MINNEAPOLIS – UnitedHealth Group (NYSE: UNH), whose operating businesses include UnitedHealthcare, the parent company of UnitedHealthcare of New England, saw its annual profit fall 36.03 percent in 2008, dragged down by legal costs.
The company posted an annual profit of $2.98 billion, down from $4.65 billion in 2007, on revenue that rose 7.64 percent to $81.19 billion. Earnings per diluted common share shrank to $2.40 from the year-ago $3.42 as UnitedHealth saw its operating margin narrow to 7.8 percent last year from 10.6 percent in 2007.
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The 2008 results included one-time pre-tax charges of about $1.28 billion: a fourth-quarter charge of $350 million for settlement of a class-action suit related to out-of-network medical services; $882 million in previous settlement and legal costs related to two class-action lawsuits; $46 million for employee severance related to operating cost reduction initiatives and other items. Those costs were partly offset by a fourth-quarter savings of $10 million on various insurance and legal expenses and an earlier $185 million credit from the sale of certain assets in the company’s individual Medicare Advantage business.
For 2007, the company posted $176 million in one-time charges: $87 million for the settlement of tax liabilities on certain stock options exercised in 2006 and 2007 and an $89 million charge relating to the re-pricing of unexercised options.
“During 2008, we effectively strengthened performance, improving our position despite the challenging economic environment,” President and CEO Stephen J. Hemsley said in a statement accompanying the financial report.
For the quarter ended Dec. 31, UnitedHealth posted a profit of $726 million, a 40.29-percent decline from the year-ago period’s $1.22 billion, on revenue that rose 9.30 percent to $20.45 billion. Fourth-quarter earnings per diluted common share shrank to 60 cents from the year-ago 92 cents. The number of people served by the company grew by 95,000 during the quarter, led by “continuing growth in the Public and Senior Markets Group,” UnitedHealth added.
“In 2009, we expect meaningful growth in our government-sponsored businesses as well as a year-over-year improvement in their product mix,” Hemsley said.
“There is strong interest in our Medicare market offerings and continued expansion from our state and public health program relationships, including growth in public-sector specialty benefits,” the CEO added. “Notable improvements in our commercial health-benefit businesses are taking root, including gains in fundamental operating performance and local market momentum.”
The company left unchanged its previous estimate that full-year net earnings will amount to $2.90 to $3.15 per share in 2009.
Analysts were less pleased by this morning’s report. “Year-over-year, the losses are significantly greater on the commercial risk side,” Sheryl Skolnick, an analyst with CRT Capital Group in Stamford, Conn., told Bloomberg News. “That remains troubling.”
Investors reacted positively, however, driving UnitedHealth stock up $1.90 or 7.6 percent, to $26.95 per share by 12:18 p.m. In the 12 months ended yesterday, the company’s share value had fallen 54 percent while the Standard & Poor’s 500 Index had fallen 37 percent.
In a separate statement, UnitedHealth Group today named Simon Stevens – a 20-year veteran of the health care industry, who since late 2006 had served as CEO of UnitedHealth’s Ovations group – to position the company for national health reform.
As an executive vice president of the UnitedHealth Group, reporting directly to Hemsley, Stevens will help to “ensure its businesses are well-positioned to be effective partners in the changing marketplace and evolving government policy environment,” the company said. “He will also establish and direct a UnitedHealth Center for Health Reform, which will draw on thought leadership within the company and from external experts and other resources to address how best to tackle the leading health care challenges facing the [nation].” He also will become president of the company’s Global Health unit.
“I am grateful for Simon’s successful leadership of Ovations and am delighted that he will now broaden his role and help guide UnitedHealth Group’s active and constructive participation in much-needed national health reform, while also leading our international growth,” Hemsley said.
Replacing Stevens as CEO of Ovations – the nation’s largest and most diversified Medicare health plan – will be Larry C. Renfro, who also will serve as a UnitedHealth Group executive vice president.
Renfro comes to the company from Fidelity Investments, where he was a member of the executive committee and one of the firm’s most senior executive officers, overseeing several non-investment business units. He previously served as president and CEO of AARP Services Inc. and held held senior executive positions at NewRiver Inc., State Street Bank & Trust and Allmerica Financial.
“His broad experience with seniors’ health and financial programs, financial services and the insurance sector will help to continue to advance the success of our market-leading seniors business,” Hemsley said.
UnitedHealth Group (NYSE: UNH) is a diversified health and well-being company based in Minneapolis. It offers a broad spectrum of products and services through six operating businesses – UnitedHealthcare, Ovations, AmeriChoice, Uniprise, Specialized Care Services and Ingenix – serving about 70 million individuals nationwide. Additional information is available at www.UnitedHealthGroup.com.
