Earnings Preview: UnitedHealth Care Expected to Be Profitable

Bloomberg:

Managed care company UnitedHealth Group Inc. becomes the first major health insurer to report on its fourth-quarter and full-year performance for 2010 when it releases earnings results Thursday before the market opens.

WHAT TO WATCH FOR: A couple big trends that helped health insurers top Wall Street profit expectations in the third quarter could return to boost the sector's fourth quarter numbers.

Insurers saw health care use sink in the third quarter of 2010 compared to 2009, when claims were elevated in part by swine flu-related cases. They also saw claims fall as coverage ran out for some people who lost their jobs but continued their employer-sponsored insurance under the federal law known as COBRA.

COBRA coverage is a claims generator for insurers. The people who use it normally do so because they have health conditions that make continued coverage a necessity. That means they generate more in claims than they contribute in premiums.

Bernstein analyst Ana Gupte said in a note previewing earnings reports that both trends should help ensure healthy commercial insurance margins and stable enrollment in the fourth quarter.

The analyst also labeled UnitedHealth her top pick for the first quarter of this year. She said in a separate note the insurer has priced conservatively, or avoided dropping rates too low to gain customers.

Gupte said she still sees the potential for margin expansion in the insurer's commercial business, which includes employer-sponsored coverage, even though it could pay an estimated $300 million in rebates due to a new health care regulation governing medical-loss ratios that starts this year.

Read the full article here. Discuss below.