When UnitedHealth Group went public in 1984, the nation was
closer in time to the inception of Medicare than it was to
ObamaCare and federal mandates made it difficult for HMOs to
churn powerful earnings growth.
Yet the Minnetonka, Minn.-based insurer became a colossus
bestriding the American health care system, largely through
acquisitions and innovation, buying other health plans, keeping a
view toward double-digit growth as well as streamlining and
unifying procedures for its companies throughout.
From its November 1987 low to its March 2014 high,UnitedHealth
) shares soared 101,510%.
UnitedHealth traces its origins to the 1970s. Richard Burke
spent several years at InterStudy, a Minnesota health care think
tank that was critical to developing -- and winning congressional
approval for -- the health-maintenance organization.
Burke, who remains UnitedHealth's chairman today, decided to
strike out on his own with a for-profit venture.
Early Technology Adopter
Now the largest U.S. health insurer, UnitedHealth turned its
origins in technology into an advantage. The company launched
computerized health claims systems, first in the Minneapolis-St.
Paul area and later in other markets throughout the nation.
Upon its launch in the 1980s, the computerized claims
processing system reduced administrative costs to $1.09 per claim
-- much lower than the $3 or $4 that was the industry standard at
the time. The interactive system also allowed doctor offices to
discuss claims and resolve problems immediately after claims were
"We were early in capturing that data," said John Penshorn,
senior vice president at UnitedHealth. "We used it to improve
In 1992, the insurer launched another innovation later adopted
throughout its industry: "report cards" that rated medical
providers on cost, quality and other performance variables to
help patients make informed decisions.
UnitedHealth also was the first company to create and
implement a pharmacy benefits business that took care of
prescription drug claims at retail pharmacies. Using its
purchasing power for members' benefit, UnitedHealth negotiated
better prices with pharmacies and drugmakers.
Getting Bigger -- And Leaner
A pivotal moment came in 1988 when Dr. William McGuire joined
UnitedHealth as executive vice president after UnitedHealth
bought Peak Health Plan, which he helmed at the time.
When McGuire joined UnitedHealth's board, it was a regional
HMO that wasn't profitable. Annual revenue was $400 million. When
he resigned from UnitedHealth in 2006 -- amid a stock options
backdating scandal -- revenue topped $70 billion.
Today, the company serves more than 85 million people on its
rolls worldwide and is expanding into 125 countries.
"McGuire began the long process of standardizing procedures
and benefit structures and operations," said Sheryl Skolnick, an
analyst at CRT Capital Group, a Stamford, Conn.-based financial
At the same time UnitedHealth was keeping its administrative
costs down and efficiency up, McGuire set out to make the company
larger, building economies of scale by buying various regional
HMOs over the years.
PrimeCare of Milwaukee, PacifiCare in California, Oxford
Health Plans in the New York area and Medicaid insurance company
AmeriChoice are some of the acquisitions that transformed
UnitedHealth into a national player.
A strong emphasis on double-digit growth and returning value
to shareholders led UnitedHealth's shares to grow 8,342% from the
1987 low to their 1994 peak.
The mid-1990s were a difficult time for the health care
industry. President Clinton's reform plan -- dubbed "HillaryCare"
-- led to uncertainty about the regulatory climate. Rising health
care costs and consumer backlash to its cost rationing -- in the
form of lawsuits -- also weighed on UnitedHealth.
In 1994, UnitedHealth sold Diversified Pharmaceutical
Services, its pharmacy benefits management unit, to SmithKline
Beecham for $2.3 billion. In 1995 it bought MetraHealth Cos. for
Three years later, the company brought in Stephen Hemsley, a
former managing partner and CFO at then-accounting giant Arthur
Andersen, to help manage what had become a massive
Beginning in late 1998, UnitedHealth stock took off once
again, soaring 1,651% to late 2005. It also introduced Web-based
technology to improve service for its doctors, helping them to
check their patients' benefit eligibility, submit claims and
In 2003, it introduced medical ID cards with magnetic stripe
technology as well as the use of aMasterCard (
) system and network, allowing patient benefits to be verified in
seconds. The following year, it rolled out health savings
accounts for employers and individuals.
"They are arguably the only company positioned to take
advantage of every trend and every market inefficiency in health
care," Skolnick said. "It's pretty stunning what they're able to
accomplish and it's hard work."
UnitedHealth used its national scale and its cost-cutting
skills to its benefit as businesses competed to bring their
employees to UnitedHealth for insurance. It is now a big player
in Medicare Advantage, but is cautious about joining the
ObamaCare health exchanges.
After tumbling in the 2008 financial crisis, shares have risen
sharply once again.
Under Hemsley's leadership since 2006, UnitedHealth has
utilized its "large, diverse membership base" to gain advantages
in both scale and pricing, says Vishnu Lekraj, an analyst with
Oppenheimer & Co.
"They are the gold standard," Lekraj said.