Health care services unit boosts UnitedHealth results

UnitedHealth Group Inc. continued to enjoy double-digit revenue growth and respectable gains in medical enrollments during the third quarter of 2015, the company said Thursday.

The Minnetonka, Minnesota-based health insurer reported total revenue of $41.5 billion for the three months ending Sept. 30, an increase of 26.6% over results reported for the same period in 2014, driven in large part by the feverish growth of Optum Inc., the company's health care services subsidiary.

Optum's total revenue for the third quarter of 2015 ballooned to $19.3 billion, primarily due to the addition of pharmacy benefits accounts acquired in UnitedHealth's recently completed $12.8 billion purchase of Catamaran Corp.

The deal has made OptumRx one of the nation's largest pharmacy benefits managers — behind Express Scripts Holding Co. and CVS Health Corp. — as well as UnitedHealth's largest individual business unit by revenue.

During a conference call with investment analysts Thursday, executives at Optum said clients on both sides of the merger — which was completed in July — have been generally pleased with the new dynamic.

“The reaction to the deal from our clients has been universally positive,” said Mark Thierer, chief executive officer of OptumRx. “They like the scale of this combination, they like the fact that we've had a 10-year relationship with Catamaran, which to them represents basically no platform conversion risk, and they especially like that we've now got a very expansive service offering. We're off to a good start in bolting these operations together.”

UnitedHealth's net income in the third quarter of this year was essentially flat compared with the prior-year period, slipping by 0.33% to $1.60 billion, held back mainly by the addition of new enrollees and increased medical spending in the company's government-sponsored benefits segment, which includes Medicare, Medicaid and individual plans purchased through the public insurance exchanges established under the health care reform law.

The company's profits were also hampered by lower levels of reserve development and higher nondeductible fees assessed against insurers under health care reform.

During Thursday's conference call with investment analysts, UnitedHealth Group President and Chief Financial Officer David Wichmann said reports released in the spring indicating that medical and pharmacy utilization among customers who bought health insurance policies through state and federal public exchanges would be significantly higher than previously thought prompted the company to pre-emptively raise rates and eliminate certain coverages for the 2016 plan year.

“We continue to expect the public exchanges to develop and mature over time into a strong, viable growth market for us,” Mr. Wichmann said, noting that UnitedHealth will enter public exchanges in 11 new states in 2016, on top of the 28 states in which it already offers exchange-based insurance plans.

“I think we'll see strikingly better performance in our insurance exchange business, not only because of the expansion, but also because of improvements in the overall medical loss ratio and operating cost structure of that program.”