UnitedHealth Group's first-quarter net income slid 8 percent as funding cuts to a key product and costs imposed by the health care overhaul dented the health insurer's performance.
The Minnetonka, Minn., company said Thursday the overhaul and government budget cuts added about 35 cents per share in costs during the quarter. The federal law aims to provide coverage for millions of uninsured people, but it also trims funding for Medicare Advantage plans, changes how insurers can write their coverage and adds an industrywide tax, which is not deductible.
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UnitedHealth shares fell 3 percent in premarket trading after it announced the first quarter performance, but the overhaul hit shouldn't surprise many investors. UnitedHealth said in December it expects the federal law to reduce its after-tax operating earnings by $1.1 billion in 2014.
While the overhaul adds taxes and other costs, it also is expected to throw insurers some new business, as people gain coverage under the law largely through state-based health insurance exchanges that started last fall. UnitedHealth is participating in about a dozen exchanges, but industry watchers aren't sure yet how much new business insurers have gained.
The overhaul also gave UnitedHealth's Optum segment some business, thanks to last fall's problem-plagued debut of the largely online exchanges, which frustrated many visitors with crashes and other technical problems. Optum provides information technology services and has been working with government officials to help fix exchange websites, but a company spokesman said that work wasn't a big revenue driver.
Overall, UnitedHealth earned $1.1 billion, or $1.10 per share, in the three months that ended March 31. That's down from $1.19 billion, or $1.16 per share, a year earlier. Revenue rose nearly 5 percent to $31.71 billion.
Analysts expected earnings of $1.09 per share on $32.01 billion in revenue, according to FactSet.
The insurer said its Medicare Advantage business was hurt by both the overhaul and the mandatory across-the-board federal budget cuts known as sequestration.
Medicare Advantage plans are privately run versions of the government's Medicare program for the elderly and disabled people, and UnitedHealth is the nation's largest provider of this coverage, with nearly 3 million enrollees. It said lower funding forced it to trim benefits and doctor networks this year and leave some markets.
UnitedHealth on Thursday also reaffirmed an earnings forecast for 2014 that it first laid out in early December. The insurer still expects earnings to range from $5.40 to $5.60 per share, while analysts expect, on average, $5.60 per share.
UnitedHealth Group Inc. is the first insurer to report earnings every quarter. Many see it as a bellwether for other insurers.
Shares of UnitedHealth, which also is a component of the Dow Jones industrial average, slid $2.67, or 3.4 percent, to $77.41 in premarket trading about 45 minutes before the market open.
After soaring nearly 39 percent last year, UnitedHealth shares have reverted to more measured growth so far in 2014, with the stock climbing about 4 percent.