The largest American medical insurer, UnitedHealth Group Inc, has reported a 73-percent decrease in profit after underestimating health-care costs and taking a charge for the settlement of lawsuits over backdated options.
Net income for the second quarter fell to US$337 million, or 27 US cents a share, from US$1.23 billion, or 89 US cents, a year earlier, the Minnetonka, Minnesota-based company said yesterday in a statement.
Adjusted earnings of 67 US cents a share, excluding legal costs, beat the 64-cent average call of 14 analysts surveyed by Bloomberg News.
The insurer has been battered by losses on some of its United States Medicare plans for the elderly, higher spending on mental-health care for families buffeted by the ailing economy and declining membership in employer-sponsored plans, according to Chief Executive Officer Stephen Hemsley.
The firm took a charge of US$922 million to settle two class-action lawsuits over its handling of stock options for senior executives.
"I don't think anyone at all should be optimistic," said Sheryl Skolnick, an analyst with CRT Capital Group in Stamford, Connecticut. "There's a very significant turnaround issue here that could take a long time to resolve."
Second-quarter revenue rose 6.7 percent to US$20.3 billion. UnitedHealth on July 2 set an adjusted profit goal for the year of US$6.5 billion, compared with US$7.3 billion in pretax income for 2007.
UnitedHealth shares fell 7 US cents to US$23.83 on Monday in New York Stock Exchange composite trading. They have declined 59 percent this year through Monday, compared with a 14-percent drop in the Standard & Poor's 500 Index.
Net earnings included a gain of 9 US cents a share from selling part of a Nevada health plan, a 47-cent charge for the options litigation settlement and a 2-cent charge for severance costs, the company said.
UnitedHealth would trim 4,000 jobs, about 5 percent of its workers, through attrition and dismissals because of the "challenging market conditions," Hemsley said on July 2. He pledged to take a tougher stance on the pricing of employer-sponsored health insurance, giving up some business if necessary, after the firm took on unprofitable plans.
"UnitedHealth was rolling over a bit more on pressure from employer customers" when setting this year's rates, said Thomas Carroll, an analyst with Stifel Nicolaus & Co in Baltimore, in a phone interview. So far in 2008, premiums had grown 6.5 percent while medical inflation was running at 7.5 percent, Carroll said.
The company provides health coverage to 30.2 million Americans. It is more diversified than the industry's second-largest player by revenue, WellPoint Inc, which had 35.4 million customers on March 31.
The firm's medical-claim cost for all health plans in the second quarter of 2008 was 83.2 percent of premium revenue. This compared with 80.3 percent in 2007.
