UnitedHealth 4Q13 Earnings Call Notes

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This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings.

2014 Headwinds for health insurance. Trading at 13x high end of forward guidance.

“There are certainly near-term 2014 pressures, particularly from ACA implementation and Medicare funding actions that will divert more than $1.50 per share in earnings from us in 2014. But we have plans and actions in place to offset these reductions and to grow revenue to a range of $128 billion to $129 billion and produce earnings in the range of $5.40 to $5.60 per share, with cash flows from operations between $7.8 billion and $8.2 billion.”

Already playing for 2015

“We will continue to focus on delivering earnings per share growth in 2015 with our ultimate performance, dependent in part on the results of the Medicare Advantage rate-setting processes for 2015.”

Medicare Advantage underfunded, UNH has to advocate for its revenue stream

“I don’t think we were really suggesting anything other than we have said at the investor conference that, obviously, there were rate active stake [ph] related to 2014 that we believe significantly underfunded the program. And we had indicated there that we are — continue to be watchful about the funding posture on the Medicare Advantage program. And we will continue to be watchful of that and continue to advocate strongly for consistence, reasoned funding of these program and continued commitment to American seniors who participate in them. I think we didn’t really mean anything more than that.”

Government trying to push industry toward more integration of care

“The themes we see and really, what the Affordable Care Act is telling us, this law, and CMS is suggesting us through regulations, is that the industry has to change and we have to change. We have to be more integrated. We need to be more aligned. We need to have a provider network that is aligned with us better, both in terms of data and financially. And we need to do all of that with far less resources. And I think these are the themes that we’re responding to. This is what you are seeing us and others do in the marketplace with respect to reaching out and making affirmative changes in our network. So we’re really evolving to meet the requirements of a Medicare program that’s going to be successful in the future.”

It’s going to be noisy and turbulent for a while though

“So while it’s going to be a little noisy and a little turbulent, we acknowledge that. I think we’re confirming our business in the right way to be successful in the Medicare program in the future.”

Optum bringing technology to the healthcare industry in a unique way

“we can bring technology outsourcing to this industry in a way that we think is unique to health care. And so we think there’s opportunity both in and out of the government for us to do that. ”

It would be really disruptive if MA rates weren’t raised in 2015

“as I’ve said before, I think that there is a broader sense of responsibility to American seniors than to have underfunded the program, by our measures, about 6.7% last year. And if there is speculation that there would be underfunding at that level again in this year, that would be almost a 13% pullback on Medicare Advantage over the course of 2 years. And we would think that, that would be extraordinarily disruptive. It remains to be seen.”

No plans to become a larger player on the exchanges for now

“in terms of the public exchanges, I think you know that we’ve got a very modest footprint. And as I shared at Investor Day, our decisions around 2015, our participation will really be very much reliant on how this market matures. So at this stage, we’re really not projecting our participation. We will be looking at sort of the — how robust the enrollment is, what the risks in those markets are and the consumers participating and, quite frankly, the cost structure is on those markets. So at this stage, I don’t know that we have any additional guidance to give you from what we shared at the investor conference, but that’s our outlook.”

Pricing strong in 2014

“Our pricing in 2014 is stronger than it was in 2013. And you mentioned it, a part of the reason that it’s stronger is because of the ACA fees, taxes, as well as the essential health benefits across all markets. And then when you look at small group and individual, the move to community rating, depending on which part of that marketplace you’re looking at, you could see some much stronger pricing.”

Plans priced forward looking, adjustments made for ACA

“we have not changed the discipline of pricing that has gotten us — has been successful for us for a very long time. We look at our forward cost, which now include, as I mentioned, some impacts due to the ACA. But we’re certainly as focused on medical trends as we had ever been in the prediction of medical trend. The medical trend for pricing was about a point higher in ’14 than it was for ’13, and we match our premium to that.”

No significant change in the marketplace. We think we are pricing well

“Good discipline, well-aligned with medical cost trends and, really, not particularly significant changes in the marketplace. We’re competitive, but we think we are pricing well.”

Small group seeing more pricing volatility because plans underwritten for community rating vs. medically underwritten

“in small group, there’s a lot more variability than there is in large group because small group’s going through the transition to adjust to community rating. And based on your health status previously, there’s more variation in the price differential at the group level in the market than there is at the large group, which is always okay. I don’t think there’s any really new change in the marketplace.”