Yahoo Finance Health Insurance Fee May Reduce UnitedHealth Group’s 1Q15 Margins
UnitedHealth's 1Q Earnings Release Set for April 16: Investors Should Pay Attention (Part 2 of 5)
Health insurance fee
In the last part of this series, we saw that projected EPS (earnings per share) for the first quarter of 2015 was less than what was projected for the fourth quarter of 2014. The lowered projections are attributable mainly to the increase in the health insurance fee payable by the company in 2015.
EBITDA margins
Wall Street projects that UnitedHealth Group’s (UNH) EBITDA (earnings before interest, taxes, depreciation, and amortization) margins will drop from 9.4% in the fourth quarter of 2014 to 8.2% in the first quarter of 2015. The health insurance provider fee in the United States, imposed by the ACA (Affordable Care Act), totaled $8 billion in 2014. It’s expected to reach $14.3 billion by 2018 since it’s calculated to grow at the rate of the increase in premiums.
In 2014, UnitedHealth Group experienced a downward ACA impact of about 18% in its EPS. It further expects an additional 7% to 9% negative EPS impact in 2015. The operating cost ratio is expected to rise from 16.7% in 2014 to 17.0% in 2015. This is mainly a result of excess expenses related to the health insurance fee, leading to reduced EBITDA margins in 1Q15.
Peers such as Humana (HUM), Aetna (AET), and Anthem (ANTM) are also expected to witness increases in health insurance fee spending in 2015. This trend may impact the overall performance of the Healthcare Select Sector SPDR ETF (XLV). Together, hospitals and health insurance companies form a sizable 19% of the ETF’s holdings.
To know more about the health insurance fee and the impact of UnitedHealth Group’s business mix on the magnitude of this fee, please refer to the article UnitedHealth’s operating expenses compared to its peers.
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