Health and Science

Pharmacy unit boosts UnitedHealth as costs rise

Key Points
  • UnitedHealth reported a better-than-expected quarterly profit on Wednesday.
  • The largest U.S. health insurer benefited from higher revenue from its Optum unit, which includes its pharmacy benefits management business.
  • The company affirmed its full-year outlook for 2020 adjusted earnings of $16.25 to $16.55 per share.
In this arranged photo, a UnitedHealth Group health insurance card is seen in a wallet in this picture illustration October 14, 2019.
Lucy Nicholson | Reuters

UnitedHealth reported a better-than-expected quarterly profit on Wednesday, as the largest U.S. health insurer managed to control medical costs and made gains with the unit that houses its pharmacy benefits management business.

Shares of the industry bellwether, however, fell 1% in trading before the bell after the company affirmed its full-year forecast for 2020 adjusted earnings of $16.25 to $16.55 per share, compared to analysts' average estimates of $16.46.

Analysts said the company was again being conservative in its forecast at the start of a new financial year, encouraging investors to take profits on a 40% rise in its stock, which has crept near record highs of around $300 since October.

Fears of drastic policy changes in the run-up to the 2020 U.S. presidential elections weighed on health insurer stocks for much of last year.

But an easing of fears over the potential for aggressive changes to the structure of government health care have helped the company and others rebound.

UnitedHealth's medical care ratio, or the percentage of premiums paid out for medical services was 82.5%, worsening from 81.6% last year. Total revenue rose about 4.3% to $60.90 billion, just shy of expectations of $61.04 billion.

"There wasn't any explicit mention of cost trend control in the press release. So you could nitpick on the absence of language there. But I think in general the report is fine," said Michael Newshel, an analyst with Evercore ISI.

The company's core business selling health insurance plans brought in $48.25 billion in sales, a 4.4% rise from a year earlier, driven by higher sales of its health plans for people aged 65 years and older.

It has also bolstered its Optum business, which manages drug benefits and offers healthcare data analytics services, with a string of small-scale acquisitions, the latest being a $300 million purchase of Diplomat Pharmacy.

Revenue from Optum rose about 8% to $29.8 billion.

On an adjusted basis, the company earned $3.90 per share, exceeding analyst estimates of $3.78.