REUTERS: UnitedHealth Group Inc , the largest U.S. health insurer, on Tuesday reassured investors that the pervasive flu season did not crimp first-quarter earnings as had been feared, boosting its shares as well as those of rivals.
The insurer's quarterly profit beat estimates as it kept medical costs within estimates and it raised its 2018 outlook.
Shares of UnitedHealth rose 3.1 percent to US$237.46 and boosted other stocks in the sector on hopes that rivals would also release robust results over the next few weeks.
“UnitedHealth certainly sets the tone for the group ... investors tend to look at United as the bellwether for the other companies,” Cantor Fitzgerald analyst Steven Halper said.
Anthem Inc rose 2.3 percent at US$230.48, Humana Inc was up 2.4 percent at US$296.80 and Cigna Corp added 1 percent at US$175.48 after rising as high as US$177.81.
Leerink analyst Ana Gupte said UnitedHealth's report eased Wall Street's worries about the impact of the bad flu season, which raised insurer costs as more patients visited doctors and were admitted to the hospital.
Other potential negatives for UnitedHealth - such as federal regulation of the pharmacy benefit management business, drug pricing reform and the feared entry of Amazon.com Inc into the pharmacy distribution business - have not materialized.
"None of that seems to be happening," Gupte said.
One of UnitedHealth's first-quarter strengths was its ability to control medical costs. The medical care ratio, or the percentage of premiums paid out for medical services, improved to 81.4 percent from 82.4 percent a year earlier.
The company expects to keep the ratio at 81.5 percent in 2018, plus or minus 50 basis points, its chief financial officer said on a conference call.
PROFIT TOPS ESTIMATE
UnitedHealth raised its 2018 adjusted earnings forecast to a range of US$12.40 to US$12.65 per share from US$12.30 to US$12.60.
Aside from its large health insurance division, UnitedHealth has other businesses, such as Optum, which includes its pharmacy benefit manager, data analysis and physician groups.
UnitedHealth has added more doctors, urgent care centers and surgery centers via acquisitions, which helped drive growth during the first quarter.
The expansion of the noninsurance businesses comes as the healthcare industry addresses annual increases in costs for medical services and pharmaceuticals by moving services out of more expensive hospitals into less expensive settings, such as clinics.
Other insurers have proposed deals that would allow them to compete with UnitedHealth in these areas.
Aetna Inc is expected to be bought for US$69 billion by CVS Health Corp , the pharmacy chain and benefit manager, and smaller rival Cigna Corp has proposed acquiring Express Scripts Holding Co , the largest U.S. independent pharmacy benefit manager, for US$54 billion.
UnitedHealth's net earnings rose to US$2.84 billion, or US$2.87 per share, in the first quarter ended March 31 from US$2.17 billion, or US$2.23 per share, a year earlier.
Excluding items, the company earned US$3.04 per share while total revenue rose 13.3 percent to US$55.19 billion.
Analysts, on average, expected earnings of US$2.89 per share on revenue of US$54.86 billion, according to Thomson Reuters I/B/E/S.
(Reporting by Caroline Humer in New York and Tamara Mathias in Bengaluru; Editing by Shounak Dasgupta, Anil D'Silva and Jeffrey Benkoe)