Morningstar | UnitedHealth Boasts Narrow Moat Fueled by Unrivaled Scale
Even with what is sure to be a more difficult operating environment for its core managed care business, we believe UnitedHealth possesses material competitive advantages that should allow it to produce outsized economic profits over the next several years. While the business outlook for U.S. health insurers is filled with uncertainty, United has built itself into a powerful all-encompassing healthcare player we believe will be a dominant force over the next several decades.United has constructed its Optum division into one of of the most powerful healthcare-services players and has positioned the firm advantageously for the long term. With the acquisition of narrow-moat Catamaran in mid-2015, United has built its PBM operations into a major force in the pharmaceutical market. From our perspective, OptumRx will be a strong value driver for United over the next several years. The firm has also moved to become a major player in the healthcare IT market through its OptumHealth and OptumInsight lines. Though these businesses, United is a major participant within the patient population and provider infrastructure management markets. We believe these business lines offer significant growth opportunities for United and should allow it to offset a significant portion of the headwinds it faces within its MCO operations. The MCO industry will now encompass a significantly greater degree of competition, and costs. With capped gross profitability through mandated medical loss ratios, or MLRs, only players with large and sufficiently diverse membership bases will be able to earn economic profits. Adding to the pressured operating environment is the extreme political and legislative uncertainty coming from Washington. The volatility emanating from congress and the administration has injected major uncertainty and headwinds into the health insurance market. Nevertheless, we believe United's exchange strategy has lessened this regulatory risk greatly. Individual membership has decreased by 65% from 2016 levels as the firm exits the troubled public exchange market. From our perspective, the decision to leave the vast majority of state exchanges was prudent.UnitedHealth Group is a health care company. The company has four reportable segments across its two business platforms, UnitedHealthcare and Optum: UnitedHealthcare, which provides health care benefits to an array of customers and markets through its UnitedHealthcare Employer & Individual, UnitedHealthcare Medicare & Retirement, UnitedHealthcare Community & State and UnitedHealthcare Global; OptumHealth, which serves the physical, emotional and health-related financial needs of individuals; OptumInsight, which provides services, technology and health care knowledge to main participants in the health care industry; and OptumRx, which provides pharmacy care services and programs.
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