The AI Doctor Nobody Sees Coming

Erik@YWR on UnitedHealth Group Incorporated (UNH-USA | unitedhealth)

7/9/2025

Summary

UnitedHealth Group ($UNH) is having a crisis of confidence, and the market is punishing it like a structurally broken company. The stock has fallen over 40% from its 2023 highs, spurred by a sequence of headline-grabbing events: a $1.8 billion cyberattack, the tragic and symbolic shooting of its CEO, a management shake-up, and a surprise downward revision to earnings. Add a Department of Justice billing investigation to the mix and you have a recipe for sentiment capitulation. And yet… behind the headlines, a deeper transformation is unfolding—one that investors seem to be completely missing. At the center of this quiet revolution is Optum, UnitedHealth’s lesser-known but highly strategic engine of integration and innovation. If UnitedHealthcare is the financial chassis, Optum is quickly becoming the brain—and potentially the AI brain—of the US healthcare system. This isn’t a broken company. It’s a misunderstood one. And for the patient investor, it could be one of the most asymmetric bets in large-cap healthcare. While everyone else is trying to “play AI” through overhyped software stocks, the future of AI-driven medicine is quietly being built within the bowels of a $280 billion health services company. The AI doctor is coming. And its name is Optum.

Thesis

Why UNH Is Mispriced, and What Everyone’s Missing. The Setup: Hated, but Not Broken Let’s start with the surface-level facts. UnitedHealth Group has a dominant 23% share of the U.S. private health insurance market and serves over 50 million Americans across Medicare, Medicaid, and employer-sponsored plans. It consistently posted return on equity above 20%, grew EPS at double-digit rates, and earned a well-deserved reputation for operational excellence. Then came 2024–2025, a storm of bad headlines. A cyberattack. A CEO assassination. A rapid leadership transition. A guidance cut. A DOJ probe. It’s not surprising that institutional holders lost confidence and the stock now trades at one of the lowest valuations in its history: ~14x forward earnings vs. a long-term average closer to 20x. But what if this wasn’t the end of a growth story? What if, underneath the fear and chaos, UnitedHealth has been building something much larger—something structural, and potentially generational? The Misunderstood Business Model: UNH ≠ Just an Insurer Most investors think of UnitedHealth as a giant insurance company. And that’s understandable—it still earns the majority of its revenue from collecting premiums and reimbursing medical claims. But this lens misses the most important strategic story in U.S. healthcare: the rise of Optum. Optum now accounts for roughly 43% of UNH’s total operating profit, and is growing faster than the insurance segment. It is divided into three powerful arms: • Optum Health – owns and operates medical groups, clinics, and surgical centers. • Optum Insight – provides billing, analytics, and back-office technology to hospitals and insurers. • Optum Rx – manages pharmacy benefits and medication delivery. This vertical integration is no accident. UNH has spent over a decade acquiring assets and building out Optum, piece by piece, in response to one of the central dysfunctions of the U.S. healthcare system: the misalignment between payers and providers. The Systemic Problem: Misaligned Incentives Today’s healthcare model is a mess of perverse incentives. • Insurers (like UNH) are paid a fixed premium per member and aim to minimize costs. • Doctors and hospitals are paid per service, and thus aim to maximize billing. • Patients are stuck in the middle—often confused, anxious, and caught in the crossfire. This leads to chronic friction. Insurers push back on reimbursements. Providers inflate billing. The system becomes adversarial, inefficient, and costly. In 1H 2025, this tension came to a head: utilization in UNH’s Medicare Advantage plans spiked, and UNH was caught flat-footed. Reimbursements outpaced premium increases. Margins compressed. The company had to guide earnings down. And yet, this short-term pain actually validates UNH’s long-term strategy. The Long-Term Fix: Value-Based Care + AI The answer is not more complexity. The answer is alignment. UNH is pursuing a model known as Value-Based Care—in which the insurer and provider are financially integrated and incentivized to focus on long-term patient outcomes, not short-term billing volume. But here’s the kicker: this model only works if you own the doctors. And UNH does. Through Optum Health, it has quietly become the largest employer of physicians in the United States. It has acquired everything from DaVita Medical Group to Kelsey-Seybold to Atrius Health, building a national-scale medical network under one operational umbrella. And with that integration comes data. Through Optum Insight, UNH can now observe, analyze, and optimize medical treatment plans in a way no traditional insurer or hospital group ever could. This is the perfect setup for healthcare AI. The AI Doctor Arrives: Introducing Optum AI Marketplace In June 2025, UNH unveiled the Optum AI Marketplace—a centralized platform designed to accelerate the adoption of healthcare-specific AI tools across the ecosystem. It’s the first of its kind. While most AI platforms are generic, the Optum Marketplace is built on healthcare-specific datasets, including real-time claims data, medical records, diagnostic codes, pharmacy records, and outcomes. These APIs can be integrated directly into clinical decision-making tools and billing systems. Here’s the contrarian leap: in the future, not having an AI diagnosis will be considered malpractice. That’s not a fantasy. It’s where the legal and ethical standards are headed. And the only entity in the U.S. with the infrastructure, data, and incentives to deploy that system at scale is Optum. Why This Matters for Investors Let’s take a modest, conservative view of what this AI capability could mean financially. • UNH currently earns an 8.3% operating margin. • If AI and value-based care improve efficiency and reduce waste, even by a small amount, margins could expand to 9.1% by 2030. • Assume 7% annual revenue growth (below its historical average). • Layer in 2% annual share buybacks, and you arrive at a 2030 EPS estimate of $45/share. Apply a 15x multiple (well below historical highs), and you get a fair value target of $675—more than double the current share price, not including dividends. That’s the asymmetric upside in plain sight.

Risks

Every contrarian investment comes with real risk. Here are the key concerns: 1. Margin Compression Continues The 1H 2025 earnings revision may not be a one-off. If utilization continues to outpace premium growth—especially in government-backed Medicare Advantage plans—margins could decline further. But remember: even if insurance margins compress, Optum is growing and becoming a larger share of the pie. This diversification is exactly why UNH built the platform. 2. Regulatory Backlash The DOJ billing investigation could be the start of broader regulatory scrutiny. Politicians and the public are increasingly hostile to large health insurers, especially those viewed as too powerful. Yet Optum’s integration may actually shield it—value-based care and improved outcomes are politically popular. If UNH can frame its AI and data tools as reducing cost inflation, it may earn allies in D.C., not enemies. 3. AI Doesn’t Deliver There’s a risk that AI in healthcare turns out to be overhyped, inaccurate, or widely ignored by clinicians. But here’s the moat: UNH owns the doctors. It can implement the protocols and incentive structures needed to enforce adoption, unlike open platforms. 4. Cultural Resistance Doctors don’t want to be told what to do by algorithms. But if they’re salaried employees working inside an integrated care platform with aligned incentives, resistance may soften—especially if outcomes and efficiency improve.

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