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UnitedHealth Group Optum-izes Its Q4 Results

By Sean Williams - Jan 16, 2014 at 12:59PM

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UnitedHealth Group delivers strong growth from its pharmacy services business but sees its medical cost ratio rise anyway.

The nation's largest health insurer, UnitedHealth Group (UNH -0.10%), kicked off earnings season for the sector this morning by producing generally positive growth and profit figures, but was held back by ongoing reimbursement concerns.

For the quarter ended Dec. 31, 2013, UnitedHealth Group reported $31.12 billion in revenue, a slightly better than 8% increase from the year-ago period, as it added 170,000 new members. Net earnings for the fourth-quarter increased by 18% to $1.4 billion, or $1.41 per share.

The real story on the earnings growth front continues to be its health care services operations, Optum, which saw revenue spike 35% from the year-ago period to $10.2 billion, led by a 31% growth surge in its pharmacy services revenue. This is also the same operating segment that includes Quality Software Services, the company which has overseen the fixes of the Obamacare website, Healthcare.gov. Optum also delivered a 43% increase in its operating income for the quarter.

UnitedHealth's more traditional insurance enrollment operations saw modest membership gains in the fourth quarter and full year, however the shift from risk-based to fee-based services affected revenue negatively.

On the downside, concerns exist with regard to the company's Medicare Advantage business, a type of supplemental insurance purchased by seniors to help defray the costs that Medicare doesn't cover. Although revenue was up 11% to $11 billion in the fourth quarter, UnitedHealth's medical care ratio increased 70 basis points to 81.2% (a higher number is less favorable) signaling lower reimbursements from the government for this key program.

Looking ahead, UnitedHealth reaffirmed its full-year fiscal 2014 forecast which calls for revenue of $128 billion to $129 billion, implying about 5% year-over-year growth at the midpoint, with EPS expected in a range of $5.40 to $5.60, implying flat EPS growth.

Shares are down roughly 3% in midday trading.

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Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

The Motley Fool recommends UnitedHealth Group. 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.

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