UnitedHealth Lags the Dow, but Can This Top Insurer Overcome Obamacare's Missteps?

UnitedHealth Lags the Dow, but Can This Top Insurer Overcome Obamacare's Missteps?

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

Stocks have wobbled wildly on the day, but the Dow Jones Industrial Average is still pulling off gains to end the week. As of 2:30 p.m. EDT, the Dow Jones has risen 34 points, or 0.22%. Most stocks are in the green today, but UnitedHealth Group is hanging flat with the rest of a slumbering health-care sector so far. Let's catch up on what you need to know.

A cautious approach to Obamacare
As Obamacare stumbles out of the gate, UnitedHealth's decision to join only a few state individual exchanges is looking better and better. The firm's Optum unit -- which runs Quality Software, a group that contributed to the design of the much-maligned Obamacare websites -- testified before Congress this week and claimed to have fixed its part of the online mess that has plagued health care reform so far.

For UnitedHealth investors, however, it's better to look at what UnitedHealth is doing outside of Obamacare. The firm's growing its membership strongly, and even with a smaller gain in subscribers in the third quarter -- just 300,000 new enrollees joined UnitedHealth's subscription rolls for the quarter -- the company's in a good spot and has a substantial bulwark in place to deal with any more mishaps in Obamacare's launch.

Companies like Aetna and UnitedHealth were concerned involved with the Obamacare rollout, and now with the law's individual mandate potentially being delayed, it's looking more and more like these firms were in the right to hold back from jumping in to participate too quickly. If the individual mandate is delayed a year, it's more likely that Aetna, UnitedHealth, and America's largest insurers will see most formerly uninsured Americans joining their ranks to be those most in need of coverage. That'll only drive costs up higher. Aetna and UnitedHealth abandoned California's individual market for just that reason.

While this won't likely slow down revenue at these companies and other large insurers, it could weigh on earnings. While UnitedHealth managed to grow its total revenue by 11.5% over the first half of 2013, its total operating costs grew by 11.8% to diminish those gains. In particular, medical costs jumped by 10.7%, and an influx of customers in need of coverage could send that mark jumping in quarters to come.

It's not yet clear how much Obamacare's launch will affect UnitedHealth's finances and those of other big insurers like Aetna, but for now, the companies that have approached this new law with caution are those that look the best for investors' portfolios.

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The article UnitedHealth Lags the Dow, but Can This Top Insurer Overcome Obamacare's Missteps? originally appeared on Fool.com.

Fool contributor Dan Carroll has no position in any stocks mentioned. The Motley Fool recommends UnitedHealth Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Originally published