion, which brought year-to-date cash flow from operations to $12.3 billion — 1.2 times net income.
Still, Wichmann ticked off a litany of healthcare headwinds on a Tuesday morning call with investors, including medical cost trends, a lack of sufficient state and government Medicaid funding, startup costs to expand its Optum businesses and the potential resuscitation of the health insurance tax next year.
Reinstating the ACA insurance tax would cost insurers $15.5 billion in 2020, according to the IRS.
That would be "unfortunate given healthcare costs too much already to be adding this burden," the CEO said, but Wichmann touted UnitedHealth's diversified business offerings to weather any disruption.
UnitedHealthcare grew its covered lives by 415,000 in the past year, mostly due to growth in its commercial and Medicare Advantage businesses, spurring revenue growth and operating earnings of $2.7 billion, up 3.8% year over year. The payer covered 315,000 more seniors in MA over the past year, bringing its total MA population to 5.23 million lives as payers continue to see potential in the privately-run Medicare plans.
UnitedHealth executives have previously said they see "significant macro growth" in the sector and plan to invest more in it moving forward, and the third quarter proved no different. "We're pretty bullish on it," Wichmann said Tuesday, noting UnitedHealth was pleased with President Donald Trump's executive order earlier this year bolstering MA flexibility and savings.
Despite the growth in its employer, individual and Medicare businesses, the payer's Medicaid and CHIP revenues declined by $384 million to $10.7 billion in the quarter. Membership decreased by 665,000 people year over year, a winnowing the company chalked up to market withdrawals, such as in Iowa Medicaid.
"The pace is not as we would expect," Heather Cianfrocco, an official with UnitedHealthcare's community and state unit, told investors on the call.
Company executives addressed another potential headwind blowing from the Trump administration: the president's public charge rule. Though it was blocked by a federal court late last week, by some estimates it would remove anywhere from 200,000 to 4 million low-income immigrants from the Medicaid rolls if enacted.
Health services arm Optum reported earnings from operations of $2.4 billion, up more than 16% from same quarter last year. Overall operating earnings grew 9% to $5 billion.
OptumInsights grew more than 16% year over year to $2.6 billion, spurred by an expanding client list of health system participants like John Muir, Optum CEO Andrew Witty, a former chief at GlaxoSmithKline, said Tuesday.
OptumHealth saw revenues in the quarter of $8.1 billion, up 34.4% year over year due to an increase in value-based arrangements and more local care delivery offerings. Pharmacy benefit manager OptumRx saw slightly deflated revenue growth of 5.8% in the quarter to $18.5 billion. It fulfilled only 325 million scripts in the quarter, a decline of 2% year over year, due to changes to a single large account.
Optum is forecast to reach $110 billion in annual revenue this year, Witty said.
UnitedHealth Group also topped Wall Street earnings expectations in the second quarter this year, similarly driven by swift growth in its Medicare and retirement insurance businesses, OptumRx and OptumHealth.
UnitedHealth hiked its full year guidance. On a GAAP-basis, it expects earnings per share between $14.15 and $14.25 and net income of $13.65 billion to $13.75 billion.