UNH Bags TRICARE West Contract - Analyst Blog

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On Friday last week, the United States Department of Defense ( DOD ) awarded the TRICARE contract for western U.S. to UnitedHealth Group Inc. ( UNH ), effective April 2013. Under this administrative services contract, the company will support health care delivery to approximately 2.9 million eligible beneficiaries who are active duty service members, retirees and family members based in 21 states of TRICARE's West region.The contract consists of five one-year option periods. The contract is valued at $20.5 billion.

TRICARE is a health insurance service program meant for working as well as retired military service members as well as for their families.

The TRICARE west region was served by TriWest Healthcare Alliance Corp. since 1996, and was currently serving the area under the 2003 contract. UnitedHealth protested the DOD in 2009 to reconsider its decision and finally the Department found out that errors were made in the West region Contract Award and finally last week reversed the contract in UnitedHealth's favor.

The contract gives the largest U.S. health insurer (on the basis of revenue) access to the military health care market, an area which the company has long sought after. Last year the company also sued the DOD for TRICARE southern region valued at $23.5 billion, but was unsuccessful in its bid and lost the contract to Humana Inc. ( HUM ).

The contract will accrue considerably to the company's top-line which last year posted consolidated revenues of $102 billion. However, the loss of TRICARE contract will erase much of the total revenue from TriWest as the military business formed the main component of the company's business.

UnitedHealth is aggressively diversifying it revenue sources. It is also diversifying geographically to offset the restriction imposed by the Health Care Reform back home. Apart from diversifying globally, UnitedHealth is also growing its Health service business branded as Optum and has made a number of acquisitions recently in this regard.

UnitedHealth is uniquely poised to gain from the changing landscape in the health insurance industry. The company boasts of a diversified revenue stream and a very solid balance sheet. The company has made a number of acquisitions both big and small to reshape its business in the face of the new regulation posed by the Health Care Reform.

UnitedHealth currently retains a Zacks # 2 Rank, which translates into a short-term Buy rating. Given its better-than-average fundamentals, we are also maintaining our long-term Outperform recommendation on its shares.


 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: DOD , HUM , UNH

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