# UnitedHealth Group: Beyond The Premium - [Business Breakdowns, EP.219] Business Breakdowns · 2025-06-04 · 65 min · https://www.youtube.com/watch?v=bUFxUfm2YIo ## Transcript Zack Fuss I'm Zack Fuss and today we're tackling a giant in a controversial and incredibly complex industry, United Healthcare Group. At its recent apex, UNH was a half trillion market cap business, the 15th largest listed business in the United States. Today, that market cap sits at just $275 billion. The company does in excess of $400 billion in sales annually and produces $40 billion in EBITDA as it touches every facet of the American health care system. To break down United Healthcare, I'm joined by Stephanie Niven, a co-PM of the global sustainable equity strategy within the sustainable equity team at 91. Stephanie has been following the company since 2012 and she will help us to unravel this intricate business. We'll explore how United Healthcare operates as a fully integrated health care system from its insurance arm, United Healthcare, its namesake, to its high margin health services business, Optum. We'll provide a breakdown of the unique and often inefficient US healthcare ecosystem that United Health navigates and how the company has built a powerful flywheel to drive growth and address systemic shortcomings in providing care. We'll also dive into the concept of value-based care, the recent headwinds from Medicare Advantage scrutiny, and whether the market is mispricing this complex giant amidst regulatory noise and leadership changes. We'll do our best to simplify what is a complicated, complex, and controversial business and to leave you, the listener, better informed about the economic engine and the prospects of UNH going forward. We hope you enjoy this breakdown of the United Healthcare Group. All right, Stephanie, thank you for joining us to break down UnitedHealth Group. It comes at a time that is quite controversial, topical, and interesting. UnitedHealthcare, I think, is a business that is pretty complicated from the start, but, obviously, given the current circumstances, it comes with all types of different questions. But I thought sticking to the business itself: What is UnitedHealthcare? How did you come to learn the business? How would you set the table for this one? Stephanie Niven Thank you, Zack, for welcoming me onto the show. I think most people think of UnitedHealth as a giant US insurer, but to me, that description barely scratches the surface because UnitedHealth isn't just selling coverage. It's a fully integrated healthcare system. It incorporates insurance, clinical assessment, effective delivery of healthcare services, and, in total, the company serves over 150 million people across its businesses, of which a third are covered by its insurance policies and the remaining are served within the company's Optum healthcare services. And this is done on an increasingly integrated basis in a US healthcare ecosystem really characterized by fragmentation, inefficiency, and cost inflation. Now, I've held this stock since 2012, and over that time, I've really watched the market repeatedly misprice and misunderstand its profit engine. This is a flywheel that turns between UnitedHealthcare, its insurance core, and Optum, its high-margin accelerator. That flywheel is really what we're going to unpack today. Because this episode isn't just about a company; it's about an ecosystem. To understand UnitedHealth, you first need to understand the system it was built for. The US healthcare system is not like most others. It's fragmented, expensive, and structurally unique, and although UnitedHealth has no silver bullet for those challenges, I really do believe that it has designed itself as a company, as a business, to go some way toward addressing some of the system's shortcomings. Zack Fuss So, to your point, it's nearly impossible to discuss UnitedHealthcare without better appreciating the size, scale, and complexity of the US healthcare system. So maybe just a preview on what you need to understand in order to dive deeper into how UnitedHealth Group serves that market. Stephanie Niven Thank you, Zack. That really sets the stage. So let's start with the basics. The US spends more on healthcare than any other high-income country, both as a share of GDP and on a per-person basis. In 2024, total US healthcare spending reached a really significant $5.1 trillion. That's approximately $15,400 per person. And that's nearly double what Switzerland, which is next on the list, spends. The gap holds across other wealthy nations, too. The UK spent around $5,700 per person. Germany came in around $7,600. Japan was approximately $5,200, and Australia was close to $6,000. And yet, American outcomes aren't much better. In some cases, they're worse. Life expectancy, chronic disease management, and access to care are all underwhelming. Life expectancy in the US is just 77 years, and that's lower than in Japan, Australia, the UK, and Germany. The US also has a higher infant mortality rate, the highest obesity rate in the OECD, and around 30 million people are still uninsured, leading in turn to poorer chronic disease outcomes and delayed care. Why is this happening? Well, it's partly a function of the wide income inequality in the US, but also a big part of it comes down to the structure of its healthcare system. Unlike most OECD countries, the US doesn't have a universal state-run system. Instead, we have a hybrid model: public and private finance, public and private delivery. And here's how it breaks down. So, you have private insurance, and this covers most people under 65, mainly delivered through employers. Then you have public programs across 2 main buckets. You have Medicare, and this is for seniors and people with disabilities, with Medicare Advantage, a more enhanced program, which we'll revisit later when we discuss value-based care, which really is a key part of UnitedHealth's growth story. And the second bucket of the public programs comes from Medicaid, and this is for low-income families, jointly funded by states and the federal government. Now, despite the perception of the US being a private system, public money actually accounts for over half of total spending, which is really why it's such a political hot potato. And it's not all bad. It's important to recognize that the US healthcare system is perhaps the world's most innovative. It leads in drug development and novel treatments, and it dominates medtech. It also offers more patient choice than pure state-run systems. However, the flip side of the choice coin is complexity: multiple payers, fragmented providers, heavy regulation, lots of oversight, and paperwork. Administrative costs alone are estimated to be 30% of that excess spending gap versus peers. We also have to recognize that underlying healthcare costs in the US are significantly higher than we find among its peers. This applies to everything from the underlying salaries of healthcare professionals, which in some cases are more than double for the same role, to the cost of pharmaceuticals, which a 2018 medical journal research paper found to be about twice the level found here in the UK. And if that wasn't bad enough, you have a principal-agent problem. There is information asymmetry between the provider and the patient, which increases the risk of excessive and often expensive intervention. So, despite conventional opinion, we believe that the US healthcare system does have its virtues, but importantly, it fails to deliver optimal outcomes for huge swathes of the population. This means there's a clear value opportunity for any player who can cut through that complexity, manage risk, drive scale efficiencies, reduce waste, and improve outcomes. So I hope that's a relatively high-level insight into the world in which UnitedHealth plays—a world that provides the necessary context to the journey that UnitedHealth has been on since its inception. Zack Fuss And so you have an extremely large system. It's very expensive. It's highly complicated. You have private payers and government payers. I think something like 40% of the country is either on Medicaid or Medicare. How did UnitedHealth Group go about building itself into this horizontally and vertically integrated player in the space? Stephanie Niven UnitedHealth Group started back in 1977, and the idea was really to make healthcare more efficient and accessible. Health maintenance organizations, HMOs—as UnitedHealth was back then—were a policy brainchild of Richard Nixon back in 1971. The idea really was to give people the ability to prepay and effectively pool their sickness- and medical-cost-related risks. The ambition that really came out of the Nixon government was that there would be 1,700 HMOs insuring around 40 million Americans by 1976. UnitedHealth Group founder Richard Burke was an early starter, and he launched one of the first HMO plans, Physicians Health Plan, back in 1974. By 1977, the year in which he founded UNH, the development of the nascent HMO industry had somewhat underwhelmed, it has to be said. There were just 165 HMOs serving 6.5 million people, and it was clear that this was falling well short of Nixon's targets. UNH's Burke really saw these early adoption challenges as an opportunity. He took his learnings as an early industry incumbent and looked to scale the UNH model on a national basis. UNH was very early to the insight that fragmentation breeds inefficiency. What began as a fairly traditional insurance operation, which was effectively just managing indemnity—that is, payment to cover treatment—but providing no assistance in getting the best treatment, quickly became a managed-care operation, commonly called an MCO within the US. This transition, this movement away from just that simple payment structure into a broader care operator, really moved toward the idea of MCOs purchasing health care on behalf of their members. This was an important development because it reduced costs and improved delivery. Through the '80s and the '90s, UnitedHealth expanded aggressively. It bought competitors and moved into data, technology, and care delivery. By the time we get to 1998, it had rebranded as UnitedHealth Group. This was a name that really reflected its much broader scope: insurance, yes, but also analytics, pharmacy services, and clinical care, all under one roof. The name also maintains the legacy of its original vision of an integrated health care system, and today it plays a really central role in shaping a more integrated, data-driven, and value-focused health care system in the US. Zack Fuss Okay, so you've provided what I'd call an abridged version of how we built this behemoth of an MCO and HMO. Bring us more up to speed with how it's organized today. How does UnitedHealth actually work? What makes the model so effective in this environment? Stephanie Niven At its center, we have 2 big engines: UnitedHealthcare, the insurance side, and Optum, the services and technology platform. UnitedHealthcare underwrites the risk. Optum delivers care, runs the analytics, manages pharmacy benefits, and more. That's where the flywheel kicks in. UnitedHealthcare enrolls members and collects premiums. Optum delivers services to those members, among others, and the result is that UnitedHealth Group controls the data, the clinical pathways, and the cost base, and ensures that best practice is quickly diffused across the business. These 2 distinct but related businesses learn from each other, despite engaging in arm's-length transactions from a financial perspective. That loop keeps turning: improving insights, improving pricing, improving outcomes, and improving margin. Scale really matters a lot here. UnitedHealthcare, the insurance side, has over 50 million medical members across employer, individual, and government plans. That size means better rates with hospitals and providers. It also means tighter control over risk and more stable results. With this helicopter view, UnitedHealth Group can cherry-pick health care service areas with strong demand and attractive margins. You can see that it can buy into areas that it sees as really attractive by purchasing existing providers and then immediately channeling huge numbers of patients to leverage the associated scale efficiencies. To that end, its M&A strategy over the years has been hugely value-accretive. The M&A flywheel itself has nuances, with UNH often purchasing its own long-term providers. Data from Optum helps the insurance side of the business price risk more precisely, and on the delivery side, this means fewer surprises when costs hit. Rather than relying on actuarial luck, the business is driving margin through operational control. Because the business is huge—think technology, compliance, and infrastructure—all of these costs are spread over a massive base. That's why, historically, you can see that UnitedHealth has out-earned peers. Many of these peers have businesses that are narrower in focus or simply don't enjoy the same degree of synergy. To quickly furnish that comment with some examples, we can see CVS Health, formerly known as Aetna, as a large services offering, including a big retail arm, which, while notionally in health care, is more a retail business than a health care business. Fellow MCO Cigna has a smaller insurance business and a larger exposure to the pharmacy benefits manager business through its acquisition of Express Scripts, which has more recently become a real area of political uncertainty. Elevance, formerly known as Anthem, was late to this integration insight that we've seen at UnitedHealth. It previously focused on horizontal M&A, which was perhaps a distraction, as it had a failed acquisition attempt of Cigna that ultimately failed to pass antitrust scrutiny. Elevance is now making good strides in its attempt to catch up with integrated service delivery, but it really lacks the full-blown integration that UNH benefits from, with its 70,000-plus integrated physicians in the network. Lastly, amongst the larger MCOs, Humana is significantly more concentrated in 1 area, and that's the Medicare Advantage space. That was a quick whip through the competitive landscape, but what's clear is that, while many of those peers are building out their own service capabilities, none has really achieved the same level of revenue contribution, technological sophistication, or comprehensive integration across PBM, direct care, and data analytics that Optum provides to UNH. This integrated model really does allow UNH not only to administer health care plans but also to directly influence care delivery. The better balance between insurance and delivery also means that UNH is typically less sensitive to cyclical challenges, particularly in comparison to peers like Humana with its Medicare Advantage exposure right now. The benefits of this tighter integration are clear. In an industry with high returns on capital but low margins, the many incremental gains compound to an enduring financial advantage. Since 2014, revenue at UnitedHealth Group has nearly quadrupled, from $110 billion to $400 billion. Importantly to us as long-term investors, during that time, free cash flow per share has compounded at 13%. That's well ahead of most investment benchmarks. Zack Fuss Okay, so now that we have an appreciation for the competitive market—and I appreciate how you simplified something that's rather complex and differentiated—the question that I have is that health insurance is quite different from your prototypical insurance company, of which property-and-casualty companies are most familiar, where you get insurance premiums and reinvest the float, or life insurance with long duration. How does health insurance work in the context of UnitedHealthcare? Stephanie Niven Sure. Great question, and quite difficult to understand. To really understand how UnitedHealthcare, i.e., the insurance side, makes money, we need to talk about the kind of insurance it is. It's not a super-exciting topic, but insurance really can be grouped into long-tail and short-tail forms. On the one hand, you have life insurance, which is a great example of a long-tail form of insurance. You collect your premiums up front for a liability or claim exposure that can really last decades. Here we see lots of uncertainty, and it really requires capital to be locked up for long periods of time. However, health insurance isn't like that, and the best way to characterize it is to say it's short-tail. Your liability is time-bound to 1 year, and most importantly, you have the ability to reprice every 12 months if you get your underwriting assumptions wrong. That ability to quickly reprice means that, while the market might look to capitalize a profit miss into perpetuity, in practice, profit margins can be quickly rebuilt where there's a rational competitive backdrop. I would really say that is the case within the MCO today. Ultimately, that's what's interesting: the company has the ability to reprice its entire book every 12 months. I've heard some investors describe UnitedHealth as something of a bad bank, but to me, that really misses some of the key distinctions. This is not a bank where the balance sheet dwarfs the amount of equity many times over. Banks also suffer the typical misfortune of having multiyear liabilities coupled with an asset-liability duration mismatch. Instead, every year, UnitedHealthcare can reassess medical-cost trends, regulatory changes, and risk assumptions, and then update its pricing to reflect those inputs. This is all backed up by a structural cost advantage versus peers. That agility makes the business more resilient, more interesting, and more able to respond to cost shocks. When you combine that with the data flowing in from Optum, you get a feedback loop that's quite rare in insurance. The combination of short-tail pricing and integrated, proprietary data from Optum gives UnitedHealthcare an underwriting edge that we really think is hard to replicate. That's why it's been able to deliver such consistent, capital-efficient earnings growth, even in relatively volatile environments. It's an insurance business, yes, but one with an industrial-grade data infrastructure. It's a pricing engine that turns faster than most, and it has the scale to absorb shocks that others can't. That really sums up the engine that's driving the front half of the UnitedHealth flywheel. Zack Fuss What is difficult to understand is that you have UnitedHealthcare, which is the insurance company, and Optum, which is a healthcare provider business. What exactly is Optum? Why was it brought into the mix here? And I think there's generally confusion because UnitedHealthcare is the business that everyone recognizes, but not the importance of Optum as a profit driver and how it contributes to the competitive advantages that the whole group has together. Stephanie Niven I completely agree. Optum has been the bit that people have really overlooked for over a decade now, and I think that's the bit that's really interesting about the business going forward. If UnitedHealthcare, the insurance segment, is the front engine of the flywheel—it's pricing risk and collecting premiums—then we can characterize Optum as the back half. It's delivering the care, managing the risk, and capturing margin in that process. But you're right, Optum wasn't always part of that picture. It was launched back in 2011 under the now-returning CEO, Stephen Hemsley. The idea really was to shift UnitedHealth from being just an insurer into a broader healthcare platform. With the benefit of hindsight and the knowledge that integration drives efficiency, this was always a natural evolution for the industry as a whole. But UnitedHealth was really the first to deliver it at scale while maintaining that strong execution. I remember back in 2012, when it really did look like a risky move. I remember sitting in investor meetings where there was a lot of skepticism and doubt around the table, and a lot of pushback and pressure to break the Optum business apart. The question really was, why would a successful insurer jump into the messy business of healthcare delivery? But this has turned out to be the case: that skepticism really missed the bigger picture. Owning the infrastructure of care—the clinics, the doctors, and the data—gave UnitedHealth Group control over the very cost base that its insurance arm was underwriting. It wasn't just about the services, but about the feedback loops. UNH knew that silos were expensive, as they really do introduce unproductive costs. Through encouraging greater integration, UNH was actually reducing costs and reducing risk. Whilst peers like Elevance Health, Cigna, and Aetna toyed with integration, most never committed. Some tried mega-mergers, and most failed to execute. By contrast, UnitedHealth took the slow-and-steady route. It went for bolt-on vertical integration rather than large, high-profile horizontal integration, and it really did build Optum bit by bit through smaller, targeted acquisitions. It also tried, and succeeded for a long time, in staying below the radar, even as others got bogged down in regulatory pushback. We really saw that in the mid-2010s, when there was a lot of noise and scrutiny across the M&A space. But today, Optum is a $100 billion revenue business on its own. It would be a Fortune 50 company if it were a standalone business. Zack Fuss Can you provide more detail on the Optum business itself? Stephanie Niven It really consists of 3 main segments. You have Optum Health, which delivers care through clinics, surgical centers, and increasingly, home visits. You then have Optum Insight, which handles data analytics and things like revenue-cycle management, as well as technology infrastructure. The third part of the Optum puzzle is Optum Rx, which is a pharmacy benefit manager. It manages drug pricing, looks at rebates, and looks at formulary optimization. Between them, those 3 pieces—Optum Health, Optum Insight, and Optum Rx—give UnitedHealth fantastic visibility across the entire care journey. It can see from diagnosis to treatment to billing. That's quite a unique perspective on what is a very difficult, very complex industry in the US. Just one more example of that degree of scale within Optum—and I think I've mentioned this already—is that Optum Health is the largest employer of physicians in the US, with over 70,000 under contract. That's a huge number, and it shows the extent of the reach and the ability to see before others and integrate that care delivery. More broadly, UnitedHealth thought, well, how do we move beyond this fee-for-service structure that's traditionally existed within the US? It has become deeply invested in something called value-based care. It has capitation models, where providers are paid not per procedure but per patient. That's a very different mindset. It's moving away from the number of scans and the number of X-rays and toward, actually, how do we cover that patient and have the best outcomes for that patient? That really changes the incentive structure. The focus becomes much more about keeping that patient healthy, avoiding unnecessary care, and managing costs at source. That's a really interesting component within Optum Health. But you also have Optum Insight working in a slightly different way. It has a $33 billion revenue backlog, earns recurring, high-margin income, and delivers technology and consultancy services across the health services industry. In effect, UnitedHealth is taking the best of its healthcare-services know-how and selling it to other healthcare providers. It really is diffusing those benefits across a much larger customer base than you would traditionally, and perhaps initially, expect. To circle back, this integration really matters because the more data, the more touch points, and the more employees on the front line, the more data Optum has. The better UnitedHealthcare's insurance arm can underwrite, the better the insurance pricing, and the more attractive its plans become. That drives enrollments and brings more patients into the Optum ecosystem. For me, that becomes the flywheel in action. That's the value driver. That's the profit engine. And that's what makes UnitedHealth stand apart as an MCO within its peer set. Zack Fuss If you think about what is almost definitionally a vertically integrated business, you have the insurance business underwriting risk, and you have Optum helping to facilitate care. I understand that value-based care has become a pretty big theme and topic of conversation as it relates to lowering the cost of care by eliminating some of the middlemen. What is the UnitedHealth Group approach to value-based care, and why does it matter as it relates to lowering the cost of care? Stephanie Niven One of the biggest shifts we've really seen in US healthcare over the past decade has been, as you touched on, this move away from fee-for-service, where providers effectively get paid for doing more, toward value-based care, where providers are paid for outcomes. Let's take another step back and think about this philosophically. The highest-value intervention that we can really have in healthcare comes from that ailment that never occurred. The earlier the intervention, the earlier a patient avoids a future chronic disease, the healthier that patient stays, and the lower the cost of prevention. Some of that has to do with the structure of care. I'm in London. I'm based in the UK. Things in terms of treatment, first point of interaction, and interaction with the team look a bit different in the UK. We have a very strong system of general practitioners, known as GPs, and they're broadly equivalent to primary care physicians in the US. While both GPs in the UK and primary care doctors in the US are often seen as the gatekeepers to more acute medical intervention, in the UK, GPs typically lean into more preventative aspects of healthcare. This is interesting to me because it means that UK patients typically tend to have more interactions with their GPs than Americans tend to have with their primary care doctors. I looked at some data that showed that, in 10 high-income countries, American adults are the least likely to have a longstanding relationship with their primary care doctor. To put some numbers on that, the average British person sees their GP almost twice as frequently per year as the average American. So that first gatekeeper interaction is quite different. This is despite quite clear evidence suggesting that, in the US, patients with strong primary care physician relationships, where they do exist, report improved disease management, increased satisfaction, and reduced hospital admissions. What this is all saying is that early intervention works. What's really emerging now, and what UnitedHealthcare is trying to drive, is an incentive structure that rewards early intervention. It encourages Americans to see that primary point of interaction earlier, to be perhaps a bit more like the UK and see the doctor more frequently and perhaps at an earlier stage. That incentive structure, which perhaps keeps a patient healthier for longer, is called value-based care. UnitedHealth has been one of the strongest voices in the industry talking up the opportunities of value-based care and driving that transition. It's been able to do that because it has Optum Health. Remember, insurance sits in UnitedHealthcare, while Optum Health sits on the other side of the business. UNH has been putting money into building a network of employed physicians within Optum Health. These are healthcare professionals who are really focused on reducing the occurrence of sickness. This is often about relatively early-stage things, such as lifestyle improvements and dietary enhancements. The ultimate goal is to stave off that decline into expensive conditions like diabetes. The more care UnitedHealth can deliver under these value-based models, the more margin and predictability it can generate. It is a complicated topic, and it's difficult for practitioners, patients, and investors to understand, but what it looks like in practice is standardizing care protocols and care pathways. It’s about reducing unnecessary procedures, and it’s about intervening earlier, and all of this can be helped by data. So you’ve got a number of really interesting different angles here that come together, and really, in a fragmented system such as the US healthcare system, this kind of coordination, this coming together, is really quite rare. And because UnitedHealth controls both the risk and the delivery, it can build these feedback loops that others just can’t. Whilst you have most insurers really flying blind by the time the patient hits the clinic, UnitedHealth isn’t. And really, for me, that is one of the most important edges that you can see in this business, and it’s one of the core reasons that Optum Health really is such a critical part of that long-term value-creating flywheel within the UNH business. Zack Fuss And so, if we kind of bring it all together, we’ve touched upon the structure of the healthcare system, how they have this structural competitive advantage in their go-to-market, and the pieces that they’ve built. What has transpired here that has led that path astray? And I ask, obviously, given that we’re now sitting here in May 2025 and the news flow over the course of the last 6 months—but specifically the last 90 days—has been interesting, to say the least. Stephanie Niven It’s been a bit of a ride. I would agree with you there, but there’s lots to talk about here. Zack Fuss Bring us up to speed. What’s going on? Stephanie Niven Okay, so you’re right. We’ve been through the structure of the US healthcare system. We’ve talked about how UnitedHealth has built a flywheel and how it prices risk better than almost anyone else. We’ve seen Optum grow to a platform in its own right, and we’ve talked about how value-based care isn’t just a good policy. It’s actually part of the margin engine, but everything hasn’t been smooth sailing. As investors, we like a bit of challenge every now and then. But some of those recent challenges have been more tricky, and there are some elements we need to really reflect on to understand what it means for the model going forward. For all the strengths within the UnitedHealth model, Medicare Advantage—one of its most important growth drivers and one of its most important engines—has indeed hit a rough patch. And you’re right that in the last year or so, we have seen those higher-than-expected medical utilization numbers, especially among seniors, come through. So we’re seeing more appointments, more procedures, more spending, and that does matter because UnitedHealthcare underwrites that risk, while Optum Health, in many cases, delivers that care under capitated contracts. So under capitation, Optum gets a fixed fee per member regardless of how much care is used. When utilization spikes, Optum does eat some of that cost. That has, in recent earnings announcements and headlines, led to some margin pressure coming through in Optum Health. And that’s right when regulators are starting to ask tough questions about things like coding intensity and billing practices within Medicare Advantage. It’s not just coming from regulators. We’ve seen it from the media. The Wall Street Journal recently published an article that raised concerns about potential fraud related to risk coding within UnitedHealthcare’s Medicare Advantage business. And while the company has passed regular audits, the articles seem to imply that there are deeper systemic issues here. They’re highlighting discrepancies between diagnosis coding and care documentation. How do you, as an investor, get comfortable with some of those accusations? Zack Fuss I think we need to really recognize that there is a difference between an accusation and a proven bad action. We, as a team, have really been watching this very closely. Perhaps it could be argued that UNH has become somewhat a victim of its own success. So the more they use data, the more they capture insights, and the more specifically they can code, the more they come into conflict with regulators through that process. And it is a fact that the company has been very focused on ensuring all relevant risk factors are captured by physicians. They have worked with doctors to ensure that risks for patients are appropriately assessed and priced for. The real question is whether UNH placed physicians under undue pressure, and this is hard to know, I would say, but what we do know is there is a lot of oversight. UNH undergoes comprehensive and pretty regular audits around its coding and risk assessments, looking for how sick people are. It really does seem to us that erroneous coding inflation—that is, coding people as more sick than they really are—would be a false economy. It would ultimately be captured by some of these audits, and it would lead to a loss of reputation. And these audits are pretty in-depth, and as far as I’m aware, they’ve not uncovered evidence of any systematic or illegal gaming of the system. Coming back to some of our setup and some of our comments around the structure of the industry, it is natural for there to be a tension between the ultimate funder, which is the US government, and the service provider, which is UnitedHealth. However, this tension is heightened by the fact that we are also dealing with people’s health, and there really are few things in life that are as emotive as securing care, particularly for a loved one at a difficult time. Every claim has its individual merits, but an insurer does have to operate within the bounds of what it’s promised to cover. And I think, again, another UK comparison provides some context here. So in the UK, we have an institution called NICE, which determines which drugs our health service will pay for based on a cost-benefit analysis. Sometimes NICE will reject drugs with proven efficacy because it believes them to be poor value for the system as a whole. And we do have a lot of process here that has really been focused on specific patient groups seeing value in those drugs. However, there’s always a heightened level of suspicion when the claims officer is also a commercial entity like UNH. So NICE works for our NHS system. In the US, this is a commercial entity. UnitedHealth is a listed business. It’s a for-profit business. The company does have to continue to show that it is working within a fair clinical claims approval process. All of this adds to complexity and adds to reputational overhang, not because fraud has been proven, but because it reinforces the narrative that Medicare Advantage plans may be pushing the boundaries of risk adjustment, with the end goal being to maximize reimbursement. And just to reiterate, we have not seen any evidence to support that claim, but we are conscious that there is an ongoing tension and there may be a recalibration of what CMS accepts as recognized risk factors. Now, UnitedHealth, like many in the sector, operates in a space where the rules are complex and enforcement is evolving. But the company, which was very quick to respond to many of these accusations, does maintain that its practices are compliant, and its legal success in challenging recent CMS rating methodologies does show how nuanced the regulatory environment is. However, the scrutiny isn’t going away. So the Medicare Advantage program is likely to continue to be politically charged, and that’s charged on both sides of the aisle. This really is to be expected in a country with such a large and rapidly aging population underpinning a very quickly rising cost bucket. You can grow the complexity. So you add in workforce inflation. You add in slower-than-hoped uptake of accountable care contracts. You add in some ongoing post-COVID operational issues. All of this comes together, and as we’ve seen in the market, that narrative around UnitedHealth’s invincibility has started to wobble. But really, it’s important to zoom out here because while these are real challenges, they don’t, to my mind—to my team’s mind—break the model. What they do reveal is how tightly linked UnitedHealthcare, the insurance arm, and Optum really are. So when one side underestimates risk or utilization, the other side feels it. And that interdependence is the system’s greatest strength, but also where the stress shows up first. This perhaps is the right moment to really pause and ask: How much of this is structural? How much of this pain, how much of this volatility that we’re seeing in the business right now, is structural, or how much of it is cyclical? Because if it’s the latter, if it’s cyclical, then maybe we’re looking at a reset, not the breakdown that it seems like the market is pricing. And the cyclical view really would be supported by the fact that COVID did generate a Medicare Advantage supercycle, as the government prioritized the continued provision of coverage with generous funding across all of the government programs. And this did lead to an inflation in things like supplementary benefits across Medicare Advantage providers, really increasing costs for the industry as a whole. And at the same time, as a legacy of COVID, we saw rising sickness acuity—that is, how sick people are—across society on a generalized basis, and this has squeezed margins. It’s been felt by some of the peers within the MCO space, but it seems to have caught up with UnitedHealth really as a bit of a lag right now. And I think the whole industry is grappling with all of those inputs right now, all of those elements, and repricing, reconsidering benefits, and working out ways to adjust this. All of that is not to say that there’s no risk that this is a structural issue. I’ve talked about the attractiveness of the ability to reprice earlier, and the reality is the human body—it doesn’t respect annual pricing cycles. Sickness will be mismatched to the extent to which pricing occurs. However, we still think that this is directionally moving into a position where value-based care is coming through and will increase its market share within Medicare Advantage recipients. And just going back to the structural thesis here, this is where it really gets interesting, and not just from a healthcare perspective, but really from a behavioral one. Stephanie Niven Because if you zoom out and look at how the market reacted to this set of issues, it really is quite telling. We had a murder happen at the end of 2024. We've had a CEO departure. We've had headlines about fraud. We've had regulatory noise and a real uptick—a real surge—in anecdotal, human-interest stories around claim denial. And what followed? What was the market reaction? Well, we saw a 3-standard-deviation sell-off in the UnitedHealth Group share price. And I think really what you need to do is ask yourself this question: Is the stock market pricing a real breakdown in the business model, or is this behavioral? Is this reflex selling in the face of uncertainty? And taking these in turn, I think it's important to remember we are no longer talking about the MCO business model being dismantled, which we have historically seen. We saw that back in 2016 with Elizabeth Warren and Bernie Sanders. The current public-private model is now so ingrained it would take a generation to unwind. So if this really is a behavioral reaction, if the stock market really is unsure, then this to me is an opportunity that isn't just about risk aversion. It's about recognizing how the market misprices complexity, especially in companies that operate across siloed sectors or regulatory frameworks. And really, the point where we've come to is that UnitedHealth isn't easy to model. I'll give you that. But that doesn't mean it's broken. Zack Fuss I guess on that point, we've talked a lot about the qualitative nature of the business and the quantitative nature of the market, but not so much about how the equity markets view the business, how it's valued. So maybe we can just elaborate on what the market has done here, how it underwrites the earnings power of this business, and then ultimately what is going to be the value driver going forward. Stephanie Niven Sure. Well, I think before we really get into the numbers, a quick note. In recent weeks, we did see the CEO, Andrew Witty, step down. And just as that news dropped, the company was already under pressure—pressure from regulators, utilization spikes, and broader investors. Witty was closely aligned with Optum's expansion. He helped steer UnitedHealth through COVID, and he oversaw a stretch of major acquisitions. So his departure, timed alongside these operational challenges, has understandably amplified the sense of instability. But I do think it's worth keeping in mind, when we've seen that volatility in the market, that UnitedHealth has a long history of executing through leadership changes. The strategy is embedded. So the stock, to reiterate, has sold off hard—3 standard deviations below normal. Essentially, what our analysis suggests to us is that the market is telling us that the competitive moat of the business is eroding or gone altogether. And that leads us to a key question: What if the market is just reacting to noise? So is it these temporary utilization spikes? Is it political rhetoric? Is it leadership headlines? And so we still see the core mechanics of the flywheel as intact. UnitedHealthcare is repricing risk annually. Optum is reducing costs through integrated care. And the valuation gap that's out there in the market, to my mind, says more about investor psychology than it does about fundamentals. Zack Fuss And so if we take a step back and set aside the recent dramatics relating to the business and its model, what is it that's driving the structural competitive advantages that UnitedHealthcare has relative to its peers in Medicare Advantage and private-pay insurance? Stephanie Niven Okay, great question, because if there's one area where UnitedHealth really is building a long-term compounding advantage, it's in data and it's in technology. And through Optum Insight, UnitedHealth has access to one of the largest longitudinal health data sets in the country. This spans clinical data, claims history, pharmacy interactions, and really broad population-health trends. And it's not just about the size of that data set. It's also about how they use it. UnitedHealth really leaned in early to things like machine learning and AI across the business. It uses predictive algorithms to stratify patient risk, to anticipate disease progression, and even flag nonadherence to medication. So if you're not taking your pills at the right time, UnitedHealth will intervene and try to ameliorate that situation. Ultimately, it's allowing clinicians to intervene earlier, and this is really important to protect margin in value-based contracts. It's also on the administrative side. We talked earlier about how the flip side of that degree of choice in the U.S. healthcare system comes with a lot of administrative cost. Administrative cost is one of the largest differential price items in the U.S. healthcare system against other national systems. And UnitedHealth has used AI to really streamline claims processing, to detect fraud, and ultimately to improve billing accuracy and reduce timing delays. It can also use AI within its PBM, within Optum Rx, using algorithms to improve formulary placement and automate things like outreach for refills. And what really sets UnitedHealth apart—and I think this probably won't surprise you, as I'm about to say this—is the integration of the tech. Most people use AI in silos. I see that in businesses across all sectors at the moment. But the real value creation, I believe, is and will continue to be where that AI can be integrated across many different workstreams. UnitedHealth is embedding it across the entire workflow, so it's going from risk prediction to care delivery to cost containment. A way to think about this is to take a patient. A high-risk diabetic is flagged in the Optum system. That flag leads to proactive scheduling of a telehealth check-in. That telehealth check-in continues to flag that patient as perhaps high risk. A nurse will then visit the home the next day. The nurse can then adjust the pharmacy benefit in real time, and the insurer can also adjust the risk score. All of this then feeds back into the pricing system. That's not theoretical. That's just the operational reality of the business, and that can happen at scale. So all of the models within UnitedHealth have that data advantage. They're training on fresh data across 50 million lives, and that advantage just really becomes self-reinforcing. And if you compare it to some of the other MCOs, UnitedHealth has got beyond that point of wiring these components together. It's already shifted the mindset. It has already thought about integrating tech and integrating insights, and it really is building what I would say is a real-time operating system for healthcare. I think the value of it is only just beginning. Zack Fuss So, it's impossible to talk about the health insurance industry without the gorilla in the room being the political risk under the current administration, from the perspective of cutting costs and also just broader reimbursement rates as they relate to the cost of drugs. How do you assess and underwrite the regulatory risk inherent in a lot of the change coming out of D.C.? Stephanie Niven So the political risk itself is complex, and I was talking to a colleague earlier and it really could be a podcast in itself. But we'll try and keep it simple and really focus on the bigger role that UnitedHealth is playing in the story. When Trump came back into the White House, the regulatory environment for healthcare really became less predictable. And that lack of predictability isn't necessarily hostile, but, to that point, it is unpredictable. And this reflects why MCOs have been in the spotlight so much. I think there is a really nice political narrative for many politicians out there to blame the broad healthcare system for its failings and to blame it on those big financial institutions, such as the MCOs, rather than shifting the lens elsewhere. It's politically agreeable to go after the big companies rather than perhaps look into doctor salaries or other components of the system that don't resonate so well. And it really does resonate well. We've seen a lot of angst across the country. We see it in the media. We saw a lot toward the back end of last year. And it really comes from that element where, as the patient, the MCOs are the people that you make payments to. You pay your excess to them, and they're also the ones that tell you what you can and cannot get. You know, coming back to that idea of healthcare being a very emotive topic, a very emotive time in your life, that interaction with the MCOs can be difficult. And compiling that with the political narrative really has resonated well within the U.S. system. We saw it with Trump under his first administration. He went after a number of different programs. He tried to roll back the Affordable Care Act. He also tried to relax oversight in other areas and really tackle the PBMs, but all of that was difficult. It was difficult because you need multiple elements of agreement and it's a complex system, but it could come back. So we have seen some media speculation. We have seen that idea that executive-driven disruption could be back on the agenda, and UnitedHealth does have exposure. Medicare Advantage is a huge part of the business. PBMs are under bipartisan scrutiny, and integrated players like UnitedHealth are always in political crosshairs when profits look relatively attractive. However, in our opinion, true fundamental changes to the U.S. system would need congressional approval. And in all this uncertainty, the one thing that is clear is that there's no consensus. There's no agreement on really what an alternative offering would look like. You don't see that on a bipartisan basis. And you don't even see it within the Republican Party. So, yes, the U.S. healthcare system needs to be cheaper, but it's unclear where those compromises need to be made. I'm not really here to answer that question as such. But what I do know is that UnitedHealth has a track record of navigating very successfully through many different forms of reform. So they navigated the Obamacare ACA rollout. They navigated the Medicare rate adjustments we've seen before. They've been through the Medicare for All rhetoric of Warren and Sanders. United has adapted. It changes, is nimble, and it often comes out stronger. The company can adjust contracts. It can rebalance incentives, and if needed, it can absorb some margin in exchange for stability. Where we come out, really, is that regulation could end up consolidating share among some of the best-capitalized players, and that could be to UnitedHealth Group's advantage. To summarize, yes, political risk is real, especially when drug pricing and large financial institutions are in the spotlight, but UnitedHealth has managed these risks before. It's been agile. It's used its scale. It's had a tight grip on data, and we feel pretty confident that it will continue to navigate as the political situation unfolds. Zack Fuss Just to push on that point a little bit, it seems like the degradation in earnings recently has been a function of medical loss ratio, specifically attributed to Medicare Advantage. I guess, obviously, there's this highly regulated and complex business that's always under scrutiny, but what is it about Medicare Advantage in particular that has introduced another layer of challenge to the business more recently? Stephanie Niven Medicare Advantage isn't just a big revenue line for UnitedHealth. It's also one of the most tightly regulated and perhaps politically sensitive parts of the business. There is a perception out there, fair or not, that Medicare Advantage is a bit of a Wild West when it comes to coding, reimbursement, and plan design. But in our opinion, the truth really is that this is one of the most audited and closely monitored programs in US healthcare. The CMS conducts risk adjustment reviews, it has regular audits, and there's a star-rating evaluation system across Medicare Advantage plans. So while there's room for interpretation in coding, there's not much room for fraud. I really do think that distinction matters because the recent headlines around overcoding can skew public perception. In reality, what we're often seeing is aggressive, perhaps optimization within a gray zone that the whole industry has been operating in. One key metric to watch is the CMS star-rating system. This is a system that evaluates Medicare Advantage plans on clinical quality, patient satisfaction, and administrative performance. Those scores directly affect reimbursement. Plans with 4 stars or more get a quality bonus, and UnitedHealth consistently outperforms here. For the 2024 plan year, around 79% of UnitedHealthcare's Medicare Advantage members were enrolled in plans rated 4 stars or higher. That is above the industry average of 71%. You've also seen UnitedHealth successfully challenge CMS rating methodology in court. They've gone back to the CMS, which led to a reevaluation of at least 12 of its contracts. Three of those were upgraded to 4 stars, and 2 of them went to the top rating of 5 stars. You've seen different performance at some of the peers. For example, at Humana, its 4-star coverage has dropped dramatically of late, down to just 25% of members from somewhere in the 90s the year before. I think that performance gap really does underscore UnitedHealth's operational discipline, but also its ability to consistently meet quality and administrative thresholds in what really is one of the most heavily regulated parts of the US healthcare system. To me, that speaks volumes about its execution abilities. Now, star ratings are one thing, but we can also look at net promoter scores, known as NPS, which measure how likely a member is to recommend the plan to friends, peers, or family members. Sometimes these NPSs diverge from those star ratings. A plan might be clinically sound but score poorly on service or complexity, and reputational risk doesn't always show in the numbers. Interestingly, though, UNH has reportedly started approving a higher percentage of claims. The logic is easing reputational pressure. You show good faith to the regulators and to the public, and that's not free. It raises near-term costs, and the upside is that this is a discretionary shift that we really do think is underway at UnitedHealth, but it's not a structural margin problem. It can be reversed and recalibrated. Really, what I'm trying to say here is that there are different levers that UnitedHealth can use to navigate challenges. It can use different levers to navigate star ratings and NPSs, but I don't think that any of those levers are structurally broken. It can adapt. What this really highlights is a core advantage to the UnitedHealth model, and that's control. With visibility across pricing, delivery, and claims, it can dial up cost structures or dial them down in response to outside pressure. It's that adaptability that I want to communicate today. It's so rare, and especially rare in a sector that's as regulated and as emotionally charged as healthcare. I would wrap all of this up and say the scrutiny out there is real. The noise is loud, but UnitedHealth still has the tools, the data, and the scale to play offense while others are stuck reacting. Zack Fuss Our concluding question comes in 2 forms. In your study of UnitedHealth Group, what are the lessons that you've learned from the way that they operate their business and navigate that can be applied to the management of other businesses? And then, as an investor, what about the UnitedHealth story do you borrow and apply to other prospective investments? Stephanie Niven I think I'd answer the same to both of those elements, actually. I think there's a lot of evidence here that being brave, looking ahead and predicting trends, sticking with them, committing capital to them, committing talent, staying the course, and building out a business like Optum has a lot of lessons for life more broadly. Look ahead, look for changes, and back those changes if you believe that is the future. I think that's a really powerful message, and it goes back to the start of my time in 2012. It goes back to those first meetings that I had with the company, where other investors were saying, “Oh, this is a sum-of-the-parts story. It needs to break up.” Well, no. The business saw the future. It saw where the likely value-creation drivers for the whole industry were going, and it was brave. It stepped up and committed capital. A related element to that is adaptability: changing, being prepared to not only see a new vision and back a new vision, but really adapt to fit that vision and play the best game that you can. Be nimble, be agile, break things if you need to, and change things if you need to. I think that has so many lessons for us all, particularly for us as investors, as we think about the opportunities and the changes that AI is bringing to the way we interact with the world, the way we interact with each other, and the way we think about our generation in the future. Zack Fuss Stephanie, packing the UnitedHealth Group story into 60 minutes is not an easy task, and I appreciate you doing this. When we first discussed doing UnitedHealth, I think I described the company as audacious, and I think you've done it justice. I think we could probably go on for a few more hours, digging into some of the idiosyncrasies of what's going on here and how the business operates, but I think this is a wonderful on-ramp for those looking to learn about the business. Stephanie Niven Thank you for your time. I've really enjoyed it.