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.
