How UnitedHealth Gets To $330 Billion: Medicare Or Optum?

UnitedHealth Group (NYSE: UNH) gross revenue grew 32% from $233.3 billion in 2016 to $308.5 billion in 2019, and it is estimated to be $330.4 billion in 2020. While the growth will be driven by gains across the segments, OptumHealth will likely be the key driver, and it could see revenue double between 2016 and 2020. OptumHealth offers population health management, using technology, analytics, and risk management practices to help lower costs and improve outcomes.

Among other segments, UnitedHealth’s Medicare & Retirement segment is expected to be the single-biggest revenue driver with $90.9 billion in gross revenues (27% of Total Revenues), which is 2.7x the size of its fastest growing segment, OptumHealth. Medicare & Retirement segment will likely add $34.5 billion over 2016-20 (36% of $97 billion in incremental revenues). OptumHealth will be the fastest-growing segment adding about $16.7 billion over 2016-20 (17% of the $97 billion in incremental revenue). Among other segments, Optum RX will likely add $18.9 billion (19% of incremental revenue), and Community & State to add $13.7 billion (14% of incremental revenue) in 2020.

With strong growth in UnitedHealthcare Medicare & Retirement, and OptumHealth segments, along with controlled operating costs and lower taxes, the company managed to grow its adjusted net income margin by 200 basis points and its EPS by a strong 100% between 2016 and 2019. This also drove the 85% surge in the company’s stock price between early 2017 and 2020. In our interactive dashboard analysis, ‘UNH Revenues: How Does UnitedHealth Make Money?’, we discuss the company’s business model, followed by sections that review past performance and 2022 expectations.

UnitedHealth recently reported its Q1 earnings, which were better than street estimates, and the company maintained its full year guidance for earnings to be in the range of $16.25 and $16.55. The current coronavirus crisis could result in increased enrollments for health insurance, though the company will likely see increased medical costs in the near term. The company saw a decline of roughly half a million policyholders for its UnitedHealthcare Employer & Individual segment.

UnitedHealth’s Net Revenues have seen steady growth over the recent years

• We arrive at Net Revenues after adjusting the gross revenues for eliminations, as certain revenue components are included in more than one segment.
• UnitedHealth’s net revenue grew from $185 billion in 2016 to $242 billion in 2019, and it is estimated to be $301 billion in 2022.

#1. UnitedHealthcare Medicare & Retirement revenues are expected to cross $105 billion by 2022

• UnitedHeathCare Medicare & Retirement segment revenues have grown from $56.3 billion in 2016 to $83.3 billion in 2019, and it is estimated to be north of $107 billion in 2022.
• This growth was driven by higher medicare enrollments and growth in average monthly premiums over the same period.
• Looking forward, with the current COVID-19 outbreak, people may be willing to spend on health insurance for protection, and the total uninsured rate could take a dip in the near term. Therefore, companies such as UnitedHealth stand to benefit.

#2. Optum RX revenues are expected to increase 19% over the next three years

• Optum RX segment revenues have grown from $60.4 billion in 2016 to $74.3 billion in 2019, and it is estimated to be north of $88 billion in 2022.
• Number of retail prescriptions has seen 8% growth between 2016-2019, while average revenue per retail prescription grew 14% over the same period. We expect the same trend to continue and aid the segment revenue growth in the coming years.
• There has been growth on drug spending over the recent years, due to new brands, high prices for existing drugs, and fewer patent expiries.

#3. UnitedHealthcare Employer & Individual segment revenues to grow at a steady pace

• UnitedHealthcare Employer & Individual segment revenues have grown from 53.1 billion in 2016 to $56.9 billion in 2019.
• This growth was led by 18% growth in average monthly health insurance premiums, which more than offset a 9% decline in number of policyholders between 2016 and 2019.
• We expect the segment revenues to grow to north of $63 billion by 2022, led by growth in both, the number of policyholders and average monthly premium.

#4. OptumHealth revenues are expected to cross $40 billion by 2022

• OptumHealth segment has seen the fastest revenue growth. Total segment revenue grew from $16.9 billion in 2016 to $30.3 billion in 2019, reflecting 79% growth.
• We expect segment revenues to grow steadily over coming years, albeit at a slower rate.

#5. UnitedHealthcare Community & State, Optum Insight, and UnitedHealthcare International will likely see steady growth over the coming years

• UnitedHealthcare Community & State segment revenues have grown from $32.9 billion in 2016 to $43.8 billion in 2019, primarily led by higher average monthly medicaid premiums. We expect this trend to continue, driving the segment revenues to north of $52 billion in 2022.
• Optum Insight revenue grew from $7.3 billion in 2016 to $10.0 billion in 2019, and it is estimated to grow to $11.9 billion in 2022, led by an overall increase in demand for electronic medical records, increased need for comparative research, and information security.
• UnitedHealthCare International segment revenue grew from $6.2 billion in 2016 to $9.9 billion in 2019. The segment revenues could grow to $11.0 billion in 2022. The growth over the recent years was led by higher international enrollments, partly being offset by a decline in average monthly premiums. Looking forward, we expect both, enrollments, and average monthly premiums to aid the segment revenue growth.

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