Carl McDonald of Oppenheimer hit on the irony of UnitedHealth Group’s strong first-quarter 2010 profits:
The Obama administration won the health care war, aided by big individual rate increases from WellPoint and other plans; UNH is now giving Democrats a reason to drag managed care bodies through the streets with its massive upside versus consensus in 1Q and higher guidance for the year, driven by a very favorable spread between pricing and cost trends. To the ruling class in Washington, though, this just looks like another example of an insurance company gouging its customers and it serves as a powerful reminder to some of why strict regulation of premium rates and medical loss ratios is required.
McDonald also raises another interesting point:
In a non-reform environment, we’d be a huge supporter of managed care stocks, because the industry appears to be on the verge of a cyclical upswing in margins, driven by higher premium rate increases and lower utilization.
What he’s saying is that the insurance underwriting cycle is turning up, as I’ve argued before (here and here) — and that means a run of strong profit performance for the industry at least before the full impact of reform kicks in. All of which spells political trouble for health plans at a critical moment. Or as I wrote last year:
It will be difficult to remember that managed care is a struggling industry when the underwriting cycle turns up, boosting industry profits. That’s especially true as the up-cycle will likely gain momentum coincident with rollout of the initial elements of reform — masking longer-term challenges such as the erosion of the industry’s lucrative fully funded business lines.