UnitedHealth profit misses, cuts 2008 forecast

By Lewis Krauskopf

NEW YORK (Reuters) - Health insurer UnitedHealth Group Inc (UNH.N: Quote, Profile, Research) posted a lower-than-expected first-quarter profit on Tuesday, hurt by weakness in its business serving employers, and slashed its full-year earnings forecast, sending its shares to their lowest level since 2004.

The gloomy outlook from the largest U.S. health insurer by market value -- which cited both broad factors and company missteps -- became the latest hit to confidence in the industry. Shares of rivals Aetna Inc (AET.N: Quote, Profile, Research), WellPoint Inc (WLP.N: Quote, Profile, Research) and Cigna Corp also fell about 4 percent.

Although prior UnitedHealth comments had girded investors for a forecast cut, analysts said the 10 percent reduction was worse than expected.

"This is nowhere near what we thought; this is much worse," said David Heupel, a portfolio manager with Thrivent Investment Management. "For the industry bellwether to come out and cut numbers to that extent is significantly bad."

The lower outlook stemmed largely from weaker revenue growth and margins for its commercial plans for employers and Medicare plans for the elderly. UnitedHealth cut membership forecasts in both areas.

The Minneapolis-based company, whose shares fell as much as 11.5 percent, also said industry competition for membership growth is taking a toll on its enrollment. Furthermore, a weak U.S. economy is causing customers to seek leaner benefits that produce less revenue and companies to cut jobs that reduce membership.

The company is being hurt to a lesser degree by high costs from the flu and reduced investment income.

UnitedHealth Chief Executive Officer Stephen Hemsley said the results were "not acceptable" and they were due "in part to our own performance."