Medical care ratio
In 2015, UnitedHealth Group’s (UNH) medical cost trend has been in the range of 5.5% to 6.5%. To know more about the impact of medical cost trends on health insurance companies, please refer to Medical cost trend means rising premiums for health insurance.
In 3Q15, UnitedHealth Group’s consolidated medical care ratio, which is the ratio of medical costs to the premium revenue, fell by 0.9% on a year-over-year (or YoY) basis. This is mainly due to increased spending by the company for improving Medicare quality ratings for its plans as well as a shift towards government-sponsored business and a lower level of reserves to cover costs.
Similar to other health insurance companies such as Aetna (AET), Humana (HUM), and Anthem (ANTM), UnitedHealth Group has been actively working to improve its Medicare quality ratings. Improvement initiatives include offering provider incentives, annual care visits, and programs such as diabetic navigators for diabetes patients.
The company has deployed about 2,000 clinicians that focus on working with healthcare providers and patients to close gaps in local care. Currently, 1.7 million of the company’s members are in improved plans. Extending the quality improvement to cover both government-sponsored and commercial members by 2018, UnitedHealth Group aims to have at least 80% of its total members in plans that are rated four stars or higher.
In 3Q15, government-sponsored business accounted for about 60.3% of UnitedHealth Group’s total revenues, an increase of about 3% on a YoY basis. Government-sponsored programs such as Medicare and Medicaid generally result in higher medical costs.
In addition to investing directly in UnitedHealth Group, investors can get exposure to UnitedHealth Group through the iShares Core S&P 500 ETF (IVV). UnitedHealth Group accounts for about 0.7% of IVV’s total holdings.