Behind UnitedHealthcare’s Organic Enrollments in US in 1Q16

What Really Drove UnitedHealth Group's Performance in 1Q16?

(Continued from Prior Part)

UnitedHealthcare’s performance

In 1Q16, UnitedHealthcare witnessed strong growth in enrollments due to its strategy of aggressively acquiring new customers while also ensuring high retention rates for existing customers. The company’s US-based managed care business added 1.3 million organic enrollments in 1Q16, while domestic organic enrollments rose by about 2 million on YoY (year-over-year) basis. (For more on UnitedHealthcare segments, please refer to “What Are UnitedHealth Group’s Key Business Segments?“)

The graph below shows that UnitedHealthcare’s total revenues increased by about 10%, from $32.6 billion in 1Q15 to $35.9 billion in 1Q16. Operating income, however, remained stable at about $1.9 billion YoY.

Despite the rise in revenues, the company witnessed a decline in UnitedHealthcare’s operating margins mainly due to weak performance in its public exchange business. Additionally, because 2016 was a leap year, UnitedHealth Group (UNH) had to service an additional day in 1Q16 as compared to in 1Q15. This added to the overall medical costs of the company and marginally affected its operating margins.

Competitive advantage

In 2015, UnitedHealthcare managed to reduce its total inpatient admissions as well as its total inpatient bed days, which contributed substantially in reducing its medical costs. Additionally, the company is also focused on driving down outpatient costs as well as out-of-network expenses. Aetna (AET), Cigna (CI), and Anthem (ANTM) have also devised innovative strategies to control costs and boost profit margins.

In addition to controlling costs, UnitedHealthcare has also focused on improving the consumer experience through product and service innovation as well as through the optimal integration of its clinical resources and network infrastructure. The company has also deployed advanced analytic capabilities for enhancing its consumer service, which is provided through mobile technology platform. These efforts are expected to ensure continued and sustainable revenue growth for the UnitedHealthcare segment in 2016.

If UnitedHealth Group manages to deploy the strategy for its managed care business effectively, it could boost share prices of the SPDR Dow Jones Industrial Average ETF (DIA). UnitedHealth Group makes up about 5.1% of DIA’s portfolio.

Now we’ll look at UnitedHealth Group’s Medicare & Retirement business in 1Q16.

Continue to Next Part

Browse this series on Market Realist:

• Part 1 - UnitedHealth Group’s 1Q16 Earnings Are Out: Here’s What the Conference Said

• Part 3 - What Drove UnitedHealth Group’s Medicare & Retirement Business in 1Q16?

• Part 4 - Behind UnitedHealthcare’s Medicaid Enrollment Additions in 1Q16