UnitedHealth Group's fourth-quarter earnings jumped 15 percent to edge above expectations, as the nation's largest health insurer added millions of customers and booked a sizeable gain from a business that doesn't sell insurance.
But the Minnetonka, Minn., company's shares slipped deeper than the broader market after UnitedHealth became the first health insurer to detail how 2013 ended and discuss challenges that await in the new year.
UnitedHealth's total enrollment grew 11 percent to more than 45 million people compared with the final quarter of 2012, as it added Medicare Advantage customers and started a contract to cover military members and their families through the government's Tricare program.
The insurer also said operating earnings from its Optum segment jumped 43 percent to $655 million in the quarter. Optum's work includes information technology services and pharmacy benefits management. It contracted last fall with the federal government to help clean up the problem-plagued debut of HealthCare.gov, the main conduit for people to find health insurance coverage under the health care overhaul.
Overall, UnitedHealth earned $1.43 billion, or $1.41 per share, in the three months that ended Dec. 31. That's up from $1.24 billion, or $1.20 per share, in the 2012 quarter. Total revenue climbed 8.2 percent to $31.12 billion.
Analysts expected, on average, earnings of $1.40 per share on $31.15 billion in revenue, according to FactSet.
By the time companies report fourth-quarter results, most investors have turned their focus to what lies ahead, and that means worrying about the prospect of more Medicare Advantage funding cuts for stocks like UnitedHealth, which is the largest provider of the privately run versions of the government's Medicare program.
The government has paid insurers who run Medicare Advantage plans more per enrollee than the cost of care for people with traditional Medicare coverage. But that funding is being scaled back in part to help pay for the health care overhaul, the massive federal law that aims to provide insurance for millions of uninsured people.
The government will release some preliminary information on 2015 Medicare Advantage funding next month, and the trade association America's Health Insurance Plans recently launched a marketing campaign to warn about dangers of more steep cuts.
Competitor Humana Inc., the second-largest Medicare Advantage plan provider, also shook up some health insurance stocks late last week, when it said funding cuts for 2015 may be greater than expected next year.
UnitedHealth leaders wouldn't speculate on that Thursday. But CEO Stephen Hemsley did tell analysts that reimbursement was cut about 6.7 percent for this year and a similar cut for 2015 would be "extraordinarily disruptive."
UnitedHealth Group Inc. is the first insurer to report earnings each quarter. Many see it as a bellwether for other insurers, and investors like the diversity of its revenue sources, which can help counter the pressure placed on its Medicare Advantage business.
But investors also tend to take a more critical look at the insurer after it releases results because it is considered a "best-in-class" company, and it has the first opportunity to highlight any complications that lie ahead, said BMO Capital Markets analyst Jennifer Lynch.
UnitedHealth shares fell 3.4 percent, or $2.54, to $72.29 in midday trading, while the Dow Jones industrial average dropped less 1 percent. UnitedHealth is a Dow component.
Despite Thursday morning's decline the shares still lingered near their 52-week high price of $77.33. The stock jumped nearly 39 percent last year to close 2013 at $75.30 after setting several all-time high prices that it has already topped in the new year.