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UnitedHealth could gain from rivals' mergers

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Consolidation among four of the five largest health insurers in the United States is unlikely to jeopardize UnitedHealth Group Inc.'s position at the top of the industry, Moody's Investors Service Inc. said in a report released on Thursday.

UnitedHealth's diverse portfolio of business lines, consistent financial performance and brand recognition should help the Minnetonka, Minnesota-based health insurer retain its competitive edge as rival insurers Anthem Inc. and Aetna Inc. each seek to grow their market share by merging with Cigna Corp. and Humana Inc., respectively, Moody's analysts said in the report.

“Despite the recent flurry of activity by its competitors, UNH will remain one of the largest, most diverse, and financially strong U.S. health insurance companies, serving nearly 46 million members in all the major segments,” Moody's analysts wrote in the report.

Should Anthem complete its acquisition of Cigna, the resulting combined company would overtake UnitedHealth as the nation's largest publicly traded health insurer by total membership, serving a projected 47.9 million enrollees.

However, UnitedHealth would remain the country's largest health insurer by total revenue, having collected more than $72 billion in revenue through the first half of 2015, compared with the estimated $58 billion that a combined Anthem and Cigna would have collected through the end of June.

From a financial metrics standpoint, “UnitedHealth Group is projected to be stronger than either post-merger Anthem and Aetna, with higher revenues, earnings, cash flow, and lower debt obligations, along with better leverage ratios.”

“UNH may also be able to capitalize on potential regulatory divestitures required as a result of the two large mergers,” Moody's wrote in its report, meaning UnitedHealth could snap up Anthem/Aetna spinoffs. “Additionally, there could be an opportunity for UNH to take advantage of distractions and service issues that are typical of large health insurer integrations”, meaning UHG could snap up unhappy former customers.

Moody's analysts said one of UnitedHealth Group's key strengths is the balanced diversification of revenue streams in both its health insurance and health care services segments. More than one-third of the company's revenue is generated by Optum Inc., which specializes in health care technology services, employee wellness programs, pharmacy benefits management and other unregulated sources of income.

“UNH's sizeable unregulated cash flow stream provides the company with additional financial flexibility, since these cash balances are not required to have a regulator's approval in order to be released from operating subsidiaries,” Moody's analysts wrote.