UnitedHealth boosts dividend sharply, may invite criticism amid hotly contested health costs

Insurer UnitedHealth sharply raises dividend

INDIANAPOLIS — UnitedHealth Group is sharply raising the dividend it pays shareholders, a move that may fuel criticism of an industry that has reaped strong profits while health care costs have soared.

UnitedHealth, which is the largest publicly-traded health insurer based on revenue, will spend about $560 million over the next 12 months on quarterly dividends of 12.5 cents per share. That equates to 50 cents a year and compares with the company’s current annual dividend of 3 cents per share, or a total of about $35 million.

The change comes a little over a month after UnitedHealth posted a 21 percent rise in first-quarter profit. The company, which is based in Minnetonka, Minn., said last fall and earlier this year it would consider a larger dividend after it determined the impact health care reform would have on its business.

The move could draw unwanted attention for the insurer, Stifel Nicolaus analyst Tom Carroll said.

“There is somewhat of a risk, especially in the current fragile reform environment, that says, ‘Why is UnitedHealth declaring a dividend instead of lowering health care costs for its members?’” he said.

The Obama administration and other critics scolded insurers frequently over the past year while Congress hashed out a health care reform law designed to cover millions of uninsured people. UnitedHealth rival WellPoint Inc. drew especially pointed barbs over a subsidiary’s plans to raise premiums for individual insurance customers by about 25 percent on average. WellPoint has since withdrawn those plans.

Insurers have said their individual insurance rate hikes are driven by the rising cost of care and a weak economy that forces healthy people to drop their coverage when they lose jobs. This leaves a higher concentration of sick people in their risk pools, with fewer healthy customers contributing premiums to balance out those claims.

UnitedHealth spokesman Don Nathan said his company already invests “substantial” amounts of money in improving care delivery. He also said it is worth noting that insurers make up a small percentage of overall health care costs.

“This is an appropriate and sound step for a company to take with its shareholders’ money,” he said, regarding dividends.

Carroll said health insurers typically have offered only a token dividend, though drug companies have offered sizable dividends for years and attracted little criticism.

The steady cash flow from dividends can make a company more attractive to investors.

Shares of UnitedHealth Group Inc. rose 18 cents to $29.06 in late Wednesday afternoon trading, up a bit stronger than broader trading indexes. The shares are trading in the middle of their 52-week range and down about 40 percent from five years ago.

UnitedHealth is the largest publicly traded health insurer based on revenue.