Perhaps more than any other insurer, UnitedHealth is poised to profit from health reform. Its decade-long series of acquisitions has made the company a coast-to-coast Leviathan enmeshed in the lives of 70 million Americans.
United's AmeriChoice unit is the largest government contractor administering state Medicaid programs for the poor and federally sponsored plans for children. AmeriChoice's revenue rose 34% last year, to $6 billion, and it has 2.7 million people enrolled. Those numbers should continue rising under reform since congressional Democrats are proposing an expansion of Medicaid to help achieve universal coverage. More of the working poor would qualify for Medicaid, and AmeriChoice can sell itself to states as the leading service provider.Talk about hedging your bets if this thing passes. UnitedHealth would be able to make more money since they have a shot at insuring all Americans (health care would be a mandatory product if there is a public plan) plus they will be running the vast majority of any expansion to Medicaid.
Knowing how these guys are gaming the reform might make for an interesting long term core holding on UNH stock. I can see the weaker companies dying to ObamaCare thus leaving only UNH and a few very large nationwide insurers to go up against the government plan. The government can undercut UnitedHealth on price all they want but I think the value-added that UNH can offer (along with a shrunken playing field) might just put them in an excellent competitive position.
In fact it could be a lot like the Post Office vs. UPS and FedEx. FedEx is now trading at a PE of 211 and UPS's PE is 25 (UNH's PE is only 8.99) while the Post Office is running out of money and is closing up its offices.
In this case the Post Office handles the low/no margin letter carrying business (which is being killed by email and texting) while these private companies take the high margin super-quick delivery service (which is growing like a weed due to globalization/internet sellers.)
I can easily foresee a so-called "Post Office dilemma" happening to health care as well. The government plan will take the low margin poor and any of the old people that can barely pay for coverage. While UnitedHealth will take the high margin people who happen to be employed middle to upper middle class and the wealthy.
UNH will provide these high margin people with state of the art care, no wait times, access to face lifts and tummy tucks, maybe experimental procedures, and any physician they want. In other words the public plan will be the Yugo while the UnitedHealth plans will be the tricked out Mercedes.
I can even see some companies sticking with UNH even though the premiums are higher because their employees would burn the place down rather then go onto the crappy Post Office health plan. That could even be an enticement to draw in employees at top firms. "Come work for Microsoft kid, we don't offer that crappy public plan here."
I guess this is a case of being a shrewd capitalist and going long UnitedHealth or sticking to my guns and opposing ObamaCare as a dangerous scheme to add billions to the deficit. Maybe I can justify it by saying that going long UNH is actually a hedge against potentially disastrous Obama policies. In any case UNH is so smart it is scary.