UnitedHealth cuts profit forecast due to weak individual business

(Reuters) – UnitedHealth Group Inc , the largest U.S. health insurer, cut its full-year profit forecast due to continued pressure on its Obamacare plans for individuals, and said it was evaluating to what extent it would continue to offer these plans in 2017.

The company’s shares fell 6.7 percent in premarket trading on Thursday. Rivals Humana Aetna fell 1 percent.

These individual plans, created under the Affordable Care Act, have been suffering due to both lower-than-expected membership growth and a higher number of customer claims than expected.

UnitedHealth had said in October that costs for these plans had dented its third-quarter margins, but added that it believed the performance of these plans would be “strikingly” better in 2016.

“In recent weeks, growth expectations for individual exchange participation have tempered industry wide … so we are taking this proactive step,” Chief Executive Stephen Hemsley said in a statement on Thursday.

Last month, the government said the monthly premium rate of these plans would increase 7.5 percent on average.

Other health insurers including Humana, Anthem Inc and Cigna Corp cautioned last month that these individual plans could hurt results in 2016.

UnitedHealth said on Thursday it expects these plans to hurt current-quarter profit by $425 million, or 26 cents per share.

The company said it now expects to earn $6 per share this year, down from its previous estimate of $6.25-$6.35 per share.

“Although the news is disappointing, we sense this is more of an industry issue, and if exchange pricing/risk does not stabilize near-term, we’d expect a quick rebound in profits as UNH exits this business line,” Susquehanna analyst Chris Rigg wrote in a note.

UnitedHealth, which has pulled back its marketing efforts for individual exchange products in 2016, said the rest of its business continued to perform in line with its expectations.

The company also forecast 2016 earnings of $7.10-$7.30 per share. Analysts on average are expecting $7.28 per share, according to Thomson Reuters I/B/E/S.

(Reporting by Amrutha Penumudi and Ankur Banerjee in Bengaluru; Editing by Savio D’Souza)

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