UnitedHealth Group: How Has The UnitedHealthCare Division Been Performing?

UnitedHealth Group (NYSE:UNH), the largest health insurer in the U.S., operates two primary businesses – UnitedHealthCare and Optum. UnitedHealthCare includes the company’s private health insurance, Medicaid and Medicare segments, while the Optum division covers services such as pharmacy benefits management (PBM) and health care services. (Read how Optum performed in Q3 2016 here)

UnitedHealth’s strategy to provide integrated health care solutions seems to be unfolding well, and the company raised its guidance for full year 2016 after its Q3 earnings. Below we discuss UnitedHealthCare’s performance so far this year and trends to watch going forward.

UnitedHealthCare Sub-Divisions

The UnitedHealthCare division posted revenues of $37.2 billion for the third quarter this year, an increase of 13% y-o-y. This was primarily driven by a 4% increase in the number of customers served to 48.1 million. In terms of the bottom line, the division’s operating income grew about 13% to over $2 billion and operating margin was stable at around 5.7%. The table below provides a breakdown of the division’s results in the past five quarters. 

Private Health Insurance Sustains Momentum

The private employer and individual health insurance business has been improving since Q2 2015 in terms of both revenue and customers served. In Q3 2016, the division’s revenue grew about 12% year-over-year (y-o-y) to $13.3 billion but it was lower than the $13.5 billion reported in the previous quarter. The company’s customer base has been largely stable around 30.5 million for the past three quarters, but its revenue per subscriber has shown mixed trends, with the metric declining 22% y-o-y and 2% quarter-over-quarter to $435 in Q3 2016. This will be a key metric to focus on in the division going forward.

Medicare And Medicaid  Remain Strong, Affordable Care Act In Focus

In the last twelve months, over 600,000 additional seniors opted for UnitedHealthCare’s Medicare Advantage and Medicare Supplement products, increasing the customers served in the company’s Medicare and Retirement division to 7.8 million by the end of Q3 2016. In the last quarter, the segment’s revenues increased 13% y-o-y to $13.9 billion driven by a 5% increase in revenue generated per customer to $1,176.

In the Medicaid program, the company currently serves 5.8 million people, up from 5.3 million an year ago. This growth was largely driven by the Affordable Care Act (ACA). With Donald Trump taking over the U.S. Presidency next year, there are some concerns with respect to the future of Medicaid, and the ACA as a whole. The Medicaid program covers nearly 77 million Americans, of which about 12 million were added under the ACA. Although the President-elect has hinted at continuing some components of the healthcare program, we will have to wait and see how this turns out next year. ^[1]

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1. Expect Medicaid to Change, but Not Shrivel, Under Donald Trump, The NY Times, Nov 15 2016 [↩]