UnitedHealth Group's third-quarter net income jumped 23 percent, and the nation's largest health insurer raised its 2012 earnings forecast for the third time this year.
But company leaders also cautioned against thinking too positively about 2013. They said Tuesday that a stubbornly slow economy and the health care overhaul will combine to pressure the insurer's business again in the new year.
The Minnetonka, Minn., company now expects 2012 earnings of $5.20 to $5.25 per share, up from its previous forecast for $4.90 to $5 per share. Analysts expected $5.13 per share.
CEO Stephen J. Hemsley told analyst during a Tuesday conference call, the insurer expects growth in 2013 as well. But he said UnitedHealth must deal with tight government budgets that will squeeze its Medicare and Medicaid businesses and high unemployment rates that could hamper its private insurance enrollment.
The massive health care overhaul, which aims to cover millions of uninsured people, also will affect results next year. The law calls for a tax on premiums to start in 2014, but Hemsley said that will start to affect UnitedHealth's performance next year because the insurer will have to account for it in the rates it charges.
Insurers set their prices based on the claims or expenses they expect to have in future.
"We expect to grow revenues and earnings per share in 2013, but we view the current consensus level as a considerable challenge from this distance given these market conditions," he said.
Analysts expect, on average, earnings of $5.63 per share next year.
Hemsley also outlined concerns about the economy and employment levels last fall, as the insurer headed into 2012. UnitedHealth then went on to beat analyst expectations in every quarter so far this year. The CEO said Tuesday his company has successfully handled the broader market challenges it faces, but those obstacles still remain.
"We are actually in a good or better position than we were at this time last year," Hemsley said. "But we think we are being cautious, and we think the market should be cautious as well."
UnitedHealth Group Inc. will deliver its first 2013 earnings forecast next month at its annual investor meeting.
In the third quarter, the health benefits provider earned $1.56 billion, or $1.50 per share, overall. That compares with $1.27 billion, or $1.17 per share, in last year's third quarter.
Analysts had forecast earnings of $1.34 per share, and UnitedHealth said earlier this month its net income would be at least $1.45 per share.
Revenue rose 8 percent to $27.3 billion. That fell short of average analyst expectations of $27.58 billion, according to FactSet.
UnitedHealth said Tuesday its third quarter was helped by Medicare and retirement revenue that swelled by $1.2 billion, as Medicare Advantage enrollment grew by 400,000 people compared with last year.
Medicare Advantage plans are privately run, subsidized versions of the government's Medicare program for the elderly and disabled people. UnitedHealth is the largest provider of these plans, and it made a couple of acquisitions within the past year to help spur growth. Big health insurers have been snapping up smaller Medicare Advantage plan providers to prepare for the millions of Baby Boomers who will become eligible for this coverage over the next couple decades.
Aside from the Medicare growth, the insurer also recorded a $390 million benefit in the quarter because claims left over from earlier periods came in lower than expected, which freed up money held in reserve. That compares with a $200 million benefit in last year's quarter.
UnitedHealth is the first major insurer to report earnings every quarter, and Goldman Sachs analyst Matthew Borsch said in a Tuesday morning research note the report should set a positive tone for the sector, which also includes WellPoint Inc. and Aetna Inc.
But Borsch also said next month's presidential election will weigh more heavily on insurer stocks than earnings reports. He said a victory by Republican presidential candidate Mitt Romney will lead to a "strong and sustained" insurer rally. Romney has said he plans to repeal the health care overhaul if he's elected.
The overhaul is expected to add millions of new customers for insurers, but investors also are wary of the law's taxes and restrictions.
Shares of UnitedHealth, which became a Dow Jones industrial average component last month, fell 61 cents to close at $56.88 Tuesday.