MINNETONKA (dpa-AFX) - Health insurer UnitedHealth Group Inc. (UNH) on Thursday reported an 8 percent decline in profit for the first quarter from last year, as higher revenues were more than offset by costs and taxes related to the Affordable Care Act as well as a reduction in government spending known as the sequestration.
However, earnings per share for the quarter beat analysts' expectations, while revenues missed their estimates. Looking ahead, the company reiterated its outlook for fiscal 2014.
Stephen Hemsley, president and chief executive officer of UnitedHealth Group said, 'We performed steadily in the first quarter, with continued momentum from our Optum health services platform and year-over-year growth across our UnitedHealthcare health benefits platform offset by headwinds from new ACA taxes and Medicare Advantage funding deficiencies.'
The Patient Protection and Affordable Care Act, commonly called the Affordable Care Act or 'Obamacare', was signed into law by President Barack Obama in March 2010 with the objectives of increasing the quality and affordability of health insurance. It is the most significant regulatory overhaul of the U.S. healthcare system in recent years.
UnitedHealth's net earnings attributable to common shareholders for the first quarter declined to $1.10 billion or $1.10 per share from $1.19 billion or $1.16 per share in the prior-year period. The latest quarter's results include $0.35 per share in health care reform and sequestration burden.
On average, 22 analysts polled by Thomson Reuters expected the company to report earnings of $1.09 per share for the quarter. Analysts' estimates typically exclude one-time items.
However, revenues for the quarter grew 5 percent to $31.71 billion from $30.34 billion in the year-ago period. Analysts had a consensus revenue estimate of $31.99 billion for the quarter.
Revenue growth was led by growth in people served in the public and senior markets at UnitedHealthcare and broad-based growth across Optum.
The company's net margin for the quarter declined to 3.5 percent from 4.6 percent in the prior-year quarter. The effects of the ACA and sequestration reduced the recent quarter's net margin by around 110 basis points.
UnitedHealth's first-quarter income tax rate of 42 percent increased more than 5 percentage points year-over-year, reflecting provisions in the ACA.
UnitedHealthcare segment's revenues for the quarter increased 4 percent from the year-ago period to $29.25 billion. Optum, the company's health services business, recorded 29 percent increase in revenues from the prior-year quarter to $11.17 billion.
The number of people served by UnitedHealthcare across all medical benefit markets increased by 2.7 million in the past 12 months, but declined by 780,000 people in the latest quarter. The company noted that decreases in both domestic and international commercial benefits more than offset growth in public and senior markets.
The number of people served by UnitedHealthcare at the end of the first quarter rose to 44.67 million from 42.02 million a year ago, but declined from 45.45 million people at the end of the preceding fourth quarter.
Looking ahead to fiscal 2014, United Health reiterated its outlook for earnings in a range of $5.40 to $5.60 per share and 5 percent growth in consolidated revenues to a range of $128 billion to $129 billion. Analysts expect the company to earn $5.59 per share for the year on revenues of $128.94 billion.
UNH closed Wednesday's trading at $78.19, down $1.32 or 1.66 percent on a volume of 8.10 million shares. In Thursday's pre-market, the stock is down $0.77 or 0.98 percent to $77.41.
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