Pay­ers likely to post healthy earn­ings for Q2

Modern Healthcare - - NEWS - By Rachel Lan­den

Sec­ond-quar­ter earn­ings for the ma­jor health in­sur­ers should be healthy with few sur­prises, de­spite fi­nan­cial pres­sures from fees, rate cuts and higher drug costs, and the po­ten­tial risk from a new pop­u­la­tion gain­ing cov­er­age un­der the Pa­tient Pro­tec­tion and Af­ford­able Care Act.

United Health Group, the bell­wether for the health in­sur­ance mar­ket, as well as the largest health in­surer in the coun­try, re­ports its quar­terly earn­ings July 17.

Three months ago, the Min­netonka, Minn.-based firm told its in­vestors that first-quar­ter earn­ings had fallen 7.8% to $1.1 bil­lion from $1.19 bil­lion in the year-ago pe­riod. That came de­spite a 4.6% in­crease to its top-line rev­enue.

As the largest provider of Medi­care Ad­van­tage plans, United Health was more af­fected by the Af­ford­able Care Act and se­ques­tra­tion fund­ing cuts than some of its peers—cost­ing it about 35 cents per share, ac­cord­ing to com­pany es­ti­mates. But UBS an­a­lyst A.J. Rice said he ex­pects a more pos­i­tive sec­ond quar­ter.

United Health’s rapidly ex­pand­ing Op­tum health ser­vices plat­form could help off­set any rate pres­sure. Op­tum’s rev­enue was up 29% for the first quar­ter, and its rep­u­ta­tion re­ceived a ma­jor boost af­ter the busi­ness unit played a piv­otal role in help­ing to fix Health­Care.gov.

Cost pres­sures from the ex­pen­sive hepati­tis C drug So­valdi are a bit of a wild card for in­sur­ers.

Well Point has called So­valdi its “big­gest watch item,” bud­get­ing $100 mil­lion of additional hepati­tis C drug costs to its 2014 out­look af­ter spend­ing close to $50 mil­lion on it dur­ing the first quar­ter.

In­di­anapo­lis-based Well Point, the na­tion’s sec­ond-largest health in­surer, has been sell­ing plans on the ex­changes in 14 states. When Well-Point re­ported first-quar­ter earn­ings, it raised its earn­ings-per-share ex­pec­ta­tions as a re­sult to greater than $8.40 per share for the year.

When Aetna re­ported its firstquar­ter re­sults in April, Shawn Guertin, the com­pany’s chief fi­nan­cial of­fi­cer, told in­vestors that the Hartford, Conn.-based in­surer had spent $30 mil­lion on what has been la­beled the $1,000 So­valdi pill.

Even with such ex­pen­di­tures, en­roll­ment growth, im­prove­ment in its med­i­cal-loss ra­tios, and a one-time rev­enue boost from the ac­qui­si­tion of Coven­try Health Care, Bethesda, Md., helped lift the in­surer’s earn­ings above ex­pec­ta­tions.

“For Aetna, look for more of the same,” Rice said.

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