UnitedHealth

How are people thinking about valuation here relative to Elevance and Cigna given that UNH trades at a significant premium on a forward PE basis? Is the Optum multiple justifying that spread or is this starting to look stretched even after the pullback from highs?

People keep sleeping on Optum Rx which is the third largest pharmacy benefit manager in the country and growing. As employers and health plans keep vertically integrating their pharmacy spend, UNH is literally on both sides of that transaction in a way CVS and Cigna can only partially replicate.

It is worth noting that UnitedHealth now employs more than 10,000 physicians directly through Optum Health, making it one of the largest employers of doctors in the United States. Whether you see that as a brilliant vertical integration play or a troubling consolidation of market power probably depends on your political priors.

UnitedHealth Group reported Q1 2024 revenue of $99.8 billion, up 8.6% year over year, driven largely by Optum Health which now serves over 4 million value-based care patients. The medical loss ratio came in at 84.3%, slightly above what analysts were modeling, which is what spooked the market on earnings day.

UnitedHealth's Optum subsidiary finalized its acquisition of home health company LHC Group for approximately $5.4 billion, adding roughly 30,000 employees and operations in 37 states. The deal positions Optum Health to capture more of the post-acute care spend that currently leaks out of integrated delivery systems.

Medicare Advantage reimbursement rates from CMS for 2025 are coming in below what UNH and its peers were lobbying for, and the company has already started quietly trimming some MA plan footprints in unprofitable counties. When your fastest-growing segment starts hitting a reimbursement ceiling this hard, the growth story gets complicated fast.

The CEO transition after Andrew Witty took over from David Wichmann never really got enough scrutiny, and now with the Luigi Mangione situation putting UnitedHealth's claims denial practices under a microscope, there is a non-trivial political risk that legislators actually move on prior authorization reform. That could structurally impair profitability across the entire commercial insurance book.

UNH has compounded earnings per share at roughly 14% annually for the past decade and the Optum segment is still only penetrating a fraction of the addressable market in value-based care. Even with MA headwinds, I think the five-year setup here is as strong as it has ever been for a mega-cap healthcare name.

Has anyone done a deep dive on how the Change Healthcare cyberattack fallout is actually going to land on the income statement over the next two to three quarters? UNH said they advanced roughly $6 billion to providers to offset cash flow disruptions but the recovery and remediation costs seem like they could be material.