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UnitedHealth Group Reports 2016 First Quarter Results

UnitedHealth Group has reported 2016 first quarter results.

“Our commitment and determination to constantly improve how we serve customers and consumers in health benefits and services is reflected in consistent, market-leading organic growth and strong levels of customer retention in the first quarter,” said Stephen J. Hemsley, chief executive officer of UnitedHealth Group.

Based on the first quarter results and business trends, the Company now expects 2016 revenues of approximately $182 billion and adjusted net earnings in a range of $7.75 to $7.95 per share. The increase in the outlook for adjusted net earnings of $0.15 per share is due to changes in the expected income tax rate and intangible amortization. Management affirmed its outlook for strong cash flows from operations of up to $10 billion.

OVERVIEW

  • UnitedHealth Group first quarter 2016 revenues of $44.5 billion grew 25 percent or $8.8 billion year-over-year. Growth was broad-based and reflected growing market demand for the Company’s product and service offerings. UnitedHealthcare revenues grew 10 percent and Optum revenues grew 54 percent, with revenue growth of 20 percent or more at each Optum business.
  • First quarter earnings from operations were $3 billion and adjusted net earnings grew 17 percent year-over-year to $1.81 per share. As expected, the first quarter net margin of 3.6 percent decreased 40 basis points year-over-year, due principally to an increased level of pharmacy care services business.
  • First quarter 2016 cash flows from operations of $2.3 billion were 1.4 times net earnings.
  • The consolidated medical care ratio increased 30 basis points year-over-year to 81.7 percent in the first quarter of 2016, reflecting the extra calendar day of service in the quarter. Prior year medical reserve development was $360 million, compared to $140 million in the first quarter of 2015, and first quarter 2016 medical cost trends were well-controlled and consistent with management expectations.
  • The first quarter 2016 operating cost ratio of 15.2 percent decreased 110 basis points year-over-year primarily due to changes in business mix.
  • The first quarter 2016 tax rate of 39.8 percent decreased 350 basis points year-over-year from 43.3 percent in first quarter 2015, due to the adoption of a new accounting standard. Under the new standard, certain corporate tax benefits related to stock-based compensation programs are recorded through the tax provision. This new standard, which added roughly $0.06 per share to net earnings due to the concentration of activity in the first quarter, is expected to have considerably less earnings impact in the remaining quarters of 2016.
  • First quarter 2016 days claims payable of 51 days increased 4 days year-over-year and 1 day sequentially; days sales outstanding of 16 days increased 3 days, due to increased government receivables and business mix.
  • The Company’s financial position is strong, with a debt to total capital ratio of 49 percent at March 31, 2016. The Company expects this ratio to decrease during the second half of 2016 as debt levels are reduced. First quarter 2016 annualized return on equity was 19 percent, an increase of 1 percentage point year-over-year.
  • UnitedHealth Group repurchased 4.2 million shares for $0.5 billion in first quarter 2016, at a weighted average price of $119 per share.

UnitedHealthcare continues to consistently grow as more customers choose its products and services, due to the combination of distinctive service, product innovation and integrated clinical and network value they offer. UnitedHealthcare has developed a balanced mix of business across the commercial, government and international markets, reflecting its deliberate strategy of diversifying and serving the breadth of needs in those markets.

  • UnitedHealthcare grew organically over the past year to serve 2 million more people in the U.S. medical benefits markets, with well-diversified growth across commercial, Medicare and Medicaid offerings. First quarter growth contributed 1.3 million people to this total, helping UnitedHealthcare’s first quarter revenues grow $3.3 billion or 10 percent year-over-year to nearly $36 billion.
  • First quarter 2016 earnings from operations for UnitedHealthcare of $1.9 billion were roughly even with first quarter 2015, as strong growth largely offset a 60 basis point reduction in operating margins to 5.2 percent. The year-over-year margin decrease was driven by increased quarterly costs from an extra calendar day of service and public exchange performance, partially offset by reserve development.

UnitedHealthcare Employer & Individual

  • UnitedHealthcare Employer & Individual grew to serve approximately 700,000 more people in the first quarter and 1 million more people year-over-year. First quarter growth was well-balanced, with growth of more than 300,000 people in risk-based and nearly 400,000 people in fee-based offerings, including increases in people served through the fee-based national account, public sector, mid-sized employer, small employer and individual segments of the market.
  • First quarter revenues of $12.8 billion grew $1.4 billion or 12 percent year-over-year, driven by growth in the number of people served and price increases matching medical cost trends for risk-based products.

UnitedHealthcare Medicare & Retirement

  • First quarter 2016 UnitedHealthcare Medicare & Retirement revenues of $14.1 billion grew $1.3 billion or 10 percent year-over-year, due to consistent growth in services to seniors:
    • In Medicare Advantage, UnitedHealthcare grew to serve 325,000 more seniors year-over-year, a 10 percent increase, including nearly 300,000 seniors in the first quarter.
    • Medicare Supplement products grew 7 percent to serve 270,000 more people year-over-year, including 165,000 in the first quarter.
    • UnitedHealthcare’s stand-alone Medicare Part D program served 5 million people at March 31, 2016. UnitedHealthcare partially offset its planned 2016 pull-back in subsidized Part D products with an acquisition that broadened its Part D product portfolio, resulting in a net decrease of 70,000 people served in the first quarter.

UnitedHealthcare Community & State

  • First quarter 2016 UnitedHealthcare Community & State revenues of $7.7 billion grew $823 million or 12 percent year-over-year due to strong overall growth and an increasing mix of higher need members.
  • In the past year, UnitedHealthcare grew to serve 410,000 more people in Medicaid, an increase of 8 percent, including 145,000 more people in first quarter 2016. UnitedHealthcare continues to receive and implement new state-based awards, including serving 55,000 people as of January 1, 2016 under the New York Essential Plan and more than 200,000 people as of April 1, 2016 through the new Iowa Health Link program. UnitedHealthcare received a superior score on the re-procurement and program expansion serving Nebraska’s Medicaid program in 2017.

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’s people help improve overall health system performance: optimizing care quality, reducing costs and improving the consumer experience and care provider performance.

Optum’s growth continues to reflect its differentiated capabilities and comprehensive solutions for stakeholders broadly across the health care system, both domestically and abroad.

  • First quarter 2016 Optum revenues of $19.7 billion grew $6.9 billion or 54 percent year-over-year. Optum earnings from operations grew 49 percent or $364 million year-over-year to $1.1 billion, with solid operating margins from all business segments. Strong growth in pharmacy care services increased operating earnings and reduced Optum’s overall operating margin, which decreased by 20 basis points year-over-year to 5.6 percent.
    • OptumHealth revenues of $4 billion grew $709 million or 22 percent year-over-year due to growth in its health care delivery businesses, including expansion in neighborhood care centers. OptumHealth served 79 million consumers at March 31, 2016, for growth of 8 million people or 11 percent year-over-year.
    • OptumInsight revenues grew 20 percent to $1.7 billion in the first quarter of 2016, driven by growth in technology services, care provider revenue management services and payer services.
      OptumInsight’s revenue backlog grew to $11 billion at March 31, 2016, an increase of 21 percent year-over-year. Revenue backlog growth rates will fluctuate quarter to quarter, based on the timing of contract awards.
    • OptumRx revenues of $14.3 billion grew 72 percent year-over-year, driven by both acquisitions and organic growth. In total, OptumRx grew script fulfillment by 71 percent to 252 million adjusted scripts in the first quarter of 2016.
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