UnitedHealth Group (NYSE:UNH), the largest private health insurance provider in the U.S., has announced its exit from the California individual health insurance market,  following a similar decision by Aetna.  The company expressed concerns about regulatory challenges regarding premium rate increases in California in its last annual report and had a very small presence in the state. Private health insurance or Employer & Individual insurance is UnitedHealth’s biggest business, accounting for 35% of the company’s revenues and 38% of its EBITDA. Please refer to our article: A Look At UnitedHealth’s Private Health Insurance Business for detailed analysis on this division.
In other news related to the company, The Obama administration has delayed the employer mandate of its healthcare act giving companies with 50 or more employees time till 2015 to provide affordable insurance to their employees. ((Health-Law Employer Mandate Delayed by U.S. Until 2015, Bloomberg)) A recent report by the White House suggests that 96% of all firms in the U.S. with 50 or more employees already offer health Insurance to their employees and this announcement will have little effect on our forecast for the company. Firms with less than 50 employees that are exempt from the PPACA requirement, employ 34 million workers in the U.S.
Our current price estimate for UnitedHealth stands at $70, implying a 10% premium to the current market price.
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UnitedHealth has a very small presence in California, with a market share of just 1.1% and just 8,000 of its 27 million policyholders residing in the state.  The Patient Protection and Affordable Care Act (PPACA) requires health insurance companies to accept all individual applicants without considering their medical history. Given the small market share that UnitedHealth had in California, this requirement made the individual business unviable. The company also faced competitive disadvantage in the state due to special tax break given by the state to Anthem Blue Cross and Blue Shield 
WellPoint is the largest health insurer in California, with a market share of 47% while Blue Shield is second with a market share of 21%.  UnitedHealth and Aetna will still cater to the employer health insurance market in California.
The PPACA requires health insurance exchanges to be established in each state in the U.S., allowing individuals and businesses to compare policies and premiums, and chose the one best suited for them . We expect the establishment of exchanges, coupled with strong competition from companies like Cigna and Wellpoint to lead to a long term decline in market share for UnitedHealth. However, growth in the overall market will also benefit UnitedHealth, leading to an increase in policyholders from about 27 million to close to 30 million.Notes:
- UnitedHealth to exit individual insurance market in California, LA Times [↩]
- UnitedHealth to cease individual health coverage in California, MarketWatch [↩]
- Appendix: Results by State-Based Exchange [↩]
- Insurance Commissioner Concerned as Second Major Health Insurer Pulls out of California Market [↩]
- Ref: 3 [↩]