What happened

Cigna (NYSE:CI), Humana (NYSE:HUM), and UnitedHealth Group (NYSE:UNH) gained 17.6%, 15.1%, and 16.3% respectively in October, according to data from S&P Global Market Intelligence. That's a huge move for some of America's largest health insurers, and the largest one led the way. The big push for all three healthcare stocks began with UnitedHealth Group's third-quarter earnings report in the middle of the month.

So what

On Oct. 15, UnitedHealth Group beat Wall Street's estimates on the top and bottom lines -- and raised its earnings outlook for the rest of 2019. Instead of a range between $14.40 and $14.70 per share, adjusted earnings are expected to fall between $14.90 and $15 per share. The midpoint of that revised guidance range works out to a 16% year-over-year gain for UnitedHealth Group.

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By market cap, Cigna and Humana are less than half the size of UnitedHealth Group, and there was more than enough enthusiasm for the industry's largest player to spread around to its peers.

Humana stock has sustained a nice bump since UnitedHealth reported, even though Humana won't report third-quarter results until Nov. 6.

Investors who pushed Cigna shares up in response to UnitedHealth's earnings surprise weren't disappointed. Cigna reported third-quarter adjusted earnings and revenue that surpassed consensus estimates on Oct. 31.

CI Chart

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Cigna's largest operating segments -- health services, and integrated medical -- led the company forward. The company's acquisition of Express Scripts, a pharmacy benefits manager and specialty pharmacy, is working out better than expected. Cigna folded the Express Scripts business into its health services segment near the end of 2018. During the first nine months of 2019, health services delivered top-line revenue that reached $70.9 billion, and a $3.6 billion operating profit.

Now what

We can probably expect the health services segment to contribute a great deal more to Cigna's top and bottom lines in the fourth quarter, and into the years ahead. In 2020, the company expects its pharmacy services business to retain 97% of current customers, and to process between 25 million and 35 million more scripts. The midpoint of this expected range suggests the number of prescriptions processed will rise around 25% year over year, to a whopping 1.52 billion.

UnitedHealth Group's health services segment, better known as its Optum segment, is also growing by leaps and bounds. Third-quarter OptumRx revenue rose 5.8% year over year to $18.5 billion, and OptumHealth revenue grew 34.4% year over year to $2.1 billion.

Optum is UnitedHealth's fastest-growing segment; soon it will also be the most profitable. Savings from expanded local care delivery and behavioral health services have increased the segment's operating margin, from 7.5% during the second quarter this year to 8.2% in the third.

If you're going to go with one of these insurers, UnitedHealth Group is probably the best option. Its size, relative to competitors like Humana and Cigna, is a huge competitive advantage that's driving annual earnings growth by double-digit percentages.

Despite the recent run-up, UnitedHealth shares have been trading at just 18.4 times trailing earnings. The average stock in the benchmark S&P 500 index trades at around 23.5 times trailing earnings; compared to that, this stock looks like a terrific bargain.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.