UnitedHealth Group, the largest health insurance conglomerate by far, continues to show how rewarding it is for shareholders when corporate lawyers find loopholes in well-intentioned legislation – and game the Medicare Advantage program in ways most lawmakers and regulators didn’t anticipate and certainly didn’t intend – to boost profits.

UnitedHealth announced this morning that it made $15.8 billion in operating profits between the first of January and the end of June this year. That compares to $4.6 billion it made during the same period in 2014. One way the company is able to reward its shareholders so richly these days is by steering millions of people enrolled in its health plans to the tens of thousands of doctors it now employs and to the clinics and pharmacy operations it now owns.

This is the result of the hundreds of acquisitions UnitedHealth has made over the past 10 years in health care delivery as part of its aggressive “vertical integration” strategy. 

The other big way the company has become so profitable is by rigging the Medicare Advantage program in a way that enables it to get more money from the federal government in a scheme – detailed in a big investigative report by the Wall Street Journal a few days ago – in which it claims its Medicare Advantage enrollees are sicker than they really are. The WSJ calculated that Medicare Advantage insurers bilked the government out of more than $50 billion in the three years ending in 2021 by engaging in this scheme, and it said UnitedHealth has grabbed the lion’s share of those billions. In many if not most instances, those enrollees were not treated for the conditions and illnesses UnitedHealth and other insurers claimed they had. As the newspaper reported:

Insurer-driven diagnoses by UnitedHealth for diseases that no doctor treated generated $8.7 billion in 2021 payments to the company, the Journal’s analysis showed. UnitedHealth’s net income that year was about $17 billion.

By far, most of UnitedHealth’s health plan enrollment growth over the past 10 years has come from the Medicare Advantage program, and it now takes in nearly twice as much revenue from the 7.8 million people enrolled in that program as it does from the 29.6 million enrolled in its commercial insurance plans in the United States.

Since the second quarter of 2014, UnitedHealth’s commercial health plan enrollment has increased by 720,000 people.  During that same time, enrollment in its Medicare Advantage plans has increased by 4.8 million. 

UnitedHealth and other insurers that participate in the Medicare Advantage program know a cash cow when they see one.

As the Kaiser Family Foundation noted in a recent report, the highest gross margins among insurers come from Medicare Advantage, which, as Health Finance News reported, boasted gross margins per enrollee of $1,982 on average by the end of 2023, compared to $1,048 in the individual (commercial) market and $753 in the Medicaid managed care market.

UnitedHealth has significant enrollment in all of those areas. Enrollment in the Medicaid plans it administers in several states increased from 4.7 million at the end of the second quarter of 2014 to 7.4 million this past quarter. 

In its disclosure today, UnitedHealth did not break out its health plan revenue as it has in past quarters, but you can see how public programs like Medicare Advantage and Medicaid have become so lucrative by comparing revenue reported by the company at the end of the second quarter of 2013 to the second quarter of 2023. Over that time, total revenues for commercial plans (employer and individual) increased by slightly more than $5.6 billion, from $11.1 billion in 2Q 2013 to $16.8 billion in 2Q 2023. Total revenues from Medicaid increased by $14.2 billion, from $4.5 billion to $18.7 billion, and total revenues from Medicare increased by $21.4 billion, from $11.1 billion to $32.4 billion. 

Here’s another way of looking at this: At the end of 2Q 2013, UnitedHealth took in almost exactly the same revenue from its commercial business and its Medicare business ($11.053 from Medicare and $11.134 from its commercial plans.

At the end of 2Q 2023, the company took in nearly twice as much from its Medicare business ($32.4 billion from Medicare compared to $16.8 billion from its commercial plans.)

The change is even more stark when you add in Medicaid. At the end 2Q 2023, UnitedHealth’s Medicare and Medicaid (community and state) revenues totaled $51.1 billion; It’s commercial revenues, as noted, totaled $16.8 billion). It’s now getting three times as much revenue from taxpayer-supported programs as from its commercial business.

As impressive for shareholders as all of that is, growth in the company’s other big division, Optum, which encompasses its pharmacy benefit manager (Optum Rx) and the physician practices and clinics it owns) has been even more eye-popping. At the end of 2Q 2014, Optum contributed $11.7 billion to the company’s total revenues. At the end of 2Q 2024, it contributed $62.9 billion, an increase of $51.2 billion. At that rate of growth, it’s only a matter of a few quarters before Optum is both the biggest and most profitable division of the company. 

And here’s the way the company benefits from that loophole in federal law I mentioned above. The Affordable Care Act requires insurers to spend 80%-85% of health plan revenue on patient care. UnitedHealth is consistently able to meet that threshold by paying itself, as HEALTH CARE un-covered explained in December. The billions UnitedHealthcare (the health plan division) pays Optum every quarter are categorized as “eliminations” in its quarterly reports. In 2Q 2024, 27.7% of the company’s revenues fell into that category.

The more it is able to steer its health plan enrollees into businesses it owns on the Optum side, the more it can defy Congressional intent – and profit greatly by it. 

Wall Street loves how UnitedHealth has pulled all this off. It’s stock price jumped $33.50 to $548.87 a share during today’s trading at the New York Stock Exchange, an increase of 6.5% – in one day.