(Reuters) - UnitedHealth Group Inc (>> UnitedHealth Group Inc.), the largest U.S. health insurer, said on Thursday that first-quarter profit fell due to costs and taxes related to the national healthcare reform law as well as government cuts to private Medicare funding.
The company said the costs related to the Affordable Care Act and the effects of budget sequestration last year on payments from the government negatively affected earnings by about 35 cents per share. Its Optum technology-related division, which has worked on the online insurance exchanges created by that reform law, continued to grow.
The company's quarterly results slightly beat analyst expectations. UnitedHealth said net profit was $1.1 billion, or about $1.10 per share, compared with $1.2 billion, or $1.16 per share a year earlier. Analysts had expected first quarter profit of $1.09 per share, according to Thomson Reuters I/B/E/S.
UnitedHealth stuck by its previous forecast for 2014 earnings of $5.40 to $5.60 per share and said it sees revenue growth of about 5 percent to $128 billion to $129 billion.
CRT Capital analyst Sheryl Skolnick said she had expected the slight beat on earnings and the company's unchanged projection for 2014 earnings to either rise or fall by about 10 cents per share.
"The stock usually goes down on earnings day and it probably will today," Skolnick said in a research note. UnitedHealth shares closed at $78.19 on Wednesday.
UnitedHealth is the first of the publicly traded managed care companies to report earnings. Competitors include Cigna Corp (>> CIGNA Corporation), WellPoint Inc (>> WellPoint Inc), Aetna Inc (>> Aetna Inc), and Humana Inc (>> Humana Inc).
Government healthcare has been a fast-growing business for these companies, and in particular private Medicare, called Medicare Advantage, for older people and the disabled.
UnitedHealth provides private Medicare, Medicaid, and military health plans as well as commercial healthcare plans such as employer-based insurance. It had 44.67 million medical members at the end of the quarter, down from 45.45 million at the end of 2013, due to declines in the commercial business.
President Barack Obama signed the Affordable Care Act into law in 2010 and many of its key elements went into effect on January 1, 2014, including new insurance coverage for individuals subsidized based on income and the expansion of Medicaid to people with higher income levels than was previously available.
The exchanges were riddled with technology issues that affected the roll-out and created new business for UnitedHealth's technology business. Its QSSI unit worked on the federal website for new health insurance for individuals called HealthCare.gov and was also hired by some states that run their own exchanges.
Optum, which also includes other health technology related businesses, had revenue of $11.2 billion, up from $8.7 billion in the year-earlier quarter while earnings from operations rose to $650 million from $541 million.
(Reporting by Caroline Humer, Editing by Franklin Paul, Sofina Mirza-Reid and Chizu Nomiyama)