A government decision to award a military-related health insurance contract to UnitedHealth Group Inc. will bolster the insurer's already diverse revenue base, according to a BMO Capital analyst.
UnitedHealth, based in Minnetonka, Minn., said Monday that the government affirmed a decision to award UnitedHealth a contract that covers nearly 3 million active duty and retired military service members and their families.
The contract starts next April and covers 21 states in the Western region for TriCare, the health plan for military members. UnitedHealth will process claims and provide support services like fraud and abuse detection.
The U.S. Department of Defense had said in 2009 that it would award the contract to Phoenix-based TriWest Healthcare Alliance, but UnitedHealth protested that decision. Bidding was reopened last year, and the Defense Department originally said in March that UnitedHealth would get the contract.
UnitedHealth is the largest U.S. health insurer based on both enrollment and revenue. Health insurance is its main business, but its Optum segment also provides services like wellness programs, technology outsourcing and pharmacy benefits management.
Shares of UnitedHealth and other insurers have slipped since a Supreme Court ruling announced last week left President Barack Obama's health care overhaul largely intact. The overhaul aims to cover millions of uninsured people, which amounts to a wave of new business for insurers. But investors have been wary of the 2010 law because it also imposes billions of dollars in fees on managed care companies and restricts how they can price policies.
"Shares of (UnitedHealth) have been suffering since the Supreme Court ruling, and we believe this has created a buying opportunity ahead of second-quarter reporting," analyst Dave Shove said in a research note.
UnitedHealth and other insurers are expected to report on their second quarter performances later this month.
UnitedHealth shares closed at $56.26 on Monday. They are still closer to the high end of their 52-week range of $41.27 to $60.75 per share.