What To Expect From UnitedHealth’s Q2 Results

by Trefis Team
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UnitedHealth (NYSE: UNH), the largest health insurer in the U.S., will announce its second quarter earnings on Tuesday, July 18. In Q1’17, the company reported robust earnings, with overall revenues growing by nearly 10% year-over-year (y-o-y) driven by the expansion of its Optum and private health insurance businesses. We expect UNH’s Optum division’s growth momentum to continue in the second quarter, aided by inter-division integration at UnitedHealth. We also expect UNH’s margins to improve this quarter. The company had pulled out of PPACA in the latter half of 2016, and we expect this move to reduce its losses from Medicaid managed care.

Robust Growth Of Optum Businesses Likely To Continue

UNH’s Optum Business consists of 3 segments – Optum Health, OptumRx Prescriptions, and Optum Insight consulting. The revenues for all three segments have grown consistently in the last 5 years due to acquisitions, an increasing customer base and growing revenue per customer. In Q2’16, UNH’s Optum revenues grew by nearly 50% due to the acquisition of Catamaran and Helios. In Q2’17, we expect the revenue growth to be in the high single digits, and will come entirely from organic expansion. Overall, we expect UNH’s Optum division to carry the growth momentum forward, taking advantage of inter-division integration at UnitedHealth that allows Optum to offer its services to customers of the company’s health insurance businesses.

Margins Likely To Improve Due to Lower ACA Participation

UNH’s margins declined from 9% in 2012 to nearly 6% in 2016, primarily due to losses from Medicaid managed care. The segment witnessed high losses due to the implementation of PPACA, which mandated a minimum medical care ratio of 80% for individual and small group plans, and 85% for large group plans. In Q2’16, UNH’s overall margins fell by 110 basis points due to a loss of $200 million from the ACA. In the latter half of 2016, UNH pulled out of the PPACA exchanges in most states, which helped UNH lower its losses. UNH’s margins improved in Q1’17 due to a favorable base effect of lower segment earnings related to the individual Affordable Care Act market.

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