Optum breaks $100B in revenue for the first time, boosting UnitedHealth's growth in 2018

New York-based health insurance giant UnitedHealth Group beat analysts' expectations as it announced its fourth-quarter and year-end results on Tuesday, attributing much of the growth to the success of its pharmacy benefit management subsidiary Optum.

UnitedHealth reported earning $4.5 billion on revenue of $58.4 billion for the fourth quarter ending in December, up about 13% from the $4 billion it earned on $52.1 billion in revenue in the same quarter of 2017. For the year, the company announced it earned $17.3 billion on revenue of $226.2 billion, a 14% jump from $15.2 billion on revenue of $201.2 billion in 2017.

The growth was mainly driven by the health of its subsidiaries. Notably, Optum broke $100 billion in revenue for the year, marking an increase of $10.1 billion over last year. 

"Our ability to use data to better understand the next best action, or better option for treatment, allows us to significantly affect both the outcome as well the cost-per-member for our clients," said Optum CEO Andrew Witty during a fourth-quarter earnings call on Tuesday.

The growth was also largely driven by savings from the 2017 tax reform law, Witty said.

UnitedHealth acknowledged it is still grappling with the rising cost of healthcare services, which contributed to a decrease in the organization's consolidated medical care ratio last year. The company said it would need to continue working on ways to bring that cost curve down if it wants to keep up the double-digit growth.

One major pain point was the return of the health insurance tax, which executives characterized as a leading source of the industry's costs this year. CFO John Rex said UnitedHealth would continue lobbying the government to defer or repeal the tax.

"I would be remiss to diminish the $26 billion that our customers fund just to pay for the health insurance tax. That's still a very significant number for any company, I would say, and a burden for our customers," Rex said on the call.

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In addition to working on costs, UnitedHealth said it would find growth in future years through the association health plan market. While the expansion of association health plans has been a cornerstone of President Trump's healthcare policy since 2017, critics warn that the business model could become a vehicle for fraud.

The company also promised to continue innovating, with digital therapeutics, ambulatory care, real-time monitoring and pharmacy care services in the pipeline. Optum is also working on the company's electronic health record and genomic data services.

Net earnings were $12.19 per share for the year and $3.10 per share for the fourth quarter, according to the company's earnings release (PDF).

The company affirmed its outlook for 2019, including net earnings of $13.70 to $14.00 per share, adjusted net earnings of $14.40 to $14.70 per share and cash flows from operations of $17.3 billion to $17.8 billion.