Health and Healthcare

UnitedHealth Warning Creates Huge Spillover, With Big Implications Ahead

Jon C. Ogg

Published: November 19, 2015 11:50 am

Last Updated: January 13, 2020 4:59 pm

The pressure against certain aspects of the Affordable Care Act (ACA), or Obamacare, may be growing. News about certain health insurance exchanges failing has been coming out, and the 2016 presidential election has brought the health care argument up more times than can easily be counted. Now we have word from UnitedHealth Group Inc. (NYSE: UNH) in an earnings warning that could be a serious blow to at least part of ACA/Obamacare.

UnitedHealth is currently the largest health insurance provider in America. Its earnings warning for 2015 was not really anticipated by the market, even if 2016 might have needed some tempering with all things considered. As a reminder, UnitedHealth is a member of the Dow Jones Industrial Average.

The company’s explanation for the warning was that the new expectations reflect a continuing deterioration in individual exchange-compliant product performance. What has been interesting to see here is that UnitedHealth actually has seen its shares soar under ACA/Obamacare. Has all of that benefit now passed?

There is a reason that Anthem Inc. (NYSE: ANTM) and Cigna Corp. (NYSE: CI) are being hammered. Also under pressure are Humana Inc. (NYSE: HUM) and Aetna Inc. (NYSE: AET). Those are the pending large mergers in health care, and in a twist of fate UnitedHealth’s commentary could be used by the companies to support those pending health insurance mergers.

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UnitedHealth’s revised 2015 net earnings outlook is roughly $6.00 per share. This reflects expected pretax earnings pressure of $425 million, or $0.26 per share, including $275 million related to the advance recognition of 2016 losses. The earnings pressure is said to be driven by projected losses on individual exchange-compliant products related to the 2015 and 2016 policy years. UnitedHealth expects net earnings of $7.10 to $7.30 per share in 2016 and will provide more detail on its outlook at its investor conference on December 1, 2015.
Thomson Reuters has earnings expectations of $6.31 per share for 2015 and $7.28 per share for 2016. Stephen J. Hemsley, chief executive officer of UnitedHealth, said in his commentary:

In recent weeks, growth expectations for individual exchange participation have tempered industrywide, co-operatives have failed, and market data has signaled higher risks and more difficulties while our own claims experience has deteriorated, so we are taking this proactive step. We continue to be pleased with the growth and overall performance of our company outside of the individual exchange products and look forward to strong, positive and broad based earnings growth across our enterprise in 2016.

UnitedHealth said that the remainder of its business continues to perform in line with expectations. The company also noted that it sees strong growth momentum and performance in all other benefit market segments, with a distinguished performance in its services businesses.

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There are additional warnings for why the public may be seeing less of UnitedHealth under the ACA ahead. The company’s press release ended with the following included:

UnitedHealthcare has pulled back on its marketing efforts for individual exchange products in 2016. The Company is evaluating the viability of the insurance exchange product segment and will determine during the first half of 2016 to what extent it can continue to serve the public exchange markets in 2017. UnitedHealthcare remains a strong supporter of sustainable efforts to ensure access to affordable, quality care for all Americans, and has advocated publicly for this for more than 20 years, including as one of the first businesses to focus on serving people through managed Medicaid and Medicare.

UnitedHealth shares were down 3.6% at $113.05 after about 40 minutes of trading on Thursday. The share volume of 4.5 million shares in 40 minutes was also a match against a full average trading day. UnitedHealth’s only day of trading 10 million shares in the past three months was on October 22, and that was 10.44 million shares when the stock fell to $113.81 from a prior close of $118.11 and a prior close before that of $120.42.

Anthem was last seen down a sharp 6% at $129.00, versus a 52-week trading range of $121.22 to $173.59. Anthem’s consensus analyst price target is all the way up at $178.50.

Cigna was last seen down 3.2% at $130.72, versus a consensus price target of $167.40 and a 52-week range of $99.88 to $170.68.

Humana shares were trading down 2.5% at $166.73. Its 52-week range is $135.38 to $219.79, and the consensus price target is $204.07.

Aetna shares were last seen down 3.6% at $102.95, and the consensus price target is $142.19. Aetna has a 52-week range of $84.92 to $134.40.

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