UnitedHealth Group ("UNH") is the largest health insurance company in the United States. Through its UnitedHealthcare and Optum subsidiaries, the company serves about 51 million and 115 million customers, respectively, 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.

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 has been a significant expansion in Medicaid availability as the eligibility requirements were relaxed. Under the new criteria, individuals under 65 with income of up to 133% of the existing poverty line are be able to obtain health benefits from state-run Medicaid programs. According to projections from the Centers for Medicare and Medicaid Services (CMS) nearly 66 million additional Americans will be eligible for Medicaid by 2023. 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. However, the Medicaid enrollments growth could slow down if the American Health care Act (AHCA) is passed by the senate in 2017.

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. In the second open enrollment period 11.4 million customers purchased health insurance on health insurance exchanges. According to government estimates, 25 million Americans will participate on these exchanges by 2017 and we expect that UnitedHealth Group will benefit significantly from the increase in enrollments. UNH however, decided to pull out of PPACA from most of the states due to decline in company's profits. So, even if the new government brings in the act to repel PPACA in 2017, UNH will not be affected significantly.

Economic growth 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 falls, the number of employer-sponsored health insurance enrollments will pick up, even as Medicaid enrollments will continue to grow steadily. As economic conditions further improves we expect employer-sponsored health coverage to increase, as well as the quality of those plans (which will in turn bring higher premiums).

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