UnitedHealth Group Takeaways: ACA Withdrawal Should Pay Off Going Forward
UnitedHealth Group (NYSE: UNH) reported its Q2 earnings on July 18, and the earnings were about in line with consensus estimates. Despite UNH’s withdrawal from individual ACA markets last year, revenues grew by nearly 8% in Q2’17. UNH’s decision to withdraw helped it improve margins by nearly 80 basis points in the quarter. Except for the employer & individual business, where the revenues declined due to reduced ACA participation, most of the company’s segments grew in double digits, with Optum being the primary growth engine.
Optum Businesses Show Tremendous Growth Potential
UNH’s Optum businesses have grown enormously over the last couple of years, and this quarter was no different. OptumHealth grew by nearly 26% in the quarter due to 9 million customer additions over the last year, along with an increase in per capita revenues by 13%. The significant growth in per capita revenues can be attributed to the integration of UNH’s services across divisions to OptumHealth. Optum Insight revenues also grew by nearly 13%, driven by growth in revenue management and business process services, while OptumRx revenue grew close to 5%.
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Overall, we believe that UNH’s Optum businesses will continue to grow organically in the short term due to its strong value proposition, increasing popularity and integration of UNH’s other services.
ACA Withdrawal May Dampen Short Term Growth, But Margins Likely To Improve
Last year, UNH pulled out of the ACA exchanges in most states to reduce its losses from the Medicaid managed care business. This, combined with the ACA health insurance tax deferral, reduced UNH’s consolidated second quarter 2017 revenues by nearly $1.8 billion. As a result, UNH’s overall revenues grew by 7.7% the quarter, while overall margins improved by nearly 80 basis points. Revenue pressure from reduced ACA participation was offset by 17% growth in UNH’s Medicare and Retirement revenues, and 11% growth in Community and States revenues. The revenue growth in these segments was primarily the result of 2.5 million customer additions.
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