UnitedHealth will expand to 11 new markets in 2016 as it adapts to ACA

UnitedHealth Group is expanding its presence on health exchange marketplaces that were created under the federal Affordable Care Act.

Currently, the Minnetonka-based insurer has about 550,000 customers through health insurance exchanges in 23 states.

Industry reports this spring suggested that many people buying exchange policies have used more care than expected, company officials said Thursday during a conference call with investors.

UnitedHealth Group saw a similar trend during the third quarter and has increased health exchange premiums for next year.

"We expect improved performance next year," said David Wichmann, the company's chief financial officer, during a conference call Thursday to discuss financial results.

"We will expand to 11 new markets in 2016, and we continue to expect exchanges to develop and mature over time into a strong, viable growth market for us," Wichmann said.

UnitedHealth Group is the nation's largest health insurer.

During the same period last year, UnitedHealth Group earned about $1.6 billion on revenue of about $32.8 billion.

Third-quarter margins were under pressure due in part to costs in the company's business selling policies to Medicare beneficiaries, the company said. UnitedHealth Group is making investments to improve the "star" ratings assigned to its Medicare plans; improved scores today drive higher reimbursements down the road.

"Management continues to expect 'acceleration' of earnings in 2016 — a consistent theme of the past couple years," wrote Thomas Carroll, an analyst with Stifel, in a note to investors. "Moreover, the exchange book should improve as [UnitedHealth] learns to better operate and price the business."

UnitedHealth Group reiterated financial guidance for the year and stressed upbeat messages about growth in its Optum division for health services.

During the third quarter, net income was essentially flat, but revenue grew with the expansion of the company's lower-margin business managing pharmacy benefits. Earlier this year, UnitedHealth acquired Illinois-based Catamaran, a pharmacy benefit manager (PBM) that helped boost revenue by 80 percent last quarter in the company's OptumRx division.

The company said it had 42.1 million health insurance customers in the United States during the third quarter.

"Stronger-than-expected Optum revenue were partly offset by slightly weaker-than-expected margins in health benefits," wrote Peter Costa, an analyst with Wells Fargo Securities, in a note to investors.

The 1-cent quarterly beat on earnings reported Thursday wasn't as robust as during the previous four quarters, when UnitedHealth Group beat expectations by anywhere from 5 cents to 11 cents per quarter.

"I don't know whether I'm just spoiled or what," commented Kevin Fischbeck, an analyst with Bank of America, during a conference call. "I was a little bit surprised there wasn't more upside in the quarter, or around the guidance."

While Fischbeck questioned whether the results were driven by troubling growth in medical cost trends, UnitedHealth CEO Stephen Hemsley said there were no surprises and the company wasn't changing its forecast for growth in medical costs.

UnitedHealth shares were down more than 4 percent Thursday in early trading but recovered some later. They closed at $120.17, down less than 2 percent for the day.

UnitedHealth Group employs more than 170,000 people worldwide, including about 14,000 in the Twin Cities.

This month, the company announced plans to hire 1,700 people in the Twin Cities over the next six months, a sharp contrast to other big health insurers that have been sizing up job cuts amid industry consolidation.

Christopher Snowbeck • 612-673-4744