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UnitedHealth Aging Well

An AARP deal is welcome news to investors.

UnitedHealth's

(UNH) - Get UnitedHealth Group Incorporated Report

stock-option scandal hasn't hurt its important relationship with AARP.

The health insurer has actually managed to expand its deal with the giant senior citizens group, creating a key growth opportunity for the future. The company announced on Tuesday that its contract with AARP, originally set to expire this year, will continue through 2014 and bring new chances to peddle its lucrative Medicare Advantage plans.

Some investors had feared that UnitedHealth, plagued by serious corporate governance problems last year, might lose that crucial contract instead.

"The

AARP contract has been closely followed," Bear Stearns analyst John Rex said in a report published on Tuesday. This is a "better-than-expected result, with expansion into Medicare Advantage -- which is even more meaningful, given premium and earnings for such products are many times above" typical Medicare plans.

"As a result," Rex added, "the potential to over time offer the company's existing 4 million Medicare supplement members

Medicare Advantage plans creates a significant opportunity."

Rex said traditional Medicare supplement plans sell for just $120 per month. In contrast, he said, some Medicare Advantage plans bring in $900 per month instead.

Rex has an outperform rating and a $65 price target on UnitedHealth's stock. His firm has provided non-investment banking services to the company.

UnitedHealth shares bounced 99 cents to $54.84 on the news.

Certainly, Tuesday's development should bring some comfort to those who have been fretting about UnitedHealth's Medicare Advantage program. After all, many analysts have been bracing for reports of a downturn in that business when the company posts its first-quarter results on Thursday.

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UBS analyst Justin Lake is in that camp.

"UNH has seen higher attrition and lower new sales of Medicare Advantage products thus far in 2007," Lake wrote just ahead of the company's announcement. "We expect UNH will have difficulty driving growth in its Ovations business

targeting senior citizens going forward without a meaningful change in its Medicare Advantage membership momentum."

Rex went on to stress the importance of the company's Medicare Advantage program, saying that "the segment represents nearly 12% of operating earnings,

representing nearly three times the exposure to its closest national competitor."

Rex highlighted Medicare Advantage, together with the company's all-important medical loss ratio, as a key focus for UnitedHealth investors this earnings season. He has a neutral rating and a $59 price target on the company's stock. His firm has investment banking ties to the company.

Still, UnitedHealth failed to score a total victory with AARP. Now, the company faces stiff competition from rival

Aetna

(AET)

-- a pioneer in consumer-directed health care -- for AARP members under age 65.

On Tuesday, Aetna found itself celebrating a new seven-year agreement with AARP that brings the company access to many younger AARP members who lack health insurance altogether.

"This opportunity comes after several months of discussion with AARP about how best to increase access for millions of Americans to affordable, high-quality health care as well as enhanced prevention and wellness programs," Aetna CEO Ronald Williams stated. "Our two organizations have strong brands and excellent reputations, and we share important core values. ... Together, we can make a real difference in health care in America."

Aetna's stock rose 40 cents to $45.76 following the announcement.