UnitedHealth profits weighed down by $720 million loss from exchange product

Driven by a $720 million loss on its individual exchange product, UnitedHealth Group on Tuesday reported a $6.8 billion profit in 2015, down $238 million over its 2014 profit.

The decrease includes $245 million reported in the fourth quarter of 2015, for the advanced recognition of 2016 losses, the company said in its year-end and fourth quarter financial report.

In November, UnitedHealth Group trimmed its earnings outlook based on the weak performance of its exchange plan business serving those signing up for coverage through the Affordable Care Act.

The company said it would consider exiting the insurance exchange market because of the poor performance of the product.

UnitedHealth pulled back on its marketing efforts for the product in 2016 and said it would make a decision during the first half of the year as to whether it would continue to serve the public exchange sector.

A fourth quarter reserve of $95 million was also established for expected future losses on a state Medicaid contract, the company reported.

Reported fourth quarter 2015 earnings from operations of $949 million decreased $777 million year-over-year due to individual exchange product results, as well as investments to improve star ratings in the latest CMS Medicare performance ranking program.

Excluding these losses, UnitedHealthcare's full year 2015 earnings from operations grew 8 percent year-over-year to $7.6 billion, the company said.

The company's net profit margin of 3.7 percent in 2015 is compared to 4.3 percent in 2014. The fourth quarter results show an even greater discrepancy, from 4.5 percent for the three months ending Dec. 31, 2014, compared to 2.8 percent for the same period in 2015.

"Full year and fourth quarter after-tax margins declined year-over-year to 3.7 percent and 2.8 percent, respectively, due to the mix effect of strong growth in pharmacy care services and losses on individual exchange-compliant products and one state Medicaid contract," the company said in the report.

UnitedHealth's 2016 outlook includes estimated revenue of $180 billion, compared to $157 billion for 2015; rising profit growth of $7.60 to $7.80 in adjusted earnings per share, and strong cash flows from operations in the range of $9.5 to $10 billion.

Optum, the company's population health management division, contributed nearly 40 percent of UnitedHealth Group's full-year earnings from operations in 2015. Optum's platform focuses on improving clinical and operating elements of health systems.

While overall revenue for 2015 grew 10 percent, Optum's revenues grew 42 percent, with strong double-digit percentage revenue growth in each Optum segment, UnitedHealth Group said.

In the fourth quarter, UnitedHealth said it took an average of 50 days to pay claims, three more than in the same period last year.
The rising mix of government business drove a two-day year-over-year increase in days sales outstanding to 14 days, the company said.

Excluding the losses from 2015 adjusted results, adjusted profit was $7 per share for the full year and $1.77 per share in the fourth quarter, it reported.

UnitedHealth Group's full year 2015 revenue of $157.1 billion grew 20 percent or $26.6 billion year-over-year.

Full year 2015 earnings from operations were $11 billion and adjusted net earnings were $6.45 per share, including $1.40 per share in the fourth quarter. 

Twitter: @SusanJMorse