How Will The Obamacare Affect UnitedHealth Group – Part 2

by Trefis Team
UnitedHealth Group
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In our last article, we looked at some of the salient points of the Patient Protection and Affordable Care Act (PPACA) or Obamacare and UnitedHealth Group’s (NYSE:UNH) insurance operations. In this article, we analyze the effects of the act on UnitedHealth’s operations.

Our $76 price estimate for UnitedHealth’s stock is in line with the current market price.

See Full Analysis For UnitedHealth Group Here

There are around 30 million Americans currently not covered by any form of health insurance. [1] The 2010 U.S. census revealed that 83% of the U.S. citizens are covered by health insurance. Around 65% are privately insured while 15% are covered by Medicare or Medicaid. [2] The survey also showed that 97.2% of the country’s senior citizens, above the age of 65, are covered by Medicare insurance.

Improvements in the U.S. job market as well the implementation of the PPACA will increase health insurance penetration in the country. The unemployment rate reached a four-year low of 7.3% in August, a significant improvement over the 10% plus figure observed in 2010. [3] Although the deadline for the employer mandate of the PPACA has been deferred till 2015, [4] 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 the abeyance will have little effect on our forecast for the company. Firms with fewer than 50 employees that are exempt from the PPACA requirement employ 34 million workers in the U.S. We expect total private health insurance enrollments to grow to around 200 million by the end of the decade.

However, the establishment of health insurance exchanges may well cut into UnitedHealth’s market share in the U.S. Although UnitedHealth is currently the market leader in the U.S., it competes with over 1,300 health insurance companies like Cigna and Wellpoint for market share. We expect UnitedHealth’s market share to drop to around 14% by 2020.

Medicaid Enrollments To Increase In 2014

The eligibility requirements for Medicaid will be relaxed from 2014 onwards, people under 65 with an income of up to 138% (133% plus a 5% disregard) of the poverty line will be able to obtain health benefits from state-run Medicaid programs.  It will also do away with many “asset” tests which restrict eligibility. We expect a spike in Medicaid enrollments in 2014, with total enrollments approaching 60 million by the end of the decade.

Margins To Decline

The PPACA mandates a minimum medical care ratio (medical costs divided by premiums) of 80% for individual and small group plans and 85% for large group plans. Medical costs account for more than 80% of UnitedHealth’s operating expenses (excluding D&A) and the company has maintained a medical care ratio of 80% for the last three years allowing its EBITDA margins to stay around 9%. A medical care ratio of 85% would drive the EBITDA margin to as low as 2-3%. However, the company has undertaken several cost-cutting measures to reduce operating costs and we expect the margins to drop to just 7% in the coming years.

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  1. FACT SHEET: The Affordable Care Act: Secure Health Coverage for the Middle Class, The White House, Office of The Press Secretary []
  2. Health Status by Selected Characteristics and Health Insurance Status: 2010 []
  3. U.S. Department of Labor, Labor Force Statistics from the Current Population Survey []
  4. Health-Law Employer Mandate Delayed by U.S. Until 2015, Bloomberg []
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  • commented 4 years ago
  • i retired from Pfizer my supplement insurance is from Pfizer will my premium go up or down because of Obammacare program