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.
HUMANA INC NEW (
HUM
): Free Stock Analysis Report
UNITEDHEALTH GP (
UNH
): Free Stock Analysis Report
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