UnitedHealth Group's 2022 Earnings are in, PBM Optum outperforms health insurance division

This just in: After analyzing UnitedHealth Group’s fourth quarter and full year 2022 revenue and profits this morning, I’ve decided it’s time to stop calling UnitedHealth and two of its biggest competitors–Cigna and CVS/Aetna–insurance companies.

All three are now getting or making more money as drug supply chain middlemen than providing health insurance in the United States. 

Next week, I’ll do a deeper dive into UnitedHealth’s 2022 earnings report, which it released before the New York Stock Exchange opened this morning. But for now, know this:

• Optum, the division of UnitedHealth that operates the company’s pharmacy benefit manager, contributed $4 billion to UnitedHealth’s profits during the last three months of 2022, far more than the $2.9 billion contributed by the division that sells health insurance.

• Looking at revenues, Optum still lags behind the health insurance division, but it is quickly closing the gap. During the same quarter 10 years ago, UnitedHealthcare, the insurance division, posted revenues of $26.9 billion. Last quarter, the total had more than doubled to $63 billion. But Optum’s revenues increased more than six-fold (639%), from $7.5 billion in 4Q 2012 to $47.9 billion in 4Q 2022.

• In terms of profits, though, Optum’s growth has far exceeded that of the insurance division. Over the same 10-year period, Optum’s profits have increased nearly nine-fold (871%), from $459 million in 4Q 2012 to $4 billion last quarter. 

• Optum’s profit (operating) margin has also left UnitedHealthcare’s margin in the dust. Ten years ago, both Optum and UnitedHealthcare reported operating margins of 6.1%. 

• Last quarter, however, UnitedHealthcare’s margin had dropped to 4.7% while Optum’s had soared to 8.3%.

• We can expect to see similar numbers from Cigna and CVS Health Corporation (which owns Aetna) when they announce fourth quarter and full year 2022 earnings in the coming weeks. In the third quarter of last year, Cigna’s Evernorth division, which operates its PBM, contributed $35.7 billion to the company’s total revenues of $45.3 billion, three times more than the $11.2 billion contributed by Cigna Healthcare, which operates its health plans. And at CVS, its PBM (Caremark) contributed $43.2 billion to the company’s total revenues during the third quarter of 2022, far more than either the company’s CVS stores ($26.7 billion) or Aetna ($22.5 billion). 

• On another front, Unitedhealthcare’s health plan enrollment growth once came again almost entirely from the private Medicare replacement plans it operates (so-called Medicare Advantage plans) and which are funded by federal taxpayers. More on that next week.

Bottom line: These three companies, which we still call “insurers” but which together control 80% of the PBM market, have transformed themselves into companies that get most of their money now as middlemen sucking more and more out of the drug supply chain–between you and your pharmacist and the companies that make your medications–and less and less (as a percentage of revenues and profits) from their health insurance operations. And among all the big seven for-profit “insurers,”* as I’m sure we’ll see over the coming weeks, most of whatever growth they report in health plan enrollment over the past year will have come primarily from Medicare and Medicaid and other government programs. That’s because more and more U.S. employers and their workers can no longer afford the premiums they charge. Uncle Sam, on the other hand, keeps their health plan operations afloat and profitable by funneling more and more of our tax dollars to those companies.

*Centene, Cigna, CVS Health Corporation, Elevance (previously known as Anthem), Humana, Molina, and UnitedHealth Group.