A Look At UnitedHealth’s Medicare And Retirement Business

UnitedHealth Group’s (NYSE:UNH) Medicare and Retirement division provides health insurance plans to senior citizens (aged 65 and above) and eligible younger people with disabilities. The company provides coverage in return for a fixed monthly premium per member from CMS. Premium amounts are determined by factors such as area of residence, demographic factors such as age and gender in addition to the individual’s health condition. The Medicare and Retirement division accounts for nearly 30% of the company’s total revenues. ^[1]

In this article we discuss the performance of UnitedHealth’s Medicare and Retirement segment this year so far, and the outlook for the upcoming quarters. We have a price estimate of $89 for UnitedHealth’s stock, which slightly below the current market price.

See Full Analysis For UnitedHealth Group Here

UnitedHealth’s Market Share – AARP Is The Mainstay

Currently, UnitedHealth serves around 6.5 million people through Medicare, while another 5 million or so are served through the stand-alone Medicare Part D plan. The company holds close to 24% of the Medicare market in the U.S. ^[2] UnitedHealth has an association with the American Association of Retired Persons (AARP) which allows it to offer a variety of health insurance plans to a 37 million strong member base. The AARP accounts for about 40% of the company’s Medicare enrollments, with about 4.4 million customers enrolled in UnitedHealth’s services. ^[3] UnitedHealth’s pact with the AARP extends through the end of 2017, and will most likely be renewed given UnitedHealth’s leadership position in the health insurance market in the U.S.

Steady Growth In 2014

Revenues from the Medicare and Retirement business grew by 4% year-over-year to the tune of about $35 billion during the first nine months of 2014. The growth was driven by an increase in the number of customers served during the period. The implementation of the Patient Protection and Affordable Care Act (PPACA), which resulted in a decline in funding, led the company to withdraw from certain markets in 2014. However it also led to an increase in the number of customers served via Medicare Advantage by 25,000. The number of people served under the Medicare Part D business also rose 5% year-over-year owing to the introduction of new product offerings as well strong customer retention. ^[1]

Current Trends And Future Outlook

Under the PPACA legislation, there have been consistent reductions in the funding provided by CMS and this will continue. Factoring in the decline in spending per capita as well the reduction in physician costs as a result of the PPACA, Medicare spending is expected to grow 4% annually during the 2013-2022 period. This is a slow rate of growth when compared to private health insurance. ^[4] This has led the company to make adjustments to its business strategy to incorporate effective medical and operating cost management. The company expects to take advantage of the growing Medicare market in the country and also offset the funding reduction impact by increasing premiums. This might cause a decline in the membership base, but the company plans to mitigate that by offering other attractive options to the senior customer base. ^[1]

The U.S. population is projected to cross the 334 million mark by 2020. ^[5] People aged 65 years and above will form nearly 17% of the total population in 2020, compared to around 14% currently. The total number of people in that age group is likely to further increase beyond 65 million by 2025, compared to just over 45 million currently. ^[6] In 2015 alone, more than 3.4 million people will become eligible for Medicare in the U.S. ^[3]

Customers now have easier access to multiple options to choose from on the health exchanges during open enrollment periods. This will lead to an increase in competition for UnitedHealth and impact its customer base growth. We will be keeping a close eye on how the company performs in the ongoing open enrollment period.

View Interactive Institutional Research (Powered by Trefis):

Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap
More Trefis Research

1. SEC 10-Q Filing, October 2014 [↩] [↩] [↩]
2. UnitedHealth Group Performance Review & Outlook, 2014 UnitedHealth Group Investor Conference, Investor Relations [↩]
3. UnitedHealthcare Overview – Q&A , 2014 UnitedHealth Group Investor Conference, Investor Relations [↩] [↩]
4. Medicare at a Glance, Kaiser Family Foundation [↩]
5. Projections of the Population and Components of Change for the United States: 2015 to 2060, U.S. Census Bureau [↩]
6. Projections of the Population by Sex and Selected Age Groups for the United States: 2015 to 2060, U.S. Census Bureau [↩]