UnitedHealth Group reports strong revenue growth in Q1 2014

UnitedHealth Group (NYSE: UNH) today reported first quarter results, highlighted by Optum's strong growth in revenues, operating earnings and revenue backlog and UnitedHealthcare's continued strong, diversified performance despite the negative impacts of newly effective ACA taxes and regulatory provisions and sequestration cuts to Medicare. Management continues to forecast five percent growth in consolidated revenues in 2014 - to a range of $128 billion to $129 billion - and net earnings in the range of $5.40 to $5.60 per share.

"We performed steadily in the first quarter, with continued momentum from our Optum health services platform and year-over-year growth across our UnitedHealthcare health benefits platform offset by headwinds from new ACA taxes and Medicare Advantage funding deficiencies. We continue to help enable a more effective, more modern health care system that better serves consumers and responds to a national imperative to improve the performance of health care and reduce its costs," said Stephen J. Hemsley, president and chief executive officer of UnitedHealth Group.

• UnitedHealth Group's consolidated first quarter 2014 revenues of $31.7 billion grew $1.4 billion or 5 percent year-over-year. Revenue growth was led by growth in people served in the public and senior markets at UnitedHealthcare and broad-based growth across Optum.
• First quarter earnings from operations were $2.1 billion and net earnings were $1.1 billion or $1.10 per share, compared to $1.16 per share in first quarter 2013, reflecting nearly $0.35 per share in health care reform and sequestration burden on first quarter 2014 results. The effects of the ACA and sequestration reduced first quarter 2014 net margin by about 110 basis points.
• First quarter 2014 cash flows from operations of $1.4 billion increased 34 percent year-over-year and were a multiple of 1.3 times net earnings.
• The consolidated medical care ratio decreased 20 basis points year-over-year to 82.5 percent in the first quarter of 2014. The care ratio benefitted 100 basis points in first quarter from billing ACA fees, with this impact expected to increase slightly over the course of 2014 as these tax billings continue. The underlying ACA fees increase operating costs and the income tax rate, as the majority of the fees are not tax deductible. Medical reserves developed favorably by $220 million, compared to $280 million in the first quarter of 2013.
• The first quarter 2014 operating cost ratio of 16.4 percent increased 120 basis points year-over-year, driven by approximately 140 basis points in ACA reinsurance fees and nondeductible health insurance taxes.
• As expected, the first quarter income tax rate of 42 percent increased more than 5 percentage points year-over-year solely due to provisions in the ACA described above.
• First quarter 2014 days sales outstanding of 12 days increased 2 days year-over-year, due to an increase in government receivables. Days claims payable were stable year-over-year at 47 days.
• The Company's balance sheet remained strong, with cash available for corporate use of $1 billion and the debt to total capital ratio at 34 percent at March 31, 2014, a strengthening of 2 percentage points year-over-year. UnitedHealth Group repurchased $911 million in stock in the first quarter, acquiring more than 12 million shares at an average price of approximately $75 per share, and distributed $276 million in dividends to shareholders, representing dividend growth of 28 percent year-over-year.

UnitedHealthcare provides network-based health care benefits for a full spectrum of customers and markets. UnitedHealthcare serves individuals and employers ranging from sole proprietorships to large, multi-site and national and international organizations; delivers health and well-being benefits to Medicare beneficiaries and retirees; manages health care benefit programs on behalf of state Medicaid and community programs and their participants and serves the nation's active and retired military and their families through the TRICARE program.

• UnitedHealthcare's first quarter 2014 revenues of $29.3 billion grew $1 billion or 4 percent year-over-year. The number of people served across all medical benefit markets increased by 2.7 million in the past 12 months but declined by 780,000 people in first quarter 2014, as decreases in both domestic and international commercial benefits more than offset growth in public and senior markets.
• Earnings from operations for UnitedHealthcare for first quarter 2014 were $1.4 billion and the operating margin was 4.8 percent. As expected, earnings from operations decreased year-over-year due to the effects of the ACA and Medicare sequestration and a lower overall level of reserve development compared to the prior year period. These factors combined to pressure operating margins by 140 basis points year-over-year.

UnitedHealthcare Employer & Individual

• UnitedHealthcare Employer & Individual served 1.8 million more people year-over-year, driven by growth in services to the TRICARE program. First quarter 2014 revenues of $11 billion decreased $103 million year-over-year due to the decrease in people served with risk-based products. The Company served 345,000 fewer people through these products in first quarter 2014, due to its disciplined focus on pricing in a continued competitive environment. Fee-based business decreased by 705,000 people in the quarter, principally due to the loss of a large state employer account.
• Increasing market demands for consumer choice and engagement drove 7 percent year-over-year growth in UnitedHealthcare's consumer-directed health care products in first quarter 2014 to a total of 6 million consumers, or 21 percent of the consumers participating in its commercial benefit plans.
• UnitedHealthcare's first quarter 2014 commercial medical care ratio of 77.3 percent decreased 100 basis points year-over-year due to the impact of ACA fees for fully insured customers, partially offset by accelerated spending on specialty medications to treat hepatitis.

UnitedHealthcare Medicare & Retirement

• First quarter 2014 UnitedHealthcare Medicare & Retirement revenues of $11.5 billion grew $322 million or 3 percent year-over-year.
  • In Medicare Advantage, UnitedHealthcare grew to serve 120,000 more seniors, a 4 percent year-over-year increase. Significant ACA and sequestration funding cuts for seniors using Medicare Advantage products resulted in the Company exiting markets, reducing product offerings, adjusting networks and reducing benefits for 2014. Despite these actions, first quarter 2014 senior participation was basically stable with year end 2013, with just under 3 million seniors served.
  • Medicare Supplement products grew 9 percent, serving 300,000 more people year-over-year, including 170,000 people in first quarter.
  • UnitedHealthcare's stand-alone Medicare Part D drug plans delivered strong growth of 435,000 people or 9 percent year-over-year, including 195,000 people in the first quarter.

UnitedHealthcare Community & State

• First quarter 2014 UnitedHealthcare Community & State revenues of $5.2 billion grew 17 percent year-over-year, due to strong growth in people served through state sponsored benefit programs and an increasing mix of members in higher acuity categories, such as state long-term care programs.
• UnitedHealthcare grew its Medicaid services by 10 percent or 395,000 more people in the past year, including 255,000 people in the first quarter.

UnitedHealthcare International

• UnitedHealthcare International first quarter 2014 revenues of $1.6 billion were consistent year-over-year. The number of people served grew by 25,000 in the past 12 months, but decreased 150,000 in the first quarter due to strengthened pricing in Brazil in response to regulatory requirements that are causing health care costs and utilization to rise.

Optum is a health services business serving the broad health care marketplace, including payers, care providers, employers, governments, life sciences companies and consumers. Using advanced data analytics and technology, Optum helps improve overall health system performance: optimizing care quality, reducing costs and improving the consumer experience and care provider performance.

• Optum revenues for the first quarter of 2014 grew 29 percent or $2.5 billion year-over-year to $11.2 billion and Optum's first quarter 2014 earnings from operations of $650 million grew 20 percent or $109 million year-over-year.
  • OptumHealth revenues of $2.6 billion grew 6 percent year-over-year due to expansions in consumer services, partially offset by slightly lower behavioral health revenues.
  • OptumInsight revenues grew to $1.2 billion in the first quarter of 2014, advancing 8 percent year-over-year and driven by strength in Optum360 revenue management and growth in government services, as OptumInsight's revenue backlog grew 18 percent year-over-year to $7.2 billion at March 31, 2014. The large, diversified, growing backlog is a key indicator of Optum's overall success in growing services to customers and provides a measure of visibility on future financial performance.
  • OptumRx revenues grew 44 percent year-over-year as first quarter script volumes increased 38 percent year-over-year to 140 million adjusted scripts.
• Consistent with management expectations, Optum's first quarter operating margin was 5.8 percent and reflected the increased mix of pharmacy service revenues in Optum's overall business. First quarter 2014 results included meaningful investments to develop future growth opportunities, particularly at OptumHealth and OptumInsight.