CHICAGO, IL — UnitedHealth Group Inc.
The health insurer, whose stock recovered in afternoon trade, also boosted its 2006 earnings forecast. UnitedHealth said that start-up costs to launch the U.S. government’s Medicare prescription drug program shaved 2 cents per share off quarterly earnings.
Those costs were higher than expected, according to some analysts, who said that investors had become accustomed to UnitedHealth beating estimates handily.
“It’s hard not to be confused about trends at the company,” said David Shove, an analyst at Prudential Securities, following an hour-long presentation by company executives.
Still, Shove is bullish on the company and said better-than-expected Medicare enrollment and slowing medical cost increases were positive trends for the company.
Minneapolis-based UnitedHealth posted net earnings of $870 million, or 65 cents per share, up from $739 million, or 54 cents per share, a year earlier.
Excluding market launch expenses for Medicare’s so-called Part D prescription drug benefit program, earnings were 67 cents per share.
Wall Street analysts polled by Reuters’ Estimates had expected 65 cents per share. It was not immediately clear which analysts had factored the Medicare cost impact into their forecasts.
Revenue rose 15 percent to $12.05 billion, fueled by growth in premiums.
UnitedHealth raised its 2006 earnings outlook to $2.85 to $2.90 a share, up from a prior view of $2.82 to $2.85. Analysts were expecting profit of $2.91 per share on average, Reuters Estimates said.
The company is the first of its peers to post results in the quarter and is seen as a gauge of sector health. The Morgan Stanley Healthcare Payer Index <.HMO>, comprised of UnitedHealth and its peers, was up less than 1 percent.
MEDICARE RESPONSE “IMMENSE”
UnitedHealth in December sealed its $9.2 billion acquisition of rival insurer PacifiCare, which is one of the biggest players in the Medicare market. The industry is consolidating to gain greater negotiating traction with hospitals and pharmaceutical companies.
Chief Executive William McGuire said on a conference call that the company will be less active on acquisitions in 2006.
Despite the quarterly costs, McGuire called the market response to the new Medicare offering “immense.”
In January, the federal government added a prescription drug benefit to Medicare, the federal health plan for the nation’s 42 million elderly.
UnitedHealth now has 4.3 million people signed up to its Medicare plan and expects the plan to add $5 billion to revenue in 2006, he said.
The Medicare Part D program has gotten off to a rocky start. Last week the government asked insurers to cover prescription drugs for Medicare patients who signed up, after thousands of patients were unable to get their medicines.
The watchdog group Foundation for Taxpayer and Consumer Rights said UnitedHealth‘s double-digit profit growth translates to a bad deal for patients.
“Every dollar spent on overhead and handed out in profit means patients and employers pay more for less health care,” the group’s health policy director, Jerry Flanagan, said.
He said private insurers were less efficient than Medicare, noting that about 80 percent of the premiums they collect cover medical care. The remaining 20 percent goes to administrative expenses and profit; by comparison, the government in medical plans like Medicare spends just 2 percent on administrative costs.
“It’s an indicator of how inefficient the private market has become,” Flanagan said.
Health insurers typically argue that they provide more and better services than their government counterparts.
UnitedHealth shares rose 28 cents to $61.35 in afternoon trade on the New York Stock Exchange. Earlier the shares touched $59.30.
With reporting by Edward Tobin in New York