This year’s unexpectedly brutal flu season presented a thorny problem for the nation’s health insurers as Americans sought out more medical services. But the country’s largest private health insurance company, UnitedHealth Group, managed to weather that storm, reporting quarterly profits that beat Wall Street expectations and raising its 2018 earnings guidance. UnitedHealth stock rose 4% in early Tuesday trading.
UnitedHealth had several advantages this quarter. For one, its medical loss ratio—or the proportion of charged insurance premiums which go toward paying for medical care rather than administrative overhead and profits—dipped to 81.4%, a one point drop from one year earlier, meaning that UNH did a good job at gaming out the proper premiums to charge its members. That may not sound like much, but it makes a big difference for a firm with more than 130 million global customers and which landed the number six spot on the 2017 Fortune 500. The company’s first quarter 2018 earnings spiked more than 30% year-over-year to $2.8 billion.
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Another significant element of UnitedHealth’s success? Its ever-growing and highly lucrative Optum unit, which melds everything from pharmacy benefits management to operating thousands of doctors who provide patient care to data analytics and technology services. The Optum business has been steadily ballooning as UnitedHealth has carried out a series of acquisitions over the years. In this most recent quarter, Optum’s operating profits grew nearly 30% to $1.7 billion.
The strategy of expanding Optum’s clout may help UnitedHealth in its fight to outpace its peers, several of whom have announced high-profile, cross-sector deals in recent months. For instance, CVS and Aetna are trying to join forces, as are Cigna and Express Scripts and Walmart and Humana. UnitedHealth’s acquisitions have been more low key—but they’ve added up to make quite a difference.
