UnitedHealth
Group’s (NYSE: UNH) biggest expense item is
Medical Costs, which includes obligations for medical care services that have
been rendered on behalf of insured consumers. The company spent $94 billion in
Medical Costs in 2014, and the figure increased to $145 billion in 2018, driven
by growth in the number of customers served. In fact, the company added 4 million
new customers over the same period. As a percentage of revenue, Medical Costs
have declined from 72% to 64% between 2014 and 2018. This can be attributed to
the company’s operational efficiency measures, which resulted in expenses
growing at a slower pace when compared to the company’s revenues. Below, we
take a look at the key drivers of UnitedHealth’s expenses and net margins. Look
at our interactive dashboard analysis ~ UNH Expenses:
How Does UnitedHealth Group Spend Money? ~ for more
details.
Breakdown of UnitedHealth’s Total Expenses In
2018:
·
Total = $214 Billion
·
Operating Expenses =
$209 Billion
·
Provision for income
taxes = $4 Billion
·
Non-operating expenses
= $1 Billion
UnitedHealth’s Total Expenses Were $214
Billion In 2018, And They Could Grow To $247 Billion In 2020
·
UnitedHealth’s total
expenses have grown from $125 billion in 2014 to about $214 billion in 2018.
·
For 2020, we expect
total expenses to be around $247 billion, which comprises of
·
Operating Expenses:
$241 billion
·
Non-Operating Expense:
$2 billion
·
Income Taxes: $4
billion
·
Below, we take a look
at how the company’s key expense components have trended and the key reasons
for the change.
2. Operating Expenses Are On the Rise
·
Operating Expenses
have increased from $120 billion in 2014 to $209 billion in 2018 driven by:
·
$51.8 billion increase
in Medical Costs,
·
$12.8 billion increase
in Other Operating Costs,
·
$23.2 billion increase
in COGS, and
·
$950 million increase
in D&A
Medical Costs Grew From $93.6 Billion In 2014
To $145.4 Billion In 2018
·
Medical Costs include
obligations for medical care services that have been rendered on behalf of
insured consumers.
·
The growth in Medical
Costs over the recent years can be attributed to an increase in customers
served, and pricing trends.
·
As a % of revenues,
Medical Costs declined from 71.8% to 64.3% over the same period.
·
The figure is expected
to be under 65% in the near term.
Other Operating Costs Grew From $21.3 Billion
In 2014 To $34.1 Billion In 2018
·
The growth in other
operating costs was primarily due to an increase in the number of customers
served.
·
The company added
roughly 4 million new customers between 2014 and 2018.
·
As a % of revenues,
other operating costs have declined from 16.3% to 15.1% over the same period.
·
The figure is expected
to be around 14.5% in 2020.
COGS Grew From $3.8 Billion In 2014 To $27.0
Billion In 2018
·
UnitedHealth’s cost of
goods sold includes the cost of pharmaceuticals dispensed to its unaffiliated
customers.
·
A sharp jump in COGS
during 2015 can be attributed to change in accounting policy.
·
As a % of revenues,
COGS grew from 2.9% in 2014 to 11.9% in 2018.
·
The figure is expected
to remain around the current levels, as seen over the past couple of years.
D&A Grew From $1.5 Billion In 2014 To $2.4
Billion In 2018
·
As a % of revenues,
D&A remained around the 1.1% mark over the last few years.
·
The figure is expected
to remain around the current levels, in line with the trend seen in the recent
past.
3. UnitedHealth’s Non-Operating Expenses
Includes Interest Expenses
·
Interest Expenses grew
from $0.6 billion in 2014 to $1.4 billion in 2018.
·
As a % of average
debt, interest expenses have seen slight growth but largely remained in the
range of 4% to 5%.
·
The company’s long
term debt increased from $16.0 billion in 2014 to $34.6 billion in 2018.
·
The increase in debt
in 2015 can be attributed to the company’s acquisition of Catamaran
Corporation.
4. UnitedHealth’s Income Tax Expense Has
Declined In Recent Years
·
This was driven by the
Tax Cut and Jobs Act.
·
Effective Tax Rate
declined from 42% in 2014 to 22% in 2018.
·
The plunge in 2017 can
be attributed to TCJA, with corporate tax rates lowered to 21%.
·
The figure is expected
to hover around the 22% mark in the near term.
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