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UnitedHealth Earnings Fall 5% On ObamaCare, Medicare Cuts

UnitedHealth Group, the nation's largest health insurer, reported a first-quarter earnings decline Thursday, blaming ObamaCare taxes, Medicare Advantage cuts and Gilead Sciences' costly hepatitis C drug.

The Minnetonka, Minn.-based company's earnings per share dropped 5% vs. a year earlier to $1.10. Analysts polled by Thomson Reuters expected $1.09. Revenue rose 4.5% to $31.7 billion, missing estimates for nearly $32 billion. It was the slowest revenue growth in four years.

UnitedHealth (UNH) said new taxes from the Affordable Care Act as well as federal budget cuts reduced EPS by 35 cents.

The company gained Medicaid members from the health law's expansion but lost individual customers, as it largely avoided the new ObamaCare exchanges. That's in contrast to WellPoint (WLP), which is an active participant. Aetna (AET), Cigna (CI) and Humana (HUM) are also taking a more cautious approach.

Overall membership ended Q1 at 44.7 million, up 6% vs. a year earlier but down from 45.3 million at the end of 2013.

Medicare Advantage reimbursement cuts — in part due to ObamaCare provisions — also hurt earnings.

UnitedHealth also said it paid more than $100 million to cover Sovaldi, Gilead's (GILD)blockbuster hepatitis C drug. Criticism of the drug's $84,000 price tag is mounting in industry and government circles. Pharmacy benefits manager Express Scripts (ESRX) is reportedly encouraging some doctors not to prescribe Sovaldi.

UnitedHealth fell 3%. So did Aetna. WellPoint and Humana lost nearly 4% while Cigna slid 1.5%. Gilead rose 1%.

"This has been a very regulatory-heavy sector for a very long time," said Jennifer Lynch, an analyst at BMO Capital Markets. "We feel the operations are adjusting well to the various changes in the operating landscape.

While it was "disappointing" that the health insurer was trying to rein in expectations, Thursday's stock selloff was "overblown," Lynch said.

UnitedHealth reaffirmed its 2014 guidance with projected EPS of $5.40-$5.60 and revenue guidance of $128 billion-$129 billion. Analysts see EPS of $5.59 on revenue of $128.9 billion.

Despite the changing — and challenging — regulatory environment, UnitedHealth's units unrelated to the government have picked up the slack. Its Optum health IT business saw revenue jump 29% vs. a year earlier to $11.2 billion.

"Nonregulated parts of the business are at least supporting flattish earnings year over year," said Sheryl Skolnick, an analyst at CRT Capital Group. She noted that UnitedHealth has plenty of growth opportunities not tied to ObamaCare or Medicare Advantage.