2008 was not kind to health insurers. Higher-than-expected medical costs, lower-than-expected memberships because of rising unemployment, and capital losses combined to create a horrible year for insurers like Humana
2009, however, is starting off right. Unfortuantely, investors aren't sure whether it's a sign of better things to come, or a fleeting anomaly.
Yesterday, UnitedHealth Group
There was little to hate about UnitedHealth's release. Membership in the commercial-based service was down, but not nearly as much as expected, and membership in Medicaid programs was up. Revenue jumped 8% year over year, and the company was able to grow earnings per share by 4% (to $0.81 per share), thanks to the medical care ratio holding steady at 82.4%.
With all the good news floating around, why is UnitedHealth still trading at 7.3 times the middle of this year's guidance? Alas, there's still plenty of uncertainty hanging over the company. UnitedHealth wasn't willing to increase guidance, and it said that second-quarter earnings would be lower than the first quarter (as is usually the case). The company's industry could also be poised for massive change. It isn't clear exactly what Congress will do to satisfy President Obama's desire to lower health-care costs, but the end result isn't likely to have a positive effect on the industry, and it could cut into margins considerably.
Just like investors in Citigroup