UnitedHealth Group (UNH -1.35%), one of the largest publicly traded health insurance companies in the United States, is facing several cases brought by members unhappy over coverage decisions and costs. Although these lawsuits pose a risk to the insurance juggernaut, the company's cash and cash equivalents of over $69 billion (as of Dec. 31) and its annual growth would likely be adequate to cover adverse decisions in any or even all of them. Even still, unhappy members could give investors pause but here's why that might not matter.

Millions of members, several lawsuits over coverage

The company's "member" base of people covered by its plans is massive. As of Dec. 31, 2022, UnitedHealthcare Employer & Individual provides access to medical services for 26.7 million people. Outside the United States, UnitedHealthcare Employer & Individual provides almost 7.7 million people with medical and dental benefits, mainly in South America.

However, these are hardly all satisfied customers. On Dec. 21, beneficiaries of UnitedHealth's self-funded plans filed a class action lawsuit in U.S. District Court for the Southern District of New York, Popovchak et al. v. UnitedHealth Group Inc., focusing on what they view as inadequate coverage for out-of-network costs. This, they allege, is a "self-serving scheme ... to fuel its own profits at the expense of the members," in violation of the company's fiduciary duty under the Employee Retirement Income Security Act of 1974 (ERISA).

Additional lawsuits are pending against UnitedHealth in which the members accuse the company of breaking the Parity Act and ERISA by limiting coverage for mental health and substance use disorders. All of these are federal cases, and three have reached the appeals court level, in one of which the court rendered a split decision in January and returned the case to the lower court for further proceedings.

These lawsuits haven't triggered a mass exodus by members, but arguably it has stunted growth in membership lists, from 26.2 million at the end of 2020 to 26.6 million at the end of 2021 and then to the 26.7 million figure last Dec. 31. By comparison, Elevance (formerly Anthem) added 2.2 million medical enrollees last year compared to 2021, up 5% to a total of 47.5 million members while UnitedHealth's member growth barely budged.

Another possible warning sign is that UnitedHealth reported "Days in Claims Payable" of more than seven weeks -- 49.9 days -- as of Dec. 31, 2022, an increase of 3.1 days compared to Dec. 31, 2021. This metric for health insurers measures the length of time it takes for the company to pay claims, and the meaning of the increase is that customers were waiting longer on average to have their medical claims paid, which could eventually stir consumer resentment and regulatory scrutiny. This is an industry-wide problem, but while UnitedHealth may not be worse than its peers, it can't woo potential new members with claims to be any better.

A win against the Feds

Last year, UnitedHealth successfully faced down the U.S. Department of Justice and two state Attorneys General, which had filed a lawsuit in February 2022 to stop the company from acquiring privately held Change Healthcare. The complaint, filed in the U.S. District Court for the District of Columbia, alleged that "the proposed $13.8 billion transaction would harm competition" in health insurance and technology health insurers use to process claims and reduce costs.

The importance of the case to the Biden administration was apparent in a statement from Attorney General Merrick Garland, who said that the largest health insurer in the United States shouldn't be allowed to acquire a major rival for healthcare claims technologies. But the presiding judge ruled against the government last September, and the Justice Department decided not to pursue it any further. This win may not be indicative of the company's current lawsuits but could show it has strength in legal proceedings. 

Steady growth in the pandemic years

Despite all the member backlash, UnitedHealth has seen its premium income, total revenue, and net earnings attributable to common shareholders all march steadily upward in near tandem over the peak years of the COVID-19 pandemic.

(in billions) 2020  YOY Change 2021 YOY Change 2022 YOY Change
Premium income 201 6% 226 12% 257 14%
Total revenue 257 6% 288 12% 324 13%
Net earnings 15.4 11% 17.3 12% 20.1 16%

Data Source: UnitedHealth 10-K filing. Chart by Author. Values in USD. YOY = year over year.

Other "products" and "services" UnitedHealth offers brought the company $37.4 billion and $27.6 billion in 2022, increases of 9% and 12%, respectively. These other products and services also focus on health insurance. For example, the company's UnitedHealthcare Employer & Individual segment offers "consumer engagement products, such as high-deductible consumer-driven benefit plans" and a range of clinical, pharmacy, and specialty benefits in such areas as vision, dental, hearing, and accident protection. The UnitedHealthcare Medicare & Retirement segment offers Medicare Advantage, Medicare Part D, and Medicare Supplement plans.

Analysts expect the growth will continue

UnitedHealth didn't offer specific predictions for 2023 in its 2022 annual report, but analysts see a bright near-term future, their average forecast coming in at $24.94 in 2023 earnings per share and $28.28 next year, compared to $21.47 in 2022. The company's annual income has grown every year for the past decade, increasing more than 257% over this period.

UnitedHealth has a current price-to-earnings (P/E) ratio of 24, putting it right in the middle of the pack of the four top publicly traded health insurance companies in the United States, alongside peers Humana, Centene, and Elevance.

UNH PE Ratio Chart

UNH PE Ratio data by YCharts

Lawsuits are industrywide risks but the healthcare insurance industry is a necessity and a company of this stature is sure to leverage that. For a company that operates in an ever-growing market, UnitedHealth looks like it could be a solid long-term growth opportunity that's fairly valued. And to sweeten the pot, it offers a dividend that's grown 500% over the past 10 years.