The Business Of
Healthcare | UnitedHealth | What Do They Do?
Morning All!
Hope you had a great weekend! Last week, in the second part of our The Business Of Healthcare series, we explored the business model of CVS Health. And learned about the complex world of pharmacy benefit managers (PBMs)!
This week we’re shifting our focus to another important part of the healthcare value chain - health insurers. And where else to go - but the largest health insurer in the world. And the 9th largest company in the world by revenue. It’s the US giant, UnitedHealth!
Now, like CVS Health, UnitedHealth have several divisions. Their main division - the health insurance part - is called United Healthcare. But they also have their own PBM - Optum Rx - and a couple of other segments! However, this week we’re going to focus only on the health insurance part because it’s a pretty huge topic by itself. And I think you’ll agree we did enough PBM analysis last week!
The Final Part Of Our Value Chain
Okay, so before we get going. Let’s have a little recap of the last 2 weeks. In week 1 of this series we looked at AbbVie, the drug manufacturer. And saw how the company is involved in the flow of drugs.
Then last week, we looked at CVS Health and dove into the pharmacy and PBM divisions. We saw that, when individuals come to the pharmacy to get their prescribed drugs. It’s the PBM who pays the pharmacy for that drug. And we focused more on the flow of money.
This week, as we said, we’re going to look at the part we haven’t yet covered. And that’s the health insurer! And the first question to ask is - what do health insurers actually do? Well, health insurance companies provide protection. What do I mean? Well, if someone in America gets hit by a bus, or gets a virus, and needs to stay in a hospital for 3 weeks. It would cost them an awful lot of money for the hospital stay.
But thanks to insurance, there’s another option! Instead of having to pay out a huge one-off payment for the unexpected health event. Individuals can make monthly payments (called premiums) to health insurance companies like UnitedHealth. And when a health event does occur - its the health insurer who foots the bill. Or at least, most of it! So, insurance is basically a way of spreading out risk. We’ll get into all of this in more detail this week. But for the rest of today, let’s look at the building blocks of US health insurance. Because it’s just a tad different to the UK!
Why Is Private Healthcare So Popular In The US?!
Okay, so let’s start with the UK to give us a nice base. And in the UK, there’s obviously the NHS. This is the government-funded healthcare system that provides free healthcare to UK citizens. Individuals don’t have to pay any of those monthly premiums we mentioned earlier. And if a UK citizen was hit by a bus and needed to stay in a hospital for 3 weeks… they wouldn’t have to pay anything either!
However, the public system isn’t always the fastest. And so, for those more financially able, there’s also private insurance. This is where individuals can pay those monthly premiums to a private health insurer. And when they have an unexpected health event, they don’t need to wait as long to be seen by a doctor! However, private insurance isn’t all that common in the UK with only 10-20% of people privately insured. And only ~12% of UK employers offering private insurance as a benefit to their employees.
But now, let’s turn our attention to the U.S And take a look at the chart below. It shows us that in the US, a whopping 224 million people have private insurance! That’s a remarkable ~69% of the population! But why is there this huge difference compared to the UK? Well, it’s because the US ‘public’ healthcare system isn’t actually for everyone!
The public insurance you see in the chart below is only for the elderly (Medicare). The poor (Medicaid). And those that served in the military. Which means that if you live in the US, and you’re not old or poor, you’ll need to take out your own - private - insurance! Or be uninsured like 9% of the population!
Now, as you can see - the majority of those privately insured individuals (179m), are actually insured through their employer. So, it’s their employer who’s paying the monthly premiums for their private insurance, not them. And thank goodness, because we’ll see tomorrow just how expensive private health insurance in the US is!
But before we close for today, let’s just briefly chat about Medicare and Medicaid. Because a lot of readers may not be too familiar with these terms! And it’ll give us some valuable context before we dive into UnitedHealth’s business model tomorrow.
Private Health Insurer… But The Government Is Their Biggest Customer!
Okay, so what are Medicare and Medicaid? Well, Medicare is a government-funded insurance plan for the elderly (65+). And Medicaid is the plan for the less wealthy in society (individuals earning less <$15k). And these systems make healthcare costs cheaper for the old and poor. Notice I said cheaper, not free. Because in the US, there’s pretty much no free healthcare! This video here gives us a simple explanation of the costs even the most vulnerable in US society have to pay for healthcare!
But let’s get back to UnitedHealth. Because I’m sure some of you may be wondering - where does UnitedHealth fit into all of this? We’ve been talking about public healthcare but UnitedHealth is a private health insurer!
Well, a little bit like in the UK - where individuals who aren’t satisfied with the public health services, can decide to go private. This happens in the US too. For elderly patients who are on the Medicare coverage, Medicare Advantage plans are offered by private companies - like UnitedHealth. As an alternative to standard Medicare coverage. These Advantage plans offer additional services like vision, dental and hearing-aid services.
And in fact, nearly 50% of the people on (public) Medicare benefits have also enrolled in the (private) Medicare Advantage program! This is why those Private + Public + Uninsured figures in the earlier chart don’t add up to 327 million! Because there are many people on Medicare who upgrade to private healthcare. And as we’ll see tomorrow, although UnitedHealth is a private health insurer - the US government is actually their biggest customer! How does that work? We’ll find out tomorrow!
10th Jul 2023
And that’s a wrap! A lot to look forward to this week. Tomorrow, we’ll look at how exactly UnitedHealth makes its money. And we’re getting ever closer to understanding this complicated US healthcare industry!
Have a fabulous day!
The Business Of Team