UnitedHealth Group (UNH) reported slightly better-than-expected fourth-quarter earnings Thursday, but shares fell as the health insurer warned of "Medicare funding pressures.
Q4 earnings rose 17% vs. a year earlier to $1.41 a share, a penny above Wall Street forecasts.
Revenue grew 8% to $31.1 billion, also modestly topping forecasts. That ended a four-quarter string of double-digit gains.
UnitedHealth touted strong growth from its Optum health-services technology and analytics division, where revenue grew 35% to $10.2 billion.
Operating margins for 2013 fell 120 basis points to 6.4%.
UnitedHealth blamed government funding cuts to Medicare Advantage, the privately run version of the government's health care program for seniors. The insurer estimated that the government underfunded the program by 6.7% last year.
CEO Stephen Hemsley also pointed out in a morning conference call that the 2014 Advantage program was "underfunded," adding, "we continue to be watchful of funding pressure" and will advocate for "strong and reasonable funding.
Those comments exacerbated fears that Medicare Advantage will face further payment cuts in 2015 and beyond, as part of ObamaCare savings.
UnitedHealth shares fell 3%.
Despite government cuts to Medicare Advantage and pressures from ObamaCare, UnitedHealth said it would stick to its prior outlook for 2014, revenue of $128 billion to $129 billion and earnings of $5.40 to $5.60 a share.
UnitedHealth and other insurers are responding by trimming Medicare Advantage benefits and provider networks.
Revenue in 2013 grew 11% to $122.5 billion as the No. 1 U.S. health insurer added more than 4.5 million members, including 170,000 in Q4.
UnitedHealth added 425,000 Medicare Advantage members in 2013, a 17% gain, including 20,000 in Q4. Medicare and retirement revenue rose 11% in Q4 to $11 billion.
Meanwhile, as Hemsley noted, Optum advised federal and state exchanges and will play a "senior advisory" role to the government in its continued implementation of the Affordable Care Act.
But UnitedHealth itself will remain "selective" as it evaluates whether to participate in the public exchanges this year, Hemsley told analysts in the call. The firm expects to see growth from ObamaCare's Medicaid expansion, however.
Medical and drug costs trends remained relatively restrained, management said, noting that inpatient hospital use fell for the fifth straight year.
Goldman Sachs analyst Matthew Borsch called Q4 results "solid," though operating metrics were weaker than expected.
Humana, Others Follow
Other major health insurers start reporting Q4 results later this month, starting with WellPoint (WLP) on Jan. 29. Humana (HUM), Aetna (AET) and Cigna (CI) are due in early February. Shares of all four fell on Thursday.
Humana last week said its Medicare Advantage business was doing better than expected. But it warned that ObamaCare enrollment "risk mix" so far has been "adverse," suggesting that those signing up are older and sicker than expected.
The Obama administration this week said just 24% of those signing up through Dec. 28 were younger than 35. But the government will partially offset insurers' losses on the exchanges in the first three years.