UnitedHealth stopped insuring some people. Its profits rose.

UnitedHealth Group saw total revenue decline in the third quarter, according to Tuesday’s earnings report. That sounds like bad news for the insurer — but its profits actually went up.

Profit is not about how many people an insurance company serves, but which people it serves, according to Yale Univeristy health and economics professor Howard Forman. The reason UnitedHealth’s overall revenue fell was because it lost a number of people who were on Medicaid and employer health insurance plans. According to Foreman, the people on these health plans actually cost UnitedHealth more.

“The healthiest people leave the market. The sickest people stay in the market. [It] becomes a less profitable market,” he explained.

These Medicare Advantage plans had a lot of sick people in them. And now, UnitedHealth is “unafraid of leaving businesses that lose money.”

Profits also went up thanks to something that, five years ago, would’ve sounded like sci-fi.

“There’s what people have called the war of the bots going on now,” said health finance Professor Emeritus JB Silvers at Case Western Reserve University.

Silvers said providers are splitting bills and changing patient codes to try and squeeze more out of insurers, so now insurers are doing the same thing in reverse. “It's basically AI working on both sides of the equation,” Silvers said.

Another piece of the puzzle is UnitedHealth’s subsidiary Optum, a healthcare provider. Optum runs clinics, manages pharmacy benefits, and owns a bunch of other non-insurance stuff. All of that has been really profitable.

“Optum accounted for more than half of earnings this quarter,” said Brookings Institution senior fellow Matthew Fiedler.

Having an in-house provider like Optum saves UnitedHealth money as an insurer. “You can sidestep that market power on the provider side and maybe pay lower prices for care, or be in a position to negotiate lower prices with with the providers you don't own,” Fiedler explained.

And it’s working out pretty well for Optum, too: Optum earned $735 million last quarter, nearly 18 times what it made a year ago.