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Investment Overview for UnitedHealth Group (NYSE:UNH)
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Below are key drivers of UnitedHealth Group's value that present opportunities for upside or downside to the Trefis price estimate for the company's stock:
- Total U.S. Private Health Insurance Enrollments: UnitedHealth Group's private insurance business is its biggest source of value, according to Trefis estimates. Total U.S. enrollments in private health insurance have declined from 191 million in 2009 to 187 million in 2011 as higher unemployment (and therefore lower employer-sponsored healthcare) and an aging population led to a migration to Medicaid and Medicare. Trefis forecasts substantial growth in total enrollments beginning in 2014 spurred by the implementation of the Patient Protection and Affordable Care Act (PPACA) which will introduce healthcare exchanges in addition to an individual mandate, which requires all citizens who can afford health insurance to be covered. As a result Trefis expects enrollments to exceed 200 million by the end of the Trefis forecast period. However, political factors could result in the PPACA being overturned or substantially modified. Should this occur, total enrollments could decline as a result of the aging population, falling below 180 million by the end of our forecast period. This would result in a downside of about 5% to the Trefis price estimate.
- UnitedHealthcare's Private Insurance Market Share: UnitedHealthcare is currently the market leader in private health insurance sector with a market share of about 14%. However the competition is significant, with almost 1,300 companies operating in this segment. Further regulatory measures and the establishment of public and private health insurance exchanges would likely intensify the competition. As a result we expect the company's market share to decline beginning with the implementation of the exchanges in 2014, eventually falling to 13.4% by the end of the Trefis forecast period. However, due to its market leadership position and strong brand, consistent innovation and vast network, the company may be able to increase its market share to above 15%. This would result in a potential upside of about 5% to the Trefis price estimate.
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UnitedHealth Group ("UNH") is the largest health insurance company in the United States. Through its UnitedHealthcare and Optum subsidiaries, the company serves about 83 million customers throughout the United States and Brazil.
Its UnitedHealthcare insurance subsidiary operates in four primary divisions:
- UnitedHealthcare Employment and Individual (Private Insurance): Provides healthcare to individuals and family members and also to employers who take care of their employees' health benefits.
- UnitedHealthcare Community and State (Medicaid): Provides Medicaid managed care solutions to economically disadvantaged or medically underserved individuals.
- UnitedHealthcare Medicare and Retirement: Provides government-run Medicare healthcare services primarily to AARP members and individuals aged 65 or older.
- UnitedHealthcare International: Provides private healthcare services to individuals as well as corporates primarily in Brazil.
The company's Optum subsidiary operates in three primary divisions:
- OptumHealth: Provides a range of specialized health and wellness services to its customers such as mental health and substance abuse treatment and counseling.
- OptumInsight: The consulting division of United Health Group, providing business process outsourcing, advisory and data processing services to its clients.
- OptumRx: A pharmacy benefits management business which processes prescription drugs for its customers and helps them get drugs at reduced costs.
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UnitedHealthcare Employment and Individual is the most valuable business for UnitedHealth Group primarily due to its market leadership position. We expect this business to grow steadily in the future as a result of greater nationwide health insurance coverage as well as its dominant position in the market. However, we expect even more rapid growth in the Medicaid business as a result of the following factors:
Increase in total Medicaid enrollments:
Following the implementation of the PPACA there will be a significant expansion in Medicaid availability as the eligibility requirements will be relaxed. Under the new criteria, individuals under 65 with income of up to 138% (133% plus 5% disregard) of the existing poverty line will be able to obtain health benefits from state-run Medicaid programs. According to projections from the Centers for Medicare and Medicaid Services (CMS) nearly 20 million additional Americans will be eligible for Medicaid by 2014. Given UnitedHealth Group's market leadership position and its existing footprint within the Medicaid managed care market, we expect that it will be able to capitalize on this secular trend and increase its enrollments substantially.
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Implementation of Patient Protection and Affordable Care Act (PPACA):
The PPACA, colloquially known as "Obamacare," is a healthcare reform bill passed into law in 2010. The purpose of the law is to reduce healthcare costs and expand healthcare coverage among Americans. It includes an individual mandate, which penalizes individuals who can afford health insurance but choose not to purchase it. It also expands the availability of Medicaid, restricts the ability of insurers to refuse service to customers with pre-existing conditions, will introduce health insurance exchanges in order to encourage competition in the market, and will regulate premiums and medical care ratios (medical costs/premiums) of health insurers. According to government estimates, an additional 30 million Americans will have health insurance (either private, Medicare or Medicaid) over the next five years. While the act has been met with considerable political opposition, we do expect it to be fully implemented over the next several years, and expect that UnitedHealth Group will benefit significantly from the increase in enrollments.
Eventual economic recovery will stimulate growth
Private health insurance enrollments have been stagnant over the past few years due to persistently high unemployment and weak macroeconomic conditions. As unemployment has remained high, the number of employer-sponsored health insurance enrollments has been depressed, while Medicaid enrollments have increased steadily. Additionally, many employers have cut healthcare benefits in response to economic conditions. However, as economic conditions gradually improve we expect employer-sponsored health coverage to increase, as well as the quality of those plans (which will in turn bring higher premiums).
International expansion
In October 2012 the company agreed to acquire (90%) Amil Participacoes SA, Brazil's largest health insurer with over 5 million customers, for $4.9 billion. It has acquired 65% of the outstanding equity of Amil until 2012 end and the remaining 25% equity is expected to be acquired by first half of 2013. The deal will allow the company to expand its footprint outside of the U.S. and capitalize on growth from Latin America.
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
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