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UnitedHealth Medicare Hit

Membership rolls will decline.

UnitedHealth (UNH) - Get UnitedHealth Group Incorporated Report warned of a drop its SecureHorizons Medicare Advantage membership rolls, leading to a projected revenue shortfall in that division.

But the Minnetonka, Minn.-based health insurer said it would step up cost cutting in a bid to mitigate the earnings impact.

The company said the drop will come in private fee-for-service offerings, based on its review of preliminary January Medicare Advantage enrollment data from the Centers for Medicare and Medicaid Services. UnitedHealth said it expects revenue at its Ovations unit to rise to $28 billion this year from $25.3 billion last year.

UnitedHealth Group projects consolidated revenues will exceed $78 billion in 2007. Consistent with its previous estimates, the Company expects its full year earnings from operations to be approximately $8 billion, net earnings in the range of $4.7 to $4.75 billion and cash flows from operations in the range of $6.0 billion to $6.2 billion.

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UnitedHealth said the revision is due to lower than expected enrollment in SecureHorizons Medicare Advantage plans. Lack of execution in sales and distribution efforts during the shortened Medicare enrollment period, which ran from Nov. 15 to Dec. 31, 2006, hit both retention and new January growth. Recent preliminary data received from CMS indicates that disenrollments that were effective Jan. 1, 2007 are higher than had been anticipated when the enrollment outlook was described on the Company's fourth quarter earnings teleconference.

Based on the preliminary January data, management expects that the decline in Medicare Advantage membership in the first quarter of 2007 will be less than 100,000 people and that membership in private fee-for-service plans will comprise less than 10% of total membership in Medicare Advantage plans at March 31, 2007. The company expects to resume its growth in its SecureHorizons offerings over the balance of the year. As of Dec. 31, 2006, Ovations provided services to 1.4 million seniors through Medicare Advantage offerings.

The company said it has taken steps to upgrade its sales and marketing performance, including changes in SecureHorizons leadership and broad-based efforts to support and enhance its broker channel relationships. UnitedHealth Group continues to see the expanding senior population and the opportunities to engage in public/private partnerships that address the needs of citizens as fundamental drivers of long-term growth.