Working
TogeTher
to make
HealtH care
better
2011 annual report to Shareholders
Dear Shareholder:
In 2011, the people of UnitedHealth Group, Optum and UnitedHealthcare again
delivered sound operational and financial performance — distinctive in the
consistency of their execution, the breadth and depth of both top line and bottom
line growth, and in the diversity of their efforts across the health care landscape.
The hard work and creativity of our people is steadily advancing the quality and
value this enterprise delivers to those we serve and those who invest in us.
today, there are almost 100,000 deeply committed,
and energies have long since turned from 2011
talented and resourceful people who work across
and are fully engaged with 2012 and 2013. So
this enterprise to achieve this level of performance
what feels right to do as we strive toward higher
and to position us for an even more positive future.
levels of performance in 2012 is to renew with
this letter is one of the few public opportunities to
you some core commitments shared and acted
recognize and thank all of them for these efforts.
on every day by the people of this enterprise that
at this point, annual report convention dictates
drive our performance regardless of the year.
we launch into several pages about that strong
We remain committed to our mission to society
2011 performance and the distinctive attributes
at large and to our role within the health care
of this enterprise. make no mistake, we grew
community. our mission is to help people live
and performed well, and our differentiating
healthier lives. our role is to make the health
value advanced meaningfully. but, our thinking
care system work better for everyone.
Table of ConTenTs
letter to Shareholders .......(Inside front cover)
executive Summary ..................................... 2
company overview ................................... 12
• We are committed to integrity and ethical
behavior in everything we do and to high
standards of corporate governance.
• We are committed to accountability in
performance. this means relentless execution on
the fundamentals and in the details of everything
Health benefits ......................................... 14
we do, so the expectations of those we serve
Health Services .......................................... 16
Foundations .............................................. 18
and those we work with across the health care
system are consistently met and exceeded.
mission and culture .................................. 19
• We are committed to innovation in everything
executive officers, leaders & Directors ...... 20
Form 10-k ................................................ 21
Investor Information .......... (Inside back cover)
we touch — practical innovation that benefits
customers, consumers and the health care
community. our efforts are focused on advancing
and modernizing the health care system in both
UNITEDHEALTH GROUP
1
large and small ways, conserving its resources and
each year, these commitments
helping the system serve more americans more
take root more deeply into the
effectively, more consistently and at lower cost.
culture and character of this
• We are committed to working collaboratively
with all participants in the broad health care
community. We are building honest, substantive
and trustworthy relationships as a foundation
for collaboration and shared efforts to create
a better, more open and modern health care
enterprise. our culture is built
on commonly shared beliefs
and values and brought to
life in the attributes, the
actions and the behaviors
we honor and reward.
system than the one we all inherited.
today, we reflect less on
We believe we can play
an integral, enabling
role in addressing some
of society’s greatest
challenges in health care,
today and in the future.
past accomplishments and focus more on the
challenges and opportunities before us. We can make
a difference. We can help people live healthier lives.
We can help make the health care system work better
for everyone. We can grow and advance in profitable
ways to provide distinctive returns on the capital
entrusted to us. and in achieving these things, we can
help address some of the broader social challenges
of health care that have prevailed for too long.
Sincerely,
Steve Hemsley
President and chief executive officer
• We are committed to serving people. the very
human nature of both the social marketplace and the
health care needs we address require a much higher
commitment to compassion than what is required
of other commercial endeavors. compassion must
be at the center of everything we do.
• We are committed to building businesses. that’s
who we are — people with proven skills, deep
experience and insights who serve and advocate
daily for an ever better health care system.
We put private capital and talented people to
work to achieve that goal in a manner that is
accountable to society and our shareholders. We
draw upon the creative and competitive strength
of the open market to support our efforts. We
use private sector capital to grow and advance
in sustainable and profitable ways, based
on the quality and consistency of the work we
do, the trust we earn and the ever-improving
value we deliver to those we serve, providing a
distinctive return on capital to those who invest.
We believe we can play an integral, enabling
role in addressing some of society’s greatest
challenges in health care, today and in the future.
$102b 99k
78m
$54b
754k
79%
$8.5b $7b
19%
Performance HighlightsAt UnitedHealth Group, our focus on fundamental execution and practical innovation improved value and service for customers in 2011. We are committed to further elevating our performance in 2012 as we continue to serve the growing needs of the health care system.2011 revenueRevenues increased 8% from $94.2 billion in 2010ElEctronic transmission of mEdical paymEntsPaying approximately 725 million claims annually with 99.7% accuracyEmployEEsWorking in all 50 states and 17 other countries worldwidedirect relationships with physicians and care providers97% of the U.S. population resides in areas served by UnitedHealthcare’s networkspeople servedWith innovative products and services from Optum and UnitedHealthcareemployees who volunteerTo support charitable causes in communities where they live and workOP earningsOperating earnings increased 8% compared to $7.9 billion in 2010OP cash flOwOperating cash flow increased 11% compared to $6.3 billion in 2010return on equityTotal shareholder return was 42% UNITEDHEALTH GROUP
3
Working together to
make Health care better
At UnitedHealth Group, we think of health care as a system — a highly complex
system of interacting, interrelated, interdependent elements that is continually
changing. We see our enterprise as one of many participants in this expansive system,
along with millions of health care consumers, physicians, nurses and other providers
of care, hospitals and clinics, federal and state governments, employers of all sizes,
pharmaceutical and medical device manufacturers and insurers.
the health care system resides within a broad, vital
and quality of life. It is where we must respond to the
social and economic environment, which is also
interests of the most vulnerable in our communities.
complex and ever changing. economically, it is a free
market system, based on basic principles of supply
and demand, and is among the most regulated.
the health care system is also important politically
because of social expectations related to health care
access, quality and costs.
We have endeavored to build UnitedHealth Group
into that changing system, as an enterprise that
is highly adaptable to the evolving health care
environment and committed to taking responsible
positions for enabling and driving positive change
across health care.
at its core, this system deals with the
most central of human needs — the
healing, preservation and quality of life.
the challenge we all face is that this system does
not function systematically. It is highly fragmented,
yet its separate elements are profoundly interlinked
within local communities. Health care is among the
most local of activities, and these local communities
have real and significant differences in basic supply
Unitedhealthcare and optum
We engage the health care system through two
distinct but strategically aligned business platforms,
which also align to natural market boundaries.
they fit the way people and institutions purchase
products and services.
our health benefits platform, Unitedhealthcare,
tailors benefit products, clinical programs and
customer service to meet the diverse needs of
people across the commercial, medicare and
medicaid markets.
and demand dynamics, infrastructure, demographics,
optum, our health services platform, for which
clinical care patterns and consumer preferences
we established a clear brand identity in 2011,
and behaviors.
and at its core, this system deals with the most
central of human needs — the healing, preservation
develops unique end-to-end solutions to meet
the diverse services needs of a broad spectrum
of customers across the health care system.
4
EXECUTIVE SUMMARY
UnitedHealth Group, as a consciously evolving
by “integrated” we mean more connected…
company, is organized around core competencies,
aligned… informed and intelligent… and simpler.
the things we strive to do distinctively well
to add value in an ever-changing market
environment. our three core competencies are:
Clinical Care Management: Deep, practical
fundamental execution, Practical innovation
and a Distinctive Mind-set
UnitedHealth Group is also distinguished by three
know-how in clinical care management and
qualities that we believe further differentiate us:
coordination, in optimal clinical resource use,
consistent fundamental execution, a commitment
access and cost, integrated with skills in
to innovation and a distinctive mind-set and
consumer engagement.
corporate culture.
health information: extensive health data and the
Dependable service, accuracy and responsiveness
capacity to translate that data into useful information
matter to everyone our enterprise touches across
and ultimately into intelligent action at the right
health care. So we are focused on delivering
time and in the right venue for better decision-
consistently strong fundamental execution —
making by everyone — from consumer to clinician.
doing things right and doing them right the first
advanced Technology: applying technology to
execute a wide variety of complex interactions on
a large scale, helping to connect and enable all the
participants in health care.
our businesses hold these competencies in
common and leverage them to help make health
care work better for everyone. Health care works
as a true system the more integrated it becomes.
time. In 2011, we received positive feedback
on our performance. We will continue the
work to elevate our reputation to the levels we
believe will truly distinguish our business and
contribute to even more meaningful growth in
the future health care consumer marketplace.
Innovation is essential to UnitedHealth Group’s
continuing success, enabling our businesses to adapt
quickly and effectively as health care rapidly evolves.
Highest
No.1
IN EMPLOYER SATISFACTIONIn the J.D. Power and Associates 2011 Employer Health Insurance Plan StudySM, UnitedHealthcare ranked highest in employer satisfaction among the nation’s self-insured commercial health plans.IN CLAIMS-PROCESSING ACCURACYThe American Medical Association’s 2011 National Health Insurer Report Card rated UnitedHealthcare No. 1 in claims-processing accuracy among the seven leading commercial health insurers. UNITEDHEALTH GROUP
5
We are increasingly invested in empowering people
solvers — business builders
at the intersection of health and technology to take
who are willing to take
greater control of their everyday health. by giving
intelligent risks and manage
people the tools to better understand their health and
those risks intensely.
health care, we’re helping them live healthier lives.
We recognize that no one
We begin by identifying the most pressing needs in
person or group can
health care. then we apply a disciplined approach to
modernize health care alone.
ideation, experimentation and testing of ways we can
So we work collaboratively
better meet the needs of consumers and customers.
with a wide variety of
We do not generate innovation simply for the sake
partners in both the public
of “the new.” our efforts must result in practical
and private sectors to achieve
We do not generate
innovation simply for the
sake of “the new.” our
efforts must result in
practical solutions that
are meaningful to the
people we serve.
solutions that are meaningful to the people we serve.
together what none of us might accomplish on our
We continued in 2011 to embed innovation into the
DNa of our enterprise. this included visible senior
level engagement, measureable processes and
pipeline development, and dedicated funding. Good
own. We are working closely with technology leaders
like cisco and microsoft; our corporate customers like
Ge and Walmart; aarP; the Y; Project Hope; retail
pharmacies and grocery chains like rite aid,
ideas and products are emerging
from these efforts, including
the Diabetes Prevention offering
and consumer mobile and tablet
applications, as well as products
and services like the Nowclinic
online care system, the Health
Savings checkup and the Health
care cost estimator tools.
In 2011, the national Product
Development and management
association named UnitedHealth
Group one of two outstanding
reflecting the character
of the enterprise itself,
the people of UnitedHealth
Group are problem solvers
— business builders
who are willing to take
intelligent risks and
manage them intensely.
corporate Innovators across all industries for the
year. We were ranked in Fortune as the most
innovative in the care management and insurance
category for the third consecutive year in 2012.
Walgreens, kroger, Safeway and albertsons; the
center for medicare and medicaid Services and state
medicaid agencies nationwide; major hospital systems
and community clinics; the american medical
reflecting the character of the enterprise itself,
association and specialty medical associations; and
the people of UnitedHealth Group are problem
health care quality assurance groups.
6
EXECUTIVE SUMMARY
M
7
7
M
0
6
.
x
o
r
p
p
A
the medicaid market is
expected to grow more
than 28 percent by 2021.
Integral to our innovative
approach to medicare, we have
built a leading direct-to-consumer
marketing platform and a
broad product portfolio that we
offer to seniors across a wide
geographic footprint. With only
25 percent of medicare recipients
in managed care, the opportunity
to serve more seniors in this
growing market is substantial.
Very consciously and methodically, we are building
a company culture that reinforces the socially
sensitive nature of our work — a culture of integrity,
compassion and trusting relationships, as well as
innovation and high performance.
Unitedhealthcare
our Health benefits platform, UnitedHealthcare, is a
In medicaid, our attraction for state governments is
built on managing the needs of medically complex,
underserved populations, providing community-
based social support services and creating access
to quality community-based care. We are well-
positioned to increase our penetration in some
existing markets and expand thoughtfully into new
responsible industry leader with three market-facing
geographies and product offerings where managed
businesses, integrated in a balanced way to respond
care needs are great and penetration is low.
to local market dynamics and serve the needs of
people at every stage of their lives. UnitedHealthcare
employer & Individual, UnitedHealthcare medicare
& retirement and UnitedHealthcare community
& State offer flexible, consistent and responsive
service, and enormous scale and efficiency, with
compelling economic value to the end consumer.
over the next decade, the individual health benefits
market is expected to double in size from 15 million
to 33 million people as states implement national
health care reforms. baby boomers are expanding
the senior benefits market at the rate of 10,000
individuals per day. and the medicaid market is
expected to grow more than 28 percent to 77 million
people by 2021.
about 7 percent of medicaid recipients require
long-term care. but they account for 35 percent of
medicaid expenditures. With less than 15 percent
of these individuals using managed care, there is
a considerable opportunity to help states improve
quality and lower cost in long-term care.
about 9 million people, often
the sickest and poorest,
rely on both medicare and
medicaid. the cost of their
care is estimated to be more
than $300 billion annually and
is the fastest-growing segment
of medicare and medicaid.
+10,000
20112021individuals per dayBaby boomers are expanding the senior benefits market at an unprecedented rate.
UNITEDHEALTH GROUP
7
their care is often fragmented and unaligned.
UnitedHealthcare’s experience working extensively
with both medicare and medicaid positions us well to
serve these people and meet their complex clinical and
behavioral needs with integrated solutions.
as more americans, including many who are also
eligible for medicaid, enter medicare with multiple
chronic conditions, ever more effective complex care
management will make an enormous difference in
the quality of care we deliver.
UnitedHealthcare has relationships with
250,000 employers, serves one in five medicare
recipients and manages the care of more than
3.5 million individuals in medicaid.
optum
optum, our Health Services business platform,
is also exceptionally innovative, with a growing
In 2014, health exchanges are expected to open
commitment to practical offerings that enable the
a new $60 billion market, which could triple to
health system to perform better — as a system.
$200 billion by 2019. our expertise managing diverse
populations, intimate understanding of local markets,
and experience selling directly to consumers as we
do in medicare and engaging with states as we do in
medicaid, will enable us to serve this new exchange
marketplace with excellence and innovation.
today, UnitedHealthcare has relationships with
250,000 employers, serves one in five medicare
recipients and manages the care of more than
3.5 million individuals in medicaid. We know the
clinical services and interventions individuals will need
in every stage of their health care journey. We turn
that knowledge into meaningful interactions with the
people we serve and innovative ways to work
more collaboratively with care providers to
align incentives based on better health,
optum serves eight distinct markets:
• Integrated care Delivery
• care management
• consumer engagement and Support
• Distribution of benefits and Services
• Health Financial Services
• operational Services and Support
• Health care It
• Pharmacy management
these markets, collectively, are sized at more than
$500 billion and are growing at 9 percent per year.
We hold leadership positions in a number of these
markets, and have participated in nearly
all of them for a decade or more.
higher quality outcomes
and value for consumers.
$200b
$60b
In 2014, health exchangesare expected to open a new $60 billion market, which could triple to $200 billion by 2019.
8
EXECUTIVE SUMMARY
$500b
ToTal MarkeT size
$1.5b
asseTs UnDer ManageMenT
Optum serves eight distinct markets that,
The Optum-operated health care bank offers
collectively, are growing at 9 percent per year.
tools like HSAs and HRAs for consumers.
optum serves these markets through three market-
optum is also helping lay the groundwork for
facing businesses:
• aligning under optumhealth are the markets
for Integrated care Delivery, care management,
consumer engagement and Support, Distribution of
benefits and Services, and Health Financial Services.
• optuminsight serves the markets for operational
Services and Support and Health care It.
effective accountable care organizations (acos) in
partnership with networks of care providers. this
work includes our recent partnership with monarch
Healthcare in california, orange county’s largest
association of physicians in private practice. monarch
was selected by the U.S. Department of Health
and Human Services to participate in the Pioneer
aco model, a cmS Innovation center initiative
• and Pharmacy management, of course,
designed to support organizations with experience
aligns to optumrx.
a few examples will provide a sense of the
breadth and depth of our services businesses:
We work directly with physicians and clinics to
provide integrated health care, as we currently do
for 220,000 people through Southwest medical
associates in las Vegas. our 260 physicians and
other health professionals there are equipped with
market-leading technologies and tools — such as
electronic medical records, telehealth and e-visits
— to improve quality, access and clinical outcomes.
by working to understand the unique needs of
individuals and the complexity of their care, we deliver
operating as accountable care organizations
to provide care that is better coordinated to
beneficiaries’ needs, at a lower cost to medicare.
We are a leader in developing and implementing
advanced health information technology. our
health information exchange (HIe) solutions already
drive collaboration and real-time data exchange for
more than 370 hospitals, 26 regional and hospital
HIes, and 11 statewide HIes. With our hospital
technology products, we are able to increase care
quality, provide up-to-date patient information, and
help hospitals in their two key areas of investment
and cost — the IcU and the emergency room.
quality care at the right point of access, whether in
We provide consumers with online decision support
clinics located in local-area retail stores or in southern
and information in choosing health care providers by
Nevada’s largest ambulatory surgery center.
sharing information covering more than 100 diseases
UNITEDHEALTH GROUP
9
UnitedHealthcare and optum
are improving the way the
health care system performs for
consumers and how effectively
consumers use that system.
and conditions,
are asking for more products and services
100 surgeries and
that draw on the core competencies we have
procedures, 500
cultivated and deliver through optum.
individual services and
3,000 medications.
our eHealth Portal
and optumizeme
mobile apps use
the latest social
today, optum sells services to hundreds of
health plans, thousands of hospitals, hundreds of
thousands of physicians and their groups, a large
portion of government and employee benefit
sponsors, and global leaders in life sciences. We
expect optum to continue to build and expand.
media and other techniques to engage consumers
in taking a more active role in their health.
In 2003, optum introduced the first dedicated health
care bank which today, with optumHealth, offers
consumers financial tools, like HSas and Hras, to
help them save for medical costs and plan for future
medical expenditures. assets under management in
health-linked savings and investment accounts are
now almost $1.5 billion.
In the market for Pharmacy management, optum
offers a full service Pbm, including: claims payment,
formulary administration, retail pharmacy network
contracting, drug procurement, specialty pharmacy
products, mail-order prescription fulfillment and the
sale of over-the-counter drugs.
Working Together
to Make health Care better
While each of the businesses in our two operating
platforms is a separate, market-facing entity, we
believe UnitedHealthcare and optum can provide
extraordinary value to the health care system
when they are working together. Here are three
examples to illustrate:
UnitedHealthcare and optum are improving the way
the health care system performs for consumers
and how effectively consumers use that system.
UnitedHealthcare serves approximately 35 million
people with medical health benefits and 4.9 million
people in medicare Part D stand-alone. Using
optum’s businesses are national in scope and
personalized approaches and innovative benefit
more solution-oriented in their
alignment to the marketplace,
but like UnitedHealthcare, they
are pursued and sold through
local market relationships.
optum’s markets are less
extensively regulated. they
are less mature and more
emergent, with no dominant
player as yet. but these markets
our eHealth Portal and
optumizeme mobile apps use
the latest social media and
other techniques to engage
consumers in taking a more
active role in their health.
10
EXECUTIVE SUMMARY
designs, we are educating and providing consumers
approaches, membership and community presence to
with incentives to make better health care decisions
build more open, affordable and sustainable health
and to change their behaviors around health
communities in collaboration with local care delivery.
and the use of health resources. better care and
improved use of resources result in lower costs.
and, lastly, together we are helping governments
address the huge challenges they face today.
optum is a leader in creating consumer tools —
Government agencies are drowning in vast amounts
providing better information for consumers to support
of data, high social expectations and enormous
their education, along with the technology that can
responsibilities for health care. they are exposed to
drive the engagement and incentives for improving
cost trends that are hard to control and cost shifting
health, and the relevant content to help consumers
has advanced to an unsustainable point — impacting
together, UnitedHealthcare
and optum have the
unique opportunity to be
one of the most positive
forces in health care,
today and in the future.
make informed decisions
beneficiary access. they know they must change,
and change their behaviors.
they want to change, but they don’t always know
together, we are helping
how to change and how to improve performance.
health care providers
optum has deep competencies in the science
improve quality and reduce
of managing data and turning it into actionable
costs. We are working to
intelligence. optum can design incentives and
enrich our vital care provider
processes for change — offering ideas on how
relationships by helping
to efficiently modernize government programs
them adapt operationally
drawn from proven commercial experience. and
and economically
UnitedHealthcare, with its deep clinical experience
to perform well in an evolving health care
in care coordination, its scale and local market
landscape characterized by better information
relationships, serves as the ideal partner to help
and collaboration, accountable performance,
implement more modern government benefits.
consumerism and significantly greater cost pressure.
as we look forward, UnitedHealthcare holds the
optum again has the critical tools to enable this
potential to be the distinctive leader in health benefits
process with care providers. We are helping them
— becoming ever simpler, more cost efficient and
better understand their own costs. optum can
a trusted benefits innovator, growing organically
address misaligned processes and technologies,
as millions of people enter the market for benefits
manage entire revenue cycles and turn clients’
coverage. the rise of the consumer and the need
potential compliance challenges into competitive
to interact and engage with individuals, as both
advantages. by improving performance and resource
consumer and patient — when, where and how
use, we ultimately lower costs in an appropriate,
they wish to engage — open new markets and new
sustainable way.
channels for UnitedHealthcare benefit offerings.
We align optum’s data, technology and care delivery
optum has the opportunity to define the health
experience with UnitedHealthcare’s innovative benefit
services market, claiming a role as health care’s
UNITEDHEALTH GROUP
11
prime innovator and enabler. as we move forward
in time, the care delivery market will change,
with care providers getting paid based more on
wellness, positive health outcomes and cost-effective
approaches to high-quality care. that shift will compel
new payment models, new management processes,
new technologies and new service requirements.
care providers know they must change and adapt,
but today many lack the tools, information and
resources. optum can help physicians, hospitals and
other care providers confront all these changes.
our goal is for optum to excel in execution and
service, and emerge as the leading source for a
more modernized, integrated health care system.
together, UnitedHealthcare and optum have the
unique opportunity to be one of the most positive
forces in health care, today and in the future. and
we are determined to seize that opportunity.
expectations for the future
We step forward into the future with strong
confidence in our enterprise, our expansive
We will continue to develop a culture of integrity,
compassion, relationships, innovation and
performance to guide our decision-making and
support for our expanding role serving the health
care needs of society.
reach and engage people through benefit designs,
through coaching and concierge services, through
integrated care organizations, inside and outside of
UnitedHealthcare. We will help build out and connect
modern care delivery systems at the local level.
over the last few years, we have been improving
performance, service, responsiveness and financial
returns. We expect that to continue. Innovation is,
and will remain, a hallmark of our company, improving
our ability to understand and serve people’s needs.
We will continue to develop Our United culture
of integrity, compassion, relationships, innovation
and performance to guide our decision-making and
support our expanding role serving the health care
and diversified approach to health care and the
needs of society. We believe we will continue to grow,
momentum created by our consistent fundamental
execution. We also look to the future with profound
delivering extraordinary value to the health care
system, the people who depend upon it and to
humility in the face of our great responsibility
our shareholders.
to the people we are privileged to serve.
the people of UnitedHealth Group foresee building
an enterprise that touches and engages millions
more people and does so across a whole construct
of services and benefits, information systems and
scalable processes.
our products and services will be distributed through
retail channels, through government channels and
over the Internet through computing clouds. We will
12 OVERVIEW
COMPANY OVERVIEWIn the next 10 years, millions more Americans are expected to enter a structured system of health benefit coverage — a system that includes benefits sponsored financially by private sector employers, expanding government programs and, increasingly, by consumers themselves.The demands of this dramatic expansion of health benefits coverage will be a catalyst for major changes and an evolution of the rest of the health care system. The health system will need to become more modern and effective through basic connectivity, better at distributing and using information, more accountable for use of resources and more cost sensitive and efficient.The businesses of UnitedHealth Group are playing key roles in these market-changing trends. Our Health Benefits platform, UnitedHealthcare, is growing by providing innovative, affordable health benefits across the entire spectrum of our customers — consumers, employers and governments. Optum, our Health Services platform, is growing by enabling and directly participating in the evolving modernization, integration and emerging consumerism of health care delivery.Our businesses are complementary. UnitedHealthcare has the opportunity to pilot new ideas through Optum and to stimulate innovation at Optum by asking for products that fulfill emerging market needs. Optum gains tremendous scale from UnitedHealthcare, which enables it to quickly pilot, perfect and then scale up new offerings. However, Optum and UnitedHealthcare always operate with an “open systems” perspective and business philosophy. UNITEDHEALTH GROUP
13
UnitedHealth Group
remains dedicated to
providing the health care
system and the people
we serve with practical
innovation, accountable
performance and quality
in everything we do.
14 HEALTH BENEFITS
HealtH BENEFITSUnitedHealthcare can provide health benefits to individuals at every stage of life. as people age or experience economic shifts, we can meet the whole spectrum of their health benefit needs, offering broad access to high-value, cost-effective health care.In the commercial benefits market, we leverage national scale deployed at the local level to deliver better value. We continue to develop a strong portfolio of senior solutions specifically geared to the growing and dynamic Medicare market. and we’re expanding our Medicaid reach into new geographies, as more states seek to control costs and improve the quality of care for their most vulnerable citizens.UnitedHealthcare is emerging as a leader in every market we serve and, as we look ahead, we see clear paths to continue strong, consistent growth. Changes in the health benefits market are creating opportunities to lead health care in a new direction, to expand market share by serving more people, helping them live healthier lives. UNITEDHEALTH GROUP
15
Unitedhealthcare employer & individual provides personalized solutions
to help members live healthier lives and achieve meaningful cost savings for
employers. this business offers a comprehensive array of consumer-oriented
plans and services for large national employers, public sector employers,
mid-sized employers, small businesses and individuals nationwide, providing
nearly 26 million americans access to quality health care.
Unitedhealthcare Medicare & retirement provides health and well-being
services to individuals age 50 and older, addressing their unique needs for
preventive and acute health care services, as well as for services dealing with
chronic disease and other specialized issues for older individuals. this business
provides a wide spectrum of products and services to the growing senior market
segment in all 50 states, the District of columbia, and most U.S. territories.
Unitedhealthcare Community & state provides innovative medicaid
managed care solutions to states that care for the economically disadvantaged,
the medically underserved, and those without the benefit of employer-funded
health care coverage, in exchange for a monthly premium per member. this
business offers health plans in 23 states and the District of columbia, serving
more than 3.5 million beneficiaries of acute and long-term care medicaid plans,
the children’s Health Insurance Program (cHIP), Special Needs Plans and other
federal and state health care programs.
16 HEALTH SERVICES
HealtH SERVICESOptum creates products and services that provide consumers and clients with end-to-end solutions for a more modern and evolving health care marketplace. We are helping them improve the consistency of clinical performance and outcomes; build stronger individual consumer engagement and better health for populations of people; drive down system costs; adapt to quality-focused compliance mandates; and make the transition to new funding or payment arrangements.Health care is evolving to become a more effective system, providing higher quality care that is more consistent and affordable for more people — a system fulfilling local health care needs by being more connected, intelligent, aligned and integrated at the community level.We see growing opportunities to serve virtually all participants in health care — consumers, physicians and other health care professionals, hospitals, employers, government agencies, insurers and life sciences companies — to evolve with our clients, and the market, and to grow. UNITEDHEALTH GROUP
17
optumhealth serves the physical, emotional and financial needs of
60 million individuals, enabling consumer health management and
collaborative care delivery through programs offered by employers, payers,
government entities and, increasingly, directly with the care delivery system.
optumHealth’s solutions reduce costs for customers, improve workforce
productivity and consumer satisfaction and optimize the overall health
and well-being of populations.
optuminsight is a health information, technology, services and consulting
company, providing software and information products, advisory consulting
services and business process outsourcing to participants in the health
care industry. Hospitals, physicians, commercial health plans, government
agencies, life sciences companies and others work with optumInsight to
reduce costs, meet compliance mandates, improve clinical performance
and adapt to the changing health system landscape.
optumrx provides pharmacy management services for more than
14 million people nationwide through its network of approximately 66,000
retail pharmacies and two mail service facilities. this business processes
nearly 370 million adjusted retail, mail and specialty drug prescriptions
annually. optumrx is dedicated to helping people achieve optimal health
while maximizing cost savings, improving quality and safety, increasing
compliance and adherence, and reducing fraud and waste.
18
FOUNDATIONS
Foundations
United health foundation
the United Health Foundation is a not-for-profit, private
foundation that provides actionable information to
support decisions that lead to better health outcomes
and healthier communities. established by UnitedHealth
Group in 1999, the Foundation has committed more
than $193 million to improve health and health
care. Following are examples of its initiatives:
increase the number of qualified, yet under-represented,
college graduates entering the health workforce.
the Foundation collaborates with health research
agencies, medical specialty societies and others
to translate science into practice and helps make
reliable medical evidence available to physicians
and other care providers. through this work,
the United Health Foundation helps physicians
the United Health Foundation’s America’s Health
and other health professionals achieve the best
Rankings® is an annual state-by-state assessment
possible health outcomes for their patients.
of the nation’s health. In collaboration with the
american Public Health association and Partnership
for Prevention, for more than two decades America’s
Health Rankings® has provided communities and
individuals with data that has spurred innovative
thinking and action to strengthen our nation’s health.
to increase access to health care for underserved
communities, the Foundation’s community Health
centers of excellence initiative supports community
clinics that are part of our nation’s health care safety
net in New orleans, miami, New York city and
Washington, D.c.
Unitedhealthcare Children’s foundation
the UnitedHealthcare children’s Foundation
(UHccF) is a nonprofit Section 501(c)(3) charity that
provides medical grants to help pay for medical
treatments, services or equipment not covered, or
not fully covered, by a family’s commercial insurance
plan. Qualifying families can receive up to $5,000
to help pay for medical services and equipment
such as physical, occupational and speech therapy,
counseling services, surgeries, prescriptions,
wheelchairs, orthotics, eyeglasses and hearing aids.
the Foundation’s Diverse Scholars Initiative supports
hundreds of low-income minority students pursuing
UHccF is funded by contributions from UnitedHealth
Group, UnitedHealthcare and its employees, as well as
degrees in the health field. the goal of the initiative is to
the generosity of individuals and corporations. there
Six-year-old Isaac
and his family received
a grant from the
UnitedHealthcare
children’s Foundation.
are few places for families who have gaps in their
commercial health benefit plan coverage to turn to for
funding medically necessary services for their children.
children may go without necessary treatment, or
they receive the care and families assume a large
amount of debt. the Foundation understands
these needs and is willing to help fill this void.
For more information, please visit the
Foundation’s website: www.uhccf.org.
UNITEDHEALTH GROUP
19
our mission
our mission is to help people live healthier lives. our role is to help make health care work better for everyone.
We seek to enhance the
We work with health care
We support the physician/
performance of the health
professionals and other key
patient relationship and
system and improve the
partners to expand access
empower people with the
overall health and well-being
to quality health care so
information, guidance and tools
of the people we serve
and their communities.
people get the care they
they need to make personal
need at an affordable price.
health choices and decisions.
our culture
the people of this company are aligned around
other health care professionals, hospitals and the
basic values that inspire our behavior as individuals
individual consumers of health care. trust is earned
and as an institution:
integrity. We are dedicated to the highest levels of
personal and institutional integrity. We make honest
commitments and work to consistently honor those
commitments. We do not compromise ethics.
and preserved through truthfulness, integrity, active
engagement and collaboration with our colleagues
and clients. We encourage the variety of thoughts
and perspectives that reflect the diversity of our
markets, customers and workforce.
We strive to deliver on our promises and we have
innovation. We pursue a course of continuous,
the courage to acknowledge mistakes and do what
positive and practical innovation, using our
is needed to address them.
Compassion. We try to walk in the shoes of the
people we serve and the people we work with
across the health care community. our job is to
listen with empathy and then respond appropriately
deep experience in health care to be thoughtful
advocates of change and to use the insights we
gain to invent a better future that will make the
health care environment work and serve everyone
more fairly, productively and consistently.
and quickly with service and advocacy for each
Performance. We are committed to deliver
individual, each group or community and for society
and demonstrate excellence in everything we
as a whole. We are grateful to have a role in serving
do. We will be accountable and responsible
people and society in an area so vitally human as
for consistently delivering high-quality and
their health.
relationships. We build trust through cultivating
relationships and working in productive collaboration
with government, employers, physicians, nurses and
superior results that make a difference in the
lives of the people we touch. We continue to
challenge ourselves to strive for even better
outcomes in all key performance areas.
20
EXECUTIVE OFFICERS, LEADERS & DIRECTORS
executive officers,
leaders & Directors
executive officers and leaders
Stephen J. Hemsley
President and
chief executive officer
Cory Alexander
Senior Vice President,
Government affairs
Richard N. Baer
executive Vice President
and chief legal officer
Gail K. Boudreaux
executive Vice President,
UnitedHealth Group
and chief executive officer,
UnitedHealthcare
William A. Munsell
executive Vice President
Don Nathan
Senior Vice President and
chief communications officer
John S. Penshorn
Senior Vice President,
capital markets communications
and Strategy
Eric S. Rangen
Senior Vice President
and chief accounting officer
Larry C. Renfro
executive Vice President,
UnitedHealth Group and
chief executive officer,
optum
Jeannine M. Rivet
executive Vice President
Simon Stevens
executive Vice President
and President,
Global Health
Lori Sweere
executive Vice President,
Human capital
Reed V. Tuckson, M.D.
executive Vice President
and chief of medical affairs
Anthony Welters
executive Vice President
David S. Wichmann
executive Vice President
and chief Financial officer,
UnitedHealth Group
and President,
UnitedHealth Group operations
board of Directors
William C. Ballard, Jr.
Former of counsel,
Greenebaum Doll &
mcDonald Pllc
Richard T. Burke
Non-executive chairman,
UnitedHealth Group
Robert J. Darretta
retired Vice chairman
and chief Financial officer,
Johnson & Johnson
Stephen J. Hemsley
President and
chief executive officer,
UnitedHealth Group
Michele J. Hooper
President and
chief executive officer,
the Directors’ council
Rodger A. Lawson
retired President
and chief executive officer,
Fidelity Investments —
Financial Services
Douglas W. Leatherdale
retired chairman
and chief executive officer,
the St. Paul companies, Inc.
Glenn M. Renwick
President and
chief executive officer,
the Progressive corporation
Kenneth I. Shine, M.D.
executive Vice chancellor
for Health affairs,
the University of texas System
Gail R. Wilensky, Ph.D.
Senior Fellow,
Project HoPe
audit Committee
William C. Ballard, Jr., Chair
Robert J. Darretta
Glenn M. Renwick
nominating and Corporate
governance Committee
Michele J. Hooper, Chair
William C. Ballard, Jr.
Douglas W. Leatherdale
Compensation and
human resources Committee
Douglas W. Leatherdale, Chair
Robert J. Darretta
Rodger A. Lawson
Public Policy strategies
and responsibility Committee
Gail R. Wilensky, Ph.D., Chair
Michele J. Hooper
Kenneth I. Shine, M.D.
Form 10-K
For the fiscal year ended December 31, 2011
Forward-Looking Statements
This annual report may contain statements, estimates,
projections, guidance or outlook that constitute
“forward-looking” statements as defined under U.S.
federal securities laws. Generally the words “believe,”
“expect,” “intend,” “estimate,” “anticipate,” “plan,”
“project,” “should” and similar expressions identify
forward-looking statements, which generally are
not historical in nature. These statements may
THIS PAGE INTENTIONALLY LEFT BLANK.
contain information about financial prospects,
economic conditions and trends and involve risks
and uncertainties. We caution that actual results
could differ materially from those that management
expects, depending on the outcome of certain factors.
A list of important factors that could cause results
to differ materially from the forward-looking
statements and a description of some of these risks
and uncertainties can be found in UnitedHealth
Group’s reports filed with the Securities and
Exchange Commission from time to time, including
the annual report on Form 10-K included herein,
quarterly reports on Form 10-Q and current
reports on Form 8-K. Any or all forward-looking
statements we make may turn out to be wrong.
You should not place undue reliance on forward-
looking statements, which speak only as of the
date they are made. We do not undertake to
update or revise any forward-looking statements.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
✕
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR
THE FISCAL YEAR ENDED DECEMBER 31, 2011
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 1-10864
UNITEDHEALTH GROUP INCORPORATED
(Exact name of registrant as specified in its charter)
Minnesota
(State or other jurisdiction of
incorporation or organization)
41-1321939
(I.R.S. Employer Identification No.)
UnitedHealth Group Center
9900 Bren Road East
Minnetonka, Minnesota
(Address of principal executive offices)
55343
(Zip Code)
(952) 936-1300
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
COMMON STOCK, $.01 PAR VALUE
PP
(Title of each class)
NEW YORK STOCK EXCHANGE, INC.
(Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. (cid:134) Yes (cid:134) No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. (cid:134) Yes (cid:134) No
(cid:134)(cid:134)(cid:134)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. (cid:134) Yes (cid:134) No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant was required to submit and post such files). (cid:134) Yes (cid:134) No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. (cid:134)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one)
(cid:134)(cid:134)(cid:134)
(cid:134)(cid:134)(cid:134)
(cid:134)(cid:134)(cid:134)(cid:134)
Accelerated filer (cid:134)
Non-accelerated filer (cid:134)
Large accelerated filer (cid:134)
(cid:134)(cid:134)(cid:134)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). (cid:134) Yes (cid:134) No
The aggregate market value of voting stock held by non-affiliates of the registrant as of June 30, 2011 was $54,799,296,021 (based on the
last reported sale price of $51.58 per share on June 30, 2011, on the New York Stock Exchange).*
As of January 31, 2012, there were 1,044,964,149 shares of the registrant’s Common Stock, $.01 par value per share, issued and outstanding.
Note that in Part III of this report on Form 10-K, we incorporate by reference certain information from our Definitive Proxy Statement for
the 2012 Annual Meeting of Shareholders. This document will be filed with the Securities and Exchange Commission (SEC) within the time
period permitted by the SEC. The SEC allows us to disclose important information by referring to it in that manner. Please refer to such
information.
* Only shares of voting stock held beneficially by directors, executive officers and subsidiaries of the Company have been excluded in
Smaller reporting company (cid:134)
(cid:134)(cid:134)(cid:134)
determining this number.
Financial Review
TABLE OF CONTENTS
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
PART I
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART II
Market for Registrant's Common Equity,
Related Stockholder Matters and Issuer Purchases
of Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Quantitative and Qualitative Disclosures about
Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
Controls and Procedures
Other Information
PART III
Directors, Executive Officers and
Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial
Owners and Management and Related
Stockholder Matters
Certain Relationships and Related Transactions,
and Director Independence
Item 14.
Principal Accountant Fees and Services
PART IV
Item 15.
Exhibits and Financial Statement Schedules
Signatures
Exhibit Index
1
13
24
24
24
24
24
27
27
44
46
76
76
79
79
79
79
80
80
80
88
89
PART I
ITEM 1.
Business
OVERVIEW
UnitedHealth Group is a diversified health and well-
being company whose mission is to help people live
healthier lives and help make health care work better (the
terms “we,” “our,” “us,” “UnitedHealth Group,” or the
“Company” used in this report refer to UnitedHealth Group
Incorporated and our subsidiaries). Our business model has
evolved and is informed by over three decades of serving
the needs of the markets, and people, of health care.
rr
Today, we are helping individuals access quality care at an
affordable cost; simplifying health care administration and
delivery; strengthening the physician/patient relationship;
promoting evidence-based care; and empowering
physicians, health care professionals, consumers, employers
and other participants in the health system with actionable
data to make better, more informed decisions.
Through our diversified family of businesses, we leverage
core competencies in advanced, enabling technology;
health care data, information and intelligence; and care
management and coordination to help meet the demands
of the health system. These core competencies are deployed
within our two distinct, but strategically aligned, business
platforms: health benefits operating under UnitedHealthcare
and health services operating under Optum.
UnitedHealthcare serves the health benefits needs of
individuals across life’s stages through three businesses.
UnitedHealthcare Employer & Individual serves individual
consumers and employers. The unique health needs
of seniors are served by UnitedHealthcare Medicare &
Retirement. UnitedHealthcare Community & State serves
the public health marketplace, offering states innovative
Medicaid solutions.
Optum serves health system participants including
consumers, physicians, hospitals, governments, insurers,
distributors and pharmaceutical companies, through its
OptumHealth, OptumInsight and OptumRx businesses. These
businesses have dedicated units that drive improved access,
affordability, quality and simplicity across eight markets:
integrated care delivery, care management, consumer
engagement and support, distribution of benefits and
services, health financial services, operational services and
support, health care information technology and pharmacy.
Through UnitedHealthcare and Optum, in 2011, we
managed approximately $135 billion in aggregate health
care spending on behalf of the constituents and consumers
we served. Our revenues are derived from premiums on
risk-based products; fees from management, administrative,
technology and consulting services; sales of a wide variety
of products and services related to the broad health and
well-being industry; and investment and other income. Our
two business platforms have four reportable segments:
2011 FORM 10-K
1
(cid:116) (cid:54)(cid:79)(cid:74)(cid:85)(cid:70)(cid:69)(cid:41)(cid:70)(cid:66)(cid:77)(cid:85)(cid:73)(cid:68)(cid:66)(cid:83)(cid:70)(cid:13)(cid:1)(cid:88)(cid:73)(cid:74)(cid:68)(cid:73)(cid:1)(cid:74)(cid:79)(cid:68)(cid:77)(cid:86)(cid:69)(cid:70)(cid:84)(cid:1)(cid:54)(cid:79)(cid:74)(cid:85)(cid:70)(cid:69)(cid:41)(cid:70)(cid:66)(cid:77)(cid:85)(cid:73)(cid:68)(cid:66)(cid:83)(cid:70)(cid:1)
Employer & Individual, UnitedHealthcare Medicare &
Retirement and UnitedHealthcare Community & State;
(cid:116)(cid:1)(cid:1)(cid:48)(cid:81)(cid:85)(cid:86)(cid:78)(cid:41)(cid:70)(cid:66)(cid:77)(cid:85)(cid:73)(cid:28)
(cid:116)(cid:1)(cid:1)(cid:48)(cid:81)(cid:85)(cid:86)(cid:78)(cid:42)(cid:79)(cid:84)(cid:74)(cid:72)(cid:73)(cid:85)(cid:28)(cid:1)(cid:66)(cid:79)(cid:69)
(cid:116)(cid:1)(cid:1)(cid:48)(cid:81)(cid:85)(cid:86)(cid:78)(cid:51)(cid:89)(cid:15)
For our financial results and the presentation of certain
other financial information by segment, see Note 13 of
Notes to the Consolidated Financial Statements.
UNITEDHEALTHCARE
UnitedHealthcare is advancing strategies to improve
the way health care is delivered and financed, offering
consumers a simpler, more affordable health care
experience. Our market position is built on:
(cid:116)(cid:1)(cid:1)(cid:66)(cid:1)(cid:79)(cid:66)(cid:85)(cid:74)(cid:80)(cid:79)(cid:66)(cid:77)(cid:1)(cid:84)(cid:68)(cid:66)(cid:77)(cid:70)(cid:28)
(cid:116) (cid:85)(cid:73)(cid:70)(cid:1)(cid:67)(cid:83)(cid:70)(cid:66)(cid:69)(cid:85)(cid:73)(cid:1)(cid:80)(cid:71)(cid:1)(cid:80)(cid:86)(cid:83)(cid:1)(cid:81)(cid:83)(cid:80)(cid:69)(cid:86)(cid:68)(cid:85)(cid:1)(cid:80)(cid:71)(cid:71)(cid:70)(cid:83)(cid:74)(cid:79)(cid:72)(cid:84)(cid:13)(cid:1)(cid:88)(cid:73)(cid:74)(cid:68)(cid:73)(cid:1)(cid:66)(cid:83)(cid:70)(cid:1)
responsive to many distinct market segments in
health care;
(cid:116)(cid:1)(cid:1)(cid:84)(cid:85)(cid:83)(cid:80)(cid:79)(cid:72)(cid:1)(cid:77)(cid:80)(cid:68)(cid:66)(cid:77)(cid:1)(cid:78)(cid:66)(cid:83)(cid:76)(cid:70)(cid:85)(cid:1)(cid:83)(cid:70)(cid:77)(cid:66)(cid:85)(cid:74)(cid:80)(cid:79)(cid:84)(cid:73)(cid:74)(cid:81)(cid:84)(cid:28)
(cid:116)(cid:1)(cid:1)(cid:84)(cid:70)(cid:83)(cid:87)(cid:74)(cid:68)(cid:70)(cid:1)(cid:66)(cid:79)(cid:69)(cid:1)(cid:66)(cid:69)(cid:87)(cid:66)(cid:79)(cid:68)(cid:70)(cid:69)(cid:1)(cid:85)(cid:70)(cid:68)(cid:73)(cid:79)(cid:80)(cid:77)(cid:80)(cid:72)(cid:90)(cid:28)
(cid:116)(cid:1)(cid:1)(cid:68)(cid:80)(cid:78)(cid:81)(cid:70)(cid:85)(cid:74)(cid:85)(cid:74)(cid:87)(cid:70)(cid:1)(cid:78)(cid:70)(cid:69)(cid:74)(cid:68)(cid:66)(cid:77)(cid:1)(cid:66)(cid:79)(cid:69)(cid:1)(cid:80)(cid:81)(cid:70)(cid:83)(cid:66)(cid:85)(cid:74)(cid:79)(cid:72)(cid:1)(cid:68)(cid:80)(cid:84)(cid:85)(cid:1)(cid:81)(cid:80)(cid:84)(cid:74)(cid:85)(cid:74)(cid:80)(cid:79)(cid:84)(cid:28)
(cid:116)(cid:1)(cid:1)(cid:70)(cid:71)(cid:71)(cid:70)(cid:68)(cid:85)(cid:74)(cid:87)(cid:70)(cid:1)(cid:68)(cid:77)(cid:74)(cid:79)(cid:74)(cid:68)(cid:66)(cid:77)(cid:1)(cid:70)(cid:79)(cid:72)(cid:66)(cid:72)(cid:70)(cid:78)(cid:70)(cid:79)(cid:85)(cid:28)
(cid:116)(cid:1)(cid:1)(cid:70)(cid:89)(cid:85)(cid:70)(cid:79)(cid:84)(cid:74)(cid:87)(cid:70)(cid:1)(cid:70)(cid:89)(cid:81)(cid:70)(cid:83)(cid:85)(cid:74)(cid:84)(cid:70)(cid:1)(cid:74)(cid:79)(cid:1)(cid:69)(cid:74)(cid:84)(cid:85)(cid:74)(cid:79)(cid:68)(cid:85)(cid:1)(cid:78)(cid:66)(cid:83)(cid:76)(cid:70)(cid:85)(cid:1)(cid:84)(cid:70)(cid:72)(cid:78)(cid:70)(cid:79)(cid:85)(cid:84)(cid:28)(cid:1)(cid:66)(cid:79)(cid:69)
(cid:116)(cid:1)(cid:1)(cid:66)(cid:1)(cid:68)(cid:80)(cid:78)(cid:78)(cid:74)(cid:85)(cid:78)(cid:70)(cid:79)(cid:85)(cid:1)(cid:85)(cid:80)(cid:1)(cid:74)(cid:79)(cid:79)(cid:80)(cid:87)(cid:66)(cid:85)(cid:74)(cid:80)(cid:79)(cid:15)
The financial results of UnitedHealthcare Employer &
Individual, UnitedHealthcare Medicare & Retirement,
and UnitedHealthcare Community & State have been
aggregated in the UnitedHealthcare reportable segment
due to their similar economic characteristics, products and
services, customers, distribution methods, operational
processes and regulatory environment. These businesses also
share significant common assets, including our contracted
networks of physicians, health care professionals, hospitals
and other facilities, information technology infrastructure
and other resources. UnitedHealthcare utilizes the
expertise of UnitedHealth Group affiliates for capabilities
in specialized areas, such as OptumRx prescription drug
services, OptumHealth care solutions and behavioral health
services and OptumInsight fraud and abuse prevention and
detection. UnitedHealthcare arranges for discounted access
to care through networks that include a total of nearly
754,000 physicians and other health care professionals
and nearly 5,400 hospitals across the United States
(UnitedHealthcare Network).
UnitedHealthcare Employer & Individual
UnitedHealthcare Employer & Individual works closely
with employers and individuals to provide health
benefit plans that provide personalized solutions to help
members live healthier lives and achieve meaningful
cost savings. UnitedHealthcare Employer & Individual
offers a comprehensive array of consumer-oriented
plans and services for large national employers, public
sector employers, mid-sized employers, small businesses
2
UNITEDHEALTH GROUP
and individuals nationwide, providing nearly 26 million
Americans access to health care as of December 31, 2011.
Through its risk-based product offerings,
UnitedHealthcare Employer & Individual assumes the
risk of both medical and administrative costs for its
customers in return for a monthly premium, which is
typically at a fixed rate per individual served for a one-
year period. When providing administrative and other
management services to customers that elect to self-fund
the health care costs of their employees and employees’
dependants, UnitedHealthcare Employer & Individual
receives a fixed service fee per individual served. These
customers retain the risk of financing medical benefits
for their employees and employees’ dependants, while
UnitedHealthcare Employer & Individual provides
customized services such as coordination and facilitation
of medical services and related services to customers,
consumers and health care professionals, transaction
processing and access to a contracted network of physicians,
hospitals and other health care professionals, including
dental and vision. Large employer groups, such as those
serviced by UnitedHealthcare Employer & Individual
National Accounts, typically use self-funded arrangements.
As of December 31, 2011, UnitedHealthcare Employer &
Individual National Accounts served approximately 400 large
employer groups under these arrangements, including 147
of the Fortune 500 companies. Smaller employer groups are
more likely to purchase risk-based products because they
are less willing or able to bear a greater potential liability
for health care expenditures. UnitedHealthcare Employer
& Individual also offers a variety of non-employer based
insurance options for purchase by individuals, including
students, which are designed to meet the health coverage
needs of these consumers and their families.
As the commercial market becomes more consumer-
oriented, individuals are assuming more personal and
financial responsibility for their care, and they are
demanding more affordable products, greater transparency
and choice and personalized help navigating the complex
system. The consolidated purchasing capacity represented
by the individuals UnitedHealth Group serves makes it
possible for UnitedHealthcare Employer & Individual to
contract for cost-effective access to a large number of
conveniently located care professionals. Individuals served
by UnitedHealthcare Employer & Individual have access to
90% of the physicians and other health care professionals
and 97% of the hospitals in the UnitedHealthcare Network;
certain care providers are available only to those consumers
served through Medicare and/or Medicaid products.
UnitedHealthcare Employer & Individual is engaging
physicians and consumers and using information to
promote well-informed health decisions, improved medical
outcomes and greater efficiency. It offers consumers
engaging and informative tools and resources that provide
greater transparency around quality and cost, such as
our Premium Designation program and Treatment Cost
Estimator tool, affording our members more control over
their health care.
UnitedHealthcare Employer & Individual’s innovative
clinical programs, built around an extensive clinical data set
and principles of evidence-based medicine, are enabling a
more integrated, proactive and personalized health system.
The programs promote consumer engagement, health
education, admission counseling before hospital stays, care
advocacy to help avoid prolonged patients’ stays in the
hospital, support for individuals at risk of needing intensive
treatment and coordination of care for people with chronic
conditions. Disease and condition management programs
help individuals address significant, complex disease states,
including disease-specific benefit offerings such as the
Diabetes Health Plan.
UnitedHealthcare Employer & Individual offers high-
deductible consumer-driven benefit plans, which include
health savings accounts (HSA) and health reimbursement
accounts (HRA), enabling consumers to achieve even
greater value and choice. During 2011, nearly 36,000
employer-sponsored benefit plans, including approximately
200 employers in the large group self-funded market,
purchased one of these consumer-oriented products.
UnitedHealthcare Employer & Individual’s comprehensive
and integrated pharmaceutical management services
promote lower costs by using formulary programs to drive
better unit costs, encouraging consumers to use drugs that
offer better value and outcomes, and through physician
and consumer programs that support the appropriate
use of drugs based on clinical evidence. In addition,
UnitedHealthcare Employer & Individual also offers a
comprehensive range of dental, vision, life, and disability
product offerings delivered through an integrated approach
that enhances efficiency and effectiveness and includes a
network of nearly 35,000 vision professionals in private and
retail settings, and more than 180,000 dental providers.
UnitedHealthcare Employer & Individual’s distribution
system consists primarily of producers (i.e., brokers and
agents) and direct and internet sales in the individual
market, producers in the small employer group market, and
producers and other consultant-based or direct sales for
large employer and public sector groups. UnitedHealthcare
Employer & Individual’s direct distribution efforts are
generally limited to the individual market, portions of
the large employer group and public sector markets, and
cross-selling of specialty products to existing customers.
UnitedHealthcare Employer & Individual offers its products
through affiliates that are licensed as insurance companies,
health maintenance organizations (HMOs), or third party
administrators (TPAs).
UnitedHealthcare Medicare & Retirement
UnitedHealthcare Medicare & Retirement provides health
and well-being services to individuals age 50 and older,
addressing their unique needs for preventive and acute
health care services as well as for services dealing with
chronic disease and other specialized issues for older
individuals. UnitedHealthcare Medicare & Retirement
is fully dedicated to serving this growing senior market
segment, providing products and services in all 50 states,
the District of Columbia, and most U.S. territories.
UnitedHealthcare Medicare & Retirement offers a
wide spectrum of Medicare products, including Medicare
Advantage plans, Medicare Part D prescription drug
coverage, and Medigap products that supplement
traditional fee-for-service coverage, which may be sold
to individuals or on a group basis. Premium revenues
from the Centers for Medicare & Medicaid Services (CMS)
represented 28% of our total consolidated revenues for
the year ended December 31, 2011, most of which were
generated by UnitedHealthcare Medicare & Retirement
under a number of contracts.
UnitedHealthcare Medicare & Retirement has extensive
distribution capabilities and experience, including direct
marketing to consumers on behalf of its key clients:
AARP, the nation’s largest membership organization
dedicated to the needs of people age 50 and over; state
and U.S. government agencies; and employer groups.
UnitedHealthcare Medicare & Retirement also has distinct
pricing, underwriting, clinical program management and
marketing capabilities dedicated to risk-based health
products and services in the senior and geriatric markets.
Medicare Advantage. UnitedHealthcare Medicare &
Retirement provides health care coverage for seniors
and other eligible Medicare beneficiaries primarily
through the Medicare Advantage program administered
by CMS, including Medicare Advantage HMO plans,
preferred provider organization (PPO) plans, Special
Needs Plans, Point-of-Service (POS) plans and Private-
Fee-for-Service plans. Under the Medicare Advantage
programs, UnitedHealthcare Medicare & Retirement
provides health insurance coverage in exchange for a
fixed monthly premium per member from CMS. Premium
amounts vary based on the geographic areas in which
members reside; demographic factors such as age, gender,
and institutionalized status; and the health status of the
individual. UnitedHealthcare Medicare & Retirement
also provides complete, individualized care planning and
care benefits for retirees, aging, disabled and chronically
ill individuals, serving individuals enrolled in Medicare
Advantage products in 30 states and in the District of
Columbia in long-term care settings including nursing
homes, community-based settings and private homes.
In addition, UnitedHealthcare Medicare & Retirement
offers innovative care management and clinical programs,
integrating federal, state and personal funding through
a continuum of products from Medicare Advantage and
Special Needs Plans to hospice care. For high-risk patients
in certain care settings and programs, UnitedHealthcare
Medicare & Retirement uses proprietary, automated
medical record software that enables clinical care teams
to capture and track patient data and clinical encounters,
creating a comprehensive set of care information that
bridges across home, hospital and nursing home care
settings. UnitedHealthcare Medicare & Retirement had
approximately 2.2 million members enrolled in its Medicare
Advantage products as of December 31, 2011. Proprietary
predictive modeling tools help identify members at high
risk and allow care managers to proactively outreach to
2011 FORM 10-K
3
members to create individualized care plans and help
members obtain the right care, in the right place, at the
right time.
Prescription Drug Benefit (Part D). UnitedHealthcare
Medicare & Retirement provides the Medicare prescription
drug benefit (Part D) to beneficiaries throughout the
United States and its territories. UnitedHealthcare Medicare
& Retirement provides Part D drug coverage through its
Medicare Advantage program and stand-alone Part D
plans. As of December 31, 2011, UnitedHealthcare Medicare
& Retirement had enrolled 7.1 million members in the Part
D program, including 4.9 million members in the stand-
alone Part D plans and 2.2 million members in its Medicare
Advantage plans incorporating Part D coverage.
Medicare Supplement. In association with AARP,
UnitedHealthcare Medicare & Retirement provides a range
of Medicare supplement and hospital indemnity insurance
offerings through insurance company affiliates to 3.8
million AARP members.
Additional UnitedHealthcare Medicare & Retirement
services include a nurse health line service, a lower cost
Medicare supplement offering that provides consumers
with a national hospital network, 24-hour access to health
care information, and access to discounted health services
from a network of physicians.
UnitedHealthcare Community & State
UnitedHealthcare Community & State is dedicated to
providing innovative Medicaid managed care solutions
to states that care for the economically disadvantaged,
the medically underserved and those without the benefit
of employer-funded health care coverage in exchange
for a monthly premium per member from the applicable
state. States using managed care services for Medicaid
beneficiaries select health plans using either a formal bid
process, or award individual contracts. As of December 31,
2011, UnitedHealthcare Community & State participates in
programs in 23 states and the District of Columbia, serving
approximately 3.5 million beneficiaries of acute and long-
term care Medicaid plans, the Children’s Health Insurance
Program (CHIP), Special Needs Plans and other federal and
state health care programs.
UnitedHealthcare Community & State’s health plans and
care programs are designed to address the complex needs
of the populations they serve, including the chronically
ill, those with disabilities and people with higher risk
medical, behavioral and social conditions. UnitedHealthcare
Community & State leverages the national capabilities of
UnitedHealth Group, delivering them at the local market
level to support effective care management, strong
regulatory partnerships, greater administrative efficiency,
improved clinical outcomes and the ability to adapt
to a changing market environment. UnitedHealthcare
Community & State coordinates resources among family,
physicians, other health care providers, and government
and community-based agencies and organizations to
facilitate continuous and effective care. For example, the
Personal Care Model establishes an ongoing relationship
4
UNITEDHEALTH GROUP
between health care professionals and individuals who
have serious and chronic health conditions to help them
maintain the best possible health and functional status,
whether care is delivered in an acute care setting, long-
term care facility or at home. Programs for families and
children focus on high-prevalence and debilitating chronic
illnesses such as hypertension and cardiovascular disease,
asthma, sickle cell disease, diabetes, HIV/AIDS and high-risk
pregnancies. Programs for the long-term care population
focus on dementia, depression, coronary disease and
functional-use deficiencies that impede daily living.
OPTUM
Optum is a technology-enabled health services business
serving the broad health care marketplace, including
payers, care providers, employers, government, life sciences
companies and consumers. By helping connect and align
health system participants and providing them actionable
information at the points of decision-making, Optum helps
improve overall health system performance: optimizing
care quality, reducing costs and improving the consumer
experience and care provider performance. Optum is
organized in three segments:
yy
(cid:116) (cid:48)(cid:81)(cid:85)(cid:86)(cid:78)(cid:41)(cid:70)(cid:66)(cid:77)(cid:85)(cid:73)(cid:1)(cid:71)(cid:80)(cid:68)(cid:86)(cid:84)(cid:70)(cid:84)(cid:1)(cid:80)(cid:79)(cid:1)(cid:73)(cid:70)(cid:66)(cid:77)(cid:85)(cid:73)(cid:1)(cid:78)(cid:66)(cid:79)(cid:66)(cid:72)(cid:70)(cid:78)(cid:70)(cid:79)(cid:85)(cid:1)(cid:66)(cid:79)(cid:69)(cid:1)
wellness, clinical services and financial services;
(cid:116) (cid:48)(cid:81)(cid:85)(cid:86)(cid:78)(cid:42)(cid:79)(cid:84)(cid:74)(cid:72)(cid:73)(cid:85)(cid:1)(cid:69)(cid:70)(cid:77)(cid:74)(cid:87)(cid:70)(cid:83)(cid:84)(cid:1)(cid:85)(cid:70)(cid:68)(cid:73)(cid:79)(cid:80)(cid:77)(cid:80)(cid:72)(cid:90)(cid:13)(cid:1)(cid:73)(cid:70)(cid:66)(cid:77)(cid:85)(cid:73)(cid:1)(cid:74)(cid:79)(cid:85)(cid:70)(cid:77)(cid:77)(cid:74)(cid:72)(cid:70)(cid:79)(cid:68)(cid:70)(cid:13)(cid:1)
consulting and business outsourcing solutions; and
(cid:90)(cid:90)
(cid:116) (cid:48)(cid:81)(cid:85)(cid:86)(cid:78)(cid:51)(cid:89)(cid:1)(cid:84)(cid:81)(cid:70)(cid:68)(cid:74)(cid:66)(cid:77)(cid:74)(cid:91)(cid:70)(cid:84)(cid:1)(cid:74)(cid:79)(cid:1)(cid:81)(cid:73)(cid:66)(cid:83)(cid:78)(cid:66)(cid:68)(cid:90)(cid:1)(cid:84)(cid:70)(cid:83)(cid:87)(cid:74)(cid:68)(cid:70)(cid:84)(cid:15)
The breadth of this portfolio allows Optum to impact
key activities that help enable better integrated, more
sustainable health care.
OPTUMHEALTH
OptumHealth serves the physical, emotional and
financial needs of 60 million unique individuals, enabling
consumer health management and collaborative care
delivery through programs offered by employers, payers,
government entities and, increasingly, directly through the
care delivery system. OptumHealth’s products and services
can be deployed individually or integrated to provide
comprehensive solutions, addressing a broad base of needs
within the health care system. OptumHealth’s solutions
reduce costs for customers, improve workforce productivity
and consumer satisfaction and optimize the overall health
and well-being of populations.
OptumHealth’s simple, modular service designs can
be easily integrated to meet varying employer, payer,
government entity, care provider and consumer needs
at a wide range of price points. OptumHealth offers
its products, primarily, on an administrative fee basis
whereby it manages or administers delivery of the product
or services in exchange for a fixed fee per individual
served, and on a risk basis, where OptumHealth assumes
responsibility for health care costs in exchange for a fixed
monthly premium per individual served. For its financial
services offerings, OptumHealth charges fees and earns
investment income on managed funds.
OptumHealth sells its products primarily through its direct
sales force, strategic collaborations and external producers
in three markets: employers (which includes the sub-
markets of large, mid and small employers), payers (which
includes the sub-markets of health plans, TPAs, underwriter/
stop-loss carriers and individual market intermediaries)
and government entities (which includes States, CMS,
Department of Defense, Veterans Administration and other
federal procurement). As provider reimbursement models
evolve, care providers are emerging as a fourth market
segment for our health management, financial services and
collaborative care services.
OptumHealth is organized into five major operating
groups: Care Solutions, Behavioral Solutions, Financial
Services, Collaborative Care, and Logistics Health, Inc.
Care Solutions. Care Solutions serves more than 41 million
individuals through personalized health management (e.g.,
wellness, chronic and complex conditions), decision support
(e.g., insurance choices, treatment and health care provider
options) and access to networks of care provider specialists
linked to medical conditions with high variation of quality
and cost (e.g., physical health, cancer and transplants).
This comprehensive solution set empowers consumers and
enables their collaboration with specialty care providers that
is critical to decisions that drive hospitalization and surgery.
Behavioral Solutions. Behavioral Solutions serves more than
52 million individuals through global well-being solutions
(e.g., employee assistance programs) and behavioral health
management solutions (e.g., mental health, substance
abuse) that address the emotional health needs of
consumers, spanning the stress and anxiety of daily living,
to depression associated with chronic illness, to clinically
diagnosed mental illness. Programs combine predictive
modeling, evidence-based clinical outcomes management,
consumer support and peer support, with access to a
leading network of behavioral health care providers.
Behavioral Solutions customers have access to a national
network of more than 112,000 clinicians and counselors and
3,300 facilities in approximately 6,600 locations nationwide.
Financial Services. Dedicated solely to the health care
market, OptumHealth Financial Services helps organizations
and individuals optimize their health care finances. As a
leading provider of consumer health care accounts (e.g.,
health savings accounts, flexible spending accounts),
OptumHealth Financial Services enables people to use
those tax-favored accounts to save money today and build
health savings for the future. Organizations rely upon
OptumHealth Financial Services to manage and improve
their cash flows through turnkey electronic payment
solutions (e.g., remittance advices, funds transfers) health
care-related lending and credit (e.g., financing of care
provider medical equipment) and financial risk protection
for third party payers and self-funded employers (e.g.,
comprehensive stop-loss insurance coverage).
Financial Services is comprised of OptumHealth Bank,
which is a member of the Federal Deposit Insurance
Corporation (FDIC), a TPA and a transaction processing
service for the health care industry. As of December 31,
2011, Financial Services had $1.5 billion in customer assets
under management and during 2011 processed $54 billion
in medical payments to physicians and other health
care providers.
Collaborative Care. Working closely with various health
care providers in local markets and communities,
Collaborative Care believes that the market is moving
to a collaborative network model aligned around total
population health management and outcomes-based
reimbursement. In close coordination with local integrated
care delivery systems, it deploys a core set of technology,
risk management, analytical and clinical capabilities
and tools to assist physicians in delivering high-quality
care across the populations they serve. OptumHealth’s
coordinated post-acute care services augment primary
care physicians to deliver services outside of hospitals to
vulnerable, chronically ill populations. In affiliation with
a broad variety of payers, Collaborative Care also delivers
care to approximately 700,000 people through a spectrum
of models ranging from medical clinics to contracts with
individual practice association networks.
Logistics Health, Inc. Acquired in 2011, Logistics Health, Inc.
(LHI) focuses on mobile care delivery, logistically arranging
for convenient access to care at the time and place most
needed. LHI designs and implements occupational health,
medical and dental readiness services, treatments and
immunization programs and disability exams for the
U.S. Military, Veterans Administration and Department
of Health and Human Services, as well as numerous
commercial companies. Services are delivered in provider
clinics or through temporary on-site resources.
OPTUMINSIGHT
OptumInsight is a health information, technology,
services and consulting company providing software and
information products, advisory consulting services, and
business process outsourcing to participants in the health
care industry. Hospitals, physicians, commercial health
plans, government agencies, life sciences companies and
other organizations that comprise the health care system
work with OptumInsight to reduce costs, meet compliance
mandates, improve clinical performance and adapt to
the changing health system landscape. As of December
31, 2011, OptumInsight’s customer base included more
than 6,000 hospital facilities, nearly 250,000 health care
professionals or groups, nearly 300 commercial insurance
companies and health plans, approximately 400 global life
sciences companies, over 300 federal and state government
agencies, including all 50 states, and approximately 150
United Kingdom government payers, as well as other
UnitedHealth Group businesses.
OptumInsight’s products and services are sold primarily
through a direct sales force. OptumInsight’s products are also
supported and distributed through an array of alliance and
business partnerships with other technology vendors, who
integrate and interface its products with their applications.
OptumInsight’s technology products and services solutions
are offered through four integrated market groups. These
2011 FORM 10-K
5
market groups are Provider (e.g., physician practices and
hospitals), Payer, Government and Life Sciences.
Provider. The Provider market group combines a
comprehensive range of technology and information
products, advisory consulting, and outsourcing services
focused on hospitals, integrated delivery networks, and
physician practices. These solutions help providers establish
efficient administrative and clinical workflows, improve
patient care, and meet compliance mandates and are
organized around hospital and physician practice needs for:
(cid:116) (cid:39)(cid:74)(cid:79)(cid:66)(cid:79)(cid:68)(cid:74)(cid:66)(cid:77)(cid:1)(cid:49)(cid:70)(cid:83)(cid:71)(cid:80)(cid:83)(cid:78)(cid:66)(cid:79)(cid:68)(cid:70)(cid:1)(cid:42)(cid:78)(cid:81)(cid:83)(cid:80)(cid:87)(cid:70)(cid:78)(cid:70)(cid:79)(cid:85)(cid:27)(cid:1)(cid:49)(cid:83)(cid:80)(cid:87)(cid:74)(cid:69)(cid:70)(cid:84)(cid:1)
comprehensive revenue cycle management technology,yy
coding solutions, and full business process outsourcing
for hospitals and physicians practices that drive higher
net patient revenue and lower operational costs;
(cid:116) (cid:36)(cid:80)(cid:78)(cid:81)(cid:77)(cid:74)(cid:66)(cid:79)(cid:68)(cid:70)(cid:27)(cid:1)(cid:37)(cid:70)(cid:77)(cid:74)(cid:87)(cid:70)(cid:83)(cid:84)(cid:1)(cid:83)(cid:70)(cid:66)(cid:77)(cid:14)(cid:85)(cid:74)(cid:78)(cid:70)(cid:1)(cid:78)(cid:70)(cid:69)(cid:74)(cid:68)(cid:66)(cid:77)(cid:1)(cid:79)(cid:70)(cid:68)(cid:70)(cid:84)(cid:84)(cid:74)(cid:85)(cid:90)(cid:1)
reviews and retrospective appeals management
services to nearly 2,000 hospitals in all 50 states;
(cid:116)(cid:1)(cid:1)(cid:36)(cid:77)(cid:74)(cid:79)(cid:74)(cid:68)(cid:66)(cid:77)(cid:1)(cid:56)(cid:80)(cid:83)(cid:76)(cid:253)(cid:80)(cid:88)(cid:1)(cid:66)(cid:79)(cid:69)(cid:1)(cid:36)(cid:80)(cid:79)(cid:79)(cid:70)(cid:68)(cid:85)(cid:74)(cid:87)(cid:74)(cid:85)(cid:90)(cid:27)(cid:1)(cid:49)(cid:83)(cid:80)(cid:87)(cid:74)(cid:69)(cid:70)(cid:84)(cid:1)(cid:73)(cid:74)(cid:72)(cid:73)(cid:14)
acuity and ambulatory clinical workflow and electronic
medical records software that makes hospital
departments and physician practices more efficient,
improves patient experience, and enables sharing of
clinical data in integrated care settings. OptumInsight
Health Information Exchange (HIE) solutions power 11
statewide HIEs and 36 regional and hospital integrated
delivery network HIEs, and are used by more than 370
hospitals, more than 50,000 physicians and 165,000
health care professionals; and
(cid:116) (cid:34)(cid:68)(cid:68)(cid:80)(cid:86)(cid:79)(cid:85)(cid:66)(cid:67)(cid:77)(cid:70)(cid:1)(cid:36)(cid:66)(cid:83)(cid:70)(cid:1)(cid:52)(cid:80)(cid:77)(cid:86)(cid:85)(cid:74)(cid:80)(cid:79)(cid:84)(cid:27)(cid:1)(cid:56)(cid:80)(cid:83)(cid:76)(cid:74)(cid:79)(cid:72)(cid:1)(cid:88)(cid:74)(cid:85)(cid:73)(cid:1)(cid:70)(cid:66)(cid:83)(cid:77)(cid:90)(cid:1)
adopters of Accountable Care Organization models
to build the administrative, analytics, compliance,
and care management infrastructure to succeed in
outcomes-based payment models.
Payer. OptumInsight’s Payer business serves clients that
offer commercial health insurance or privately administer
health insurance programs on behalf of federal or state
governments (e.g., Medicare Advantage or Managed
Medicaid). The business offers technology, services and
consulting capabilities that supplement OptumInsight’s
clients’ existing operations, as well as fully outsourced
solutions. The business addresses diverse needs for payer
clients, serving four primary areas:
(cid:116) (cid:47)(cid:70)(cid:85)(cid:88)(cid:80)(cid:83)(cid:76)(cid:1)(cid:49)(cid:70)(cid:83)(cid:71)(cid:80)(cid:83)(cid:78)(cid:66)(cid:79)(cid:68)(cid:70)(cid:27)(cid:1)(cid:36)(cid:80)(cid:78)(cid:81)(cid:83)(cid:70)(cid:73)(cid:70)(cid:79)(cid:84)(cid:74)(cid:87)(cid:70)(cid:1)(cid:80)(cid:71)(cid:71)(cid:70)(cid:83)(cid:74)(cid:79)(cid:72)(cid:84)
to enhance performance of provider networks and
improve population health, including network design,
management and operation services, as well as
analytical tools that support care management;
(cid:116)(cid:1)(cid:1)(cid:36)(cid:77)(cid:74)(cid:79)(cid:74)(cid:68)(cid:66)(cid:77)(cid:1)(cid:50)(cid:86)(cid:66)(cid:77)(cid:74)(cid:85)(cid:90)(cid:27)(cid:1)(cid:52)(cid:70)(cid:83)(cid:87)(cid:74)(cid:68)(cid:70)(cid:84)(cid:1)(cid:85)(cid:73)(cid:66)(cid:85)(cid:1)(cid:66)(cid:77)(cid:74)(cid:72)(cid:79)(cid:1)(cid:68)(cid:77)(cid:74)(cid:79)(cid:74)(cid:68)(cid:66)(cid:77)(cid:1)(cid:82)(cid:86)(cid:66)(cid:77)(cid:74)(cid:85)(cid:90)(cid:1)
and performance with financial outcomes for payers,
such as Medicare risk adjustment services and quality
improvement consulting;
(cid:116)(cid:1)(cid:1)(cid:48)(cid:81)(cid:70)(cid:83)(cid:66)(cid:85)(cid:74)(cid:80)(cid:79)(cid:66)(cid:77)(cid:1)(cid:38)(cid:71)(cid:229)(cid:68)(cid:74)(cid:70)(cid:79)(cid:68)(cid:90)(cid:1)(cid:66)(cid:79)(cid:69)(cid:1)(cid:49)(cid:66)(cid:90)(cid:78)(cid:70)(cid:79)(cid:85)(cid:1)(cid:42)(cid:79)(cid:85)(cid:70)(cid:72)(cid:83)(cid:74)(cid:85)(cid:90)(cid:27)(cid:1)(cid:34)(cid:1)
spectrum of offerings focused on improving the
efficiency and cost-effectiveness of payer operations.
Solutions assist in addressing a wide variety of
operational improvement opportunities such as process
6
UNITEDHEALTH GROUP
improvement and automation, fraud and abuse, claims
payment accuracy and coordination of benefits; and
(cid:116) (cid:51)(cid:74)(cid:84)(cid:76)(cid:1)(cid:48)(cid:81)(cid:85)(cid:74)(cid:78)(cid:74)(cid:91)(cid:66)(cid:85)(cid:74)(cid:80)(cid:79)(cid:27)(cid:1)(cid:52)(cid:80)(cid:77)(cid:86)(cid:85)(cid:74)(cid:80)(cid:79)(cid:84)(cid:1)(cid:73)(cid:70)(cid:77)(cid:81)(cid:1)(cid:81)(cid:66)(cid:90)(cid:70)(cid:83)(cid:84)(cid:1)(cid:85)(cid:80)(cid:1)(cid:72)(cid:83)(cid:80)(cid:88)(cid:1)(cid:66)(cid:79)(cid:69)
improve financial performance through predictive
analytics and risk management services. Offerings
include actuarial services, rating and underwriting
products, and membership population modeling, as
well as analytics and consulting.
Government Solutions. OptumInsight Government
Solutions helps state and federal governments improve
the efficiency and quality of health and human services
programs by offering a broad range of solutions including:
(cid:116) (cid:49)(cid:83)(cid:80)(cid:72)(cid:83)(cid:66)(cid:78)(cid:1)(cid:42)(cid:79)(cid:85)(cid:70)(cid:72)(cid:83)(cid:74)(cid:85)(cid:90)(cid:27)(cid:1)(cid:42)(cid:78)(cid:81)(cid:83)(cid:80)(cid:87)(cid:70)(cid:84)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:66)(cid:68)(cid:68)(cid:86)(cid:83)(cid:66)(cid:68)(cid:90)(cid:1)(cid:66)(cid:79)(cid:69)(cid:1)(cid:70)(cid:71)(cid:229)(cid:68)(cid:74)(cid:70)(cid:79)(cid:68)(cid:90)(cid:1)
of provider payments through prospective and
retrospective analysis of claims transactions, driving
detection of fraud and abuse and checking payment
accuracy;
(cid:116) (cid:41)(cid:70)(cid:66)(cid:77)(cid:85)(cid:73)(cid:1)(cid:46)(cid:66)(cid:79)(cid:66)(cid:72)(cid:70)(cid:78)(cid:70)(cid:79)(cid:85)(cid:1)(cid:66)(cid:79)(cid:69)(cid:1)(cid:49)(cid:80)(cid:81)(cid:86)(cid:77)(cid:66)(cid:85)(cid:74)(cid:80)(cid:79)(cid:1)(cid:34)(cid:79)(cid:66)(cid:77)(cid:90)(cid:85)(cid:74)(cid:68)(cid:84)(cid:27)(cid:1)
Measures and identifies opportunities for improvement
in cost, network performance, and care management
for populations of covered members. Also includes
health policy advisory services; and
(cid:116) (cid:37)(cid:66)(cid:85)(cid:66)(cid:1)(cid:56)(cid:66)(cid:83)(cid:70)(cid:73)(cid:80)(cid:86)(cid:84)(cid:74)(cid:79)(cid:72)(cid:1)(cid:66)(cid:79)(cid:69)(cid:1)(cid:35)(cid:86)(cid:84)(cid:74)(cid:79)(cid:70)(cid:84)(cid:84)(cid:1)(cid:42)(cid:79)(cid:85)(cid:70)(cid:77)(cid:77)(cid:74)(cid:72)(cid:70)(cid:79)(cid:68)(cid:70)(cid:27)(cid:1)(cid:35)(cid:86)(cid:74)(cid:77)(cid:69)(cid:84)
and manages health care specific data model and
warehouse solutions for Federal and State based
programs. Applies business intelligence to analyze
and drive decision making to improve cost, clinical
outcomes, and member satisfaction.
Life Sciences. The Life Sciences business addresses the
changing global economic and regulatory competitive
landscape by assisting life sciences clients in identifying,
analyzing and measuring the value of their products. The
Life Sciences business consults with clients by working across
both research and development and brand/marketing so
they can improve market access and product positioning.
OptumInsight utilizes extensive real world data assets,
scientifically-based research design and analytics to support
the global life sciences industry and its markets through:
(cid:116) (cid:46)(cid:66)(cid:83)(cid:76)(cid:70)(cid:85)(cid:1)(cid:34)(cid:68)(cid:68)(cid:70)(cid:84)(cid:84)(cid:1)(cid:66)(cid:79)(cid:69)(cid:1)(cid:48)(cid:81)(cid:85)(cid:74)(cid:78)(cid:74)(cid:91)(cid:66)(cid:85)(cid:74)(cid:80)(cid:79)(cid:27)(cid:1)(cid:54)(cid:85)(cid:74)(cid:77)(cid:74)(cid:91)(cid:70)(cid:84)(cid:1)(cid:83)(cid:70)(cid:66)(cid:77)(cid:14)(cid:88)(cid:80)(cid:83)(cid:77)(cid:69)(cid:1)
evidence to drive increased drug revenues and
decreased commercialization costs through health
economics and outcomes research, pricing and
reimbursements strategies, data and informatics, and
late phase/Phase IV research studies;
(cid:116) (cid:52)(cid:85)(cid:83)(cid:66)(cid:85)(cid:70)(cid:72)(cid:74)(cid:68)(cid:1)(cid:51)(cid:70)(cid:72)(cid:86)(cid:77)(cid:66)(cid:85)(cid:80)(cid:83)(cid:90)(cid:1)(cid:52)(cid:70)(cid:83)(cid:87)(cid:74)(cid:68)(cid:70)(cid:84)(cid:27)(cid:1)(cid:39)(cid:80)(cid:68)(cid:86)(cid:84)(cid:70)(cid:84)(cid:1)(cid:80)(cid:79)(cid:1)(cid:69)(cid:70)(cid:84)(cid:74)(cid:72)(cid:79)(cid:1)(cid:66)(cid:79)(cid:69)(cid:1)
execution of multi-national regulatory strategies
to help clients speed regulatory approval and
maintain compliance with dynamic regulations across
geographies;
(cid:116) (cid:51)(cid:74)(cid:84)(cid:76)(cid:1)(cid:46)(cid:66)(cid:79)(cid:66)(cid:72)(cid:70)(cid:78)(cid:70)(cid:79)(cid:85)(cid:27)(cid:1)(cid:37)(cid:70)(cid:84)(cid:74)(cid:72)(cid:79)(cid:84)(cid:1)(cid:66)(cid:79)(cid:69)(cid:1)(cid:70)(cid:89)(cid:70)(cid:68)(cid:86)(cid:85)(cid:70)(cid:84)(cid:1)(cid:70)(cid:81)(cid:74)(cid:69)(cid:70)(cid:78)(cid:74)(cid:80)(cid:77)(cid:80)(cid:72)(cid:90)(cid:1)
studies to understand detailed drug safety profiles and
build integrated plans to address safety issues with
regulators, providers, and patients; and
(cid:116) (cid:49)(cid:66)(cid:85)(cid:74)(cid:70)(cid:79)(cid:85)(cid:1)(cid:42)(cid:79)(cid:84)(cid:74)(cid:72)(cid:73)(cid:85)(cid:84)(cid:27)(cid:1)(cid:37)(cid:83)(cid:74)(cid:87)(cid:70)(cid:84)(cid:1)(cid:68)(cid:80)(cid:77)(cid:77)(cid:70)(cid:68)(cid:85)(cid:74)(cid:80)(cid:79)(cid:1)(cid:66)(cid:79)(cid:69)(cid:1)(cid:86)(cid:79)(cid:69)(cid:70)(cid:83)(cid:84)(cid:85)(cid:66)(cid:79)(cid:69)(cid:74)(cid:79)(cid:72)(cid:1)
of patient reported outcomes to inform comparative
effectiveness research, patient engagement and
adherence, and population health management.
Many of OptumInsight’s software and information
products, advisory consulting arrangements, and
outsourcing contracts are performed over an extended
period, often several years. OptumInsight maintains an
order backlog to track unearned revenues under these
long-term arrangements. The backlog consists of estimated
revenue from signed contracts, other legally binding
agreements and anticipated contract renewals based on
historical experience that either have not started but are
anticipated to begin in the near future, or are in process
and have not been completed. In 2011, OptumInsight
standardized backlog reporting across recent acquisitions
and as a result increased the backlog by $0.4 billion.
OptumInsight’s aggregate backlog at December 31,
2011 was $4.0 billion, of which $2.4 billion is expected
to be realized within the next 12 months. This includes
$0.9 billion related to intersegment agreements, all of
which are included in the current portion of the backlog.
OptumInsight cannot provide any assurance that it will be
able to realize all of the revenues included in backlog due
to uncertainty regarding the timing and scope of services,
the potential for cancellation, non-renewal, or early
termination of service arrangements.
OPTUMRX
OptumRx provides a multitude of pharmacy benefit
management (PBM) services. It serves more than 14 million
people nationwide through its network of approximately
66,000 retail pharmacies and two mail service facilities,
processing nearly 370 million adjusted retail, mail and
specialty drug prescriptions annually. OptumRx is dedicated
to helping its customers achieve optimal health while
maximizing cost savings. It does this by working closely with
customers to create customized solutions to improve quality
and safety, increase compliance and adherence and reduce
fraud and waste.
OptumRx provides PBM services and manages specialty
pharmacy benefits across nearly all of UnitedHealthcare’s
businesses, as well as for external employer groups, union
trusts, managed care organizations, Medicare-contracted
plans, Medicaid plans and TPAs, including for pharmacy
benefit services, mail service only, rebate services only and
network services. Services include providing prescribed
medications, patient support and clinical programs that
ensure quality and value for consumers. OptumRx also
provides claims processing, retail network contracting,
rebate contracting and management and clinical programs,
such as step therapy, formulary management and disease/
drug therapy management programs to achieve a low-
cost, high-quality pharmacy benefit. The mail order and
specialty pharmacy fulfillment capabilities of OptumRx are
an important strategic component in serving employers,
commercial health plans, Medicaid plans and Medicare-
contracted businesses, including Part D prescription drug
plans. OptumRx’s distribution system consists primarily of
health insurance brokers and other health care consultants
and direct sales.
GOVERNMENT REGULATION
Most of our health and well-being services are regulated by
federal and state regulatory agencies that generally have
discretion to issue regulations and interpret and enforce
laws and rules. These regulations can vary significantly
from jurisdiction to jurisdiction, and the interpretation of
existing laws and rules also may change periodically. In the
first quarter of 2010, the Patient Protection and Affordable
Care Act and a reconciliation measure, the Health Care
and Education Reconciliation Act of 2010, which we refer
to together as the Health Reform Legislation, were signed
into law. The Health Reform Legislation, portions of which
are summarized below, alters the regulatory environment
in which we operate, in some cases to a significant degree.
Federal and state governments continue to enact and
consider various legislative and regulatory proposals that
could materially impact certain aspects of the health care
system. New laws, regulations and rules, or changes in the
interpretation of existing laws, regulations and rules, as
well as a result of changes in the political climate, could
adversely affect our business.
In the event we fail to comply with, or we fail to respond
quickly and appropriately to changes in, applicable laws,
regulations and rules, our business, results of operations,
financial position and cash flows could be materially
and adversely affected. See Item 1A, “Risk Factors” for a
discussion of the risks related to compliance with federal
and state laws and regulations.
HEALTH CARE REFORMS
The Health Reform Legislation expands access to coverage
and modifies aspects of the commercial insurance market,
as well as the Medicaid and Medicare programs, CHIP and
other aspects of the health care system. Certain provisions
of the Health Reform Legislation have already taken effect,
and other provisions become effective at various dates over
the next several years. The U.S. Department of Health and
Human Services (HHS), the U.S. Department of Labor (DOL)
and the U.S. Treasury Department have issued or proposed
regulations on a number of aspects of Health Reform
Legislation, but final rules and interim guidance on other
key aspects of the legislation remain pending.
Certain aspects of the Health Reform Legislation are also
being challenged in federal court, with the proponents
of such challenges seeking to limit the scope of or have
all or portions of the Health Reform Legislation declared
unconstitutional. The United States Supreme Court is
scheduled to hear oral arguments on certain aspects of
these cases in March 2012, including the constitutionality
of the individual mandate. Congress may also withhold
the funding necessary to implement the Health Reform
Legislation, or may attempt to replace the legislation with
amended provisions or repeal it altogether.
The following outlines certain provisions of the Health
Reform Legislation that have recently taken effect or are
expected to take effect in the coming years, assuming the
legislation is implemented in its current form.
2011 FORM 10-K
7
Effective 2010: The Health Reform Legislation mandated:
the expansion of dependent coverage to include adult
children until age 26; eliminated certain annual and
lifetime caps on the dollar value of certain essential health
benefits; eliminated pre-existing condition limits for
enrollees under age 19; prohibited certain policy rescissions;
prohibited plans and issuers from charging higher cost
sharing (copayments or coinsurance) for emergency services
that are obtained out of a plan’s network; and included a
requirement to provide coverage for preventive services
without cost to members (for non-grandfathered plans).
The Health Reform Legislation also mandated certain
changes to coverage determination and appeals processes,
including: expanding the definition of “adverse benefit
determination” to include rescissions; extending external
review rights of adverse benefit determinations to insured
and self-funded plans; and improving the clarity of and
expanding the types of information in adverse benefit
determination notices.
Effective 2011: Commercial fully insured health plans in the
large employer group, small employer group and individual
markets with medical loss ratios below certain targets (85%
for large employer groups, 80% for small employer groups
and 80% for individuals, as calculated under the definitions
in the Health Reform Legislation and regulations, subject
to state specific exceptions) are required to rebate ratable
portions of their premiums to their customers annually.
Rebate payments for 2011 will be made in mid 2012.
A state can request a waiver of the individual market
medical loss ratio for up to three years if the state petitions
and provides to HHS certain supporting data, and HHS
determines that the requirement is disruptive to the market
in that state. By the end of 2011, 17 states petitioned HHS
for waivers of the mandated individual market medical
loss ratio, of which six were wholly or partially granted.
The Health Reform Legislation also mandated consumer
discounts of 50% on brand name prescription drugs
and 7% on generic prescription drugs for Part D plan
participants in the coverage gap. These consumer discounts
will gradually increase over the next several years, which
will decrease consumer out-of-pocket drug spending within
the coverage gap, shifting a portion of these costs to the
plan sponsor.
In addition, as required under the Health Reform
Legislation, HHS established a federal premium rate review
process, which became effective in September 2011 and
generally applies to proposed rate increases equal to
or exceeding 10% (with state-specific thresholds to be
applicable commencing September 2012). The regulations
further require commercial health plans to provide to the
states and HHS extensive information supporting any rate
increases subject to the new federal rate review process.
The regulations clarify that HHS review will not supersede
existing state review and approval processes, but plans
deemed to have a history of “unreasonable” rate increases
may be prohibited from participating in the state-based
exchanges that become active under the Health Reform
Legislation in 2014. Under the regulations, the HHS rate
8
UNITEDHEALTH GROUP
review process would apply only to health plans in the
individual and small group markets.
Effective 2011/2012: CMS reduced or froze benchmarks
which affect our Medicare Advantage reimbursements
from CMS between 2009 and 2011, and beginning in 2012,
additional cuts to Medicare Advantage benchmarks will
take effect (benchmarks will ultimately range from 95% of
Medicare fee-for-service rates in high cost areas to 115% in
low cost areas), with changes being phased-in over two to
six years, depending on the level of benchmark reduction
in a county. In addition to other measures, quality
bonuses may partially offset these anticipated benchmark
reductions as CMS quality rating bonuses are phased in over
three years beginning in 2012.
Effective 2013: Effective beginning in 2013 with
respect to services performed after 2009, the Health
Reform Legislation limits the deductibility of executive
compensation under Section 162(m) of the Internal
Revenue Code for insurance providers if at least 25% of
the insurance provider’s gross premium income from health
business is derived from health insurance plans that meet
the minimum creditable coverage requirements.
Effective 2013/2014: The Health Reform Legislation
provides for an increase in Medicaid fee-for-service and
managed care program reimbursements for primary care
services provided by primary care doctors (family medicine,
general internal medicine or pediatric medicine) to 100%
of the Medicare payment rates for 2013 and 2014, and
provides 100% federal financing for the difference in rates
based on rates applicable on July 1, 2009.
Effective 2014: A number of the provisions of the Health
Reform Legislation are scheduled to take effect in 2014,
including: an annual insurance industry assessment ($8
billion levied on the insurance industry in 2014 with
increasing annual amounts thereafter), which is not
deductible for income tax purposes; expansion of Medicaid
eligibility for all individuals and families with incomes up
to 133% of the federal poverty level (states can early adopt
the expansion without increased federal funding prior to
2014) with states receiving full federal matching in 2014
through 2016; all individual and group health plans must
offer coverage on a guaranteed issue and guaranteed
renewal basis during annual open enrollment and special
enrollment periods and cannot apply pre-existing condition
exclusions or health status rating adjustments; elimination
of annual limits on essential benefits coverage on certain
plans; establishment of state-based exchanges for
individuals and small employers (generally, with up to 100
employees) as well as certain CHIP eligibles; introduction
of plan designs based on set actuarial values to increase
comparability of competing products on the exchanges;
and establishment of minimum medical loss ratio of 85%
for Medicare Advantage plans, as calculated under rules
that have not yet been issued.
The Health Reform Legislation and the related federal
and state regulations will impact how we do business and
could restrict revenue and enrollment growth in certain
products and market segments, restrict premium growth
rates for certain products and market segments, increase
our medical and administrative costs, expose us to an
increased risk of liability (including increasing our liability
in federal and state courts for coverage determinations
and contract interpretation) or put us at risk for loss of
business. In addition, our results of operations, financial
position, including our ability to maintain the value of our
goodwill, and cash flows could be materially and adversely
affected by such changes. The Health Reform Legislation
may also create new or expand existing opportunities for
business growth, but due to its complexity, the impact of
the Health Reform Legislation remains difficult to predict
and is not yet fully known. See also Item 1A, “Risk Factors”
for a discussion of the risks related to the Health Reform
Legislation and related matters.
OTHER FEDERAL LAWS AND REGULATION
We are subject to various levels of federal regulation. For
example, when we contract with the federal government,
we are subject to federal laws and regulations relating
to the award, administration and performance of U.S.
government contracts. CMS regulates our UnitedHealthcare
Medicare & Retirement and UnitedHealthcare Community &
State Medicare and Medicaid businesses, as well as certain
aspects of our Optum businesses. Our UnitedHealthcare
Medicare & Retirement and UnitedHealthcare Community
& State businesses submit information relating to the
health status of enrollees to CMS (or state agencies) for
purposes of determining the amount of certain payments
to us. CMS also has the right to audit performance to
determine compliance with CMS contracts and regulations
and the quality of care given to Medicare beneficiaries. See
Note 12 of Notes to the Consolidated Financial Statements
and risk factors in this Form 10-K for a discussion of audits
by CMS.
Our UnitedHealthcare reporting segment, through
UnitedHealthcare Community & State, also has Medicaid
and CHIP contracts that are subject to federal regulations
regarding services to be provided to Medicaid enrollees,
payment for those services and other aspects of these
programs. There are many regulations surrounding
Medicare and Medicaid compliance, and the regulatory
environment with respect to these programs has become
and will continue to become increasingly complex as a
result of the Health Reform Legislation. In addition, certain
of Optum’s businesses hold contracts with federal agencies,
including the U.S. Department of Defense, and we are
subject to federal law and regulations relating to the
administration of these contracts.
Certain of UnitedHealthcare’s and Optum’s businesses,
such as UnitedHealthcare’s eyeglass manufacturing
activities and Optum’s high clinical acuity workflow
software, hearing aid products, and clinical research
activities, are subject to regulation by the U.S. Food and
Drug Administration, and the clinical research activities are
also subject to laws and regulations outside of the United
States that regulate clinical trials. Laws and regulations
relating to consumer protection, anti-fraud and abuse, anti-
kickbacks, false claims, prohibited referrals, inappropriately
reducing or limiting health care services, anti-money
laundering, securities and antitrust also affect us.
HIPAA, GLBA and Other Privacy and Security Regulation.
The administrative simplification provisions of the
Health Insurance Portability and Accountability Act of
1996, as amended (HIPAA), apply to both the group and
individual health insurance markets, including self-funded
employee benefit plans. HIPAA requires guaranteed health
care coverage for small employers and certain eligible
individuals. It also requires guaranteed renewability for
employers and individuals and limits exclusions based
on pre-existing conditions. Federal regulations related
to HIPAA include minimum standards for electronic
transactions and code sets, and for the privacy and security
of protected health information. The HIPAA privacy
regulations do not preempt more stringent state laws and
regulations that may also apply to us.
Federal privacy and security requirements change
frequently because of legislation, regulations and judicial
or administrative interpretation. For example, the U.S.
Congress enacted the American Recovery and Reinvestment
Act of 2009 (ARRA), which significantly amends, and
adds new privacy and security provisions to HIPAA and
imposes additional requirements on uses and disclosures
of health information. ARRA includes new contracting
requirements for HIPAA business associate agreements;
extends parts of HIPAA privacy and security provisions
to business associates; adds new federal data breach
notification requirements for covered entities and business
associates and new reporting requirements to HHS and
the Federal Trade Commission (FTC) and, in some cases,
to the local media; strengthens enforcement and imposes
higher financial penalties for HIPAA violations and, in
certain cases, imposes criminal penalties for individuals,
including employees. We are awaiting final regulations
on many key aspects of the ARRA amendments to HIPAA.
In the conduct of our business, we may act, depending on
the circumstances, as either a covered entity or a business
associate. Federal consumer protection laws may also apply
in some instances to privacy and security practices related
to personal identifiable information. The use and disclosure
of individually identifiable health data by our businesses
is also regulated in some instances by other federal laws,
including the Gramm-Leach-Bliley Act (GLBA) or state
statutes implementing GLBA, which generally require
insurers to provide customers with notice regarding how
their non-public personal health and financial information
is used and the opportunity to “opt out” of certain
disclosures before the insurer shares such information with
a third party, and which generally require safeguards for
the protection of personal information. See Item 1A, “Risk
Factors” for a discussion of the risks related to compliance
with HIPAA, GLBA and other privacy-related regulations.
ERISA. The Employee Retirement Income Security Act
of 1974, as amended (ERISA), regulates how goods
2011 FORM 10-K
9
and services are provided to or through certain types
of employer-sponsored health benefit plans. ERISA is a
set of laws and regulations that is subject to periodic
interpretation by the DOL as well as the federal courts.
ERISA places controls on how our business units may do
business with employers who sponsor employee benefit
health plans, particularly those that maintain self-funded
plans. Regulations established by the DOL provide
additional rules for claims payment and member appeals
under health care plans governed by ERISA. Additionally,
some states require licensure or registration of companies
providing third-party claims administration services for
health care plans.
FDIC. The FDIC has federal regulatory authority over
OptumHealth Bank and performs annual examinations
to ensure that the bank is operating in accordance with
federal safety and soundness requirements. In addition
to such annual examinations, the FDIC performs periodic
examinations of the bank’s compliance with applicable
federal banking statutes, regulations and agency
guidelines. In the event of unfavorable examination
results, the bank could be subject to increased operational
expenses and capital requirements, governmental
oversight and monetary penalties.
STATE LAWS AND REGULATION
Health Care Regulation. Our insurance and HMO
subsidiaries must be licensed by the jurisdictions in which
they conduct business. All of the states in which our
subsidiaries offer insurance and HMO products regulate
those products and operations. These states require
periodic financial reports and establish minimum capital or
restricted cash reserve requirements. With the amendment
of the Annual Financial Reporting Model Regulation by the
National Association of Insurance Commissioners (NAIC)
to adopt elements substantially similar to the Sarbanes-
Oxley Act of 2002, we expect that these states will continue
to expand the scope of regulations relating to corporate
governance and internal control activities of HMOs and
insurance companies. Certain states have also adopted
their own regulations for minimum medical loss ratios with
which health plans must comply. In addition, a number
of state legislatures have enacted or are contemplating
significant reforms of their health insurance markets, either
independent of or to comply with or be eligible for grants
or other incentives in connection with the Health Reform
Legislation. We expect the states to continue to introduce
and pass similar laws in 2012, and this will affect our
operations and our financial results.
Health plans and insurance companies are also regulated
under state insurance holding company regulations. Such
regulations generally require registration with applicable
state departments of insurance and the filing of reports
that describe capital structure, ownership, financial
condition, certain intercompany transactions and general
business operations. Some state insurance holding company
laws and regulations require prior regulatory approval of
acquisitions and material intercompany transfers of assets,
10
UNITEDHEALTH GROUP
as well as transactions between the regulated companies
and their parent holding companies or affiliates. These laws
may restrict the ability of our regulated subsidiaries to pay
dividends to our holding companies.
In addition, some of our business and related activities
may be subject to other health care-related regulations and
requirements, including PPO, managed care organization
(MCO), utilization review (UR) or third-party administrator-
related regulations and licensure requirements. These
regulations differ from state to state, and may contain
network, contracting, product and rate, and financial and
reporting requirements. There are laws and regulations
that set specific standards for delivery of services, payment
of claims, adequacy of health care professional networks,
fraud prevention, the protection of consumer health
information, pricing and underwriting practices and
covered benefits and services. State health care anti-
fraud and abuse prohibitions encompass a wide range
of activities, including kickbacks for referral of members,
billing unnecessary medical services and improper
marketing. Certain of our businesses are subject to state
general agent, broker, and sales distributions laws and
regulations. Our UnitedHealthcare Community & State
and UnitedHealthcare Medicare & Retirement businesses
are subject to regulation by state Medicaid agencies that
oversee the provision of benefits to our Medicaid and
CHIP beneficiaries and to our dually-eligible Medicaid
beneficiaries. We also contract with state governmental
entities and are subject to state laws and regulations
relating to the award, administration and performance of
state government contracts.
Guaranty Fund Assessments. Under state guaranty fund
laws, certain insurance companies (and HMOs in some
states), including those issuing health, long-term care,
life and accident insurance policies, doing business in
those states can be assessed (up to prescribed limits) for
certain obligations to the policyholders and claimants of
insolvent insurance companies that write the same line
or lines of business. Assessments generally are based on a
formula relating to premiums in the state compared to the
premiums of other insurers and could be spread out over
a period of years. Some states permit member insurers to
recover assessments paid through full or partial premium
tax offsets. See Note 12 of Notes to the Consolidated
Financial Statements for a discussion of a matter involving
Penn Treaty Network American Insurance Company and its
subsidiary (Penn Treaty), which have been placed
in rehabilitation.
Pharmacy Regulation. OptumRx’s mail order pharmacies
must be licensed to do business as pharmacies in the states
in which they are located. Our mail order pharmacies
must also register with the U.S. Drug Enforcement
Administration and individual state controlled substance
authorities to dispense controlled substances. In many
of the states where our mail order pharmacies deliver
pharmaceuticals there are laws and regulations that require
out-of-state mail order pharmacies to register with that
state’s board of pharmacy or similar regulatory body. These
states generally permit the pharmacy to follow the laws
of the state in which the mail order pharmacy is located,
although some states require that we also comply with
certain laws in that state. Our mail order pharmacies
maintain certain Medicare and state Medicaid provider
numbers as pharmacies providing services under these
programs. Participation in these programs requires the
pharmacies to comply with the applicable Medicare and
Medicaid provider rules and regulations. Other laws and
regulations affecting our mail order pharmacies include
federal and state statutes and regulations governing
the labeling, packaging, advertising and adulteration of
prescription drugs and dispensing of controlled substances.
See Item 1A, “Risk Factors” for a discussion of the risks
related to our PBM businesses.
Privacy and Security Laws. States have adopted regulations
to implement provisions of the GLBA. Like HIPAA, GLBA
allows states to adopt more stringent requirements
governing privacy protection. A number of states have
also adopted other laws and regulations that may affect
our privacy and security practices, for example, state laws
that govern the use, disclosure and protection of social
security numbers and sensitive health information or that
are designed to protect credit card account data. State and
local authorities increasingly focus on the importance of
protecting individuals from identity theft, with a significant
number of states enacting laws requiring businesses to
notify individuals of security breaches involving personal
information. State consumer protection laws may also
apply to privacy and security practices related to personally
identifiable information, including information related
to consumers and care providers. Additionally, different
approaches to state privacy and insurance regulation and
varying enforcement philosophies in the different states may
materially and adversely affect our ability to standardize our
products and services across state lines. See Item 1A, “Risk
Factors” for a discussion of the risks related to compliance
with state privacy and security-related regulations.
UDFI. The Utah State Department of Financial Institutions
(UDFI) has state regulatory and supervisory authority
over OptumHealth Bank and in conjunction with federal
regulators performs annual examinations to ensure that
the bank is operating in accordance with state safety
and soundness requirements. In addition to such annual
examinations, the UDFI in conjunction with federal regulators
performs periodic examinations of the bank’s compliance
with applicable state banking statutes, regulations and
agency guidelines. In the event of unfavorable examination
results, the bank could be subjected to increased operational
expenses and capital requirements, governmental oversight
and monetary penalties.
Corporate Practice of Medicine and Fee-Splitting Laws.
Certain of our businesses function as direct service
providers to care delivery systems and, as such, are subject
to additional laws and regulations. Some states have
corporate practice of medicine laws that prohibit certain
2011 FORM 10-K
11
and consulting companies. For our UnitedHealthcare
businesses, competitors include Aetna Inc., Cigna
Corporation, Coventry Health Care, Inc., Health Net, Inc.,
Humana Inc., Kaiser Permanente, WellPoint, Inc., numerous
for-profit and not-for-profit organizations operating under
licenses from the Blue Cross Blue Shield Association and
other enterprises that serve more limited geographic areas.
For our OptumRx businesses, competitors include Medco
Health Solutions, Inc., CVS Caremark Corporation and
Express Scripts, Inc. Our OptumHealth and OptumInsight
reportable segments also compete with a broad and
diverse set of businesses. New entrants into the markets in
which we compete, as well as consolidation within these
markets, also contribute to a competitive environment.
We believe the principal competitive factors that can
impact our businesses relate to the sales, marketing and
pricing of our products and services; product innovation;
consumer satisfaction; the level and quality of products and
services; care delivery; network capabilities; market share;
product distribution systems; efficiency of administration
operations; financial strength and marketplace reputation.
If we fail to compete effectively to maintain or increase
our market share, including maintaining or increasing
enrollments in businesses providing health benefits, our
results of operations, financial position and cash flows
could be materially and adversely affected. See Item 1A,
“Risk Factors,” for additional discussion of our risks related
to competition.
EMPLOYEES
As of December 31, 2011, we employed approximately
99,000 individuals. We believe our employee relations are
generally positive.
entities from practicing medicine or employing physicians
to practice medicine. Additionally, some states prohibit
certain entities from sharing in the fees or revenues of a
professional practice (fee-splitting). These prohibitions may
be statutory or regulatory, or may be a matter of judicial
or regulatory interpretation. These laws, regulations and
interpretations have, in certain states, been subject to
limited judicial and regulatory interpretation and are
subject to change.
Consumer Protection Laws. Certain businesses participate
in direct-to-consumer activities and are subject to emerging
regulations applicable to on-line communications and other
general consumer protection laws and regulations.
AUDITS AND INVESTIGATIONS
We have been and are currently involved in various
governmental investigations, audits and reviews. These
include routine, regular and special investigations,
audits and reviews by CMS, state insurance and health
and welfare departments, state attorneys general, the
Office of the Inspector General, the Office of Personnel
Management, the Office of Civil Rights, the FTC, U.S.
Congressional committees, the U.S. Department of Justice,
U.S. Attorneys, the SEC, the Internal Revenue Service (IRS),
the DOL, the FDIC and other governmental authorities.
Such government actions can result in assessment of
damages, civil or criminal fines or penalties, or other
sanctions, including loss of licensure or exclusion from
participation in government programs. See Note 12 of
Notes to the Consolidated Financial Statements for details.
In addition, disclosure of any adverse investigation, audit
results or sanctions could adversely affect our reputation in
various markets and make it more difficult for us to sell our
products and services and retain our current business.
INTERNATIONAL REGULATION
Most of our business is conducted in the United States.
However, some of our businesses and operations are
international in nature and are consequently subject to
regulation in the jurisdictions in which they are organized
or conduct business. These regulatory regimes encompass
tax, licensing, tariffs, intellectual property, investment,
management control, anti-fraud, anti-corruption and
privacy and data protection regulations (including
requirements for cross-border data transfers) that vary from
jurisdiction to jurisdiction, among other matters. These
international operations are also subject to United States
laws that regulate activities of U.S.-based businesses abroad.
COMPETITION
As a diversified health and well-being services company,
we operate in highly competitive markets. Our competitors
include managed health care companies, insurance
companies, HMOs, TPAs and business services outsourcing
companies, health care professionals that have formed
networks to directly contract with employers or with CMS,
specialty benefit providers, government entities, disease
management companies, and various health information
12
UNITEDHEALTH GROUP
EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth certain information regarding our executive officers as of February 8, 2012, including the business
experience of each executive officer during the past five years:
Name
Stephen J. Hemsley
David S. Wichmann
Richard N. Baer
Gail K. Boudreaux
William A. Munsell
Eric S. Rangen
Larry C. Renfro
Lori Sweere
Reed V. Tuckson, M.D.
Anthony Welters
Age
Position
59
49
54
51
59
55
58
53
60
56
President and Chief Executive Officer
Executive Vice President and Chief Financial Officer of UnitedHealth
Group and President of UnitedHealth Group Operations
Executive Vice President and Chief Legal Officer
Executive Vice President of UnitedHealth Group and Chief Executive
Officer of UnitedHealthcare
Executive Vice President
Senior Vice President and Chief Accounting Officer
Executive Vice President of UnitedHealth Group and Chief Executive
Officer of Optum
Executive Vice President of Human Capital
Executive Vice President and Chief of Medical Affairs
Executive Vice President
Our Board of Directors elects executive officers annually.
Our executive officers serve until their successors are duly
elected and qualified.
Mr. Hemsley is President and Chief Executive Officer of
UnitedHealth Group, has served in that capacity since
January 2007, and has been a member of the Board of
Directors since February 2000.
Mr. Wichmann is Executive Vice President and Chief
Financial Officer of UnitedHealth Group and President of
UnitedHealth Group Operations and has served in that
capacity since January 2011. Mr. Wichmann has served as
Executive Vice President and President of UnitedHealth
Group Operations since April 2008. From January 2007
to April 2008, Mr. Wichmann served as Executive Vice
President of UnitedHealth Group and President of the
Commercial Markets Group (now UnitedHealthcare
Employer & Individual).
r
Mr. Baer is Executive Vice President and Chief Legal Officer
of UnitedHealth Group and has served in that capacity since
May 2011. Prior to joining UnitedHealth Group, Mr. Baer
served as Executive Vice President and General Counsel
of Qwest Communications International Inc. from 2007 to
April 2011 and Chief Administrative Officer from August
2008 to April 2011.
x
Ms. Boudreaux is Executive Vice President of
UnitedHealth Group and Chief Executive Officer of
UnitedHealthcare and has served in that capacity since
January 2011. Ms. Boudreaux has overall responsibility
for all UnitedHealthcare health benefits businesses.
Ms. Boudreaux served as Executive Vice President of
UnitedHealth Group and President of UnitedHealthcare
from May 2008 to January 2011. Prior to joining
UnitedHealth Group, Ms. Boudreaux served as Executive
Vice President of Health Care Services Corporation (HCSC)
from January 2007 to April 2008.
l
Mr. Munsell is Executive Vice President of UnitedHealth
Group and has served in that capacity since January 2011.
Mr. Munsell focuses on enterprise-wide initiatives, including
emerging growth and expansion opportunities; public,
regulatory and governmental affairs and representation;
reputation and market image efforts, and external
relationships and alliances for the enterprise. Mr. Munsell
served as Executive Vice President of UnitedHealth Group
and President of the Enterprise Services Group from
September 2007 to January 2011. From January 2007 to
August 2007, Mr. Munsell served as Executive Vice President
of UnitedHealth Group.
Mr. Rangen is Senior Vice President and Chief Accounting
Officer of UnitedHealth Group and has served in that
capacity since January 2007.
Mr. Renfro is Executive Vice President of UnitedHealth
Group and Chief Executive Officer of Optum and has
served in that capacity since July 2011. From January 2011
to July 2011, Mr. Renfro served as Executive Vice President
of UnitedHealth Group. From October 2009 to January
2011, Mr. Renfro served as Executive Vice President of
UnitedHealth Group and Chief Executive Officer of the
Public and Senior Markets Group. From January 2009 to
October 2009, Mr. Renfro served as Executive Vice President
of UnitedHealth Group and Chief Executive Officer of
Ovations (now UnitedHealthcare Medicare & Retirement).
Prior to joining UnitedHealth Group, Mr. Renfro served
as President of Fidelity Developing Businesses at Fidelity
Investments and as a member of the Fidelity Executive
Committee from June 2008 to January 2009. From January
2007 to May 2008, Mr. Renfro held several senior positions
at AARP Services Inc., including President and Chief
Executive Officer of AARP Services Inc., Chief Operating
Officer of AARP Services Inc., President and Chief Executive
Officer of AARP Financial and President of the AARP Funds.
Ms. Sweere is Executive Vice President of Human Capital of
UnitedHealth Group and has served in that capacity since
June 2007. Prior to joining UnitedHealth Group, Ms. Sweere
served as Executive Vice President of Human Resources of
CNA Financial Corporation from January 2007 to May 2007.
Dr. Tuckson is Executive Vice President and Chief of Medical
Affairs of UnitedHealth Group and has served in that
capacity since January 2007.
Mr. Welters is Executive Vice President of UnitedHealth
Group and has served in that capacity since January 2007.
Mr. Welters focuses on enterprise-wide initiatives, including
emerging growth and expansion opportunities; public,
regulatory and governmental affairs and representation;
reputation and market image efforts, and external
relationships and alliances for the enterprise. Mr. Welters
served as Executive Vice President of UnitedHealth Group
and President of the Public and Senior Market Group from
September 2007 to January 2011.
ADDITIONAL INFORMATION
UnitedHealth Group Incorporated was incorporated in
January 1977 in Minnesota. Our executive offices are
located at UnitedHealth Group Center, 9900 Bren Road
East, Minnetonka, Minnesota 55343; our telephone number
is (952) 936-1300.
You can access our website at www.unitedhealthgroup.
com to learn more about our Company. From that site,
you can download and print copies of our annual reports
to shareholders, annual reports on Form 10-K, quarterly
reports on Form 10-Q, and current reports on Form 8-K,
along with amendments to those reports. You can also
download from our website our Articles of Incorporation,
bylaws and corporate governance policies, including our
Principles of Governance, Board of Directors Committee
Charters, and Code of Conduct. We make periodic reports
and amendments available, free of charge, as soon as
reasonably practicable after we file or furnish these
reports to the SEC. We will also provide a copy of any
of our corporate governance policies published on our
website free of charge, upon request. To request a copy
of any of these documents, please submit your request
to: UnitedHealth Group Incorporated, 9900 Bren Road
East, Minnetonka, MN 55343, Attn: Corporate Secretary.
Information on or linked to our website is neither part of
nor incorporated by reference into this Annual Report on
Form 10-K or any other SEC filings.
Our transfer agent, Wells Fargo Shareowner Services,
can help you with a variety of shareholder-related services,
including change of address, lost stock certificates, transfer
of stock to another person and other administrative
services. You can write to our transfer agent at: Wells Fargo
Shareowner Services, P.O. Box 64854, St. Paul, Minnesota
55164-0854, email stocktransfer@wellsfargo.com, or
telephone (800) 468-9716 or (651) 450-4064.
2011 FORM 10-K
13
ITEM 1A. Risk Factors
CAUTIONARY STATEMENTS
The statements, estimates, projections, guidance or outlook
contained in this Annual Report on Form 10-K include
forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 (PSLRA).
When used in this Annual Report on Form 10-K and in
future filings by us with the SEC, in our news releases,
presentations to securities analysts or investors, and in
oral statements made by or with the approval of one of
our executive officers, the words or phrases “believe,”
“expect,” “intend,” “estimate,” “anticipate,” “plan,”
project,” “should” or similar expressions are intended to
identify such forward-looking statements. These statements
are intended to take advantage of the “safe harbor”
provisions of the PSLRA. These forward-looking statements
involve risks and uncertainties that may cause our actual
results to differ materially from the results discussed in the
forward-looking statements.
The following discussion contains certain cautionary
statements regarding our business that investors and
others should consider. We do not undertake to address
or update forward-looking statements in future filings
or communications regarding our business or results of
operations, and do not undertake to address how any
of these factors may have caused results to differ from
discussions or information contained in previous filings
or communications. In addition, any of the matters
discussed below may have affected past, as well as current,
forward-looking statements about future results. Any
or all forward-looking statements in this Form 10-K and
in any other public filings or statements we make may
turn out to be wrong. They can be affected by inaccurate
assumptions we might make or by known or unknown
risks and uncertainties. Many factors discussed below
will be important in determining future results. By their
nature, forward-looking statements are not guarantees
of future performance or results and are subject to risks,
uncertainties and assumptions that are difficult to predict
or quantify. Actual future results may vary materially
from expectations expressed in this report or any of our
prior communications.
If we fail to effectively estimate, price for and manage our
medical costs, the profitability of our risk-based products
and services could decline and could materially and
adversely affect our results of operations, financial position
and cash flows.
Under our risk-based benefit product arrangements, we
assume the risk of both medical and administrative costs for
our customers in return for monthly premiums. Premium
revenues from risk-based benefits products comprise
approximately 90% of our total consolidated revenues. We
generally use approximately 80% to 85% of our premium
revenues to pay the costs of health care services delivered
to these customers. The profitability of these products
depends in large part on our ability to predict, price for,
and effectively manage medical costs. In this regard, the
14
UNITEDHEALTH GROUP
Health Reform Legislation established minimum medical
loss ratios for certain health plans, and authorized HHS
to maintain an annual review process of “unreasonable”
increases in premiums for commercial health plans. In
addition, a number of states have enhanced (or are
proposing to enhance) their premium review and approval
processes. See the risk factor below relating to health care
reform for further discussion of these provisions.
We manage medical costs through underwriting criteria,
product design, negotiation of favorable provider contracts
and care management programs. Total medical costs are
affected by the number of individual services rendered
and the cost of each service. Our premium revenue on
commercial policies is typically at a fixed rate per individual
served for a 12-month period and is generally priced one to
four months before the contract commences. Our revenue on
Medicare policies is based on bids submitted in June the year
before the contract year. We base the premiums we charge
and our Medicare bids on our estimates of future medical
costs over the fixed contract period; however, medical cost
inflation, regulation and other factors may cause actual costs
to exceed what was estimated and reflected in premiums
or bids. These factors may include increased use of services,
increased cost of individual services, catastrophes, epidemics,
the introduction of new or costly treatments and technology,
new mandated benefits (such as the expansion of essential
benefits coverage) or other regulatory changes, insured
population characteristics and seasonal changes in the level
of health care use. As a measure of the impact of medical
costs on our financial results, relatively small differences
between predicted and actual medical costs or utilization
rates as a percentage of revenues can result in significant
changes in our financial results. For example, if medical
costs increased by 1% without a proportional change in
related revenues for commercial insured products our
annual net earnings for 2011 would have been reduced by
approximately $215 million, excluding any offsetting impact
from premium rebates.
In addition, the financial results we report for any
particular period include estimates of costs that have
been incurred for which claims are still outstanding. These
estimates involve an extensive degree of judgment. If these
estimates prove too low, our results of operations could be
materially and adversely affected.
Our business activities are highly regulated; new laws
or regulations or changes in existing laws or regulations
or their enforcement or application could materially and
adversely affect our results of operations, financial position
and cash flows.
Our business is regulated at the federal, state, local and
international levels. Our insurance and HMO subsidiaries
must be licensed by and are subject to the regulations
of the jurisdictions in which they conduct business. For
example, states require periodic financial reports and
enforce minimum capital or restricted cash reserve
requirements. Health plans and insurance companies are
also regulated under state insurance holding company
regulations, and some of our activities may be subject to
other health care-related regulations and requirements,
including those relating to PPOs, MCOs, utilization review
and TPA-related regulations and licensure requirements.
Some of our businesses hold or provide services related
to government contracts and are subject to federal
and state anti-kickback and other laws and regulations
governing government contractors. See Item 1, “Business -
Government Regulation” for further information.
The laws and rules governing our business and
interpretations of those laws and rules are subject to
frequent change. For example, in the first quarter of
2010, the Health Reform Legislation was signed into law,
legislating broad-based changes to the U.S. health care
system. See Item 1, “Business - Government Regulation”
for a discussion of the Health Reform Legislation. The
broad latitude that is given to the agencies administering
regulations governing our business, as well as future laws
and rules, and interpretation and enforcement of those
laws and rules by governmental enforcement authorities,
could force us to change how we do business, restrict
revenue and enrollment growth, increase our health care
and administrative costs and capital requirements, and
increase our liability in federal and state courts for coverage
determinations, contract interpretation and other actions.
We must also obtain and maintain regulatory approvals
to market many of our products, to increase prices for
certain regulated products and to complete certain
acquisitions and dispositions, including integration of
certain acquisitions. For example, premium rates for our
health insurance and/or managed care products are subject
to regulatory review or approval in many states, and a
number of states have enhanced (or are proposing to
enhance) their rate review processes. Delays in obtaining
necessary approvals or our failure to obtain or maintain
adequate approvals could materially and adversely affect
our revenues, results of operations, financial position and
cash flows.
Under state guaranty fund laws, certain insurance
companies (and HMOs in some states), including those
issuing health (which includes long-term care), life and
accident insurance policies, doing business in those
states can be assessed (up to prescribed limits) for certain
obligations to the policyholders and claimants of insolvent
insurance companies that write the same line or lines
of business. Changes in these laws or the interpretation
thereof, or insolvency by another insurer, could have
a material adverse effect on our results of operations,
financial position and cash flows. See Note 12 of Notes to
the Consolidated Financial Statements in this Form 10-K
for a discussion of a matter involving an unaffiliated entity,
Penn Treaty, which has been placed in rehabilitation.
Certain Optum businesses are also subject to regulatory
and other risks and uncertainties in addition to the risks
of our businesses of providing managed care and health
insurance products. For example, state corporate practice
of medicine doctrines and fee-splitting rules can impact
our relationships with physicians, hospitals and customers.
OptumHealth is subject to state telemedicine laws and
regulations that apply to its telemedicine initiatives.
Additionally, OptumHealth participates in the emerging
private exchange markets and it is not yet known to what
extent the states will issue new regulations that apply
to private exchanges. These risks and uncertainties may
materially and adversely affect our ability to market our
products and services, or to do so at targeted margins, or
increase the regulatory burdens under which we operate.
We are also involved in various governmental
investigations, audits and reviews. See Note 12 of Notes
to the Consolidated Financial Statements in this Form 10-K
for a discussion of certain of these matters. See also the
risk factor below relating to our activities as a payer in
various government health care programs for a discussion
of audits by CMS. Reviews and investigations of this sort
can lead to government actions, which can result in the
assessment of damages, civil or criminal fines or penalties,
or other sanctions, including restrictions or changes in the
way we conduct business, loss of licensure or exclusion
from participation in government programs, and could
have a material adverse effect on our results of operations,
financial position and cash flows.
The health care industry is also regularly subject
to negative publicity, including as a result of routine
governmental investigations, the political debate
surrounding the Health Reform Legislation and the
political environment in general. Negative publicity may
adversely affect our stock price, damage our reputation in
various markets, foster an increasingly active regulatory
environment or result in increased regulation and
legislative review of industry practices. This may further
increase our costs of doing business and the regulatory
burdens under which we operate.
Some of our businesses and operations are international
in nature and consequently face political, economic, legal,
compliance, regulatory, operational and other risks and
exposures that are unique and vary by jurisdiction. The
regulatory environments and associated requirements
and uncertainties regarding tax, licensing, tariffs,
intellectual property, privacy, data protection, investment,
management control, fraud and anti-corruption present
additional challenges for us beyond those faced by U.S.-
based businesses. Such requirements and uncertainties may
adversely affect our ability to market our products and
services, or to do so at targeted margins, or increase the
regulatory burdens under which we operate.
For a discussion of various laws and regulations that
impact our businesses, see Item 1, “Business - Government
Regulation.”
The enactment or implementation of health care reforms
could materially and adversely affect the manner in
which we conduct business and our results of operations,
financial position and cash flows.
In the first quarter of 2010, the Health Reform Legislation
was signed into law. The Health Reform Legislation
expands access to coverage and modifies aspects of the
commercial insurance market, as well as the Medicaid and
Medicare programs and CHIP and other aspects of the
2011 FORM 10-K
15
health care system. Among other things, the Health Reform
Legislation includes guaranteed coverage and expanded
benefit requirements, eliminates pre-existing condition
exclusions and annual and lifetime maximum limits, restricts
the extent to which policies can be rescinded, establishes
minimum medical loss ratios, creates a federal premium
review process, imposes new requirements on the format
and content of communications (such as explanations
of benefits, or EOBs) between health insurers and their
members, grants to members new and additional appeal
rights, imposes new and significant taxes on health insurers
and health care benefits, reduces the Medicare Part D
coverage gap and reduces payments to private plans
offering Medicare Advantage.
Certain provisions of the Health Reform Legislation have
already taken effect, and other provisions become effective
at various dates over the next several years. HHS, the DOL
and the Treasury Department have issued or proposed
regulations on a number of aspects of Health Reform
Legislation, but final rules and interim guidance on other
key aspects of the legislation remain pending. Due to the
complexity of the Health Reform Legislation, the impact of
the Health Reform Legislation remains difficult to predict
and is not yet fully known.
For example, effective in 2011, the Health Reform
Legislation established minimum medical loss ratios for
all commercial health plans in the large employer group,
small employer group and individual markets (85% for
large employer groups, 80% for small employer groups
and 80% for individuals, calculated under the definitions
in the Health Reform Legislation and regulations).
Companies with medical loss ratios below these targets
are required to rebate ratable portions of their premiums
to their customers annually. The potential for and size of
the rebates will be measured by state, by group size and
by licensed subsidiary. This disaggregation of insurance
pools into much smaller pools will likely decrease the
predictability of results for any given pool and could lead
to variation over time in the estimates of rebates owed in
total. Effective in 2014, Medicare Advantage plans will be
required to maintain a minimum medical loss ratio of 85%.
Depending on the results of these calculations and the
manner in which we adjust our business model in light of
these requirements, there could be meaningful disruptions
in local health care markets, and our market share,
revenues, results of operations, financial position and cash
flows could be materially and adversely affected.
In addition, the Health Reform Legislation requires the
establishment of state-based health insurance exchanges
for individuals and small employers by 2014. The types
of exchange participation requirements ultimately
enacted by each state, the availability of federal premium
subsidies within exchanges, the potential for differential
imposition of state benefit mandates inside and outside
the exchanges, the operation of reinsurance, risk corridors
and risk adjustment mechanisms inside and outside the
exchanges and the possibility that certain states may restrict
the ability of health plans to continue to offer coverage to
16
UNITEDHEALTH GROUP
individuals and small employers outside of the exchanges,
could result in disruptions in local health care markets and
our revenues, results of operations, financial position and
cash flows could be materially and adversely affected.
The Health Reform Legislation includes a “maintenance
of effort” (MOE) provision that requires states to maintain
their eligibility rules for people covered by Medicaid,
until the Secretary of HHS determines that an insurance
exchange is operational in a given state. The MOE provision
is intended to prevent states from reducing eligibility
standards and determination procedures as a way to
remove adults above 133% of the federal poverty level from
Medicaid before implementation of expanded Medicaid
coverage effective in January 2014. However, states with, or
projecting, a budget deficit may apply for an exception to
the MOE provision. If states are successful in obtaining MOE
waivers and allow certain Medicaid programs to expire, we
could experience reduced Medicaid enrollment, which could
materially and adversely affect our revenues, results of
operations, financial position and cash flows.
Several of the provisions in the Health Reform
Legislation will likely increase our medical cost trends.
Examples of these provisions are the excise tax on medical
devices, annual fees on prescription drug manufacturers,
enhanced coverage requirements (including discounted
prescription drugs for Medicare Part D participants) and
the prohibition of pre-existing condition exclusions. The
annual insurance industry assessment ($8 billion levied
on the insurance industry in 2014 with increasing annual
amounts thereafter), which is not deductible for income
tax purposes, will increase our operating costs. Premium
increases will be necessary to offset the impact these and
other provisions will have on our medical and operating
costs. These premium increases are oftentimes subject
to state regulatory approval. In this regard, the Federal
government is encouraging states to intensify their
reviews of requests for rate increases by commercial health
plans and providing funding to assist in those state-level
reviews. We have begun to experience greater regulatory
challenges to appropriate premium rate increases in
several states, including California, New York and Rhode
Island. In addition, as required under the Health Reform
Legislation, HHS established a federal premium rate review
process, which became effective in September 2011 and
generally applies to proposed rate increases equal to
or exceeding 10% (with state-specific thresholds to be
applicable commencing September 2012). The regulations
further require commercial health plans in the individual
and small group markets to provide to the states and HHS
extensive information supporting any rate increases subject
to the new federal rate review process. If we are not able
to secure approval for adequate premium increases to
offset increases in our cost structure, our revenues, results
of operations, financial position and cash flows could
be materially and adversely affected. In addition, plans
deemed to have a history of “unreasonable” rate increases
may be prohibited from participating in the state-based
exchanges that become active under the Health Reform
Legislation in 2014. Under the regulations, the HHS rate
review process would apply only to health plans in the
individual and small group markets.
The Congressional Budget Office has estimated that up
to 34 million new individuals may eventually gain insurance
coverage if the Health Reform Legislation is implemented
broadly in its current form. In addition, we expect that
implementation of the Health Reform Legislation will
increase the demand for products and capabilities offered
by our Optum businesses. We have made and will continue
to make strategic decisions and investments based, in
part, on these assumptions, and our results of operations,
financial position and cash flows could be materially and
adversely affected if fewer individuals gain coverage
under the Health Reform Legislation than estimated or
we are unable to attract these new individuals to our
UnitedHealthcare offerings, or if the demand for our
Optum businesses does not increase.
Certain aspects of the Health Reform Legislation are also
being challenged in federal court, with the proponents
of such challenges seeking to limit the scope of or have
all or portions of the Health Reform Legislation declared
unconstitutional. The United States Supreme Court is
scheduled to hear oral arguments on certain aspects of
these cases in March 2012, including the constitutionality
of the individual mandate. Congress may withhold the
funding necessary to implement the Health Reform
Legislation, or may attempt to replace the legislation with
amended provisions or repeal it altogether. Any partial
or complete repeal or amendment or implementation
difficulties, or uncertainty regarding such events, could
materially and adversely impact our ability to capitalize
on the opportunities presented by the Health Reform
Legislation or may cause us to incur additional costs
of compliance. For example, if the individual mandate
is declared unconstitutional or repealed without
corresponding changes to other provisions of the Health
Reform Legislation to protect against the risk of adverse
selection (such as revisions to the guaranteed issue
and renewal requirements, prohibition on pre-existing
condition exclusions, and rating restrictions), our results
of operations, financial position and cash flows could be
materially and adversely affected.
Congress is also considering additional health care
reform measures, and a number of state legislatures have
enacted or are contemplating significant reforms of their
health insurance markets, either independent of or to
comply with or be eligible for grants or other incentives in
connection with the Health Reform Legislation. The effects
of the Health Reform Legislation and recently adopted
state laws, and the regulations that have been and will
be promulgated thereunder, are difficult to predict, and
we cannot predict whether any other federal or state
proposals will ultimately become law. Such laws and rules
could force us to materially change how we do business,
restrict revenue and enrollment growth in certain products
and market segments, restrict premium growth rates for
certain products and market segments, adversely change
the nature of our contracted network relationships,
increase our medical and administrative costs and capital
requirements, expose us to an increased risk of liability
(including increasing our liability in federal and state courts
for coverage determinations and contract interpretation)
or put us at risk for loss of business. In addition, our market
share, our results of operations, our financial position,
including our ability to maintain the value of our goodwill,
and our cash flows could be materially and adversely
affected by such changes.
For additional information regarding the Health Reform
Legislation, see Item 1, “Business - Government Regulation”
and Item 7, “Management’s Discussion and Analysis of
Financial Condition and Results of Operations - Executive
Overview - Regulatory Trends and Uncertainties.”
As a result of our participation in various government
health care programs, both as a payer and as a service
provider to payers, we are exposed to additional risks
associated with program funding, enrollments, payment
adjustments and audits that could materially and adversely
affect our revenues, results of operations, financial
position and cash flows.
We participate in various federal, state and local
government health care coverage programs, including as
a payer in Medicare Advantage, Medicare Part D, various
Medicaid programs and CHIP, and receive substantial
revenues from these programs. We also provide services
to payers through our Optum businesses. These programs
generally are subject to frequent changes, including
changes that may reduce the number of persons enrolled or
eligible for coverage, reduce the amount of reimbursement
or payment levels, reduce our participation in certain
service areas or markets, or increase our administrative
or medical costs under such programs. For example,
CMS reduced or froze Medicare Advantage benchmarks
that drive reimbursements between 2009 and 2011, and
beginning in 2012, additional cuts to Medicare Advantage
benchmarks will take effect, with changes being phased-in
over two to six years, depending on the level of benchmark
reduction in a county. Although we have adjusted
members’ benefits and premiums on a selective basis,
terminated benefit plans in certain counties, and intensified
both our medical and operating cost management in
response to these benchmark reductions, there can be
no assurance that we will be able to execute successfully
on these or other strategies to address changes in the
Medicare Advantage program.
As part of the Health Reform Legislation, CMS has
developed a system whereby a plan that meets certain
quality ratings will be entitled to various quality bonus
payments. There can be no assurance that any of our plans
will meet these quality ratings. Our revenues, results of
operations, financial position and cash flows could be
materially and adversely affected by funding reductions,
or if our plans do not meet the requirements to receive
quality bonus payments. Similarly, any reduction in Medicare
Advantage payments could result in downward pressure
on payments made to our Collaborative Care business in
2011 FORM 10-K
17
exchange for services provided to Medicare Advantage plans.
Our participation in the Medicare Advantage, Medicare
Part D, and various Medicaid and CHIP programs occurs
through bids that are submitted periodically. Revenues for
these programs are dependent upon periodic funding from
the federal government or applicable state governments
and allocation of the funding through various payment
mechanisms. Funding for these government programs
is dependent upon many factors outside of our control,
including general economic conditions and budgetary
constraints at the federal or applicable state level, and
general political issues and priorities. A reduction or
less than expected increase, or a protracted delay, in
government funding for these programs or change in
allocation methodologies may materially and adversely
affect our revenues, results of operations, financial position
and cash flows. State Medicaid programs are also imposing
other reforms, such as medical loss ratio requirements
on Medicaid managed care organizations, which
generally require such plans to rebate ratable portions
of their premiums to their state customers if they cannot
demonstrate they have met the ratio standards.
CMS uses various payment mechanisms to allocate
funding for Medicare programs, including adjusting
monthly capitation payments to Medicare Advantage
plans and Medicare Part D plans according to the predicted
health status of each beneficiary as supported by data
from health care providers as well as, for Medicare Part
D plans only, based on comparing costs predicted in our
annual bids to actual prescription drug costs. Some state
Medicaid programs utilize a similar process. For example,
our UnitedHealthcare Medicare & Retirement and
UnitedHealthcare Community & State businesses submit
information relating to the health status of enrollees to
CMS or state agencies for purposes of determining the
amount of certain payments to us. In 2008, CMS announced
that it will perform risk adjustment data validation
(RADV) audits of selected Medicare health plans each
year to validate the coding practices of and supporting
documentation maintained by health care providers, and
certain of our local plans have been selected for audit.
These audits may result in retrospective adjustments to
payments made to our health plans. In December 2010,
CMS published for public comment a new proposed RADV
audit and payment adjustment methodology. The proposed
methodology contains provisions allowing retroactive
contract level payment adjustments for the year audited
using an extrapolation of the “error rate” identified in
audit samples. In February 2011, CMS announced that it
would be making changes to the proposed methodology
based, in part, on comments submitted by industry
participants. As of the date of this filing, CMS has not
published the revised methodology. Depending on the
methodology utilized, potential payment adjustments
could have a material adverse effect on our results of
operations, financial position and cash flows.
In addition, the Office of Inspector General for HHS has
audited our risk adjustment data for two local plans and
18
UNITEDHEALTH GROUP
has initially communicated its findings, although we cannot
predict the final outcome of the audit process. Any payment
adjustments required as a result of the audits or otherwise
could have a material adverse effect on our results of
operations, financial position and cash flows. See Note 12 of
Notes to the Consolidated Financial Statements in this Form
10-K for additional information regarding these audits.
CMS conducts a variety of routine, regular and special
investigations, audits and reviews across the industry. For
example, in the fourth quarter of 2011, CMS conducted an
audit of our Medicare Advantage and Part D business. We
are in the process of responding to preliminary findings.
As with any CMS review, in the event we fail to comply
with applicable CMS and state laws, regulations and rules,
our results of operations, financial position and cash flows
could be materially and adversely affected.
Under the Medicaid Managed Care program, state
Medicaid agencies are periodically required by federal law
to seek bids from eligible health plans to continue their
participation in the acute care Medicaid health programs.
If we are not successful in obtaining renewals of state
Medicaid Managed Care contracts, we risk losing the
members that were enrolled in those Medicaid plans. Under
the Medicare Part D program, to qualify for automatic
enrollment of low income members, our bids must result in
an enrollee premium below a regional benchmark, which
is calculated by the government after all regional bids
are submitted. If the enrollee premium is not below the
government benchmark, we risk losing the members who
were auto-assigned to us and we will not have additional
members auto-assigned to us. For example, we lost
approximately 470,000 of our auto-enrolled low-income
subsidy members effective January 1, 2012, because certain
of our bids exceeded thresholds set by the government.
In general, our bids are based upon certain assumptions
regarding enrollment, utilization, medical costs, and
other factors. In the event any of these assumptions are
materially incorrect, either as a result of unforeseen
changes to the Medicare program or other programs on
which we bid, or our competitors submit bids at lower rates
than our bids, our results of operations, financial position
and cash flows could be materially and adversely affected.
If we fail to comply with applicable privacy and security
laws, regulations and standards, including with respect
to third-party service providers that utilize sensitive
personal information on our behalf, or if we fail to address
emerging security threats or detect and prevent privacy
and security incidents, our business, reputation, results
of operations, financial position and cash flows could be
materially and adversely affected.
The collection, maintenance, protection, use,
transmission, disclosure and disposal of sensitive
personal information are regulated at the federal, state,
international and industry levels and requirements are
imposed on us by contracts with customers. These laws,
rules and requirements are subject to change. Further,
many of our businesses are subject to the Payment Card
Industry Data Security Standards (PCI DSS), which is a
multifaceted security standard that is designed to protect
credit card account data as mandated by payment card
industry entities. See Item 1, “Business - Government
Regulation” for additional information. HIPAA also requires
business associates as well as covered entities to comply
with certain privacy and security requirements. Even
though we provide for appropriate protections through
our contracts with our third-party service providers and
in certain cases assess their security controls, we still have
limited oversight or control over their actions and practices.
Our facilities and systems and those of our third-party
service providers may be vulnerable to privacy and security
incidents; security attacks and breaches; acts of vandalism
or theft; computer viruses; coordinated attacks by activist
entities; emerging cybersecurity risks; misplaced or lost
data; programming and/or human errors; or other similar
events. Emerging and advanced security threats, including
coordinated attacks, require additional layers of security
which may disrupt or impact efficiency of operations.
Compliance with new laws, regulations and requirements
may result in increased operating costs, and may constrain
our ability to manage our business model. For example,
our ability to collect, disclose and use sensitive personal
information may be further restricted, and we are awaiting
final HHS regulations for many key aspects of the ARRA
amendments to HIPAA, such as with regard to marketing,
electronic health records and access reports (which may
necessitate system changes). In addition, HHS has announced
a pilot audit program to assess HIPAA compliance efforts by
covered entities through 2012. Although we are not aware
of HHS plans to audit any of our covered entities, an audit
resulting in findings or allegations of noncompliance could
have a material adverse effect on our results of operations,
financial position and cash flows.
Noncompliance or findings of noncompliance with
applicable laws, regulations or requirements, or the
occurrence of any privacy or security breach involving the
misappropriation, loss or other unauthorized disclosure of
sensitive personal information, whether by us or by one
of our third-party service providers, could have a material
adverse effect on our reputation, results of operations,
financial position and cash flows, including the following
consequences: mandatory disclosure of a privacy or security
breach to the media; significant increases in the cost of
managing and remediating privacy or security incidents;
enforcement actions; material fines and penalties; an impact
on our ability to process credit card transactions as well as
an increase in related expenses; litigation; compensatory,
special, punitive, and statutory damages; consent orders
regarding our privacy and security practices; adverse actions
against our licenses to do business; and injunctive relief.
Our businesses providing PBM services face regulatory
and other risks and uncertainties associated with the PBM
industry that may differ from the risks of our business of
providing managed care and health insurance products.
We provide PBM services through our OptumRx and
UnitedHealthcare businesses. Each business is subject to
federal and state anti-kickback and other laws that govern
their relationships with pharmaceutical manufacturers,
customers and consumers. In addition, federal and state
legislatures regularly consider new regulations for the
industry that could materially and adversely affect current
industry practices, including the receipt or disclosure of
rebates from pharmaceutical companies, the development
and use of formularies, and the use of average wholesale
prices. See Item 1, “Business - Government Regulation”
for a discussion of various federal and state laws and
regulations governing our PBM businesses.
OptumRx also conducts business as a mail order pharmacy
and specialty pharmacy, which subjects it to extensive
federal, state and local laws and regulations. The failure
to adhere to these laws and regulations could expose
OptumRx to civil and criminal penalties.
Our PBM businesses would be materially and adversely
affected by an inability to contract on favorable terms with
pharmaceutical manufacturers, and could face potential
claims in connection with purported errors by our mail
order or specialty pharmacies, including in connection
with the risks inherent in the packaging and distribution
of pharmaceuticals and other health care products.
Disruptions at any of our mail order or specialty pharmacies
due to an accident or an event that is beyond our control
could affect our ability to timely process and dispense
prescriptions and could materially and adversely affect our
results of operations, financial position and cash flows.
In addition, our PBM businesses provide services to
sponsors of health benefit plans that are subject to ERISA.
The DOL, which is the agency that enforces ERISA, could
assert that the fiduciary obligations imposed by the
statute apply to some or all of the services provided by our
PBM businesses even where our PBM businesses are not
contractually obligated to assume fiduciary obligations.
In the event a court were to determine that fiduciary
obligations apply to our PBM businesses in connection with
services for which our PBM businesses are not contractually
obligated to assume fiduciary obligations, we could be
subject to claims for breaches of fiduciary obligations or
entering into certain prohibited transactions.
UnitedHealthcare Employer & Individual is transitioning
pharmacy benefit management for approximately 12
million of its commercial members, including pharmacy
claims adjudication and customer service, from Medco
Health Solutions, Inc. to OptumRx beginning in 2013.
If we are unable to execute the transition effectively,
UnitedHealthcare Employer & Individual could face loss
of business, which could adversely impact our results of
operations, financial position and cash flows.
If we fail to compete effectively to maintain or increase
our market share, including maintaining or increasing
enrollments in businesses providing health benefits, our
results of operations, financial position and cash flows
could be materially and adversely affected.
Our businesses compete throughout the United States
and face significant competition in all of the geographic
markets in which we operate. We compete with other
companies on the basis of many factors, including price of
2011 FORM 10-K
19
benefits offered and cost and risk of alternatives, location
and choice of health care providers, quality of customer
service, comprehensiveness of coverage offered, reputation
for quality care, financial stability and diversity of product
offerings. For our UnitedHealthcare reporting segment,
competitors include Aetna Inc., Cigna Corporation,
Coventry Health Care, Inc., Health Net, Inc., Humana Inc.,
Kaiser Permanente, WellPoint, Inc., numerous for-profit and
not-for-profit organizations operating under licenses from
the BlueCross BlueShield Association and other enterprises
that serve more limited geographic areas or market
segments such as Medicare and Medicaid specialty services.
For our OptumRx business, competitors include Medco
Health Solutions, Inc., CVS/Caremark Corporation and
Express Scripts, Inc. Our OptumHealth and OptumInsight
reporting segments also compete with a broad and diverse
set of businesses.
In particular markets, competitors may have greater
capabilities, resources or market share; a more established
reputation; superior supplier or health care professional
arrangements; existing business relationships; or other
factors that give such competitors a competitive advantage.
In addition, significant merger and acquisition activity
has occurred in the industries in which we operate, both
as to our competitors and suppliers (including hospitals,
physician groups and other care professionals) in these
industries. Consolidation may make it more difficult for us
to retain or increase customers, to improve the terms on
which we do business with our suppliers, or to maintain or
increase profitability. If we do not compete effectively in
our markets, if we set rates too high or too low in highly
competitive markets, if we do not design and price our
products properly and competitively, if we are unable to
innovate and deliver products and services that demonstrate
value to our customers, if we do not provide a satisfactory
level of services, if membership or demand for other
services does not increase as we expect, if membership or
demand for other services declines, or if we lose accounts
with more profitable products while retaining or increasing
membership in accounts with less profitable products, our
business, results of operations, financial position and cash
flows could be materially and adversely affected.
If we fail to develop and maintain satisfactory relationships
with physicians, hospitals, and other health care providers,
our business could be materially and adversely affected.
We contract with physicians, hospitals, pharmaceutical
benefit service providers, pharmaceutical manufacturers,
and other health care providers for services. Our results
of operations and prospects are substantially dependent
on our continued ability to contract for these services
at competitive prices. Failure to develop and maintain
satisfactory relationships with health care providers,
whether in-network or out-of-network, could materially
and adversely affect our business, results of operations,
financial position and cash flows.
In any particular market, physicians and health care
providers could refuse to contract, demand higher
payments, or take other actions that could result in higher
20
UNITEDHEALTH GROUP
medical costs, less desirable products for customers or
difficulty meeting regulatory or accreditation requirements.
In some markets, certain health care providers, particularly
hospitals, physician/hospital organizations or multi-specialty
physician groups, may have significant market positions or
near monopolies that could result in diminished
bargaining power on our part. In addition, physician
or practice management companies, which aggregate
physician practices for administrative efficiency and
marketing leverage, may compete directly with us. If these
providers refuse to contract with us, use their market
position to negotiate favorable contracts or place us at a
competitive disadvantage, our ability to market products
or to be profitable in those areas could be materially and
adversely affected.
In addition, we have capitation arrangements with
some physicians, hospitals and other health care providers.
Under the typical capitation arrangement, the health care
provider receives a fixed percentage of premiums to cover
all or a defined portion of the medical costs provided to the
capitated member. Under some capitated arrangements,
the provider may also receive additional compensation
from risk sharing and other incentive arrangements.
Capitation arrangements limit our exposure to the risk of
increasing medical costs, but expose us to risk related to
the adequacy of the financial and medical care resources
of the health care provider. To the extent that a capitated
health care provider organization faces financial difficulties
or otherwise is unable to perform its obligations under
the capitation arrangement, we may be held responsible
for unpaid health care claims that should have been
the responsibility of the capitated health care provider
and for which we have already paid the provider under
the capitation arrangement. Further, payment or other
disputes between a primary care provider and specialists
with whom the primary care provider contracts can result
in a disruption in the provision of services to our members
or a reduction in the services available to our members.
There can be no assurance that health care providers
with whom we contract will properly manage the costs of
services, maintain financial solvency or avoid disputes with
other providers. Any of these events could have a material
adverse effect on the provision of services to our members
and our operations.
Some providers that render services to our members
do not have contracts with us. In those cases, we do not
have a pre-established understanding about the amount
of compensation that is due to the provider for services
rendered to our members. In some states, the amount of
compensation due to these out-of-network providers is
defined by law or regulation, but in most instances, it is
either not defined or it is established by a standard that
does not clearly specify dollar terms. In some instances,
providers may believe that they are underpaid for their
services and may either litigate or arbitrate their dispute
with us or try to recover from our members the difference
between what we have paid them and the amount they
charged us. For example, we are involved in litigation
with out-of-network providers, as described in more
detail in “Litigation Matters” in Note 12 of Notes to the
Consolidated Financial Statements.
Accountable care organizations (ACOs) and other
organizational structures that physicians, hospitals, and
other care providers choose may change the way that these
providers interact with us and may change the competitive
landscape. These changes may affect the way that we price
our products and estimate our costs and may require us
to incur costs to change our operations, and our results
of operations, financial position and cash flows could be
adversely affected.
The success of certain Optum businesses depends on
maintaining satisfactory physician relationships. The primary
care physicians that practice medicine or contract with our
affiliated physician organizations could terminate their
provider contracts or otherwise become unable or unwilling
to continue practicing medicine or contracting with us. If
we are unable to maintain satisfactory relationships with
primary care physicians, or to retain enrollees following
the departure of a physician, our revenues could be
materially and adversely affected. In addition, our affiliated
physician organizations contract with health insurance and
HMO competitors of UnitedHealthcare. If our affiliated
physician organizations fail to maintain relationships with
these health insurance or HMO companies, our results
of operations, financial position and cash flows could be
materially and adversely affected.
In addition, physicians, hospitals, pharmaceutical
benefit service providers, pharmaceutical manufacturers,
and certain health care providers are customers of our
Optum businesses. Given the importance of health care
providers and other constituents to our businesses, failure
to maintain satisfactory relationships with them could
materially and adversely affect our results of operations,
financial position and cash flows.
Sales of our products and services are dependent on our
ability to attract, retain and provide support to a network
of independent producers and consultants.
Our products are sold in part through independent
producers and consultants who assist in the production
and servicing of business. We typically do not have long-
term contracts with our producers and consultants, who
generally are not exclusive to us and who typically also
recommend and/or market health care products and
services of our competitors. As a result, we must compete
intensely for their services and allegiance. Our sales would
be materially and adversely affected if we are unable to
attract or retain independent producers and consultants
or if we do not adequately provide support, training and
education to them regarding our product portfolio, or
if our sales strategy is not appropriately aligned across
distribution channels.
Because producer commissions are included as
administrative expenses under the medical loss ratio
requirements of the Health Reform Legislation, these
expenses will be under the same cost reduction pressures as
other administrative costs. Our relationships with producers
could be materially and adversely impacted by changes in
our business practices and the nature of our relationships to
address these pressures, including potential reductions
in commissions.
In addition, there have been a number of investigations
regarding the marketing practices of producers selling
health care products and the payments they receive. These
have resulted in enforcement actions against companies
in our industry and producers marketing and selling
these companies’ products. For example, CMS and state
departments of insurance have increased their scrutiny of
the marketing practices of producers who market Medicare
products. These investigations and enforcement actions
could result in penalties and the imposition of corrective
action plans, which could materially and adversely impact
our ability to market our products.
Our relationship with AARP is important and the loss of
such relationship could have an adverse effect on our
business and results of operations.
Under our agreements with AARP, we provide AARP-
branded Medicare Supplement insurance, hospital
indemnity insurance and other products and services to
AARP members under a Supplement Health Insurance
Program (the AARP Program). We also provide AARP-
branded Medicare Advantage and Medicare Part D
prescription drug plans to both AARP members and
non-members. Our agreements with AARP extend to
December 31, 2017 for the AARP Program and December
31, 2014 for the Medicare Advantage and Medicare Part D
offerings. Our agreements with AARP contain commitments
regarding corporate governance, corporate social
responsibility, diversity and measures intended to improve
and simplify the health care experience for consumers. The
AARP agreements may be terminated early under certain
circumstances, including, depending on the agreement, a
material breach by either party, insolvency of either party, a
material adverse change in our financial condition, material
changes in the Medicare programs, material harm to AARP
caused by us, and by mutual agreement. The success of
our AARP arrangements depends, in part, on our ability to
service AARP and its members, develop additional products
and services, price the products and services competitively,
meet our corporate governance, corporate social
responsibility, and diversity commitments, and respond
effectively to federal and state regulatory changes. The loss
of our AARP relationship could have an adverse effect on
our business and results of operations.
Because of the nature of our business, we are routinely
subject to various litigation actions, which could damage
our reputation and, if resolved unfavorably, could result
in substantial penalties and/or monetary damages and
materially and adversely affect our results of operations,
financial position and cash flows.
Because of the nature of our business, we are routinely
made party to a variety of legal actions related to, among
other things, the design, management and delivery of our
product and service offerings. These matters have included
2011 FORM 10-K
21
or could in the future include claims related to health care
benefits coverage and payment (including disputes with
enrollees, customers, and contracted and non-contracted
physicians, hospitals and other health care professionals),
tort (including claims related to the delivery of health care
services), contract disputes and claims related to disclosure
of certain business practices. We are also party to certain
class action lawsuits brought by health care professional
groups and consumers. We are largely self-insured with
regard to litigation risks. Although we maintain excess
liability insurance with outside insurance carriers for claims
in excess of our self-insurance, certain types of damages,
such as punitive damages in some circumstances, are not
covered by insurance. We record liabilities for our estimates
of the probable costs resulting from self-insured matters;
however, it is possible that the level of actual losses will
significantly exceed the liabilities recorded.
A description of significant legal actions in which we
are currently involved is included in Note 12 of Notes
to the Consolidated Financial Statements. We cannot
predict the outcome of these actions with certainty, and
we are incurring expenses in resolving these matters.
The legal actions we face or may face in the future could
further increase our cost of doing business and materially
and adversely affect our results of operations, financial
position and cash flows. In addition, certain legal actions
could result in adverse publicity, which could damage our
reputation and materially and adversely affect our ability
to retain our current business or grow our market share in
select markets and businesses.
Unfavorable economic conditions could materially
and adversely affect our revenues and our results
of operations.
Unfavorable economic conditions may continue to
impact demand for certain of our products and services.
For example, decreases in employment have caused and
could continue to cause lower enrollment in our employer
group plans, lower enrollment in our non-employer
individual plans and a higher number of employees opting
out of our employer group plans. Unfavorable economic
conditions have also caused and could continue to cause
employers to stop offering certain health care coverage
as an employee benefit or elect to offer this coverage on
a voluntary, employee-funded basis as a means to reduce
their operating costs. In addition, unfavorable economic
conditions could continue to adversely impact our employer
group renewal prospects and our ability to increase
premiums and could result in cancellation of products
and services by our customers. All of these could lead to a
decrease in our membership levels and premium and fee
revenues and could materially and adversely affect our
results of operations, financial position and cash flows.
During a prolonged unfavorable economic environment,
state and federal budgets could be materially and adversely
affected, resulting in reduced reimbursements or payments
in our federal and state government health care coverage
programs, including Medicare, Medicaid and CHIP. A
reduction in state Medicaid reimbursement rates could
22
UNITEDHEALTH GROUP
be implemented retrospectively to payments already
negotiated and/or received from the government and could
materially and adversely affect our revenues, results of
operations, financial position and cash flows. In addition,
the state and federal budgetary pressures could cause the
government to impose new or a higher level of taxes or
assessments for our commercial programs, such as premium
taxes on insurance companies and health maintenance
organizations and surcharges or fees on select fee-for-
service and capitated medical claims, and could materially
and adversely affect our results of operations, financial
position and cash flows.
In addition, a prolonged unfavorable economic
environment could adversely impact the financial position
of hospitals and other care providers, which could
materially and adversely affect our contracted rates with
these parties and increase our medical costs or materially
and adversely affect their ability to purchase our service
offerings. Further, unfavorable economic conditions could
adversely impact the customers of our Optum businesses,
including health plans, HMOs, hospitals, care providers,
employers and others, which could, in turn, materially and
adversely affect Optum’s financial results.
Our investment portfolio may suffer losses, which could
materially and adversely affect our results of operations,
financial position and cash flows.
Market fluctuations could impair our profitability and
capital position. Volatility in interest rates affects our
interest income and the market value of our investments
in debt securities of varying maturities, which comprise
the vast majority of the fair value of our investments as
of December 31, 2011. Relatively low interest rates on
investments, such as those experienced during recent years,
have adversely impacted our investment income, and a
prolonged low interest rate environment could further
adversely affect our investment income. In addition, a
delay in payment of principal and/or interest by issuers, or
defaults by issuers (primarily from investments in corporate
and municipal bonds), could reduce our net investment
income and we may be required to write down the value
of our investments, which would materially and adversely
affect our profitability and shareholders’ equity.
We also allocate a small proportion of our portfolio
to equity investments, which are subject to greater
volatility than fixed income investments. General economic
conditions, stock market conditions, and many other factors
beyond our control can materially and adversely affect
the value of our equity investments and may result in
investment losses.
There can be no assurance that our investments will
produce total positive returns or that we will not sell
investments at prices that are less than their carrying
values. Changes in the value of our investment assets,
as a result of interest rate fluctuations, changes in issuer
financial conditions, illiquidity or otherwise, could have
an adverse effect on our shareholders’ equity. In addition,
if it became necessary for us to liquidate our investment
portfolio on an accelerated basis, it could have a material
adverse effect on our results of operations and the capital
position of regulated subsidiaries.
If the value of our intangible assets is materially impaired,
our results of operations, shareholders’ equity and debt
ratings could be materially and adversely affected.
Goodwill and other intangible assets were $26.8 billion as
of December 31, 2011, representing 39% of our total assets.
We periodically evaluate our goodwill and other intangible
assets to determine whether all or a portion of their
carrying values may be impaired, in which case a charge
to earnings may be necessary. For example, the manner
in or the extent to which the Health Reform Legislation is
implemented may impact our ability to maintain the value
of our goodwill and other intangible assets in our business.
Similarly, the value of our goodwill may be materially and
adversely impacted if businesses that we acquire perform
in a manner that is inconsistent with our assumptions.
In addition, from time to time we divest businesses,
and any such divestiture could result in significant asset
impairment and disposition charges, including those
related to goodwill and other intangible assets. Any future
evaluations requiring an impairment of our goodwill and
other intangible assets could materially and adversely affect
our results of operations and shareholders’ equity in the
period in which the impairment occurs. A material decrease
in shareholders’ equity could, in turn, adversely impact our
debt ratings or potentially impact our compliance with
existing debt covenants.
Large-scale medical emergencies may result in significant
medical costs and may have a material adverse effect on
our results of operations, financial position and cash flows.
Large-scale medical emergencies can take many
forms and can cause widespread illness and death. Such
emergencies could materially and adversely affect the
U.S. economy in general and the health care industry
specifically. For example, in the event of a natural disaster,
bioterrorism attack, pandemic or other extreme events, we
could face, among other things, significant medical costs
and increased use of health care services. Any such disaster
or similar event could have a material adverse effect on our
results of operations, financial position and cash flows.
If we fail to properly maintain the integrity or availability
of our data or to strategically implement new or upgrade
or consolidate existing information systems, or if our
technology products do not operate as intended, our
business could be materially and adversely affected.
Our ability to adequately price our products and
services, to provide effective service to our customers in
an efficient and uninterrupted fashion, and to accurately
report our results of operations depends on the integrity
of the data in our information systems. As a result of
technology initiatives and recently enacted regulations,
changes in our system platforms and integration of
new business acquisitions, we have been consolidating
and integrating the number of systems we operate and
have upgraded and expanded our information systems
capabilities. Our information systems require an ongoing
commitment of significant resources to maintain, protect
and enhance existing systems and develop new systems
to keep pace with continuing changes in information
processing technology, evolving systems and regulatory
standards, emerging cybersecurity risks and threats, and
changing customer patterns. If the information we rely
upon to run our businesses was found to be inaccurate
or unreliable or if we fail to maintain or protect our
information systems and data integrity effectively, we
could lose existing customers, have difficulty attracting
new customers, have problems in determining medical
cost estimates and establishing appropriate pricing, have
difficulty preventing, detecting and controlling fraud,
have disputes with customers, physicians and other health
care professionals, have regulatory sanctions or penalties
imposed, have increases in operating expenses or suffer
other adverse consequences. There can be no assurance
that our process of consolidating the number of systems we
operate, upgrading and expanding our information systems
capabilities, protecting our systems against cybersecurity
risks and threats, enhancing our systems and developing
new systems to keep pace with continuing changes in
information processing technology will be successful or
that additional systems issues will not arise in the future.
Failure to protect, consolidate and integrate our systems
successfully could result in higher than expected costs and
diversion of management’s time and energy, which could
materially and adversely affect our results of operations,
financial position and cash flows.
Certain of our businesses sell and install hardware
and software products, and these products may contain
unexpected design defects or may encounter unexpected
complications during installation or when used with other
technologies utilized by the customer. Connectivity among
competing technologies is becoming increasingly important
in the health care industry. A failure of our technology
products to operate as intended and in a seamless fashion
with other products could materially and adversely affect
our results of operations, financial position and cash flows.
In addition, an uncertain and rapidly evolving federal,
state, international and industry legislative and regulatory
framework related to the health information technology
market may make it difficult to achieve and maintain
compliance and could materially and adversely affect the
configuration of our information systems and platforms,
and our ability to compete in this market.
If we are not able to protect our proprietary rights to our
databases and related products, our ability to market our
knowledge and information-related businesses could be
hindered and our results of operations, financial position
and cash flows could be materially and adversely affected.
We rely on our agreements with customers,
confidentiality agreements with employees, and our
trademarks, trade secrets, copyrights and patents to
protect our proprietary rights. These legal protections
and precautions may not prevent misappropriation of
our proprietary information. In addition, substantial
litigation regarding intellectual property rights exists in the
2011 FORM 10-K
23
software industry, and we expect software products to be
increasingly subject to third-party infringement claims as
the number of products and competitors in this industry
segment grows. Such litigation and misappropriation of our
proprietary information could hinder our ability to market
and sell products and services and our results of operations,
financial position and cash flows could be materially and
adversely affected.
Our ability to obtain funds from some of our subsidiaries
is restricted and if we are unable to obtain sufficient funds
from our subsidiaries to fund our obligations, our results of
operations and financial position could be materially and
adversely affected.
Because we operate as a holding company, we are
dependent upon dividends and administrative expense
reimbursements from some of our subsidiaries to fund
our obligations. Many of these subsidiaries are regulated
by states’ departments of insurance. We are also required
by law or regulation to maintain specific prescribed
minimum amounts of capital in these subsidiaries. The
levels of capitalization required depend primarily upon the
volume of premium revenues generated by the applicable
subsidiary. A significant increase in premium volume will
require additional capitalization from us. In most states,
we are required to seek prior approval by these state
regulatory authorities before we transfer money or pay
dividends from these subsidiaries that exceed specified
amounts. An inability of our regulated subsidiaries to
pay dividends to their parent companies in the desired
amounts or at the time of our choosing could adversely
affect our ability to reinvest in our business through capital
expenditures or business acquisitions, as well as our ability
to maintain our corporate quarterly dividend payment
cycle, repurchase shares of our common stock and repay
our debt. If we are unable to obtain sufficient funds from
our subsidiaries to fund our obligations, our results of
operations and financial position could be materially and
adversely affected.
Any failure by us to manage and complete acquisitions and
other significant strategic transactions successfully could
materially and adversely affect our business, prospects,
results of operations, financial position and cash flows.
As part of our business strategy, we frequently engage
in discussions with third parties regarding possible
investments, acquisitions, divestitures, strategic alliances,
joint ventures, and outsourcing transactions and often
enter into agreements relating to such transactions. If
we fail to identify and complete successfully transactions
that further our strategic objectives, we may be required
to expend resources to develop products and technology
internally, we may be at a competitive disadvantage or we
may be adversely affected by negative market perceptions,
any of which may have a material adverse effect on our
results of operations, financial position or cash flows. For
acquisitions, success is also dependent upon efficiently
integrating the acquired business into our existing
operations. We are required to integrate these businesses
PART II
ITEM 5. Market For Registrant’s Common
Equity, Related Stockholder Matters
And Issuer Purchases Of Equity
Securities
MARKET PRICES
Our common stock is traded on the New York Stock
Exchange (NYSE) under the symbol UNH. On January 31,
2012, there were 15,978 registered holders of record of our
common stock. The per share high and low common stock
sales prices reported by the NYSE were as follows:
2012
First quarter
(through February 8, 2012)
High
$54.18
Cash
Dividends
Low Declared
$0.1625
$49.82
2011
First quarter
Second quarter
Third quarter
Fourth quarter
2010
First quarter
Second quarter
Third quarter
Fourth quarter
$45.75
$52.64
$53.50
$51.71
$36.07
$34.00
$35.94
$38.06
$36.37
$43.30
$41.27
$41.32
$30.97
$27.97
$27.13
$33.94
$0.1250
$0.1625
$0.1625
$0.1625
$0.0300
$0.1250
$0.1250
$0.1250
DIVIDEND POLICY
In May 2011, our Board of Directors increased our cash
dividend to shareholders to an annual dividend rate of
$0.65 per share, paid quarterly. Since June 2010, we had
paid a quarterly dividend of $0.125 per share. Declaration
and payment of future quarterly dividends is at the
discretion of the Board and may be adjusted as business
needs or market conditions change.
24
UNITEDHEALTH GROUP
into our internal control environment, which may present
challenges that are different than those presented by
organic growth and that may be difficult to manage.
If we are unable to successfully integrate and grow
these acquisitions and to realize contemplated revenue
synergies and cost savings, our business, prospects, results
of operations, financial position and cash flows could be
materially and adversely affected.
Downgrades in our credit ratings, should they occur, may
adversely affect our business, financial condition and
results of operations.
Claims paying ability, financial strength, and credit
ratings by nationally recognized statistical rating
organizations are important factors in establishing the
competitive position of insurance companies. Ratings
information is broadly disseminated and generally used
throughout the industry. We believe our claims paying
ability and financial strength ratings are important factors
in marketing our products to certain of our customers. Our
credit ratings impact both the cost and availability of future
borrowings. Each of the credit rating agencies reviews its
ratings periodically and there can be no assurance that
current credit ratings will be maintained in the future. Our
ratings reflect each credit rating agency’s opinion of our
financial strength, operating performance and ability to
meet our debt obligations or obligations to policyholders.
Downgrades in our credit ratings, should they occur, may
adversely affect our results of operations, financial position
and cash flows.
ITEM 1B. Unresolved Staff Comments
None.
ITEM 2.
Properties
To support our business operations in the United States and
other countries, as of December 31, 2011, we owned and/
or leased real properties totaling approximately 16 million
square feet, owning approximately 1 million aggregate
square feet of space and leasing the remainder, primarily in
the United States. Our leases expire at various dates through
September 2028. Our various reporting segments use these
facilities for their respective business purposes, and we
believe these current facilities are suitable for their respective
uses and are adequate for our anticipated future needs.
ITEM 3. Legal Proceedings
See Note 12 of Notes to the Consolidated Financial
Statements in this Form 10-K, which is incorporated by
reference in this report.
ITEM 4. Mine Safety Disclosures
N/A
2011 FORM 10-K
25
ISSUER PURCHASES OF EQUITY SECURITIES
Issuer Purchases of Equity Securities (a)
Fourth Quarter 2011
For the Month Ended
October 31, 2011
November 30, 2011
December 31, 2011
TT
Total
Total Number
TT
of Shares
Purchased
(in millions)
—
—
19(b)
19
Average Price
AA
Paid per Share
$
$
$
$
—
—
47
47
Total Number of
TT
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
(in millions)
Maximum Number
of Shares That May
Yet Be Purchased
YY
Under The Plans
or Programs
(in millions)
—
—
19
19
84
84
65
(a) In November 1997, our Board of Directors adopted a share repurchase program, which the Board evaluates periodically.
In May 2011, the Board renewed our share repurchase program with an authorization to repurchase up to 110 million
shares of our common stock in open market purchases or other types of transactions (including prepaid or structured
repurchase programs). There is no established expiration date for the program. As of December 31, 2011, we had Board
authorization to purchase up to an additional 65 million shares of our common stock.
(b) Shares repurchased in December were purchased under a prepaid share repurchase program based on volume weighted
average share prices for the fourth quarter.
PERFORMANCE GRAPHS
The following two performance graphs compare our
total return to shareholders with the returns of indexes
of other specified companies and the S&P 500 Index.
The first graph compares the cumulative five-year total
return to shareholders on our common stock relative to
the cumulative total returns of the S&P 500 index and a
customized peer group of certain Fortune 50 companies
(the “Fortune 50 Group”), for the five-year period ended
December 31, 2011. The second graph compares our
cumulative total return to shareholders with the S&P 500
Index and an index of a group of peer companies selected
0
by us for the five-year period ended December 31, 2011. We
are not included in either the Fortune 50 Group index in the
first graph or the peer group index in the second graph. In
calculating the cumulative total shareholder return of the
indexes, the shareholder returns of the Fortune 50 Group
companies in the first graph and the peer group companies
in the second graph are weighted according to the stock
market capitalizations of the companies at January 1 of each
year. The comparisons assume the investment of $100 on
December 31, 2006 in our common stock and in each index,
and that dividends were reinvested when paid.
0
26
UNITEDHEALTH GROUP
FORTUNE 50 GROUP
The Fortune 50 Group consists of the following companies: American International Group, Inc., Berkshire Hathaway Inc.,
Cardinal Health, Inc., Citigroup Inc., General Electric Company, International Business Machines Corporation and Johnson &
Johnson. Although there are differences in terms of size and industry, like UnitedHealth Group, all of these companies are
large multi-segment companies using a well-defined operating model in one or more broad sectors of the economy.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
Among UnitedHealth Group, the S&P 500 Index, and Fortune 50
$140
$120
$100
$80
$60
$40
$20
$0
12/06
12/07
12/08
12/09
12/10
12/11
UnitedHealth Group
S&P 500
Fortune 50
UnitedHealth Group
S&P 500
Fortune 50 Group
$
12/06
100.00
100.00
100.00
12/07
$ 108.38
105.49
93.51
12/08
12/09
12/10
12/11
$
49.58
66.46
49.24
$
56.89
84.05
55.06
$
68.21
96.71
65.06
$
96.98
98.75
65.04
The stock price
k
performance included ind
y
this graph is not necessarily
t
indicative
of future
f
k
stock price
performance.
PEER GROUP
The companies included in our peer group are Aetna Inc., Cigna Corporation, Coventry Health Care, Inc., Humana Inc. and
WellPoint, Inc. We believe that this peer group reflects publicly traded peers to our UnitedHealthcare businesses.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
Among UnitedHealth Group, the S&P 500 Index, and a Peer Group
$140
$120
$100
$80
$60
$40
$20
$0
12/06
12/07
12/08
12/09
12/10
12/11
UnitedHealth Group
S&P 500
Peer Group
UnitedHealth Group
S&P 500
Peer Group
$
12/06
100.00
100.00
100.00
12/07
$ 108.38
105.49
120.65
12/08
12/09
12/10
12/11
$
49.58
66.46
53.78
$
56.89
84.05
73.27
$
68.21
96.71
74.94
$
96.98
98.75
96.59
The stock price
k
performance included ind
y
this graph is not necessarily
t
indicative
of future
f
k
stock price
performance.
2011 FORM 10-K
27
ITEM 6.
Selected Financial Data
FINANCIAL HIGHLIGHTS
(In millions, except percentages and per share data)
Consolidated operating results
2011
YY
For the Year Ended December 31,
2008
2009
2010
2007
Revenues
Earnings from operations
Net earnings
Return on shareholders’ equity (a)
Basic net earnings per common share
Diluted net earnings per common share
Common stock dividends per share
Consolidated cash flows from (used for)
Operating activities
Investing activities
Financing activities
Consolidated financial condition
(As of December 31)
Cash and investments
Total assets
TT
Total commercial paper and long-term debt
TT
Shareholder’s equity
Debt to debt-plus-equity ratio
$101,862
8,464
5,142
18.9%
4.81
4.73
0.6125
$
$ 94,155
7,864
4,634
$
18.7%
4.14
4.10
0.4050
$ 87,138
6,359
3,822
$
17.3%
3.27
3.24
0.0300
$ 6,968
(4,172)
(2,490)
$ 6,273
(5,339)
(1,611)
$ 5,625
(976)
(2,275)
$ 81,186
5,263
2,977
$ 75,431
7,849
4,654
$
$
14.9%
2.45
2.40
0.0300
4,238
(5,072)
(605)
$
$
22.4%
3.55
3.42
0.0300
5,877
(4,147)
(3,185)
$ 28,172
67,889
11,638
28,292
$ 25,902
63,063
11,142
25,825
$ 24,350
59,045
11,173
23,606
$ 21,575
55,815
12,794
20,780
$ 22,286
50,899
11,009
20,063
29.1%
30.1%
32.1%
38.1%
35.4%
(a) Return on equity is calculated as net earnings divided by average equity. Average equity is calculated using the equity
balance at the end of the preceding year and the equity balances at the end of the four quarters of the year presented.
Financial Highlights should be read with the accompanying Management’s Discussion and Analysis of Financial Condition
and Results of Operations and Consolidated Financial Statements and Notes to the Consolidated Financial Statements.
ITEM 7. Management’s Discussion And
Analysis Of Financial Condition
And Results Of Operations
The following discussion should be read together with
the accompanying Consolidated Financial Statements and
Notes to the Consolidated Financial Statements thereto.
Readers are cautioned that the statements, estimates,
projections or outlook contained in this report, including
discussions regarding financial prospects, economic
conditions, trends and uncertainties contained in this Item
7, may constitute forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of
1995, or PSLRA. These forward-looking statements involve
risks and uncertainties that may cause our actual results to
differ materially from the results discussed in the forward-
looking statements. A description of some of the risks and
uncertainties can be found in Item 1A, “Risk Factors.”
EXECUTIVE OVERVIEW
GENERAL
UnitedHealth Group is a diversified health and well-being
company, whose mission is to help people live healthier
lives and help make health care work better. Through
our diversified family of businesses, we leverage core
competencies in advanced, enabling technology; health care
data, information and intelligence; and care management
and coordination to help meet the demands of the health
system. These core competencies are deployed within our
two distinct, but strategically aligned, business platforms:
health benefits operating under UnitedHealthcare and
health services operating under Optum.
UnitedHealthcare serves the health benefits needs of
individuals across life’s stages through three businesses.
UnitedHealthcare Employer & Individual serves individual
consumers and employers. The unique health needs
of seniors are served by UnitedHealthcare Medicare &
Retirement. UnitedHealthcare Community & State serves
the public health marketplace, offering states innovative
Medicaid solutions.
28
UNITEDHEALTH GROUP
Optum serves health system participants including
consumers, physicians, hospitals, governments, insurers,
distributors and pharmaceutical companies, through its
OptumHealth, OptumInsight and OptumRx businesses.
Our medical care ratio, calculated as medical costs as a
percentage of premium revenues, reflects the combination
of pricing, rebates, benefit designs, consumer health care
utilization and comprehensive care facilitation efforts.
REVENUES
Our revenues are primarily comprised of premiums derived
from risk-based health insurance arrangements in which
the premium is typically at a fixed rate per individual served
for a one-year period, and we assume the economic risk
of funding our customers’ health care benefits and related
administrative costs. Effective in 2011, commercial health
plans with medical loss ratios on fully insured products,
as calculated under the definitions in the Health Reform
Legislation and implementing regulations, that fall below
certain targets (85% for large employer groups, 80% for
small employer groups and 80% for individuals, subject to
state-specific exceptions) are required to rebate ratable
portions of their premiums annually. As a result, our
quarterly premium revenue may be reduced by a pro rata
estimate of our full-year premium rebate payable under the
Health Reform Legislation. Any required rebate payments
for the current year are made in the third quarter of the
subsequent year. We also generate revenues from fee-based
services performed for customers that self-insure the health
care costs of their employees and employees’ dependants.
For both risk-based and fee-based health care benefit
arrangements, we provide coordination and facilitation
of medical services; transaction processing; health care
professional services; and access to contracted networks of
physicians, hospitals and other health care professionals. We
also generate service revenues from our Optum businesses.
Product revenues are mainly comprised of products sold
by our pharmacy benefit management business. We derive
investment income primarily from interest earned on our
investments in debt securities; investment income also
includes gains or losses when investment securities are sold,
or other-than-temporarily impaired.
OPERATING COSTS
Medical Costs. Our operating results depend in large part
on our ability to effectively estimate, price for and manage
our medical costs through underwriting criteria, product
design, negotiation of favorable care provider contracts
and care coordination programs. Controlling medical costs
requires a comprehensive and integrated approach to
organize and advance the full range of interrelationships
among patients/consumers, health professionals, hospitals,
pharmaceutical/technology manufacturers and other
key stakeholders.
Medical costs include estimates of our obligations
for medical care services rendered on behalf of insured
consumers for which we have not yet received or processed
claims, and our estimates for physician, hospital and
other medical cost disputes. In every reporting period, our
operating results include the effects of more completely
developed medical costs payable estimates associated with
previously reported periods.
Operating Costs. Operating costs are primarily comprised
of costs related to employee compensation and benefits,
agent and broker commissions, premium taxes and
assessments, professional fees, advertising and occupancy
costs. We seek to improve our operating cost ratio,
calculated as operating costs as a percentage of total
revenues, for an equivalent mix of business. However,
changes in business mix, such as increases in the size of our
health services businesses may impact our operating costs
and operating cost ratio.
CASH FLOWS
We generate cash primarily from premiums, service and
product revenues and investment income, as well as
proceeds from the sale or maturity of our investments.
Our primary uses of cash are for payments of medical
claims and operating costs, payments on debt, purchases
of investments, acquisitions, dividends to shareholders and
common stock repurchases. For more information on our
cash flows, see “Liquidity” below.
BUSINESS TRENDS
Our businesses participate in the U.S. health economy,
which comprises approximately 18% of U.S. gross domestic
product and has grown consistently for many years. We
expect overall spending on health care in the U.S. to
continue to grow in the future, due to inflation, medical
technology and pharmaceutical advancement, regulatory
requirements, demographic trends in the U.S. population
and national interest in health and well-being. The rate
of market growth may be affected by a variety of factors,
including macro-economic conditions and enacted
health care reforms, which could also impact our results
of operations.
In 2012, we expect increasing unit costs to continue
to be the primary cost driver of medical cost trends and
we project steadily increasing medical system utilization
over the course of the year. We also expect an increase
in prescription drug costs. We will continue to work to
manage medical cost trends through care management
programs, affordable network relationships, pay-for-
performance reimbursement programs for care providers,
and targeted clinical management programs and
initiatives focused on improving quality and affordability.
Additionally, employers are continuing to select products
with benefit designs that shift more of the costs to the
employee. This cost shifting continues to mitigate increases
in medical cost trends.
Our businesses focus on affordability, consumer
empowerment, wellness and prevention, payment
innovations, and enhanced distribution to better serve our
customer and consumer needs and demands. These business
objectives are consistent with the goals of health care
reform. We expect that the portion of our costs that is tied
to incentive contracts that reward providers for outcome-
based results and improved cost efficiencies will continue
to increase. Care providers are facing market pressures to
change from fee-for-service models to new delivery models
focused on the holistic health of the consumer, integrated
care across care providers and pay-for-performance
payment structures. This is creating the need for health
management services that can coordinate care around
the primary care physician and for investment in new
clinical and administrative information and management
systems. The impact of such changes on our results of
operations is uncertain but, we expect them to moderate
the rate at which medical costs increase. This trend also
provides growth opportunities for our OptumHealth and
OptumInsight businesses.
We attempt to price our products consistent with
anticipated underlying medical trends, while balancing
growth, margins, competitive dynamics and premium
rebates at the local market level. We seek to sustain a
stable medical care ratio for an equivalent mix of business.
However, changes in business mix, such as expanding
participation in comparatively higher medical care ratio
government-sponsored public sector programs and Health
Reform Legislation may impact our premiums, medical
costs and medical care ratio. In 2012, we continue to expect
reimbursements to be under pressure through government
payment rates and continued market competition in
commercial products.
REGULATORY TRENDS AND UNCERTAINTIES
In the first quarter of 2010, the Health Reform Legislation
was signed into law. The Health Reform Legislation expands
access to coverage and modifies aspects of the commercial
insurance market, the Medicaid and Medicare programs,
CHIP and other aspects of the health care system. HHS, the
DOL, the IRS and the Treasury Department have issued or
proposed regulations on a number of aspects of Health
Reform Legislation, but final rules and interim guidance
on other key aspects of the legislation, all of which have a
variety of effective dates, remain pending.
The Health Reform Legislation and the related federal
and state regulations will impact how we do business and
could restrict growth and restrict premium rate increases in
certain products and market segments, increase our medical
and administrative costs, or expose us to an increased
risk of liability, any or all of which could have a material
adverse effect on us.
We also anticipate that the Health Reform Legislation
will further increase attention on the need for health care
cost containment and improvements in quality, with a
focus on prevention, wellness and disease management.
We believe demand for many of our service offerings, such
as consulting services, data management, information
technology and related infrastructure construction, disease
management, and population-based health and wellness
programs will continue to grow.
Following is a listing of some of the key provisions of
the Health Reform Legislation and other regulatory items
along with management’s view of the related trends and
uncertainties that may cause reported financial information
2011 FORM 10-K
29
to not be indicative of future operating performance or of
future financial condition.
Premium Rebates
Effective in 2011, commercial health plans with medical
loss ratios on fully insured products that fall below
certain targets are required to rebate ratable portions
of their premiums annually. The potential for and size of
the rebates are measured by state, by group size and by
licensed subsidiary.
In the aggregate, the rebate regulations cap the level of
margin that can be attained.
The disaggregation of insurance pools into smaller pools
will likely decrease the predictability of results for any given
pool and could lead to variation over time in the estimates
of rebates owed.
Other market participants could implement changes to
their business practices in response to the Health Reform
Legislation, which could positively or negatively impact our
growth and market share. Insurers could elect to change
pricing, modify product features or benefits, adjust their
mix of business or even exit segments of the market. They
could also seek to adjust their operating costs by making
changes to their distribution arrangements or decreasing
spending on non-medical product features and services. We
have made changes to reduce our product distribution costs
in the individual market in response to the Health Reform
Legislation, including reducing producer commissions,
and are implementing changes to distribution in the large
group insured market segment. These changes could impact
future growth in these products.
Commercial Rate Increase Review
The Health Reform Legislation also requires HHS to
maintain an annual review of “unreasonable” increases in
premium rates for commercial health plans. HHS established
a review threshold of annual premium rate increases
generally at or above 10% (with state-specific thresholds to
be applicable commencing September 2012), and clarified
that the HHS review will not supersede existing state review
and approval processes. The regulations further require
commercial health plans to provide to the states and HHS
extensive information supporting any rate increase of
10% (or applicable state threshold) or more. Under the
regulations, the HHS rate review process would apply only
to health plans in the individual and small group markets.
The Federal government is also encouraging states
to intensify their reviews of requests for rate increases
by affected commercial health plans (including large
group plans) and providing funding to assist in those
state-level reviews. Since August 2010, HHS has allocated
approximately $250 million for grants to states to enable
the states to conduct more robust reviews of requests
for premium increases. Many states have applied for and
received grants, and state regulators have signaled their
intent to more closely scrutinize premium rates.
Premium rate review legislation (ranging from new
or enhanced rate filing requirements to prior approval
requirements) has been introduced or passed in more than
30
UNITEDHEALTH GROUP
half of the states in 2011. As a result, we have begun to
experience greater regulatory challenges to appropriate
premium rate increases in several states, including
California, New York and Rhode Island. Depending on the
level of scrutiny by the states, there is a broad range of
potential business impacts. For example, it may become
more difficult to price our commercial risk business
consistent with expected underlying cost trends, leading to
the risk of operating margin compression.
Medicare Advantage Rates
As part of the Health Reform Legislation, Medicare
Advantage risk adjusted benchmarks, which ultimately
drive our CMS payments, were reduced by 1.6% in 2011
from 2010 levels. Beginning in 2012, additional cuts
to Medicare Advantage benchmarks have taken effect
(benchmarks will ultimately range from 95% of Medicare
fee-for-service rates in high cost areas to 115% in low
cost areas), with changes being phased-in over two to six
years, depending on the level of benchmark reduction in a
county. These changes could result in reduced enrollment
or reimbursement or payment levels.
We expect the 2012 rates will be outpaced by underlying
medical trends, placing continued importance on effective
medical management and ongoing improvements in
administrative costs. There are a number of annual
adjustments we can make to our operations, which may
partially offset any impact from these rate reductions.
For example, we can seek to intensify our medical and
operating cost management, adjust members’ benefits and
decide on a county-by-county basis in which geographies to
participate.
Additionally, achieving high quality scores from CMS
for improving upon certain clinical and operational
performance standards will impact future quality bonuses
that may offset these anticipated rate reductions. We
also may be able to mitigate the effects of reduced
funding on margins by increasing enrollment due to the
increases in the number of people eligible for Medicare
in coming years. Longer term, market wide decreases in
the availability or relative quality of Medicare Advantage
products may increase demand for other senior health
benefits products such as our Medicare Part D and Medicare
Supplement insurance offerings.
It is also anticipated that CMS will release the final
Medicare Advantage Risk Adjustment Data Validation
(RADV) audit methodology in 2012. RADV audits are
intended to validate that the risk-adjusted payments
Medicare Advantage plans receive are supported by
medical record data. Depending upon the final RADV
methodology released by CMS, recoveries from RADV
audits may result in additional rate pressure.
Budget Control Act’s Medicare Sequestration
Congress passed the Budget Control Act of 2011, which,
following the failure of the Joint Select Committee
on Deficit Reduction to cut the federal deficit by $1.2
trillion, triggers automatic across-the-board budget
cuts (sequestration), including Medicare spending cuts
averaging 2% of total program costs for nine years, starting
in 2013. Medicare payments exempted from sequestration
include:
(cid:116)(cid:1)(cid:1)(cid:49)(cid:66)(cid:83)(cid:85)(cid:1)(cid:37)(cid:1)(cid:77)(cid:80)(cid:88)(cid:14)(cid:74)(cid:79)(cid:68)(cid:80)(cid:78)(cid:70)(cid:1)(cid:84)(cid:86)(cid:67)(cid:84)(cid:74)(cid:69)(cid:74)(cid:70)(cid:84)(cid:28)
(cid:116)(cid:1)(cid:1)(cid:49)(cid:66)(cid:83)(cid:85)(cid:1)(cid:37)(cid:1)(cid:68)(cid:66)(cid:85)(cid:66)(cid:84)(cid:85)(cid:83)(cid:80)(cid:81)(cid:73)(cid:74)(cid:68)(cid:1)(cid:84)(cid:86)(cid:67)(cid:84)(cid:74)(cid:69)(cid:74)(cid:70)(cid:84)(cid:28)(cid:1)(cid:66)(cid:79)(cid:69)
(cid:116) (cid:49)(cid:66)(cid:90)(cid:78)(cid:70)(cid:79)(cid:85)(cid:84)(cid:1)(cid:85)(cid:80)(cid:1)(cid:84)(cid:85)(cid:66)(cid:85)(cid:70)(cid:84)(cid:1)(cid:71)(cid:80)(cid:83)(cid:1)(cid:68)(cid:80)(cid:87)(cid:70)(cid:83)(cid:66)(cid:72)(cid:70)(cid:1)(cid:80)(cid:71)(cid:1)(cid:46)(cid:70)(cid:69)(cid:74)(cid:68)(cid:66)(cid:83)(cid:70)(cid:1)(cid:68)(cid:80)(cid:84)(cid:85)(cid:14)
sharing for certain low-income Medicare beneficiaries.
The Office of Management and Budget is responsible for
determining, calculating and implementing cuts. We are
exploring strategies to mitigate any impact that may result
from the cuts beginning in 2013.
Insurance Industry Fee
The Health Reform Legislation includes an annual insurance
industry assessment ($8 billion levied on the insurance
industry in 2014 with increasing annual
amounts thereafter). The annual fee will be allocated
based on the ratio of an entity’s net premiums written
during the preceding calendar year to the total health
insurance for any U.S. health risk that is written during
the preceding calendar year, subject to certain exceptions
and uncertainties.
Our effective income tax rate will increase significantly in
2014 due to the non-deductibility of these fees.
Premium increases will be necessary to offset the
impact of these and other provisions. Premium increases
are generally subject to state regulatory approval and
potentially to federal review. Other market participants
could increase premiums at different levels which could
impact our market share positively or negatively.
State-based Exchanges and Coverage Expansion
Effective in 2014, exchanges are required to be established
for individuals and small employers as well as certain CHIP
eligibles. The exchanges will be state-based. If a state
fails to establish an exchange by the required deadline,
exchanges may be administered through a federal/state
partnership or by the federal government.
Among other things, the Health Reform Legislation
eliminates pre-existing condition exclusions and annual and
lifetime maximum limits and restricts the extent to which
policies can be rescinded. The Health Reform Legislation
also provides for expanded Medicaid coverage effective
in January 2014. The Health Reform Legislation includes
an MOE provision that requires states to maintain their
eligibility rules for people covered by Medicaid, until the
Secretary of HHS determines that an insurance exchange is
operational in a given state. The MOE provision is intended
to prevent states from reducing eligibility standards and
determination procedures as a way to remove adults above
133% of the federal poverty level from Medicaid before
implementation of expanded Medicaid coverage effective
in January 2014. However, states with, or projecting, a
budget deficit may apply for an exception to the MOE
provision. Additionally, individual states may accelerate their
procurement of Medicaid managed care services in 2012 and
2013 for sizeable groups of Medicaid program beneficiaries
in order to even their administrative workloads in advance
of Medicaid market expansion taking place in 2014.
The Congressional Budget Office has estimated that up
to 34 million additional individuals may eventually gain
insurance coverage if the Health Reform Legislation is
implemented broadly in its current form. This represents
an opportunity for us to increase membership. However,
serving these individuals may generate different profit
margins than our existing business due to various factors,
including the health status of the newly insured individuals.
We expect existing participants in Medicare and Medicaid
and new enrollees in state-based exchanges to transition
between products and programs, offering us opportunities
to design products and services that enable us to compete
for new business across business segments on an ongoing
basis. An acceleration of Medicaid managed care services
could increase near-term business growth opportunities for
RESULTS SUMMARY
2011 FORM 10-K
31
UnitedHealthcare Community & State. However, if states
are successful in obtaining MOE waivers and allow certain
Medicaid programs to expire, we could experience reduced
Medicaid enrollment.
Court Proceedings
Court proceedings related to the Health Reform
Legislation continue to evolve. These court proceedings,
and the potential for Congressional action to impede
implementation, create additional uncertainties with
respect to the law. For additional information regarding
the Health Reform Legislation, see Item 1, “Business -
Government Regulation” and Item 1A, “Risk Factors.”
(in millions, except percentages and per share data)
2011
2010
2009
Change
2011 vs. 2010
Change
2010 vs. 2009
Revenues:
Premiums
Services
Products
Investment and other income
$ 91,983
6,613
2,612
654
$ 85,405
5,819
2,322
609
$ 79,315
5,306
1,925
592
$ 6,578
794
290
45
8% $ 6,090
513
397
17
14
12
7
8%
10
21
3
TT
Total revenues
101,862
94,155
87,138
7,707
8
7,017
8
Operating costs:
Medical costs
Operating costs
Cost of products sold
Depreciation and amortization
TT
Total operating costs
Earnings from operations
Interest expense
Earnings before income taxes
Provision for income taxes
Net earnings
Diluted net earnings per common share
Medical care ratio (a)
Operating cost ratio (b)
Operating margin
Tax rate
TT
Net margin
Return on equity (c)
74,332
15,557
2,385
1,124
93,398
8,464
(505)
7,959
(2,817)
68,841
14,270
2,116
1,064
86,291
7,864
(481)
7,383
(2,749)
65,289
12,734
1,765
991
80,779
6,359
(551)
5,808
(1,986)
$
$
$
$
5,142
$ 4,634
$ 3,822
$
4.73
80.8%
15.3
8.3
35.4
5.0
18.9 %
$
4.10
80.6%
15.2
8.4
37.2
4.9
18.7%
3.24
82.3%
14.6
7.3
34.2
4.4
17.3%
8
9
13
6
8
8
5
8
2
5,491
1,287
269
60
7,107
600
24
576
68
508
3,552
1,536
351
73
5,512
5
12
20
7
7
1,505
(70)
24
(13)
1,575
763
27
38
21%
27%
11% $
812
0.63
15% $
0.2%
0.1
(0.1)
(1.8)
0.1
0.2%
0.86
(1.7)%
0.6
1.1
3.0
0.5
1.4%
(a) Medical care ratio is calculated as medical costs divided by premium revenue.
(b) Operating cost ratio is calculated as operating costs divided by total revenues.
(c) Return on equity is calculated as net earnings divided by average equity. Average equity is calculated using the equity
balance at the end of the preceding year and the equity balances at the end of the four quarters of the year presented.
32
UNITEDHEALTH GROUP
SELECTED OPERATING PERFORMANCE AND
FINANCIAL LIQUIDITY ITEMS
The following represents a summary of selected 2011
operating and liquidity items. These matters should not be
considered by themselves; see below for further discussion
and analysis.
(cid:116) (cid:36)(cid:80)(cid:79)(cid:84)(cid:80)(cid:77)(cid:74)(cid:69)(cid:66)(cid:85)(cid:70)(cid:69)(cid:1)(cid:85)(cid:80)(cid:85)(cid:66)(cid:77)(cid:1)(cid:83)(cid:70)(cid:87)(cid:70)(cid:79)(cid:86)(cid:70)(cid:84)(cid:1)(cid:80)(cid:71)(cid:1)(cid:5)(cid:18)(cid:17)(cid:19)(cid:1)(cid:67)(cid:74)(cid:77)(cid:77)(cid:74)(cid:80)(cid:79)(cid:1)(cid:74)(cid:79)(cid:68)(cid:83)(cid:70)(cid:66)(cid:84)(cid:70)(cid:69)(cid:1)
8% over 2010.
(cid:116) (cid:54)(cid:79)(cid:74)(cid:85)(cid:70)(cid:69)(cid:41)(cid:70)(cid:66)(cid:77)(cid:85)(cid:73)(cid:68)(cid:66)(cid:83)(cid:70)(cid:1)(cid:83)(cid:70)(cid:87)(cid:70)(cid:79)(cid:86)(cid:70)(cid:84)(cid:1)(cid:80)(cid:71)(cid:1)(cid:5)(cid:26)(cid:22)(cid:1)(cid:67)(cid:74)(cid:77)(cid:77)(cid:74)(cid:80)(cid:79)(cid:1)(cid:83)(cid:80)(cid:84)(cid:70)(cid:1)(cid:24)(cid:6)(cid:1)(cid:80)(cid:87)(cid:70)(cid:83)(cid:1)
2010.
(cid:116) (cid:48)(cid:81)(cid:85)(cid:86)(cid:78)(cid:1)(cid:83)(cid:70)(cid:87)(cid:70)(cid:79)(cid:86)(cid:70)(cid:84)(cid:1)(cid:80)(cid:71)(cid:1)(cid:5)(cid:19)(cid:26)(cid:1)(cid:67)(cid:74)(cid:77)(cid:77)(cid:74)(cid:80)(cid:79)(cid:1)(cid:74)(cid:79)(cid:68)(cid:83)(cid:70)(cid:66)(cid:84)(cid:70)(cid:69)(cid:1)(cid:19)(cid:18)(cid:6)(cid:1)(cid:80)(cid:87)(cid:70)(cid:83)(cid:1)
2010.
(cid:116) (cid:54)(cid:79)(cid:74)(cid:85)(cid:70)(cid:69)(cid:41)(cid:70)(cid:66)(cid:77)(cid:85)(cid:73)(cid:68)(cid:66)(cid:83)(cid:70)(cid:1)(cid:70)(cid:79)(cid:83)(cid:80)(cid:77)(cid:77)(cid:78)(cid:70)(cid:79)(cid:85)(cid:1)(cid:69)(cid:86)(cid:83)(cid:74)(cid:79)(cid:72)(cid:1)(cid:19)(cid:17)(cid:18)(cid:18)(cid:1)(cid:72)(cid:83)(cid:70)(cid:88)(cid:1)(cid:67)(cid:90)(cid:1)(cid:18)(cid:15)(cid:23)(cid:1)
million people in 2011.
(cid:116) (cid:36)(cid:80)(cid:79)(cid:84)(cid:80)(cid:77)(cid:74)(cid:69)(cid:66)(cid:85)(cid:70)(cid:69)(cid:1)(cid:78)(cid:70)(cid:69)(cid:74)(cid:68)(cid:66)(cid:77)(cid:1)(cid:68)(cid:66)(cid:83)(cid:70)(cid:1)(cid:83)(cid:66)(cid:85)(cid:74)(cid:80)(cid:1)(cid:80)(cid:71)(cid:1)(cid:25)(cid:17)(cid:15)(cid:25)(cid:6)(cid:1)(cid:74)(cid:79)(cid:68)(cid:83)(cid:70)(cid:66)(cid:84)(cid:70)(cid:69)(cid:1)(cid:19)(cid:17)(cid:1)
basis points over 2010.
(cid:116) (cid:47)(cid:70)(cid:85)(cid:1)(cid:70)(cid:66)(cid:83)(cid:79)(cid:74)(cid:79)(cid:72)(cid:84)(cid:1)(cid:80)(cid:71)(cid:1)(cid:5)(cid:22)(cid:1)(cid:67)(cid:74)(cid:77)(cid:77)(cid:74)(cid:80)(cid:79)(cid:1)(cid:66)(cid:79)(cid:69)(cid:1)(cid:69)(cid:74)(cid:77)(cid:86)(cid:85)(cid:70)(cid:69)(cid:1)(cid:70)(cid:66)(cid:83)(cid:79)(cid:74)(cid:79)(cid:72)(cid:84)(cid:1)(cid:81)(cid:70)(cid:83)
share of $4.73 are up 11% and 15%, respectively over
2010.
(cid:116) (cid:51)(cid:70)(cid:85)(cid:86)(cid:83)(cid:79)(cid:1)(cid:80)(cid:79)(cid:1)(cid:38)(cid:82)(cid:86)(cid:74)(cid:85)(cid:90)(cid:1)(cid:80)(cid:71)(cid:1)(cid:18)(cid:25)(cid:15)(cid:26)(cid:6)(cid:1)(cid:74)(cid:79)(cid:68)(cid:83)(cid:70)(cid:66)(cid:84)(cid:70)(cid:69)(cid:1)(cid:19)(cid:17)(cid:1)(cid:67)(cid:66)(cid:84)(cid:74)(cid:84)(cid:1)(cid:81)(cid:80)(cid:74)(cid:79)(cid:85)(cid:84)(cid:1)
over 2010.
(cid:116) (cid:48)(cid:81)(cid:70)(cid:83)(cid:66)(cid:85)(cid:74)(cid:79)(cid:72)(cid:1)(cid:68)(cid:66)(cid:84)(cid:73)(cid:1)(cid:253)(cid:80)(cid:88)(cid:84)(cid:1)(cid:80)(cid:71)(cid:1)(cid:5)(cid:24)(cid:1)(cid:67)(cid:74)(cid:77)(cid:77)(cid:74)(cid:80)(cid:79)(cid:1)(cid:83)(cid:80)(cid:84)(cid:70)(cid:1)(cid:18)(cid:18)(cid:6)(cid:1)(cid:80)(cid:87)(cid:70)(cid:83)(cid:1)(cid:19)(cid:17)(cid:18)(cid:17)(cid:15)
(cid:116) (cid:45)(cid:74)(cid:82)(cid:86)(cid:74)(cid:69)(cid:74)(cid:85)(cid:90)(cid:27)
(cid:116) (cid:38)(cid:89)(cid:85)(cid:70)(cid:79)(cid:69)(cid:70)(cid:69)(cid:1)(cid:80)(cid:86)(cid:83)(cid:1)(cid:68)(cid:83)(cid:70)(cid:69)(cid:74)(cid:85)(cid:1)(cid:66)(cid:72)(cid:83)(cid:70)(cid:70)(cid:78)(cid:70)(cid:79)(cid:85)(cid:1)(cid:85)(cid:80)(cid:1)(cid:37)(cid:70)(cid:68)(cid:70)(cid:78)(cid:67)(cid:70)(cid:83)(cid:1)
2016 and increased capacity to $3 billion.
(cid:116) (cid:19)(cid:17)(cid:18)(cid:18)(cid:1)(cid:69)(cid:70)(cid:67)(cid:85)(cid:1)(cid:80)(cid:71)(cid:71)(cid:70)(cid:83)(cid:74)(cid:79)(cid:72)(cid:84)(cid:1)(cid:83)(cid:66)(cid:74)(cid:84)(cid:70)(cid:69)(cid:1)(cid:79)(cid:70)(cid:88)(cid:1)(cid:69)(cid:70)(cid:67)(cid:85)(cid:1)(cid:85)(cid:80)(cid:85)(cid:66)(cid:77)(cid:74)(cid:79)(cid:72)(cid:1)
$2.25 billion.
(cid:116) (cid:37)(cid:70)(cid:67)(cid:85)(cid:1)(cid:85)(cid:80)(cid:1)(cid:69)(cid:70)(cid:67)(cid:85)(cid:14)(cid:81)(cid:77)(cid:86)(cid:84)(cid:14)(cid:70)(cid:82)(cid:86)(cid:74)(cid:85)(cid:90)(cid:1)(cid:83)(cid:66)(cid:85)(cid:74)(cid:80)(cid:1)(cid:69)(cid:70)(cid:68)(cid:83)(cid:70)(cid:66)(cid:84)(cid:70)(cid:69)(cid:1)(cid:18)(cid:17)(cid:17)(cid:1)
basis points from 2010 to 29.1%.
2011 RESULTS OF OPERATIONS
COMPARED TO 2010 RESULTS
CONSOLIDATED FINANCIAL RESULTS
Revenues
The increases in revenues for the year ended December 31,
2011 were driven by strong organic growth in the number
of individuals served in our UnitedHealthcare businesses,
commercial premium rate increases reflecting underlying
medical cost trends and revenue growth across all
Optum businesses.
Medical Costs
Medical costs for the year ended December 31, 2011
increased due to risk-based membership growth in our
commercial and public and senior markets businesses
and continued increases in the cost per service paid for
health system use, and a modest increase in health system
utilization, mainly in outpatient and physician office
settings. Unit cost increases represented the majority of
the increases in our medical cost trend, with the largest
contributor being price increases to hospitals.
For each period, our operating results include the effects
of revisions in medical cost estimates related to prior
periods. Changes in medical cost estimates related to prior
periods, resulting from more complete claim information
identified in the current period, are included in total
medical costs reported for the current period. For 2011 and
2010 there was $720 million and $800 million, respectively,
of net favorable medical cost development related to prior
fiscal years. The favorable development in both periods
was primarily driven by continued improvements in claims
submission timeliness, which resulted in higher completion
factors and lower than expected health system utilization
levels. The favorable development in 2010 also benefited
from a reduction in reserves needed for disputed claims
from care providers; and favorable resolution of certain
state-based assessments.
Operating Costs
The increase in our operating costs for the year ended
December 31, 2011 was due to business growth, including
an increased mix of Optum and UnitedHealthcare fee-
based and service revenues, which have higher operating
costs, and increased spending related to reform readiness
and compliance. These factors were partially offset by
overall operating cost management and the increase in
2010 operating costs due to the goodwill impairment and
charges for a business line disposition of certain i3-branded
clinical trial service businesses. See Note 6 of Notes to the
Consolidated Financial Statements for further detail on the
goodwill impairment.
Income Tax Rate
The effective income tax rate for the year ended December
31, 2011 decreased compared to the prior year due to
favorable resolution of various historical tax matters in the
current year as well as a higher effective income tax rate
in 2010, due to the cumulative implementation of certain
changes under the Health Reform Legislation.
REPORTABLE SEGMENTS
Our two business platforms, UnitedHealthcare and Optum,
are comprised of four reportable segments:
(cid:116)(cid:1)(cid:1)(cid:54)(cid:79)(cid:74)(cid:85)(cid:70)(cid:69)(cid:41)(cid:70)(cid:66)(cid:77)(cid:85)(cid:73)(cid:68)(cid:66)(cid:83)(cid:70)(cid:13)(cid:1)(cid:88)(cid:73)(cid:74)(cid:68)(cid:73)(cid:1)(cid:74)(cid:79)(cid:68)(cid:77)(cid:86)(cid:69)(cid:70)(cid:84)(cid:1)(cid:54)(cid:79)(cid:74)(cid:85)(cid:70)(cid:69)(cid:41)(cid:70)(cid:66)(cid:77)(cid:85)(cid:73)(cid:68)(cid:66)(cid:83)(cid:70)(cid:1)
Employer & Individual, UnitedHealthcare Medicare &
Retirement and UnitedHealthcare Community & State;
(cid:116)(cid:1)(cid:1)(cid:48)(cid:81)(cid:85)(cid:86)(cid:78)(cid:41)(cid:70)(cid:66)(cid:77)(cid:85)(cid:73)(cid:28)
(cid:116)(cid:1)(cid:1)(cid:48)(cid:81)(cid:85)(cid:86)(cid:78)(cid:42)(cid:79)(cid:84)(cid:74)(cid:72)(cid:73)(cid:85)(cid:28)(cid:1)(cid:66)(cid:79)(cid:69)
(cid:116)(cid:1)(cid:1)(cid:48)(cid:81)(cid:85)(cid:86)(cid:78)(cid:51)(cid:89)(cid:15)
See Note 13 of Notes to the Consolidated Financial
Statements for a description of the types and services from
which each of our reportable segments derives its revenues.
Transactions between reportable segments principally
consist of sales of pharmacy benefit products and
services to UnitedHealthcare customers by OptumRx,
certain product offerings and clinical services sold to
UnitedHealthcare by OptumHealth, and health information
and technology solutions, consulting and other services sold
to UnitedHealthcare by OptumInsight. These transactions
are recorded at management’s estimate of fair value.
Intersegment transactions are eliminated in consolidation.
On January 1, 2011, we realigned certain of our businesses to respond to changes in the markets we serve. Prior period
segment financial information has been recast to conform to the 2011 presentation. See Note 2 of Notes to Consolidated
Financial Statements for more information on our business realignment. The following table presents reportable segment
financial information:
(in millions, except percentages)
2011
2010
2009
Change
2011 vs. 2010
Change
2010 vs. 2009
2011 FORM 10-K
33
Revenues:
UnitedHealthcare
OptumHealth
OptumInsight
OptumRx
TT
Total Optum
Eliminations
Consolidated revenues
Earnings from operations:
UnitedHealthcare
OptumHealth
OptumInsight
OptumRx
TT
Total Optum
$ 95,336
$ 88,730
$ 82,730
$ 6,606
7% $ 6,000
7%
6,704
2,671
19,278
4,565
2,342
16,724
4,212
1,823
14,401
2,139
329
2,554
47
14
15
28,653
(22,127)
23,631
(18,206)
20,436
(16,028)
5,022
21
(3,921) nm
353
519
2,323
8
28
16
3,195
16
(2,178) nm
$101,862
$ 94,155
$ 87,138
$ 7,707
8% $ 7,017
8%
$
7,203
$ 6,740
$ 4,833
$
463
7% $ 1,907
39%
423
381
457
1,261
511
84
529
1,124
599
246
681
1,526
(88)
(17)
297 354
(14)
(72)
12
137
(88)
(162)
(152)
(402)
(15)
(66)
(22)
(26)
Consolidated earnings from operations
$
8,464
$ 7,864
$ 6,359
$
600
8% $ 1,505
24%
Operating margin
UnitedHealthcare
OptumHealth
OptumInsight
OptumRx
TT
Total Optum
Consolidated operating margin
nm = not meaningful
7.6%
6.3
14.3
2.4
4.4
8.3 %
7.6%
11.2
3.6
3.2
4.8
8.4%
5.8%
14.2
13.5
4.7
7.5
7.3 %
—%
(4.9)
10.7
(0.8)
(0.4)
(0.1)%
1.8%
(3.0)
(9.9)
(1.5)
(2.7)
1.1%
UnitedHealthcare
The following table summarizes UnitedHealthcare revenue by business:
(in billions, except percentages)
Revenues:
UnitedHealthcare Employer & Individual
UnitedHealthcare Medicare & Retirement
UnitedHealthcare Community & State
2011
2010
2009
Change
2011 vs. 2010
Change
2010 vs. 2009
$
$
45.4
36.1
13.8
$
42.6
34.0
12.1
$
42.3
30.6
9.8
2.8
2.1
1.7
6.6
7% $
6
14
7% $
0.3
3.4
2.3
6.0
1%
11
23
7%
TT
Total UnitedHealthcare revenue
$
95.3
$
88.7
$
82.7
$
The following table summarizes the number of individuals served by our UnitedHealthcare businesses, by major market
segment and funding arrangement:
(in thousands, except percentages)
2011
2010
2009
Change
2011 vs. 2010
Change
2010 vs. 2009
Commercial risk-based
Commercial fee-based
TT
Total commercial
Medicare Advantage
Medicaid
Medicare Supplement
TT
Total public and senior
9,550
16,320
25,870
2,240
3,525
2,935
9,405
15,405
24,810
2,070
3,320
2,770
9,415
15,210
24,625
1,790
2,900
2,680
8,700
8,160
7,370
145
915
1,060
170
205
165
540
2%
6
4
8
6
6
7
TT
Total UnitedHealthcare - medical
34,570
32,970
31,995
1,600
5%
(10) —%
195
1
185
280
420
90
790
975
1
16
14
3
11
3%
Supplemental Data:
Medicare Part D stand-alone
4,855
4,530
4,300
325
7%
230
5%
34
UNITEDHEALTH GROUP
UnitedHealthcare’s revenue growth for the year ended
December 31, 2011 was due to growth in the number of
individuals served across our businesses and commercial
premium rate increases reflecting expected underlying
medical cost trends.
UnitedHealthcare’s earnings from operations for the year
ended December 31, 2011 increased compared to the prior
year as revenue growth and improvements in the operating
cost ratio more than offset increased compliance costs and
an increase to the medical care ratio, which was primarily
due to the initiation of premium rebate obligations in 2011,
and lower favorable reserve development levels.
In our Medicare Part D stand-alone business, we estimate
that we entered January 2012 down approximately 625,000
people, primarily as a result of the loss of approximately
470,000 of our auto-assigned low-income subsidy Medicare
Part D beneficiaries in a number of regions being
automatically reassigned to other plans as part of the
annual bid process managed by CMS. We believe that we
will grow from this level throughout the course of the year
in the open retail market.
In February 2012, we added 117,000 Medicare Advantage
members from the acquisition of XLHealth Corporation.
Optum. Total revenue for these businesses increased
in 2011 due to business growth and acquisitions at
OptumHealth and OptumInsight and growth in customers
served through pharmaceutical benefit management
programs at OptumRx.
Optum’s operating margin for the year ended December
31, 2011 was down compared to 2010. The decrease was
due to changes in business mix within Optum’s businesses
and realignment of certain internal business arrangements.
The results by segment were as follows:
OptumHealth
Increased revenues at OptumHealth for the year ended
December 31, 2011 were primarily due to expansions in
service offerings through acquisitions in clinical services,
as well as growth in consumer and population health
management offerings.
Earnings from operations for the year ended December
31, 2011 and operating margin decreased compared
to 2010. The decreases reflect the impact from internal
business and service arrangement realignments and the mix
effect of growth and expansion in newer businesses such as
clinical services.
OptumInsight
Increased revenues at OptumInsight for the year ended
December 31, 2011 were due to the impact of organic
growth and the full-year impact of 2010 acquisitions, which
were partially offset by the divestiture of the clinical trials
services business in June 2011.
The increases in earnings from operations and operating
margins for the year ended December 31, 2011 reflect an
increased mix of higher margin services in 2011 as well as
the effect on 2010 earnings from operations and operating
margin of the goodwill impairment and charges for a
business line disposition of certain i3-branded clinical
trial service businesses. See Note 6 of Notes to the
Consolidated Financial Statements for further detail on
the goodwill impairment.
OptumRx
The increase in OptumRx revenues for the year ended
December 31, 2011 was due to increased prescription
volumes, primarily due to growth in customers served
through Medicare Part D prescription drug plans by
our UnitedHealthcare Medicare & Retirement business,
and a favorable mix of higher revenue specialty drug
prescriptions. Intersegment revenues eliminated in
consolidation were $16.7 billion and $14.4 billion for the
years ended December 31, 2011 and 2010, respectively.
OptumRx earnings from operations and operating
margins for 2011 decreased as the mix of lower margin
specialty pharmaceuticals and Medicaid business and
investments to support growth initiatives including the
in-sourcing of our commercial pharmacy benefit programs
more than offset the earnings contribution from higher
revenues and greater use of generic medications.
We will consolidate and manage the majority of our
commercial pharmacy benefit programs internally when
our contract with Medco Health Solutions, Inc. expires at
the end of 2012. The investments in our infrastructure
and to expand our capacity will likely cause a decrease in
earnings from operations and operating margin as in 2012,
OptumRx expects to absorb approximately $115 million of
the $150 million consolidated in-sourcing related operating
costs. As a result of this transition, OptumRx expects to add
12 million members on a staged basis in 2013. See Item 1A,
“Risk Factors” for a discussion of certain risks associated
with the transition of our commercial pharmacy benefit
programs to OptumRx.
2010 RESULTS OF OPERATIONS
COMPARED TO 2009 RESULTS
CONSOLIDATED FINANCIAL RESULTS
Revenues
The increases in revenues for 2010 were primarily due to
strong organic growth in risk-based benefit offerings in
our public and senior markets businesses and commercial
premium rate increases reflecting underlying medical
cost trends. Growth in customers served by our health
services businesses, particularly through pharmaceutical
benefit management programs, increased revenues from
public sector behavioral health programs and increased
sales of health care technology software and services also
contributed to our revenue growth.
Medical Costs and Medical Care Ratio
Medical costs for 2010 increased primarily due to growth
in our public and senior markets risk-based businesses and
medical cost inflation, which were partially offset by net
favorable development of prior period medical costs.
For 2010 and 2009, there was $800 million and $310
million, respectively, of net favorable medical cost
development related to prior fiscal years.
The medical care ratio decreased due to a moderation
in overall demand for medical services, successful clinical
engagement and management and the increase in prior
period favorable development discussed previously.
Operating Costs
Operating costs for 2010 increased due to acquired and
organic growth in health services businesses, which are
generally more operating cost intensive than our benefits
businesses, goodwill impairment and charges for a business
line disposition at OptumInsight, which is discussed in more
detail below, an increase in staffing and selling expenses
primarily due to the change in the Medicare Advantage
annual enrollment period, costs related to increased
employee headcount and compensation, increased
advertising costs, and the absorption of new business
development and start-up costs.
Income Tax Rate
The increase in our effective income tax rate for 2010 as
compared to 2009 resulted from a benefit in the 2009
tax rate from the resolution of various historical state
income tax matters and an increase in the 2010 rate
related to limitations on the future deductibility of certain
compensation due to the Health Reform Legislation.
REPORTABLE SEGMENTS
UnitedHealthcare
The revenue growth in UnitedHealthcare for 2010 was
primarily due to growth in the number of individuals served
by our public and senior markets businesses and commercial
premium rate increases reflecting underlying medical cost
trends, partially offset by Medicare Advantage premium
rate decreases.
UnitedHealthcare earnings from operations and
operating margins for 2010 increased over the prior year
due to factors that increased revenues described above,
continued cost management disciplines on behalf of
our commercial and governmental customers, a general
moderation in year-over-year growth in demand for
medical services and the effect of increased net favorable
development in prior period medical costs.
OptumHealth
Increased revenues in OptumHealth for 2010 were primarily
driven by new business development in large scale public
sector programs and increased sales of benefits and services
to external employer markets.
The operating margin for 2010 decreased due to growth
in lower margin public sector business, new market
development and startup costs and costs related to the
implementation of the federal Mental Health Parity &
Addiction Equity Act of 2008.
OptumInsight
Increased revenues in OptumInsight for 2010 were primarily
due to the impact of acquisitions and growth in health
information technology offerings and services focused on
cost and data management and regulatory compliance.
The decrease in operating margin for 2010 was primarily
2011 FORM 10-K
35
due to a goodwill impairment and charges for a business
line disposition of certain i3-branded clinical trial service
businesses. In addition, increases in the mix of lower margin
business, continued margin pressure in the pharmaceutical
services business and continued investments in new growth
areas also contributed to the decrease in operating margin
in 2010. See Note 6 of Notes to the Consolidated Financial
Statements for further detail on the goodwill impairment.
OptumRx
The increased OptumRx revenues for 2010 were primarily
due to growth in customers served through Medicare
Part D prescription drug plans by our UnitedHealthcare
Medicare & Retirement business and higher prescription
volumes. Intersegment revenues eliminated in
consolidation were $14.4 billion and $12.5 billion for 2010
and 2009, respectively.
OptumRx operating margin for 2010 decreased due
to changes in performance-based pricing contracts with
Medicare Part D plan sponsors, which were partially offset
by prescription volume growth, increased usage of mail
service and generic drugs by consumers and effective
operating cost management.
LIQUIDITY, FINANCIAL CONDITION
AND CAPITAL RESOURCES
LIQUIDITY
Introduction
We manage our liquidity and financial position in the
context of our overall business strategy. We continually
forecast and manage our cash, investments, working
capital balances and capital structure to meet the short-
and long-term obligations of our businesses while seeking
to maintain liquidity and financial flexibility. Cash flows
generated from operating activities are principally from
earnings before non-cash expenses. The risk of decreased
operating cash flow from a decline in earnings is partially
mitigated by the diversity of our businesses, geographies
and customers; our disciplined underwriting and pricing
processes for our risk-based businesses; and continued
productivity improvements that lower our operating costs.
Our regulated subsidiaries generate significant cash
flows from operations. A majority of the assets held by
our regulated subsidiaries are in the form of cash, cash
equivalents and investments. After considering expected
cash flows from operating activities, we generally invest cash
of regulated subsidiaries that exceeds our expected short-
term obligations in longer term, liquid, investment-grade,
debt securities to improve our overall investment return. We
make these investments pursuant to our Board of Directors’
approved investment policy, which focuses on preservation
of capital through risk tolerances around liquidity, credit
quality, issuer limits, asset class diversification, income and
duration. The policy emphasizes investment grade bonds
with durations that are short to intermediate term in
nature. The policy also generally governs return objectives,
regulatory limitations and tax implications.
36
UNITEDHEALTH GROUP
Our regulated subsidiaries are subject to financial
regulations and standards in their respective states of
domicile. Most of these regulations and standards conform
to those established by the NAIC. These standards, among
other things, require these subsidiaries to maintain
specified levels of statutory capital, as defined by each
state, and restrict the timing and amount of dividends
and other distributions that may be paid to their parent
companies. Except in the case of extraordinary dividends,
these standards generally permit dividends to be paid from
statutory unassigned surplus of the regulated subsidiary
and are limited based on the regulated subsidiary’s level
of statutory net income and statutory capital and surplus.
These dividends are referred to as “ordinary dividends” and
generally can be paid without prior regulatory approval.
If the dividend, together with other dividends paid within
the preceding twelve months, exceeds a specified statutory
limit or is paid from sources other than earned surplus, the
entire dividend is generally considered an “extraordinary
dividend” and must receive prior regulatory approval.
In 2011, based on the 2010 statutory net income and
statutory capital and surplus levels, the maximum amount
Summary of our Major Sources and Uses of Cash
of ordinary dividends which could be paid was $3.4 billion.
For the year ended December 31, 2011, our regulated
subsidiaries paid their parent companies dividends of $4.5
billion, including $1.1 billion of extraordinary dividends.
For the year ended December 31, 2010, our regulated
subsidiaries paid their parent companies dividends of $3.2
billion, including $686 million of extraordinary dividends.
Our non-regulated businesses also generate cash flows
from operations for general corporate use. Cash flows
generated by these entities, combined with dividends
from our regulated entities and financing through
the issuance of long term debt as well as issuance of
commercial paper or drawings under our committed credit
facility, further strengthen our operating and financial
flexibility. We use these cash flows to expand our businesses
through acquisitions, reinvest in our businesses through
capital expenditures, repay debt, or return capital to
our shareholders through shareholder dividends and/or
repurchases of our common stock, depending on market
conditions.
(in millions)
Sources of cash:
Cash provided by operating activities
Issuance of long-term debt and commercial paper, net of repayments
Interest rate swap termination
Proceeds from customer funds administered
Sales and maturities of investments, net of purchases
Other
rr
$
TT
Total sources of cash
Uses of cash:
Common stock repurchases
Purchases of investments, net of sales and maturities
Cash paid for acquisitions, net of cash assumed and dispositions
Purchases of property, equipment and capitalized software, net of dispositions
Dividends paid
Repayments of long-term debt and commercial paper
Other
yy
TT
Total uses of cash
Net increase (decrease) in cash
YY
For the Year Ended December 31,
2009
2010
2011
6,968
346
132
37
—
640
8,123
(2,994)
(1,695)
(1,459)
(1,018)
(651)
—
—
(7,817)
$
6,273
94
—
974
—
292
7,633
(2,517)
(2,157)
(2,304)
(878)
(449)
—
(5)
(8,310)
$
5,625
—
513
204
249
304
6,895
(1,801)
—
(486)
(739)
(36)
(1,449)
(10)
(4,521)
$
306
$
(677)
$
2,374
2011 Cash Flows Compared to 2010 Cash Flows
Cash flows from operating activities increased $695 million,
or 11%, from 2010. The increase was primarily driven by
growth in net earnings and changes in various working
capital accounts, which were partially offset by a reduction
in unearned revenues due to the early receipt of certain
2011 state Medicaid premium payments in 2010, which
increased 2010 cash from operating activities. We anticipate
lower year over year cash flows from operations in 2012,
which will include payments in the third quarter for 2011
premium rebate obligations.
Cash flows used for investing activities decreased
$1.2 billion, or 22%, primarily due to relatively lower
investments in acquisitions in 2011 and a decrease in net
purchases of investments. We anticipate an increase in cash
paid for acquisitions in 2012 as compared to 2011.
Cash flows used for financing activities increased
$879 million, or 55%, primarily due to increased share
repurchases and cash dividends in 2011, partially offset by
an increase in net borrowings.
2010 Cash Flows Compared to 2009 Cash Flows
Cash flows from operating activities increased $648
million, or 12%, for 2010. Factors that increased cash flows
from operating activities were growth in net earnings,
an acceleration of certain 2011 premium payments, and
an increase in pharmacy rebate collections, which were
partially offset by a mandated acceleration in the claim
payment cycle associated with the Medicare Part D program
and payment for the settlement of the American Medical
Association class action litigation related to reimbursement
for out-of-network medical services.
Cash flows used for investing activities increased $4.4
billion, primarily due to acquisitions completed in 2010,
decreases in sales of investments due to a more stable
market environment and the use of operating cash to
purchase investments.
Cash flows used for financing activities decreased $664
million, or 29%, primarily due to proceeds from the
issuance of commercial paper and long-term debt, partially
offset by increases in common stock repurchases and cash
dividends paid on our common stock.
FINANCIAL CONDITION
As of December 31, 2011, our cash, cash equivalent and
available-for-sale investment balances of $28.0 billion
included $9.4 billion of cash and cash equivalents (of which
$1.6 billion was held by non-regulated entities), $18.0
billion of debt securities and $544 million of investments
in equity securities and venture capital funds. Given the
significant portion of our portfolio held in cash equivalents,
we do not anticipate fluctuations in the aggregate fair
value of our financial assets to have a material impact on
our liquidity or capital position. The use of different market
assumptions or valuation methodologies, primarily used in
valuing our Level 3 securities (those securities priced using
significant unobservable inputs), may have an effect on the
estimated fair value amounts of our investments. Due to
the subjective nature of these assumptions, the estimates
may not be indicative of the actual exit price if we had sold
the investment at the measurement date. We had $417
million of Level 3 securities as of December 31, 2011. Other
sources of liquidity, primarily from operating cash flows
and our commercial paper program, which is supported by
our $3.0 billion bank credit facility, reduce the need to sell
investments during adverse market conditions. See Note
4 of Notes to the Consolidated Financial Statements for
further detail of our fair value measurements.
Our cash equivalent and investment portfolio has a
weighted-average duration of 2.1 years and a weighted-
average credit rating of “AA” as of December 31, 2011.
Included in the debt securities balance are $2.4 billion of
state and municipal obligations that are guaranteed by a
number of third parties. Due to the high underlying credit
ratings of the issuers, the weighted-average credit rating
of these securities both with and without the guarantee
is “AA” as of December 31, 2011. We do not have any
significant exposure to any single guarantor (neither
indirect through the guarantees, nor direct through
2011 FORM 10-K
37
investment in the guarantor). When multiple credit ratings
are available for an individual security, the average of
the available ratings is used to determine the weighted-
average credit rating.
CAPITAL RESOURCES AND USES OF LIQUIDITY
In addition to cash flow from operations and cash and cash
equivalent balances available for general corporate use, our
capital resources and uses of liquidity are as follows:
Commercial Paper.rr We maintain a commercial paper
borrowing program, which facilitates the private placement
of unsecured debt through third-party broker-dealers. The
commercial paper program is supported by the $3.0 billion
bank credit facility described below. As of December 31,
2011, we had no commercial paper outstanding.
Bank Credit Facility. In December 2011, we amended
and renewed our five-year revolving bank credit facility
with 21 banks, which will mature in December 2016. The
amendment included increasing the borrowing capacity
to $3.0 billion. This facility supports our commercial paper
program and is available for general corporate purposes.
There were no amounts outstanding under this facility as
of December 31, 2011. The interest rate on borrowings
is variable based on term and amount and is calculated
based on the LIBOR plus a credit spread based on our
senior unsecured credit ratings. As of December 31, 2011,
the annual interest rate on this facility, had it been drawn,
would have ranged from 1.2% to 1.7%.
Our bank credit facility contains various covenants,
including requiring us to maintain a debt to debt-plus-
equity ratio below 50%. Our debt to debt-plus-equity
ratio, calculated as the sum of debt divided by the sum of
debt and shareholders’ equity, was 29.1% and 30.1% as of
December 31, 2011 and December 31, 2010, respectively.
We were in compliance with our debt covenants as of
December 31, 2011.
Long-term debt. Periodically, we access capital markets
and issue long-term debt for general corporate purposes
and the funds may be used, for example, to meet our
working capital requirements, to refinance debt, to finance
acquisitions, for share repurchases or for other general
corporate purposes.
In November 2011, we issued $1.5 billion in senior
unsecured notes. The issuance included $400 million of
1.9% fixed-rate notes due November 2016, $500 million of
3.4% fixed-rate notes due November 2021 and $600 million
of 4.6% notes due November 2041.
In February 2011, we issued $750 million in senior
unsecured notes. The issuance included $400 million of
4.7% fixed-rate notes due February 2021 and $350 million
of 6.0% fixed-rate notes due February 2041.
Credit Ratings. Our credit ratings at December 31, 2011 were as follows:
Senior unsecured debt
Commercial paper
Moody’s’
Ratings
A3
P-2
Outlook
Stable
n/a
Standard & Poor’s
Ratings
A-
A-2
Outlook Ratings
Positive
n/a
A-
F1
Fitch
A.M. Best
Outlook
Stable
n/a
Ratings
bbb+
AMB-2
Outlook
Stable
n/a
38
UNITEDHEALTH GROUP
The availability of financing in the form of debt or equity
is influenced by many factors, including our profitability,
operating cash flows, debt levels, credit ratings, debt
covenants and other contractual restrictions, regulatory
requirements and economic and market conditions. For
example, a significant downgrade in our credit ratings
or conditions in the capital markets may increase the
cost of borrowing for us or limit our access to capital. We
have adopted strategies and actions toward maintaining
financial flexibility to mitigate the impact of such factors on
our ability to raise capital.
Share Repurchases. Under our Board of Directors’
authorization, we maintain a common share repurchase
program. Repurchases may be made from time to time
in open market purchases or other types of transactions
(including prepaid or structured repurchase programs),
subject to certain preset parameters established by
our Board. In May 2011, our Board renewed our share
repurchase program with an authorization to repurchase
up to 110 million shares of our common stock. During the
year ended December 31, 2011, we repurchased 65 million
shares at an average price of approximately $46 per share
and an aggregate cost of $3.0 billion. As of December 31,
2011, we had Board authorization to purchase up to an
additional 65 million shares of our common stock.
Dividends. In May 2011, our Board of Directors increased
our cash dividend to shareholders to an annual dividend
rate of $0.65 per share, paid quarterly. Since June 2010,
we had paid a quarterly dividend of $0.125 per share.
Declaration and payment of future quarterly dividends is at
the discretion of the Board and may be adjusted as business
needs or market conditions change. On February 8, 2012,
our Board of Directors approved a quarterly dividend of
$0.1625 per share.
The following table provides details of our dividend
payments and annual dividend rate:
Years ended
YY
December 31,
Annual
Dividend
TT
Total
Amount Paid Amount Rate per Share
at December 31,
Paid
(in millions)
per Share
2009
2010
2011
$
0.0300
0.4050
0.6125
$
36
449
651
$
0.03
0.50
0.65
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
The following table summarizes future obligations due by period as of December 31, 2011, under our various contractual
obligations and commitments:
(in millions)
Debt (a)
Operating leases
Purchase obligations (b)
Future policy benefits (c)
Unrecognized tax benefits (d)
Other liabilities recorded on the
Consolidated Balance Sheet (e)
Other obligations (f)
2012
2013 to 2014 2015 to 2016
$
1,580
279
180
125
9
203
101
$
2,551
455
105
257
—
7
66
$
2,437
303
34
271
—
—
122
Thereafter
$ 13,529
564
1
1,917
108
2,459
32
$
TT
Total
20,097
1,601
320
2,570
117
2,669
321
TT
Total contractual obligations
$
2,477
$
3,441
$
3,167
$ 18,610
$
27,695
(a) Includes interest coupon payments and maturities at par or put values. Coupon payments have been calculated using
stated rates from the debt agreements and assuming amounts are outstanding through their contractual term. See Note
8 of Notes to the Consolidated Financial Statements for more detail.
(b) Includes fixed or minimum commitments under existing purchase obligations for goods and services, including
agreements that are cancelable with the payment of an early termination penalty. Excludes agreements that are
cancelable without penalty and excludes liabilities to the extent recorded in our Consolidated Balance Sheets as of
December 31, 2011.
(c) Future policy benefits represent account balances that accrue to the benefit of the policyholders, excluding surrender
charges, for universal life and investment annuity products and for long-duration health policies sold to individuals for
which some of the premium received in the earlier years is intended to pay benefits to be incurred in future years. See
Note 2 of Notes to the Consolidated Financial Statements for more detail.
(d) As the timing of future settlements is uncertain, the long-term portion has been classified as “Thereafter.”
(e) Includes obligations associated with contingent consideration and other payments related to business acquisitions,
certain employee benefit programs, charitable contributions related to the PacifiCare acquisition and various other
long-term liabilities. Due to uncertainty regarding payment timing, obligations for employee benefit programs,
charitable contributions and other liabilities have been classified as “Thereafter.”
(f) Includes remaining capital commitments for venture capital funds and other funding commitments.
We do not have other significant contractual obligations
or commitments that require cash resources; however,
we continually evaluate opportunities to expand our
operations. This includes internal development of new
products, programs and technology applications, and may
include acquisitions.
OFF-BALANCE SHEET ARRANGEMENTS
As of December 31, 2011, we were not involved in off-
balance sheet arrangements which have or are reasonably
likely to have a material effect on our financial condition,
results of operations or liquidity.
RECENTLY ISSUED ACCOUNTING STANDARDS
In July 2011, the Financial Accounting Standards Board
(FASB) issued Accounting Standards Update (ASU) No. 2011-
06, “Other Expenses (Topic 720): Fees Paid to the Federal
Government by Health Insurers a consensus of the FASB
Emerging Issues Task Force” (ASU 2011-06). This update
addresses the recognition and classification of an entity’s
share of the annual health insurance industry assessment
(the fee) mandated by Health Reform Legislation. The fee
will be levied on health insurers for each calendar year
beginning on or after January 1, 2014 and is not deductible
for income tax purposes. The fee will be allocated to
health insurers based on the ratio of an entity’s net health
premiums written during the preceding calendar year to
the total health insurance for any U.S. health risk that is
written during the preceding calendar year. In accordance
with the amendments in ASU 2011-06, our liability for the
fee will be estimated and recorded in full once we provide
qualifying health insurance in the applicable calendar year
in which the fee is payable (first applicable in 2014) with
a corresponding deferred cost that will be amortized to
expense using a straight-line method of allocation unless
another method better allocates the fee over the calendar
year that it is payable.
We have determined that there have been no other
recently issued accounting standards that will have a
material impact on our Consolidated Financial Statements.
CRITICAL ACCOUNTING ESTIMATES
Critical accounting estimates are those estimates that
require management to make challenging, subjective or
complex judgments, often because they must estimate the
effects of matters that are inherently uncertain and may
change in subsequent periods. Critical accounting estimates
involve judgments and uncertainties that are sufficiently
sensitive and may result in materially different results under
different assumptions and conditions.
Medical Costs
Each reporting period, we estimate our obligations for
medical care services that have been rendered on behalf
of insured consumers but for which claims have either
not yet been received or processed and for liabilities for
physician, hospital and other medical cost disputes. We
2011 FORM 10-K
39
develop estimates for medical care services incurred but
not reported using an actuarial process that is consistently
applied, centrally controlled and automated. The actuarial
models consider factors such as time from date of service
to claim receipt, claim processing backlogs, seasonal
variances in medical care consumption, health care
professional contract rate changes, medical care utilization
and other medical cost trends, membership volume and
demographics, benefit plan changes, and business mix
changes related to products, customers and geography.
Depending on the health care professional and type of
service, the typical billing lag for services can be up to
90 days from the date of service. Substantially all claims
related to medical care services are known and settled
within nine to twelve months from the date of service. We
estimate liabilities for physician, hospital and other medical
cost disputes based upon an analysis of potential outcomes,
assuming a combination of litigation and settlement actions.
Each period, we re-examine previously established
medical costs payable estimates based on actual claim
submissions and other changes in facts and circumstances.
As more complete claim information becomes available,
we adjust the amount of the estimates and include the
changes in estimates in medical costs in the period in which
the change is identified. In every reporting period, our
operating results include the effects of more completely
developed medical costs payable estimates associated with
previously reported periods. If the revised estimate of prior
period medical costs is less than the previous estimate, we
will decrease reported medical costs in the current period
(favorable development). If the revised estimate of prior
period medical costs is more than the previous estimate, we
will increase reported medical costs in the current period
(unfavorable development). Medical costs in 2011, 2010
and 2009, included net favorable medical cost development
related to prior periods of $720 million, $800 million and
$310 million, respectively. This development represented
approximately 8%, 9% and 4% of the medical claims
payable balance as of December 31, 2010, 2009 and 2008,
respectively.
In developing our medical costs payable estimates, we
apply different estimation methods depending on the
month for which incurred claims are being estimated. For
example, we actuarially calculate completion factors using
an analysis of claim adjudication patterns over the most
recent 36-month period. A completion factor is an actuarial
estimate, based upon historical experience and analysis of
current trends, of the percentage of incurred claims during
a given period that have been adjudicated by us at the date
of estimation. For months prior to the most recent three
months, we apply the completion factors to actual claims
adjudicated-to-date to estimate the expected amount of
ultimate incurred claims for those months. For the most
recent three months, we estimate claim costs incurred
primarily by applying observed medical cost trend factors to
the average per member per month (PMPM) medical costs
incurred in prior months for which more complete claim
data is available, supplemented by a review of near-term
40
UNITEDHEALTH GROUP
completion factors. This approach is consistently applied
from period to period.
Medical Costs PMPM Trend
Increase (Decrease) in Factors
Completion Factors. Completion factors are the most
significant factors we use in developing our medical costs
payable estimates for older periods, generally periods
prior to the most recent three months. The completion
factor includes judgments in relation to claim submissions
such as the time from date of service to claim receipt,
claim inventory levels and claim processing backlogs as
well as other factors. If actual claims submission rates
from providers (which can be influenced by a number of
factors including provider mix and electronic versus manual
submissions) or our claim processing patterns are different
than estimated, our reserves may be significantly impacted.
The following table illustrates the sensitivity of these
factors and the estimated potential impact on our medical
costs payable estimates for those periods as of December
31, 2011:
Completion Factors
Increase (Decrease) in Factors
Increase (Decrease)
In Medical Costs Payable
(in millions)
(0.75)%
(0.50)
(0.25)
0.25
0.50
0.75
$
211
141
70
(70)
(139)
(208)
Medical cost PMPM trend factors. Medical cost PMPM
trend factors are the most significant factors we use in
developing our medical costs payable estimates for the
most recent three months. Medical cost trend factors are
developed through a comprehensive analysis of claims
incurred in prior months, provider contracting and expected
unit costs, benefit design, and by reviewing a broad set of
health care utilization indicators including, but not limited
to, pharmacy utilization trends, inpatient hospital census
data and incidence data from the National Centers for
Disease Control. We also consider macroeconomic variables
such as gross-domestic product growth, employment and
disposable income. A large number of factors can cause the
medical cost trend to vary from our estimates including:
our ability and practices to manage medical costs, changes
in level and mix of services utilized, mix of benefits offered
including the impact of co-pays and deductibles, changes in
medical practices, catastrophes, epidemics, the introduction
of new or costly treatments and technology, new mandated
benefits or other regulatory changes, insured population
characteristics and seasonal changes in the level of health
care use.
The following table illustrates the sensitivity of these
factors and the estimated potential impact on our medical
costs payable estimates for the most recent three months as
of December 31, 2011:
3%
2
1
(1)
(2)
(3)
Increase (Decrease)
In Medical Costs Payable
(in millions)
$
415
277
138
(138)
(277)
(415)
The analyses above include outcomes that are considered
reasonably likely based on our historical experience
estimating liabilities for incurred but not reported benefit
claims.
Our estimate of medical costs payable represents
management’s best estimate of our liability for unpaid
medical costs as of December 31, 2011, developed using
consistently applied actuarial methods. Management
believes the amount of medical costs payable is reasonable
and adequate to cover our liability for unpaid claims as
of December 31, 2011; however, actual claim payments
may differ from established estimates as discussed above.
Assuming a hypothetical 1% difference between our
December 31, 2011 estimates of medical costs payable and
actual medical costs payable, excluding AARP Medicare
Supplement Insurance and any potential offsetting impact
from premium rebates, 2011 net earnings would have
increased or decreased by $56 million and diluted net
earnings per common share would have increased or
decreased by $0.05 per share.
The current national health care cost inflation rate
significantly exceeds the general inflation rate. We use
various strategies to lessen the effects of health care cost
inflation. These include coordinating care with physicians
and other health care professionals and rate discounts
from physicians and other health care professionals.
Through contracts with physicians and other health care
professionals, we emphasize preventive health care,
appropriate use of health care services consistent with
clinical performance standards, education and closing gaps
in care.
We believe our strategies to mitigate the impact of
health care cost inflation on our operating results have
been and will continue to be successful. However, other
factors including competitive pressures, new health care
and pharmaceutical product introductions, demands
from physicians and other health care professionals and
consumers, major epidemics, and applicable regulations
may affect our ability to control the impact of health care
cost inflation. Because of the narrow operating margins
of our risk-based products, changes in medical cost trends
that were not anticipated in establishing premium rates can
create significant changes in our financial results.
REVENUES
Revenues are principally derived from health care insurance
premiums. We recognize premium revenues in the
period eligible individuals are entitled to receive health
care services. Customers are typically billed monthly at a
contracted rate per eligible person multiplied by the total
number of people eligible to receive services, as recorded in
our records. Effective in 2011, premium revenue subject to
the premium rebates of the Health Reform Legislation are
recognized based on the estimated premium earned net of
the projected rebates over the period of the contract, when
that amount can be reasonably estimated. The estimated
premium is revised each period to reflect current experience.
The most significant factors in estimating these rebates are
financial performance within each aggregation set, including
medical claim experience and effective tax rates, as well as
changes in business mix and regulatory requirements. We
revise estimates of revenue adjustments each period and
record changes in the period they become known.
Our Medicare Advantage and Part D premium
revenues are subject to periodic adjustment under CMS’
risk adjustment payment methodology. The CMS risk
adjustment model provides higher per member payments
for enrollees diagnosed with certain conditions and lower
payments for enrollees who are healthier. We and other
health care plans collect, capture, and submit available
diagnosis data to CMS within prescribed deadlines. CMS
uses submitted diagnosis codes, demographic information,
and special statuses to determine the risk score for most
Medicare Advantage beneficiaries. CMS also retroactively
adjusts risk scores during the year based on additional data.
We estimate risk adjustment revenues based upon the data
submitted and expected to be submitted to CMS. As a result
of the variability of factors that determine such estimations,
the actual amount of CMS’ retroactive payments could be
materially more or less than our estimates. This may result
in favorable or unfavorable adjustments to our Medicare
premium revenue and, accordingly, our profitability.
Medicare Advantage risk adjustment data for certain of our
plans is subject to audit by regulators. See Note 12 of Notes
to the Consolidated Financial Statements in this Form 10-K
for additional information regarding these audits.
GOODWILL AND INTANGIBLE ASSETS
Goodwill. Goodwill represents the amount of the purchase
price in excess of the fair values assigned to the underlying
identifiable net assets of acquired businesses. Goodwill
is not amortized, but is subject to an annual impairment
test. Tests are performed more frequently if events occur
or circumstances change that would more likely than
not reduce the fair value of the reporting unit below its
carrying amount.
To determine whether goodwill is impaired, we perform
a multi-step impairment test. First, we can elect to
perform a qualitative assessment of each reporting unit
to determine whether facts and circumstances support a
determination that their fair values are greater than their
carrying values. If the qualitative analysis is not conclusive,
or if we elect to proceed directly with quantitative testing,
we will then measure the fair values of the reporting units
and compare them to their aggregate carrying values,
including goodwill. If the fair value is less than the carrying
value of the reporting unit, then the implied value of
goodwill would be calculated and compared to the carrying
2011 FORM 10-K
41
amount of goodwill to determine whether goodwill is
impaired.
We estimate the fair values of our reporting units using
discounted cash flows, which include assumptions about
a wide variety of internal and external factors. Significant
assumptions used in the impairment analysis include
financial projections of free cash flow (including significant
assumptions about operations, capital requirements and
income taxes), long-term growth rates for determining
terminal value, and discount rates. For each reporting unit,
comparative market multiples are used to corroborate the
results of our discounted cash flow test.
Forecasts and long-term growth rates used for our
reporting units are consistent with, and use inputs from,
our internal long-term business plan and strategy. Key
assumptions used in these forecasts include:
(cid:116) Revenue trends. Key drivers for each reporting unit
are determined and assessed. Significant factors
include: membership growth, medical trends, and the
impact and expectations of regulatory environments.
Additional macro-economic assumptions around
unemployment, GDP growth, interest rates, and
inflation are also evaluated and incorporated.
(cid:116) Medical cost trends. See further discussion of medical
costs trends within Medical Costs above. Similar factors
are considered in estimating our long-term medical
trends at the reporting unit level.
(cid:116) Operating productivity.yy We forecast expected
operating cost levels based on historical levels and
expectations of future operating cost productivity
initiatives.
(cid:116)(cid:1)(cid:1)Capital levels. The capital structure and requirements
for each business is considered.
Although we believe that the financial projections used
are reasonable and appropriate for all of our reporting
units, due to the long-term nature of the forecasts there
is significant uncertainty inherent in those projections.
That uncertainty is increased by the impact of health care
reforms as discussed in Item 1, “Business - Government
Regulation”. For additional discussions regarding how the
enactment or implementation of health care reforms and
how other factors could affect our business and the related
long-term forecasts, see Item 1A, “Risk Factors” in Part I
and “Regulatory Trends and Uncertainties” above.
Discount rates are determined for each reporting unit
based on the implied risk inherent in their forecasts.
This risk is evaluated using comparisons to market
information such as peer company weighted average
costs of capital and peer company stock prices in the form
of revenue and earnings multiples. Beyond our selection
of the most appropriate risk-free rates and equity risk
premiums, our most significant estimates in the discount
rate determinations involve our adjustments to the peer
company weighted average costs of capital that reflect
reporting unit-specific factors. Such adjustments include
the addition of size premiums and company-specific risk
premiums intended to compensate for apparent forecast
risk. We have not made any adjustments to decrease a
42
UNITEDHEALTH GROUP
discount rate below the calculated peer company weighted
average cost of capital for any reporting unit. Company-
specific adjustments to discount rates are subjective and
thus are difficult to measure with certainty.
The passage of time and the availability of additional
information regarding areas of uncertainty in regards
to the reporting units’ operations could cause these
assumptions to change in the future.
We elected to bypass the optional qualitative reporting
unit fair value assessment and completed our annual
quantitative tests for goodwill impairment as of January 1,
2012. All of our reporting units had fair values substantially
in excess of their carrying values, thus we concluded that
there was no need for any impairment of our goodwill
balances as of December 31, 2011.
Intangible assets. Finite-lived, separately-identifiable
intangible assets are acquired in business combinations
and are assets that represent future expected benefits but
lack physical substance (e.g., membership lists, customer
contracts, trademarks and technology). We do not have
material holdings of indefinite-lived intangible assets. Our
intangible assets are initially recorded at their fair values
and are then amortized over their expected useful lives.
Our most significant intangible assets are customer-related
intangibles which represent 88% of our total intangible
balance of $2.8 billion.
Customer-related intangible assets acquired in business
combinations are typically valued using an income approach
based on discounted future cash flows attributable to
customers that exist as of the date of acquisition. The most
significant assumptions used in the valuation of customer-
related assets include: projected revenue and earnings
growth, retention rate, perpetuity growth rate and discount
rate. These initial valuations and the embedded assumptions
contain uncertainty to the extent that those assumptions
and estimates may ultimately differ from actual results
(e.g., customer turnover may be higher or lower than the
assumed retention rate suggested).
Our intangible assets are subject to impairment tests
when events or circumstances indicate that a finite-lived
intangible asset’s (or asset group’s) carrying value may
exceed its estimated fair value. Consideration is given on
a quarterly basis to a number of potential impairment
indicators including: changes in the use of an intangible
asset, changes in legal or other business factors that could
affect value, experienced or expected operating cash-
flow deterioration or losses, adverse changes in customer
populations, adverse competitive or technological advances
that could impact value, and other factors. Following the
identification of any potential impairment indicators, we
would calculate the estimated fair value of a finite-lived
intangible asset using the undiscounted cash flows that
are expected to result from the use of the asset or related
group of assets. If the carrying value exceeds its estimated
fair value, an impairment would be recorded.
There were no material impairments of finite-lived
intangible assets during 2011.
INVESTMENTS
As of December 31, 2011, we had investments with a
carrying value of $18.7 billion, primarily held in marketable
debt securities. Our investments are principally classified
as available-for-sale and are recorded at fair value. We
exclude gross unrealized gains and losses on available-for-
sale investments from earnings and report net unrealized
gains or losses, net of income tax effects, as a separate
component in shareholders’ equity.
We continually monitor the difference between the cost
and fair value of our investments. As of December 31, 2011,
our investments had gross unrealized gains of $787 million
and gross unrealized losses of $32 million. We evaluate
investments for impairment considering factors including:
(cid:116) (cid:80)(cid:86)(cid:83)(cid:1)(cid:74)(cid:79)(cid:85)(cid:70)(cid:79)(cid:85)(cid:1)(cid:85)(cid:80)(cid:1)(cid:84)(cid:70)(cid:77)(cid:77)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:84)(cid:70)(cid:68)(cid:86)(cid:83)(cid:74)(cid:85)(cid:90)(cid:1)(cid:80)(cid:83)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:77)(cid:74)(cid:76)(cid:70)(cid:77)(cid:74)(cid:73)(cid:80)(cid:80)(cid:69)(cid:1)(cid:85)(cid:73)(cid:66)(cid:85)(cid:1)(cid:88)(cid:70)(cid:1)
will be required to sell the security before recovery of
the entire amortized cost;
(cid:116) (cid:85)(cid:73)(cid:70)(cid:1)(cid:77)(cid:70)(cid:79)(cid:72)(cid:85)(cid:73)(cid:1)(cid:80)(cid:71)(cid:1)(cid:85)(cid:74)(cid:78)(cid:70)(cid:1)(cid:66)(cid:79)(cid:69)(cid:1)(cid:70)(cid:89)(cid:85)(cid:70)(cid:79)(cid:85)(cid:1)(cid:85)(cid:80)(cid:1)(cid:88)(cid:73)(cid:74)(cid:68)(cid:73)(cid:1)(cid:78)(cid:66)(cid:83)(cid:76)(cid:70)(cid:85)(cid:1)(cid:87)(cid:66)(cid:77)(cid:86)(cid:70)(cid:1)
has been less than cost; and
(cid:116) (cid:85)(cid:73)(cid:70)(cid:1)(cid:229)(cid:79)(cid:66)(cid:79)(cid:68)(cid:74)(cid:66)(cid:77)(cid:1)(cid:68)(cid:80)(cid:79)(cid:69)(cid:74)(cid:85)(cid:74)(cid:80)(cid:79)(cid:1)(cid:66)(cid:79)(cid:69)(cid:1)(cid:79)(cid:70)(cid:66)(cid:83)(cid:14)(cid:85)(cid:70)(cid:83)(cid:78)(cid:1)(cid:81)(cid:83)(cid:80)(cid:84)(cid:81)(cid:70)(cid:68)(cid:85)(cid:84)(cid:1)(cid:80)(cid:71)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)
issuer as well as specific events or circumstances that
may influence the operations of the issuer.
For debt securities, if we intend to either sell or
determine that we will be more likely than not be required
to sell a debt security before recovery of the entire
amortized cost basis or maturity of the debt security, we
recognize the entire impairment in earnings. If we do not
intend to sell the debt security and we determine that we
will not be more likely than not be required to sell the
debt security but we do not expect to recover the entire
amortized cost basis, the impairment is bifurcated into the
amount attributed to the credit loss, which is recognized
in earnings, and all other causes, which are recognized in
other comprehensive income.
For equity securities, we recognize impairments in other
comprehensive income if we expect to hold the equity
security until fair value increases to at least the equity
security’s cost basis and we expect that increase in fair value
to occur in a reasonably forecasted period. If we intend to
sell the equity security or if we believe that recovery of fair
value to cost will not occur in the near term, we recognize
the impairment in through our income statement.
Inherently, there is uncertainty included in the
impairment assessment of investments. Our analysis
includes significant judgments and estimates including: the
fair value of the investment, the underlying credit quality
of the issuers and the credit ratings of the issuer other
forms of credit enhancements, the financial condition and
near term prospects of the issuer, and general industry and
sector economic conditions.
Fair values. We perform an analysis around the fair values
of the securities held including obtaining an understanding
of the pricing method and procedures over the valuation
of securities. Fair values of available-for-sale debt and
equity securities are based on quoted market prices,
where available. We obtain one price for each security
primarily from a third-party pricing service (pricing service),
which generally uses quoted or other observable inputs
for the determination of fair value. The pricing service
normally derives the security prices through recently
reported trades for identical or similar securities, making
adjustments through the reporting date based upon
available observable market information. For securities not
actively traded, the pricing service may use quoted market
prices of comparable instruments or discounted cash flow
analyses, incorporating inputs that are currently observable
in the markets for similar securities. Inputs that are often
used in the valuation methodologies include, but are not
limited to, benchmark yields, credit spreads, default rates
and prepayment speeds, and non-binding broker quotes.
As we are responsible for the determination of fair value,
we perform quarterly analyses on the prices received from
the pricing service to determine whether the prices are
reasonable estimates of fair value. Specifically, we compare:
(cid:116) (cid:85)(cid:73)(cid:70)(cid:1)(cid:81)(cid:83)(cid:74)(cid:68)(cid:70)(cid:84)(cid:1)(cid:83)(cid:70)(cid:68)(cid:70)(cid:74)(cid:87)(cid:70)(cid:69)(cid:1)(cid:71)(cid:83)(cid:80)(cid:78)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:81)(cid:83)(cid:74)(cid:68)(cid:74)(cid:79)(cid:72)(cid:1)(cid:84)(cid:70)(cid:83)(cid:87)(cid:74)(cid:68)(cid:70)(cid:1)(cid:85)(cid:80)(cid:1)(cid:81)(cid:83)(cid:74)(cid:68)(cid:70)(cid:84)(cid:1)
reported by a secondary pricing service, its custodian,
its investment consultant and/or third-party investment
advisors; and
(cid:116) (cid:68)(cid:73)(cid:66)(cid:79)(cid:72)(cid:70)(cid:84)(cid:1)(cid:74)(cid:79)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:83)(cid:70)(cid:81)(cid:80)(cid:83)(cid:85)(cid:70)(cid:69)(cid:1)(cid:78)(cid:66)(cid:83)(cid:76)(cid:70)(cid:85)(cid:1)(cid:87)(cid:66)(cid:77)(cid:86)(cid:70)(cid:84)(cid:1)(cid:66)(cid:79)(cid:69)(cid:1)(cid:83)(cid:70)(cid:85)(cid:86)(cid:83)(cid:79)(cid:84)(cid:1)(cid:85)(cid:80)(cid:1)
relevant market indices and our expectations to test
the reasonableness of the reported prices.
Based on our internal price verification procedures and
our review of the fair value methodology documentation
provided by independent pricing service, we have not
historically adjusted the prices obtained from the
pricing service.
Other-than-temporary impairment assessment. Individual
securities with fair values lower than costs are reviewed for
impairment considering the factors above including: the
length of time of impairment, credit standing, financial
condition, near term-prospects and other factors specific to
the issuer. Other factors included in the assessment include
the type and nature of the securities and liquidity. Given
the nature of our portfolio, primarily investment grade
securities, the primary causes of historical impairments
were market related (e.g., interest rate fluctuations, etc)
as opposed to credit related. We do not expect that trend
to change in the near term. Generally, we do not assume
that we will be required to sell a security because our large
cash holdings reduce this risk. However, our intent to sell
a security may change from period to period if facts and
circumstances change.
We believe we will collect the principal and interest due
on our debt securities with an amortized cost in excess
of fair value. The unrealized losses at December 31, 2011
and 2010 were primarily caused by market interest rate
increases and not by unfavorable changes in the credit
standing. We manage our investment portfolio to limit our
exposure to any one issuer or market sector, and largely
limit our investments to U.S. government and agency
securities; state and municipal securities; mortgage-backed
securities; and corporate debt obligations, substantially
all of investment-grade quality. Securities downgraded
below policy minimums after purchase will be disposed of
in accordance with our investment policy. Total other-than-
temporary impairments during 2011, 2010 and 2009 were
2011 FORM 10-K
43
$12 million, $23 million and $64 million, respectively. Our
cash equivalent and investment portfolio has a weighted-
average duration of 2.1 years and a weighted-average credit
rating of “AA” as of December 31, 2011. We have minimal
securities collateralized by sub-prime or Alt-A securities, and
a minimal amount of commercial mortgage loans in default.
The judgments and estimates related to fair value and
other-than-temporary impairment may ultimately prove to
be inaccurate due to many factors including: circumstances
may change over time, industry sector and market factors
may differ from expectations and estimates or we may
ultimately sell a security we previously intended to hold.
Our assessment of the financial condition and near-term
prospects of the issuer may ultimately prove to be inaccurate
as time passes and new information becomes available
including current facts and circumstances changing, or as
unknown or estimated unlikely trends develop.
As discussed further in Item 7A “Quantitative and
Qualitative Disclosures About Market Risk” a 1% increase
in market interest rates has the effect of decreasing the fair
value of our investment portfolio by $622 million.
INCOME TAXES
Our provision for income taxes, deferred tax assets
and liabilities, and uncertain tax positions reflect our
assessment of estimated future taxes to be paid on items
in the consolidated financial statements. Deferred income
taxes arise from temporary differences between financial
reporting and tax reporting bases of assets and liabilities, as
well as net operating loss and tax credit carryforwards for
tax purposes.
We have established a valuation allowance against
certain deferred tax assets based on the weight of available
evidence (both positive and negative) for which it is more-
likely-than-not that some portion, or all, of the deferred tax
asset will not be realized. After application of the valuation
allowances, we anticipate that no limitations will apply
with respect to utilization of any of the other net deferred
income tax assets. We believe that our estimates for the
valuation allowances against deferred tax assets and tax
contingency reserves are appropriate based on current facts
and circumstances.
According to U.S. Generally Accepted Accounting
Principles (GAAP), a tax benefit from an uncertain tax
position may be recognized when it is more likely than
not that the position will be sustained upon examination,
including resolutions of any related appeals or litigation
processes, based on the technical merits.
We have established an estimated liability for federal,
state and non-U.S. income tax exposures that arise and
meet the criteria for accrual under U.S. GAAP. We prepare
and file tax returns based on our interpretation of tax
laws and regulations and record estimates based on these
judgments and interpretations. In the normal course of
business, our tax returns are subject to examination by
various taxing authorities. Such examinations may result
in future tax and interest assessments by these taxing
authorities. Inherent uncertainties exist in estimates of tax
contingencies due to changes in tax law resulting from
44
UNITEDHEALTH GROUP
legislation, regulation and/or as concluded through the
various jurisdictions’ tax court systems.
The significant assumptions and estimates described
above are important contributors to our ultimate effective
tax rate in each year. A hypothetical increase or decrease in
our effective tax rate by 1% on our 2011 earnings before
income taxes would have caused the provision for income
taxes to change by $80 million.
CONTINGENT LIABILITIES
Because of the nature of our businesses, we are routinely
involved in various disputes, legal proceedings and
governmental audits and investigations. We record
liabilities for our estimates of the probable costs resulting
from these matters where appropriate. Our estimates
are developed in consultation with outside legal counsel,
if appropriate, and are based upon an analysis of
potential results, assuming a combination of litigation
and settlement strategies and considering our insurance
coverage, if any, for such matters.
Estimates of probable costs resulting from legal and
regulatory matters involving us are inherently difficult
to predict, particularly where the matters: involve
indeterminate claims for monetary damages or may involve
fines, penalties or punitive damages; present novel legal
theories or represent a shift in regulatory policy; involve
a large number of claimants or regulatory bodies; are in
the early stages of the proceedings; or could result in a
change in business practices. Accordingly, in many cases,
we are unable to estimate the losses or ranges of losses for
those matters where there is a reasonable possibility or it is
probable that a loss may be incurred.
Given this inherent uncertainty, it is possible that
future results of operations for any particular quarterly
or annual period could be materially affected by changes
in our estimates or assumptions. We evaluate our related
disclosures each reporting period, see Note 12 of Notes
to the Consolidated Financial Statements for discussion
of specific legal proceedings including an assessment of
whether a reasonable estimate of the losses or range of loss
could be determined.
LEGAL MATTERS
A description of our legal proceedings is included in Note
12 of Notes to the Consolidated Financial Statements and is
incorporated by reference in this report.
CONCENTRATIONS OF CREDIT RISK
Investments in financial instruments such as marketable
securities and accounts receivable may subject us to
concentrations of credit risk. Our investments in marketable
securities are managed under an investment policy
authorized by our Board of Directors. This policy limits
the amounts that may be invested in any one issuer and
generally limits our investments to U.S. government
and agency securities, state and municipal securities and
corporate debt obligations that are investment grade.
Concentrations of credit risk with respect to accounts
receivable are limited due to the large number of employer
groups and other customers that constitute our client
base. As of December 31, 2011, we had an aggregate $1.9
billion reinsurance receivable resulting from the sale of our
Golden Rule Financial Corporation life and annuity business
in 2005. We regularly evaluate the financial condition of
the reinsurer and only record the reinsurance receivable
to the extent that the amounts are deemed probable of
recovery. Currently, the reinsurer is rated by A.M. Best
as “A+.” As of December 31, 2011, there were no other
significant concentrations of credit risk.
ITEM 7A. Quantitative And Qualitative
Disclosures About Market Risk
Our primary market risks are exposures to (a) changes
in interest rates that impact our investment income and
interest expense and the fair value of certain of our fixed-
rate investments and debt and (b) changes in equity prices
that impact the value of our equity investments.
As of December 31, 2011, $9.4 billion of our investments
were classified as cash and cash equivalents on which interest
rates received vary with market interest rates, which may
materially impact our investment income. Also, OptumHealth
Bank held $1.4 billion of deposit liabilities as of December
31, 2011 at interest rates that vary with market rates.
The fair value of certain of our fixed-rate investments and
debt also varies with market interest rates. As of December
31, 2011, $18.2 billion of our investments were fixed-rate
debt securities and $11.6 billion of our debt was fixed-rate
term debt. An increase in market interest rates decreases the
market value of fixed-rate investments and fixed-rate debt.
Conversely, a decrease in market interest rates increases the
market value of fixed-rate investments and fixed-rate debt.
We manage exposure to market interest rates by
diversifying investments across different fixed income
market sectors and debt across maturities, as well as
endeavoring to match our floating-rate assets and liabilities
over time, either directly or periodically through the use of
interest rate swap contracts. In the second half of 2011, we
terminated all of our interest rate swap fair value hedges
with a $5.4 billion notional amount in order to lock-in the
impact of low market floating interest rates and reduce
the effective interest rate on hedged long-term debt. The
gain of $132 million will be realized over the remaining
life of the applicable hedged fixed-rate debt as a reduction
to interest expense in the Consolidated Statements of
Operations. Additional information on our interest rate
swaps is included in Note 8 of Notes to the Consolidated
Financial Statements. Since the interest rate swaps have
been terminated, the fair value of our long-term debt is
now more sensitive to hypothetical changes in interest
rates as the change in the fair value of the debt is no
longer offset by the swaps. Also as a result of the swaps’
termination, our exposure to hypothetical changes in
market rates on our interest expense is less volatile.
The following tables summarize the impact of hypothetical changes in market interest rates across the entire yield curve
by 1% or 2% as of December 31, 2011 and 2010 on our investment income and interest expense per annum, and the fair
value of our investments and debt (in millions):
2011 FORM 10-K
45
Increase (Decrease) in Market Interest Rate
2%
1
(1)
(2)
Increase (Decrease) in Market Interest Rate
2%
1
(1)
(2)
nm = not meaningful
$
Investment
Income Per
Annum (a)
199
99
(12)
nm
$
Investment
Income Per
Annum (a)
182
91
(10)
nm
December 31, 2011
Interest
Expense Per
Annum (a)
28
$
14
(4)
nm
VV
Fair Value of
Investments (b)
VV
Fair Value of
Debt
$
(1,239)
(622)
586
885
$
(1,946)
(1,082)
1,086
2,343
December 31, 2011
Interest
Expense Per
Annum (a)
163
$
82
(21)
nm
VV
Fair Value of
Investments
(1,177)
$
(602)
613
1,227
Fair Value of
VV
Debt
$
(860)
(471)
560
1,240
(a) Given the low absolute level of short-term market rates on our floating-rate assets and liabilities as of December 31,
2011 and 2010, the assumed hypothetical change in interest rates does not reflect the full 1% point reduction in interest
income or interest expense as the rate cannot fall below zero and thus the 2% point reduction is not meaningful.
(b) As of December 31, 2011, some of our investments had interest rates below 2% so the assumed hypothetical change in
the fair value of investments does not reflect the full 2% point reduction.
As of December 31, 2011, we had $544 million of investments in equity securities and venture capital funds, a portion
of which were invested in various public and non-public companies concentrated in the areas of health care delivery and
related information technologies. Market conditions that affect the value of health care or technology stocks will impact
the value of our equity investments.
46
UNITEDHEALTH GROUP
ITEM 8.
Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Board of Directors and Shareholders of UnitedHealth
Group Incorporated and Subsidiaries:
We have audited the accompanying consolidated
balance sheets of UnitedHealth Group Incorporated
and Subsidiaries (the “Company”) as of December 31,
2011 and 2010, and the related consolidated statements
of operations, stockholders’ equity and cash flows for
each of the three years in the period ended December
31, 2011. These consolidated financial statements are
the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with the
standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance
about whether the consolidated financial statements are
free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An
audit also includes assessing the accounting principles used
and significant estimates made by management, as well as
evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, such consolidated financial statements
present fairly, in all material respects, the financial position
of UnitedHealth Group Incorporated and Subsidiaries as
of December 31, 2011 and 2010, and the results of their
operations and their cash flows for each of the three years
in the period ended December 31, 2011, in conformity with
accounting principles generally accepted in the United
States of America.
We have also audited, in accordance with the standards
of the Public Company Accounting Oversight Board (United
States), the Company’s internal control over financial
reporting as of December 31, 2011, based on the criteria
established in Internal Control - Integrated Framework
issued by the Committee of Sponsoring Organizations of
the Treadway Commission and our report dated February
8, 2012 expressed an unqualified opinion on the Company’s
internal control over financial reporting.
/S/ DELOITTE & TOUCHE LLP
Minneapolis, MN
February 8, 2012
UNITEDHEALTH GROUP
CONSOLIDATED BALANCE SHEETS
(in millions, except per share data)
Assets
Current assets:
2011 FORM 10-K
47
December 31, 2011
December 31, 2010
Cash and cash equivalents
Short-term investments
Accounts receivable, net of allowances of $196 and $241
Other current receivables, net of allowances of $72 and $66
Assets under management
Deferred income taxes
Prepaid expenses and other current assets
Total current assets
TT
Long-term investments
Property, equipment and capitalized software, net of accumulated
depreciation and amortization of $2,440 and $2,779
Goodwill
Other intangible assets, net of accumulated amortization of $1,451 and $1,350
Other assets
Total assets
Liabilities and shareholders’ equity
Current liabilities:
Medical costs payable
Accounts payable and accrued liabilities
Other policy liabilities
Commercial paper and current maturities of long-term debt
Unearned revenues
Total current liabilities
Long-term debt, less current maturities
Future policy benefits
Deferred income taxes and other liabilities
TT
Total liabilities
Commitments and contingencies (Note 12)
Shareholders’ equity:
Preferred stock, $0.001 par value - 10 shares authorized;
no shares issued or outstanding
Common stock, $0.01 par value - 3,000 shares authorized;
1,039 and 1,086 issued and outstanding
Retained earnings
Accumulated other comprehensive income (loss):
Net unrealized gains on investments, net of tax effects
Foreign currency translation losses
TT
Total shareholders’ equity
TT
Total liabilities and shareholders’ equity
See Notes to the Consolidated Financial Statements
$
$
$
$
9,429
2,577
2,294
2,255
2,708
472
615
20,350
16,166
2,515
23,975
2,795
2,088
67,889
9,799
6,853
5,063
982
1,225
23,922
10,656
2,445
2,574
39,597
—
10
27,821
476
(15)
28,292
67,889
$
$
$
$
9,123
2,072
2,061
1,643
2,550
403
541
18,393
14,707
2,200
22,745
2,910
2,108
63,063
9,220
6,488
3,979
2,480
1,533
23,700
8,662
2,361
2,515
37,238
—
11
25,562
280
(28)
25,825
63,063
48
UNITEDHEALTH GROUP
UNITEDHEALTH GROUP
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
Revenues:
Premiums
Services
Products
Investment and other income
TT
Total revenues
Operating costs:
Medical costs
Operating costs
Cost of products sold
Depreciation and amortization
TT
Total operating costs
Earnings from operations
Interest expense
Earnings before income taxes
Provision for income taxes
Net earnings
Basic net earnings per common share
Diluted net earnings per common share
Basic weighted-average number of common
shares outstanding
Dilutive effect of common stock equivalents
Diluted weighted-average number of common
shares outstanding
$
$
$
$
Anti-dilutive shares excluded from the calculation of dilutive
effect of common stock equivalents
Cash dividends declared per common share
$
See Notes to the Consolidated Financial Statements
YY
For the Year Ended December 31,
2010
2011
2009
91,983
6,613
2,612
654
101,862
74,332
15,557
2,385
1,124
93,398
8,464
(505)
7,959
(2,817)
5,142
4.81
4.73
1,070
17
1,087
47
0.6125
$
$
$
$
85,405
5,819
2,322
609
94,155
68,841
14,270
2,116
1,064
86,291
7,864
(481)
7,383
(2,749)
4,634
4.14
4.10
1,120
11
1,131
94
0.4050
$
$
$
$
$
$
79,315
5,306
1,925
592
87,138
65,289
12,734
1,765
991
80,779
6,359
(551)
5,808
(1,986)
3,822
3.27
3.24
1,168
11
1,179
107
0.0300
UNITEDHEALTH GROUP
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(in millions)
Balance at January 1, 2009
Net earnings
Net unrealized holding gains on
investment securities during the
period, net of tax expense of $187
Reclassification adjustment for net
realized gains included in net
earnings, net of tax expense of $4
Foreign currency translation loss
Comprehensive income
Issuances of common stock,
and related tax benefits
Common stock repurchases
Share-based compensation,
and related tax benefits
Common stock dividends
Balance at December 31, 2009
Net earnings
Net unrealized holding gains on
investment securities during the
period, net of tax expense of $26
Reclassification adjustment for net
realized gains included in net
earnings, net of tax expense of $26
Foreign currency translation loss
Comprehensive income
Issuances of common stock,
and related tax benefits
Common stock repurchases
Share-based compensation,
and related tax benefits
Common stock dividends
Balance at December 31, 2010
Net earnings
Net unrealized holding gains on
Common Stock
Shares
1,201
Amount
12
$
Additional
Paid-In
Capital
38
$
Retained
Earnings
$ 20,782
3,822
20
(74)
—
(1)
1,147
11
15
(76)
—
—
221
(574)
315
—
207
(552)
345
1,086
11
—
(1,226)
(36)
23,342
4,634
(1,965)
(449)
25,562
5,142
investment securities during the period,
net of tax expense of $154
Reclassification adjustment for net
realized gains included in net earnings,
net of tax expense of $41
Foreign currency translation gain
Comprehensive income
Issuances of common stock,
and related tax benefits
Common stock repurchases
Share-based compensation,
and related tax benefits
Common stock dividends
Balance at December 31, 2011
18
(65)
—
(1)
308
(761)
453
(2,232)
(651)
1,039
$
10
$
—
$ 27,821
$
461
See Notes to the Consolidated Financial Statements
2011 FORM 10-K
49
Other
TT
Total
Comprehensive Shareholders’
Income (Loss)
$
(52)
Equity
$ 20,780
3,822
314
314
(7)
(2)
(7)
(2)
4,127
221
(1,801)
315
(36)
253
23,606
4,634
48
(45)
(4)
48
(45)
(4)
4,633
207
(2,517)
345
(449)
252
25,825
5,142
268
268
(72)
13
(72)
13
5,351
308
(2,994)
453
(651)
$ 28,292
50
UNITEDHEALTH GROUP
UNITEDHEALTH GROUP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
Operating activities
Net earnings
Noncash items:
Depreciation and amortization
Deferred income taxes
Share-based compensation
rr
Other, net
Net change in other operating items, net of effects
from acquisitions and changes in AARP balances:
Accounts receivable
Other assets
Medical costs payable
Accounts payable and other liabilities
Other policy liabilities
Unearned revenues
Cash flows from operating activities
Investing activities
Purchases of investments
Sales of investments
Maturities of investments
Cash paid for acquisitions, net of cash assumed
Cash received from dispositions, net of cash transferred
Purchases of property, equipment and capitalized software
Proceeds from disposal of property, equipment and
yy
yy
capitalized software
Cash flows used for investing activities
Financing activities
Common stock repurchases
Proceeds from common stock issuances
Dividends paid
(Repayments of) proceeds from commercial paper, net
Proceeds from issuance of long-term debt
Repayments of long-term debt
Interest rate swap termination
Customer funds administered
Checks outstanding in excess of bank deposits
rr
Other, net
rr
Cash flows used for financing activities
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Supplemental cash flow disclosures
Cash paid for interest
Cash paid for income taxes
See Notes to the Consolidated Financial Statements
$
$
$
YY
For the Year Ended December 31,
2010
2011
2009
$
5,142
$
4,634
$
3,822
1,124
59
401
(67)
(267)
(121)
377
146
482
(308)
6,968
(9,895)
3,949
4,251
(1,844)
385
(1,067)
49
(4,172)
(2,994)
381
(651)
(933)
2,234
(955)
132
37
206
53
(2,490)
306
9,123
9,429
472
2,739
1,064
45
326
203
(16)
84
(88)
(341)
10
352
6,273
(7,855)
2,593
3,105
(2,323)
19
(878)
—
(5,339)
(2,517)
272
(449)
930
747
(1,583)
—
974
(5)
20
(1,611)
(677)
9,800
9,123
509
2,725
$
$
$
991
(16)
334
23
100
(250)
424
99
104
(6)
5,625
(6,466)
4,040
2,675
(486)
—
(739)
—
(976)
(1,801)
282
(36)
(99)
—
(1,350)
513
204
22
(10)
(2,275)
2,374
7,426
9,800
527
2,048
$
$
$
UNITEDHEALTH GROUP
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
UnitedHealth Group Incorporated (also referred to as
“UnitedHealth Group” and “the Company”) is a diversified
health and well-being company whose mission is to help
people live healthier lives and make health care work
better.
The Company helps individuals access quality care at an
affordable cost; simplifying health care administration and
delivery; strengthening the physician/patient relationship;
promoting evidence-based care; and empowering
physicians, health care professionals, consumers, employers
and other participants in the health system with actionable
data to make better, more informed decisions.
Through the Company’s diversified family of businesses,
it leverages core competencies in advanced, enabling
technology; health care data, information and intelligence;
and care management and coordination to help meet the
demands of the health system.
2. BASIS OF PRESENTATION, USE OF ESTIMATES AND
SIGNIFICANT ACCOUNTING POLICIES
The Company has prepared the Consolidated Financial
Statements according to U.S. Generally Accepted
Accounting Principles (GAAP) and has included the accounts
of UnitedHealth Group and its subsidiaries. The Company
has eliminated intercompany balances and transactions.
yy
During the first quarter of 2011, the Company
renamed its reportable segments to conform to the
naming conventions of its market facing businesses.
Consequently, the Health Benefits reportable segment is
now UnitedHealthcare, and the health services businesses,
OptumHealth, Ingenix, and Prescriptions Solutions, are now
aligned under Optum as OptumHealth, OptumInsight, and
OptumRx, respectively. On January 1, 2011, the Company
realigned certain of its businesses to respond to changes
in the markets it serves and the opportunities that are
emerging as the health system evolves. For example,
OptumHealth’s results of operations now include the
Company’s clinical services assets, including Southwest
Medical multi-specialty clinics in Nevada and Evercare
nurse practitioners serving the frail and elderly, which had
historically been reported in UnitedHealthcare Employer &
Individual and UnitedHealthcare Medicare & Retirement,
respectively. UnitedHealthcare Employer & Individual’s
results of operations now include OptumHealth Specialty
Benefits, including dental, vision, life and disability. The
Company’s reportable segments remain the same and prior
period segment financial information has been recast to
conform to the 2011 presentation. See Note 13 of Notes
to the Consolidated Financial Statements for segment
financial information.
2011 FORM 10-K
51
Use of Estimates
These Consolidated Financial Statements include certain
amounts based on the Company’s best estimates and
judgments. The Company’s most significant estimates
relate to medical costs payable and medical costs, premium
rebates and risk-sharing provisions related to revenues,
valuation and impairment analysis of goodwill and other
intangible assets, other policy liabilities, other current
receivables, valuation of investments, income taxes
and contingent liabilities. These estimates require the
application of complex assumptions and judgments, often
because they involve matters that are inherently uncertain
and will likely change in subsequent periods. The impact
of any changes in estimates is included in earnings in the
period in which the estimate is adjusted.
Revenues
Premium revenues are primarily derived from risk-based
health insurance arrangements in which the premium is
typically at a fixed rate per individual served for a one-
year period, and the Company assumes the economic
risk of funding its customers’ health care and related
administrative costs. Effective in 2011, commercial health
plans with medical loss ratios on fully insured products, as
calculated under the definitions in the Patient Protection
and Affordable Care Act and its related reconciliation act
(Health Reform Legislation) and implementing regulations,
that fall below certain targets are required to rebate
ratable portions of their premiums annually. The Company
classifies its estimated rebates as an offset to Premium
Revenues in the Consolidated Statement of Operations.
Premium revenues are recognized in the period in which
eligible individuals are entitled to receive health care
benefits. Health care premium payments received from its
customers in advance of the service period are recorded as
unearned revenues. The Company also records premium
revenues from capitation arrangements at its collaborative
care businesses.
The Centers for Medicare and Medicaid Services (CMS)
deploys a risk adjustment model that apportions premiums
paid to all health plans according to health severity and
certain demographic factors. The CMS risk adjustment
model pays more for members whose medical history
indicates they have certain medical conditions. Under
this risk adjustment methodology, CMS calculates the risk
adjusted premium payment using diagnosis data from
hospital inpatient, hospital outpatient and physician
treatment settings. The Company and health care providers
collect, capture, and submit the necessary and available
diagnosis data to CMS within prescribed deadlines. The
Company estimates risk adjustment revenues based upon
the diagnosis data submitted and expected to be submitted
to CMS. Risk adjustment data for certain of the Company’s
plans is subject to audit by regulators. See Note 12 of Notes
to the Consolidated Financial Statements for additional
information regarding these audits.
Service revenues consist primarily of fees derived from
services performed for customers that self-insure the health
care costs of their employees and employees’ dependants.
52
UNITEDHEALTH GROUP
Under service fee contracts, the Company recognizes
revenue in the period the related services are performed.
The customers retain the risk of financing health care
costs for their employees and employees’ dependants,
and the Company administers the payment of customer
funds to physicians and other health care professionals
from customer-funded bank accounts. As the Company has
neither the obligation for funding the health care costs,
nor the primary responsibility for providing the medical
care, the Company does not recognize premium revenue
and medical costs for these contracts in its Consolidated
Financial Statements.
For both risk-based and fee-based customer
arrangements, the Company provides coordination and
facilitation of medical services; transaction processing;
customer, consumer and care professional services; and
access to contracted networks of physicians, hospitals
and other health care professionals. These services are
performed throughout the contract period.
For the Company’s OptumRx pharmacy benefits
management (PBM) business, revenues are derived from
products sold through a contracted network of retail
pharmacies, and from administrative services, including
claims processing and formulary design and management.
Product revenues include ingredient costs (net of rebates),
a negotiated dispensing fee and customer co-payments
for drugs dispensed through the Company’s mail-service
pharmacy. In retail pharmacy transactions, revenues
recognized always exclude the member’s applicable
co-payment. Product revenues are recognized when the
prescriptions are dispensed through the retail network or
received by consumers through the Company’s mail-service
pharmacy. Service revenues are recognized when the
prescription claim is adjudicated. The Company has entered
into retail service contracts in which it is primarily obligated
to pay its network pharmacy providers for benefits
provided to their customers regardless if the Company
is paid. The Company is also involved in establishing the
prices charged by retail pharmacies, determining which
drugs will be included in formulary listings and selecting
which retail pharmacies will be included in the network
offered to plan sponsors’ members. As a result, revenues
are reported on a gross basis.
Medical Costs and Medical Costs Payable
Medical costs and medical costs payable include estimates
of the Company’s obligations for medical care services
that have been rendered on behalf of insured consumers,
but for which claims have either not yet been received
or processed, and for liabilities for physician, hospital
and other medical cost disputes. The Company develops
estimates for medical costs incurred but not reported using
an actuarial process that is consistently applied, centrally
controlled and automated. The actuarial models consider
factors such as time from date of service to claim receipt,
claim processing backlogs, care provider contract rate
changes, medical care consumption and other medical cost
trends. The Company estimates liabilities for physician,
hospital and other medical cost disputes based upon an
analysis of potential outcomes, assuming a combination
of litigation and settlement strategies. Each period, the
Company re-examines previously established medical costs
payable estimates based on actual claim submissions and
other changes in facts and circumstances. As the medical
costs payable estimates recorded in prior periods develop,
the Company adjusts the amount of the estimates and
includes the changes in estimates in medical costs in the
period in which the change is identified. Medical costs also
include the direct cost of patient care rendered through
OptumHealth.
Cash, Cash Equivalents and Investments
Cash and cash equivalents are highly liquid investments
that have an original maturity of three months or less.
The fair value of cash and cash equivalents approximates
their carrying value because of the short maturity of the
instruments.
The Company had checks outstanding in excess of
bank deposits at the related accounts of $1.5 billion as
of December 31, 2011 and $1.3 billion as of December
31, 2010, which were classified as Accounts Payable and
Accrued Liabilities in the Consolidated Balance Sheets and
the change in this balance has been reflected as Checks
Outstanding in Excess of Bank Deposits within financing
activities in the Consolidated Statements of Cash Flows. The
Company does not net checks outstanding with deposits in
other accounts.
Investments with maturities of less than one year
are classified as short-term. Because of regulatory
requirements, certain investments are included in long-term
investments regardless of their maturity date. The Company
classifies these investments as held-to-maturity and reports
them at amortized cost. Substantially all other investments
are classified as available-for-sale and reported at fair value
based on quoted market prices, where available.
The Company excludes unrealized gains and losses on
investments in available-for-sale securities from earnings
and reports them, net of income tax effects, as a separate
component of shareholders’ equity. To calculate realized
gains and losses on the sale of investments, the Company uses
the specific cost or amortized cost of each investment sold.
The Company evaluates an investment for impairment by
considering the length of time and extent to which market
value has been less than cost or amortized cost, the financial
condition and near-term prospects of the issuer as well
as specific events or circumstances that may influence the
operations of the issuer and the Company’s intent to sell the
security or the likelihood that it will be required to sell the
security before recovery of the entire amortized cost.
(cid:116)(cid:1)(cid:1)(cid:39)(cid:80)(cid:83)(cid:1)(cid:69)(cid:70)(cid:67)(cid:85)(cid:1)(cid:84)(cid:70)(cid:68)(cid:86)(cid:83)(cid:74)(cid:85)(cid:74)(cid:70)(cid:84)(cid:13)(cid:1)(cid:74)(cid:71)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:36)(cid:80)(cid:78)(cid:81)(cid:66)(cid:79)(cid:90)(cid:1)(cid:74)(cid:79)(cid:85)(cid:70)(cid:79)(cid:69)(cid:84)(cid:1)(cid:85)(cid:80)(cid:1)(cid:70)(cid:74)(cid:85)(cid:73)(cid:70)(cid:83)(cid:1)
sell or determines that it will be more likely than not
be required to sell a security before recovery of the
entire amortized cost basis or maturity of the security,yy
the Company recognizes the entire impairment in
Investment and Other Income. If the Company does not
intend to sell the debt security and it determines that
it will not be more likely than not be required to sell
the security but it does not expect to recover the entire
amortized cost basis, the impairment is bifurcated
into the amount attributed to the credit loss, which is
recognized in earnings, and all other causes, which are
recognized in other comprehensive income.
(cid:116)(cid:1)(cid:1)(cid:39)(cid:80)(cid:83)(cid:1)(cid:70)(cid:82)(cid:86)(cid:74)(cid:85)(cid:90)(cid:1)(cid:84)(cid:70)(cid:68)(cid:86)(cid:83)(cid:74)(cid:85)(cid:74)(cid:70)(cid:84)(cid:13)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:36)(cid:80)(cid:78)(cid:81)(cid:66)(cid:79)(cid:90)(cid:1)(cid:83)(cid:70)(cid:68)(cid:80)(cid:72)(cid:79)(cid:74)(cid:91)(cid:70)(cid:84)(cid:1)
impairments in other comprehensive income if it
expects to hold the security until fair value increases
to at least the security’s cost basis and it expects
that increase in fair value to occur in a reasonably
forecasted period. If the Company intends to sell the
equity security or if it believes that recovery of fair
value to cost will not occur in a reasonably forecasted
period, the Company recognizes the impairment in
Investment and Other Income.
New information and the passage of time can change
these judgments. The Company manages its investment
portfolio to limit its exposure to any one issuer or
market sector, and largely limits its investments to U.S.
government and agency securities; state and municipal
securities; mortgage-backed securities; and corporate
debt obligations, substantially all of investment grade
quality. Securities downgraded below policy minimums
after purchase will be disposed of in accordance with the
investment policy.
Assets Under Management
The Company provides health insurance products and
services to members of AARP under a Supplemental
Health Insurance Program (the AARP Program), and
to AARP members and non-members under separate
Medicare Advantage and Medicare Part D arrangements.
The products and services under the AARP Program
include supplemental Medicare benefits (AARP Medicare
Supplement Insurance), hospital indemnity insurance,
including insurance for individuals between 50 to 64 years
of age, and other related products.
The Company’s arrangements with AARP extend to
December 31, 2017 for the AARP Program and give the
Company an exclusive right to use the AARP brand on
the Company’s Medicare Advantage and Medicare Part D
offerings until December 31, 2014, subject to certain
limited exclusions.
Pursuant to the Company’s agreement, AARP Program
assets are managed separately from its general investment
portfolio and are used to pay costs associated with the
AARP Program. These assets are invested at the Company’s
discretion, within investment guidelines approved by AARP.
The Company does not guarantee any rates of return on
these investments and, upon transfer of the AARP Program
contract to another entity, the Company would transfer
cash equal in amount to the fair value of these investments
at the date of transfer to that entity. Because the purpose
of these assets is to fund the medical costs payable, the
rate stabilization fund (RSF) liabilities and other related
liabilities associated with this AARP contract, assets under
management are classified as current assets, consistent
with the classification of these liabilities. Interest earnings
and realized investment gains and losses on these assets
accrue to the overall benefit of the AARP policyholders
2011 FORM 10-K
53
through the RSF. Accordingly, they are not included in the
Company’s earnings. Interest income and realized gains and
losses related to assets under management are recorded as
an increase to the RSF and were $99 million, $107 million
and $99 million in 2011, 2010 and 2009, respectively.
The effects of changes in balance sheet amounts
associated with the AARP Program also accrue to the overall
benefit of the AARP policyholders through the RSF balance.
Accordingly, the Company excludes the effect of such
changes in its Consolidated Statements of Cash Flows. For
more detail on the RSF, see “Other Policy Liabilities” below.
Other Current Receivables
Other current receivables include amounts due from
pharmaceutical manufacturers for rebates and Medicare
Part D drug discounts, reinsurance and other miscellaneous
amounts due to the Company.
The Company’s PBM businesses contract with
pharmaceutical manufacturers, some of whom provide
rebates based on use of the manufacturers’ products by its
PBM businesses’ affiliated and non-affiliated clients. The
Company accrues rebates as they are earned by its clients
on a monthly basis based on the terms of the applicable
contracts, historical data and current estimates. The PBM
businesses bill these rebates to the manufacturers on a
monthly or quarterly basis depending on the contractual
terms. The PBM businesses record rebates attributable to
affiliated clients as a reduction to medical costs. Rebates
attributable to non-affiliated clients are accrued as rebates
receivable and a reduction of cost of products sold with
a corresponding payable for the amounts of the rebates
to be remitted to non-affiliated clients in accordance
with their contracts and recorded in the Consolidated
Statements of Operations as a reduction of Product
Revenue. The Company generally receives rebates from two
to five months after billing.
For details on the Company’s Medicare Part D receivables
see “Medicare Part D Pharmacy Benefits” below.
For details on the Company’s reinsurance receivable see
“Future Policy Benefits and Reinsurance Receivable” below.
Medicare Part D Pharmacy Benefits
The Company serves as a plan sponsor offering Medicare
Part D prescription drug insurance coverage under contracts
with CMS. Under the Medicare Part D program, there
are seven separate elements of payment received by the
Company during the plan year. These payment elements
are as follows:
(cid:116) CMS Premium. CMS pays a fixed monthly premium per
member to the Company for the entire plan year.
(cid:116)(cid:1)(cid:1)Member Premium. Additionally, certain members pay a
fixed monthly premium to the Company for the entire
plan year.
(cid:116)(cid:1) Low-Income Premium Subsidy.yy For qualifying low-
income members, CMS pays some or all of the
member’s monthly premiums to the Company on the
member’s behalf.
(cid:116)(cid:1)(cid:1)Catastrophic Reinsurance Subsidy.yy CMS pays the
Company a cost reimbursement estimate monthly to
54
UNITEDHEALTH GROUP
fund the CMS obligation to pay approximately 80%
of the costs incurred by individual members in excess
of the individual annual out-of-pocket maximum. A
settlement is made with CMS based on actual cost
experience, after the end of the plan year.
(cid:116) Low-Income Member Cost Sharing Subsidy.yy For
qualifying low-income members, CMS pays on the
member’s behalf some or all of a member’s cost sharing
amounts, such as deductibles and coinsurance. The cost
sharing subsidy is funded by CMS through monthly
payments to the Company. The Company administers
and pays the subsidized portion of the claims on behalf
of CMS, and a settlement payment is made between
CMS and the Company based on actual claims and
premium experience, after the end of the plan year.
(cid:116) CMS Risk-Share. Premiums from CMS are subject to
risk corridor provisions that compare costs targeted in
the Company’s annual bids by product and region to
actual prescription drug costs, limited to actual costs
that would have been incurred under the standard
coverage as defined by CMS. Variances of more than
5% above or below the original bid submitted by
the Company may result in CMS making additional
payments to the Company or require the Company to
refund to CMS a portion of the premiums it received.
The Company estimates and recognizes an adjustment
to premium revenues related to the risk corridor
payment settlement based upon pharmacy claims
experience. The estimate of the settlement associated
with these risk corridor provisions requires the
Company to consider factors that may not be certain,
including member eligibility status differences with
CMS. The Company records risk-share adjustments to
Premium Revenues in the Consolidated Statements of
Operations and Other Policy Liabilities or Other Current
Receivables in the Consolidated Balance Sheets.
(cid:116) Drug Discount. Beginning in 2011, Health Reform
Legislation mandated a consumer discount of 50%
on brand name prescription drugs for Part D plan
participants in the coverage gap. This discount is
funded by CMS and pharmaceutical manufacturers
while the Company administers the application of
these funds. Amounts received are not reflected as
premium revenues, but rather are accounted for
as deposits. The Company records a liability when
amounts are received from CMS and a receivable when
the Company bills the pharmaceutical manufacturers.
Related cash flows are presented as Customer Funds
Administered within financing activities in the
Condensed Consolidated Statements of Cash Flows.
The CMS Premium, the Member Premium, and the
Low-Income Premium Subsidy represent payments for the
Company’s insurance risk coverage under the Medicare
Part D program and therefore are recorded as Premium
Revenues in the Consolidated Statements of Operations.
Premium revenues are recognized ratably over the period in
which eligible individuals are entitled to receive prescription
drug benefits. The Company records premium payments
received in advance of the applicable service period in
Unearned Revenues in the Consolidated Balance Sheets.
The Catastrophic Reinsurance Subsidy and the Low-
Income Member Cost Sharing Subsidy (Subsidies)
represent cost reimbursements under the Medicare Part
D program. Amounts received for these Subsidies are not
reflected as premium revenues, but rather are accounted
for as receivables and/or deposits. Related cash flows
are presented as Customer Funds Administered within
financing activities in the Condensed Consolidated
Statements of Cash Flows.
Pharmacy benefit costs and administrative costs under
the contract are expensed as incurred and are recognized
in Medical Costs and Operating Costs, respectively, in the
Consolidated Statements of Operations.
The final 2011 risk-share amount is expected to be
settled during the second half of 2012, and is subject to the
reconciliation process with CMS.
The Consolidated Balance Sheets include the following
amounts associated with the Medicare Part D program:
(in millions)
Other current receivables
Other policy liabilities
Subsidies
Drug Discount
Risk-Share
Subsidies
Risk-Share
$
—
70
$
509
649
$
—
170
$
—
475
$
—
265
December 31, 2011
December 31, 2010
As of January 1, 2012, certain changes were made to the
Medicare Part D coverage by CMS, including:
The initial coverage limit increased to $2,930 from
$2,840 in 2011.
The catastrophic coverage begins at $6,658 as
compared to $6,448 in 2011.
The annual out-of-pocket maximum increased to
$4,700 from $4,550 in 2011.
yy
Property, Equipment and Capitalized Software
Property, equipment and capitalized software are stated
at cost, net of accumulated depreciation and amortization.
Capitalized software consists of certain costs incurred in the
development of internal-use software, including external
direct costs of materials and services and payroll costs of
employees devoted to specific software development. The
Company reviews property, equipment and capitalized
software for events or changes in circumstances that would
indicate that it might not recover their carrying value. If the
Company determines that an asset may not be recoverable,
an impairment charge is recorded.
The Company calculates depreciation and amortization
using the straight-line method over the estimated useful
lives of the assets. The useful lives for property, equipment
and capitalized software are:
Furniture, fixtures and equipment
3 to 7 years
Buildings
Leasehold improvements
35 to 40 years
7 years or length
of lease term,
whichever is shorter
Capitalized software
3 to 5 years
Goodwill
Goodwill represents the amount of the purchase price
in excess of the fair values assigned to the underlying
identifiable net assets of acquired businesses. Goodwill
is not amortized, but is subject to an annual impairment
test. Tests are performed more frequently if events occur
or circumstances change that would more likely than not
reduce the fair value of the reporting unit below its
carrying amount.
To determine whether goodwill is impaired, the
Company performs a multi-step impairment test. First, the
Company can elect to perform a qualitative assessment
of each reporting unit to determine whether facts and
circumstances support a determination that their fair values
are greater than their carrying values. If the qualitative
analysis is not conclusive, or if the Company elects to
proceed directly with quantitative testing, it will then
measure the fair values of the reporting units and compare
them to their aggregate carrying values, including goodwill.
If the fair value is less than the carrying value of the
reporting unit, then the implied value of goodwill would
be calculated and compared to the carrying amount of
goodwill to determine whether goodwill is impaired.
The Company estimates the fair values of its reporting
units using discounted cash flows. To determine fair values,
the Company must make assumptions about a wide variety
2011 FORM 10-K
55
of internal and external factors. Significant assumptions
used in the impairment analysis include financial projections
of free cash flow (including significant assumptions about
operations, capital requirements and income taxes), long-
term growth rates for determining terminal value, and
discount rates.
The Company elected to bypass the optional qualitative
reporting-unit fair value assessment and completed its
annual quantitative test for goodwill impairment as of
January 1, 2012. As of December 31, 2011, no reporting unit
had a fair value less than its carrying value and the Company
concluded that there was no need for any impairment of its
goodwill balances.
Intangible assets
Finite-lived, separately-identifiable intangible assets are
acquired in business combinations and are assets that
represent future expected benefits but lack physical
substance (e.g., membership lists, customer contracts,
trademarks and technology). The Company does not have
material holdings of indefinite lived intangible assets. The
Company’s intangible assets are initially recorded at their
fair values and are then amortized over their expected
useful lives.
The Company’s intangible assets are subject to impairment
tests when events or circumstances indicate that a finite-
lived intangible asset’s (or asset group’s) carrying value may
exceed its estimated fair value. Consideration is given to
a number of potential impairment indicators. Following
the identification of any potential impairment indicators,
to determine whether an impairment exists, the Company
would calculate the estimated fair value of a finite-lived
intangible asset using the undiscounted cash flows that
are expected to result from the use of the asset or related
group of assets. Once it is determined that an impairment
exists, the amount by which the carrying value exceeds the
estimated fair value is recorded as an impairment.
There were no material impairments of finite-lived
intangible assets during the year ended December 31, 2011.
Other Policy Liabilities
Other policy liabilities include the RSF associated with the
AARP Program (described below), health savings account
deposits, deposits under the Medicare Part D program
(see “Medicare Part D Pharmacy Benefits” above), accruals
for premium rebate payments under the Health Reform
Legislation, the current portion of future policy benefits
and customer balances. Customer balances represent excess
customer payments and deposit accounts under experience-
rated contracts. At the customer’s option, these balances
may be refunded or used to pay future premiums or claims
under eligible contracts.
Underwriting gains or losses related to the AARP Program
are directly recorded as an increase or decrease to the RSF
and accrue to the overall benefit of the AARP policyholders,
unless cumulative net losses were to exceed the balance
in the RSF. The primary components of the underwriting
results are premium revenue, medical costs, investment
income, administrative expenses, member service expenses,
marketing expenses and premium taxes. To the extent
56
UNITEDHEALTH GROUP
underwriting losses exceed the balance in the RSF, losses
would be borne by the Company. Deficits may be recovered
by underwriting gains in future periods of the contract.
To date, the Company has not been required to fund any
underwriting deficits. Changes in the RSF are reported in
Medical Costs in the Consolidated Statement of Operations.
As of December 31, 2011 and 2010, the balance in the RSF
was $1.3 billion. The Company believes the RSF balance as
of December 31, 2011 is sufficient to cover potential future
underwriting and other risks and liabilities associated with
the contract.
Income Taxes
Deferred income tax assets and liabilities are recognized
for the differences between the financial and income tax
reporting bases of assets and liabilities based on enacted tax
rates and laws. The deferred income tax provision or benefit
generally reflects the net change in deferred income tax
assets and liabilities during the year, excluding any deferred
income tax assets and liabilities of acquired businesses. The
current income tax provision reflects the tax consequences
of revenues and expenses currently taxable or deductible on
various income tax returns for the year reported.
Future Policy Benefits and Reinsurance Receivable
Future policy benefits represent account balances that
accrue to the benefit of the policyholders, excluding
surrender charges, for universal life and investment annuity
products and for long-duration health policies sold to
individuals for which some of the premium received in
the earlier years is intended to pay benefits to be incurred
in future years. As a result of the 2005 sale of the life
and annuity business within the Company’s Golden Rule
Financial Corporation subsidiary under an indemnity
reinsurance arrangement, the Company has maintained a
liability associated with the reinsured contracts, as it remains
primarily liable to the policyholders, and has recorded
a corresponding reinsurance receivable due from the
purchaser. As of December 31, 2011, the Company had an
aggregate $1.9 billion reinsurance receivable, of which $125
million was recorded in Other Current Receivables and $1.8
billion was recorded in Other Assets in the Consolidated
Balance Sheets. As of December 31, 2010, the Company had
an aggregate $2.0 billion reinsurance receivable, of which
$126 million was recorded in Other Current Receivables and
$1.9 billion was recorded in Other Assets in the Consolidated
Balance Sheets. The Company evaluates the financial
condition of the reinsurer and only records the reinsurance
receivable to the extent of probable recovery. Currently, the
reinsurer is rated by A.M. Best as “A+.”
Policy Acquisition Costs
The Company’s short duration health insurance contracts
typically have a one-year term and may be cancelled by
the customer with at least 30 days notice. Costs related to
the acquisition and renewal of short duration customer
contracts are charged to expense as incurred.
Net Earnings Per Common Share
The Company computes basic net earnings per common
share by dividing net earnings by the weighted-average
number of common shares outstanding during the
period. The Company determines diluted net earnings per
common share using the weighted-average number of
common shares outstanding during the period, adjusted
for potentially dilutive shares associated with stock options,
stock-settled stock appreciation rights (SARs) and restricted
stock and restricted stock units (collectively, restricted
shares), using the treasury stock method. The treasury
stock method assumes exercise of stock options and vesting
of restricted shares, with the assumed proceeds used to
purchase common stock at the average market price for
the period. The difference between the number of shares
assumed issued and number of shares assumed purchased
represents the dilutive shares.
Recent Accounting Standards
Recently Issued Accounting Standards. In July 2011,
the Financial Accounting Standards Board (FASB) issued
Accounting Standards Update (ASU) No. 2011-06, “Other
Expenses (Topic 720): Fees Paid to the Federal Government
by Health Insurers a consensus of the FASB Emerging
Issues Task Force” (ASU 2011-06). This update addresses
the recognition and classification of an entity’s share of
the annual health insurance industry assessment (the fee)
mandated by Health Reform Legislation. The fee will be
levied on health insurers for each calendar year beginning
on or after January 1, 2014 and is not deductible for income
tax purposes. The fee will be allocated to health insurers
based on the ratio of an entity’s net health premiums
written during the preceding calendar year to the total
health insurance for any U.S. health risk that is written
during the preceding calendar year. In accordance with the
amendments in ASU 2011-06, the liability for the fee will be
estimated and recorded in full once the Company provides
qualifying health insurance in the applicable calendar year
in which the fee is payable (first applicable in 2014) with
a corresponding deferred cost that will be amortized to
expense using a straight-line method of allocation unless
another method better allocates the fee over the calendar
year that it is payable.
Recently Adopted Accounting Standards. In September
2011, the FASB issued ASU No. 2011-08, “Intangibles -
Goodwill and Other (Topic 350): Testing Goodwill for
Impairment” (ASU 2011-08). This update intends to simplify
how entities test goodwill for impairment by including
an option for entities to first assess qualitative factors to
determine whether it is more-likely-than-not that the fair
value of a reporting unit is less than its carrying amount as
a basis for determining whether it is necessary to perform
the two-step goodwill impairment test on the subject
reporting unit. The Company adopted the amendments in
ASU 2011-08 for its annual goodwill impairment test as of
January 1, 2012. The adoption of ASU 2011-08 did not
have a material impact on the Company’s Consolidated
Financial Statements.
The Company has determined that there have been no
other recently issued or adopted accounting standards that
will have or had a material impact on its Consolidated
Financial Statements.
2011 FORM 10-K
57
3. INVESTMENTS
A summary of short-term and long-term investments is as follows:
(in millions)
December 31, 2011
Debt securities - available-for-sale:
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
$
$
$
U.S. government and agency obligations
State and municipal obligations
Corporate obligations
U.S. agency mortgage-backed securities
Non-U.S. agency mortgage-backed securities
$
TT
Total debt securities - available-for-sale
Equity securities - available-for-sale
Debt securities - held-to-maturity:
U.S. government and agency obligations
State and municipal obligations
Corporate obligations
TT
Total debt securities - held-to-maturity
2,319
6,363
5,825
2,279
476
17,262
529
166
13
18
197
TT
Total investments
$
17,988
December 31, 2010
Debt securities - available-for-sale:
U.S. government and agency obligations
State and municipal obligations
Corporate obligations
U.S. agency mortgage-backed securities
Non-U.S. agency mortgage-backed securities
$
TT
Total debt securities - available-for-sale
Equity securities - available-for-sale
Debt securities - held-to-maturity:
U.S. government and agency obligations
State and municipal obligations
Corporate obligations
TT
Total debt securities - held-to-maturity
2,214
6,007
5,111
1,851
439
15,622
508
167
15
21
203
54
403
205
74
28
764
23
7
—
—
7
794
28
183
210
58
26
505
22
5
—
—
5
$
$
$
—
(1)
(23)
—
—
(24)
(8)
—
—
—
—
$
2,373
6,765
6,007
2,353
504
18,002
544
173
13
18
204
(32)
$
18,750
(8)
(42)
(11)
(6)
—
(67)
(14)
—
—
—
—
$
2,234
6,148
5,310
1,903
465
16,060
516
172
15
21
208
TT
Total investments
$
16,333
$
532
$
(81)
$
16,784
Included in the Company’s investment portfolio were securities collateralized by sub-prime home equity lines of credit with
fair values of $2 million and $6 million as of December 31, 2011 and December 31, 2010, respectively. Also included were
Alt-A securities with fair values of $9 million and $15 million as of December 31, 2011 and December 31, 2010, respectively.
58
UNITEDHEALTH GROUP
The fair values of the Company’s mortgage-backed securities by credit rating (when multiple credit ratings are available for
an individual security, the average of the available ratings is used) and origination as of December 31, 2011 were as follows:
(in millions)
2011
2010
2007
2006
2005
Pre - 2005
U.S. agency mortgage-backed securities
AA
$
$
AAA
26
—
93
167
136
60
2,353
TT
Total
$ 2,835
$
A
$
$
—
—
—
—
—
3
—
3
Non-Investment Total Fair
TT
Grade
Value
$
$
—
—
3
10
3
—
—
16
$
26
3
96
177
139
63
2,353
$ 2,857
—
3
—
—
—
—
—
3
The amortized cost and fair value of available-for-sale debt securities as of December 31, 2011, by contractual maturity,
were as follows:
(in millions)
Due in one year or less
Due after one year through five years
Due after five years through ten years
Due after ten years
U.S. agency mortgage-backed securities
Non-U.S. agency mortgage-backed securities
TT
Total debt securities - available-for-sale
Amortized
Cost
$ 2,629
5,631
4,439
1,808
2,279
476
$ 17,262
Fair
VV
Value
$ 2,641
5,808
4,763
1,933
2,353
504
$18,002
The amortized cost and fair value of held-to-maturity debt securities as of December 31, 2011, by contractual maturity, were
as follows:
yy
(in millions)
Due in one year or less
Due after one year through five years
Due after five years through ten years
Due after ten years
TT
Total debt securities - held-to-maturity
Amortized
Cost
Fair
VV
Value
$
$
43
124
21
9
197
$
$
43
127
22
12
204
2011 FORM 10-K
59
The fair value of available-for-sale investments with gross unrealized losses by investment type and length of time that
individual securities have been in a continuous unrealized loss position were as follows:
(in millions)
December 31, 2011
Debt securities - available-for-sale:
State and municipal obligations
Corporate obligations
TT
Total debt securities - available-for-sale
Equity securities - available-for-sale
December 31, 2010
Debt securities - available-for-sale:
U.S. government and agency obligations
State and municipal obligations
Corporate obligations
U.S. agency mortgage-backed securities
Total debt securities - available-for-sale
Equity securities - available-for-sale
Less Than 12 Months
Gross
Unrealized
Losses
Fair
VV
Value
12 Months or Greater
Gross
Unrealized
Losses
Fair
VV
Value
TT
Total
Fair
VV
Value
Gross
Unrealized
Losses
$
85
1,496
$ 1,581
$
$
24
548
1,383
949
355
$ 3,235
$
206
$
$
$
$
$
$
(1)
(22)
(23)
(7)
(8)
(40)
(11)
(6)
(65)
(14)
$
$
$
$
$
$
21
28
49
3
—
18
14
—
32
11
$
$
$
$
$
$
—
(1)
(1)
(1)
—
(2)
—
—
(2)
—
$
106
1,524
$ 1,630
$
$
27
548
1,401
963
355
$ 3,267
$
217
$
$
$
$
$
$
(1)
(23)
(24)
(8)
(8)
(42)
(11)
(6)
(67)
(14)
The unrealized losses from all securities as of December 31, 2011 were generated from 2,100 positions out of a total of
15,300 positions. The Company believes that it will collect the principal and interest due on its investments that have an
amortized cost in excess of fair value. The unrealized losses on investments in state and municipal obligations and corporate
obligations as of December 31, 2011 were primarily caused by interest rate increases and not by unfavorable changes in the
credit ratings associated with these securities. At each reporting period, the Company evaluates securities for impairment
when the fair value of the investment is less than its amortized cost. The Company evaluated the underlying credit quality
of the issuers and the credit ratings of the state and municipal obligations and the corporate obligations, noting neither
a significant deterioration since purchase nor other factors leading to an other-than-temporary impairment (OTTI). As of
December 31, 2011, the Company did not have the intent to sell any of the securities in an unrealized loss position.
As of December 31, 2011, the Company’s holdings of non-U.S. agency mortgage-backed securities included $7 million of
commercial mortgage loans in default. They represented less than 1% of the Company’s total mortgage-backed security
holdings as of December 31, 2011.
A portion of the Company’s investments in equity securities and venture capital funds consists of investments held
in various public and nonpublic companies concentrated in the areas of health care services and related information
technologies. Market conditions that affect the value of health care and related technology stocks will likewise impact the
value of the Company’s equity portfolio. The equity securities and venture capital funds were evaluated for severity and
duration of unrealized loss, overall market volatility and other market factors.
Net realized gains included in Investment and Other Income on the Consolidated Statements of Operations were from the
following sources:
(in millions)
YY
For the Year Ended December 31,
2010
2011
2009
Total OTTI
Portion of loss recognized in other comprehensive income
Net OTTI recognized in earnings
Gross realized losses from sales
Gross realized gains from sales
Net realized gains
$
$
(12)
—
(12)
(11)
136
113
$
$
(23)
—
(23)
(6)
100
71
$
$
(64)
—
(64)
(41)
116
11
For the years ended December 31, 2011, 2010 and 2009, all of the recorded OTTI charges resulted from the Company’s
intent to sell certain impaired securities.
60
UNITEDHEALTH GROUP
PP
4. FAIR VALUE
Certain assets and liabilities are measured at fair value in
the financial statements. These assets and liabilities are
classified into one of three levels of a hierarchy defined
by U.S. GAAP. In instances in which the inputs used to
measure fair value fall into different levels of the fair value
hierarchy, the fair value measurement has been determined
based on the lowest level input that is significant to the
fair value measurement in its entirety. The Company’s
assessment of the significance of a particular item to the
fair value measurement in its entirety requires judgment,
including the consideration of inputs specific to the asset
or liability.
The fair value hierarchy is summarized as follows:
Level 1 — Quoted (unadjusted) prices for identical assets/
liabilities in active markets.
Level 2 — Other observable inputs, either directly or
indirectly, including:
(cid:116) (cid:50)(cid:86)(cid:80)(cid:85)(cid:70)(cid:69)(cid:1)(cid:81)(cid:83)(cid:74)(cid:68)(cid:70)(cid:84)(cid:1)(cid:71)(cid:80)(cid:83)(cid:1)(cid:84)(cid:74)(cid:78)(cid:74)(cid:77)(cid:66)(cid:83)(cid:1)(cid:66)(cid:84)(cid:84)(cid:70)(cid:85)(cid:84)(cid:16)(cid:77)(cid:74)(cid:66)(cid:67)(cid:74)(cid:77)(cid:74)(cid:85)(cid:74)(cid:70)(cid:84)(cid:1)(cid:74)(cid:79)(cid:1)(cid:66)(cid:68)(cid:85)(cid:74)(cid:87)(cid:70)
markets;
(cid:116) (cid:50)(cid:86)(cid:80)(cid:85)(cid:70)(cid:69)(cid:1)(cid:81)(cid:83)(cid:74)(cid:68)(cid:70)(cid:84)(cid:1)(cid:71)(cid:80)(cid:83)(cid:1)(cid:74)(cid:69)(cid:70)(cid:79)(cid:85)(cid:74)(cid:68)(cid:66)(cid:77)(cid:1)(cid:80)(cid:83)(cid:1)(cid:84)(cid:74)(cid:78)(cid:74)(cid:77)(cid:66)(cid:83)(cid:1)(cid:66)(cid:84)(cid:84)(cid:70)(cid:85)(cid:84)(cid:1)(cid:74)(cid:79)
non-active markets (e.g., few transactions, limited
information, non-current prices, high variability over
time);
(cid:116) (cid:42)(cid:79)(cid:81)(cid:86)(cid:85)(cid:84)(cid:1)(cid:80)(cid:85)(cid:73)(cid:70)(cid:83)(cid:1)(cid:85)(cid:73)(cid:66)(cid:79)(cid:1)(cid:82)(cid:86)(cid:80)(cid:85)(cid:70)(cid:69)(cid:1)(cid:81)(cid:83)(cid:74)(cid:68)(cid:70)(cid:84)(cid:1)(cid:85)(cid:73)(cid:66)(cid:85)(cid:1)(cid:66)(cid:83)(cid:70)(cid:1)(cid:80)(cid:67)(cid:84)(cid:70)(cid:83)(cid:87)(cid:66)(cid:67)(cid:77)(cid:70)
for the asset/liability (e.g., interest rates, yield curves,
volatilities, default rates); and
(cid:116) (cid:42)(cid:79)(cid:81)(cid:86)(cid:85)(cid:84)(cid:1)(cid:85)(cid:73)(cid:66)(cid:85)(cid:1)(cid:66)(cid:83)(cid:70)(cid:1)(cid:69)(cid:70)(cid:83)(cid:74)(cid:87)(cid:70)(cid:69)(cid:1)(cid:81)(cid:83)(cid:74)(cid:79)(cid:68)(cid:74)(cid:81)(cid:66)(cid:77)(cid:77)(cid:90)(cid:1)(cid:71)(cid:83)(cid:80)(cid:78)(cid:1)(cid:80)(cid:83)(cid:1)(cid:68)(cid:80)(cid:83)(cid:83)(cid:80)(cid:67)(cid:80)(cid:83)(cid:66)(cid:85)(cid:70)(cid:69)
by other observable market data.
Level 3 — Unobservable inputs that cannot be corroborated
by observable market data.
The following table presents a summary of fair value measurements by level for assets and liabilities measured at fair value
on a recurring basis, excluding AARP related assets and liabilities:
Quoted Prices
in Active
Markets
(Level 1)
Other
Observable
Inputs
(Level 2)
Unobservable
Inputs
(Level 3)
Total
TT
Fair
VV
Value
$
8,569
$
860
$
—
$
9,429
(in millions)
December 31, 2011
Cash and cash equivalents
Debt securities - available-for-sale:
U.S. government and agency obligations
State and municipal obligations
Corporate obligations
U.S. agency mortgage-backed securities
Non-U.S. agency mortgage-backed securities
Total debt securities - available-for-sale
TT
Equity securities - available-for-sale
1,551
—
16
—
—
1,567
333
822
6,750
5,805
2,353
497
16,227
2
TT
Total assets at fair value
$
10,469
$
17,089
Percentage of total assets at fair value
37%
61%
December 31, 2010
Cash and cash equivalents
Debt securities - available-for-sale:
U.S. government and agency obligations
State and municipal obligations
Corporate obligations
U.S. agency mortgage-backed securities
Non-U.S. agency mortgage-backed securities
Total debt securities - available-for-sale
TT
Equity securities - available-for-sale
TT
Total cash, cash equivalents and investments at fair value
Interest rate swap assets
TT
Total assets at fair value
Percentage of total assets at fair value
Interest rate swap liabilities
$
$
$
8,069
$
1,054
1,515
—
31
—
—
1,546
306
9,921
—
9,921
39%
—
719
6,148
5,146
1,903
457
14,373
2
15,429
46
15,475
60%
104
$
$
—
15
186
—
7
208
209
417
2,373
6,765
6,007
2,353
504
18,002
544
$
27,975
2%
100%
—
$
9,123
—
—
133
—
8
141
208
349
—
349
1%
—
2,234
6,148
5,310
1,903
465
16,060
516
25,699
46
25,745
100%
104
$
$
$
$
$
$
There were no transfers between Levels 1 and 2 during the years ended December 31, 2011 and 2010.5
The Company elected to measure the entirety of the AARP Assets Under Management at fair value. The following table
presents fair value information about the AARP Program-related financial assets and liabilities:
2011 FORM 10-K
61
(in millions)
December 31, 2011
Cash and cash equivalents
Debt securities:
U.S. government and agency obligations
State and municipal obligations
Corporate obligations
U.S. agency mortgage-backed securities
Non-U.S. agency mortgage-backed securities
TT
Total debt securities
Equity securities - available-for-sale
TT
Total assets at fair value
Other liabilities
TT
Total liabilities at fair value
December 31, 2010
Cash and cash equivalents
Debt securities:
U.S. government and agency obligations
State and municipal obligations
Corporate obligations
U.S. agency mortgage-backed securities
Non-U.S. agency mortgage-backed securities
TT
Total debt securities
Equity securities - available-for-sale
TT
Total assets at fair value
Other liabilities
TT
Total liabilities at fair value
Quoted Prices
in Active
Markets
(Level 1)
Other
Observable
Inputs
(Level 2)
Unobservable
Inputs
(Level 3)
Total
TT
Fair
VV
Value
$
257
$
10
$
566
—
—
—
—
566
—
823
27
27
115
515
—
—
—
—
515
—
630
—
—
214
25
1,048
436
150
1,873
2
1,885
49
49
—
244
15
1,129
393
137
1,918
2
1,920
—
—
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
59
59
$
267
780
25
1,048
436
150
2,439
2
2,708
76
76
115
759
15
1,129
393
137
2,433
2
2,550
59
59
$
$
$
$
$
$
$
There were no transfers between Levels 1 and 2 during the years ended December 31, 2011 and 2010.
The table below includes fair values for certain financial instruments for which it is practicable to estimate fair value. The
carrying values and fair values of these financial instruments were as follows:
(in millions)
Assets
Debt securities - available-for-sale
Equity securities - available-for-sale
Debt securities - held-to-maturity
AARP Program-related investments
Interest rate swap assets
Liabilities
Senior unsecured notes
Interest rate swap liabilities
AARP Program-related other liabilities
December 31, 2011
VV
Fair Value
Carrying Value
VV
December 31, 2010
VV
Fair Value
Carrying Value
VV
$
18,002
544
197
2,441
—
11,638
—
76
$
18,002
544
204
2,441
—
13,149
—
76
$
16,060
516
203
2,435
46
10,212
104
59
$
16,060
516
208
2,435
46
10,903
104
59
that rely heavily on management assumptions and
qualitative observations. These investments totaled $168
million and $166 million as of December 31, 2011 and
2010, respectively. The fair values of the Company’s various
venture capital investments are computed using limited
quantitative and qualitative observations of activity for
similar companies in the current market. The key inputs
utilized in the Company’s market modeling include, as
applicable, transactions for comparable companies in
similar industries and having similar revenue and growth
characteristics; similar preferences in the capital structure;
discounted cash flows; liquidation values and milestones
established at initial funding; and the assumption that the
values of the Company’s venture capital investments can be
inferred from these inputs. The Company’s remaining Level
3 equity securities holdings of $41 million and $42 million
as of December 31, 2011 and 2010, respectively, consist of
preferred stock and other items for which there are no
active markets.
Throughout the procedures discussed above in relation to
the Company’s processes for validating third party pricing
information, the Company validates the understanding
of assumptions and inputs used in security pricing and
determines the proper classification in the hierarchy based
on that understanding.
Interest Rate Swaps. Fair values of the Company’s interest
rate swaps were estimated using the terms of the swaps
and publicly available market yield curves. Because the
swaps were unique and not actively traded, the fair values
were classified as Level 2.
AARP Program-related Investments. AARP Program-related
investments consist of debt and equity securities held to
fund costs associated with the AARP Program and are
priced and classified using the same methodologies as the
Company’s other securities.
Senior Unsecured Notes. The fair values of the senior
unsecured notes are estimated based on third-party quoted
market prices for the same or similar issues.
AARP Program-related Other Liabilities. AARP Program-
related other liabilities consist of liabilities that represent
the amount of net investment gains and losses related
to AARP Program-related investments that accrue to the
benefit of the AARP policyholders.
62
UNITEDHEALTH GROUP
The carrying amounts reported in the Consolidated
Balance Sheets for cash and cash equivalents, accounts and
other current receivables, unearned revenues, commercial
paper, accounts payable and accrued liabilities approximate
fair value because of their short-term nature. These assets
and liabilities are not listed in the table above.
The following methods and assumptions were used
to estimate the fair value and determine the fair value
hierarchy classification of each class of financial instrument:
Cash and Cash Equivalents. The carrying value of cash
and cash equivalents approximates fair value as maturities
are less than three months. Fair values of cash equivalent
instruments that do not trade on a regular basis in active
markets are classified as Level 2.
Debt and Equity Securities. Fair values of available-for-sale
debt and equity securities are based on quoted market
prices, where available. The Company obtains one price for
each security primarily from a third-party pricing service
(pricing service), which generally uses quoted or other
observable inputs for the determination of fair value.
The pricing service normally derives the security prices
through recently reported trades for identical or similar
securities, making adjustments through the reporting date
based upon available observable market information.
For securities not actively traded, the pricing service may
use quoted market prices of comparable instruments or
discounted cash flow analyses, incorporating inputs that are
currently observable in the markets for similar securities.
Inputs that are often used in the valuation methodologies
include, but are not limited to, benchmark yields, credit
spreads, default rates, prepayment speeds and non-binding
broker quotes. As the Company is responsible for the
determination of fair value, it performs quarterly analyses
on the prices received from the pricing service to determine
whether the prices are reasonable estimates of fair value.
Specifically, the Company compares the prices received
from the pricing service to a secondary pricing source,
prices reported by its custodian, its investment consultant
and third-party investment advisors. Additionally, the
Company compares changes in the reported market
values and returns to relevant market indices to test the
reasonableness of the reported prices. The Company’s
internal price verification procedures and review of
fair value methodology documentation provided by
independent pricing services has not historically resulted in
adjustment in the prices obtained from the pricing service.
Fair values of debt securities that do not trade on a
regular basis in active markets but are priced using other
observable inputs are classified as Level 2. The Company’s
Level 3 debt securities consist mainly of low income housing
investments that are unique and non-transferable.
Fair value estimates for Level 1 and Level 2 publicly
traded equity securities are based on quoted market prices
and/or other market data for the same or comparable
instruments and transactions in establishing the prices.
The fair values of Level 3 investments in venture capital
portfolios are estimated using market modeling approaches
A reconciliation of the beginning and ending balances of assets measured at fair value on a recurring basis using Level 3
inputs is as follows:
2011 FORM 10-K
63
(in millions)
Balance at beginning of period
Purchases
Sales
Settlements
Net unrealized (losses) gains
in accumulated other
comprehensive income
Net realized (losses) gains in
December 31, 2011
Equity
Securities Securities
Debt
Total
December 31, 2010
Equity
Securities Securities
Debt
Total
$ 141
92
—
(25)
$ 208
35
(17)
(7)
$ 349
127
(17)
(32)
$ 120
43
(4)
(20)
$
—
(4)
(4)
—
December 31, 2009
Equity
Debt
Securities Securities
TT
Total
$
62
76
—
(12)
$ 304
25
(3)
—
$ 366
101
(3)
(12)
45
(167)
312 $ 432
88
(171)
(20)
—
9
9
9
11
—
(6)
7
7
(21)
(27)
investment and other income
—
(6)
(6)
2
Balance at end of period
$ 208
$ 209
$ 417
$ 141
$
208 $ 349
$ 120
$ 312
$ 432
Non-financial assets and liabilities or financial assets and liabilities that are measured at fair value on a nonrecurring basis
are subject to fair value adjustments only in certain circumstances, such as when the Company records an impairment. There
were no significant fair value adjustments for these assets and liabilities recorded during the years ended December 31,
2011, 2010 and 2009.
5. PROPERTY, EQUIPMENT AND CAPITALIZED SOFTWARE
A summary of property, equipment and capitalized software is as follows:
yy
(in millions)
Land and improvements
Buildings and improvements
Computer equipment
Furniture and fixtures
Less accumulated depreciation
Property and equipment, net
Capitalized software
Less accumulated amortization
Capitalized software, net
TT
Total property, equipment and capitalized software, net
December 31, 2011
December 31, 2010
$
$
45
1,052
1,345
274
(1,424)
1,292
2,239
(1,016)
1,223
2,515
$
$
38
764
1,418
224
(1,417)
1,027
2,535
(1,362)
1,173
2,200
Depreciation expense for property and equipment for 2011, 2010 and 2009 was $386 million, $398 million and $436 million,
respectively. Amortization expense for capitalized software for 2011, 2010 and 2009 was $377 million, $349 million and $314
million, respectively.
64
UNITEDHEALTH GROUP
6. GOODWILL AND OTHER INTANGIBLE ASSETS
Changes in the carrying amount of goodwill, by reportable segment, were as follows:
(in millions)
UnitedHealthcare OptumHealth
OptumInsight
OptumRx
Consolidated
Balance at January 1, 2010 (a)
Acquisitions
Impairments
Adjustments, net
Balance at December 31, 2010
Acquisitions
Dispositions
Adjustments, net
$
$
17,851
—
—
(14)
17,837
101
(2)
(4)
Balance at December 31, 2011
$
17,932
$
573
187
—
—
760
1,353
—
—
2,113
$
$
1,463
2,022
(172)
(5)
3,308
—
(214)
(4)
$
3,090
$
840
—
—
—
840
—
—
—
840
$
20,727
2,209
(172)
(19)
22,745
1,454
(216)
(8)
$
23,975
(a)Prior period reportable segment financial information has been recast to conform to the 2011 presentation as discussed
in Note 2 of Notes to the Consolidated Financial Statements.
In 2010, there was a decline in the economic environment and competitive landscape for the clinical trial support businesses
within one of the OptumInsight reporting units. These businesses experienced unexpected declines in new business
authorizations from historical levels including continued delays in and lengthening of the selling cycle. During this time the
Company began evaluating strategic options with respect to the clinical trial support businesses. In December 2010, as part
of the annual goodwill impairment analysis, the Company considered the aforementioned market conditions and operating
results as well as indications of interest the Company began to receive on the clinical trial support businesses as the fair
value of the reporting unit was evaluated. As a result of that analysis, the Company determined that the implied fair value
of the reporting unit was less than its carrying value and an impairment charge of $172 million was recorded. The implied
fair value of the reporting unit was determined by a combination of valuation techniques, including discounting future
expected cash flows and expected sale proceeds. The Company sold a significant portion of this reporting unit in 2011
resulting in a reduction of goodwill upon disposal.
The gross carrying value, accumulated amortization and net carrying value of other intangible assets were as follows:
(in millions)
Customer-related
Trademarks and technology
Other
December 31, 2011
December 31, 2010
Gross
Carrying Accumulated
Amortization
VV
Value
$
3,766
368
112
$ (1,310)
(98)
(43)
Net
Carrying
VV
Value
$
2,456
270
69
Gross
Carrying Accumulated
Amortization
VV
Value
$
3,623
505
132
$ (1,038)
(246)
(66)
Net
Carrying
VV
Value
$
2,585
259
66
TT
Total
$
4,246
$ (1,451)
$
2,795
$
4,260
$ (1,350)
$
2,910
The acquisition date fair values and weighted-average useful lives assigned to finite-lived intangible assets acquired in
business combinations consisted of the following by year of acquisition:
2011 FORM 10-K
65
(in millions, except years)
Customer-related
Trademarks and technology
Other
2011
2010
Weighted-
Average
AA
Useful Life
9 years
5 years
15 years
Fair Value
VV
786
$
94
14
Weighted-
Average
Useful Life
14 years
8 years
9 years
Fair Value
VV
187
$
49
5
TT
Total acquired finite-lived intangible assets
$
241
9 years
$
894
13 years
Estimated full year amortization expense relating to intangible assets for each of the next five years is as follows:
(in millions)
2012
2013
2014
2015
2016
Estimated
Amortization Expense
$
361
328
316
299
277
Amortization expense relating to intangible assets for 2011, 2010 and 2009 was $361 million, $317 million and $241 million,
respectively.
7. MEDICAL COSTS AND MEDICAL COSTS PAYABLE
For the year ended December 31, 2011, there was $720 million of net favorable medical cost development related to prior
fiscal years. The favorable development in 2011 was primarily driven by continued improvements in claims submission
timeliness, which results in higher completion factors, and lower than expected health system utilization levels.
For the year ended December 31, 2010, there was $800 million of net favorable medical cost development related to prior
fiscal years. The favorable development in 2010 was primarily driven by lower than expected health system utilization levels;
more efficient claims handling and processing, which results in higher completion factors; a reduction in reserves needed for
disputed claims from care providers; and favorable resolution of certain state-based assessments.
No factor (e.g., medical trends/utilization, completion factors) was individually material to the $310 million of net
favorable medical cost development for the year ended December 31, 2009.
The following table shows the components of the change in medical costs payable for the years ended December 31:
(in millions)
Medical costs payable, beginning of period
Acquisitions
Reported medical costs:
Current year
Prior years
TT
Total reported medical costs
Claim payments:
Payments for current year
Payments for prior year
TT
Total claim payments
Medical costs payable, end of period
2011
9,220
155
75,052
(720)
74,332
(65,763)
(8,145)
(73,908)
9,799
$
$
2010
$
9,362
—
69,641
(800)
68,841
(60,949)
(8,034)
(68,983)
9,220
$
$
2009
8,664
252
65,599
(310)
65,289
(57,109)
(7,734)
(64,843)
9,362
$
66
UNITEDHEALTH GROUP
8. COMMERCIAL PAPER AND LONG-TERM DEBT
Commercial paper and long-term debt consisted of the following:
(in millions)
December 31, 2011
Carrying
VV
Value
Par
VV
Value
Fair
VV
Value
December 31, 2010
Carrying
VV
Value
Fair
VV
Value
Par
VV
Value
$ —
Commercial paper
Senior unsecured floating-rate notes
—
due February 2011
—
5.3% senior unsecured notes due March 2011
352
5.5% senior unsecured notes due November 2012
534
4.9% senior unsecured notes due February 2013
409
4.9% senior unsecured notes due April 2013
172
4.8% senior unsecured notes due February 2014
389
5.0% senior unsecured notes due August 2014
416
4.9% senior unsecured notes due March 2015
601
5.4% senior unsecured notes due March 2016
400
1.9% senior unsecured notes due November 2016
95
5.4% senior unsecured notes due November 2016
441
6.0% senior unsecured notes due June 2017
156
6.0% senior unsecured notes due November 2017
1,100
6.0% senior unsecured notes due February 2018
450
3.9% senior unsecured notes due October 2020
400
4.7% senior unsecured notes due February 2021
3.4% senior unsecured notes due November 2021
500
Zero coupon senior unsecured notes due November 2022 1,095
850
5.8% senior unsecured notes due March 2036
500
6.5% senior unsecured notes due June 2037
650
6.6% senior unsecured notes due November 2037
1,100
6.9% senior unsecured notes due February 2038
300
5.7% senior unsecured notes due October 2040
350
6.0% senior unsecured notes due February 2041
600
4.6% senior unsecured notes due November 2041
$ —
$
— $
930
$
930
$
930
—
—
363
540
421
184
423
458
678
397
95
499
173
1,123
442
419
497
619
844
495
645
1,084
298
348
593
—
—
366
556
427
185
424
460
689
400
110
518
183
1,308
478
450
517
696
1,017
636
834
1,475
359
430
631
250
705
352
534
409
172
389
416
601
—
95
441
156
1,100
450
—
—
1,095
850
500
650
1,100
300
—
—
250
712
372
541
425
186
425
456
666
—
95
484
167
1,065
413
—
—
588
844
495
645
1,085
298
—
—
250
711
377
568
437
184
423
444
661
—
105
491
174
1,249
429
—
—
677
862
552
729
1,281
299
—
—
TT
Total commercial paper and long-term debt
$11,860
$11,638
$13,149
$ 11,495
$11,142
$ 11,833
Maturities of long-term debt for the years ending December 31 are as follows:
(in millions)
2012 (a)
2013
2014
2015
2016
Thereafter
Maturities of
Long-Term Debt
TT
$
982
961
607
458
1,170
7,460
(a) The $1,095 million par, zero coupon senior unsecured notes due November 2022 have been included in current
rr
maturities of long-term debt in the Consolidated Balance Sheets as of December 31, 2011 and 2010 due to a current
note holder option to “put” the note to the Company which began on November 15, 2010, and recurs each November
15 thereafter until 2022 (except 2014), at accreted value.
Commercial Paper and Bank Credit Facility
Commercial paper consists of short-duration, senior
unsecured debt privately placed on a discount basis
through broker-dealers.
In December 2011, the Company amended and renewed
its five-year revolving bank credit facility with 21 banks,
which will mature in December 2016. The amendment
included increasing the capacity to $3.0 billion. This facility
supports the Company’s commercial paper program and is
available for general corporate purposes. There were no
amounts outstanding under this facility as of December 31,
2011. The interest rate on borrowings is variable based on
term and amount and is calculated based on the London
Interbank Offered Rate (LIBOR) plus a credit spread based
on the Company’s senior unsecured credit ratings. As of
December 31, 2011, the annual interest rate on this facility,
had it been drawn, would have ranged from 1.2% to 1.7%.
Debt Covenants
The Company’s bank credit facility contains various
covenants including requiring the Company to maintain
a debt-to-total-capital ratio, calculated as debt divided by
the sum of debt and shareholders’ equity, below 50%. The
Company was in compliance with its debt covenants as of
December 31, 2011.
Interest Rate Swap Contracts
During 2010, the Company entered into interest rate swap
contracts to convert a portion of its interest rate exposure
from fixed to floating rates. The interest rate swap
contracts were benchmarked to LIBOR and were utilized
to more closely align interest expense with interest income
received on the Company’s cash equivalent and investment
balances. The swaps were designated as fair value hedges
on fixed-rate debt issues maturing between November
2011 FORM 10-K
67
2012 through March 2016 and June 2017 through October
2020. Since the specific terms and notional amounts of the
swaps matched those of the debt being hedged, they were
assumed to be highly effective hedges and all changes in
fair value of the swaps were recorded on the Consolidated
Balance Sheets with no net impact recorded in the
Consolidated Statements of Operations.
The following table provides a summary of the effect
of changes in fair value of fair value hedges, prior to their
termination, on the Company’s Consolidated Statements of
Operations:
(in millions)
Hedge gain recognized
in interest expense
Hedged item loss recognized
in interest expense
Net impact on the
Company’s Consolidated
Statements of Operations
December 31,
2011
2010
$
190
$
(58)
(190)
58
$
—
$
—
In the second half of 2011, the Company terminated
all of its interest rate swap fair value hedges ($5.4 billion
notional amount). As of the swap contracts’ termination
dates, the aggregate favorable adjustments to the carrying
value of the Company’s debt of $132 million is being
amortized as a reduction to interest expense over the
remaining lives of the underlying debt obligations, which
had in total a weighted-average life of 4.1 years. For the
year ended December 31, 2011, the net impact of the gain
amortization was not material. The purpose of the interest
rate swap terminations was to lock-in the impact of low
market floating interest rates and reduce the effective
interest rate on hedged long-term debt.
9. INCOME TAXES
The components of the provision for income taxes for the years ended December 31 are as follows:
(in millions)
Current Provision:
Federal
State and local
Total current provision
TT
Deferred provision
TT
Total provision for income taxes
2011
2010
2009
$
$
2,608
150
2,758
59
2,817
$
$
2,524
180
2,704
45
2,749
$
$
1,924
78
2,002
(16)
1,986
The reconciliation of the tax provision at the U.S. Federal Statutory Rate to the provision for income taxes for the years
ended December 31 is as follows:
(in millions, except percentages)
2011
2010
2009
Tax provision at the U.S. federal statutory rate
State income taxes, net of federal benefit
Settlement of state exams, net of federal benefit
Tax-exempt investment income
TT
Non-deductible compensation
rr
Other, net
Provision for income taxes
$ 2,785
136
(29)
(63)
10
(22)
$ 2,817
35.0%
1.7
(0.4)
(0.8)
0.1
(0.2)
35.4%
$ 2,584
129
35.0%
1.7
(3) —
(65)
64
40
(0.9)
0.9
0.5
$ 2,033
66
(40)
(70)
—
(3)
35.0%
1.1
(0.7)
(1.2)
—
—
$ 2,749
37.2%
$ 1,986
34.2%
68
UNITEDHEALTH GROUP
The lower effective income tax rates for 2011 and 2009 as compared to 2010 resulted from the favorable resolution of
various tax matters as well as higher effective income tax rates in 2010. The 2010 effective income tax rates were at higher
levels due to the cumulative implementation of changes under the Health Reform Legislation.
The components of deferred income tax assets and liabilities as of December 31 are as follows:
(in millions)
Deferred income tax assets:
Share-based compensation
Accrued expenses and allowances
Net operating loss carryforwards
Medical costs payable and other policy liabilities
Long term liabilities
Unearned revenues
Unrecognized tax benefits
Other
Subtotal
Less: valuation allowances
TT
Total deferred income tax assets
Deferred income tax liabilities:
Intangible assets
Capitalized software development
Net unrealized gains on investments
Depreciation and amortization
Prepaid expenses
TT
Total deferred income tax liabilities
Net deferred income tax liabilities
2011
2010
$
$
417
259
247
166
155
56
44
192
1,536
(184)
1,352
(1,148)
(465)
(275)
(256)
(86)
(2,230)
(878)
$
$
385
233
285
102
147
78
62
215
1,507
(247)
1,260
(1,104)
(450)
(161)
(140)
(92)
(1,947)
(687)
Valuation allowances are provided when it is considered more likely than not that deferred tax assets will not be
realized. The valuation allowances primarily relate to future tax benefits on certain federal and state net operating loss
carryforwards. Federal net operating loss carryforwards of $151 million expire beginning in 2019 through 2031, and state
net operating loss carryforwards expire beginning in 2012 through 2031.
A reconciliation of the beginning and ending amount of unrecognized tax benefits as of December 31 is as follows:
(in millions)
Gross unrecognized tax benefits, beginning of period
Gross increases:
2011
2010
2009
$
220
$
220
$
340
Current year tax positions
Prior year tax positions
Gross decreases:
Prior year tax positions
Settlements
Statute of limitations lapses
Gross unrecognized tax benefits, end of period
$
11
10
(34)
(25)
(53)
129
$
13
30
—
—
(43)
220
10
11
(62)
(61)
(18)
220
$
The Company classifies interest and penalties associated with uncertain income tax positions as income taxes within its
Consolidated Financial Statements. During the year ended December 31, 2011, the Company recognized a tax benefit of
$12 million generated from the net reduction in interest and penalties accrued. During the year ended December 31, 2010,
the Company recognized $15 million of interest expense and penalties. During the year ended December 31, 2009, the
Company recognized a tax benefit of $7 million generated from the net reduction in interest accrued. The Company had
$41 million and $63 million of accrued interest and penalties for uncertain tax positions as of December 31, 2011 and 2010,
respectively. These amounts are not included in the reconciliation above. As of December 31, 2011, the total amount of
unrecognized tax benefits that, if recognized, would affect the effective tax rate, was $90 million.
2011 FORM 10-K
69
Corporation (FDIC) to be considered “Well Capitalized”
under the capital adequacy rules to which it is subject.
At December 31, 2011, the Company believes that
OptumHealth Bank met the FDIC requirements to be
considered “Well Capitalized”.
Share Repurchase Program
Under its Board of Directors’ authorization, the Company
maintains a share repurchase program. The objectives
of the share repurchase program are to optimize the
Company’s capital structure and cost of capital, thereby
improving returns to shareholders, as well as to offset the
dilutive impact of share-based awards. Repurchases may be
made from time to time in open market purchases or other
types of transactions (including prepaid or structured share
repurchase programs), subject to certain Board restrictions.
In May 2011, the Board renewed the Company’s share
repurchase program with an authorization to repurchase
up to 110 million shares of its common stock. During 2011,
the Company repurchased 65 million shares at an average
price of approximately $46 per share and an aggregate cost
of $3.0 billion. As of December 31, 2011, the Company had
Board authorization to purchase up to an additional 65
million shares of its common stock.
Dividends
In May 2011, the Company’s Board of Directors increased
the Company’s cash dividend to shareholders to an annual
dividend rate of $0.65 per share, paid quarterly. Since June
2010, the Company had paid a quarterly dividend of $0.125
per share. Declaration and payment of future quarterly
dividends is at the discretion of the Board and may be
adjusted as business needs or market conditions change.
On February 8, 2012, the Company’s Board of Directors
approved a quarterly dividend of $0.1625 per share.
The following table provides details of the Company’s
dividend payments:
Payment Date
2009
2010
2011
Amount per
Share
Total Amount Paid
TT
(in millions)
$
0.0300
0.4050
0.6125
$
36
449
651
The Company currently files income tax returns in the U.S.
federal jurisdiction, various states and foreign jurisdictions.
The U.S. Internal Revenue Service (IRS) has completed
exams on the consolidated income tax returns for fiscal
years 2010 and prior. The Company’s 2011 tax year is under
advance review by the IRS under its Compliance Assurance
Program. With the exception of a few states, the Company
is no longer subject to income tax examinations prior to
2004. The Company does not believe any adjustments that
may result from these examinations will be significant.
The Company believes it is reasonably possible that its
liability for unrecognized tax benefits will decrease in the
next twelve months by $73 million as a result of audit
settlements and the expiration of statutes of limitations in
certain major jurisdictions.
10. SHAREHOLDERS’ EQUITY
Regulatory Capital and Dividend Restrictions
The Company’s regulated subsidiaries are subject to
regulations and standards in their respective states of
domicile. Most of these regulations and standards conform
to those established by the National Association of
Insurance Commissioners. These standards, among other
things, require these subsidiaries to maintain specified
levels of statutory capital, as defined by each state, and
restrict the timing and amount of dividends and other
distributions that may be paid to their parent companies.
Except in the case of extraordinary dividends, these
standards generally permit dividends to be paid from
statutory unassigned surplus of the regulated subsidiary
and are limited based on the regulated subsidiary’s level
of statutory net income and statutory capital and surplus.
These dividends are referred to as “ordinary dividends” and
generally can be paid without prior regulatory approval.
If the dividend, together with other dividends paid within
the preceding twelve months, exceeds a specified statutory
limit or is paid from sources other than earned surplus, it is
generally considered an “extraordinary dividend” and must
receive prior regulatory approval.
In 2011, based on the 2010 statutory net income
and statutory capital and surplus levels, the maximum
amount of ordinary dividends which could be paid was
$3.4 billion. For the year ended December 31, 2011,
the Company’s regulated subsidiaries paid their parent
companies dividends of $4.5 billion, including $1.1 billion
of extraordinary dividends. For the year ended December
31, 2010, the Company’s regulated subsidiaries paid their
parent companies dividends of $3.2 billion, including $686
million of extraordinary dividends. As of December 31,
2011, $1.6 billion of the Company’s $9.4 billion of cash and
cash equivalents was held by non-regulated entities.
The Company’s regulated subsidiaries had estimated
aggregate statutory capital and surplus of approximately $12
billion as of December 31, 2011; regulated entity statutory
capital exceeded state minimum capital requirements.
OptumHealth Bank must meet minimum requirements
for Tier 1 leverage capital, Tier 1 risk-based capital, and
Total risk-based capital of the Federal Deposit Insurance
70
UNITEDHEALTH GROUP
11. SHARE-BASED COMPENSATION
In May 2011, the Company’s shareholders approved the
2011 Stock Incentive Plan (Plan). The Plan is intended to
attract and retain employees and non-employee directors,
offer them incentives to put forth maximum efforts
for the success of the Company’s business and afford
them an opportunity to acquire a proprietary interest
in the Company. The Plan allows the Company to grant
stock options, stock appreciation rights, restricted stock,
restricted stock units, performance awards or other stock-
based awards to eligible employees and non-employee
directors. The Plan incorporates the following plans
adopted by the Company: 2002 Stock and Incentive Plan,
1991 Stock and Incentive Plan, 1998 Broad-Based Stock
Incentive Plan and Non-employee Director Stock Option
Plan. All outstanding stock options, restricted stock and
other awards issued under the prior plans will remain
subject to the terms and conditions of the plans under
which they were issued.
As of December 31, 2011, the Company had 50 million
shares available for future grants of share-based awards
under its share-based compensation plan, including, but
not limited to, incentive or non-qualified stock options,
SARs and up to 23 million of awards in restricted shares. The
Company’s outstanding share-based awards consist mainly of
non-qualified stock options, SARs and restricted shares.
Stock Options and SARs
Stock options and SARs vest ratably over four to six years and may be exercised up to 10 years from the date of grant. Stock
option and SAR activity for the year ended December 31, 2011 is summarized in the table below:
Outstanding at beginning of period
Granted
Exercised
Forfeited
Outstanding at end of period
Exercisable at end of period
Vested and expected to vest end of period
Weighted-
Average
AA
Exercise
Price
Weighted-
Average
Remaining
Contractual Life
Aggregate
Intrinsic Value
VV
(in years)
(in millions)
$
40
44
29
44
42
44
42
4.7
4.1
4.7
$
916
610
905
Shares
(in millions)
112
1
(18)
(4)
91
74
91
To determine compensation expense related to the Company’s stock options and SARs, the fair value of each award is
TT
estimated on the date of grant using a binomial option-pricing model. The principal assumptions the Company used in
Risk free interest rate
Expected volatility
Expected dividend yield
Forfeiture rate
Expected life in years
2011
2010
2009
0.9% - 2.3%
44.3% - 45.1%
1.0% - 1.4%
5.0%
4.9 - 5.0
1.0% - 2.1%
45.4% - 46.2%
0.1% - 1.7%
5.0%
4.6 - 5.1
1.7% - 2.4%
41.3% - 46.8%
0.1%
5.0%
4.4 - 5.1
Risk-free interest rates are based on U.S. Treasury yields in effect at the time of grant. Expected volatilities are based on
the historical volatility of the Company’s common stock and the implied volatility from exchange-traded options on the
Company’s common stock. Expected dividend yields are based on the per share dividend declared by the Company’s Board
of Directors. The Company uses historical data to estimate option and SAR exercises and forfeitures within the valuation
model. The expected lives of options and SARs granted represents the period of time that the awards granted are expected
to be outstanding based on historical exercise patterns.
The weighted-average grant date fair value of stock options and SARs granted for 2011, 2010 and 2009 was
approximately $15 per share, $13 per share and $10 per share, respectively. The total intrinsic value of stock options and
SARs exercised during 2011, 2010 and 2009 was $327 million, $164 million and $282 million, respectively.
Restricted Shares
Restricted shares vest ratably over three to four years.
Compensation expense related to restricted shares is based
on the share price on date of grant. Restricted share activity
for the year ended December 31, 2011 is summarized in the
table below:
(shares in millions)
Shares
Nonvested at beginning
of period
Granted
Vested
Forfeitures
Nonvested at end of period
13
8
(3)
(1)
17
Weighted-Average
Grant Date
Fair Value
VV
per Share
$
31
42
32
35
36
The weighted-average grant date fair value of
restricted shares granted during 2011, 2010 and 2009 was
approximately $42 per share, $32 per share and $29 per
share, respectively. The total fair value of restricted shares
vested during 2011, 2010 and 2009 was $113 million, $99
million and $56 million, respectively.
Employee Stock Purchase Plan
The Company’s Employee Stock Purchase Plan (ESPP) is
intended to enhance employee commitment to the goals
of the Company, by providing a means of achieving stock
ownership at advantageous terms to eligible employees of
the Company. Eligible employees are allowed to purchase
the Company’s stock at a discounted price, which is 85%
of the lower market price of the Company’s common
stock at the beginning or at the end of the six-month
purchase period. During 2011, 2010 and 2009, 3 million
shares, 4 million shares and 4 million shares of common
stock, respectively, were purchased under the ESPP. The
compensation expense is included in the compensation
expense amounts recognized and discussed below. As
of December 31, 2011, there were 22 million shares of
common stock available for issuance under the ESPP.
Share-Based Compensation Recognition
The Company recognizes compensation expense for
share-based awards, including stock options, SARs and
restricted shares, on a straight-line basis over the related
service period (generally the vesting period) of the award,
or to an employee’s eligible retirement date under the
award agreement, if earlier. For 2011, 2010 and 2009 the
Company recognized compensation expense related to
its share-based compensation plans of $401 million ($260
million net of tax effects), $326 million ($278 million
net of tax effects) and $334 million ($220 million net
of tax effects), respectively. Share-based compensation
expense is recognized in Operating Costs in the Company’s
Consolidated Statements of Operations. As of December
31, 2011, there was $387 million of total unrecognized
compensation cost related to share awards that is expected
to be recognized over a weighted-average period of 1.0
year. For 2011, 2010 and 2009 the income tax benefit
2011 FORM 10-K
71
realized from share-based award exercises was $170 million,
$78 million and $94 million, respectively.
Other Employee Benefit Plans
The Company also offers a 401(k) plan for all employees.
Compensation expense related to this plan was not
material for the years 2011, 2010 and 2009.
In addition, the Company maintains non-qualified,
unfunded deferred compensation plans, which allow
certain members of senior management and executives to
defer portions of their salary or bonus and receive certain
Company contributions on such deferrals, subject to plan
limitations. The deferrals are recorded within Long-Term
Investments with an approximately equal amount in Other
Liabilities in the Consolidated Balance Sheets. The total
deferrals are distributable based upon termination of
employment or other periods, as elected under each plan
and were $281 million and $258 million as of December 31,
2011 and 2010, respectively.
12. COMMITMENTS AND CONTINGENCIES
The Company leases facilities and equipment under long-
term operating leases that are non-cancelable and expire
on various dates through 2028. Rent expense under all
operating leases for 2011, 2010 and 2009 was $295 million,
$297 million and $303 million, respectively.
As of December 31, 2011, future minimum annual lease
payments, net of sublease income, under all non-cancelable
operating leases were as follows:
(in millions)
2012
2013
2014
2015
2016
Thereafter
Future Minimum
Lease Payments
$
279
243
212
174
129
564
The Company provides guarantees related to its
performance under certain contracts. If standards are not
met, the Company may be financially at risk up to a stated
percentage of the contracted fee or a stated dollar amount.
Amounts accrued for performance guarantees were not
material as of December 31, 2011 and 2010.
As of December 31, 2011, the Company has outstanding,
undrawn letters of credit with financial institutions of
$72 million and surety bonds outstanding with insurance
companies of $316 million, primarily to bond contractual
performance.
LEGAL MATTERS
Because of the nature of its businesses, the Company is
frequently made party to a variety of legal actions and
regulatory inquiries, including class actions and suits
brought by members, providers, customers and regulators,
relating to the Company’s management and administration
of health benefit plans. These matters include medical
malpractice, employment, intellectual property, antitrust,
privacy and contract claims, and claims related to health
care benefits coverage and other business practices.
72
UNITEDHEALTH GROUP
The Company records liabilities for its estimates of
probable costs resulting from these matters where
appropriate. Estimates of probable costs resulting from
legal and regulatory matters involving the Company
are inherently difficult to predict, particularly where
the matters: involve indeterminate claims for monetary
damages or may involve fines, penalties or punitive
damages; present novel legal theories or represent a
shift in regulatory policy; involve a large number of
claimants or regulatory bodies; are in the early stages of
the proceedings; or could result in a change in business
practices. Accordingly, the Company is often unable to
estimate the losses or ranges of losses for those matters
where there is a reasonable possibility or it is probable that
a loss may be incurred.
Litigation Matters
Out-of-Network Reimbursement Litigation. In 2000,
a group of plaintiffs including the American Medical
Association filed a lawsuit against the Company asserting a
variety of claims challenging the Company’s determination
of reimbursement amounts for non-network health
care services based on the Company’s use of a database
previously maintained by Ingenix, Inc. (now known as
OptumInsight). The parties entered into a settlement
agreement in 2009 and this class action lawsuit, along
with a related industry-wide investigation by the New
York Attorney General, is now resolved. The Company
remains a party to a number of other lawsuits challenging
the determination of out of network reimbursement
amounts based on use of the same database, including
putative class actions and multidistrict litigation brought on
behalf of members of Aetna and WellPoint. The Company
was dismissed as a party from a similar lawsuit involving
Cigna and its members. These suits allege, among other
things, that the database licensed to these companies by
Ingenix was flawed and that Ingenix conspired with these
companies to underpay their members’ claims and seek
unspecified damages and treble damages, injunctive and
declaratory relief, interest, costs and attorneys fees. The
Company is vigorously defending these suits. The Company
cannot reasonably estimate the range of loss, if any, that
may result from these matters due to the procedural status
of the cases, motions to dismiss that are pending in several
of the cases, the absence of class certification in any of
the cases, the lack of a formal demand on the Company
by the plaintiffs, and the involvement of other insurance
companies as defendants.
California Claims Processing Matter. In 2007, the
California Department of Insurance (CDI) examined the
Company’s PacifiCare health insurance plan in California.
The examination findings related to the timeliness and
accuracy of claims processing, interest payments, provider
contract implementation, provider dispute resolution and
other related matters. On January 25, 2008, the CDI issued
an Order to Show Cause to PacifiCare Life and Health
Insurance Company, a subsidiary of the Company, alleging
violations of certain insurance statutes and regulations
in connection with the CDI’s examination findings. On
June 3, 2009, the Company filed a Notice of Defense to
the Order to Show Cause denying all material allegations
and asserting certain defenses. The matter has been the
subject of an administrative hearing before a California
administrative law judge since December 2009. CDI
amended its Order to Show Cause three times in 2010 to
allege a total of 992,936 violations, the large majority
of which relate to an alleged failure to include certain
language in standard claims correspondence during a four
month period in 2007. Although we believe that CDI has
never issued an aggregate penalty in excess of $8 million,
CDI has previously alleged in press reports and releases that
the Company could theoretically be subject to penalties of
up to $10,000 per violation. In October 2011, CDI stated
that it is seeking an average penalty of approximately $326
per alleged violation. CDI has since reduced the number
of alleged violations to 919,574 but has indicated that it is
still seeking an aggregate penalty of approximately $325
million. The Company is vigorously defending against
the claims in this matter and believes that the penalty
requested by CDI is excessive and without merit. After the
administrative law judge issues a ruling at the conclusion of
the administrative proceeding, expected sometime in 2012,
the California Insurance Commissioner may accept, reject or
modify the administrative law judge’s ruling, issue his own
decision, and impose a fine or penalty. The Commissioner’s
decision is subject to challenge in court. The Company
cannot reasonably estimate the range of loss, if any, that
may result from this matter given the procedural status
of the dispute, the novel legal issues presented (including
the legal basis for the majority of the alleged violations),
the inherent difficulty in predicting regulatory fines and
penalties, and the various remedies and levels of judicial
review available to the Company in the event a fine or
penalty is assessed.
Government Regulation
The Company’s business is regulated at federal, state, local
and international levels. The laws and rules governing
the Company’s business and interpretations of those laws
and rules are subject to frequent change. Broad latitude
is given to the agencies administering those regulations.
Further, the Company must obtain and maintain regulatory
approvals to market and sell many of its products.
The Company has been and is currently involved in
various governmental investigations, audits and reviews.
These include routine, regular and special investigations,
audits and reviews by CMS, state insurance and health
and welfare departments, state attorneys general, the
Office of Inspector General (OIG), the Office of Personnel
Management, the Office of Civil Rights, the Federal Trade
Commission, U.S. Congressional committees, the U.S.
Department of Justice, U.S. Attorneys, the SEC, the IRS, the
U.S. Department of Labor, the Federal Deposit Insurance
Corporation and other governmental authorities. For
example, in the fourth quarter of 2011, CMS conducted an
audit of the Company’s Medicare Advantage and Part D
business. The Company is in the process of responding to
2011 FORM 10-K
73
the actuarial soundness of the bids. On February 3, 2011,
CMS notified the Company that CMS was evaluating all
comments received on the proposed methodology and
that it anticipated making changes to the draft, based on
input CMS had received. As of the date of this filing, CMS
has not published the revised methodology. Depending on
the methodology utilized, potential payment adjustments
could have a material adverse effect on the Company’s
results of operations, financial position and cash flows.
The Office of Inspector General for HHS has audited
our risk adjustment data for two local plans and has
initially communicated its findings. While the Company
does not believe OIG has governing authority to directly
impose payment adjustments for risk adjustment audits
of Medicare health plans operated under the regulatory
authority of CMS, the OIG can recommend to CMS a
proposed payment adjustment, and the Company is unable
to predict the outcome of this audit process.
Guaranty Fund Assessments. Under state guaranty
assessment laws, certain insurance companies (and health
maintenance organizations in some states), including
those issuing health (which includes long-term care), life
and accident insurance policies, doing business in those
states can be assessed (up to prescribed limits) for certain
obligations to the policyholders and claimants of insolvent
insurance companies that write the same line or lines of
business. Assessments are generally based on premiums
in the state compared to the premiums of other insurers,
and could be spread out over a period of years. Some
states permit member insurers to recover assessments paid
through full or partial premium tax offsets.
The Pennsylvania Insurance Commissioner has placed
Penn Treaty Network America Insurance Company and its
subsidiary (Penn Treaty), neither of which is affiliated with
the Company, in rehabilitation, an intermediate action
before insolvency, and has petitioned a state court for
liquidation. If Penn Treaty is liquidated, the Company’s
insurance entities and other insurers may be required to
pay a portion of Penn Treaty’s policyholder claims through
guaranty association assessments in future periods. The
Company has estimated a potential assessment of $250
million to $350 million related to this matter, and the
Company would accrue the assessment in operating costs
if and when the state court renders such a decision. The
timing, actual amount and impact, if any, of any guaranty
fund assessments will depend on several factors, including
if and when the court declares Penn Treaty insolvent, the
amount of the insolvency, the availability and amount of
any potential offsets, such as an offset of any premium
taxes otherwise payable by the Company, and the impact
of any such assessments on potential premium rebate
payments under the Health Reform Legislation.
preliminary findings. Other examples of audits include the
risk adjustment data validation (RADV) audits discussed
below and a review by the U.S. Department of Labor of
the Company’s administration of applicable customer
employee benefit plans with respect to the Employee
Retirement Income Security Act of 1974, as amended
(ERISA) compliance.
Government actions can result in assessment of damages,
civil or criminal fines or penalties, or other sanctions,
including loss of licensure or exclusion from participation in
government programs and could have a material adverse
effect on the Company’s results of operations, financial
position and cash flows.
Risk Adjustment Data Validation Audits. CMS adjusts
capitation payments to Medicare Advantage plans and
Medicare Part D plans according to the predicted health
status of each beneficiary as supported by data from health
care providers as well as, for Medicare Part D plans only,
based on comparing costs predicted in the Company’s
annual bids to actual prescription drug costs. The Company
collects claim and encounter data from providers, who the
Company generally relies on to appropriately code their
claim submissions and document their medical records.
CMS then determines the risk score and payment amount
for each enrolled member based on the health care data
submitted and member demographic information.
In 2008, CMS announced that it would perform RADV
audits of selected Medicare Advantage health plans each
year to validate the coding practices of and supporting
documentation maintained by health care providers. These
audits involve a review of medical records maintained by
providers and may result in retrospective adjustments to
payments made to health plans. Certain of the Company’s
health plans have been selected for audit. These audits
are focused on medical records supporting risk adjustment
data for 2006 that were used to determine 2007 payment
amounts. Although these audits are ongoing, the Company
does not believe they will have a material impact on the
Company’s results of operations, financial position or
cash flows.
In December 2010, CMS published for public comment
a new proposed RADV audit and payment adjustment
methodology. The proposed methodology contains
provisions allowing retroactive contract level payment
adjustments for the year audited using an extrapolation of
the “error rate” identified in audit samples. The Company
has submitted comments to CMS regarding concerns the
Company has with CMS’ proposed methodology. These
concerns include, among others, the fact that the proposed
methodology does not take into account the “error rate” in
the original Medicare fee-for-service data that was used to
develop the risk adjustment system. Additionally, payments
received from CMS, as well as benefits offered and
premiums charged to members, are based on actuarially
certified bids that did not include any assumption of
retroactive audit payment adjustments. The Company
believes that applying retroactive audit and payment
adjustments after CMS acceptance of bids undermines
(cid:116)(cid:1)(cid:1)OptumRx offers a multitude of pharmacy benefit
x
management services including providing prescribed
medications, patient support and clinical programs.
OptumRx also provides claims processing, retail
network contracting, rebate contracting and
management and clinical programs, such as step
therapy, formulary management and disease/drug
therapy management programs to achieve a low-cost,
high-quality pharmacy benefit.
The Company’s accounting policies for reportable
segment operations are consistent with those described
in the Summary of Significant Accounting Policies (see
Note 2 of Notes to the Consolidated Financial Statements).
Transactions between reportable segments principally
consist of sales of pharmacy benefit products and services
to UnitedHealthcare customers by OptumRx, certain
product offerings sold to UnitedHealthcare customers
by OptumHealth, and medical benefits cost, quality
and utilization data and predictive modeling sold to
UnitedHealthcare by OptumInsight. These transactions
are recorded at management’s estimate of fair value.
Intersegment transactions are eliminated in consolidation.
Assets and liabilities that are jointly used are assigned
to each reportable segment using estimates of pro-rata
usage. Cash and investments are assigned such that each
reportable segment has at least minimum specified levels
of regulatory capital or working capital for non-regulated
businesses. Substantially all of the Company’s assets are
held and operations are conducted in the United States.
As a percentage of the Company’s total consolidated
revenues, premium revenues from CMS were 28% for the
year ended December 31, 2011 and 27% for both the years
ended December 31, 2010 and 2009, most of which were
generated by UnitedHealthcare Medicare & Retirement and
included in the UnitedHealthcare segment.
Prior period reportable segment financial information
has been recast to conform to the 2011 presentation as
discussed in Note 2 of Notes to the Consolidated Financial
Statements. Corporate and intersegment eliminations
are presented to reconcile the reportable segment results
to the consolidated results. The following table presents
reportable segment financial information:
74
UNITEDHEALTH GROUP
13. SEGMENT FINANCIAL INFORMATION
Factors used in determining the Company’s reportable
segments include the nature of operating activities,
economic characteristics, existence of separate senior
management teams and the type of information presented
to the Company’s chief operating decision-maker to
evaluate its results of operations. Reportable segments with
similar economic characteristics are combined.
The following is a description of the types of products
and services from which each of the Company’s reportable
segments derives its revenues:
(cid:116) UnitedHealthcare includes the combined results
of operations of UnitedHealthcare Employer &
Individual, UnitedHealthcare Medicare & Retirement
and UnitedHealthcare Community & State because
they have similar economic characteristics, products
and services, customers, distribution methods and
operational processes and operate in a similar
regulatory environment. These businesses also share
significant common assets, including a contracted
network of physicians, health care professionals,
hospitals and other facilities, information technology
infrastructure and other resources. UnitedHealthcare
Employer & Individual offers a comprehensive array
of consumer-oriented health benefit plans and
services for large national employers, public sector
employers, mid-sized employers, small businesses and
individuals nationwide. UnitedHealthcare Medicare
& Retirement provides health and well-being services
to individuals age 50 and older, addressing their
unique needs for preventive and acute health care
services as well as services dealing with chronic disease
and other specialized issues for older individuals.
UnitedHealthcare Community & State provides health
plans and care programs to beneficiaries of acute and
long-term care Medicaid plans, the Children’s Health
Insurance Program (CHIP), Special Needs Plans and
other federal and state health care programs.
(cid:116) OptumHealth serves the physical, emotional and
financial needs of individuals, enabling consumer
health management and collaborative care delivery
through programs offered by employers, payers,
government entities and directly with the care delivery
system. OptumHealth offers personalized health
management services, decision support services, access
to networks of care provider specialists, well-being
solutions, behavioral health management solutions,
financial services and clinical services.
(cid:116)(cid:1)(cid:1)OptumInsight is a health information, technology,
t
services and consulting company providing software
and information products, advisory consulting services,
and business process outsourcing to participants in the
health care industry. Hospitals, physicians, commercial
health plans, government agencies, life sciences
companies and other organizations that comprise the
health care system work with OptumInsight to reduce
costs, meet compliance mandates, improve clinical
performance and adapt to the changing health system
landscape.
(in millions)
UnitedHealthcare OptumHealth OptumInsight
OptumRx
TT
Total Optum
Optum
2011 FORM 10-K
75
Corporate and
Intersegment
Eliminations
Consolidated
2011
Revenues - external customers:
Premiums
Services
Products
$ 90,487
4,291
—
$ 1,496
628
24
TT
Total revenues - external customers
94,778
TT
Total revenues - intersegment
Investment and other income
—
558
2,148
4,461
95
$
— $
1,616
96
1,712
958
1
— $ 1,496
2,322
78
2,612
2,492
$
2,570
16,708
—
6,430
22,127
96
— $ 91,983
6,613
—
2,612
—
—
101,208
(22,127)
—
—
654
TT
Total revenues
$ 95,336
$ 6,704
$ 2,671
$ 19,278
$ 28,653
$ (22,127)
$101,862
Earnings from operations
Interest expense
Earnings before income taxes
Total Assets
TT
Purchases of property, equipment
and capitalized software
Depreciation and amortization
yy
2010
Revenues - external customers:
Premiums
Services
Products
$
$
7,203
—
7,203
$
$
423
—
423
$
$
381
—
381
$
$
457
—
457
$ 1,261
—
$ 1,261
$ 52,618
$ 6,756
$ 5,308
$ 3,503
$ 15,567
$
$
635
680
$
$
168
154
$ 84,158
4,021
—
$ 1,247
331
19
$
$
$
175
195
$
$
89
95
$
$
432
444
— $
1,403
93
1,496
845
1
— $ 1,247
1,798
64
2,322
2,210
2,274
14,449
1
5,367
18,206
58
$
$
$
$
$
$
— $
(505)
8,464
(505)
(505)
$
7,959
(296)
$ 67,889
— $
— $
1,067
1,124
— $ 85,405
5,819
—
2,322
—
—
93,546
(18,206)
—
—
609
TT
Total revenues - external customers
88,179
Total revenues - intersegment
TT
Investment and other income
—
551
1,597
2,912
56
TT
Total revenues
$ 88,730
$ 4,565
$ 2,342
$ 16,724
$ 23,631
$ (18,206)
$ 94,155
Earnings from operations
Interest expense
Earnings before income taxes
TT
Total Assets
Purchases of property, equipment
and capitalized software
Depreciation and amortization
Goodwill impairment
yy
2009
Revenues - external customers:
$
$
6,740
—
6,740
$
$
511
—
511
$
$
84
—
84
$
$
529
—
529
$ 1,124
—
$ 1,124
$ 50,913
$ 3,897
$ 5,435
$ 3,087
$ 12,419
$
$
$
525
725
$
$
— $
117
100
$
$
— $
156
159
172
$
$
$
$
80
80
$
— $
353
339
172
Premiums
Services
Products
$ 78,251
3,941
—
$ 1,064
274
16
TT
Total revenues - external customers
82,192
1,354
$
— $
1,042
90
1,132
— $ 1,064
1,365
49
1,925
1,819
1,868
4,354
Total revenues - intersegment
TT
Investment and other income
TT
Total revenues
Earnings from operations
Interest expense
Earnings before income taxes
Total Assets
TT
Purchases of property, equipment
yy
—
538
$ 82,730
$
$
4,833
—
4,833
2,805
53
$ 4,212
691
—
$ 1,823
12,532
1
$ 14,401
$
$
599
—
599
$
$
246
—
246
$
$
681
—
681
16,028
54
$ 20,436
$ 1,526
—
$ 1,526
$ 49,920
$ 3,190
$ 2,775
$ 3,092
$ 9,057
and capitalized software
Depreciation and amortization
$
$
482
679
$
$
71
105
$
$
129
128
$
$
57
79
$
$
257
312
$
$
$
$
$
$
$
— $
(481)
7,864
(481)
(481)
$
7,383
(269)
$ 63,063
— $
— $
— $
878
1,064
172
— $ 79,315
5,306
—
1,925
—
—
86,546
(16,028)
—
$ (16,028)
—
592
$ 87,138
$
$
$
$
$
— $
(551)
6,359
(551)
(551)
$
5,808
68
$ 59,045
— $
— $
739
991
76
UNITEDHEALTH GROUP
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial information for all quarters of 2011 and 2010 is as follows:
(in millions, except per share data)
March 31
June 30
September 30
December 31
For the Quarter Ended
2011
Revenues
Operating costs
Earnings from operations
Net earnings
Basic net earnings per common share
Diluted net earnings per common share
2010
Revenues
Operating costs
Earnings from operations
Net earnings
Basic net earnings per common share
Diluted net earnings per common share
$
$
25,432
23,211
2,221
1,346
1.24
1.22
23,193
21,177
2,016
1,191
1.04
1.03
$
$
25,234
23,135
2,099
1,267
1.18
1.16
23,264
21,363
1,901
1,123
1.00
0.99
$
$
25,280
23,210
2,070
1,271
1.19
1.17
23,668
21,523
2,145
1,277
1.15
1.14
$
$
25,916
23,842
2,074
1,258
1.19
1.17
24,030
22,228
1,802
1,043
0.95
0.94
ITEM 9.
None.
Changes In And Disagreements With
Accountants On Accounting And
Financial Disclosure
ITEM 9A. Controls And Procedures
EVALUATION OF DISCLOSURE CONTROLS
AND PROCEDURES
We maintain disclosure controls and procedures as defined
in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934 (Exchange Act) that are designed to
provide reasonable assurance that information required to
be disclosed by us in reports that we file or submit under
the Exchange Act is (i) recorded, processed, summarized
and reported within the time periods specified in SEC rules
and forms; and (ii) accumulated and communicated to our
management, including our principal executive officer and
principal financial officer, as appropriate to allow timely
decisions regarding required disclosure.
In connection with the filing of this Form 10-K,
management evaluated, under the supervision and with
the participation of our Chief Executive Officer and Chief
Financial Officer, the effectiveness of the design and
operation of our disclosure controls and procedures as of
December 31, 2011. Based upon that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that
our disclosure controls and procedures were effective at the
reasonable assurance level as of December 31, 2011.
CHANGES IN INTERNAL CONTROL OVER
FINANCIAL REPORTING
There have been no changes in our internal control over
financial reporting during the quarter ended December 31,
2011 that have materially affected, or are reasonably
likely to materially affect, our internal control over
financial reporting.
REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER
FINANCIAL REPORTING AS OF DECEMBER 31, 2011
The Company’s management is responsible for establishing
and maintaining adequate internal control over financial
reporting as defined in Rules 13a-15(f) and 15d-15(f)
under the Securities Exchange Act of 1934. The Company’s
internal control system is designed to provide reasonable
assurance to our management and board of directors
regarding the reliability of financial reporting and the
preparation of consolidated financial statements for
external purposes in accordance with generally accepted
accounting principles. The Company’s internal control
over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the Company;
(ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of consolidated
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures
of the Company are being made only in accordance with
authorizations of management and directors of the
Company; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition,
use or disposition of the Company’s assets that could have a
material effect on the consolidated financial statements.
Because of its inherent limitations, internal control
over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in
conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
Management assessed the effectiveness of the
Company’s internal control over financial reporting as
2011 FORM 10-K
77
of December 31, 2011. In making this assessment, we used
the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in
Internal Control - Integrated Framework. Based on our
assessment and those criteria, we believe that, as of
December 31, 2011, the Company maintained effective
internal control over financial reporting.
The Company’s independent registered public accounting
firm has audited the Company’s internal control over
financial reporting as of December 31, 2011, as stated in the
Report of Independent Registered Public Accounting Firm,
appearing under Item 9A, which expresses an unqualified
opinion on the effectiveness of the Company’s internal
controls over financial reporting as of December 31, 2011.
/s/ STEPHEN J. HEMSLEY
Stephen J. Hemsley
President and Chief Executive Officer
/s/ DAVID S. WICHMANN
David S. Wichmann
Executive Vice President and
Chief Financial Officer of UnitedHealth Group and President
of UnitedHealth Group Operations
/s/ ERIC S. RANGEN
Eric S. Rangen
Senior Vice President and Chief Accounting Officer
February 8, 2012
material misstatements due to error or fraud may not be
prevented or detected on a timely basis. Also, projections of
any evaluation of the effectiveness of the internal control
over financial reporting to future periods are subject to
the risk that the controls may become inadequate because
of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting
as of December 31, 2011, based on the criteria established
in Internal Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway
Commission.
We have also audited, in accordance with the standards
of the Public Company Accounting Oversight Board (United
States), the consolidated financial statements as of and for
the year ended December 31, 2011 of the Company and our
reports dated February 8, 2012 expressed an unqualified
opinion on those consolidated financial statements and
financial statement schedule.
/s/ DELOITTE & TOUCHE LLP
Minneapolis, MN
February 8, 2012
78
UNITEDHEALTH GROUP
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of UnitedHealth
Group Incorporated and Subsidiaries:
We have audited the internal control over financial
reporting of UnitedHealth Group Incorporated and
Subsidiaries (the “Company”) as of December 31,
2011, based on criteria established in Internal Control
- Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission.
The Company’s management is responsible for maintaining
effective internal control over financial reporting and for
its assessment of the effectiveness of internal control over
financial reporting, included in the accompanying Report of
Management on Internal Control Over Financial Reporting
as of December 31, 2011. Our responsibility is to express an
opinion on the Company’s internal control over financial
reporting based on our audit.
We conducted our audit in accordance with the standards
of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance
about whether effective internal control over financial
reporting was maintained in all material respects. Our audit
included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and
operating effectiveness of internal control based on the
assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that
our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting
is a process designed by, or under the supervision of, the
company’s principal executive and principal financial
officers, or persons performing similar functions, and
effected by the company’s board of directors, management,
and other personnel to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes
in accordance with generally accepted accounting
principles. A company’s internal control over financial
reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are
being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition
of the company’s assets that could have a material effect on
the financial statements.
Because of the inherent limitations of internal control
over financial reporting, including the possibility of
collusion or improper management override of controls,
ITEM 9B. Other Information
None.
PART III
ITEM 10. Directors, Executive Officers And
Corporate Governance
Pursuant to General Instruction G(3) to Form 10-K and
Instruction 3 to Item 401(b) of Regulation S-K, information
regarding our executive officers is provided in Item 1 of
Part I of this Annual Report on Form 10-K under the caption
“Executive Officers of the Registrant.”
2011 FORM 10-K
79
The remaining information required by Items 401, 405,
406 and 407(c)(3), (d)(4) and (d)(5) of Regulation S-K will
be included under the headings “Corporate Governance,”
“Election of Directors” and “Section 16(a) Beneficial
Ownership Reporting Compliance” in our definitive proxy
statement for our 2012 Annual Meeting of Shareholders,
and such required information is incorporated herein
by reference.
ITEM 11.
Executive Compensation
The information required by Items 402, 407(e)(4) and (e)
(5) of Regulation S-K will be included under the headings
“Executive Compensation” and “Compensation Committee
Interlocks and Insider Participation” in our definitive proxy
statement for our 2012 Annual Meeting of Shareholders,
and such required information is incorporated herein
by reference.
ITEM 12.
Security Ownership Of Certain Beneficial Owners And Management And
Related Stockholder Matters
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth certain information, as of December 31, 2011, concerning shares of common stock authorized
for issuance under all of our equity compensation plans:
Plan Category
Equity compensation plans approved by shareholders (1)
Equity compensation plans not approved by shareholders (2)
TT
Total
(2)
(a)
Number of securities
to be issued upon
exercise of
outstanding
options, warrants
and rights (3)
(in millions)
77
—
77
(b)
Weighted-average
excercise
price of
outstanding
options, warrants
and rights (3)
$
$
39
—
39
(c)
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected
in column (a))
(in millions)
72 (4)
—
72
(1) Consists of the UnitedHealth Group Incorporated 2011 Stock Incentive Plan, as amended, and the UnitedHealth Group
1993 Employee Stock Purchase Plan, as amended. Includes 0.4 million options to acquire shares of common stock that
were originally issued under the United HealthCare Corporation 1998 Broad-Based Stock Incentive Plan, as amended,
which was not approved by the Company’s shareholders, but the shares issuable under the 1998 Broad-Based Stock
Incentive Plan were subsequently included in the number of shares approved by the Company’s shareholders when
approving the 2011 Stock Incentive Plan.
(2) Excludes 0.3 million shares underlying stock options assumed by us in connection with our acquisition of the companies
under whose plans the options originally were granted. These options have a weighted-average exercise price of $30
and an average remaining term of approximately 2.7 years. The options are administered pursuant to the terms of the
plan under which the option originally was granted. No future awards will be granted under these acquired plans.
(3) Excludes stock appreciation rights (SARs) to acquire 14 million shares of common stock of the Company with exercise
prices above $50.68, the closing price of a share of our common stock as reported on the NYSE on December 31, 2011.
(4) Includes 22 million shares of common stock available for future issuance under the Employee Stock Purchase Plan as of
December 31, 2011, and 50 million shares available under the 2011 Stock Incentive Plan as of December 31, 2011. Shares
available under the 2011 Stock Incentive Plan may become the subject of future awards in the form of stock options,
SARs, restricted stock, restricted stock units, performance awards and other stock-based awards, except that only 23
million of these shares are available for future grants of awards other than stock options or SARs.
The information required by Item 403 of Regulation S-K will be included under the heading “Security Ownership of Certain
Beneficial Owners and Management” in our definitive proxy statement for our 2012 Annual Meeting of Shareholders, and
such required information is incorporated herein by reference.
80
UNITEDHEALTH GROUP
ITEM 13. Certain Relationships And Related
Transactions, And Director
Independence
The information required by Items 404 and 407(a) of
Regulation S-K will be included under the headings
“Certain Relationships and Transactions” and “Corporate
Governance” in our definitive proxy statement for our
2012 Annual Meeting of Shareholders, and such required
information is incorporated herein by reference.
ITEM 14.
Principal Accountant Fees
And Services
The information required by Item 9(e) of Schedule 14A will
be included under the heading “Independent Registered
Public Accounting Firm” in our definitive proxy statement
for our 2012 Annual Meeting of Shareholders, and such
required information is incorporated herein by reference.
PART IV
ITEM 15.
Exhibits And Financial
Statement Schedules
(A) 1. FINANCIAL STATEMENTS
The financial statements are included under Item 8 of
this report:
(cid:116)(cid:1)(cid:1)(cid:51)(cid:70)(cid:81)(cid:80)(cid:83)(cid:85)(cid:84)(cid:1)(cid:80)(cid:71)(cid:1)(cid:42)(cid:79)(cid:69)(cid:70)(cid:81)(cid:70)(cid:79)(cid:69)(cid:70)(cid:79)(cid:85)(cid:1)(cid:51)(cid:70)(cid:72)(cid:74)(cid:84)(cid:85)(cid:70)(cid:83)(cid:70)(cid:69)(cid:1)(cid:49)(cid:86)(cid:67)(cid:77)(cid:74)(cid:68)(cid:1)
Accounting Firm.
(cid:116)(cid:1)(cid:1)(cid:36)(cid:80)(cid:79)(cid:84)(cid:80)(cid:77)(cid:74)(cid:69)(cid:66)(cid:85)(cid:70)(cid:69)(cid:1)(cid:35)(cid:66)(cid:77)(cid:66)(cid:79)(cid:68)(cid:70)(cid:1)(cid:52)(cid:73)(cid:70)(cid:70)(cid:85)(cid:84)(cid:1)(cid:66)(cid:84)(cid:1)(cid:80)(cid:71)(cid:1)(cid:37)(cid:70)(cid:68)(cid:70)(cid:78)(cid:67)(cid:70)(cid:83)(cid:1)(cid:20)(cid:18)(cid:13)(cid:1)(cid:19)(cid:17)(cid:18)(cid:18)(cid:1)
and 2010.
(cid:116)(cid:1)(cid:1)(cid:36)(cid:80)(cid:79)(cid:84)(cid:80)(cid:77)(cid:74)(cid:69)(cid:66)(cid:85)(cid:70)(cid:69)(cid:1)(cid:52)(cid:85)(cid:66)(cid:85)(cid:70)(cid:78)(cid:70)(cid:79)(cid:85)(cid:84)(cid:1)(cid:80)(cid:71)(cid:1)(cid:48)(cid:81)(cid:70)(cid:83)(cid:66)(cid:85)(cid:74)(cid:80)(cid:79)(cid:84)(cid:1)(cid:71)(cid:80)(cid:83)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:90)(cid:70)(cid:66)(cid:83)(cid:84)(cid:1)
ended December 31, 2011, 2010 and 2009.
(cid:116)(cid:1)(cid:1)(cid:36)(cid:80)(cid:79)(cid:84)(cid:80)(cid:77)(cid:74)(cid:69)(cid:66)(cid:85)(cid:70)(cid:69)(cid:1)(cid:52)(cid:85)(cid:66)(cid:85)(cid:70)(cid:78)(cid:70)(cid:79)(cid:85)(cid:84)(cid:1)(cid:80)(cid:71)(cid:1)(cid:36)(cid:73)(cid:66)(cid:79)(cid:72)(cid:70)(cid:84)(cid:1)(cid:74)(cid:79)(cid:1)(cid:52)(cid:73)(cid:66)(cid:83)(cid:70)(cid:73)(cid:80)(cid:77)(cid:69)(cid:70)(cid:83)(cid:84)(cid:8)(cid:1)
Equity for the years ended December 31, 2011, 2010
and 2009.
(cid:116)(cid:1)(cid:1)(cid:36)(cid:80)(cid:79)(cid:84)(cid:80)(cid:77)(cid:74)(cid:69)(cid:66)(cid:85)(cid:70)(cid:69)(cid:1)(cid:52)(cid:85)(cid:66)(cid:85)(cid:70)(cid:78)(cid:70)(cid:79)(cid:85)(cid:84)(cid:1)(cid:80)(cid:71)(cid:1)(cid:36)(cid:66)(cid:84)(cid:73)(cid:1)(cid:39)(cid:77)(cid:80)(cid:88)(cid:84)(cid:1)(cid:71)(cid:80)(cid:83)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:90)(cid:70)(cid:66)(cid:83)(cid:84)(cid:1)
ended December 31, 2011, 2010 and 2009.
(cid:116)(cid:1)(cid:1)(cid:47)(cid:80)(cid:85)(cid:70)(cid:84)(cid:1)(cid:85)(cid:80)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:36)(cid:80)(cid:79)(cid:84)(cid:80)(cid:77)(cid:74)(cid:69)(cid:66)(cid:85)(cid:70)(cid:69)(cid:1)(cid:39)(cid:74)(cid:79)(cid:66)(cid:79)(cid:68)(cid:74)(cid:66)(cid:77)(cid:1)(cid:52)(cid:85)(cid:66)(cid:85)(cid:70)(cid:78)(cid:70)(cid:79)(cid:85)(cid:84)(cid:15)(cid:1)
2. FINANCIAL STATEMENT SCHEDULES
The following financial statement schedule of the
Company is included in Item 15(c):
(cid:116)(cid:1)(cid:1)(cid:52)(cid:68)(cid:73)(cid:70)(cid:69)(cid:86)(cid:77)(cid:70)(cid:1)(cid:42)(cid:1)(cid:14)(cid:1)(cid:36)(cid:80)(cid:79)(cid:69)(cid:70)(cid:79)(cid:84)(cid:70)(cid:69)(cid:1)(cid:39)(cid:74)(cid:79)(cid:66)(cid:79)(cid:68)(cid:74)(cid:66)(cid:77)(cid:1)(cid:42)(cid:79)(cid:71)(cid:80)(cid:83)(cid:78)(cid:66)(cid:85)(cid:74)(cid:80)(cid:79)(cid:1)(cid:80)(cid:71)
Registrant (Parent Company Only).
All other schedules for which provision is made in the
applicable accounting regulations of the SEC are not
required under the related instructions, are inapplicable,
or the required information is included in the consolidated
financial statements, and therefore have been omitted.
(b) The following exhibits are filed in response to Item
601 of Regulation S-K.
EXHIBIT INDEX**
3.1
Third Restated Articles of Incorporation of
UnitedHealth Group Incorporated (incorporated
3.2
4.1
4.2
4.3
4.4
*10.1
*10.2
*10.3
*10.4
YY
by reference to Exhibit 3.1 to UnitedHealth Group
Incorporated’s Current Report on Form 8-K dated
May 29, 2007)
Fourth Amended and Restated Bylaws of
UnitedHealth Group Incorporated (incorporated
by reference to Exhibit 3.1 to UnitedHealth Group
Incorporated’s Current Report on Form 8-K dated
October 23, 2009)
Senior Indenture, dated as of November 15, 1998,
between United HealthCare Corporation and The
Bank of New York (incorporated by reference to
Exhibit 4.1 to UnitedHealth Group Incorporated’s
Registration Statement on Form S-3/A, SEC File
Number 333-66013, filed on January 11, 1999)
Amendment, dated as of November 6, 2000, to
Senior Indenture, dated as of November 15, 1998,
between the UnitedHealth Group Incorporated
and The Bank of New York (incorporated by
YY
reference to Exhibit 4.1 to UnitedHealth Group
Incorporated’s Quarterly Report on Form 10-Q for
the quarter ended September 30, 2001)
Instrument of Resignation, Appointment and
Acceptance of Trustee, dated January 8, 2007,
pursuant to the Senior Indenture, dated November
15, 1988, amended November 6, 2000, among
UnitedHealth Group Incorporated, The Bank
of New York and Wilmington Trust Company
(incorporated by reference to Exhibit 4.3 to the
Company’s Quarterly Report on Form 10-Q for the
quarter ended June 30, 2007)
Indenture, dated as of February 4, 2008, between
UnitedHealth Group Incorporated and U.S. Bank
National Association (incorporated by reference to
Exhibit 4.1 to UnitedHealth Group Incorporated’s
Registration Statement on Form S-3, SEC File
Number 333-149031, filed on February 4, 2008)
UnitedHealth Group Incorporated 2011
Stock Incentive Plan, effective May 23, 2011
(incorporated by reference to Exhibit A to
UnitedHealth Group Incorporated’s Definitive
Proxy Statement dated April 13, 2011)
Form of Agreement for Non-Qualified Stock
Option Award to Executives under UnitedHealth
Group Incorporated’s 2011 Stock Incentive Plan,
effective as of May 24, 2011 (incorporated by
reference to Exhibit 10.2 to UnitedHealth Group
Incorporated’s Current Report on Form 8-K dated
May 24, 2011)
AA
Form of Agreement for Restricted Stock Award
to Executives under UnitedHealth Group
Incorporated’s 2011 Stock Incentive Plan, effective
as of May 24, 2011 (incorporated by reference to
Exhibit 10.5 to UnitedHealth Group Incorporated’s
Current Report on Form 8-K dated May 24, 2011)
Form of Agreement for Restricted Stock Unit
Award to Executives under UnitedHealth Group
AA
Incorporated’s 2011 Stock Incentive Plan, effective
as of May 24, 2011 (incorporated by reference to
Exhibit 10.1 to UnitedHealth Group Incorporated’s
AA
*10.5
*10.6
*10.7
*10.8
*10.9
*10.10
AA
Current Report on Form 8-K dated May 24, 2011)
Form of Agreement for Stock Appreciation Rights
AA
Award to Executives under UnitedHealth Group
Incorporated’s 2011 Stock Incentive Plan, effective
as of May 24, 2011 (incorporated by reference to
Exhibit 10.4 to UnitedHealth Group Incorporated’s
Current Report on Form 8-K dated May 24, 2011)
Form of Agreement for Performance-based
Restricted Stock Unit Award to Executives under
A
UnitedHealth Group Incorporated’s 2011 Stock
Incentive Plan, effective as of May 24, 2011
(incorporated by reference to Exhibit 10.3 to
UnitedHealth Group Incorporated’s Current Report
on Form 8-K dated May 24, 2011)
Form of Agreement for Initial Deferred Stock
Unit Award to Non-Employee Directors under
UnitedHealth Group Incorporated’s 2011 Stock
Incentive Plan, effective as of May 24, 2011
(incorporated by reference to Exhibit 10.7 to
UnitedHealth Group Incorporated’s Current Report
on Form 8-K dated May 24, 2011)
Form of Agreement for Deferred Stock Unit Award
to Non-Employee Directors under UnitedHealth
Group Incorporated’s 2011 Stock Incentive Plan,
effective as of May 24, 2011 (incorporated by
reference to Exhibit 10.6 to UnitedHealth Group
Incorporated’s Current Report on Form 8-K dated
May 24, 2011)
Amended and Restated UnitedHealth Group
Incorporated Executive Incentive Plan (2009
Statement), effective as of December 31, 2008
(incorporated by reference to Exhibit 10.12 to
UnitedHealth Group Incorporated’s Annual Report
on Form 10-K for the year ended December 31, 2008)
Amended and Restated UnitedHealth Group
Incorporated 2008 Executive Incentive Plan,
effective as of December 31, 2008 (incorporated by
reference to Exhibit 10.13 to UnitedHealth Group
Incorporated’s Annual Report on Form 10-K for the
year ended December 31, 2008)
A
*10.11 UnitedHealth Group Executive Savings Plan
*10.12
(2004 Statement) (incorporated by reference to
Exhibit 10(e) of UnitedHealth Group Incorporated’s
Annual Report on Form 10-K for the year ended
December 31, 2003)
First Amendment to UnitedHealth Group Executive
Savings Plan (2004 Statement) (incorporated by
reference to Exhibit 10.3 to UnitedHealth Group
Incorporated’s Current Report on Form 8-K dated
October 31, 2006)
*10.13 Second Amendment to UnitedHealth Group
*10.23
Executive Savings Plan (2004 Statement)
(incorporated by reference to Exhibit 10.13 to
UnitedHealth Group Incorporated’s Annual Report
on Form 10-K for the year ended December 31, 2007)
*10.14 Third Amendment to UnitedHealth Group Executive
Savings Plan (2004 Statement) (incorporated by
reference to Exhibit 10.17 to UnitedHealth Group
2011 FORM 10-K
81
*10.15
*10.16
*10.17
*10.18
Incorporated’s Annual Report on Form 10-K for the
year ended December 31, 2008)
Fourth Amendment to UnitedHealth Group
Executive Savings Plan (2004 Statement)
(incorporated by reference to Exhibit 10.1 of
UnitedHealth Group Incorporated’s Quarterly
Report on Form 10-Q for the quarter ended
September 30, 2010)
Summary of Non-Management Director
Compensation, effective as of July 1, 2009
(incorporated by reference to Exhibit 10.1 to
UnitedHealth Group Incorporated’s Quarterly
Report on Form 10-Q for the quarter ended
June 30, 2009)
UnitedHealth Group Directors’ Compensation
Deferral Plan (2009 Statement) (incorporated by
reference to Exhibit 10.18 to UnitedHealth Group
Incorporated’s Annual Report on Form 10-K for
the year ended December 31, 2008)
Amendment to the UnitedHealth Group Directors’
Compensation Deferral Plan, effective as of
January 1, 2010 (incorporated by reference to
Exhibit 10.20 to UnitedHealth Group Incorporated’s
Annual Report on Form 10K for the year ended
December 31, 2009)
*10.19 First Amendment to UnitedHealth Group Directors’
*10.20
Compensation Deferral Plan (incorporated by
reference to Exhibit 10.2 to UnitedHealth Group
Incorporated’s Quarterly Report on Form 10-Q for
the quarter ended September 30, 2010)
Employment Agreement, dated as of November 7,
2006, between UnitedHealth Group Incorporated
and Stephen J. Hemsley (incorporated by
reference to Exhibit 10.1 to UnitedHealth Group
Incorporated’s Current Report on Form 8-K dated
November 7, 2006)
yy
*10.21 Agreement for Supplemental Executive Retirement
Pay, effective April 1, 2004, between UnitedHealth
Group Incorporated and Stephen J. Hemsley
(incorporated by reference to Exhibit 10(b) to
UnitedHealth Group Incorporated’s Quarterly
Report on Form 10-Q for the quarter ended
March 31, 2004)
*10.22 Amendment to Agreement for Supplemental
yy
Executive Retirement Pay, dated as of November 7,
2006, between UnitedHealth Group Incorporated
and Stephen J. Hemsley (incorporated by reference
to Exhibit A to Exhibit 10.1 to UnitedHealth Group
Incorporated’s Current Report on Form 8-K dated
November 7, 2006)
Amendment to Employment Agreement and
Agreement for Supplemental Executive Retirement
Pay, effective as of December 31, 2008, between
United HealthCare Services, Inc. and Stephen J.
Hemsley (incorporated by reference to Exhibit
10.22 to UnitedHealth Group Incorporated’s
Annual Report on Form 10-K for the year ended
December 31, 2008)
yy
Statement regarding computation of per share
earnings (incorporated by reference to the
information contained under the heading “Net
Earnings Per Common Share” in Note 2 to the
Notes to Consolidated Financial Statements
included under Item 8)
Ratio of Earnings to Fixed Charges
Subsidiaries of UnitedHealth Group Incorporated
Consent of Independent Registered Public
Accounting Firm
Power of Attorney
Certifications pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
Certifications pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
The following materials from UnitedHealth Group
Incorporated’s Annual Report on Form 10-K for the
year ended December 31, 2010, filed on February
8, 2012, formatted in XBRL (eXtensible Business
Reporting Language): (i) Consolidated Balance
Sheets, (ii) Consolidated Statements of Operations,
(iii) Consolidated Statements of Changes in
Shareholders’ Equity, (iv) Consolidated Statements
of Cash Flows, and (v) Notes to the Consolidated
Financial Statements.
Denotes management contracts and compensation
plans in which certain directors and named
executive officers participate and which are
being filed pursuant to Item 601(b)(10)(iii)(A) of
Regulation S-K.
Pursuant to Item 601(b)(4)(iii) of Regulation S-K,
copies of instruments defining the rights of certain
holders of long-term debt are not filed. The
Company will furnish copies thereof to the SEC
upon request.
(C) FINANCIAL STATEMENT SCHEDULE
Schedule I - Condensed Financial Information of Registrant
(Parent Company Only).
82
UNITEDHEALTH GROUP
*10.24 Letter Agreement, effective as of February 19,
11.1
2008, by and between UnitedHealth Group
Incorporated and Stephen J. Hemsley (incorporated
by reference to Exhibit 10.22 to UnitedHealth
Group Incorporated’s Annual Report on Form 10-K
for the year ended December 31, 2007)
*10.25 Amendment to Employment Agreement, dated
as of December 14, 2010, between UnitedHealth
Group Incorporated and Stephen J. Hemsley
(incorporated by reference to Exhibit 10.1 to
UnitedHealth Group Incorporated’s Current Report
on Form 8-K dated December 15, 2010)
*10.26 Amended and Restated Employment Agreement,
dated as of August 8, 2011, between United
HealthCare Services, Inc. and Gail K. Boudreaux
(incorporated by reference to Exhibit 10.1 to
UnitedHealth Group Incorporated’s Quarterly
Report on Form 10-Q for the quarter ended
September 30, 2011)
12.1
21.1
23.1
24.1
31.1
32.1
101
*10.27 Employment Agreement, effective as of April 12,
2007, between United HealthCare Services, Inc. and
Anthony Welters (incorporated by reference to
Exhibit 10.28 to UnitedHealth Group Incorporated’s
Annual Report on Form 10-K for the year ended
December 31, 2007)
*10.28 Amendment to Employment Agreement, effective as
of December 31, 2008, between United HealthCare
Services, Inc. and Anthony Welters (incorporated by
reference to Exhibit 10.35 to UnitedHealth Group
Incorporated’s Annual Report on Form 10-K for the
year ended December 31, 2008)
*
*10.29 Amended and Restated Employment Agreement,
**
dated as of October 25, 2011, between United
HealthCare Services, Inc. and Larry C. Renfro
(incorporated by reference to Exhibit 10.2 to
UnitedHealth Group Incorporated’s Quarterly
Report on Form 10-Q for the quarter ended
September 30, 2011)
*10.30 Employment Agreement, effective as of December
1, 2006, between United HealthCare Services,
Inc. and David S. Wichmann (incorporated by
reference to Exhibit 10.2 to UnitedHealth Group
Incorporated’s Quarterly Report on Form 10-Q for
the quarter ended March 31, 2008)
*10.31 Amendment to Employment Agreement, effective as
of December 31, 2008, between United HealthCare
Services, Inc. and David S. Wichmann (incorporated
by reference to Exhibit 10.37 to UnitedHealth Group
Incorporated’s Annual Report on Form 10-K for the
year ended December 31, 2008)
*10.32 Separation and Release Agreement, effective as of
July 5, 2011, between United HealthCare Services,
Inc. and George L. Mikan III (incorporated by
reference to Exhibit 10.3 to UnitedHealth Group
Incorporated’s Quarterly Report on Form 10-Q for
the quarter ended September 30, 2011)
2011 FORM 10-K
83
SCHEDULE I
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Board of Directors and Shareholders of UnitedHealth
Group Incorporated and Subsidiaries:
We have audited the consolidated financial statements of
UnitedHealth Group Incorporated and Subsidiaries (the
“Company”) as of December 31, 2011 and 2010, and for
each of the three years in the period ended December 31,
2011, and the Company’s internal control over financial
reporting as of December 31, 2011, and have issued our
reports thereon dated February 8, 2012; such consolidated
financial statements and reports are included elsewhere in
this Form 10-K. Our audits also included the consolidated
financial statement schedule of the Company listed in
Item 15. This consolidated financial statement schedule
is the responsibility of the Company’s management. Our
responsibility is to express an opinion based on our audits.
In our opinion, the consolidated financial statement
schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, present
fairly, in all material respects, the information set forth
therein.
/s/ DELOITTE & TOUCHE LLP
Minneapolis, MN
February 8, 2012
84
UNITEDHEALTH GROUP
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(PARENT COMPANY ONLY)
UNITEDHEALTH GROUP
CONDENSED BALANCE SHEETS
(in millions, except per share data)
December 31, 2011
December 31, 2010
Assets
Current assets:
Cash and cash equivalents
Deferred income taxes
Prepaid expenses and other current assets
Total current assets
TT
Equity in net assets of subsidiaries
Other assets
TT
Total assets
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable and accrued liabilities
Note payable to subsidiary
Commercial paper and current maturities of long-term debt
Total current liabilities
TT
Long-term debt, less current maturities
Deferred income taxes and other liabilities
TT
Total liabilities
Commitments and contingencies (Note 4)
Shareholders’ equity:
Preferred stock, $0.001 par value -10 shares authorized;
no shares issued or outstanding
Common stock, $0.01 par value - 3,000 shares authorized;
1,039 and 1,086 issued and outstanding
Retained earnings
Accumulated other comprehensive income (loss):
Net unrealized gains on investments, net of tax effects
Foreign currency translation loss
TT
Total shareholders’ equity
TT
Total liabilities and shareholders’ equity
See Notes to the Condensed Financial Statements of Registrant
$
$
$
$
1,506
82
97
1,685
38,688
77
40,450
351
145
982
1,478
10,656
24
12,158
—
10
27,821
476
(15)
28,292
40,450
$
$
$
$
916
57
207
1,180
36,246
110
37,536
301
130
2,480
2,911
8,662
138
11,711
—
11
25,562
280
(28)
25,825
37,536
2011 FORM 10-K
85
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(PARENT COMPANY ONLY)
UNITEDHEALTH GROUP
CONDENSED STATEMENTS OF OPERATIONS
(in millions)
Revenues:
Investment and other income
TT
Total revenues
Operating costs:
Operating costs
Interest expense
TT
Total operating costs
Loss before income taxes
Benefit for income taxes
Loss of parent company
Equity in undistributed income of subsidiaries
2011
Year Ended December 31,
2010
2009
$
3
3
$
2
2
$
25
451
476
(473)
167
(306)
5,448
54
433
487
(485)
180
(305)
4,939
10
10
5
509
514
(504)
172
(332)
4,154
Net earnings
$
5,142
$
4,634
$
3,822
See Notes to the Condensed Financial Statements of Registrant
86
UNITEDHEALTH GROUP
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(PARENT COMPANY ONLY)
UNITEDHEALTH GROUP
CONDENSED STATEMENTS OF CASH FLOWS
(in millions)
Operating activities
Cash flows from operating activities
Investing activities
Capital contributions to subsidiaries
Cash paid for acquisitions
Cash flows used for investing activities
Financing activities
Common stock repurchases
Proceeds from common stock issuance
Dividends paid
(Repayments of) proceeds from commercial paper, net
Proceeds from issuance of long term debt
Repayments of long-term debt
Interest rate swap termination
Proceeds from issuance of note to subsidiary
Other
rr
Cash flows used for financing activities
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Supplemental cash flow disclosures
Cash paid for interest
Cash paid for income taxes
See Notes to the Condensed Financial Statements of Registrant.
2011
Year Ended December 31,
2010
2009
$
5,560
$
3,731
$
5,065
(171)
(2,081)
(2,252)
(2,994)
381
(651)
(933)
2,234
(955)
132
15
53
(2,718)
590
916
1,506
418
2,739
$
$
$
(104)
(2,470)
(2,574)
(2,517)
272
(449)
930
747
(1,583)
—
30
20
(2,550)
(1,393)
2,309
916
459
2,725
$
$
$
(90)
(1,045)
(1,135)
(1,801)
282
(36)
(99)
—
(1,350)
513
—
(10)
(2,501)
1,429
880
2,309
485
2,048
$
$
$
2011 FORM 10-K
87
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(PARENT COMPANY ONLY)
UNITEDHEALTH GROUP
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009
1. BASIS OF PRESENTATION
information has been derived from its consolidated
financial statements and should be read in conjunction
with the consolidated financial statements included in this
Form 10-K. The accounting policies for the registrant are
the same as those described in the Summary of Significant
Accounting Policies in Note 2 of Notes to the Consolidated
Financial Statements.
2. SUBSIDIARY TRANSACTIONS
Investment in Subsidiaries. UnitedHealth Group’s
investment in subsidiaries is stated at cost plus equity in
undistributed earnings of subsidiaries.
Dividends. Cash dividends received from subsidiaries and
included in Cash Flows from Operating Activities in the
Condensed Statements of Cash Flows were $5.6 billion, $4.3
billion and $5.4 billion in 2011, 2010 and 2009, respectively.
3. COMMERCIAL PAPER AND LONG-TERM DEBT
Further discussion of maturities of commercial paper and
long-term debt can be found in Note 8 of Notes to the
Consolidated Financial Statements.
4. COMMITMENTS AND CONTINGENCIES
For a summary of commitments and contingencies, see
Note 12 of Notes to the Consolidated Financial Statements.
88
UNITEDHEALTH GROUP
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: February 8, 2012
UNITEDHEALTH GROUP INCORPORATED
By
/s/ STEPHEN J. HEMSLEY
Stephen J. Hemsley
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Title
Date
Director, President and Chief Executive
Officer (principal executive officer)
February 8, 2012
Executive Vice President and
Chief Financial Officer of UnitedHealth
Group and President of UnitedHealth
Group Operations
(principal financial officer)
Senior Vice President and
Chief Accounting Officer
(principal accounting officer)
Director
Director
Director
Director
Director
Director
Director
Director
Director
February 8, 2012
February 8, 2012
February 8, 2012
February 8, 2012
February 8, 2012
February 8, 2012
February 8, 2012
February 8, 2012
February 8, 2012
February 8, 2012
Signature
/s/ STEPHEN J. HEMSLEY
Stephen J. Hemsley
/s/ DAVID S. WICHMANN
David S. Wichmann
/s/ ERIC S. RANGEN
Eric S. Rangen
William C. Ballard, Jr.*
Richard T. Burke*
Robert J. Darretta*
Michele J. Hooper*
Rodger A. Lawson*
Douglas W. Leatherdale*
Glenn M. Renwick*
Kenneth I. Shine
Gail R. Wilensky*
*By
/s/ RICHARD N. BAER
Richard N. Baer,rr
As Attorney-in-Fact
EXHIBIT INDEX**
3.1
3.2
4.1
4.2
4.3
4.4
*10.1
*10.2
*10.3
YY
Third Restated Articles of Incorporation of
UnitedHealth Group Incorporated (incorporated
by reference to Exhibit 3.1 to UnitedHealth Group
Incorporated’s Current Report on Form 8-K dated
May 29, 2007)
Fourth Amended and Restated Bylaws of
UnitedHealth Group Incorporated (incorporated
by reference to Exhibit 3.1 to UnitedHealth Group
Incorporated’s Current Report on Form 8-K dated
October 23, 2009)
Senior Indenture, dated as of November 15, 1998,
between United HealthCare Corporation and The
Bank of New York (incorporated by reference to
Exhibit 4.1 to UnitedHealth Group Incorporated’s
Registration Statement on Form S-3/A, SEC File
Number 333-66013, filed on January 11, 1999)
Amendment, dated as of November 6, 2000, to
Senior Indenture, dated as of November 15, 1998,
between the UnitedHealth Group Incorporated
and The Bank of New York (incorporated by
YY
reference to Exhibit 4.1 to UnitedHealth Group
Incorporated’s Quarterly Report on Form 10-Q for
the quarter ended September 30, 2001)
Instrument of Resignation, Appointment and
Acceptance of Trustee, dated January 8, 2007,
pursuant to the Senior Indenture, dated November
15, 1988, amended November 6, 2000, among
UnitedHealth Group Incorporated, The Bank
of New York and Wilmington Trust Company
(incorporated by reference to Exhibit 4.3 to the
Company’s Quarterly Report on Form 10-Q for the
quarter ended June 30, 2007)
Indenture, dated as of February 4, 2008, between
UnitedHealth Group Incorporated and U.S. Bank
National Association (incorporated by reference to
Exhibit 4.1 to UnitedHealth Group Incorporated’s
Registration Statement on Form S-3, SEC File
Number 333-149031, filed on February 4, 2008)
UnitedHealth Group Incorporated 2011
Stock Incentive Plan, effective May 23, 2011
(incorporated by reference to Exhibit A to
UnitedHealth Group Incorporated’s Definitive
Proxy Statement dated April 13, 2011)
Form of Agreement for Non-Qualified Stock
Option Award to Executives under UnitedHealth
Group Incorporated’s 2011 Stock Incentive Plan,
effective as of May 24, 2011 (incorporated by
reference to Exhibit 10.2 to UnitedHealth Group
Incorporated’s Current Report on Form 8-K dated
May 24, 2011)
AA
Form of Agreement for Restricted Stock Award
to Executives under UnitedHealth Group
Incorporated’s 2011 Stock Incentive Plan, effective
as of May 24, 2011 (incorporated by reference to
Exhibit 10.5 to UnitedHealth Group Incorporated’s
Current Report on Form 8-K dated May 24, 2011)
A
*10.4
*10.5
*10.6
*10.7
*10.8
*10.9
*10.10
2011 FORM 10-K
89
AA
Form of Agreement for Restricted Stock Unit
Award to Executives under UnitedHealth Group
A
Incorporated’s 2011 Stock Incentive Plan, effective
as of May 24, 2011 (incorporated by reference to
Exhibit 10.1 to UnitedHealth Group Incorporated’s
Current Report on Form 8-K dated May 24, 2011)
Form of Agreement for Stock Appreciation Rights
Award to Executives under UnitedHealth Group
A
Incorporated’s 2011 Stock Incentive Plan, effective
as of May 24, 2011 (incorporated by reference to
Exhibit 10.4 to UnitedHealth Group Incorporated’s
Current Report on Form 8-K dated May 24, 2011)
Form of Agreement for Performance-based
Restricted Stock Unit Award to Executives under
AA
UnitedHealth Group Incorporated’s 2011 Stock
Incentive Plan, effective as of May 24, 2011
(incorporated by reference to Exhibit 10.3 to
UnitedHealth Group Incorporated’s Current Report
on Form 8-K dated May 24, 2011)
Form of Agreement for Initial Deferred Stock
Unit Award to Non-Employee Directors under
UnitedHealth Group Incorporated’s 2011 Stock
Incentive Plan, effective as of May 24, 2011
(incorporated by reference to Exhibit 10.7 to
UnitedHealth Group Incorporated’s Current Report
on Form 8-K dated May 24, 2011)
Form of Agreement for Deferred Stock Unit Award
to Non-Employee Directors under UnitedHealth
Group Incorporated’s 2011 Stock Incentive Plan,
effective as of May 24, 2011 (incorporated by
reference to Exhibit 10.6 to UnitedHealth Group
Incorporated’s Current Report on Form 8-K dated
May 24, 2011)
Amended and Restated UnitedHealth Group
Incorporated Executive Incentive Plan (2009
Statement), effective as of December 31, 2008
(incorporated by reference to Exhibit 10.12 to
UnitedHealth Group Incorporated’s Annual Report
on Form 10-K for the year ended December 31, 2008)
Amended and Restated UnitedHealth Group
Incorporated 2008 Executive Incentive Plan,
effective as of December 31, 2008 (incorporated by
reference to Exhibit 10.13 to UnitedHealth Group
Incorporated’s Annual Report on Form 10-K for the
year ended December 31, 2008)
AA
*10.11 UnitedHealth Group Executive Savings Plan
*10.12
(2004 Statement) (incorporated by reference to
Exhibit 10(e) of UnitedHealth Group Incorporated’s
Annual Report on Form 10-K for the year ended
December 31, 2003)
First Amendment to UnitedHealth Group Executive
Savings Plan (2004 Statement) (incorporated by
reference to Exhibit 10.3 to UnitedHealth Group
Incorporated’s Current Report on Form 8-K dated
October 31, 2006)
*10.13 Second Amendment to UnitedHealth Group
Executive Savings Plan (2004 Statement)
(incorporated by reference to Exhibit 10.13 to
90
UNITEDHEALTH GROUP
UnitedHealth Group Incorporated’s Annual Report
on Form 10-K for the year ended December 31, 2007)
*10.14 Third Amendment to UnitedHealth Group Executive
Savings Plan (2004 Statement) (incorporated by
reference to Exhibit 10.17 to UnitedHealth Group
Incorporated’s Annual Report on Form 10-K for the
year ended December 31, 2008)
*10.15 Fourth Amendment to UnitedHealth Group
Executive Savings Plan (2004 Statement)
(incorporated by reference to Exhibit 10.1 of
UnitedHealth Group Incorporated’s Quarterly
Report on Form 10-Q for the quarter ended
September 30, 2010)
*10.16 Summary of Non-Management Director
Compensation, effective as of July 1, 2009
(incorporated by reference to Exhibit 10.1 to
UnitedHealth Group Incorporated’s Quarterly
Report on Form 10-Q for the quarter ended
June 30, 2009)
*10.17 UnitedHealth Group Directors’ Compensation
Deferral Plan (2009 Statement) (incorporated by
reference to Exhibit 10.18 to UnitedHealth Group
Incorporated’s Annual Report on Form 10-K for
the year ended December 31, 2008)
*10.18 Amendment to the UnitedHealth Group Directors’
Compensation Deferral Plan, effective as of
January 1, 2010 (incorporated by reference to
Exhibit 10.20 to UnitedHealth Group Incorporated’s
Annual Report on Form 10K for the year ended
December 31, 2009)
United HealthCare Services, Inc. and Stephen J.
Hemsley (incorporated by reference to Exhibit
10.22 to UnitedHealth Group Incorporated’s
Annual Report on Form 10-K for the year ended
December 31, 2008)
*10.24 Letter Agreement, effective as of February 19,
2008, by and between UnitedHealth Group
Incorporated and Stephen J. Hemsley (incorporated
by reference to Exhibit 10.22 to UnitedHealth
Group Incorporated’s Annual Report on Form 10-K
for the year ended December 31, 2007)
*10.25 Amendment to Employment Agreement, dated
as of December 14, 2010, between UnitedHealth
Group Incorporated and Stephen J. Hemsley
(incorporated by reference to Exhibit 10.1 to
UnitedHealth Group Incorporated’s Current Report
on Form 8-K dated December 15, 2010)
*10.26 Amended and Restated Employment Agreement,
dated as of August 8, 2011, between United
HealthCare Services, Inc. and Gail K. Boudreaux
(incorporated by reference to Exhibit 10.1 to
UnitedHealth Group Incorporated’s Quarterly
Report on Form 10-Q for the quarter ended
September 30, 2011)
*10.27 Employment Agreement, effective as of April 12,
2007, between United HealthCare Services, Inc. and
Anthony Welters (incorporated by reference to
Exhibit 10.28 to UnitedHealth Group Incorporated’s
Annual Report on Form 10-K for the year ended
December 31, 2007)
*10.19 First Amendment to UnitedHealth Group Directors’
*10.28 Amendment to Employment Agreement, effective as
Compensation Deferral Plan (incorporated by
reference to Exhibit 10.2 to UnitedHealth Group
Incorporated’s Quarterly Report on Form 10-Q for
the quarter ended September 30, 2010)
*10.20 Employment Agreement, dated as of November 7,
2006, between UnitedHealth Group Incorporated
and Stephen J. Hemsley (incorporated by
reference to Exhibit 10.1 to UnitedHealth Group
Incorporated’s Current Report on Form 8-K dated
November 7, 2006)
yy
*10.21 Agreement for Supplemental Executive Retirement
Pay, effective April 1, 2004, between UnitedHealth
Group Incorporated and Stephen J. Hemsley
(incorporated by reference to Exhibit 10(b) to
UnitedHealth Group Incorporated’s Quarterly
Report on Form 10-Q for the quarter ended
March 31, 2004)
*10.22 Amendment to Agreement for Supplemental
of December 31, 2008, between United HealthCare
Services, Inc. and Anthony Welters (incorporated by
reference to Exhibit 10.35 to UnitedHealth Group
Incorporated’s Annual Report on Form 10-K for the
year ended December 31, 2008)
*10.29 Amended and Restated Employment Agreement,
dated as of October 25, 2011, between United
HealthCare Services, Inc. and Larry C. Renfro
(incorporated by reference to Exhibit 10.2 to
UnitedHealth Group Incorporated’s Quarterly
Report on Form 10-Q for the quarter ended
September 30, 2011)
*10.30 Employment Agreement, effective as of December
1, 2006, between United HealthCare Services,
Inc. and David S. Wichmann (incorporated by
reference to Exhibit 10.2 to UnitedHealth Group
Incorporated’s Quarterly Report on Form 10-Q for
the quarter ended March 31, 2008)
Executive Retirement Pay, dated as of November 7,
yy
2006, between UnitedHealth Group Incorporated
and Stephen J. Hemsley (incorporated by reference
to Exhibit A to Exhibit 10.1 to UnitedHealth Group
Incorporated’s Current Report on Form 8-K dated
November 7, 2006)
*10.31 Amendment to Employment Agreement, effective as
of December 31, 2008, between United HealthCare
Services, Inc. and David S. Wichmann (incorporated
by reference to Exhibit 10.37 to UnitedHealth Group
Incorporated’s Annual Report on Form 10-K for the
year ended December 31, 2008)
*10.23 Amendment to Employment Agreement and
Agreement for Supplemental Executive Retirement
Pay, effective as of December 31, 2008, between
yy
*10.32 Separation and Release Agreement, effective as of
July 5, 2011, between United HealthCare Services,
Inc. and George L. Mikan III (incorporated by
2011 FORM 10-K
91
11.1
12.1
21.1
23.1
24.1
31.1
32.1
101
*
**
reference to Exhibit 10.3 to UnitedHealth Group
Incorporated’s Quarterly Report on Form 10-Q for
the quarter ended September 30, 2011)
Statement regarding computation of per share
earnings (incorporated by reference to the
information contained under the heading “Net
Earnings Per Common Share” in Note 2 to the
Notes to Consolidated Financial Statements
included under Item 8)
Ratio of Earnings to Fixed Charges
Subsidiaries of UnitedHealth Group Incorporated
Consent of Independent Registered Public
Accounting Firm
Power of Attorney
Certifications pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
Certifications pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
The following materials from UnitedHealth Group
Incorporated’s Annual Report on Form 10-K for the
year ended December 31, 2010, filed on February
8, 2012, formatted in XBRL (eXtensible Business
Reporting Language): (i) Consolidated Balance
Sheets, (ii) Consolidated Statements of Operations,
(iii) Consolidated Statements of Changes in
Shareholders’ Equity, (iv) Consolidated Statements
of Cash Flows, and (v) Notes to the Consolidated
Financial Statements.
Denotes management contracts and compensation
plans in which certain directors and named
executive officers participate and which are
being filed pursuant to Item 601(b)(10)(iii)(A) of
Regulation S-K.
Pursuant to Item 601(b)(4)(iii) of Regulation S-K,
copies of instruments defining the rights of certain
holders of long-term debt are not filed. The
Company will furnish copies thereof to the SEC
upon request.
THIS PAGE INTENTIONALLY LEFT BLANK.
Investor Information
UnitedHealth Group Overview
Market price of common stock
UnitedHealth Group is a diversified health and well-
the following table shows the range of high and
being company offering an array of integrated products
low sales prices for the company’s common stock
and services. Our 87,000 employees serve more than
as reported by the New York Stock exchange,
75 million individuals, 6,200 hospital facilities, 246,000
where it trades under the symbol UNH. these prices
investor relations
You can contact UnitedHealth Group Investor
UnitedHealthcare, our Health Benefits platform,
includes three distinct businesses that share systems,
relations to order, without charge, financial
documents such as the annual report on
networks and one unified brand name to offer
Form 10-k and the annual report to Shareholders.
customers broad access to high-quality, cost-effective
do not include commissions or fees associated
health care professionals or groups, all 50 states and
with purchasing or selling this security.
federal and international governments.
You can write to us at:
health care at the local level. UnitedHealthcare
Investor relations, mN008-t930
Employer & Individual serves the health benefit
2012
At our core are three competencies:
First Quarter
$59.43
high
low
$49.82
Technology. Applying advanced technology to enable
2011
interactions on enormous scale and manage data
First Quarter
across the complex health system.
Second Quarter
$52.64
$45.75
$36.37
$43.30
$53.50
third Quarter
$41.27
Information. Unmatched health data, the capacity
Fourth Quarter
$41.32
to translate data into information and then into
2010
intelligent action.
First Quarter
$51.71
$36.07
$30.97
$34.00
Second Quarter
Clinical expertise. Deep, practical know-how in care
third Quarter
management and coordination, in clinical resource
Fourth Quarter
use, access and cost, combined with skills in both
as of January 31, 2012, the company had 15,978 shareholders of record.
consumer and care provider engagement.
$35.94
$38.06
$27.13
$27.97
$33.94
shareholder account questions
We apply these competencies in two broad
our transfer agent, Wells Fargo Shareowner Services,
and growing domains —Health Benefits and
can help you with a variety of shareholder-related
Health Services.
services, including:
• change of address
• lost stock certificates
• transfer of stock to another person
• additional administrative services
Table of Contents
You can write to them at:
Letter to Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . 1
Wells Fargo Shareowner Services
New Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
P.o. box 64854
New Opportunities to Serve . . . . . . . . . . . . . . . . . . . . 8
St. Paul, minnesota 55164-0854
New Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
or you can call our transfer agent toll free at
Business Summary . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(800) 468-9716 or locally at (651) 450-4064.
Foundations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
You can email our transfer agent at:
stocktransfer@wellsfargo.com
UnitedHealth Group
needs of employers of all sizes, public sector clients,
P.o. box 1459
students and individuals. UnitedHealthcare Medicare
minneapolis, minnesota 55440-1459
& Retirement delivers health and well-being benefits
You can also obtain information about UnitedHealth
in partnership with AARP to individuals age 50 and
Group and its businesses, including financial
older. And UnitedHealthcare Community & State
documents, online at www.unitedhealthgroup.com.
manages health care benefit programs on behalf of
state Medicaid and community programs.
annual meeting
We invite UnitedHealth Group shareholders to
Optum, our Health Services platform, includes
attend our annual meeting, which will be held
three diversified information and technology-enabled
at 10 a.m. local time on June 4, 2012, at the
services businesses, serving the broad health care
following location:
marketplace. OptumHealth is focused on health
anthony marlon auditorium
management and wellness, clinical services and
UnitedHealthcare, a UnitedHealth Group company
financial services. OptumInsight, formerly Ingenix,
2700 North tenaya Way
las Vegas, Nevada
specializes in technology, intelligence, consulting and
business outsourcing solutions. OptumRx, formerly
You will need to bring appropriate proof of
Prescription Solutions, is among the largest pharmacy
UnitedHealth Group share ownership and a
benefit management organizations.
photo ID with you to the annual meeting in
order to be admitted.
Common stock dividends
In may 2011, our board of Directors increased our
2010 Financial Results . . . . . . . . . . . . . . . . . . . . . . . . 22
quarterly cash dividend to shareholders to $0.1625
per share. Declaration and payment of future
Non-GAAP Reconciliation and Disclaimer . . . . . . . . . 26
quarterly dividends is at the discretion of the board
Officers and Directors . . . . . . . . . . . . . . . . . . . . . . . . 27
and may be adjusted as business needs or market
Investor Information . . . . . . . . . . . . . . . . . . . . . . . . . 28
conditions change. Since June 2010, our policy had
Mission and Culture . . . . . . . . . . . . . . . . . . . . . . . . . . 29
been to pay a quarterly dividend of $0.125 per share.
Our Mission
Our Mission
Our Mission
Our mission is to help people live healthier lives. Our role is to help make health care work for everyone.
Our mission is to help people live healthier lives. Our role is to help make health care work for everyone.
Our mission is to help people live healthier lives. Our role is to help make health care work for everyone.
We seek to enhance the
We seek to enhance the
We seek to enhance the
We work with health care
We work with health care
We work with health care
We support the physician/
We support the physician/
We support the physician/
performance of the health
performance of the health
performance of the health
professionals and other key
professionals and other key
professionals and other key
patient relationship and
patient relationship and
patient relationship and
system and improve the
system and improve the
system and improve the
partners to expand access to
partners to expand access to
partners to expand access to
empower people with the
empower people with the
empower people with the
overall health and well-being
overall health and well-being
overall health and well-being
quality health care so people
quality health care so people
quality health care so people
information, guidance and tools
information, guidance and tools
information, guidance and tools
of the people we serve and
of the people we serve and
of the people we serve and
get the care they need at an
get the care they need at an
get the care they need at an
they need to make personal
they need to make personal
they need to make personal
their communities.
their communities.
their communities.
affordable price.
affordable price.
affordable price.
health choices and decisions.
health choices and decisions.
health choices and decisions.
Our Culture
The people of this company are aligned around basic
other health care professionals, hospitals and the
values that inspire our behavior as individuals and
individual consumers of health care. Trust is earned
as an institution:
Integrity. We are dedicated to the highest levels of
personal and institutional integrity. We make honest
commitments and work to consistently honor those
commitments. We do not compromise ethics. We
and preserved through truthfulness, integrity, active
engagement and collaboration with our colleagues
and clients. We encourage the variety of thoughts
and perspectives that reflect the diversity of our
markets, customers and workforce.
strive to deliver on our promises and we have the
Innovation. We pursue a course of continuous,
courage to acknowledge mistakes and do whatever
positive and practical innovation, using our deep
is needed to address them.
experience in health care to be thoughtful advocates
Compassion. We try to walk in the shoes of the
people we serve and the people we work with across
the health care community. Our job is to listen with
empathy and then respond appropriately and quickly
of change and to use the insights we gain to invent
a better future that will make the health care
environment work and serve everyone more fairly,
productively and consistently.
with service and advocacy for each individual, each
Performance. We are committed to deliver and
group or community and for society as a whole. We
demonstrate excellence in everything we do. We
celebrate our role in serving people and society in an
will be accountable and responsible for consistently
area so vitally human as their health.
delivering high-quality and superior results that make
Relationships. We build trust through cultivating
relationships and working in productive collabo ration
with government, employers, physicians, nurses and
a difference in the lives of the people we touch. We
continue to challenge ourselves to strive for even
better outcomes in all key performance areas.
The names and health information for individuals included in this report have been used with their express permission.
10%
10%
This annual report is printed on recycled papers certified by Bureau Veritas per FSC (Forest Stewardship Council)
This annual report is printed on recycled papers certified by Bureau Veritas per FSC® (Forest Stewardship Council™)
standards for Chain of Custody ensuring environmentally responsible, socially beneficial and economically viable
standards for Chain of Custody ensuring environmentally responsible, socially beneficial and economically viable
forest management, and also uses reduced VOC (Volatile Organic Compounds) vegetable-based inks.
forest management, and also uses reduced VOC (Volatile Organic Compounds) vegetable-based inks.
2010 Summary Annual Report
2010 Summary Annual Report
2010 Summary Annual Report
29
29
29
www.unitedhealthgroup.com
UnitedHealth Group center
9900 bren road east, minnetonka, minnesota 55343
100-11187 4/12
©2012 UnitedHealth Group. all rights reserved. UnitedHealth Group is a registered trademark with the U.S. Patent and trademark office.