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UnitedHealth's massive ACA-exchange losses offset by profits from Optum, Medicare in Q2

UnitedHealth GroupInc. is exiting all but three state exchange markets in 2017, afterits Affordable Care Act-compliant plans suffered greater-than-expected losses inthe first half.

The nation's largest managed care insurer warned that it willlose $200 million more on the exchanges in 2016, on top of the more than $600 millionin losses that it had already projected. The company had already from at least 26 of 34marketplaces after determining it could not turn a profit, but on July 19 said itwould pull out of all but three states.

"We do not expect any meaningful financial exposure on 2017business from the three or fewer exchange markets where we currently plan to remain,"CEO Stephen Hemsley said during a conference call to discuss second-quarter .

The $200 million of extra losses were driven by UnitedHealth'sneed to shell out more money for a larger policyholder population than it anticipated.Roughly one-third of the company's exchange losses came from fewer people droppingtheir coverage, executive Daniel Schumacher said on the call. The remaining two-thirdswere linked to increasing severity in members' claims, especially for chronic conditionssuch as HIV, hepatitis C and diabetes.

UnitedHealth ended the second quarter with 820,000 exchange planenrollees, Schumacher said, about 25,000 more than expected. The company expectsthat number to drop to 750,000 by the end of 2016.

Those exchange losses, however, were more than offset by growingprofits across UnitedHealth's other businesses, prompting the insurer to narrowits 2016 adjusted EPS outlook to between $7.80 and $7.95, from $7.75 to $7.95.

The company's Optum division earned more than $1.2 billion inthe second quarter, with its three segments each reporting earnings growth of atleast 20%.

UnitedHealth reported strong organic growth in its Medicare andMedicaid businesses, as well. Referrals to doctors and home visits by house-callnurses are among the services that contributed to nearly 14% year-over-year Medicareand retirement revenue growth, UnitedHealth President David Wichmann said.

The company's Medicaid segment, meanwhile, benefited from newenrollees in Iowa and New York and will have additional markets in Pennsylvaniafor 2017.