UNITEDHEALTH: THE STRUCTURAL TRANSFORMATION

Strategic Repositioning Memo

June 2030 | CEO Edition

TO: UNH Executive Leadership

FROM: CEO Office

RE: The Death of Insurance Economics and Our Survival Strategy

Let me be direct: The health insurance business as we've known it for the last 60 years is ending. We have until approximately 2033 to build a new business model, or we will be a commodity administrator with 2-3% margins.

Here's the timeline of what happened:

2023-2024: We believed AI would strengthen our competitive position through better risk prediction.

2024-2026: We realized competitors could achieve equivalent AI accuracy. Information advantage was disappearing.

2026-2028: We integrated Optum aggressively, betting that care delivery + insurance integration would create a moat. This hasn't materialized as expected.

2028-2030: We now face the reality: Insurance margins are compressing to near-zero because medical risk is becoming predictable rather than uncertain.

The question: What is UNH in 2033?

THE BRUTAL NUMBERS

Let me present the margin compression by segment:

Health Insurance Margin Compression: - Commercial: 5.8% (2024) → 2.9% (2030) - Medicare Advantage: 7.1% (2024) → 3.4% (2030) - Medicaid: 3.2% (2024) → 1.1% (2030)

Optum Margin Compression: - Health Services (care delivery): 8.4% → 7.1% - Pharmacy: 4.2% → 2.8% - Data Analytics: 18.2% → 11.4% (customer concentration and commoditization)

Root Causes: 1. AI allows patients to know their risk profile → can't charge premium without losing to competitors 2. Regulatory environment forces transparency in claims decisions → can't deny claims using opaque models 3. Vertical integration doesn't create moat; it just exposes us to low-margin healthcare operations 4. Scale consolidation is hitting antitrust limits → can't achieve additional pricing power through consolidation

THE NEW BUSINESS MODEL (2033 TARGET)

UNH needs to fundamentally restructure. Here's the vision:

Core Business 1: Insurance Administration (20% of revenue, 3% margin)

• Stop competing on underwriting. Stop trying to achieve margin through risk-taking.
• Become the provider of insurance administration infrastructure for employer plans
• Generate margin through:
• Administrative fees ($3-5 per member monthly)
• Technology licensing
• Claims processing efficiency

Core Business 2: Integrated Care Delivery (60% of revenue, 8% margin)

• Own primary care clinics and urgent care networks (Optum)
• Accept capitated payments from employers and government
• Generate margin through:
• Care efficiency (reducing costly inpatient admissions)
• Behavioral alignment (nudging members toward preventive care)
• Scale in specific geographies (dominate a metro area with integrated delivery)

Core Business 3: Data Analytics & AI Tools (15% of revenue, 18% margin)

• Separate UnitedHealth Analytics as a distinct business
• Sell AI prediction and risk assessment tools to other insurers, providers, employers
• Generate margin through:
• Proprietary data advantage
• Software licensing
• Consulting services

Core Business 4: Behavioral Health (5% of revenue, 12% margin)

• Mental health, addiction services, employee assistance programs
• High margin because it's less commoditized
• Essential for integrated care model

THE STRATEGIC MOVES

Move 1: Bifurcate the Company (Year 1)

We need to separate insurance administration from care delivery because they have fundamentally different economics.

• UNH Insurance Co.: Traditional insurance administration. Smaller company, lower margin, more stable.
• Optum: Care delivery, vertical integration, innovation. Larger company by revenue, higher operational complexity, growing margins.

Spin Optum off as a separate public company by Q4 2031. This forces: - Clear accountability for care delivery margins - Optum can operate as a healthcare company, not an insurance company - Insurance company operates as a platform, not a conglomerate - Investors can choose their exposure based on risk tolerance

Move 2: Rationalize Care Assets (Year 1-2)

Optum owns 7,200+ care delivery facilities (clinics, urgent centers, surgery centers). Not all of them are strategically valuable.

• Keep facilities in high-margin markets where we achieve >25% of primary care market share
• Divest facilities in low-concentration markets where we can't achieve operational leverage
• Target: Maintain 4,200 facilities with higher margin through concentration, divest 3,000 lower-margin facilities

This generates ~$8B in one-time proceeds and reduces future drag on margins.

Move 3: Exit Unprofitable Insurance Lines (Year 1)

Medicaid is a 1.1% margin business and a regulatory/reputational burden. Exit or significantly reduce exposure.

• Divest most Medicaid plans (except for high-margin, state-specific plans we dominate)
• Keep Medicare Advantage (3.4% margin, growing, government-sponsored)
• Focus commercial insurance on self-insured large employers (lower administrative burden)

This reduces revenue by ~$18B but improves overall company margin by 40 basis points.

Move 4: Invest Heavily in Behavioral AI (Year 1-2)

This is the moat we can actually build. AI systems that predict which patients will ignore medication, miss appointments, or engage in unhealthy behaviors—and then nudge them toward compliance.

If we can achieve 12-15% improvement in medication compliance and preventive care adherence, this creates genuine cost savings in care delivery.

Investment required: $1.2B. Timeline: 24 months to ROI.

THE NEW MARGIN PROFILE

2024 Actual: - Total Revenue: $310B - Operating Margin: 7.2% - Operating Income: $22.3B

2033 Target (Post-Restructuring): - Total Revenue: $340B (slower growth, strategic divestitures offset organic growth) - Operating Margin: 6.1% - Operating Income: $20.7B

This is not a growth story. But it's a stable, defensible story where: - Insurance is a utility (3% margin, non-cyclical) - Care delivery is the growth engine (8% margin, improving with AI) - Data/Analytics is high-margin (18% margin, capital-light)

ORGANIZATIONAL CHANGES

Q3 2030: - Announce Optum spin-off plan (effective Q4 2031) - Announce Medicaid exit plan - Announce facility rationalization strategy

Q4 2030: - Begin divesting lower-margin facilities - Begin transitioning Medicaid plans

Q1 2031: - Operationally separate UNH Insurance Co. and Optum (different management teams, profit centers) - Launch new behavioral AI product line

Q4 2031: - Complete Optum spin-off - Complete facility rationalization - Introduce new guidance for 2032-2035

THE HARD TRUTH

Some of you may have joined UNH because you believed in building a unified healthcare company. That vision is not viable in an AI world where medical outcomes are increasingly predictable.

The new vision is: UNH becomes a disciplined insurance administrator and Optum becomes a care delivery company with behavioral AI integration.

This is less romantic. It's also more sustainable.

We control this narrative, or the market will force it on us. I choose to lead.