Why UnitedHealth Would Not Be Affected By The AHCA

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The American Health Care Act (AHCA), which was passed by the House of Representatives in May but has yet to be voted on by the Senate, would repeal some parts of Obamacare and likely reduce per capita federal spending on health insurance. The proposed legislation would cut Medicaid substantially, thus impacting the revenues of health insurance companies in the U.S. However, the biggest health insurance company in the country, UnitedHealth Group (NYSE: UNH), may be relatively unaffected. The insurer distanced itself from Obamacare in 2016 when it decided to back away from healthcare exchanges in many states. Additionally, Medicaid contributes less than 13% of the company’s earnings before interest, taxes, depreciation and amortization (EBITDA), so any impact of Medicaid cuts would likely be fairly modest. Further, UnitedHealth’s primary growth driver of late has been the Optum business, which likely wouldn’t see much of an impact from the AHCA.

AHCA Unlikely To Be Passed Anytime Soon, But UNH Is Insulated  

The AHCA, in its current form, could result in up to 23 million more uninsured people in the U.S. over the next decade, according to CBO estimates. Much of the decline would come from Medicaid. Accordingly, it seems unlikely to be approved by the Senate as currently constructed. Still, if it were to go through, UnitedHealth would be fairly insulated from any impact.

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The biggest impact of the AHCA would likely be on UnitedHealth’s Medicaid Managed Care business, which contributes nearly 15% to United’s overall revenues. However, the impact would likely be limited, due to the reasons mentioned above – the Medicaid segment is the company’s fourth largest business, and most of its recent growth has been coming from Optum. Therefore, the company shouldn’t remain relatively unaffected whether the legislation is passed or not.

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