On Dec 10, we issued an updated research report on UnitedHealth Group, Inc. UNH.
UnitedHealth, one of the biggest players in the health insurance industry, recently revealed the problems faced by its individual insurance business at the Public exchanges.
Apprehending loss at this business, UnitedHealth pulled down its 2015 earnings projection to $6 per share from $6.25 to $6.35 guided earlier. The company also issued a fresh guidance of $7.10 and $7.30 earnings per share for 2016.
The health insurance giant disclosed that it may face a record $275 million in costs in the fourth quarter related to its policies sold on exchanges. UnitedHealth also that said it is booking $350 million in losses tied to the 2015 performance of its Accountable Care Act plans. For 2016, the insurer has projected as much as $500 million in losses stemming from ObamaCare.
Suffering loss of profitability from the individual insurance policies sold on the exchanges, the health insurer has decided not repeatedly entertain such losses and exit this unprofitable market completely by 2017. The company has already scaled back its marketing efforts for individual insurance policies sold on exchanges.
Earlier this week, UnitedHealth announced that it will not pay commissions to brokers on sales of individual health plans in most states where it participates in ObamaCare exchanges. This move by the company will discourage agents from selling these policies and in turn reduce the amount of business booked via the exchanges. This will eventually make it easy for the company to exit the business by 2017, which it intends.
Other than the troubles facing its public exchange business, UnitedHealth is doing well in other insurance segments and at Optum, which now represents 40% of the operating profit.
The recently closed acquisition of Catamaran also is expected to benefit the company’s earnings in 2016. Catamaran should greatly enhance the performance of the company’s pharmacy benefits management business.
The company which holds a top rank in the industry will face increased competition with the closure of acquisitions of – Humana Inc. HUM by Aetna Inc. AET, and Cigna Corp. CI by Anthem Inc. ANTM. Both these takeovers are scheduled to close next year.
UnitedHealth carries a Zacks Rank # 1 (Strong Buy).
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