UnitedHeath Group (UNH) tops Street's view

Higher premiums and growing Medicare enrollment helped UnitedHealth Group (UNH) beat analysts’ estimates and the health insurer raised the lower end of its 2009 forecast. Profit of 73 cents a share was more than double the prior-year number; however, earnings only improved 8% when excluding the prior-year charges including a legal settlement. (Still a solid improvement, but it’s necessary to clarify.)

Revenues rose 7% to $21.66 billion, despite a 5.5% yearly decline in commercial membership. Revenue growth was driven by pricing increases as well as membership gains in the government business (Medicare and Medicaid).

The medical-loss ratio – the percentage of premium revenue used to pay patient bills – rose to 83.6% from 83.2% a year earlier. Medical expenses are watched as an indicator of future industry profits. The uptick in the medical-loss ratio was a result of increases in costlier Medicare and Medicaid patients, as well as increased illness due to the H1N1 swine flu virus.

While UnitedHealth had a good quarter, but the reliance on government business raises caution and might deter excitement about this outperformance. The government business could be less profitable for the company in the long run as payments from their government plans are expected to fall.

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Peter J. Lazaroff