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Health insurer UnitedHealth's 2Q profit slips as taxes, expenses rise, but tops estimates

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UnitedHealth Group's second-quarter earnings slipped 2 per cent on a rise in taxes and other expenses, but the nation's largest health insurer still trumped analyst expectations.

The Minnetonka, Minnesota, company also raised the low end of the earnings range it forecasts for this year. Its shares edged up in premarket trading Thursday.

UnitedHealth said revenue gains, particularly in its Medicaid business and through its Optum segment, helped counter the expenses during the quarter that ended June 30. Medicaid is the state-federal program that covers the poor and elderly people.

UnitedHealth's enrolment in that segment jumped nearly 19 per cent to about 4.7 million people compared with last year's quarter, as the insurer expanded its business and reaped gains from the health care overhaul, the massive federal law that aims to over millions of people.

While the overhaul gave insurers more customers through a coverage expansion that started this year, it also heaped costs on their balance sheets, including an industry-wide tax that is non-deductible. UnitedHealth said its provision for income taxes in the second quarter jumped 25 per cent to $989 million.

The insurer's largest operating expense, medical costs, also climbed 6 per cent to $23.52 billion.

Overall, the insurer earned $1.41 billion, or $1.42 per share, in the quarter. That's down from $1.44 billion, or $1.40 per share, in the 2013 quarter, when it had more shares outstanding.

Revenue rose 7 per cent to $32.57 billion.

Analysts expected, on average, earnings of $1.26 per share on $31.9 billion in revenue, according to FactSet.

Health insurance is UnitedHealth's largest business, but it also has seen growth from its Optum segment, which sells information technology services and perform pharmacy benefits management. Optum's operating earnings jumped 23 per cent to $728 million in the quarter.

UnitedHealth also cited the health care law as a chief reason its first-quarter profit slid 8 per cent. The overhaul-related hits shouldn't surprise investors. The insurer said back in December that it expected the federal law to reduce its after-tax operating earnings by $1.1 billion in 2014.

But the insurer has still earned enough so far this year to hike the quarterly cash dividend it gives shareholders by more than 30 per cent to 37.5 cents per share. The new payout, announced in June, now triples the dividend the insurer debuted in 2010.

UnitedHealth now expects 2014 earnings to range between $5.50 and $5.60 per share. That compares to its previous forecast for $5.40 to $5.60 per share. It also raised its revenue estimate to $130 billion from $128 billion to $129 billion.

Analysts predict, on average, earnings of $5.52 per share on $128.38 billion in revenue.

UnitedHealth Group Inc. is the first insurer to report earnings every quarter. Many see the insurer, a component of the Dow Jones industrial average, as a bellwether for other insurers.

Company shares climbed 44 cents to $84.20 in premarket trading Thursday about an hour before the market opening. The stock was up more than 11 per cent for 2014 through Wednesday's close.

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