UnitedHealth Earnings Rise 26% in Quarter

UnitedHealth Group Inc. reported higher-than-expected quarterly earnings Wednesday as the insurer benefited from its acquisition of PacifiCare Health Systems Inc. and a strong performance by its new Medicare prescription drug business.

The Minneapolis-based company declined to discuss inquiries into its stock option practices, which have hurt its shares, beyond saying that a panel of its board members was reviewing the issue.

However, investors were encouraged by the second-quarter results, which buoyed UnitedHealth’s stock as well as the shares of other health insurers.

“The fundamentals were stronger than expected when taken as a whole,” said CRT Capital Group analyst Sheryl Skolnick.

Net income rose 26% to $974 million, or 70 cents a share, from $770 million, or 58 cents, a year earlier. Analysts expected 68 cents, according to Reuters.

Revenue jumped 57% from a year earlier to $17.92 billion, compared with analysts’ expectations of $17.88 billion. The company cited its recent acquisition of Cypress-based PacifiCare and business from Medicare Part D, a new federal program that provides prescription drug benefits to older people.

UnitedHealth said its consolidated medical care ratio -- a key profit barometer that measures medical costs as a percentage of premium revenue -- improved half of a percentage point from the first quarter to 82%.

Last year’s results were restated to account for new stock options expensing rules.

Although UnitedHealth remains the largest U.S. health insurer by market value, its stock has fallen about 19% this year, more sharply than shares of its rivals.

UnitedHealth stock rose $2.53, or 5.23%, to $50.93 on Wednesday.

U.S. authorities are scrutinizing UnitedHealth’s stock option practices. Uncertainty about the fallout has punished the stock, as have investor concerns about weaker pricing in the industry overall.

“I think they’re the best positioned fundamentally of any of the HMOs,” Miller Tabak analyst Les Funtleyder said. “The only issue -- and it may turn out to be a nonissue and it may turn out to be a massive issue -- is what’s going on with the options, and no one can answer that to any certainty right now.”

Last year’s $9.2-billion acquisition of PacifiCare increased UnitedHealth’s West Coast presence and boosted its already substantial Medicare business.

Analyst Skolnick said UnitedHealth’s Medicare Part D business came in better than expected and “generally drove the out-performance in the quarter.”