By Anna Wilde Mathews and Austen Hufford

UnitedHealth Group Inc. reported revenue and profits rose as the company pulled back sharply from the Affordable Care Act's exchanges and saw rapid growth in its Medicare business.

As the largest U.S. health insurer and the first to report quarterly results, UnitedHealth is typically viewed as a bellwether for the industry's earnings season, and analysts said its better-than-expected results would likely lift expectations for its managed-care peers.

The report comes amid continued uncertainty about the future of Republican efforts to overhaul the ACA. On its call with analysts, UnitedHealth called for repeal of the current ACA health-insurer tax, which is already suspended for 2017. Getting rid of the tax has been a longtime industry priority.

Chief Executive Stephen J. Hemsley also suggested UnitedHealth wants to see "more flexible state-based markets," implying a more limited federal overlay of standards and rules on individual and small-business plans. He pointed to greater freedom for insurers in underwriting as part of the company's desired flexibility -- meaning that insurers could have more ability to tie plan prices to the likely health costs of enrollees. That is a sensitive topic, as older, less-healthy consumers balk at paying higher rates. Mr. Hemsley said that change will likely depend on "what is politically possible."

UnitedHealth shares rose 0.9% as the company raised its annual revenue and profit outlook. It now expects revenue of about$200 billion, compared with $197 billion to $199 billion previously. It also raised its forecast for adjusted earnings per share to $9.65 to $9.85, up from $9.30 to $9.60 previously.

The insurer's medical-loss ratio -- the percentage of premiums paid in claims -- increased with the health insurance tax moratorium. But it was helped by lower levels of individual ACA business, which had typically carried higher medical expenses. The ratio rose to 82.4% in the quarter from 81.7% in the same quarter a year before.

The company said last year that it would pull out of nearly all of the Affordable Care Act's individual exchanges for 2017, ending losses that had hurt earnings in 2016.

The Minnetonka, Minn.-based company reported first-quarter net income of $2.17 billion, or $2.23 a share, compared with $1.61 billion, or $1.67, a year before. Excluding certain items, UnitedHealth earned $2.37 a share, compared with $1.81 a year ago. The results were helped by a lower tax rate, which analysts said was a big reason for the improved annual earnings guidance. Analysts surveyed by Thomson Reuters had projected earnings of $2.17 a share.

Revenue rose 9.4% to $48.72 billion, fueled by growing membership, including a 12% year-over-year jump in its Medicare Advantage enrollment, to about 8.7 million. UnitedHealth also saw growth in its Medicaid business.

UnitedHealthcare's withdrawal from ACA individual markets and the 2017 health insurance tax deferral reduced consolidated revenue by about $1.6 billion and lowered the growth rate by 4.1%, the company said.

UnitedHealth also highlighted its rapidly growing footprint as a health-care provider, through its Optum health-services arm, which was underscored by the recent acquisition of Surgical Care Affiliates Inc. UnitedHealth has said it aims to provide primary care and ambulatory services in 75 markets, representing about two-thirds of the U.S. population. On the earnings call, UnitedHealth executives said the company is now offering primary care through local medical practices in almost 30 markets and that it is in the "very early stages" of its ambitions in developing its health-care provider business.

Write to Anna Wilde Mathews at anna.mathews@wsj.com and Austen Hufford at austen.hufford@wsj.com

(END) Dow Jones Newswires

April 19, 2017 02:47 ET (06:47 GMT)

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