UnitedHealth could capitalize on fellow insurers' mergers

Even though it was left out of the health insurer merger fever, UnitedHealth Group may not only remain in good shape but may also end up profiting off of its competitors' deals, according to a report from Moody's Investors Service.

This summer, Aetna announced a deal to take over Humana and Anthem said it would merge with Cigna, deals that if approved would narrow the health insurance industry's big five down to three. If its deal is approved, Anthem could overtake UnitedHealth as the largest insurer by membership, and Aetna would become the largest Medicare Advantage insurer, the report states.

But even if these deals close, UnitedHealth is still likely to come out on top. As Moody's report notes, the company will still be one of the largest, most diverse and financially strong health insurance companies in the country. And UnitedHealth is expected to still maintain higher revenues, earnings, cash flow and lower debt obligations better than its competitors.

Part of that strength lies in its diverse business lines, including its profitable health services company Optum, which recently experienced third-quarter revenue growth of 27 percent year-over-year. Indeed, "This broad range of activity will continue to provide UNH not only strategic advantages, but also additional earnings and cash flow diversity and financial flexibility," the report states.

 UnitedHealth also is reportedly in talks to acquire employee benefit management company Helios.

What's more, the nation's largest health insurer may directly benefit from the deals, Moody's analysts say, as it could capitalize on potential regulatory divestitures from the merging insurers. While Anthem CEO Joseph Swedish has said that he doesn't expect to have to make divestitures in closing the deal with Cigna, many expect Aetna will have to do so in the Medicare Advantage market, creating an attractive opportunity for investors.

Finally, UnitedHealth could take advantage of the "distractions and service issues that are typical of large health insurer integrations," the report states.

To learn more:
- here's the report (purchase required)

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