UnitedHealth Lands $21.8B Military Health Care Contract

UnitedHealth Group revenue from government programs is about to get much bigger.

The Minnetonka health insurer announced late Monday it has won a multi-billion dollar Department of Defense to manage the health of military veterans and their dependents in the southern part of the country.

The five-year contract, covering about 3 million beneficiaries of TRICARE, the Department of Defense military health program. It starts on 1 April 2010, with the transition period from now.

The total contract is valued at $21.8 billion, of which $20.3 billion is forecast to go directly to hospitals, clinics and doctors who provide the care. The remaining $1.5 billion will go to UnitedHealth for processing claims, managing provider networks and for other forms of customer service.

"We believe that bringing together the proven achievements of the military health system with UnitedHealth Group's capabilities will further enhance the effectiveness and quality of health care provided to TRICARE beneficiaries," said Stephen Hemsley, UnitedHealth Group chief executive.

Those TRICARE beneficiaries are in Alabama, Arkansas, Florida, Georgia, Kentucky, Louisiana, Mississippi, Oklahoma, South Carolina, Tennessee, and parts of Texas.

UnitedHealth, the country's biggest health insurer by revenue, has steadily expanded its managing of benefits for government health programs.


Of its total 2008 revenue of $81.19 billion, $28.1 billion came from its Medicare business, Ovations. Another $6 billion came from its Medicaid business, Americhoice.

Add in the new business from UnitedHealth Military & Veterans Services, and revenue from public sector programs could come very close to the $41.8 billion brought in by its commercial business, UnitedHealthcare.

This is the first year that UnitedHealth has bid for the TRICARE contract. It beat the incumbent, Humana Inc., for the southern region. The northern region contract went to Aetna Inc., which beat incumbent Health Net Inc. For the western region, TriWest Healthcare Alliance in Phoenix got its contract renewed.

UnitedHealth Military & Veterans Services began two years ago and previously had landed small technology and consulting projects, said its chief executive, Lori McDougal. A key part of the new contract is providing access to private-sector doctors and hospitals for veterans, she said.

UnitedHealth stands to receive extra fees if it meets performance goals such as quick payment of claims and prompt answering of phone calls.

McDougal joined UnitedHealth in the 1980s and has worked in managed care operations and pilot programs including a senior care program in the United Kingdom.

UnitedHealth shares were up briefly on the news but ended the day 24 cents lower at $24.77. Health insurance stocks mostly closed lower Tuesday on a day when congressional Democrats unveiled a health reform bill that could hurt the business of private insurers.

Chen May Yee --612-673-7434