UnitedHealth Group's (NYSE:UNH) performance makes the stock look like a sure winner this year, but a closer look tells another story. More specifically, while the stock set a record with an intraday high of $88.45 in the first week of September, the company has been a lagging performer in its sector. UnitedHealth is up 16.8% year to date, but WellPoint Inc(NYSE:ANTM) is up almost 28% for the year, Aetna, 22%, and Humana, 25.5%.

But you can still make a bullish case for UnitedHealth, if you have a lot of confidence in the company's management. The UnitedHealth board obviously believes the company's future is solid, or it wouldn't keep raising the dividend as it has been in recent years. The company recently announced a whopping 34% dividend increase, according to The Wall Street Journal. Dividend increases of 30%-plus are nothing to sneeze at, and they've become routine for this insurance giant. UnitedHealth raised its dividend 32% last year, and 31% the year before -- and it also renewed its share-repurchase program. Moreover, the company's Q2 earnings beat expectations, with EPS of $1.42.

Still, the lagging performance for its sector is not a good sign. Despite UnitedHealth's size and scale, it seems likely the market no longer assumes the company has a clear, sustainable advantage in its products or services over the other major health insurers.

While I see no reason to sell UnitedHealth right now, I do see headwinds that may keep its near term in check. Healthcare is, in many ways, a much riskier business now that the government is so heavily involved. In addition, companies with exposure to regulatory risk often have short-lived yet sharp pullbacks. And of all its peers, UnitedHealth has the most current risk in that area.

Optum: You can't have your cake and eat it, too -- or can you?
Optum accounts for one-third of UnitedHealth's sales and operating profit of UnitedHealth -- but it also finds itself in the Congressional crosshairs.

UnitedHealth created its Optum unit in 2011 by pulling together several businesses. The data services unit is UnitedHealth's key growth driver and is often credited with giving the company a powerful competitive edge. Optum experienced a 28% jump in revenue last quarter, rising to $11.7 billion, up from $9.1 billion a year ago, while its earnings rose to $728 million, up from $592 million in the year-ago quarter.  

Optum became involved in creating and repairing the ACA website two years ago, by way of Optum's purchase of Quality Software Services two months after Health and Human Services selected it to build the ACA's data hub.  

Several lawmakers, including Sen. Orrin G. Hatch (R-Utah), Sen. Charles E. Grassley (R-Iowa), Rep. Darrell Issa (R-Calif.), and Rep. Fred Upton (R-Mich.), sent letters to both HHS and UnitedHealth questioning the decision. The lawmakers said:

Optum/QSSI will have access to a significant amount of data regarding highly sensitive aspects of [federal marketplace operations]. ... Given the role of its fellow UnitedHealth Group subsidiary, we have serious questions about conflicts of interest that may exist between the two entities.

In response, The Hill, a daily that covers Congress, quoted Optum Vice President Andy Slavitt describing UnitedHealthcare as "an arm's-length client, separately reported financially and separately managed." In July, however, Forbes contributor Christopher Versace suggested that UnitedHealth's decision to increase its participation in health insurance exchanges sixfold this year, from four to 24, increases potential oversight risk. He concluded that such oversight might force UnitedHealth to "choose between running the exchanges and offering insurance plans on the exchanges."

That seems unlikely, but the problem isn't going away. At the very least, the Optum/Obamacare connection adds a significant headline risk to this stock. 

Competition grows in the exchange marketplace
In a conference call with investment analysts a few weeks ago, CEO Stephen Hemsley explained why UnitedHealth plans to dramatically increase its exchange participation in 2015. "We want to make sure we don't go in too late," Hemsley said. "We're thinking this is about the right time."

Actually, the right time was a year ago, when there was a dearth of competition in the exchanges. When the exchanges opened, on the local level, over half of the U.S. had one or two insurance companies to choose from. In 78% of the 3,135 counties in the U.S., three or fewer carriers participated. The result was decreased choice for consumers. In addition, while UnitedHealth was waiting to see how healthcare reform would shake out, other insurers signed up many of UnitedHealth's former customers. Hemsley defended his "prudent first-year position" on the exchanges by claiming the company used the time to learn about pricing, regulations, and consumer attitudes. What Hemsley hasn't addressed is how that "learning" will help the company moving forward. It seems likely that all UnitedHealth learned is that it will need to swallow pricing cuts to reconvert members. And those cuts might need to be stiffer than expected, because of another factor. 

Reducing care provider networks will make UnitedHealth less competitive
One of the rarely discussed aspects of Obamacare is the destruction of the employer-based health insurance market, most notably the small group market. As more Americans get bounced from employer-based health insurance in the coming years, they will be flooding the exchanges. Healthcare reform is leading to an eroding employee-based insurance market, which will force insurers to begin understanding what consumers want.

One of the key ways individuals make decisions on health insurers is access to trusted doctors. And UnitedHealth gets very poor marks in this area. In fact, the company is receiving negative attention for how widely and deeply it's terminating doctors' contracts. In June, it cut around 700 Massachusetts doctors from its network as a way to control costs, as reported in The Boston Globe. It also announced a second round of physician cuts in Missouri from the Medicare Advantage plan, after an initial cut in April. Last October, it cut about 19% of doctors from its Medicare Advantage network in Connecticut, two weeks before the exchanges opened. In New York City, UnitedHealth's contracts with about 2,100 physicians was cancelled, affecting some 8,000 patients, according to the Medical Society of New York. The company is making cuts in many other states and municipalities as well.

When questioned about UnitedHealth's action, Connecticut State Medical Society President Michael Saffir said, "Even if you need to cut something, you use a scalpel, not a chainsaw." In Missouri, George Hruza, the president-elect of the American Society of Dermatologic Surgery, said that UnitedHealth had terminated almost half of the skin specialists in the area. According to what he told the he told the St. Louis Post-Dispatch, that move has put thousands of patients into the hands of a small group of physicians, many of whom have a three-month waiting list. 

Tying it all together
UnitedHealth's majority purchase of a Brazilian health-insurance provider in 2012 gives the company a strong platform to move into international markets. But in America, the picture isn't as rosy. Health reform is changing American health insurance from mostly a business-to-business proposition to one where individuals are making the decision. And as UnitedHealth rolls out plans in 24 states, its present and future success will require giving individual consumers what they want, or they may find themselves well behind their competition.

Cheryl Swanson owns shares of WellPoint. The Motley Fool recommends UnitedHealth Group and WellPoint and owns shares of WellPoint. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.