HMO Earnings Could Offer Window Into Obamacare

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UnitedHealth Group kicks off earnings season for health insurers when it reports first quarter results ahead of Thursday's opening bell. The nation's largest health insurer is expect to post a profit of $1.14 per share, and revenues of just over $3 billion. But for many investors the big number will be 2014.

"Since the market's focus is still very much on the impact of health reform in 2014," wrote Citi analyst Carl McDonald in a note to clients, "earnings this year will matter only to the extent they reveal any unexpected weakness in pricing or acceleration in cost trend."

(Read More: Ready or Not: States Brace for Obamacare)

Wedbush Securities analyst Sarah James expects first quarter medical costs trends will not be as high as expected, despite this year's strong flu season. Hospital operators Health Management Associates and HCA Holdings both lowered their first quarter earnings forecasts, citing lower patient volumes. She sees that as positive for insurers.

"If utilization is lower, margins could be higher," she said, and earnings for UnitedHealth and others could be above consensus estimates.

More important than the earnings numbers will be what CEOs have to say about the rollout of the Affordable Care Act, known as Obamacare, James said. A key question— how extensively do the commercial insurers plan to participate on the state health insurance exchanges?

"They probably know, but I don't know if they will share it," she said.

(Read More: How Obamacare Is Changing Your Health Benefits)

Wellpoint, through its Anthem Blue Cross subsidiary, will likely be the largest publicly-traded exchange player next year, according to James. She expects benefit-rich Obamacare plan prices on exchanges will be higher than similar policies pre-health reform. That could could result in strong margins. But the risk is that high prices could also result in sticker shock and adverse selection, with fewer people signing up for coverage.

Last quarter, UnitedHealth CEO Stephen Helmsley said the insurer would likely only participate in a small number of exchanges. Cigna has also indicated it will only take part in a limited number of markets.

"Less participation in the exchanges might actually be better," said Stifel Nicholas analyst Tom Carroll. "There are going to be a dozen or fewer exchanges that are really meaningful."

(Read More: Drop Coverage or Cut Hours? Big Companies Grapple With Obamacare)

Carroll said California will be one market that will likely attract the most participation from insurers, because of its large population and the state's participation in the Obamacare Medicaid Expansion.

"Anything Medicaid-levered for the next few years has a tremendous amount of growth," he said.

Analysts will also be looking for guidance from insurers on pricing for Medicare Advantange plans, after the Centers for Medicare and Medicaid approved a higher than expected rate increase for 2014. Humana, the insurer with the largest exposure to Medicare Advantage, warned new Obamacare fees would still pose a challenge to profitable pricing next year.

Medicare Advantage is also a key driver for UnitedHealth. Its enrollment growth is already tracking well ahead of projections for this year, according to Citi analyst Carl McDonald, and the insurer could add close to 375,000 new members in 2013.

(Read More: For Small Business, Learning Obamacare Math)

UnitedHealth and insurers have outpaced the gains in the Dow Jones Industrial average year to date. McDonald expects a positive earnings season will see the momentum continue.

"We need only the absence of bad news for United and the health insurance stocks to continue to work," he said.

—By Bertha Coombs; Follow her on Twitter: @coombscnbc