UnitedHealth Group predicts Medicare growth

With quarterly profits again soaring beyond expectations, UnitedHealth Group executives on Tuesday predicted more growth in the market for Medicare health plans, which includes new offerings in Minnesota.

The Minnetonka-based company's UnitedHealthcare division is the nation's largest health insurer and largest seller of Medicare Advantage plans, which a growing number of beneficiaries purchase as a way to obtain government health benefits through a private insurer.

Minnesota's market for Medicare coverage is in flux this fall, with the elimination next year in 66 counties of Medicare Cost plans — a different form of government coverage via private insurers that is used by more than 300,000 people in the state.

UnitedHealthcare is launching Medicare Advantage plans here in the midst of the change, as is a joint venture between insurance giant Aetna and the Minneapolis-based Allina Health System.

"We expect a strong year from Medicare Advantage," David Wichmann, UnitedHealth Group chief executive, said in a conference call with investors.

While Wichmann didn't specifically mention Minnesota in his comments, the company has previously disclosed its plans for growth in its home state. UnitedHealthcare plans on offering standard individual Medicare Advantage plans in 119 additional counties next year including nine counties in Minnesota. The expansion will bring the overall Medicare Advantage tally to 1,759 counties — more than half of the roughly 3,000 counties in the United States, overall.

Third-quarter profit was up 28 percent at UnitedHealth Group, as the company easily beat analyst expectations for earnings and raised financial guidance for the year. The company's shares advanced more than 4.7 percent Tuesday.

Medicare has emerged as one of the company's largest sources of health-insurance revenue. During the third quarter, UnitedHealthcare saw nearly $18.8 billion in revenue from Medicare and retirement products including Advantage plans.

The plans are a type of coverage offered by private companies that contract with the federal government to provide all of an enrollee's Medicare benefits. A March report from the market-research firm Mark Farrah Associates listed UnitedHealthcare as the nation's largest Medicare Advantage company with more than 5.2 million members.

The annual shopping season for Medicare coverage started Monday, and it's unusual in Minnesota due to the disappearance of many Medicare Cost plans. As mandated by law, the government is "sunsetting" the plans in 66 counties where there's significant competition from Medicare Advantage plans, which the government has favored for taking the financial risk in managing enrollees' health care use.

The long-term growth rate with Medicare Advantage has been 7 percent to 8 percent, said Brian Thompson, chief executive of UnitedHealthcare's Medicare business.

"Our planning is certainly to outpace that rate, as we have now for four or five years," Thompson said.

Cost-plan enrollees don't have to pick a Medicare Advantage plan, and can opt instead for original Medicare. People who use the traditional government program often buy Medigap supplementary insurance policies as well as Part D drug coverage — markets where UnitedHealthcare also is one of the nation's largest insurers.

More than 4.9 million people were enrolled in Medicare Advantage plans from UnitedHealthcare at the end of September. Among those on original Medicare, 4.5 million people were buying Medigap policies from UnitedHealthcare last month, while 4.7 million people were buying stand-alone Part D prescription drug plans from the insurer.

Health insurance continued to generate most of UnitedHealth Group's revenue, its new quarterly results showed, but the company's Optum unit for health care services generated a bigger profit margin. Optum includes direct patient care, a division for analytics and information technology and a pharmaceutical benefits management (PBM) business that's growing with acquisitions.

UnitedHealth announced Tuesday that the PBM business acquired a Phoenix-based specialty pharmacy called Avella, but did not disclose financial terms. Last month, UnitedHealth acquired Genoa Health, which runs pharmacies in behavioral health clinics, for a reported $2.5 billion.

"Drug companies are free to increase prices at will. The PBM acts as a mechanism to discipline that process," Andrew Witty, Optum's chief executive, said on the call with investors.

For the quarter, UnitedHealth Group's net income rose 28 percent to $3.2 billion. Revenue rose 12.5 percent to $56.6 billion.

On a per-share basis, adjusted earnings of $3.41 beat by 12 cents the earnings expected among analysts surveyed by Thomson Reuters.

For full-year 2018, UnitedHealth now expects its per-share profit to approach $12.10, up from the prior range of $11.80 to $12.05. It said that adjusted per-share earnings, which exclude the effects on one-time events, will approach $12.80 for the full year, above its previously forecast range of $12.50 to $12.75.

Christopher Snowbeck • 612-673-4744 Twitter: @chrissnowbeck