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The markets are pushing higher to end the week, as the Dow Jones Industrial Average (DJINDICES:^DJI) has moved into the green after reversing this morning's moderate losses. As of 2:15 p.m. EDT, the Dow has picked up gains of about 30 points, and most of the index's blue-chip stocks are in the green. UnitedHealth Group (NYSE:UNH), however, isn't making things easy for investors: America's largest publicly traded insurer has continued yesterday's plunge after Wall Street was disappointed by the company's earnings release. Let's catch up on what you need to know.
UnitedHealth's nightmare continues
What more can UnitedHealth do? The stock has plunged another 3.4% today following yesterday's gut-churning nosedive, which was sparked by a disappointing outlook for next year. At least one analyst soured on the stock, and one thing has turned against UnitedHealth investors late in the year. The stock's big year-to-date run-up -- before the recent drop, UnitedHealth had been one of the best performers on the Dow -- has left the stock trading at higher valuations than other major players in the insurance industry.
While Medicare Advantage looks in trouble due to potential government cutbacks, UnitedHealth did note that its medical costs remain stable. That's a big key going forward, as many insurers have feared that Obamacare's arrival could spark much higher costs. UnitedHealth and Aetna (NYSE:AET), among others, notably passed on joining Covered California, the Golden State's individual insurance exchange, for fear of higher costs due to the state's giant pool of uninsured individuals.
For Aetna, UnitedHealth, and others, however, government cutbacks to Medicare Advantage and other programs could seriously dent their prospects -- and dampen investors' confidence. UnitedHealth is the largest Medicare Advantage provider among the publicly traded insurers, and Aetna gambled heavily on the growth of the Medicare and Medicaid markets when it purchased competing insurer Coventry last year for $5.7 billion.
Still, for these companies and others in the insurance market, size is their advantage. That's doubly true with Obamacare rolling out, as more members dilute the pool of medical costs with far more premium revenue. UnitedHealth did manage to grow membership in the most recent quarter, and while it was a small gain compared to how the company grew its subscription base over the first half of the year, the firm's still unrivaled in size in its industry. That's a key advantage that will help this stock in the long-run -- even if Obamacare and slowing government payments take it down from its recent run-up.
Fool contributor Dan Carroll has no position in any stocks mentioned. The Motley Fool recommends UnitedHealth Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.