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Bellwether Health Insurer Posts 30 Percent Profit

Source: Wall St. Journal

Posted on 22 Jan 2010

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UnitedHealth, the nation's largest insurer by revenue, posted a 30% leap in profits, due to improvements in several key metrics, say analysts.

Membership attrition is starting to slow after several years of job losses had reduced rolls; premium rates have remained steady despite the recession and the charged political environment; and medical costs have been kept in line, signaling that worries about H1N1 flu and higher utilization of health care might not damage the sector as much as some had feared, the analysts said.

Profits rose to $944 million in the fourth quarter, compared with $726 million a year earlier. Results for the prior year included $350 million in litigation settlement-related costs. Revenue increased 6.5% to $21.78 billion.

Analysts say there could be similar strength in other companies' fourth quarters. "It looks like an improving picture," said Matthew Borsch, an analyst at Goldman Sachs. "These are very solid earnings. And these companies were poised to face a lot of very restrictive regulations. They were being demonized in Congress, and now there is a sense that something more bipartisan might happen."

The likelihood that health reform may be delayed or even dead is seen as a boon for the sector, which has protested vigorously against bills in the House and Senate that would raise taxes, cut funding for privately run Medicare plans and regulate how much in premiums the plans are required to spend on medical costs.

Stephen Hemsley, United's chief executive, says the company is increasingly diversified and able to prosper under whatever scenario might emerge from Washington.

"The scope of our business model is unique and allows us to look at health-care market opportunities very broadly," Hemsley said. "This includes our view of the coming health-care modernization era, where we will pursue an opportunistic path and help enable change."

Still, growth will be a challenge for the industry. The overhaul efforts would give insurers the opportunity to sell their products to some 30 million uninsured Americans. The industry is hard-pressed to reach those customers without subsidies to help them afford coverage. That leaves insurers to grapple with the same membership base that keeps shrinking as rising health-care costs price more employers and their workers out of the system. "There's not much growth left in the commercial business. The question is just how much can they slow the losses," said Carl McDonald, an analyst at Oppenheimer & Co.