UnitedHealth Group (NYSE:UNH) finished up 2012 in fine fettle, proving that insurers can still make healthy profits in the new age of health care reform.
Many hits, one slight miss
In its fourth-quarter report, the insurer surpassed expectations on earnings per share by $0.01, and revenue by $0.67 billion. Though revenues were up by 11% year over year, the company saw a slight decrease in net earnings in the fourth quarter, from $1.25 billion in the year-ago quarter to $1.24 in the last quarter, primarily because of higher operating costs.
The company's technology unit, Optum, brought in slightly less revenue than last year at $7.5 billion compared to $7.6 billion, but contributed more to earnings from operations: $459 million in the last quarter of 2012 compared to $279 million in Q4 of 2011.
Across all its businesses, UnitedHealth increased customers served to 83.7 million at the end of 2012, up from 78.1 million from December 31, 2011.
A concern of some analysts and investors was the effect of the influenza epidemic on fourth-quarter results. The company noted that only about $50 million in costs has been attributed to flu cases so far.
Obamacare offers new opportunities for the future
UnitedHealth management is bullish on 2013, predicting revenues of at least $123 billion for the year. The company is also planning to participate in the new health care exchanges provided for by health care reform. CEO Stephen Hemsley stated that the insurer plans to begin by opting in on between 10 and 25 of these entities, which will offer health coverage from private insurers.
Health care exchanges, which will begin enrolling members in September, are promising to be a hot commodity. Retail giant Walmart has recently expressed interest in hosting one, targeting small business owners. Currently, insurance broker Aon (NYSE:AON) is offering exchanges to companies like Sears Holdings (NASDAQOTH:SHLDQ)and Darden Restaurants(NYSE:DRI), which are in the process of changing the way employee health care benefits are administered.
Rival health insurer WellPoint (NYSE:ANTM) is working on its own exchange for employers and plans to enroll approximately 30 companies. WellPoint management thinks that these exchanges will become mainstream in a relatively short span of time.
Earlier this month, UnitedHealth and Aetna (NYSE:AET) announced that they intend to participate in a Connecticut state health exchange that will begin in the fall of 2014. Exchanges are not only for health insurers, either: Metlife (NYSE:MET) has notified the exchange that it would like to sell dental insurance, as well.
Few headwinds in 2013
These exchanges could conceivably revolutionize health care, since they are administered online, where private insurers would have direct access to consumers. Already, UnitedHealth is testing these waters by providing insurance through store-front sales venues in New York.
Between new opportunities like health care exchanges and the company's recent investment in Brazilian health care giant Amil, 2013 promises to be an interesting -- and profitable -- year for UnitedHealth Group.
Fool contributor Amanda Alix has no position in any stocks mentioned. The Motley Fool recommends Aon, UnitedHealth Group, and WellPoint. The Motley Fool owns shares of Aon, Darden Restaurants, and WellPoint. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.