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(Reuters) - UnitedHealth Group Inc (UNH.N), the largest U.S. health insurer, reported a better-than-expected profit in the third quarter, helped by stable medical costs in its health plans and higher revenue from its Optum pharmacy management business.
The company said medical cost trends were as expected, an indication that the use of medical services by patients was not increasing unexpectedly. The percentage of premiums paid for medical services fell 80 basis points from the second quarter.
That medical loss ratio had increased over a year ago by 90 basis points to 80.6 percent due to higher medical spending in some of its Medicare Advantage plans for seniors and the disabled. The government has set more stringent quality measures for these plans and insurers are investing to stay competitive.
A shift to more government business, where patient costs tend to be higher compared to employer-based insurance, also contributed to the year-over-year decline in the ratio, the company said.
Costs for plans sold through the public exchanges created under President Barack Obama's national healthcare reform pressured its operating margins, the company said. UnitedHealth sold individual plans in about two dozen states in 2015 after only a few states in 2014.
Leerink Partners analyst Ana Gupte said in a research note that the quarter had exceeded expectations.
"The quarter does not raise any red flags, and sets up for a solid 2016," Gupte said.
UnitedHealth is the first of five large publicly traded insurers to report earnings, even as competitors Anthem Inc (ANTM.N) and Aetna Inc (AET.N) are in the midst of consolidating the industry from five national players to three.
Net profit attributable to UnitedHealth shareholders was little changed at $1.60 billion, or $1.65 per share, in the third quarter ended Sept. 30.
Analysts had expected $1.64 per share, according to Thomson Reuters I/B/E/S.
Revenue rose to $41.49 billion, beating the average analysts' estimate of $40.17 billion.
Revenue from the company's Optum business, which also offers healthcare data and analytics and technology services, rose to $19.3 billion from $12 billion a year earlier.
Enrollments in its health insurance plans increased by 290,000 in the third quarter, the company said.