Will UnitedHealth Earnings Top WellPoint and Humana?

UnitedHealth Group (UNH -0.15%) will release its quarterly report on Thursday, and investors have been pleased with the stock's performance over the past year. With the arrival of the Patient Protection and Affordable Care Act, UnitedHealth and peers WellPoint (ELV -0.32%) and Humana (HUM -5.14%) have had great opportunities to try to make the most of health-care reform, seeking to capture a greater number of insurance customers even as they have to offer different services than they have in the past. The big question is whether UnitedHealth earnings will get more positive impact from serving more customers than negative impact from changes like having to ignore preexisting conditions.

UnitedHealth Group has taken a middle-of-the-road approach toward Obamacare. Rather than follow in the footsteps of WellPoint, which has committed to making its presence felt throughout the nation on Obamacare-provided health insurance exchanges, UnitedHealth has instead held back with only partial participation in certain key markets. That calculated gamble puts UnitedHealth in a better position to deal with any disappointment from the program and to adapt its approach to deal with changing conditions in relation to the Affordable Care Act. Let's take an early look at what's been happening with UnitedHealth Group over the past quarter and what we're likely to see in its report.

Stats on UnitedHealth Group

Source: Yahoo! Finance.

What's next for UnitedHealth earnings?
Analysts have gotten more downbeat in recent months about UnitedHealth earnings, cutting their fourth-quarter estimates by $0.03 per share and reducing their full-year 2014 projections by a more substantial $0.23 per share, or about 4%. The stock has largely topped out, remaining mostly flat since mid-October.

UnitedHealth's third-quarter report showed some of the challenges that the health insurance industry is facing right now. A 12% gain in revenue and a rise of 275,000 in its health-network customer count pointed to the success of its operations, especially with its acquisition of Brazil's health insurance giant Amil helping to bolster its international diversification. But earnings rose only 1%, and poor guidance for the full 2013 year led to dissatisfaction about how much of UnitedHealth's revenue is falling to the bottom line. In particular, poor reimbursement rates from Medicare weighed on profits, and with the government intending to keep a lid on those costs, UnitedHealth could well see further trouble ahead. WellPoint doesn't have as many Medicare members as UnitedHealth, but Humana gets nearly three-quarters of its total revenue from Medicare-related products, leaving it especially vulnerable.

Source: TaxFix.co.uk, Flickr.

Yet in dealing with those challenges, UnitedHealth has done a particularly good job. The company has kept its medical loss ratios relatively low, with most recent figures coming in at the low end of the mandated 80% to 85% range under Obamacare. By contrast, WellPoint has been toward the high end of the range. UnitedHealth has also gotten more aggressive in its premium pricing, making sure that higher premiums reflect adverse claim experience and the greater costs involved in providing mandated benefits under the Affordable Care Act.

Still, the big challenge in the long run for UnitedHealth, WellPoint, Humana, and other insurers will be operating costs. UnitedHealth has had to reduce the size of its physician network in order to deal with anticipated Medicare cuts. The impact on health care could be sizable, but membership growth should hopefully give UnitedHealth the leverage it needs to keep its costs under control even as the industry environment gets tougher. Moreover, UnitedHealth's efforts in bolstering its Optum unit, which incorporates health management, pharmacy benefits management, and other specialty services, gives the company a big competitive advantage over Humana and WellPoint as well as greater growth opportunities for the future.

In the UnitedHealth earnings report, watch to see how the company performs in keeping its costs down and its profits up. As more of the Affordable Care Act becomes law, UnitedHealth will need to work even harder to ensure that it remains as successful as it has in the past.

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