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UnitedHealth Bets on Medicare, Medicaid After ACA Exchange Exit

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(Bloomberg) — UnitedHealth Group Inc. is doing well doing business with the U.S. government. Just not in Obamacare.

The company has added more than a million customers in its federally funded Medicare and Medicaid businesses since Dec. 31, bringing the total in the company’s public programs and seniors unit to 14.9 million, it said in a statement Tuesday announcing first-quarter results. It had a total medical membership of 49.3 million people, even after it left most of the Affordable Care Act public exchange programs.

(Related: Blue Cross Carrier to End Iowa Individual Sales in 2018)

Shares of the biggest publicly traded U.S. health insurer gained 1.7% to $170 at 6:58 a.m. in New York, before the markets opened. They’re up 31% in the last 12 months, as of Monday’s close.

The company has been expanding in Medicare, where it offers private health plans for the elderly, and in Medicaid, where it helps states manage low-income individuals. Those businesses have proven to be more lucrative than Obamacare’s individual market, where UnitedHealth broadly retreated after offering plans on the health law’s exchanges in 34 states last year.

The trends in UnitedHealth’s government business will help boost profits. The Minnetonka, Minnesota-based company predicted that earnings for the full year, excluding some items, will be $9.65 to $9.85 a share. That’s well above the $9.51 projected by analysts, according to an average of estimates compiled by Bloomberg, and above the company’s January forecast.

First-quarter earnings excluding some items were $2.37 a share, topping the $2.17 average of analysts’ estimates.

Distracted Rivals

UnitedHealth has also benefited from the entanglement of its major rivals in two massive deals. Humana Inc. and Aetna Inc., the No. 2 and No. 3 sellers of private Medicare plans, in February ended their long effort to combine, after the transaction was blocked by a federal judge. Anthem Inc. and Cigna Corp. are embroiled in several legal challenges tied to their merger attempt, and a key ruling could come this week.

Health insurers are also getting a boost from a one-year pause of a tax on the industry under the Affordable Care Act. UnitedHealth said the tax holiday pushed the company’s tax rate down to 30 percent, and that it expects the full-year rate now to be 32.5 percent.

The company’s technology, consulting and medical-care arm, known as Optum, contributed to growth in the quarter. Optum posted operating earnings of $1.28 billion, 16% higher than a year earlier. Operating earnings at the health-insurance business climbed 15% to $2.13 billion.

UnitedHealth has used a series of acquisitions to expand Optum. In the first quarter, it acquired medical provider Surgical Care Affiliates Inc. in an about $2.3 billion deal. Surgical Care said it serves about 1 million patients a year at its 205 facilities. The OptumHealth medical unit mainly consists of urgent care and primary care, and saw revenue climb 18% in the quarter.

Growth was slower at the OptumRx pharmacy-benefits operation, where revenue increased 4.7 percent. The company acquired rival pharmacy-benefits manager Catamaran Corp. in 2015.

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