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UnitedHealth: PPACA Rebate Shift Helps Earnings

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UnitedHealth Group Inc. had no complaints about the effects of the new medical loss ratio (MLR) on first-quarter earnings.

UnitedHealth, Minnetonka, Minn. (NYSE:UNH), says an MLR-related adjustment added $130 million to its profits for the quarter.

UnitedHealth is reporting $1.4 billion in net income for the quarter on $27 billion in revenue, up from $1.3 billion in net income on $25 billion in revenue for the first quarter of 2011.

The company ended the quarter providing or administering major medical coverage for about 36 million people, up from 34 million a year earlier.

UnitedHealth President Stephen Hemsley took pains during the company’s earnings call to emphasize that commercial health insurance is just one of the many products that the company sells.

The company also sells government plan coverage, administrative services, data services and other services, and the fact that commercial insured plan enrollment fell 190,000 during the quarter, to 9.4 million, was expected, Hemsley said.

Company executives said during the earnings call that the drop in insured commercial enrollment was due mainly to the loss of one large government plan customer and decisions by two other large employer groups to self-insure. The groups that chose to self-insure hired UnitedHealth to run the plans, the executives said.

Overall health plan enrollment should increase about 700,000 to 900,000, Hemsley said.

The Patient Protection and Affordable Care Act of 2010 (PPACA) requires health insurers to spend 85% of commercial large group revenue and 80% of commercial individual and small group revenue on health care and quality improvement efforts.

The company’s consolidated MLR was 81%, down 0.4 percentage points from a year earlier.

The overall commercial benefits ratio increased 0.1 percentage points, to 78.7%.

The $130 million MLR-related gain was the result of changes in federal MLR calculation rules and announcements about whether states would treat plans with 50 to 100 lives as small groups or large groups, executives said during the earnings call.

The company has not disclosed how much it is paying out in MLR rebates.

Hemsley made a plea for investors and securities analysts to look beyond the Washington headlines when thinking about his company.

“As we’ve told you consistently, we greatly respect the headwinds facing us this year,” Hemsley said. “Yet, longer term, fundamental market needs for improved health care access, affordability, quality and simplicity continue to grow, regardless of legal or legislative processes.”


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