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Being a health insurance company investor has been a little hairy over the past couple of years, as health care reform legislation parcels out new aspects of the law each year. On Thursday, UnitedHealth Group (NYSE: UNH ) , the nation's largest insurer, will post Q4 earnings, and there's no reason to think that this report won't be as sparkly as the previous ones.
Upward trend for 2012
Overall, the company's earnings and revenue consistently beat analysts' predictions. In Q3, the insurer missed estimates for revenue, but still managed to increase that metric by 8% from the previous year. Peers Humana (NYSE: HUM ) and WellCare (NYSE: WCG ) have had less luck, and the latter has suffered acutely since its own disappointing Q3 report. Humana saw its net profit drop by 4.3%, while WellCare posted a gut-wrenching decrease of 57%.
Even when UnitedHealth's CEO, Stephen Hemsley, was griping about the teensy rate increases for Medicare, as he did last summer, he was raising profit guidance at the very same time. The insurer added 2.15 million new customers as of its last report, and 670,000 of those were enrolled during the third quarter.
Acquisitions are likely fueling revenue and growth, too. Early in 2012, the company closed on its purchase of XLHealth Corporation, which serves Medicare patients with special health care needs through Medicare Advantage programs. UnitedHealth has also moved into the burgeoning Brazilian health care market through its recent acquisition of a 90% interest in megahealth care provider Amil. The new purchase is expected to add $5 billion in revenue each year to UnitedHealth's coffers.
Obamacare presents new challenges
UnitedHealth recently received a downgrade from "buy" to "hold" from Deutsche Bank because of concerns about the firm's medical loss ratios. This new rule, which took effect on January 1, 2011, requires health insurers to use between 80% and 85% of each premium dollar on health care delivery, depending upon the plan, with the remainder to be used for administrative costs. If insurers fall below those MLR thresholds, they are required to rebate the difference back to consumers.
Deutsche Bank noted that UnitedHealth has low MLRs for both its commercial and Medicare segments -- not a good recipe for hanging on to profits. UnitedHealth's low MLRs caused it to repay customers a cool $311 million in rebates last summer, representing the first full year that the Affordable Care Act made that requirement the law of the land.
Despite that hefty payment, the company's profits didn't seem to suffer. How will UnitedHealth round out the year? Tune in later this week to get the scoop on the company's Q4 earnings report -- and a better view of how 2012 treated the big health insurer.None