UnitedHealth Group is the latest company to detail the hit its business will absorb from the health care overhaul.
The nation's largest health insurer said Tuesday that it expects to pay as much as $1.9 billion in taxes and fees imposed by the law next year and absorb a funding cut for a key product, Medicare Advantage plans, which are privately run versions of the government's Medicare program for the elderly and disabled people. All told, it expects the overhaul to take a $1.1 billion bite out of its after-tax operating earnings in 2014.
Minnetonka, Minn.-based UnitedHealth detailed these hits on Tuesday at its annual investor conference in New York, a day after it released an initial forecast for 2014 earnings that fell short of analyst expectations.
That outlook, of $5.40 to $5.60 per share, implies that earnings could grow compared with 2013, when UnitedHealth expects $5.40 to $5.50 per share. But the 2014 forecast missed the average expectation of $5.67 per share on Wall Street, where UnitedHealth has a reputation for conservative guidance.
Insurers widely expect the law to add fees and expenses to their balance sheets, but few have detailed the impact like UnitedHealth. Other companies also will see more of a gain from the law, when uninsured people start buying coverage. But UnitedHealth has a small stake in the individual insurance market affected by that expansion.
CEO Stephen Hemsley said that next year's earnings per share will be "profoundly impacted" by the law and government funding cuts. He said the fact that the insurer can even forecast a growth range for 2014 is a testament in part to the resourcefulness and diversity of its business.
"It suggests the future growth and earnings power this enterprise can and will produce once these reform impacts run their course," Hemsley said in prepared remarks delivered to investors.
Like medical device makers and drug companies, UnitedHealth isn't shy about detailing the taxes and fees it will have to pay to help fund the overhaul, which aims to cover millions of uninsured people. It also says Medicare Advantage rate reductions required by the law will knock another 25 cents per share off of its earnings next year.
UnitedHealth is the nation's largest provider of Medicare Advantage plans with more than 2.9 million people enrolled. Cuts to these plans in addition to the hit from the overhaul will hurt earnings by another 50 cents per share next year, the insurer estimates.
Hemsley has warned for several quarters that the company will have to trim benefits and provider networks and leave some markets as a result of the cuts.
"Medicare Advantage has a couple of difficult years ahead," he said.
UnitedHealth Group Inc. shares fell 43 cents to $73.73 Tuesday, while broader trading indexes also dropped slightly. The stock is still up about 36 percent this year.