ACA hits nation’s largest insurer’s bottom line

First quarter earnings for UnitedHealth Group Inc. show a 7.8 percent drop, reflecting in part the cuts to Medicare Advantage programs, new taxes and additional regulation created by the implementation of the Patient Protection and Affordable Care Act, the company said.

Additional negative effects were due to across-the-board cuts to Medicare Advantage from sequestration and a jump in health care spending on drugs in the first quarter as Gilead Sciences Inc.’s costly new hepatitis C treatment Sovaldi became available. The drug is more effective than older remedies, but costs around $84,000 for a 12-week treatment. More than $100 million of UnitedHealth’s first quarter costs were tied to its Medicaid and Medicare private plan beneficiaries filling prescriptions for the treatment, an impact the company had not anticipated but attributed to pent-up demand for the drug.  

The company noted that in contrast, it had anticipated the ACA and sequestration impacts on revenue and had diversified to minimize the overall negative impact on its earnings. And the ACA was not all bad news. Enrollment grew in UnitedHealth Medicare Advantage plans and Medicaid commercial plans, as well as private plans despite UnitedHealth's somewhat limited participation in the ACA insurance exchanges. It is considering increasing insurance exchange participation next year.

Meanwhile, healthcare reform and its associated pressure to improve efficiency in healthcare delivery may have helped drive an increase in earnings from Optum, its health services data analytics and technology business. Optum revenues grew 29 percent to $11.2 billion and its operating earnings grew 20 percent year-over-year.

Overall UnitedHealth reported a profit of $1.1 billion, or $1.10 a share, which is down from $1.19 billion, or $1.16 a share, last year. Revenue increased 4.5 percent to $31.7 billion.

UnitedHealth pegged the net effect of all ACA changes and sequestration as a nearly 35-cent decrease on each share of the company's stock.

The largest U.S. health insurer, UnitedHealth is also the first out with Q1 financials this year. As news of the fall in earning hit Wall Street, its stock value fell and along with it, so did the stocks of other insurers, including Aetna, CIGNA, Humana and WellPoint.

Meanwhile, shares for the largest public U.S. hospital operators, HCA Holdings Inc,  Community Health Systems Inc, Tenet Healthcare Corp shot up between 2 and 3.2 percent the same day the insurers stocks fell as the White House announced greater than expected enrollment in ACA health plans.