UnitedHealth Group Inc.'s third-quarter earnings inched up 1 percent in a rare performance that failed to trump Wall Street expectations.
The nation's largest health insurer also gave a less-than-reassuring vibe to investors by narrowing its 2013 forecast instead of raising it.
The Minnetonka, Minn.,-based company on Thursday raised the bottom end of its previous forecast for 2013 earnings by a nickel to $5.40 to $5.50 per share. UnitedHealth hasn't changed the top end of that forecast since it made its first prediction last November. It normally raises the range a few times during the course of a year.
Analysts polled by FactSet expect $5.52 per share for 2013.
Shares of UnitedHealth, which investors sent to a record high last month, dropped nearly 3 percent, or $2.19, to $73 about 45 minutes before the market opening.
UnitedHealth earned $1.57 billion, or $1.53 per share, in the quarter that ended Sept. 30. That's up from $1.56 billion, or $1.50 per share, a year ago. Revenue jumped 12 percent to $30.62 billion.
Analysts expected earnings of $1.53 per share on $30.86 billion in revenue.
The insurer's largest expense, medical costs, rose 13 percent to $22 billion in the quarter, due in part to cuts in Medicare Advantage funding.
UnitedHealth is the nation's largest provider of Medicare Advantage plans, which offer government-subsidized coverage for elderly and disabled people. The insurer has nearly 2.9 million people enrolled in the plans, and they brought in about 20 percent of its revenue last year.
UnitedHealth executives have been warning for several quarters now that that funding cuts to this program will pressure their business. Medicare Advantage plans took a hit earlier this year when federal budget cuts took away money after insurers had set rates for the year.
These plans also face more cuts to help fund the federal health care overhaul, which aims to provide insurance coverage for millions of uninsured people.
UnitedHealth also took a balance sheet hit in this year's quarter because it recorded a lower gain of $290 million when leftover insurance claims came in lower than it expected. That allowed the insurer to release money held in reserve, and it compares to a $390 million gain recorded last year.
The lower total basically means actual claims came in closer to what the insurer projected.
Health insurance is UnitedHealth's largest business, but it also provides information technology services and pharmacy benefits management through it its Optum segment. Total revenue from that segment jumped 33 percent in the third quarter to $9.6 billion.
UnitedHealth is the largest health insurer based on revenue and enrollment and the first health insurer to report earnings every quarter. Many see it as a bellwether for other insurers.
Its stock had climbed more than 38 percent so far this year as of Wednesday, and the shares reached a new, all-time high price of $75.88 on Sept. 16.
Strong quarterly performances and dividend payouts have drawn investors to UnitedHealth and other insurers that also have done well this year. Analysts say investors also have steadily gained more confidence in the sector as they realized that the health care overhaul won't hurt the industry as much as some originally worried.
Citi analyst Carl McDonald said in a Thursday morning research note that UnitedHealth "didn't have a terrible quarter by any means." But the high stock price means the bar for a good performance has risen the past couple of years.