How 2013 Prepared America's Top Health Insurer for Obamacare's Future

The Dow Jones Industrial Average (DJINDICES: ^DJI  ) has made the most of a good year by gaining more than 20% since January kicked off. Health care's been a mixed bag on the Dow's board this year, but America's largest publicly traded insurer, UnitedHealth Group (NYSE: UNH  ) , hasn't been slowed down. UnitedHealth's stock has gained more than 35% year to date, outpacing the bumpy start of Obamacare to pull down a solid 2013 for investors. But what's made this stock and company so successful? Let's see how this Dow health care giant's year has set up UnitedHealth for a strong future.

Obamacare's big shift in health insurance
For the health insurance industry overall, nothing's been more significant about 2013 than Obamacare. The Affordable Care Act's rollout hasn't gone quite as expected, and its myriad changes and headaches have left some insurers and many investors scratching their heads. Medicare cuts, particularly to Medicare Advantage, have been one of the biggest blows revealed since the Affordable Care Act launched, and UnitedHealth hasn't sat idly by.

The company announced in November that it would reduce the size of its physician network, a measure partly responding to those Medicare cuts that will make the costs of treating Medicare-covered Americans tougher in years ahead. It's a tough pill to swallow for both patients and investors, but it's a necessary one: UnitedHealth's costs already have been rising, with medical expenses jumping by more than 12% year over year through the first nine months of 2013.

UnitedHealth's operating costs, while only about 20% as large as medical expenses, have risen at an even-faster 14% over the same time frame. The company can't afford to experience reductions to its Medicare payments while costs are on the rise -- something that won't be helped by Obamacare's tepid enrollment numbers so far -- and November's announcement should at least stem the bleeding.

Despite Obamacare's rocky rollout, UnitedHealth built up some great momentum in 2013 that should help it maintain its place atop the health insurance industry.

Growth in the right places
Even though costs have been picking up, UnitedHealth's managed to drive its own revenue higher. The company's premium revenue climbed by nearly 11% through the first nine months of the year, and adding millions of new subscribers from the military's TRICARE network has helped that mark in a big way.

International revenue also has become a big selling point for UnitedHealth. That's a critical step forward to lessening the company's exposure to Obamacare in future years, something that many of its top rivals can't say the same about. Within the core UnitedHealthcare business, international revenue now makes up more than 5% of sales. That might not seem like much, but considering that UnitedHealthcare International barely got its feet wet in 2012, it's a big jump in 2013 that will pay dividends down the road.

Perhaps most important for the future, UnitedHealth has seen membership growth skyrocket in 2013. True, about a third of that subscriber growth can be attributed to TRICARE, which added nearly 3 million new plans to the company's subscriber rolls. However, UnitedHealth also managed to grow its largest pool of plans -- its commercial fee-based plans -- by 8% through the first nine months of the year.

One slight caveat: UnitedHealth's Medicare Advantage membership growth also has been a big gainer in 2013, picking up 17% growth year over year. While that's great for revenue and lessening risk, it's also a mixed blessing considering the payout cuts to come from the federal government next year. Nonetheless, if UnitedHealth can continue growing its commercial plans strongly in the new year and see its international investments -- such as its purchase of Brazilian insurer Amil last year -- pay off, it will be able to overcome Medicare cuts in the future.

No change in UnitedHealth's market leadership
All in all, membership growth and rising revenue have 2013 looking strong for UnitedHealth and its members. The year's been one of change and fraught with anxiety for many investors in the industry over the Affordable Care Act's transformation of the marketplace. Yet even with this big change in place, UnitedHealth's come out exactly where it entered the year -- atop the list of America's largest publicly traded health insurers, confidently moving forward and entrenched in its leading position.

Are you ready for Obamacare's future?
Nobody's figured out Obamacare completely just yet, but UnitedHealth has the pieces in place to overcome the big changes coming from this law. Can your portfolio say the same? Obamacare seems complex, but it doesn't have to be. In only minutes, you can learn the critical facts you need to know in a special free report called Everything You Need to Know About Obamacare. This FREE guide contains the key information and money-making advice that every American must know. Please click here to access your free copy.


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