Health insurance giant UnitedHealth Group (UNH +1.20%) has done an admirable job of navigating the ever-changing landscape of healthcare reform over the past several years. The company was slow to embrace the health insurance exchanges set out in the Affordable Care Act, and that helped leave UnitedHealth less vulnerable when the Trump administration sought to repeal and replace Obamacare. Even as many focused on the positives of tax reform, UnitedHealth had to find ways to navigate the return of the excise tax on health insurance premiums in 2018 without seeing a material negative impact to its bottom line.
Coming into Tuesday's first-quarter financial report, UnitedHealth investors were confident that the company would find a way through its challenges to produce good performance. UnitedHealth not only delivered solid results but also said it expects things to get even better for the remainder of 2018, and that gave investors even more enthusiasm for the future.
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UnitedHealth starts 2018 strong
UnitedHealth's first-quarter results reflected the extent to which the health insurance giant has capitalized on its growth opportunities. Sales of $55.19 billion were higher by more than 13% from year-ago levels, and that was even better than most of those following the stock had expected to see from UnitedHealth. Net income soared more than 30% to $2.84 billion, and after making allowances for some one-time impacts, adjusted earnings of $3.04 per share were well above the consensus forecast among investors for $2.91 per share on the bottom line.
With tax reform in the books, attention returned to UnitedHealth's fundamental business performance. Favorable medical cost reserve development of $290 million gave a boost to the company, helping to offset the rising operating cost ratio that stemmed from the restart of the health insurance tax following its previous suspension. Lower corporate income taxes also had a favorable impact on net margin, which was higher by more than half a percentage point from the year-earlier quarter.
The UnitedHealthcare health insurance segment enjoyed sizable gains, with segment revenue climbing 13% as the unit boosted its customer count by 2.2 million over the course of the year. Segment operating income climbed 12.5%. The biggest gains came from the community and state business, where sales climbed 19%, and from a 14% rise in revenue from Medicare and retirement customers. The private employer and individual business saw growth lag behind, but that was largely expected because of employer shifts of retirees away from private insurance plans toward group-based Medicare Advantage plans. The global unit benefited from its merger with Empresas Banmedica to gain exposure to markets in Chile, Colombia, and Peru.
The Optum health services segment also fared well. Revenue climbed 11%, led by gains in the OptumHealth division of more than 20%. Slower growth at the OptumRx pharmacy benefit service held back overall top-line gains, but UnitedHealth still fulfilled more than 330 million prescriptions during the quarter, and specialty pharmacy and home delivery services remain important components of growth.
Can UnitedHealth keep growing?
CEO David Wichmann was pleased with how the company has done. "We have grown to serve more people in more ways than ever," Wichmann said, "including through innovative uses of advanced technologies, data analytics, and modern clinical approaches that improve quality, lower cost, and advance consumer and care provider satisfaction."
Because of that strong performance, UnitedHealth believes that the rest of the year should look even better than it previously expected. The health insurance giant increased its guidance for full-year adjusted earnings, with a new range of between $12.40 and $12.65 per share. That figure is $0.10 higher at the low end and $0.05 higher at the upper end, and it shows the continuing confidence that the company has that it will be able to keep finding ways to deal with regulatory changes while remaining profitable and growing the size of its business.
UnitedHealth investors celebrated the news, and the stock was higher by 2% in pre-market trading following the announcement. Even with companies across the industry having to work hard to find ways to make the most of the rapidly changing environment in healthcare, UnitedHealth looks poised to take advantage of all the opportunities that it can find to grow and prosper in 2018 and beyond.
