Core Portfolio Insight: UnitedHealth Group (UNH)

Core Portfolio Insight: UnitedHealth Group (UNH)

February 25, 2022

Founded in 1974 as Charter Med in Minnetonka, Minnesota, UnitedHealth Group grew into one of the largest companies by revenue in the world today with $288 billion in 2021. This is the fifth most revenue of any company in the United States, only behind Walmart, Amazon, Apple, and Berkshire Hathaway. UnitedHealth Group is split into two complementary businesses: UnitedHealthcare and Optum. Together, UnitedHealth Group's 340,000 employees serve over 146 million people through its healthcare offerings. UnitedHealth Group is a GPM Grade company due to its strong scale advantages, focus on long-term sustainable growth, and its history of innovation leading to superior sales and earnings performance.


The UnitedHealthcare segment, which earned $12 billion in 2021 (50% of UNH's total operating earnings), offers health benefits and access to high-quality care. Its broken down into four groups: Employer & Individual, Medicare & Retirement, Community & State, and Global. According to Morningstar, UnitedHealthcare is positioned as either the first or second largest insurer in terms of premiums written in about 60% of U.S. states. The Employer & Individual segment has over 250,000 employer customers, in all 50 states. UnitedHealthcare's Medicare & Retirement business serves 1 in 5 seniors in the U.S. These scale advantages allow UnitedHealthcare to negotiate better costs with healthcare suppliers, which attracts more employers and people to serve. 

The Optum franchise has three segments: Health, Insight, and Rx. This business has higher operating margins than the UHC segment, typically around 8%, compared to UHC's 5%. Optum Insight, which offers technology services and an analytic platform for administrative work, clinical, and payments, reported a 28% operating margin in 2021. Optum's revenue consistently grows at a double-digit percentage rate, faster than UHC. Optum Rx processes over 1.3 billion scripts annually. Its pharmacy benefit manager (PBM) is part of an industry where three players (CVS, UNH, and Cigna) control about 80% of the market, leading to a solid moat and competitive scale advantages. 

As the need for affordable health care increases in the U.S., UnitedHealth Group should continue to benefit as its services lower costs and improve patient outcomes. UNH Chief Operating Officer, Dirk McMahon, said on the Q2 2021 conference call, "UnitedHealthcare's value proposition is rooted in lower costs, better outcomes, and a better experience. Optum supports this value proposition for UnitedHealthcare and other health plans with ambulatory services, which patients and their doctors value." Management believes UNH can grow its earnings per share (EPS) by 13-16% per year. UNH pays a dividend yielding 1.3%, growing at a 18% rate over the last five years. 


UNH 2021 Investor Book