UnitedHealth sees potential in 'next phase' of health reform

With speculation swirling about how Republicans might replace the federal health law, the chief executive of UnitedHealth Group said Tuesday he sees the potential for changes that promote state-based markets, flexible Medicaid programs and well-structured high-risk pools.

Even so, the nation's largest health insurer has "no better sense than anyone else concerning the timing or ultimate actions with respect to the Affordable Care Act," said Stephen Hemsley, the CEO at Minnetonka-based UnitedHealth, during a call with investors.

"We remain positive and constructive with respect to what ultimately evolves in the next phase of health care change," Hemsley said.

On Tuesday, UnitedHealth Group reported fourth-quarter results that beat analyst estimates for earnings and revenue, driven in part by growth at its Optum division for health care services. Profit for the quarter grew by 56 percent compared with the same period last year, and the company said it likely will post nearly $200 billion in revenue during 2017.

The promised repeal and replacement of the federal ACA by Republicans at the federal level has created uncertainty for insurers about the individual and Medicaid markets that have been reshaped by the law. UnitedHealth Group has a large Medicaid business, but has reduced its exposure to the individual market where health law changes have generated losses for carriers.

Due to financial losses, the company's UnitedHealthcare insurance division abandoned this year most of the new health exchange marketplaces launched under the health law. Nonetheless, the exchanges might persist "where states choose to sustain them," Hemsley said.

"We believe, all of these, taken together, can represent effective, local, state-based coverage systems, which can well accommodate those currently within the ACA individual exchanges, as well as serve as channels for further expanding coverage if that remains the focus," he said. "We see this approach as being simpler, offering more flexibility, more choice and more affordability to both consumers and state and federal sponsors."

Earlier this month, United announced a $2.3 billion acquisition that will make its Optum division one of the largest operators of surgery centers in the country. For 2016, Optum grew revenue at a faster rate than the company's UnitedHealthcare business, which is the nation's largest health insurer.

In the fourth quarter, medical cost trends at UnitedHealthcare moderated due in part to reduced pressure in the individual market. UnitedHealthcare provided benefits to more than 44 million at the end of the fourth quarter, up from more than 42 million people at the end of 2015.

Overall, the results show that UnitedHealth Group has "plenty of momentum" going into 2017, wrote Christine Arnold, an analyst with Cowen and Company, in a research note. The company forecast growth of about 200,000 people in commercial health insurance products, and as many as 800,000 people in Medicare products, wrote Matthew Borsch, an analyst with Goldman Sachs.

"We continue to see these market-share gains in price-sensitive risk products as a potential red flag for margin compression," Borsch wrote, "although we acknowledge the alternate hypothesis that [UnitedHealth] gains are margin sustainable owing to competitively-superior medical cost management."

Hemsley told investors he would not discuss specifics of what might come next in federal health care policy. Republicans last week began the process of repealing the ACA, and President-elect Donald Trump has called for replacement legislation to be adopted in tandem with the repeal.

Some Republican plans have called for the creation of high-risk pools that before the health law provided a source of insurance, albeit with higher prices and coverage limitations, to people with preexisting health care conditions. One of the most popular changes brought by the ACA was a ban on health insurance rules that let companies deny coverage to individuals with a history of health problems.

UnitedHealth Group has published a background paper in which it calls for a "modern, high-performing, simpler health care system." Part of the plan would create new state-federal coverage partnerships that consolidate funding for Medicaid along with the public exchanges, where individuals can buy private coverage.

Medicaid is the state-federal health insurance program for low-income Americans. In the position paper, United says "new State-Federal coverage partnerships would utilize the existing State-based Medicaid administrative platforms that currently cover more than 70 million Americans."

For the fourth quarter, UnitedHealth Group posted a profit of $1.9 billion on revenue of $47.52 billion, better than the year-ago quarter results of $1.2 billion in earnings on revenue of $43.59 billion.

After adjusting for one-time charges, earnings per share came in at $2.11, better than the $2.07 per share expected by analysts surveyed by Thomson Reuters. UnitedHealth Group affirmed its 2017 financial outlook, including revenue of $197 billion to $199 billion, net earnings of $8.75 to $9.05 per share, adjusted net earnings of $9.30 to $9.60 per share, and cash flows from operations of $11.5 billion to $12 billion.

Christopher Snowbeck • 612-673-4744

Twitter: @chrissnowbeck