UnitedHealth Warning Creates Huge Spillover, With Big Implications Ahead

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The pressure against certain aspects of the Affordable Care Act (ACA), or Obamacare, may be growing. News about certain health insurance exchanges failing has been coming out, and the 2016 presidential election has brought the health care argument up more times than can easily be counted. Now we have word from UnitedHealth Group Inc. (NYSE: UNH) in an earnings warning that could be a serious blow to at least part of ACA/Obamacare.

UnitedHealth is currently the largest health insurance provider in America. Its earnings warning for 2015 was not really anticipated by the market, even if 2016 might have needed some tempering with all things considered. As a reminder, UnitedHealth is a member of the Dow Jones Industrial Average.

The company’s explanation for the warning was that the new expectations reflect a continuing deterioration in individual exchange-compliant product performance. What has been interesting to see here is that UnitedHealth actually has seen its shares soar under ACA/Obamacare. Has all of that benefit now passed?

There is a reason that Anthem Inc. (NYSE: ANTM) and Cigna Corp. (NYSE: CI) are being hammered. Also under pressure are Humana Inc. (NYSE: HUM) and Aetna Inc. (NYSE: AET). Those are the pending large mergers in health care, and in a twist of fate UnitedHealth’s commentary could be used by the companies to support those pending health insurance mergers.

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UnitedHealth’s revised 2015 net earnings outlook is roughly $6.00 per share. This reflects expected pretax earnings pressure of $425 million, or $0.26 per share, including $275 million related to the advance recognition of 2016 losses. The earnings pressure is said to be driven by projected losses on individual exchange-compliant products related to the 2015 and 2016 policy years. UnitedHealth expects net earnings of $7.10 to $7.30 per share in 2016 and will provide more detail on its outlook at its investor conference on December 1, 2015.