UnitedHealth Group has the highest price per share of
any company included in the Dow Jones Industrial
Average. And it's the 10th heaviest weighted stock in
the S&P 500.
That means not only is UnitedHealth Group the
biggest health care conglomerate in the United
States based on market cap and revenue, it's even
bigger than JPMorgan Chase, the nation's largest bank.
One of the interesting t hings about UnitedHealth is
that they've done a rollout strategy.
They've been buying pieces for years of different types
of companies. Wall Street is optimistic about the
company's future with 22 of 25 stock market analysts
covering UnitedHealth labeling it a buy.
If I had to pick one stock, only one stock to buy, I'd
buy United.
UnitedHealth's annual revenue has increased by
more than $100 billion over the past decade when
adjusted for inflation.
United has had superior stock performance over
everybody else for two reasons: One would be
strategic vision and the other is strategic capital
management.
The company managed to do this through a unique
acquisition strategy.
UnitedHealthcare is much more than a health insurance
company.
But some worry UnitedHealth may be growing too big,
including the Department of Justice.
It's giant. It's just core health infrastructure at
this point in America, it's too big to manage.
Within health care, I think there's really valid
concerns around excessive consolidation in parts of
the business and that leading to higher prices.
I do think that they are becoming more and more
utilities. And so consequently, I think
they're going to have very large market shares because
a number of the services that they provide, you
wouldn't want redundant services through the system.
So how did United Health Group grow bigger than the
nation's biggest banks and what does that mean for
consumers and the US economy?
A UnitedHealth customer could feasibly navigate the
health-care system without ever leaving the United
umbrella. They could have UnitedHealthcare as their
insurer. See a doctor that works for Optum Health and
have their prescriptions covered under Optum.
They may even pay their medical bills using Optum
Pay technology.
United is a unique company in that while they are one
of the largest managed care companies with over 40
million people having health insurance through
them, that's really only half the business.
The other half of the business, which they call
Optum, are a series of services businesses, many of
which service their health insurance members, but they
also service other people.
Optum can be split into three general businesses.
Optum Health: A series of physician practices.
OptumRx, which is a pharmacy benefit manager.
The so-called middleman between drug manufacturers,
insurance companies and pharmacies.
And Optum Insight, which is a data and information
business that focuses on analytics to monitor things
such as cost and manage risk.
Think about Amazon or Apple.
The way these tech companies create this sort
of virtual ecosystem that you can stay within, that's
what these health-care companies are trying to do
in terms of being able to offer you not just the
insurance, not just the pharmacy benefits, but also
the medical care services so that there's more
coordination and hopefully people get healthier because
it's all tied together.
The diversity aspect of its business makes UnitedHealth
an attractive stock for investors.
The health plan arm of the company works
synergistically with Optum.
The improved medical cost then fuels their health
plan growth and their profitability, and that can
then drive the innovation both through a build
strategy organically, or they can do targeted
acquisitions within Optum.
UnitedHealth set a precedent with its growth strategy,
which has now been adopted by other major players in
the sector.
What you've seen in this kind of space is, because of
Obamacare and the medical loss ratio, which was
basically a profit cap on insurers, the insurers
decided that to get around the medical loss ratio, they
would buy providers and adjacent businesses.
So that's really when UnitedHealth Group's Optum
subsidiary really expanded their pharmacy benefit
manager. They started buying doctors practices and
software and analytics firms.
When Obamacare came into view in 2014, a lot of
United's peers said, Oh, we've got to get bigger in
terms of being insurers.
So you saw Aetna and Humana try to merge.
You saw Anthem and Cigna tried to merge and those
mergers got tied up in antitrust because it was too
much in the same area of integration.
What UnitedHealth has done is they've done what we call
vertical integration.
So they kept building, buying smaller companies and
building them into the Optum services area.
And because there wasn't that sense of, well,
UnitedHealth isn't really the biggest physician
practice at the time, they were able to buy those, and
they didn't really raise any concerns with antitrust
regulators.
The hundreds of deals UnitedHealth Group completed
over the past decade mostly flew under the radar of
regulators until fairly recently.
There was just recently an antitrust case against
UnitedHealth Group because they were trying to buy
something called Change Healthcare, which is
essentially the Visa and MasterCard for most of the
health care system, they are basically a payment
processor. And the government challenged it and
said that this merger would substantially lessen
competition.
The nearly $8 billion all -cash deal between
UnitedHealth and Change healthcare was announced in
January 2021.
The Change Healthcare deal really caught regulators'
eye because it was more of a horizontal merger.
So they were in the same space, both of them
dealing with processing, billing.
And what the DOJ said was, well, if you get the two
biggest in this business, that's going to make
UnitedHealth far too big and it's going to give
UnitedHealth far more information about its
competitors.
Eventually, UnitedHealth Group prevailed in
convincing the DOJ that there is a separation
between their services businesses, and in this
case, it's the payment business of Change
Healthcare from their health plan business, and
that they shouldn't be any concerns around
confidentiality or, you know, anti-competitive
practices and so on.
Optum is trying to become a bank.
Optum is trying to say, we want to provide you with
your medical credit card.
We want to help finance health care.
They're going into everything. You almost want
to say that UnitedHealth Group is kind of a rival of
government. They own the insurance.
They own the providers.
You know, they're like the National Health Service at
this point, except they're private and they're
basically financial engineers. And so they're
just trying to extract as opposed to deliver care.
When asked for comment, UnitedHealth Group told
CNBC: "Because we serve people throughout every
aspect of the health system, we have a unique
ability to identify opportunities to better
integrate care and benefits, develop solutions
and deploy them at scale to improve access, lower costs
and make the experience better for patients and
providers."
One of the interesting things that the government
mentioned during the trial was what's become known in
the business as the "U -Factor." And that's the
UnitedHealth factor in that they are so big that
people are kind of a little scared of them, that they
are the 800 pound gorilla in the space.
But at the same time, part of their argument was
everyone else is doing this too.
And to a certain extent in the same way that tech
companies, they have to be frenemies.
United is happy to do business with other market
participants, and so when they acquire those physician
practices, they don't keep them from contracting with
Blue Cross or Aetna or Cigna or things like that.
They really encourage that.
So I don't think you have as much of an issue that
it's engaging in anti-competitive behavior
because it is not allowing other competitors to use its
services. It's trying to expand its market share by
servicing those other players.
That virtuous cycle continues for the broader
good, I would say, of the health-care system, both
from a medical cost and an affordability perspective,
for consumers, for employers, for government
-funded health care, improved access as well, and
improved experience, if you will, for the members as
well as for their employers and in the various payers in
the health-care system.
Unitedhealth's growth strategy has transformed the
industry into a sector in which the major insurers
have adopted the trend of vertical integration,
creating multi-service health giants.
Now these companies argue we can offer greater
efficiency, we can offer more services that put
things together for people because our health care
system has been so disjointed for so long.
But there are concerns about how much power large
corporations have over people's health care.
Is there a systemic risk?
I don't think they're going to have like a liquidity
problem the way that banks did.
But there are certain systems that if they go
down, would make it very hard for people to access
care and you could have people die because of it.
But I think the more realistic problem here is
that they would just sort of not pay attention to laws
that are passed to address conflicts of interest and
problems in the market.
I wouldn't consider things in health insurance too big
to fail in the sense that they create catastrophic
damage to the economy.
I do think that they are becoming more and more
utilities and so consequently, I think
they're going to have very large market shares because,
you know, a number of the services that they provide,
you wouldn't want redundant services through the system.
Being a big company offers UnitedHealth insulation from
a potential recession, which makes investors and
Wall Street analysts excited about the stock.
It makes it very attractive from an economic cycle and a
macro-environment perspective.
Analysts say Unitedhealth's performance can also
withstand the current high interest rate environment.
Interest rate hikes on the plan side are actually a
positive. Inflation is good because they get their
premiums before they pay the docs and they pay the
hospitals. That's a big part of the whole positive
cash flow story and they invest the money in safe
short term investments.
So interest rates have not been a headwind from a
recession standpoint.
When you look at a United if they lose membership in
their employer health insurance business, they
have the third largest Medicaid business.
So they're likely to pick up business.
And so in general, I would say they're very well-hedged
on that side of the business.
In addition to its Medicaid business, UnitedHealth is
the largest player in Medicare Advantage.
There was definitely a much more fearful view of what
the Democrats could do to the Medicare program and the
Medicare Advantage program.
But if out of 60 plus million seniors, 30 plus
million or over 50% are in the private program, can you
reverse that? Now?
It's a reversible at this point.
The health insurance business is really impacted
by one of the big mega trends I would see in health
care, which is this shift to more and more government
coverage like Medicare, Medicaid, public exchange
program under the Affordable Care Act.
Those are growing.
As you see more and more of that.
Then you're a government services provider, which is
really a lot like a utility.
So I think that health insurance business, while it
still has tremendous growth, the long term
trajectory is for that business to become one with
a few really large participants in it, at
narrower margins, highly efficient.
You know, the biggest players will be the ones
that are able to survive in that.
I think United's really well positioned being the
largest government managed -care company to be
successful in that.
The debate over whether UnitedHealth is too big is
still not settled.
We have a grossly inflated health-care sector, which is
all about market power and inflating prices.
Why wouldn't you get into that business?
It's great business. I don't begrudge the
UnitedHealth Group executives for doing this,
but we do have a policy problem which is causing
Americans to die earlier and to pay more than they
should for care.