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UnitedHealth’s earnings: 3 lessons

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Executives at UnitedHealth Group Inc. (NYSE:UNH) continue to see the Patient Protection and Affordable Care Act (PPACA) as a major source of future growth.

The executives talked about their PPACA exchange program today during a conference call the company held to go over fourth-quarter earnings with securities analysts.

UnitedHealth is reporting $1.5 billion in net income for the fourth quarter on $33 billion in revenue, up from $1.4 billion in net income on $31 billion in revenue for the fourth quarter of 2013.

One unit helped the Obama administration get the PPACA exchange program back on track in 2014, and Andy Slavitt, the former chief executive officer of UnitedHealth’s Ingenix unit, is now the acting head of the Centers for Medicare & Medicaid Services (CMS). 

But the company’s commercial health insurance business, which includes its PPACA public exchange business, shrank.

UnitedHealthcare — the unit that oversees UnitedHealth’s commercial health insurance operations, is reporting $1.7 billion in operating earnings on $30 billion in revenue for the latest quarter, compared with $1.8 billion in operating earnings on $29 billion in revenue.

The company ended 2014 providing or administering medical coverage for 45 million people — 1 percent fewer people than it was covering a year earlier.

Enrollment in Medicare Advantage plans held steady, at about 3 million.

Enrollment increased 8.5 percent at its Medicare supplement plans, to 3.8 million, and 25 percent at its Medicaid plans, to 5 million.

Enrollment in fully insured commercial health plans fell 8 percent, to 7.5 million.

Stephen Hemsley, UnitedHealth’s president, said commercial health insurance revenue will increase this year.

“Growth in UnitedHealthcare’s small group and middle market group health business is also better than we had expected in a competitive but generally rational market landscape,” Hemsley said. “The self-funded employer business is positioned for stronger growth as well.”

But Hemsley and other company executives spent much of the conference call talking about their exchange business.

For three lessons drawn from the executives’ remarks, read on.

HealthCare.gov

1. To insurers, the PPACA exchange system still looks good.

UnitedHealth sold qualified health plan (QHP) coverage through only a few PPACA exchanges in 2014 and is selling coverage through 23 exchanges this year.

The company has already enrolled more than 400,000 people in individual exchange QHP coverage this year.

The 2015 open enrollment period started Nov. 15 and is set to end Feb. 15. Earlier, UnitedHealth executives were suggesting that the company might get 400,000 to 500,000 2015 QHP enrollees. Jeff Alter, head of the commercial health insurance business, said he now thinks the company could end up with 500,000 QHP enrollees.

He said the company still hopes to get a profit margin of about 1 percent to 2 percent from the exchange QHP business, without any reliance on the PPACA risk-management programs, and he said the company is hoping to eventually get profit margins of 3 percent to 5 percent from the exchange QHP business.

Managers of Covered California, California’s state-based exchange, recently refused to let UnitedHealth or other carriers that were licensed in California in 2014 and decided to stay off of Covered California in 2014 to sell coverage through the program statewide in 2016. Covered California will let UnitedHealth sell QHPs in 2016 only in markets with few other coverage options.

Alter said UnitedHealth will sell QHPs in the markets where Covered California lets it sell QHPs.

“Outside of California, we are working now to expand our footprint into the other markets that we didn’t serve in 2015,” Alter said. “We’re reviewing those markets now.” 

Crystal ball

2. UnitedHealth believes the commercial small-group business is going to continue to erode.

Alter noted that only about 50 percent to 55 percent of small employers now offer health benefits, down from 60 percent to 65 percent in the 1990s.

PPACA and the start of the PPACA exchange system have not had any obvious effect on the rate at which small employers are moving away from offering health benefits, Alter said.

The company expects the small-group market to continue to decline, but for the same reason it’s been declining since the 1990s, not because of PPACA, Alter said. 

Writing

3. UnitedHealth executives didn’t mention private exchange programs during the call, and no one asked them about the programs.

Many agents, brokers and employers who are uncomfortable with the rise of the PPACA exchange system are hoping that a strong private exchange industry will rise up to take it on.

But the topic of private exchanges did not come up during the UnitedHealth earnings call, and the company executives mentioned agents, brokers and consultants only once, during a discussion of the Optum unit.

See also: Carrier mum on public exchange strategy