UnitedHealth ramps up stock buybacks, hitting $3.2B in the first half of 2018

UnitedHealth's buyback program outpaced all other insurers in the first half of 2018. (UnitedHealth Group)

UnitedHealth Group saw its profits soar in the first half of 2018, and the company is rewarding investors handsomely.

The country’s largest insurer spent just shy of $3.2 billion in stock repurchases during the first half of the year, more than double what the company spent on buybacks for all of 2017. It’s the most the company has spent on stock repurchases in the first six months of any year in the last decade.

UnitedHealth, which is also the second-largest healthcare company in the nation, has no plans of slowing down. In June, the company’s board authorized the repurchase of more than 100 million shares.

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Stock buybacks are a common practice among the country’s largest companies. It’s a way to reward investors and shareholders while inflating the company’s earnings per share. While $3.2 billion in first-half buybacks aligns with other S&P 500 companies, many of which have increased buybacks following the GOP’s tax overhaul, it's far more than any of the other major health insurers.

UnitedHealth’s buybacks also represent more than half of the company’s $5.9 billion in first-half net earnings. The insurer’s tax rate dropped to 22% in the first half of the year, down from 30% in 2017, translating to a $369 million decline in income taxes despite reporting more than $10 billion in additional revenue.

RELATED: The big 8 insurers made $16.6B in the first half of 2018. Here's how they stack up

In a time when deductibles, copays and premiums have become part of the everyday lexicon across the country, billions in stock buybacks can be hard to swallow.

“There’s the notion that we pay higher premiums because companies are propping up their stock prices,” said William Lazonick, a professor in economics and co-director of Center for Industrial Competitiveness at the University of Massachusetts. Lowell believes buybacks should be illegal.

“The name of the game is getting stock prices to go up,” he added.

Buybacks also directly benefit a company’s top executives, which receive a larger part of their compensation from stock options that become more valuable as shares increase.

“They are getting considerably richer when this happens,” says Wendell Potter, an outspoken critic of buybacks who spent more than two decades as a public relations executive at Humana and Cigna.  

Last year, two UnitedHealth CEOs—former CEO Stephen Hemsley and current CEO David Wichmann—earned more than $110 million combined. The vast majority of their compensation came from cashing in stock options.

UnitedHealth did not respond to requests for comment.

While buybacks certainly aren’t unusual among the largest insurers, UnitedHealth’s share has ballooned, in part, because it has grown into an industry “behemoth,” Potter said. Although the company could theoretically use those profits to bring down premiums, the decision to invest in buybacks offers no tangible benefit for consumers.

“I can’t recall a single time in my career in the health insurance industry—in 20 years of investor relations meetings—where there was a conversation about how can we really benefit the end user of our products?” Potter said. “It was all about enhancing shareholder value.”

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