INDIANAPOLIS (AP) -- Health insurer UnitedHealth Group Inc. trumped first-quarter earnings expectations Thursday and eased investor worry about the impact of a new health care overhaul requirement.
The Minnetonka, Minn., company also raised its 2011 earnings and revenue forecast after net income rose 13 percent in the first quarter and enrollment grew. Its stock soared about 8 percent, or $3.52, to $47.76 in afternoon trading.
Insurers entered 2011 facing a new rule that essentially requires them to pay out a minimum percentage of premiums on medical claims, or issue rebates to consumers. Investors were concerned that the requirement for that measure, known as a medical-loss ratio, would affect profits.
"The whole Street was incredibly nervous about it," Bernstein analyst Ana Gupte said, noting that UnitedHealth's strong quarter showed profit margins can expand despite the requirement.
The whole health insurer sector breathed a sigh of relief Thursday. Shares of competitors WellPoint Inc., Aetna Inc. and Cigna Corp. also all rose about 4 percent or more.
UnitedHealth is the largest publicly traded health insurer based on revenue and the first big health insurer to release its earnings every quarter. The insurer's results "clearly bode well for the managed care sector," Goldman Sachs analyst Matthew Borsch wrote in a research note.
In the first quarter, UnitedHealth earned $1.35 billion, or $1.22 per share, up from $1.19 billion, or $1.03 per share, in the same quarter last year. Revenue rose 10 percent to $25.43 billion.
Analysts surveyed by FactSet expected 89 cents per share on $24.97 billion in revenue.
The company now expects 2011 earnings per share to range between $3.95 and $4.05, a big increase from its previous forecast of $3.50 to $3.70. It also said revenue will approach $101 billion for the year, up from $100 billion.
Analysts, who said the old outlook was conservative, expected earnings of $3.83 per share.
UnitedHealth said its commercial enrollment, which includes employer-sponsored group insurance and coverage bought by individuals, climbed 4 percent to 25.6 million people. In last year's first quarter, it fell 4 percent.
Commercial insurance generally offers higher profit margins for insurers than government business like Medicaid or Medicare Advantage. Health insurers struggled with losses in that business during the recession, as employers cut jobs and the number of people covered by insurance, but that trend started easing last year.
Slower increases in health care use, which helped managed care companies last year, benefited UnitedHealth again in the first quarter.
CEO Stephen Hemsley told analysts during a conference call that severe winter weather in big portions of the country affected care use. Bad weather typically keeps people from visiting the doctor.
Hemsley also said he expects health care use to return to normal patterns later this year, and UnitedHealth remains concerned about price increases for care, which are a big driver behind its largest expense, medical costs. The insurer's medical costs climbed 9 percent to $18.73 billion in the quarter.
UnitedHealth said its medical-loss ratio increased slightly to 81.4 percent in the quarter. The insurer said it accounted for possible rebates related to new requirements for that measure when it calculated the ratio. But it did not state a specific amount it attributes to the rebates, which will be paid next year.
Citi analyst Carl McDonald estimates that rebates reduced the insurer's earnings by about $200 million, but UnitedHealth's results show the new rule may be manageable for the sector.
UnitedHealth was helped by gains in its large-group insurance, he said, which is not as affected by the new rule as small-group or individual coverage.
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