UnitedHealth’s Success On Insurance Exchanges And The Road Ahead

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UnitedHealth Group (NYSE:UNH) adopted a wait-and-see approach during the first open enrollment period (OEP) for 2014 – from October 2013 through March 2014 – under the Affordable Care Act, as it participated in just four health insurance exchange marketplaces. By the OEP from November 2014 through February 2015, UnitedHealth had expanded its presence to 24 health insurance exchanges (in 23 states and the District of Columbia). The company’s strategy appears to have paid off, with an increase in enrollments and a market share recovery in the individual and employee health insurance division.

In this article we assess the impact of an increased presence on health insurance exchanges on UnitedHealth’s business, and what it could mean for the company going forward. We have a price estimate of $118 for UnitedHealth’s stock, which is slightly ahead of the current market price.

See Full Analysis For UnitedHealth Group Here

Key Takeaways From The Open Enrollment Period

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During the most recent OEP, there were 52 health insurance exchanges active under the ACA. Total enrollments rose to over 11.6 million during the second OEP, compared to about 8 million in the first OEP. The increased participation on the exchanges was partially driven by the provision of subsidies that help low- and moderate-income individuals pay their premiums.

The second OEP saw a rise in enrollments across almost all states that participated. The table below shows the five largest states in terms of enrollments through the health insurance exchange marketplace, and compares the numbers during the two enrollment periods. [1] [2] These five states accounted for over 45% of the total enrollments during the second OEP and have mostly remained the largest marketplaces in each of the two years – with the exception of Georgia, which surpassed New York during the second OEP in terms of total enrollments.

exchange data table

UnitedHealth initially took a cautious approach to the exchanges, in order to first gain an understanding of the dynamics of the marketplaces before increasing its presence on them. The company reported a drop in its market share for 2014, while total enrollments in the U.S. rose, and its restricted presence on just four health exchanges was a major contributing factor (as was the loss of a major client in California).

The success of the exchanges – as well as a presumably improved understanding of the dynamics therein – led UnitedHealth to expand to 24 exchanges during the second OEP. [3] On these 24 exchanges, total enrollments increased from about 5.1 million enrollments in 2014 to more than 7.9 million in 2015. [1] [2] This corresponded with an increase of 550,000 enrollments for UnitedHealth in its individual and employee health insurance segment between Q2 2014 and Q2 2015. [4] In comparison, the division’s enrollments declined by around 1.2 million between Q2 2013 and Q2 2014. [5] The exchanges have been largely successful, and UnitedHealth certainly appears to have benefited from expanding its presence on them.

How Can UnitedHealth Enhance Growth Through Exchanges?

In this new and dynamic health insurance marketplace, UnitedHealth will still need to make some moves in order to stay ahead of the intense competition. Some potential areas of focus are listed below.

Focus On Large, Fast-Growing Markets

UnitedHealth should focus on expanding in states with large scale enrollments – such as California, Texas and Florida. Currently, UnitedHealth has a presence in Texas and Florida, which together accounted for about 2.8 million individual plans during the second OEP. Given the level of competition as well as the ongoing consolidation in the health insurance industry, it is important that the company make further inroads in markets such as California, which saw about 1.4 million enrollments in the OEP for 2015. However, that may be difficult, as the state continues to block UnitedHealth from listing on its marketplace because the company refused to enter during the first OEP. [6]

One thing that has benefited UnitedHealth is the fact that most of the markets in which the company participated during the second OEP witnessed significant growth in enrollments. However, UnitedHealth would also do well to focus on other fast growing markets – even if their populations don’t rival those of states such as California – such as North Dakota, Oklahoma, Nebraska, South Carolina, Virginia and Arizona. Each of these states recorded over 70% increases in enrollments in the OEP 2015 compared to the OEP for 2014.

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Notes:
  1. Monthly Marketplace Statistics, 2015, Kaiser Family Foundation [] []
  2. Monthly Marketplace Statistics, 2014, Kaiser Family Foundation [] []
  3. UnitedHealthcare Offers Health Insurance Coverage on 23 Individual Exchanges for 2015 []
  4. SEC-10Q Filing, July 2015 []
  5. SEC-10Q Filing, July 2014 []
  6. UnitedHealthcare’s Efforts To Join California Marketplace Meet Resistance, Kaiser Family Foundation []