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Health margin squeeze nips UnitedHealth

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Individual health insurance premiums seem to be moving higher.

Executives at UnitedHealth Group Inc. (NYSE:UNH) gave that assessment today during a conference call the company organized to go over third-quarter earnings with securities analysts.

The company is reporting $1.6 billion in net income for the quarter on $41 billion in revenue, compared with $1.6 billion in net income on $33 billion in revenue for the third quarter of 2014.

The UnitedHealthcare commercial health insurance unit reported $1.9 billion in operating earnings for the latest quarter on $33 billion in revenue, compared with $2 billion in operating earnings on $30 billion in revenue for the year-earlier quarter.

The health insurance unit ended the quarter providing or administering major medical coverage for 46 million people, up from 45 million a year earlier, but its operating profit margin fell to 5.7 percent, from 6.8 percent.

“A continuing market trend toward lower price point products, including public exchange offerings” put pressure on health insurance revenue and profit margins, the company said in an earnings announcement.

The company held back from the Patient Protection and Affordable Care Act (PPACA) exchange system in 2014 but jumped into the market this year. It now has about 550,000 exchange qualified health plan (QHP) enrollees.

The company expects to sell products through the exchange system in 11 additional states in 2016, the company said.

See also: UnitedHealth unit to join Covered California exchange

David Wichmann, the president of UnitedHealth, said that the company’s exchange QHP enrollees had relatively low medical costs during the first half, but that company managers saw market-wide data suggesting that medical claims for the QHP enrollees for the full year would be higher than expected.

“Rather than wait for our own experience with our new members to fully develop, we increased rates and repositioned certain products market by market for 2016,” Wichmann said. “We expect improved performance next year.”

Matthew Borsch, a securities analyst at Goldman Sachs, asked UnitedHealth executives why they think the exchange QHPs will do better in 2016.

Dan Schumacher, chief financial officer of UnitedHealthcare, said one reason for optimism is that the company increased prices an average of more than 10 percent in many markets.

Jeff Alter, chief executive officer of the company’s employer and individual health unit, said later during the conference call that UnitedHealth has made, and continues to make, prudent decisions on pricing.

“The market is firming a little bit on pricing,” Alter said.


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