Payers likely to post healthy earnings for Q2

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.