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- The Medicare Giant! - UnitedHealth Group's 2023 Financial Results
The Medicare Giant! - UnitedHealth Group's 2023 Financial Results
Membership, Revenues, Profits for 2023 & prior 6 years
Jared Strock
January 18, 2024
This week’s newsletter is Sponsored By: Modivcare
Here is what you’ll find in this week’s newsletter!
Important links 🔗 - the best articles we found this week about the Medicare Market along with links to Jared’s recent LinkedIn posts.
Deep Dive 📚 - The Medicare Giant - UnitedHealth Group’s 2023 financial results
Compliance Chatter 📢 - Medicare Advantage OEP.
Sponsor Snapshot 🚀 - brought to you by Modivcare.
Data Visual of the week 📊 - Data Visual highlighting UnitedHealth Group’s results.
It’s only a 5 minute read, but it will make you 10x smarter.
Here are IMPORTANT LINKS 🔗 for the week:
RSV vaccines drove rising Medicare Advantage costs, UnitedHealth execs say - (link)
Medicare Advantage analysis sparks infighting at MedPAC meeting - (link)
Medicare Part C Reporting Requirements - (link)
Hospitals aren't breaking up with Medicare Advantage, UnitedHealth says - (link)
CMS finalizes rule tightening prior authorization turnaround for insurers - (link)
Medicare Supplement Rate Actions – 2023 Q4 Update - (link)
Jared’s recent LinkedIn posts:
DEEP DIVE 📚
The Medicare Giant! - UnitedHealth Group’s 2023 Financial Results
When it comes to companies focused on the Medicare market, UnitedHealth Group (NYSE: UNH) is the giant.
They are like the 1990’s Nebraska Cornhuskers football team consistently dominating year after year (yes, I had to go back to the 1990s so I could talk about Nebraska).
But, they didn’t simply hit the scene overnight.
It’s been a long consistent growth over time along with vertical integration that has resulted in their consistent dominance.
Last week UNH released Q4 ‘23 financials. As expected they posted impressive year-over-year growth in all areas, including 14.6% revenue growth and 13.8% growth in operating profit.
The one area of disappointment was the increased Medical Loss Ratio. 2023 loss ratio increased to 83.2% up from 82.0% in 2022.
In this week’s deep dive we are analyzing year-over-year (“YoY”) and past 6 years results to better understand recent trends.
Before we get to the numbers it’s important to understand their two main business units, UnitedHealthcare and Optum.
UnitedHealthcare is an insurance carrier, providing health insurance benefits. They collect premiums, pay health insurance benefits, and make a profit on what’s left over.
Optum is (for the most part) a healthcare provider. This includes doctors, hospitals, value-based care clinics, technology and pharmacies.
They receive revenues via health insurance benefits, pay expenses associated with running health provider systems, and make a profit on what’s left over.
This is what is called vertical integration!
Okay, now let’s look at some numbers.
Membership
Surprisingly, overall membership growth has been very modest over the last 6 years.
YE ‘17 membership: 46.68 million
YE ‘23 membership: 52.75 million
Overall Growth: 13%
% Change (current yr.): 2.0%
% Change (prior yr.): 2.1%
CAGR: 2.1%
The largest membership segment is their Commercial line. 2023 saw an uptick in growth after being mostly flat for several years.
UNH is the market leader in the Medicare Supplement market, but the membership in that line of business has decreased in recent years.
The Medicaid line has seen steady growth until 2023. The decline is likely due to Medicaid “unwinding”.
The Medicare Advantage line has seen significant growth. 2023 growth slowed compared to 2022 and the past 6 year CAGR (“compound annual growth rate”). UNH is the market leader in Medicare Advantage enrollment.
Revenues
UNH reports revenues by vertical (UnitedHealthcare and Optum), and provides further details within each vertical. In addition, “eliminations” are reported in order to remove revenues that Optum receives from UnitedHealthcare (can’t count that revenue twice).
UnitedHealthcare Revenues (the insurance Carrier segment) have grown steadily over the past 6 years.
YE ‘17 Revenues: $163.3 billion
YE ‘23 Revenues: $281.4 billion
Overall Growth: 72%
% Change (current yr.): 12.7%
% Change (prior yr.): 12.0%
CAGR: 9.5%
The largest segment is the Medicare & Retirement segment. The 14.2% growth in 2023 was in increase above the prior year and above the CAGR.
The Community & State segment has seen the highest growth rates in recent years (17.6% in 2023, 18.2% in 2022).
Optum Revenues (the healthcare provider segment) have grown 2.5x over the past 6 years.
YE ‘17 Revenues: $91.19 billion
YE ‘23 Revenues: $226.64 billion
Overall Growth: 149%
% Change (current yr.): 24.0%
% Change (prior yr.): 17.5%
CAGR: 16.4%
The largest segment Optum Health has seen significant growth in both recent years (34% in 2023) and over the last 6 years (29% CAGR).
Optum Insights and Optum Rx both saw higher increases in 2023 compared to 2022.
Combining UnitedHealthcare, Optum, and including eliminations, results in the company’s Total Consolidated Revenues.
YE ‘17 Revenues: $201.16 billion
YE ‘23 Revenues: $371.62 billion
Overall Growth: 85%
% Change (current yr.): 14.6%
% Change (prior yr.): 12.7%
CAGR: 10.8%
As you can see, revenue eliminations have grown steadily over the past 6 years, and has grown faster than overall top line revenue.
This indicates there is more vertical integration today than there was 6 years ago.
More of the insurance company benefit expense is going to Optum providers and pharmacies as revenue. (Since they already recognized the revenue in the insurance company, they can’t also recognize it as revenue in the provider company.)
Operating Income
Okay, so membership is growing, revenues are growing. What about operating income (profit)?
Again, these are reported by vertical.
The combined UnitedHealth Group’s Operating Income has grown steadily over the past 6 years.
YE ‘17 Operating Income: $15.21 billion
YE ‘23 Operating Income: $32.36 billion
Overall Growth: 113%
% Change (current yr.): 13.8%
% Change (prior yr.): 18.6%
CAGR: 13.4%
Operating Income is nearly 50/50 between the UHC (insurance operations) and Optum (healthcare provider operations).
Optum insights had the highest growth % in 2023 (19.0%)
Medical Loss Ratio
The profit margin in 2023 (8.7%) is similar to 2022 (8.8%). The slight decrease in profit margin was likely driven by higher loss ratios.
You can see in the chart below that the Q4 2023 loss ratio of 85% is the highest quarter in the last 6 years.
Bottom Line
The majority of membership growth has come from the Medicare Advantage and Medicaid lines of business. Medicaid membership declined in 2023, while Commercial grew faster than recent history.
UnitedHealthcare’s revenues have grown faster than membership growth. This is mostly due to shifting to more Medicare Advantage membership which boasts higher premium per member.
Optum’s revenues have grown even faster, which is likely due to expansion of the Optum footprint along with serving more customers under value-based care payment arrangements.
Vertical integration has increased. More of their insurance members are also using their health services.
The result is a healthy profit margin which is currently sitting at 8.7%.
The increased loss ratio is something to watch going forward.
Sources: Company Quarterly Earnings Releases
COMPLIANCE CHATTER 📢:
Now that the Medicare Annual Election Period (AEP) is behind us, you may be wondering “what’s next?” Well, it has already started! Annually, from January 1 through March 31, Medicare Advantage beneficiaries have another opportunity to change their Medicare Advantage (MA) plan.
The Medicare Advantage Open Enrollment Period (MA OEP) allows individuals already enrolled in a MA plan as of January 1 to:
switch to another MA plan, or
drop their MA plan to return to Original Medicare, with the option to enroll in a Part D plan.
Note: Individuals in a MA plan can also join a Part D plan during MA OEP but will be automatically disenrolled from their MA Plan and return to Original Medicare.
MA OEP does not allow individuals with Original Medicare as of January 1 to:
switch to a MA plan, or
join a Part D plan or switch Part D plans.
Only one plan change per beneficiary is allowed during MA OEP, and enrollment into the new plan takes effect the first of the month following the receipt of the enrollment request.
If you would like to learn more about our compliance services, reach out to [email protected].
Sponsor Snapshot 🚀: Modivcare
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DATA VISUAL of the Week 📊
This week’s data visual comes from us! It combines some of the info presented in the deep dive into one visual.
If you’re ready, here are some ways we can help you:
Newsletter Sponsorship opportunities: Promote your product or services to leaders in the Medicare space. Let’s discuss. (link)
Market Research: Reports that help you wrap your arms around the Senior focused insurance markets. (link)
Consulting: We can help you develop new insurance products for the Medicare market, appraise your books of business, and keep you compliant. Let’s discuss. (link)