UnitedHealth profit misses, cuts 2008 forecast

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The lower outlook from the largest U.S. health insurer by market value stemmed largely from weaker revenue growth and margins for its commercial plans for employers and Medicare plans for the elderly. The company is being hurt to a lesser degree by high costs from the flu and reduced investment income.

NEW YORK (Reuters) - Health insurer UnitedHealth Group Inc <UNH.N> on Tuesday posted a lower-than-expected first-quarter profit, hurt by weakness in its business serving employers and lower investment income, and slashed its full-year earnings forecast by 10 percent.

The lower outlook from the largest U.S. health insurer by market value stemmed largely from weaker revenue growth and margins for its commercial plans for employers and Medicare plans for the elderly. The company is being hurt to a lesser degree by high costs from the flu and reduced investment income.

"These financial results are not acceptable for a company with our capabilities and potential," UnitedHealth Chief Executive Officer Stephen Hemsley said in a statement. "They are due in part to broader economic challenges and in part to our own performance."

UnitedHealth is the latest health insurer to lower its 2008 forecast since March, when WellPoint Inc <WLP.N>, the largest U.S. health insurer by membership, stunned the market by cutting its outlook.

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UnitedHealth posted first-quarter net income of $994 million, or 78 cents per share, compared with $927 million, or 66 cents per share, a year earlier.

Analysts on average expected 80 cents, according to Reuters Estimates.

Revenue rose 7 percent to $20.3 billion.

The company served medical benefits to about 32.4 million people as of the end of March, up about 5 percent from a year ago, helped by its acquisitions of Fiserv and Sierra Health Services.

But the gains through acquisitions were partially offset by sharp membership declines in its commercial plans for which it assumes full insurance risk.

UnitedHealth said it was refusing to cut premium pricing to compete with other plans for such commercial business, hurting its growth.

The company also said its Medicare business is seeing a shift toward less profitable products. UnitedHealth is one of the largest U.S. providers of Medicare plans.

The company reduced its 2008 outlook by 40 cents per share to a range of $3.55 to $3.60 per share. Analysts expect $3.86 per share.

Shares of UnitedHealth have tumbled some 35 percent this year amid service problems and fears of a broad industry downturn. The Morgan Stanley Healthcare Payor index <.HMO> is off 33 percent this year.

(Reporting by Lewis Krauskopf; Editing by Mark Porter and Lisa Von Ahn)