Exclusive update

UnitedHealth posted solid fourth-quarter results this week, with no real surprises given that the company provided an update during its investor day in late November. The company's outlook for 2013 remained consistent with previously offered guidance, though management highlighted that new trends in seasonality would cause quarterly earnings to favor the back half of the year.

Insurance exchanges, brought about by the Affordable Care Act and being implemented later this year, were a hot topic on this quarter's earnings call. CEO Stephen Hemsley was clear in his conservative approach to participating in the program initially, outlining that the company would likely participate in 10 to 25 exchanges, but stopping short of offering any guarantee. Much of that conservatism has to do with a lack of specific rules for many exchanges and continued uncertainty around just how profitable this business will be at first.

In terms of operational performance, underlying trends in medical-care ratio – which measures medical costs relative to premiums – were favorable across the company's commercial and government program businesses, further underscoring UnitedHealth's disciplined approach to underwriting. The company has maintained that approach, and in doing so is fully prepared to lose commercial risk-based business if competitor pricing remains too aggressive.

2013 is shaping up to be a year of anticipation for the industry, as participants wait for more clarity emerging ahead of the individual mandate going into effect in 2014. UnitedHealth remains well positioned as a best-of-breed managed care player trading at less than 10 times estimated 2013 free cash flow.

Brenton Flynn has no position in UnitedHealth. Motley Fool newsletter services have recommended buying shares of and creating a diagonal call position in UnitedHealth Group.