Second quarter earnings report season kicked off Tuesday with UnitedHealth Group reporting Q2 revenue rose by 12.1% year-over-year to $56.1 billion. First-half revenue was $11.3 billion, a $12.5 billion or 12.7% improvement over the first half of last year. Earnings from operations increased by nearly 13% to $4.2 billion in the second quarter.
UnitedHealthcare membership increased in Medicare, Medicaid and its global products, but declined in the commercial and individual insurance markets.
Optum’s revenues grew by 9.1% to $24.7 billion for the quarter with each of Optum’s business segments earnings double-digit percentage earnings growth rates.
The company continued its growth in Medicare Advantage. Those plans could be poised for more growth after a recent CMS rule that will allow additional benefit offerings not directly related to medical care.
UnitedHealth also trumpeted gains made by Optum, including its operating margin of 7.5% expanding 80 basis points. Optum’s earnings from operations grew by 21.5% to $1.8 billion. UnitedHealth said Optum saw double-digit percentage earnings growth rates for each business segment.
Optum’s revenues increased by 16% to $819 million. UnitedHealth Group credited the growth to “care delivery and behavioral health, digital consumer engagement and health financial services.”
The division has been at the forefront of vertical integration, including taking part in a $2.2 billion acquisition of a medical staffing company earlier this year and the purchase of DaVita Medical Group for nearly $5 billion in December.
Membership rose for both UnitedHealthcare, and Optum. UnitedHealthcare grew by 2.2 million members from a year ago to 48.8 million members. OptumHealth saw a 7% membership increase from last year and served 92 million people at the end of the quarter.
UnitedHealthcare’s revenues skyrocketed by 12.4% to $45.8 billion in the quarter. The company said its payer’s revenue growth came from higher membership and pricing increases to cover expected medical cost trends.
UnitedHealthcare’s employer and individual revenues increased $742 million to $13.7 billion for the quarter despite smaller enrollment numbers.
Commercial plans are moving more to risk-based contracting. UnitedHealth said Tuesday that second quarter risk-based offerings increased by 50,000 members, while fee-based products dropped by 60,000 people. This is consistent with what UnitedHealth Group CEO David Wichmann predicted during the first-quarter call in April. Wichmann predicted half of Americans will get care from a physician with a value-based contract within a decade.
Individual market trends
The insurer also continues to move away from individual plans, ending the second quarter with 480,000 individual plan members, a drop of 60,000 members from a year ago. Wichmann said on a conference call that UnitedHealth will continue to maintain a "modest presence" in the exchanges and look at the plans on a market basis.
"Nothing has fundamentally changed since we made our decision," he said about the exchanges. "It was the right decision for us."
Payers are currently fighting a decision by the Trump administration to halt risk-adjustment payments. Although bigger companies like UnitedHealthcare aren't likely to take much of a hit to the bottom line, the industry and some other experts argues the lack of risk-adjustment will result in higher premiums and other out-of-pocket costs.
UnitedHealthcare will enter the Massachusetts exchanges market in 2019. However, Wichmann said it wasn't a voluntary decision. Instead, the move is connected to the fact that the company's small group penetration reached a level that then required UnitedHealth to also expand into the exchanges.
The payer instead is expanding Medicare and Medicaid offerings. UnitedHealth said its Medicare and retirement revenues grew 12.6% to $18.9 billion. MA plans swelled by 450,000 members or 10.4% year-over-year. It has the largest MA membership and continues to focus more on the senior program.
During the first-quarter call in April, Brian Thompson, CEO of UnitedHealthcare’s Medicare & Retirement, said the company expects a long-term MA growth rate of about 8%.
Meanwhile, its Community & State revenue, including Medicaid, increased 17.1% to $10.7 billion. Membership grew in that area by 330,000 to 6.7 million members, which included “an increasing mix of individuals with higher clinical needs.”
The company is also expanding its international brand.
UnitedHealthcare’s global offerings grew a whopping 33.5% to $2.5 billion, connected primarily to business expansion, specifically with its Banmédica plans in South America. UnitedHealth expanded its South American health plan footprint in the first quarter.
OptumInsight’s revenues increased 9.6% to $2.2 billion. OptumRX’s revenues grew by 7% to $16.9 billion. OptumRx filled 332 million adjusted scripts in the quarter, a 3.1% increase over the previous year. UnitedHealth said OptumRX has seen a “favorable mix in specialty pharmacy and home delivery services.” Wichmann highlighted the pharmacy business Tuesday as a key pillar to the company and a way to bend the pharmacy cost trend.
UnitedHealth said it benefited from the tax cut that Congress approved at the end of 2017. The company said the 22% tax rate was a decrease of 9.5 percentage points year-over-year. That gain was partially offset by the return of the health insurance tax in 2018.
Meanwhile, the health insurance tax cut into the payer’s medical care ratio, dropping 30 basis points to 81.9%.