Insurer UnitedHealth's 1Q profit climbs 3 percent

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By TOM MURPHY, Associated Press

UnitedHealth Group Inc.'s first-quarter net income rose 3 percent, and the insurer raised its 2012 earnings forecast as modest growth in health care use helped balance price hikes.

Sluggish growth in care use has helped health insurers turn in strong performances over the past several quarters, but analysts and industry observers have been uncertain about whether this trend is shifting. They say slow growth typically lingers after a recession, as patients put off care to save money.

UnitedHealth said Thursday its biggest expense, medical costs, jumped more than 6 percent to nearly $20 billion in the first quarter, but increases in the prices charged for care drove most of that. The Minnetonka, Minn., insurer saw only a "modest" increase in use, the other main factor behind costs, said Daniel J. Schumacher, chief financial officer for UnitedHealthcare, the insurer's largest segment.

Outpatient care like doctor visits is picking up but growth in more expensive items like elective surgeries remains slow, according to Sheryl Skolnick, an analyst for CRT Capital Group who covers UnitedHealth.

"I think it's fair to say folks are still very careful about how they spend their dollars and how they take their time off from work to use the health care system, and the (UnitedHealth) results reflect that," she said.

UnitedHealth earned $1.39 billion, or $1.31 per share, in the three months that ended March 31. That's up from $1.35 billion, or $1.22 per share, in the same quarter last year. Revenue grew 7 percent to $27.28 billion.

The performance topped Wall Street expectations. Analysts surveyed by FactSet forecast, on average, earnings of $1.16 per share on $27.01 billion in revenue.

UnitedHealth routinely trumps Wall Street quarterly expectations by a wide margin. The insurer reported a relatively solid quarter and guidance increase this year, but it also has produced "very strong first quarters in recent years and expectations may be high," Leerink Swann analyst Jason Gurda said in a research note.

The insurer said medical enrollment climbed 3 percent to 35.6 million people in the quarter compared with the end of 2011.

UnitedHealth recorded a $530 million gain because claims left over from previous quarters came in lower than the insurer expected. That compares to a $440 million gain in last year's quarter.

It also saw another gain as it updated estimates for premium rebates required under the health care overhaul. Insurers essentially must spend a minimum percentage of the premiums they collect on medical claims or issue rebates to consumers under a provision that started last year.

Overall, UnitedHealth now expects 2012 earnings to range between $4.80 and $4.95 per share. That's up from a previous forecast of between $4.60 and $4.80 per share. It expects revenue to fall between $109 billion and $110 billion.

Analysts forecast earnings of $4.83 per share on $109.1 billion in revenue.

UnitedHealth is the largest health insurer and the first to report earnings every quarter, so its performance is seen as a managed care bellwether. WellPoint Inc., the second largest insurer, reports results April 25, and Aetna Inc. follows on April 26. Humana Inc. reports its earnings April 30, and Cigna Corp. is scheduled for May 3.

Shares of UnitedHealth climbed 2.9 percent, or $1.65, to $58.97 in midday trading Thursday, while the Standard & Poor's 500 index fell slightly.

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