UnitedHealth Group

The world's highest-grossing healthcare company

Here in Germany, we can truly count ourselves lucky. Our healthcare system is excellently set up, and our social system catches anyone who needs help. Almost everyone in Germany has health insurance - either statutory or private. Just 0.09 percent of the German population has no health insurance of their own. In the USA, things look completely different. There, almost 8.4 percent of the population still has no health insurance. So, good growth potential for health insurers.

UnitedHealth Group is an American health insurance and services provider that, with revenue of $242.2 billion in fiscal year 2019, tops the ranking of the highest-grossing healthcare companies worldwide. No wonder it not only ranks 7th on the Fortune 500 list, but that the stock is also rising like clockwork.

The history and business model of UnitedHealth Group Inc.

The date is June 15, 1883. Imperial Chancellor Otto von Bismarck passes the "Act on Health Insurance for Workers", laying the foundation for the German healthcare system. Germany was the first country to make health insurance mandatory for employed people. In America, people were still skeptical of health insurance at the time. Doctors in particular feared that insurers would negotiate down their treatment fees. It wasn't until the Great Depression of the 1930s that people realized how useful a health insurance system was. Poverty was widespread and nobody had the money for expensive treatment. Gradually, a number of health insurers established themselves that would help patients financially in an emergency. Thanks to advances in medicine in the '50s, more intensive surgeries became less risky, but more expensive. That in turn sent demand for health insurance soaring. The insurance system was far from perfect; patients were often sent from doctor to doctor and prescribed expensive treatments that were usually not necessary at all. This changed when one doctor, almost single-handedly, overhauled the American healthcare system. But one thing at a time ...

Paul M. Ellwood Jr. was born in San Francisco on July 16, 1926. His mother worked as a nurse, but then became a housewife to raise Paul. His father was an ambitious doctor who made a great many house calls and worked into his 80s. After graduating from high school, Paul joined the US Navy and served as a pharmacist's mate in the Philippines. Afterwards, in 1946, he went to Stanford University, first earning his bachelor's degree before passing his medical board exam at the medical school in 1953. Over the following 18 years, Paul worked at the Elizabeth Kenny Institute, first as a doctor and later as executive director. In 1970 he was invited to discuss with the Nixon administration how the national healthcare system could be improved. He floated the idea that people themselves should decide which health insurance plan suits them. Paul also presented the Health Maintenance Organization system (HMO), in which a specific selection of doctors receive a fixed, pre-agreed flat fee in advance and no longer have to bill individual service fees. This system also created an incentive to keep patients healthy, which also promoted preventive medicine. The outcome of this discussion changed American healthcare significantly for the better.

In 1971, Dr. Paul Ellwood hired Richard Taylor Burke to put the HMO model into practice. Three years later, Burke founded Charter Med Inc., which he restructured a few years later as United HealthCare Corp. The company became the owner and manager of several HMOs. It wanted to keep growing through acquisitions and expansion - and raised the capital needed for this on the stock market. Even today, UnitedHealth Group Inc. continues to grow both through new ventures and through acquisitions. Its regular health insurance business for companies, individual customers, retirees and government-insured people is bundled under UnitedHealthcare. In addition, under its Optum division it offers various care services, information technology and mail-order pharmacy.

What does the future hold for UnitedHealth Group?

In the long run, I see enormous growth potential for UnitedHealth Group. The fact is that the population keeps getting older, which means more and more care is needed. In addition, the world population is growing, which should also lead to rising revenue for the healthcare provider. It currently still serves the majority of its patients in its home country, America, but UnitedHealth has nevertheless already expanded into many emerging markets that are showing tremendous growth at the moment. It has a strong presence in Brazil, Chile, Colombia and Peru - and has already pitched its tents in around 130 countries.

For some time now, the entire healthcare industry has been in regulators' crosshairs. I also think it's important for American politics to do more for the health and well-being of its citizens. Companies like UnitedHealth Group are excellently positioned - I have no doubt that, even with corresponding regulations, they'll find sensible yet lucrative ways to keep growing in the future and always offer their patients the best service.

How has the dividend developed?

UnitedHealth Group first shared its profits with its shareholders in 1990. Back then, however, dividends didn't play a big role. Until 2009 it only paid a token dividend of a few cents. From 2010 on, it opted for a more investor-friendly dividend policy and began raising its dividend every year. Looking at 5 years, the average dividend growth rate is a decent 21.3 percent. With great figures like these, you can also accept the relatively low dividend yield of 1.4 percent. The payout ratio, at 25.3 percent, is in the green zone too.

Conclusion:
UnitedHealth Group has become indispensable and has built a massive moat over the years. Investors with a long investment horizon should definitely take a closer look at this healthcare provider - in my eyes, there are wonderful opportunities to be had here.