UnitedHealth Group Inc's first-quarter profit rose 21 percent, soaring past Wall Street estimates, as it benefited from improved performance in its employer-based plans and growth in its Medicare and Medicaid plans.

The largest U.S. health insurer by market value, whose shares rose more than 4 percent, also raised its full-year earnings forecast on a brighter outlook for enrollment across its plans.

These results bode well for the managed care earnings season and are consistent with our view of strong industry pricing and moderate cost trends, Goldman Sachs analyst Matthew Borsch said in a research note.

UnitedHealth is the first health insurer to report results since Congress passed an overhaul of the U.S. healthcare system.

The law -- whose debate roiled shares of health insurers -- imposes new regulations and fees on the industry as it expands insurance to 32 million Americans without coverage and ends practices such as refusing to cover people with pre-existing conditions.

UnitedHealth's net income rose to $1.19 billion, or $1.03 per share, from $984 million, or 81 cents per share, a year earlier.

Analysts on average expected 69 cents per share, according to Thomson Reuters I/B/E/S.

Revenue rose 5.4 percent to $23.19 billion, ahead of the $22.76 billion that analysts expected.

The company spent 81.3 percent of premium revenue on medical costs in the quarter, down from 82.4 percent a year ago, citing a mild flu season and strong expense management.

The medical loss ratio, which Wall Street has always watched closely, has come under increased scrutiny by Washington and will be regulated under the new law.

Indeed, uncertainty over how the MLR regulations will be applied is likely to temper UnitedHealth's stock gains, said Collins Stewart analyst Brian Wright.

You just don't know the sustainability of this year's results, which look to be robust, because you don't know how sustainable they are until you know what the minimum MLR regulations are going to be, Wright said.

In UnitedHealth's commercial business serving employers, membership fell by 275,000 in plans for which the insurer assumes full insurance risk, while rising by 170,000 in less-lucrative plans for which it just provides administrative services. Both results were ahead of company projections, Wright said.

UnitedHealth also upgraded its outlook for membership in its commercial business. Such plans have been hit by layoffs stemming from the weak economy as fewer people employed mean fewer with health coverage.

Revenue in UnitedHealth unit with Medicare plans for the elderly rose 10 percent to $9.3 billion. Revenue for its Medicaid plans for the poor rose 22 percent to $2.3 billion.

UnitedHealth recognized $490 million in unused reserves for paying claims from prior periods, compared to $200 million a year ago, helping results. That contributed 17 cents to the earnings beat, Wright said.

The company projects 2010 profit of $3.15 to $3.35 per share, up from a prior forecast of $2.90 to $3.10. Analysts were looking for $3.08.

UnitedHealth shares rose 4.4 percent to $32.60 in premarket trading. Through Monday, they had gained 2.5 percent this year, in line with rivals, as investors remain uncertain about the impact of the health reform law to industry profits.

(Reporting by Lewis Krauskopf; Editing by Lisa Von Ahn and Derek Caney)