Jul. 22--The challenges facing America's biggest health insurer range from the uncertain to the unknowable.

Unemployment could continue to surge, cutting membership rolls. Health reform could produce a new government health plan, creating competition and crimping profits. Swine flu could push up medical costs.

For now though, Minnetonka-based UnitedHealth Group has reason to celebrate.

Despite a continued drop in commercial members in the recession, UnitedHealth reported Tuesday better-than-expected earnings for the second quarter because of lower administrative costs and strong growth in its public-sector businesses, Medicare and Medicaid.

For the quarter ended June 30, UnitedHealth said net earnings were $859 million -- a 154.9 percent increase from $337 million a year earlier, when earnings were dragged down by big lawsuit settlement costs.

Earnings per share jumped to 73 cents from 27 cents a year earlier. Analysts had forecast 70 cents. Quarterly revenue was up slightly, to $21.7 billion from $20.3 billion.

"We would characterize this quarter as solid with strong execution," said chief executive Stephen Hemsley.

Joshua Raskin, an analyst with Barclays Capital, called it a "very strong result" in a note to investors.

UnitedHealth stock rose 75 cents, or 3 percent, to close at $25.59 Tuesday.

Strong outlook

The company raised its 2009 earnings outlook to between $3 and $3.15, the higher end of its previous outlook of $2.90 to $3.15.

It is now projecting that full-year revenue could approach $87 billion. Some think that could go higher. "I am of the opinion that the numbers will continue to rise," said David Heupel, a portfolio manager at Thrivent Financial for Lutherans, who owns UnitedHealth stock, "unless something drastically changes in the economy or the medical cost line."

For the second quarter, the insurer's medical cost ratio -- the portion of premium revenues it spends paying medical claims -- rose slightly to 83.6 percent, up 40 basis points from the previous year, partly because of swine flu. An uptick in doctor visits and diagnostic tests cost the insurer an extra $50 million.

Pressed on the analyst call to discuss the outlook for swine flu, Hemsley said the full-year projections assumed a normal flu season: "We do not have a pandemic in our outlook."

UnitedHealth ended the quarter with 25 million commercial members, 410,000 less than the previous quarter.

Its public-sector businesses fared better, with 1.7 million members in Medicare Advantage plans, up by 45,000. It had 2.6 million Medicare Supplement clients, up 25,000.