Online Extra: Vim and Vigor at UnitedHealth

This health-care giant has stayed strong through diversification, expansion, and savvy use of money-saving technology

By Joseph Weber

The BusinessWeek 50

After hitting No. 4 in BusinessWeek's 2004 ranking of the nation's top-performing companies, things may soon slow down for UnitedHealth Group and its CEO, Dr. William W. McGuire -- but not by much. Analysts and the company alike expect this year's gains will come in at only a percentage point or two less than last year's. And with the Minnetonka (Minn.) health-care-services titan posting a robust 35% gain in net income in 2003, the modest slowdown isn't discouraging many investors.

At about $63 a share, UnitedHealth's (UNH ) stock lately has been testing all-time highs. "They are doing well," says Nicholas Xie, an equity analyst for PNC Advisors, the investment management arm of PNC Financial Services.

Why does UnitedHealth still have room to grow? Credit McGuire's expansion efforts, prudent diversification moves, and relentless focus on cost-saving technology. First, with health insurers still on the consolidation march, he has maintained expansion in the outfit's core health-insurance and benefits-management area.


  He recently snapped up a big Maryland-based HMO, Mid Atlantic Medical Services, to beef up UnitedHealth's presence in the East. Last year, McGuire diversified by buying Golden Rule, a $1 billion-a-year Indianapolis outfit that sells health insurance to individuals. UnitedHealth now provides everything from plain-vanilla corporate-health coverage and individual plans to Medicaid services for state governments -- all areas that look likely to grow.

More important for the long run, constant efforts to improve UnitedHealth's technology are also paying off. It's rolling out innovative magnetic-striped consumer ID cards, for instance, that doctors can swipe through ordinary MasterCard point-of-sale readers to verify the patient's eligibility and benefit data. This summer, UnitedHealth will debut MasterCard-logoed cards that will let customers debit their flexible spending accounts when they visit the doctor or even buy eyeglasses.

McGuire's emphasis on such technology has delivered hefty margins that should tide UnitedHealth over as pressure mounts against continuing premium hikes and other rises in health-care costs.


  Plus, savvy alliances have kept UnitedHealth at the top of the heap among seniors, the folks mostly likely to use health care. For instance, it provides a drug-discount card to AARP-- a membership organization for people 50 and older -- that's used by about 1.8 million people. UnitedHealth also provides AARP with insurance to supplement Medicare.

Counting all its businesses -- including 4 million AARP customers and about 18.5 million people served by employer-sponsored health plans -- UnitedHealth now serves some 52 million Americans, far more than any other health-care services provider.

Playing it slightly conservative, UnitedHealth has told Wall Street to expect slower growth this year. On a per-share basis, it says, earnings may rise just about 25% or so, to a range of $3.70 to $3.73 a share. That would translate into a roughly 33% gain in overall net income, to about $2.4 billion. Most analysts expect the rise to skew slightly higher, with the consensus estimate for earning per share (EPS) at about 26%.


  Typically, UnitedHealth has topped its own guidance, so both investors and analysts would no doubt be disappointed if the numbers do hit the company's low-end target -- which could affect the lofty stock price.

Eventually, UnitedHealth will have to come back to earth. If health-care reform advances in Washington or the economy tanks, reducing the ranks of corporate employees, UnitedHealth might have something to fret about. Analyst Xie says its long-term EPS growth rate is perhaps 17% to 19% a year. "Over time, the growth rate is coming down -- eventually, but not this year."

In the meantime, unless something unforeseen happens, UnitedHealth is almost certain to keep its investors in the pink. At least this year, its prospects could hardly be healthier.

Weber is BusinessWeek's Chicago bureau chief

Beth Belton

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