October 18, 2011 By Allison Bell
UnitedHealth Group Inc. earned about as much during the latest quarter as it did in the comparable quarter in 2010, but it is beginning to see the new federal medical loss ratio (MLR) rules affecting results.
UnitedHealth, Minnetonka, Minn. (NYSE:UNH), is reporting $1.271 billion in net income for the third quarter on $25 billion in revenue, compared with $1.277 billion in net income on $24 billion in revenue for the third quarter of 2010.
Stephen Hemsley, president of the health insurer, said today during the company’s earnings call that he is pleased with those numbers.
“Our results show continued growth,” Hemsley said. “People are purchasing more of our products.”
Utilization of health care was up a little, but less than the company had expected, and the actual cost of a unit care increased at a moderate rate, Hemsley said.
During the depths of the recession, group health plan enrollment levels sank throughout the industry because of the effects of layoffs. Growth in the number of employers offering coverage fell or stagnated at most carriers.
This quarter, at UnitedHealth, the number of commercial health products sold increased in both the group and individual markets, Hemsley said.
But UnitedHealth managers expect 2012 to be a more challenging year, Hemsley said.
“We expect unemployment to remain high and the rate of new of new business formation to be low,” Hemsley said. “We’re optimistic about our prospects for sustained, multi-year earnings growth.”
But “the challenges are considerable,” Hemsley said. “It is a difficult environment.”
Hemsley and other UnitedHealth executives, including Gail Boudreaux, the executive vice president, also talked some about the effects of Patient Protection and Affordable Care Act of 2010 (PPACA) on
the company’s performance.The PPACA MLR rules now require UnitedHealth and its competitors to spend at least 85% of large group revenue and 80% of individual and small group revenue on health care and quality improvement efforts. If UnitedHealth MLR levels fall below those minimums, the company must pay rebates to its customers.
The rebate requirements are starting to affect profit margins, Hemsley said.
Meanwhile, in part because of the effects of the MLR rules on competitors, “we have seen some pockets of greater price competition,” Hemsley said.
“Many of the competitors are dealing with reform implications,” Boudreau said.
Competitors also are dealing with the new PPACA rate review rules, Boudreaux said. The rules require insurers to go through an extra layer of reviews when they increase individual or small group rates more than 10%.
The PPACA MLR and rate review rules are having different effects in different markets, Boudreaux said.
But “I think people are broadly being rational about their positions in the market,” Boudreaux said in a comment on competitors’ pricing decisions.
One analyst asked about the possibility that implementation of PPACA could somehow be repealed or blocked.
At UnitedHealth, “we’re preparing our business for the future regardless of what happens with any court ruling,” Boudreaux said.