When investing in any stock, it's important to understand the areas you need to follow closely. In the following sample of our premium report on UnitedHealth (UNH 1.61%), we outline a couple of those areas for the company.
Regulatory arena
The stakes, and the drama, have been high with regards to health care regulation. After the Affordable Care Act passed in 2010, insurers scrambled to determine what business adjustments would be required. Suspense mounted when the Supreme Court reviewed the case. Many expected the legislation to be overturned, but the Court upheld most of the act.
Today, the legislation appears firmly intact following President Obama's reelection. While the individual mandate will support United's membership growth, the company also faces several negative hurdles. An annual insurance industry assessment begins in 2014. The initial assessment will total $8 billion prorated across various health insurers. As the largest player, UnitedHealth could be hit hardest by this levy. The company also must offer rebates if its medical loss ratio (the percentage of premiums paid out as benefits) falls below established minimums.
Competitive landscape
While UnitedHealth ranks as the largest health insurer, it faces several formidable rivals. Two of its primary competitors have focused on acquisitions to improve their competitive positions.
WellPoint could challenge UnitedHealth for Medicaid managed care business even more with its acquisition of Amerigroup. Amerigroup currently offers Medicaid services in 13 states with another lined up for 2013. WellPoint counts 10 states under its Medicaid umbrella.
Aetna is another competitor looking to gain more Medicare and Medicaid business. With its purchase of Coventry Health Care, Aetna's percentage of revenue from government programs rises from 23% to more than 30%.
These two companies, along with a few others, possess the resources to make things more difficult for UnitedHealth as it attempts to expand its market share.
