The nation's largest health insurance concern and the latest addition to the Dow-30, UnitedHealth Group (UNH Free UnitedHealth Stock Report ), has kicked off earnings season for the healthcare industry in fine fashion. Revenues came in at $30.4 billion, a hair shy of our $30.5 billion target, but up handsomely from 2013's $27.3 billion showing. The market digested this news rather easily, due to the fact that volumes remain depressed across the board. Sweeping reform is set to begin in 2014 and the average American is eschewing doctor's visits at this time to wait and see how things change from his or her financial perspective next year. A sizable acquisition in Brazil and growing contributions from the Optum division, which focuses on providing consulting services and technological upgrades, powered the year-over-year increase.

Share net for the period summed to $1.40, $0.15 higher than both we and Wall Street were expecting. As mentioned above, the company benefited from lesser medical claims and was able to shift $310 million from reserves onto the earnings line, a trend that has been developing since President Obama signed the Affordable Care Act into law a few years back.

Membership levels continued to swell through the first half of 2013. Figures were aided by the Amil purchase, but the numbers are growing nonetheless. At the halfway point of this year, total enrollment stood at 89.2 million lives. That includes insurance plans through small businesses, large corporations, the military, Medicare, and Medicaid. The larger this figure grows, the greater this company's earnings potential becomes once the sweeping reform kicks in.

A vital metric to watch is the company's medical cost ratio. During the June interim, it increased 20 basis points, to 81.5%. That amount is perfectly doable for UNH given its size and scope. Medical cost ratios will be scrutinized in the coming quarters, as The Affordable Care Act has set floors and ceilings for this statistic and is emphasizing preventive medical screens that should reduce health care costs overall for the longer term. Still, an elongated adjustment phase will probably occur and those ahead of the curve should beat the competition. We anticipate UNH will be at the head of the pack.

For the remainder of 2013, we are tweaking our top- and bottom-line calls a bit. The lower utilization that was discussed above should crimp revenues over the next few months. With that, we are slicing $500 million from our expectation, which rounds it out at an even $122 billion, an impressive jump from the $110 billion posted last year, especially given the choppy economy. On the earnings front, we are adding a nickel to our bottom-line expectation, to push it to $5.50 a share. Yes, the June-period outperformance was much more than that amount, but we expect one notable headwind as 2013 draws to a close. Indeed, some pressure on profitability is likely to come from government funded insurance plans, Medicare specifically, as the reimbursement rates here are expected to taper off. This amount represents just 4% annual growth, but initially 2013 was set to be a flat-to-down year for the entire industry, so a little perspective is needed here. Overall, UnitedHealth is currently in a strong position. This statement is evidenced by the dividend increase that occurred in the second quarter. The company is now paying $0.28 a share per quarter, up from $0.2125 in March, or $1.12 on an annual basis.

From an investment point of view, we like this blue chip for long-term investors seeking worthwhile total returns. Truth be told, the healthcare industry is in for some serious changes over the next year-plus, and any time the government demands more transparency from a sector it creates uncertainty. But, UNH is making all the right moves heading into this period, and we see no reason why a success story cannot be penned here.

About The Company:UnitedHealth Group  is a diversified health and wellbeing company. It offers products and services to more than 70 million individuals through two business segments: UnitedHealthcare (network-based health care benefits) and Optum (information and
technology-based health services).

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.