Lower Medicare Reimbursement Rates Hamper UnitedHealth Group's Q3

UnitedHealth Group (NYSE: UNH  ) , the United States' largest health insurance company, kicked off earnings season for insurers this morning with more of a whimper than a bang.

For the quarter, UnitedHealth reported a 12% increase in year-over-year quarterly revenue to $30.6 billion while delivering a modest 1% increase in profits to an adjusted $1.53 per share, right in-line with Wall Street's EPS expectations.

In the positives column, UnitedHealth added 275,000 more customers to its health network during the quarter and, thanks largely to its acquisition of Brazil's Amil, it has boosted enrollment by 4.35 million members year to date.

Perhaps more impressive were gains seen at its subsidiary Optum, which provides data analytics to the health care industry to improve business performance. Revenue at this division grew by 33% with a big boost from its pharmacy segment, which saw sales rise 41% to $6.3 billion.

But with a history of recent earnings beats, investors instead focused on UnitedHealth's narrowed full-year EPS forecast of $5.40-$5.50, which is a fraction below current estimates calling for $5.51 in full-year earnings.

At the heart of its subdued profit growth this quarter are lower Medicare reimbursements related to its Medicare Advantage members (plans designed primarily for seniors to help cover supplemental costs that Medicare does not). The Centers for Medicare and Medicaid Services has made no secret about its desire to lower reimbursement rates over the long run in order to reduce government-sponsored health aid under Obamacare.

Clearly this was evident with UnitedHealth's medical loss ratio -- a health care industry measure of margin that takes into accounts premiums collected versus expenses for medical care -- rising 160 basis points to 80.6% during the quarter. UnitedHealth also noted that year-over-year cost comparisons were difficult due to exceptionally low costs in the year-ago period, although it insists healthy cost controls remain in place.

Shares of the company were down more than 5% as of the early afternoon.

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