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Why Bridgewater Associates sold its shares in UnitedHealth Group

Smita Nair

Bridgewater Associates' new positions in 4Q 2013: Important points (Part 7 of 7)

(Continued from Part 6)

Bridgewater Associates and UnitedHealth Group

UnitedHealth Group (UNH) was a 0.10% position in Bridgewater Associates’ portfolio that was eliminated last quarter.

UnitedHealth reported revenue and earnings above analyst estimates in its 4Q results last month, which were highlighted by Optum’s strong and well-diversified revenue growth and exceptional margin expansion and steady enrollment growth in each of UnitedHealthcare’s benefits businesses. Optum is the company’s technology and consulting unit, serving the broad healthcare marketplace, including payers, care providers, employers, governments, life sciences companies, and consumers. The company reported $1.41 EPS for the quarter and revenue of $31.10 billion, up 8.2% year-over-year.

However, shares declined after the company said it saw near-term 2014 pressures, particularly from Affordable Care Act implementation and Medicare funding actions that will cut into its earnings in 2014. The company said it had plans and actions in place to offset these reductions and to grow revenue to a range of $128 billion to $129 billion and generate earnings in the range of $5.40 to $5.60 per share.

Medicare Advantage pays private insurers to provide Medicare health benefits for the elderly. The government has paid the insurers that run these plans more per enrollee rather than the cost of care for people with traditional Medicare coverage. Under the Patient Protection and Affordable Care Act, the insurers’ reimbursements are being scaled back to help pay for the overall insurance expansion. Insurers have been waging a public campaign to retain these payments, saying they provide extra benefits such as dental and vision care. The government is expected to propose preliminary rates this month, with a final decision expected in April. UnitedHealth is the largest private provider of Medicare plans and has been facing pressure with these funding cuts.

UnitedHealth peer Humana (HUM) said last month that funding cuts for 2015 may be greater than expected. UNH CEO Stephen Hemsley told analysts on the earnings call that reimbursement was cut about 6.7% for this year and a similar cut for 2015 would be “extraordinarily disruptive.”

JP Morgan is bullish about the stock and said, “while Medicare Advantage rate pressures and the impact of the health insurance fee present near-term headwinds, the company reaffirmed its longer-term growth outlook, saying that the opportunities provided by the drive to a more modern healthcare system have never been more compelling (management targets a 13-16% LT EPS growth rate).” The company also expects to see further gains from its Optum segment.

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