2012 Annual Report
ADAPTABLE
ENTERPRISE.
CONSTANT
VALUES.
Helping People
Live Healthier Lives
www.unitedhealthgroup.com
UnitedHealth Group Center
9900 Bren Road East, Minnetonka, Minnesota 55343
100-12310 4/13
©2013 UnitedHealth Group. All Rights Reserved. UnitedHealth Group is a registered trademark with the U.S. Patent and Trademark Office.
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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
performance of the health
We work with health care
professionals and other key
We support the physician/
patient relationship and
system and improve the overall
partners to expand access to
empower people with the
health and well-being of the
quality health care so people
information, guidance and tools
people we serve and their
get the care they need at an
they need to make personal
communities.
affordable price.
health choices and decisions.
OUR CULTURE
The people of this company share basic values that inspire
and preserved through truthfulness, integrity, active
our behavior as individuals and thus as an institution:
engagement and collaboration with our colleagues
Integrity. We are dedicated to the highest levels of
personal and institutional integrity. We make honest
commitments and work to honor those commitments
and clients. We encourage the variety of thoughts and
perspectives that reflect the diversity of our markets,
customers and workforce.
consistently. We are ethical people. We strive to deliver on
Innovation. We pursue a course of continuous, positive
our promises and we have the courage to acknowledge
and practical innovation, using our deep experience in
mistakes and do what is needed to address them.
health care to be thoughtful advocates of change and
Compassion. We try to walk in the shoes of the people
we serve and the people we work with. Our job is to
listen with empathy and then respond appropriately 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.
quickly with service and advocacy for each individual,
Performance. We are committed to deliver and
each group or community and for society as a whole.
demonstrate excellence in everything we do. We will be
We are grateful to have a role in serving people and
accountable and responsible for consistently delivering
society in an area so vitally human as their health.
high-quality and superior results that make a difference
Relationships. We build trust through cultivating
relationships and working in productive collaboration
with government, employers, physicians, nurses and
other health care professionals, hospitals and the
individual consumers of health care. Trust is earned
in the lives of the people we touch. We continue to
challenge ourselves to strive for even better outcomes
in all key performance areas.
INVESTOR INFORMATION
Market price of common stock
The following table shows the range of high and low sales
Investor relations
You can contact UnitedHealth Group Investor Relations
prices for the company’s common stock as reported by
to order, without charge, financial documents such as
the New York Stock Exchange, where it trades under the
the Annual Report on Form 10-K and the Annual Report
symbol UNH. These prices do not include commissions or
to Shareholders.
fees associated with purchasing or selling this security.
2013
First Quarter (through March 15, 2013)
high
$58.26
2012
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2011
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$59.43
$60.75
$59.31
$58.29
$45.75
$52.64
$53.50
$51.71
low
$51.36
$49.82
$53.78
$50.32
$51.09
$36.37
$43.30
$41.27
$41.32
As of January 31, 2013, the company had 15,204 shareholders of record.
Shareholder account questions
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
• Additional administrative services
You can write to them at:
Wells Fargo Shareowner Services
P.O. Box 64854
St. Paul, Minnesota 55164-0854
Or you can call our transfer agent toll free at
(800) 468-9716 or locally at (651) 450-4064.
You can email our transfer agent at:
stocktransfer@wellsfargo.com
You can write to us at:
Investor Relations, MN008-T930
UnitedHealth Group
P.O. Box 1459
Minneapolis, Minnesota 55440-1459
You can also obtain information about UnitedHealth Group
and its businesses, including financial documents, online at
www.unitedhealthgroup.com.
Annual meeting
We invite UnitedHealth Group shareholders to attend our
annual meeting, which will be held at 10 a.m. Eastern Time
on Monday, June 3, 2013, at the following location:
Seaport Boston Hotel
Constitution Conference Room
1 Seaport Lane
Boston, Massachusetts 02210
You will need to bring appropriate proof of UnitedHealth
Group share ownership and a photo ID with you to the
annual meeting in order to be admitted.
Common stock dividends
In June 2012, our Board of Directors increased our cash
dividend on common stock to an annual dividend rate of
$0.85 per share, paid quarterly. 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. Since May 2011, we had paid an annual
cash dividend on common stock of $0.65 per share,
distributed quarterly.
10%
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
forest management, and also uses reduced VOC (Volatile Organic Compounds) vegetable-based inks.
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DEAR SHAREHOLDER:
The employees of UnitedHealthcare, Optum and
data and analysis; and broad access to secure patient
UnitedHealth Group worked together in 2012 to
information to help care providers make optimal and
meaningfully advance the long-term capabilities, value,
compassionate care decisions for their patients —
performance and potential of this enterprise for sustained
while modernizing the administration of physicians’
growth. This letter represents one of the few public
practices, hospitals and clinics to help them become
opportunities to recognize their extraordinary efforts and
more sustainable resources for care.
I’m honored to do so here. Their commitment to consistent
and ever-improving execution on behalf of those we
serve across the diversity of our businesses truly makes
a difference in people’s health and in their lives.
• We are committed to serving health benefit sponsors
by providing innovative, flexible benefit designs that
engage and incentivize consumers to embrace healthy
behaviors — whether those benefits are purchased
As we move forward into 2013 and the next several
by individuals on state insurance exchanges, by small,
years, we expect change will continue to characterize
midsized or national employers, or by state and federal
our national health care system. We remain dedicated to
programs. We will consistently exceed benefit sponsors’
creating a higher quality, more consistently effective and
expectations, enabling them to meet their benefit
affordable health care system to better serve the needs of all
objectives as cost-effectively as possible, while helping
Americans. No other organizations are more capable than
provide greater access to better care.
Optum and UnitedHealthcare at applying innovative ways to
improve care quality and supporting the consistent practice
of evidence-based medicine, while improving affordability
through the optimal organization and use of care resources.
On behalf of those invested in our efforts, we will protect
and thoughtfully deploy your capital to build and advance
ever-improving capabilities that have durable market
relevance and value. We will use those capabilities to grow
In an environment of constant change,
in profitable ways that provide distinctive returns on the
distinctive themes are emerging:
capital entrusted to us, balancing both our social and
• Consumers are taking a greater role and responsibility
financial responsibilities.
in health care decision-making. They need a trusted
In everything we do, we value integrity, compassion, respect
navigator to guide them through the complex health
for individuals and relationships, innovation and accountable
care system helping them find the right care, at the
performance. As employees of this enterprise, we have the
right time, in the right setting. We are becoming
opportunity to focus on creating new, adaptable approaches
ever more consumer-focused, offering high levels
to better health care on behalf of individuals and society
of personalized service, dependable information,
as a whole. We are grateful you have allowed us to hold
personalized tools and incentives that help individuals
this position of trust. We will continue to do our utmost
and families live healthier lives and make wise use of
each day to prove worthy of your trust and the trust of the
health care resources.
people and customers we serve.
• The roles of physicians and other health care professionals
Sincerely,
and care facilities continue to evolve. The science of
care is advancing, along with increasing demands for
consistency, transparency and compliance. We are
committed to supporting this evolution with the most
innovative yet practical technologies; insightful, reliable
Steve Hemsley
President and Chief Executive Officer
UNITEDHEALTH GROUP
1
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PERFORMANCE HIGHLIGHTS
In pursuit of our mission during 2012, we helped deliver higher quality care to more people
more affordably and, in the process, provided distinctive financial performance for our
investors in a difficult economic climate. We continued on a steady growth trajectory,
increasing the number of people we serve, revenue and earnings.
REVENUES
2011
$102B
2012
$111B
Revenues increased
9 percent year-over-year.
$9.3B
EARNINGS FROM OPERATIONS
Net earnings were $5.5 billion, or $5.28 per
share.* UnitedHealthcare and Optum exceeded
their 2012 revenue and earnings outlooks.
$7.2B
$820M
OPERATING CASH FLOWS
A multiple of 1.3 times 2012 net earnings.
SHAREHOLDER DIVIDENDS
UnitedHealth Group raised its per share
dividend by 31 percent in 2012.
2012 return on equity was 18.7 percent.
*Attributable to UnitedHealth Group common shareholders.
UnitedHealthcare
Acquired a majority interest in Amil, the leading
More than 6 million additional people including nearly
Brazilian health care company
2 million in U.S. markets and more than 4 million in Brazil.
Largest health care company in the fastest growing market
Optum
for benefits and services outside the United States.
Earnings increased 14 percent year-over-year.
Awarded TRICARE West Region contract
Managing health care services for more than 2.7 million
active duty and retired military service members and their
families. Administrative services contract worth $1.4 billion
over five years, beginning April 2013.
2
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able to estimate the cost of more than 150 common
treatments and procedures with maximum accuracy by
drawing on the company’s actual contracted rates with
physicians, hospitals, clinics and other health care providers
in 96 markets. Estimates are also personalized to reflect
an individual’s own health plan benefits.
Health4Me Mobile App provides millions of
UnitedHealthcare employer plan participants
24/7 access to registered nurses, enables them
to locate nearby in-network physicians, hospitals
or other medical facilities, and gives them access
to their personal health benefits information on
their mobile devices.
AWAAA
RDS & RECOGNITION
• Named to the Dow Jones Industrial Average.
• Recognized as one of America’s most community-
• World’s Most Admired Company in the Insurance
and Managed Care sector in Fortune’s 2012 rankings,
including No. 1 in innovation.
• Corporate debt rating upgraded by Standard & Poor’s
to Single A with a Stable Outlook, making UnitedHealth
Group the highest-rated, publicly traded managed care
organization they follow.
• Designated to the Dow Jones Sustainability World Index
and Dow Jones North America Index annually since 1999.
• Earned a top rating of 100 percent on the 2012 Corporate
Equality Index from the Human Rights Campaign.
• Ranked among the world’s top corporate citizens
on Corporate Responsibility magazine’s “100 Best
Corporate Citizens” list for 2012.
y
minded companies in the Civic 50, the first scientific
evaluation to rank the companies that use their time,
talent and resources to improve the quality of life where
they do business.
• Rated No.1 in claims-processing accuracy among
the seven leading commercial health insurers in the
American Medical Association’s 2012 National Health
Insurer Report Card.
• Named to the 2012 InformationWeek 500, a list of
America’s top technology innovators.
• No. 22 in Fortune’s 2012 rankings of the 500 largest
s
U.S. corporations.
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UNITEDHEALTH GROUP
3
WHO WE ARE
,
p y
every year.
Committed professionals serving people in all 50 states
in the United States and in 20 other nations around
the world.
26,000 Physicians, Nurses and Clinical Practitioners
on Staff
Helping promote evidence-based care, empowering
people with information and supporting the physician/
patient relationship.
81 Percent Employees Engaged in Volunteer Work
96 percent of executives volunteer. Since 2007,
our employees have logged more than 1 million
volunteer hours.
$17.6 Million Contributions to Community Giving
Campaign in 2012
Includes employee pledges and the company match
More Than 27 Million
Personal Health Records Under Management
Servicing health information exchanges in nine states and
serving millions of consumers through our web portals
and mobility devices.
19 Years of Longitudinal Data on 109 Million
Lives in Proprietary Databases
Plus consumer data for 200 million people.
780,000 Physicians and Care Professionals in
Our Network
Nearly 6,000 hospitals and other care facilities
nationwide, together capable of serving 97 percent
of the U.S. population.
350 Million Prescriptions Processed Annually
for charitable giving.
Full-service capabilities across retail, mail and specialty
drug prescriptions.
4
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health benefits to individuals age 50 and older.
of health care delivery systems. Clients include multi
• Nearly 9 million Medicare beneficiaries — nearly one
in five of the country’s 50 million Medicare recipients.
• More than 4.2 million seniors through stand-alone
Part D prescription drug plans.
national and local businesses, governments, non-U.S. health
insurers and travel insurers, reinsurers and individuals and
their families.
Through our Health Services businesses, we are helping
government entities and directly through the care
make the health care system itself work better for everyone.
delivery system.
We are focused on population health management, care
delivery and improving the clinical and operating elements
of the system, serving:
OptumInsight: One of the largest health information,
technology and consulting companies in the world,
providing software and information products, advisory
• More than 61 million individuals
consulting services and business process outsourcing
• More than 66,000 retail pharmacies
• Four out of five U.S. hospitals
• Nearly 400 global life sciences companies
• Approximately 300 health plans
services and support to hospitals, physicians, commercial
health plans, government agencies, life sciences companies
and others.
OptumRx: A pharmacy management leader in service,
affordability and clinical quality, serving more than 14 million
OptumHealth: The leader in population health
people nationwide. OptumRx is dedicated to helping people
management, serving the physical, emotional and financial
achieve optimal health while maximizing cost savings,
needs of more than 61 million individuals, enabling
improving quality and safety, increasing compliance and
consumer health management and integrated care
adherence, and reducing fraud and waste.
delivery through programs offered by employers, payers,
UNITEDHEALTH GROUP
5
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our leadership
executive Officers and leaders
Stephen J. Hemsley
President and
Chief Executive officer
Cory Alexander
Senior Vice President,
Government Affairs
Gail K. Boudreaux
Executive Vice President,
unitedHealth Group
and Chief Executive officer,
unitedHealthcare
Edson Bueno, M.D.
Founder and
Chief Executive officer,
Amil Participacóes S.A.
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
Marianne D. Short
Executive Vice President
and Chief Legal officer
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
Edson Bueno, M.D.
Founder and
Chief Executive officer,
Amil Participacóes S.A.
unitedHealth Group
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,
a company focused on improving
the governance processes of
corporate boards
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, an international
health foundation
audit Committee
Glenn M. Renwick, Chair
Robert J. Darretta
Michele J. Hooper
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
William C. Ballard, Jr.
Robert J. Darretta
Rodger A. Lawson
public policy strategies
and responsibility Committee
Gail R. Wilensky, Ph.D., Chair
Douglas W. Leatherdale
Kenneth I. Shine, M.D.
6
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Form 10-K
For the fiscal year ended December 31, 2012
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
5
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR
THE FISCAL YEAR ENDED DECEMBER 31, 2012
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)
UnitedHealth Group Center
9900 Bren Road East
Minnetonka, Minnesota
(Address of principal executive offices)
41-1321939
(I.R.S. Employer Identification No.)
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
(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. o Yes o 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. o Yes o No
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. o Yes o 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). o Yes o 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. o
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)
Accelerated filer o
Non-accelerated filer o
Large accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes o No
The aggregate market value of voting stock held by non-affiliates of the registrant as of June 30, 2012 was $59,444,144,483 (based on the
last reported sale price of $58.50 per share on June 30, 2012, on the New York Stock Exchange).*
As of January 31, 2013, there were 1,024,925,324 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 2013 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 o
determining this number.
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UNITEDHEALTH GROUP
Table of ConTenTs
Item 1.
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
Business
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
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
15
26
26
26
26
26
29
29
47
49
82
82
85
85
85
85
86
86
86
94
95
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PART I
ITEM 1.
Business
INTRODUCTION
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).
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 clinical
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 provides network-based health care
benefits for a full spectrum of customers in the health
benefits market. UnitedHealthcare Employer & Individual
serves employers ranging from sole proprietorships
to large, multi-site and national employers, as well as
students and other individuals, and will serve TRICARE
West Region members beginning April 1, 2013.
UnitedHealthcare Medicare & Retirement delivers health
and well-being benefits for Medicare beneficiaries and
retirees. UnitedHealthcare Community & State manages
health care benefit programs on behalf of state Medicaid
and community programs and their participants.
UnitedHealthcare International includes Amil Participações
S.A (Amil), a health care company providing health benefits
and hospital and clinical services to individuals in Brazil, and
other diversified global health businesses.
Optum is a health services business serving the broad
health care marketplace, including payers, care providers,
employers, government, life sciences companies and
consumers, through its OptumHealth, OptumInsight and
OptumRx businesses. These businesses have dedicated units
that drive improved delivery, quality and cost effectiveness
across eight business 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 2012, we
managed nearly $150 billion in aggregate health care
spending on behalf of the constituents and consumers we
2012 FORM 10-K
1
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:
• UnitedHealthcare, which includes UnitedHealthcare
Employer & Individual, UnitedHealthcare Medicare &
Retirement, UnitedHealthcare Community & State and
UnitedHealthcare International;
• OptumHealth;
• OptumInsight; and
• OptumRx.
For our financial results and the presentation of certain
other financial information by segment, see Note 13 of
Notes to the Consolidated Financial Statements included in
Item 8, “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:
• a national scale;
• the breadth of our product offerings, which are
responsive to many distinct market segments in
health care;
• strong local market relationships;
• service and advanced technology;
• competitive medical and operating cost positions;
• effective clinical engagement;
• extensive expertise in distinct market segments; and
• a commitment to innovation.
The financial results of UnitedHealthcare
Employer & Individual, UnitedHealthcare Medicare &
Retirement, UnitedHealthcare Community & State and
UnitedHealthcare International 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. The domestic 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 pharmacy benefit
products and services, certain OptumHealth product
offerings and care management and integrated care
delivery services and OptumInsight health information
and technology solutions, consulting and other services.
UnitedHealthcare arranges for discounted access to care
through networks that include a total of nearly 780,000
physicians and other health care professionals and
approximately 5,900 hospitals and other facilities across the
United States (UnitedHealthcare Network).
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2
UNITEDHEALTH GROUP
UnitedHealthcare Employer & Individual
UnitedHealthcare Employer & Individual works closely with
employers and individuals to provide health benefit plans
that provide solutions to help members live healthier lives
and achieve meaningful cost savings. 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, providing nearly 27 million Americans access
to health care as of December 31, 2012.
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 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, 2012, UnitedHealthcare Employer &
Individual National Accounts served 395 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
91% of the physicians and other health care professionals
and 95% of the hospitals in the broad 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 the
Premium Designation® program and Health4Me for Apple®
and Android® phones, myHealthcareCost Estimator, Health
Care Lane and myuhc.com. These easy-to-use resources
support better consumer decisions, affording members
more control over their health care.
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 consultant-based or direct sales for larger employer
and public sector segments. In recent years, the distribution
model has been diversified to include professional
employer organizations, associations, and private equity
partners. UnitedHealthcare Employer & Individual offers its
products through affiliates that are licensed as insurance
companies, health maintenance organizations (HMOs), or
third party administrators (TPAs).
UnitedHealthcare Employer & Individual’s diverse product
portfolio offers a continuum of benefit designs, price points
and approaches to consumer engagement, and allows the
flexibility to meet the needs of employers of all sizes as
well as individuals shopping for health benefits coverage.
UnitedHealthcare Employer & Individual emphasizes local
markets and leverages its national scale to adapt products
quickly to meet specific market needs. UnitedHealthcare
Employer & Individual’s major product families include:
Traditional Products. Traditional products include a full
range of medical benefits and network options from
managed plans such as Choice and Options PPO to more
traditional indemnity offerings. The plans offer a full
spectrum of covered services, including preventive care,
direct access to specialists and catastrophic protection.
Consumer Engagement Products and Tools. Consumer
engagement products couple plan design with financial
accounts to increase employee ownership of their
health and well-being. This suite of products includes
high-deductible consumer-driven benefit plans, which
include health reimbursement accounts (HRAs), health
savings accounts (HSAs) and consumer activation
services such as personalized multi-channel activation
messaging, behavioral incentive programs and consumer
education information. During 2012, nearly 42,000
employer-sponsored benefit plans, including more than
200 employers in the large group self-funded market,
purchased an HRA or HSA product. The consumer
engagement tools provide members with online and/or
mobile access to benefit, cost and quality information.
Value-Based Products. UnitedHealthcare Employer
& Individual’s suite of consumer incentive products
increases individual awareness for heightened consumer
responsibility and behavior change across diverse client
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segments and funding relationships. Examples include:
Small Business Wellness, which is a packaged wellness
and incentives product offering gym reimbursement and
encouraging completion of important wellness activities.
For mid-sized clients, SimplyEngaged is a scalable activity-
based reward program that ties incentives to completion of
health improvement activities, while SimplyEngaged Plus
provides richer incentives for achieving health outcome
goals. For large, self-funded customers, UnitedHealthcare
Health Rewards program offers a flexible incentive design
for employers to choose the right activities and biometric
outcomes that best fit the needs of their population.
Additionally, UnitedHealth Personal Rewards leverages a
tailored approach to incentives by combining personalized
scorecards with financial incentives for improving biometric
scores, compliance with key health treatments and
preventive care.
Essential Benefits Products. UnitedHealthcare Employer &
Individual’s portfolio of affordable products drives value to
consumers with lower-cost products, innovative designs and
unique network programs that guide people to physicians
recognized for providing quality and cost efficient care
to their patients. These approaches are designed to
deliver sustainable health care costs, enabling employers
to continue to offer their employees coverage at more
affordable prices. Products such as Catalyst, Edge, Premium
Tiered Benefit Plan, Navigate and CORE offer solutions
for employers looking to achieve more affordable costs
through tiered benefit plans that enhance benefits in the
form of greater coinsurance coverage and/or lower copays
for using UnitedHealth Premium designated providers.
Clinical and Pharmacy Products. UnitedHealthcare Employer
& Individual offers a comprehensive suite of clinical and
pharmacy benefit management programs. The clinical and
pharmacy benefit products complement the service offering
by improving quality of care, engaging members and
providing cost-saving options.
All UnitedHealthcare Employer & Individual members
are provided access to clinical products with the goal of
helping them make better health care decisions, and thus
better use of their medical benefits, with the ultimate goal
of improving health and decreasing medical expenses. Each
medical plan has a core set of clinical programs embedded
in the offering, with additional services available
depending on funding type (fully insured and self-funded),
line of business (Individual, Small Business, Key Accounts,
Public Sector, and National Accounts), and clinical need.
The spectrum of clinical programs offered to all consumers,
regardless of their health goals – staying healthy, getting
healthy, living with a chronic condition includes: wellness,
decision support, utilization management, case and disease
management, and complex condition management,
workplace on-site programs, including Know Your Numbers
(biometrics) and flu shots, incentives to reinforce positive
behavior change, mental health, substance use disorder
management, employer assistance programs and well-being
programs. The programs promote consumer engagement,
2012 FORM 10-K
3
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’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.
Specialty Offerings. 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 55,000
vision professionals in private and retail settings, and nearly
210,000 dental providers.
UnitedHealthcare Military & Veterans. UnitedHealthcare
Employer & Individual’s Military & Veterans Services business
unit has been awarded the Department of Defense’s
(DoD) TRICARE Managed Care Support contract to provide
health care services for active duty and retired military
service members and their families in the West Region.
UnitedHealthcare Military & Veterans Services will be the
Managed Care Support contractor serving more than 2.7
million TRICARE beneficiaries in 21 states. The contract
includes a transition period and five one-year renewals at
the government’s option for health care operations. The first
year of operations is anticipated to begin April 1, 2013.
UnitedHealthcare Military & Veterans’ responsibility as a
contractor is to augment the military’s direct care system by
providing managed care support services, provider networks,
medical management, claims/enrollment administration, and
customer services. In partnership with government health
programs, UnitedHealthcare Military & Veterans’ mission
is to improve the health and well-being of both those who
currently serve in the military and have served in the military
in the past, as well as their families, by providing innovative,
high-quality and affordable health care solutions.
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 and
has distinct pricing, underwriting, clinical program
management and marketing capabilities dedicated to risk-
based health products and services in this market.
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UNITEDHEALTH GROUP
UnitedHealthcare Medicare & Retirement offers a
wide spectrum of Medicare products which may be sold
to individuals or on a group basis, including Medicare
Advantage plans, Medicare Part D prescription drug
coverage and Medicare Supplement/Medigap products
that supplement traditional fee-for-service coverage.
UnitedHealthcare Medicare & Retirement services include
care management and clinical management programs,
a nurse health line service, 24-hour access to health care
information, access to discounted health services from a
network of care providers and administrative services.
Premium revenues from the Centers for Medicare &
Medicaid Services (CMS) represented 29% of UnitedHealth
Group’s total consolidated revenues for the year ended
December 31, 2012, 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. Products are
also offered through employer groups to retirees.
UnitedHealthcare Medicare & Retirement’s major product
categories include:
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, Point-of-Service (POS)
plans, Private-Fee-for-Service plans and Special Needs
Plans (SNPs). Under the Medicare Advantage program,
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 had
approximately 2.6 million members enrolled in its Medicare
Advantage products as of December 31, 2012.
UnitedHealthcare Medicare & Retirement offers
innovative care management and clinical programs,
integrating federal, state and personal funding through
its continuum of Medicare Advantage products. 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. Proprietary predictive modeling tools
help identify members at high risk and allow care managers
to proactively outreach to 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
provides Medicare prescription drug benefits (Part D)
to beneficiaries throughout the United States and its
territories through its Medicare Advantage and stand-alone
Part D plans. The portfolio of stand-alone Part D plans
addresses a large spectrum of beneficiaries’ needs and
preferences for their prescription drug coverage, including
low cost prescription options. As of December 31, 2012,
UnitedHealthcare had enrolled 6.8 million members in the
Part D program, including 4.2 million members in the stand-
alone Part D plans and 2.6 million members in its Medicare
Advantage plans incorporating Part D coverage.
Medicare Supplement. UnitedHealthcare Medicare &
Retirement is currently serving approximately 4 million
seniors through various Medicare Supplement products in
association with AARP. We offer plans in all 50 states and
most U.S. territories. These products cover varying levels of
coinsurance and deductible gaps that seniors are exposed
to in the traditional Medicare program.
UnitedHealthcare Community & State
UnitedHealthcare Community & State is dedicated to
providing diversified solutions to states’ programs 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.
UnitedHealthcare Community & State’s primary customers
oversee Medicaid plans, the Children’s Health Insurance
Program (CHIP), and other federal, state and community
health care programs. 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, 2012, UnitedHealthcare Community & State
participates in programs in 25 states and the District of
Columbia, serving approximately 3.8 million beneficiaries.
UnitedHealthcare Community & State serves populations
that range in size from 9,000 people to more than 600,000
people. For those states or counties that choose not to enter
into risk arrangements, UnitedHealthcare Community &
State offers a variety of management services that leverage
its infrastructure and experience, as well as the considerable
health care system assets of UnitedHealth Group.
The primary categories of eligibility for the programs
served by UnitedHealthcare Community & State include
Temporary Assistance for Needy Families (TANF), CHIP,
Aged Blind and Disabled, SNPs, Long-Term Care, Childless
Adults & Programs, Dual Medicare-Medicaid Eligible
(dually eligible) beneficiaries and other federal and state
health care programs (e.g., Developmentally Disabled,
Rehabilitative Services). The health plans and care programs
offered 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, regulatory
partnerships, greater administrative efficiency, improved
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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 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.
Additionally, there are more than nine million dually
eligible beneficiaries who typically have complex conditions
with costs of care that are far higher than a typical
Medicare or Medicaid beneficiary. While these individuals’
health needs are more complex and more costly, they
have historically been in unmanaged environments. As of
December 31, 2012, UnitedHealthcare serves more than
250,000 members in legacy dually eligible programs through
Medicare Advantage and SNPs. In 2013, UnitedHealthcare
Community & State will help implement Ohio’s Integrated
Medicare-Medicaid Eligible (MME) program, one of the first
in the country under the new CMS design.
UnitedHealthcare International
UnitedHealthcare International provides solutions for
consumers of domestic or cross-border health care
management, insurance, and administration services;
regardless of their geographic location, language or cultural
origins. UnitedHealthcare International’s goal is to create
business solutions that are based on local infrastructure,
culture and needs, and that blend local expertise with
experiences from the U.S. health care industry.
Amil. In 2012, UnitedHealthcare International acquired
Amil, which provides health and dental benefits to
over five million people and also operates 22 acute
hospitals, as well as specialty clinics, primary care, and
emergency services across Brazil, principally for the
benefit of its members. Amil’s patients are also treated
in its contracted provider network of 45,000 physicians
and other health care professionals, 3,300 hospitals and
12,000 laboratories and diagnostic imaging centers. Amil
offers a diversified product portfolio with a wide range of
product offerings, benefit designs, price points and values,
including indemnity products. Amil’s products include
various administrative services such as network access and
administration, care management and personal health
services and claims processing.
Other Operations. UnitedHealthcare International also
includes other diversified global health services business
with a variety of offerings for international customers,
2012 FORM 10-K
5
including:
• Network access and care coordination in the U.S. and
overseas;
• TPA products and services for health plans and TPAs;
• Brokerage services;
• Practice management services for care providers;
• Government and corporate consulting services for
improving quality and efficiency; and
• Global expatriate insurance solutions.
See Note 13 of Notes to the Consolidated Financial
Statements included in Item 8, “Financial Statements”
for additional information related to the revenues and
long-lived assets of the UnitedHealthcare International
operations.
Optum
Optum is a health services business serving the broad health
care marketplace including:
• Those who need care: the consumers and patients who
need the right support, information, resources and
products to achieve their health goals.
• Those who provide care: physicians and other care
providers, hospitals and clinical facilities seeking to
modernize in ways that enable the best patient care
and experience possible, delivered cost-effectively.
• Those who pay for care: insurers, employers and
government agencies devoted to ensuring that those
they sponsor receive high-quality care, administered
and delivered efficiently.
• Those who innovate for care: life sciences and
research focused organizations dedicated to
developing more effective approaches, enabling
technologies and medicines that improve the delivery
and quality of care.
Using advanced data, analytics and technology, 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:
• OptumHealth focuses on care management, integrated
care delivery, and consumer solutions, including
financial services;
• OptumInsight delivers operational services and support
and health information technology services; and
• OptumRx specializes in pharmacy services.
OptumHealtH
OptumHealth is a diversified health and wellness business
serving the physical, emotional and financial needs of
more than 61 million unique individuals and enabling
consumer health management and integrated 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
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6
UNITEDHEALTH GROUP
and well-being of populations.
OptumHealth offers its products on a risk basis, where it
assumes responsibility for health care costs in exchange for
a fixed monthly premium per individual served, and on an
administrative fee basis whereby it manages or administers
delivery of the products or services in exchange for a fixed
fee 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, DoD, Veterans Administration and other
federal procurement). As provider reimbursement models
evolve, care providers are emerging as a fourth market for
the health management, financial services and integrated
care delivery businesses.
OptumHealth is organized into three major operating
groups: Care Management, Integrated Care Delivery and
Consumer Solutions.
Care Management. Care Management includes Specialty
Networks and Health Management Solutions.
• Specialty Networks: Within Specialty Networks,
OptumHealth serves over 55 million people in
two primary ways: 1) creating access to networks
of provider specialists in the areas of behavioral
health management (e.g., mental health, substance
abuse), global well-being (e.g., international work/
life solutions), chronic physical health management
(e.g., chiropractic, physical therapy), and complex
medical conditions (e.g., transplant, infertility);
and 2) managing the care and health needs for
consumers through a variety of programs utilizing
predictive modeling, evidence-based clinical outcomes
management and peer support. Specialty Networks
addresses areas likely to have significant variation
in clinical practice, where a disciplined, evidence-
based approach can drive improved health outcomes
and reduced costs. These range from relatively
commonly accessed services (e.g., behavioral health
and chiropractic) to less common procedures such as
transplant, infertility, bariatric surgery and kidney
disease/end stage renal disease.
• Health Management Solutions: OptumHealth serves
more than 40 million people with population health
management solutions (e.g., care management
and advocacy, health and wellness, and complex
conditions including cancer, neonatal and maternity)
and decision support solutions (e.g., insurance choices
and treatment and health care provider options).
This comprehensive solution set empowers consumers
to take more control of their health and well-being
and enables their collaboration with specialty care
providers, which is critical to decisions that drive
medical costs, including hospitalization and surgery.
Integrated Care Delivery. Integrated Care Delivery is
defined by the types of care delivery support services
provided within OptumHealth’s two businesses:
Collaborative Care and Logistics Health, Inc. (LHI).
Collaborative Care is driven by the recognition that
the market is moving to a collaborative network
aligned around the concept of total population health
management and outcomes based reimbursement.
Collaborative Care’s local care delivery systems deploy
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. Collaborative Care’s complex population
management services augment primary care physicians
to deliver services outside of hospitals to vulnerable,
chronically ill populations. Collaborative Care also delivers
care to approximately 1 million people through a spectrum
of models ranging from medical clinics to contracts with
individual practice association networks. LHI designs and
implements mobile care delivery solutions, providing
occupational health, medical and dental readiness services,
treatments and immunization programs for the U.S.
military and U.S. Department of Health and Human Services
(HHS), as well as for many commercial companies.
Consumer Solutions. Consumer Solutions includes consumer
and marketing capabilities, such as distribution and
financial services.
• Distribution: Connextions is a growth, retention
and service solutions company meeting consumer
distribution needs in the health care market. Through
a combination of technology, campaign management
and customer service, Connextions has developed
a consumer relationship management and sales
distribution platform. Services offered include call
center support, software, data analysis, certified
insurance brokers and trained nurses, which allow
health care payers and providers to acquire, retain,
schedule, refer and manage large populations of
individual health care consumers. Connextions is also
an enabler of health insurance exchange solutions,
with private exchange business today.
• Financial Services: Dedicated solely to providing
financial solutions for 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., HSAs, flexible spending accounts),
OptumHealth’s tax-favored accounts enable individuals
to save money today and build health savings for
the future. Organizations rely upon OptumHealth
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 acquisitions) and financial risk protection
for third party payers and self-funded employers (e.g.,
comprehensive stop loss insurance coverage). Financial
services includes Optum Bank. As of December 31,
2012, Financial Services had $1.8 billion in customer
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assets under management and during 2012 processed
$66 billion in medical payments to physicians and other
health care providers.
health intelligence and are organized around hospital and
physician practice needs for:
• Financial Performance Improvement: Provides
2012 FORM 10-K
7
OptumInsIght
OptumInsight is a health care information, technology,
operational services and consulting company providing
software and information products, advisory consulting
services, and business process outsourcing services and
support 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, 2012, OptumInsight’s
products and services are used by four out of five hospitals,
tens of thousands of physician practices and other health
care facilities, approximately 300 health plans, nearly 400
global life sciences companies, and many government
agencies, as well as other UnitedHealth Group businesses.
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. OptumInsight’s aggregate
backlog at December 31, 2012 was $4.6 billion, of which
$2.7 billion is expected to be realized within the next 12
months. This includes $1.0 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. OptumInsight’s
aggregate backlog at December 31, 2011 was $4.0 billion.
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 market groups are care providers (e.g.,
physician practices and hospitals), commercial payers,
governments and life sciences.
Care Providers. The Provider Solutions businesses combine
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 drive financial
performance, meet compliance requirements and deliver
comprehensive revenue cycle management technology
and services, claims integrity and coding solutions,
and full business process outsourcing for hospitals and
physicians practices to drive higher net patient revenue
and lower operational costs;
• Quality Measurements and Compliance: Delivers
real-time medical necessity reviews and retrospective
appeals management services to more than 2,400
hospitals in all 50 states;
• Clinical Workflow and Connectivity: Provides high-
acuity and ambulatory clinical workflow, clinical
cost and performance analytics and benchmarks 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; and
• Accountable Care Solutions: Working with early
adopters of Accountable Care Organization models
to build the administrative, analytics, compliance,
and care management infrastructure to succeed in
outcomes-based payment models.
Commercial Payers. OptumInsight’s Payer Solutions group
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:
• Network Performance: Comprehensive offerings
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;
• Clinical Performance and Compliance: Services that
align clinical quality and performance with financial
outcomes for payers, such as Medicare risk adjustment
and CMS star rating system services and quality
improvement consulting;
• Operational Efficiency and Payment Integrity: A
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
improvement and automation, fraud and abuse, claims
payment accuracy and coordination of benefits; and
• Risk Optimization: Solutions help payers to grow and
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.
Governments. OptumInsight Government Solutions helps
state and federal governments improve the efficiency and
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UNITEDHEALTH GROUP
quality of health and human services programs by offering
a broad range of solutions including:
• Financial Management and Program Integrity:
Improves the accuracy and efficiency of provider
payments through prospective and retrospective
analysis of claims transactions, driving detection of
fraud and abuse and checking payment accuracy;
• Consulting: Provides policy and compliance consulting
including health policy advisory services; and
• Data and Analytics Technology and Systems Integration:
Measures and identifies opportunities for improvement
in cost, network performance, and care management
for populations of covered members. Government
Solutions builds and manages health care specific data
model and warehouse solutions for Federal and State
based programs and applies business intelligence to
analyze and drive decision making to improve cost,
clinical outcomes, and member satisfaction.
Life Sciences. OptumInsight’s 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. Life Sciences provides expertise in using real-
world evidence to support market access and positioning of
products, to deliver strategic regulatory services, to provide
insights into patient reported outcomes and to optimize
and manage risk to Life Sciences’ clients. Products include:
• Market Access and Reimbursement: Utilizes real-world
evidence to drive increased drug revenues and pricing
and reimbursements strategies;
• Health Economics Outcomes and Late Phase Research:
decreased commercialization costs through health
economics and outcomes research and late phase/Phase
IV research studies;
• Data and Informatics Services;
• Regulatory Consulting: Focuses on design and
execution of multi-national regulatory strategies
to help clients speed regulatory approval and
maintain compliance with dynamic regulations across
geographies;
• Epidemiology and Drug Safety: Designs and executes
epidemiology studies to understand detailed drug safety
profiles and build integrated plans to address safety
issues with regulators, providers, and patients; and
• Patient-Reported Outcomes: Drives collection and
understanding of patient reported outcomes to
inform comparative effectiveness research, patient
engagement and adherence, and population health
management.
OptumRx
OptumRx provides a full range of pharmacy benefit
management (PBM) services to more than 14 million
people nationwide, processing over 350 million adjusted
retail, mail and specialty drug prescriptions and managing
more than $25 billion in pharmaceutical spending
annually. Its PBM services include benefit plan design
and consultation, claims processing, manufacturer
rebate contracting and administration, retail pharmacy
network management services, mail order and specialty
pharmacy services, Medicare Part D services, and a variety
of clinical services, such as formulary management and
compliance, drug utilization review and disease and
drug therapy management services. The mail order and
specialty pharmacy fulfillment capabilities of OptumRx
are an important strategic component of its business,
providing patients with convenient access to maintenance
medications, offering a broad range of complex drug
therapies and patient management services for individuals
with chronic health conditions, and enabling OptumRx to
manage its clients’ drug costs through operating efficiencies
and economies of scale.
OptumRx provides PBM services to nearly all members
enrolled in the benefit plans that offer pharmacy benefits
of UnitedHealthcare’s Medicare & Retirement and
Community & State businesses and also serves a portion
of UnitedHealthcare’s Employer & Individual’s commercial
members. In 2013, OptumRx will in-source approximately
12 million of UnitedHealthcare’s commercial members
who currently receive PBM services from Express Scripts’
subsidiary, Medco Health Solutions, Inc. OptumRx also
provides PBM services to non-affiliated external clients,
including public and private sector employer groups,
insurance companies, Taft-Hartley Trust Funds, TPAs,
managed care organizations, Medicare-contracted plans,
Medicaid plans and other sponsors of health benefit plans
and individuals throughout the U.S. 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 U.S. federal and state as well as non-U.S. 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. 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 in the
first quarter of 2010 and, after being challenged, were
substantially upheld in a U.S. Supreme Court decision in
the second quarter of 2012. 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. U.S. 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,
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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,
state and international 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 Labor
(DOL), HHS 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.
The following outlines certain provisions of the Health
Reform Legislation that are currently effective, currently
effective with phased implementation or are expected to
take effect in the coming years.
Currently Effective: The Health Reform Legislation
mandated the expansion of dependant 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 outside of a plan’s network; and included
a requirement to provide coverage for preventive services
without cost to members (for non-grandfathered plans).
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.
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.
2012 FORM 10-K
9
In addition, as required under the Health Reform
Legislation, HHS established a federal premium rate review
process, which generally applies to proposed rate increases
equal to or exceeding 10%. 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 are
scheduled to become active under the Health Reform
Legislation in 2014. Under current regulations, the HHS
rate review process would apply only to health plans in the
individual and small group markets.
CMS reduced or froze benchmarks which affect our
Medicare Advantage reimbursements from CMS between
2009 and 2011, and in 2012, additional cuts to Medicare
Advantage benchmarks began to 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 continuing to be phased-in over the next one to
five 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.
CMS quality rating bonuses are paid to certain qualifying
plans for a three year period that began in 2012. Quality
bonuses are based upon STAR ratings at the local plan level,
as determined by CMS, and are dependent on numerous
factors, including member satisfaction and member
behavior in the context of obtaining preventive screens.
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 revenue 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.
Currently Effective with Phased Implementation: The
Health Reform Legislation also mandated consumer
discounts on brand name and 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 2012, the discount on
brand name prescription drugs was 50% while the discount
on generic prescription drugs was 14%.
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 to be levied on the insurance industry in 2014
increasing to $14.3 billion by 2018 with increasing annual
amounts thereafter), which is not deductible for income
tax purposes; a transitional reinsurance program ($25
billion over a three-year period), which will be funded by
a $5.25 per member per month fee (as currently estimated
by HHS), on all comprehensive lines of business (including
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UNITEDHEALTH GROUP
risk-based and self-insured) with only insurance plans for
individuals eligible for reinsurance recoveries; a permanent
risk adjustment program designed to promote stability
in the individual and small employer group marketplace
by transferring funds among competing plans based on
variance in risk populations; 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; all individual and small group plans must
provide certain essential health benefits, with member
cost-sharing limitations and no annual limits on essential
benefits coverage; establishment of state-based exchanges
for individuals and small employers as well as certain
CHIP eligibles; a temporary risk corridor program that
limits the losses and gains of insurers that offer products
on exchanges; introduction of plan designs based on set
actuarial values to increase comparability of competing
products on the exchanges and limit member cost-sharing
obligations; 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 U.S. 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 businesses, and certain aspects of
our Optum businesses. Our UnitedHealthcare Medicare
& Retirement, UnitedHealthcare Community & State and
OptumHealth 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.
Beginning in 2014, our commercial business may be subject
to audit related to the risk adjustment and reinsurance
data. See Note 12 of Notes to the Consolidated Financial
Statements included in Item 8, “Financial Statements” and
Item 1A, “Risk Factors” for a discussion of audits by CMS.
Our UnitedHealthcare reportable 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, our
UnitedHealthcare Military & Veterans business and certain
of Optum’s businesses hold contracts with federal agencies
including the DoD 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 acuity clinical workflow software, hearing
aid products, and clinical research activities, are subject
to regulation by the U.S. Food and Drug Administration
(FDA), 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
72212_Financials_CS55.indd 10
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(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. In January
2013, HHS issued its final regulations implementing the
ARRA amendments to HIPAA and updating the HIPAA
privacy, security and enforcement rules. 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 personally
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
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.
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. The National
Association of Insurance Commissioners (NAIC) has adopted
model regulations that, when implemented by states would
require certain governance practices substantially similar
to the Sarbanes-Oxley Act of 2002 and expand insurance
company and HMO risk and solvency assessment reporting.
We expect that states will adopt these or similar measures
over the next few years, expanding 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
2012 FORM 10-K
11
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 2013, 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,
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 TPA-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, appeals, grievances and payment of
claims, adequacy of health care professional networks, fraud
prevention, protection of consumer health information,
pricing and underwriting practice 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, UnitedHealthcare Medicare &
Retirement and certain Optum 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 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
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UNITEDHEALTH GROUP
recover assessments paid through full or partial premium
tax offsets.
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.
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
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.
Banking Regulation
Optum Bank is subject to regulation by federal banking
regulators, including the Federal Deposit Insurance
Corporation (FDIC), which performs annual examinations
to ensure that the bank is operating in accordance
with federal safety and soundness requirements, and
the Consumer Financial Protection Bureau, which may
perform periodic examinations to ensure that the bank
is in compliance with applicable consumer protection
statutes, regulations and agency guidelines. Optum Bank
is also subject to supervision and regulation by the Utah
State Department of Financial Institutions, which carries
out annual examinations to ensure that the bank is
operating in accordance with state safety and soundness
requirements and performs periodic examinations of
the bank’s compliance with applicable state banking
statutes, regulations and agency guidelines. In the event
of unfavorable examination results from any of these
agencies, the bank could be subjected to increased
operational expenses and capital requirements, enhanced
governmental oversight and monetary penalties.
inteRnational Regulation
Certain of our businesses and operations are international
in nature and are 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,
labor, 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. We have recently
acquired and may in the future acquire or commence
additional businesses based outside of the United States,
increasing our exposure to non-U.S. regulatory regimes. For
example, our acquisition of Amil subjects us to Brazilian
laws and regulations affecting the managed care and
insurance industries and regulation by Brazilian regulators
including the national regulatory agency for private health
insurance and plans, the Agência Nacional de Saúde
Suplementar (ANS), whose approach to the interpretation,
implementation and enforcement of industry regulations
could differ from the approach taken by U.S. regulators. For
more information about the Amil acquisition, see Note 6
of Notes to the Consolidated Financial Statement included
in Item 8, “Financial Statements.” In addition, our non-U.S.
businesses and operations are also subject to U.S. laws that
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2012 FORM 10-K
13
the level and quality of products and services; care
delivery; network and clinical management 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, 2012, we employed approximately
133,000 individuals. We believe our employee relations are
generally positive.
regulate the conduct and activities of U.S.-based businesses
operating abroad, such as the Foreign Corrupt Practices Act.
Audits And investigAtions
We have been and may in the future become 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 (OIG), the Office of
Personnel Management, the Office of Civil Rights, the FTC,
U.S. Congressional committees, the U.S. Department of
Justice (DOJ), U.S. Attorneys, the Securities and Exchange
Commission (SEC), the Brazilian securities regulator, the
Comissão de Valores Mobiliários (CVM), the Internal
Revenue Service (IRS), the Brazilian federal revenue
service - the Secretaria da Receita Federal (SRF), the DOL,
the FDIC and other governmental authorities. Certain of
our businesses have been reviewed or are currently under
review, including for, among other things, compliance with
coding and other requirements under the Medicare risk-
adjustment model. Such government investigations, audits
and reviews 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. 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 while
retaining our current business.
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
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,
with respect to our Brazilian operations, several established
competitors in Brazil, and other enterprises that serve more
limited geographic areas. For our OptumRx businesses,
competitors include CVS Caremark Corporation, Express
Scripts, Inc. and Catamaran Corporation. 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 engagement and satisfaction;
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UNITEDHEALTH GROUP
EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth certain information regarding our executive officers as of February 6, 2013, including the business
experience of each executive officer during the past five years:
Name
Stephen J. Hemsley
David S. Wichmann
Gail K. Boudreaux
Eric S. Rangen
Larry C. Renfro
Marianne D. Short
Lori Sweere
Age
Position
60
50
52
56
59
61
54
President and Chief Executive Officer
Executive Vice President and Chief Financial Officer of UnitedHealth
Group and President of UnitedHealth Group Operations
Executive Vice President of UnitedHealth Group and Chief Executive
Officer of UnitedHealthcare
Senior Vice President and Chief Accounting Officer
Executive Vice President of UnitedHealth Group and Chief Executive
Officer of Optum
Executive Vice President and Chief Legal Officer
Executive Vice President of Human Capital
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 2008, 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 2008
to April 2008, Mr. Wichmann served as Executive Vice
President of UnitedHealth Group and President of the
Commercial Markets Group (now UnitedHealthcare
Employer & Individual).
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 2008 to April 2008.
Mr. Rangen is Senior Vice President and Chief Accounting
Officer of UnitedHealth Group and has served in that
capacity since January 2008.
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
2008 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. Short is Executive Vice President and Chief Legal Officer
of UnitedHealth Group and has served in that capacity since
January 2013. Prior to joining UnitedHealth Group, Ms.
Short served as the Managing Partner at Dorsey & Whitney
LLP from 2008 to 2012.
Ms. Sweere is Executive Vice President of Human Capital of
UnitedHealth Group and has served in that capacity since
January 2008.
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
72212_Financials_CS55.indd 14
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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.
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 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
2012 FORM 10-K
15
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 Health Reform Legislation established
minimum medical loss ratios for certain health plans and
authorized HHS to maintain an annual price increase review
process for commercial health plans, which could make it
more difficult for us to price our products competitively.
See the risk factor below relating to health care reform
for further discussion of these provisions. In addition,
our OptumHealth Collaborative Care business negotiates
capitation arrangements with commercial third party
payers. Under the typical capitation arrangement, the
health care provider receives a fixed percentage of a third
party payer’s premiums to cover all or a defined portion
of the medical costs provided to the capitated member. If
we fail to accurately predict, price for or manage the costs
of providing care to our capitated members, our results of
operations could be materially and adversely affected.
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,
many factors may cause actual costs to exceed what was
estimated and reflected in premiums or bids. These factors
may include medical cost inflation, increased use of services,
increased cost of individual services, natural catastrophes
or other large-scale medical emergencies, 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 and insured
population characteristics. Relatively small differences
between predicted and actual medical costs or utilization
72212_Financials_CS55.indd 15
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UNITEDHEALTH GROUP
rates as a percentage of revenues can result in significant
changes in our financial results. For example, if our 2012
medical costs for commercial insured products were 1%
higher, without proportionally higher revenues from such
products, our annual net earnings for 2012 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 UnitedHealthcare and Optum businesses
hold or provide services related to government contracts
and are subject to U.S. federal and state and non-
U.S. self-referral, anti-kickback, medical necessity, risk
adjustment, false claims, debt collection and other laws
and regulations governing government contractors and
the use of government funds. In addition, under state
guaranty fund laws, certain health, life and accident
insurance companies and, in certain cases, HMOs 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 in
these states, which would expose our business to the risk of
insolvency of a competitor in these states.
Certain of our Optum businesses are also subject to
regulatory and other risks and uncertainties, some of which
are distinct from those faced by our insurance and HMO
subsidiaries, including, for example, FDA regulations, state
telemedicine regulations and state corporate practice of
medicine doctrines and fee-splitting rules, some of which
could impact our relationships with physicians, hospitals and
customers. 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.
The laws and rules governing our business and
interpretations of those laws and rules are subject to
frequent change, and the integration into our businesses
of entities that we acquire may affect the way in which
existing laws and rules apply to us. The broad latitude
given to the agencies administering, interpreting and
enforcing current and future regulations governing our
business could force us to change how we do business,
restrict revenue and enrollment growth, increase our health
care and administrative costs and capital requirements,
or expose us to increased liability in courts for coverage
determinations, contract interpretation and other actions.
We must also obtain and maintain regulatory approvals
to market many of our products, increase prices for certain
regulated products and complete certain acquisitions
and dispositions or integrate 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 by the federal government,
and a number of states have enhanced (or are proposing
to enhance) their rate review processes. In addition,
geographic and product expansions may be subject to
state and federal regulatory approvals. Delays in obtaining
necessary approvals or our failure to obtain or maintain
adequate approvals could materially and adversely affect
our results of operations, financial position and cash flows.
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, labor relations, fraud and corruption
present compliance requirements and uncertainties for
us that are different from those faced by U.S.-based
businesses. We have recently acquired and may in the
future acquire or commence additional businesses based
outside of the United States. For example, our acquisition
of Amil in October 2012 subjects us to Brazilian laws and
regulations affecting the managed care and insurance
industries, which vary from comparable U.S. laws and
regulations, and regulation by Brazilian regulators,
whose approach to the interpretation, implementation
and enforcement of industry regulations could differ
from the approach taken by U.S. regulators. For more
information about the Amil acquisition, see Note 6 of
Notes to the Consolidated Financial Statements included
in Item 8, “Financial Statements.” In addition, our non-U.S.
businesses and operations are also subject to U.S. laws that
regulate the conduct and activities of U.S.-based businesses
operating abroad, such as the Foreign Corrupt Practices
Act. Our failure to comply with U.S. or non-U.S. laws and
regulations governing our conduct outside the United
States or to establish constructive relations with non-U.S.
regulators could adversely affect our ability to market our
products and services, or to do so at targeted margins,
which may have a material adverse effect on our business,
financial condition and results of operations.
72212_Financials_CS55.indd 16
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The health care industry is also regularly subject to
negative publicity, including as a result of governmental
investigations, adverse media coverage and political debate
surrounding industry regulation. Negative publicity may
adversely affect our stock price, damage our reputation in
various markets or foster an increasingly active regulatory
environment, which, in turn, could further increase the
regulatory burdens under which we operate and our costs
of doing business.
For a discussion of various laws and regulations that
impact our businesses, see Item 1, “Business - Government
Regulation.”
The implementation of the Health Reform Legislation and
other reforms could materially and adversely affect the
manner in which we conduct business and our results of
operations, financial position and cash flows.
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. 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), subject to state specific exceptions. Companies
with medical loss ratios below these targets are required
to rebate ratable portions of their premiums to their
customers annually. The medical loss ratios that determine
the 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
2012 FORM 10-K
17
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%, although the rules expected to set forth the basis
for calculating this medical loss ratio have not yet been
issued. Some state Medicaid programs are also imposing
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 minimum
medical loss ratios. Depending on our calculations of the
medical loss ratios for each of our plans 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, 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 subsidies for premiums
and cost-sharing reductions 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 individuals and small employers outside of the
exchanges could result in disruptions in local health care
markets and our results of operations, financial position
and cash flows could be materially and adversely affected.
The Health Reform Legislation also includes specific
reforms for the individual and small group marketplace,
scheduled to take effect in January 2014, including adjusted
community rating requirements (which include elimination
of health status and gender rating factors), essential health
benefit requirements (expected to result in benefit changes
for many members) and actuarial value requirements likely
to result in expanded benefits or reduced member cost
sharing (or a combination of both) for some policyholders.
Although HHS issued proposed regulations related to these
provisions in late 2012, the federal regulations are not
yet final and most states have not issued implementing
regulations or guidance with respect to these provisions.
Depending on the timing and outcome of the final federal
regulations and required state regulations or guidance,
there could be disruptions in local health care markets and
our 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 adults covered by Medicaid,
until the Secretary of HHS determines that an insurance
exchange is operational in a given state, scheduled for
January 2014, and for children covered by Medicaid or CHIP,
through federal fiscal year 2019. States with, or projecting,
a budget deficit may apply for an exception to the MOE
72212_Financials_CS55.indd 17
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UNITEDHEALTH GROUP
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 results of operations,
financial position and cash flows.
Under the U.S. Supreme Court’s June 2012 decision, state
participation in the Health Reform Legislation’s Medicaid
expansion is voluntary. Several states have indicated
they may not expand their Medicaid programs based on
concerns over costs when expanded federal funding pares
down, starting in 2017. The extent to which states expand
their Medicaid programs, or discontinue current expansion
programs, could adversely impact our Medicaid enrollment
levels, which could in turn materially and adversely affect
our 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 essential health benefit
requirements and phased-in closing of the coverage gap
for Medicare Part D participants), the prohibition of pre-
existing condition exclusions and the implementation
of adjusted community rating requirements. The annual
insurance industry assessment ($8 billion to be levied on
the insurance industry in 2014 increasing to $14.3 billion
by 2018 with increasing annual amounts thereafter),
which is not deductible for income tax purposes, and the
temporary reinsurer’s fee ($25 billion to be levied on all
commercial lines of business including insured and self-
funded arrangements, over a three-year period starting
in 2014), will increase our operating costs. Premium
increases or benefit reductions will be necessary to offset
the impact these and other provisions will have on our
medical and operating costs. These premium increases
are often subject to state regulatory approval, and 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 and New York. 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%. The
regulations further require commercial health plans in the
individual and small group markets to provide to the states
and HHS extensive information supporting rate increases. If
we are not able to secure approval for adequate premium
increases to offset increases in our cost structure or if
consumers forego coverage as a result of such premium
increases, our margins, 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.
We also 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 we expect or we are unable to attract
these new individuals to our UnitedHealthcare offerings, or
if the demand for our Optum businesses does not increase.
Future regulatory or legislative action could further
impact the implementation of Health Reform Legislation.
For example, Congress may attempt to amend or withhold
the funding necessary to implement the Health Reform
Legislation. 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.
New federal or state laws and regulations could force
us to materially change how we do business and any
amendment, withholding of funding, extended delays in
the issuance of necessary federal and state implementing
regulations or guidance or other uncertainty regarding the
Health Reform Legislation could materially and adversely
impact our ability to capitalize on the opportunities
presented by the legislation or cause us to incur additional
costs of compliance or reverse some of the changes we
have already implemented. 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
legislative and regulatory 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, audits and government investigations that
could materially and adversely affect our business, 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, CHIP and our TRICARE West contract
with the DoD, 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,
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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. 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. For example, CMS has in the past reduced or
frozen Medicare Advantage benchmarks and additional
cuts to Medicare Advantage benchmarks are expected in
the next few years. 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. 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 results of operations,
financial position and cash flows.
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 in 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.
Many of the government health care coverage programs
in which we participate are subject to the prior satisfaction
of certain conditions or performance standards or
benchmarks. For example, as part of the Health Reform
Legislation, CMS has developed a system entitling plans
that meet certain quality ratings at the local plan level to
2012 FORM 10-K
19
various quality bonus payments. In addition, under the
Health Reform Legislation, Congress authorized CMS and
the states to implement MME managed care demonstration
programs to serve dually eligible beneficiaries to improve
the coordination of their care. Health plan participation in
these demonstration programs is subject to CMS approval
of specified care delivery models and the satisfaction of
conditions to participation, including meeting certain
performance requirements. Any changes in standards or
care delivery models that apply to government health care
programs, including Medicare, Medicaid and the MME
demonstration programs for dually eligible beneficiaries,
or our inability to meet government performance
requirements or to match the performance of our
competitors could result in limitations to our participation
in or exclusion from these or other government programs,
which in turn could materially and adversely affect our
results of operations, financial position and cash flows.
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, risk-sharing provisions based on a comparison of
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. CMS
and the Office of Inspector General for HHS periodically
perform risk adjustment data validation (RADV) audits
of selected Medicare health plans to validate the coding
practices of and supporting documentation maintained by
health care providers, and certain of our local plans have
been audited. Such audits have in the past resulted and
could in the future result in retrospective adjustments to
payments made to our health plans, fines, corrective action
plans or other adverse action by CMS. In February 2012,
CMS published a final RADV audit and payment adjustment
methodology. The methodology contains provisions
allowing retroactive contract level payment adjustments for
the year audited, beginning with 2011 payments, using an
extrapolation of the “error rate” identified in audit samples
and, for Medicare Advantage plans, after considering a
fee-for-service (FFS) “error rate” adjuster that will be used
in determining the payment adjustment. Depending on the
plans selected for audit, if any, and the error rate found in
those audits, if any, potential payment adjustments could
have a material adverse effect on our results of operations,
financial position and cash flows.
We have been and may in the future become involved in
various governmental investigations, audits, reviews and
assessments. These include routine, regular and special
investigations, audits and reviews by CMS, state insurance
and health and welfare departments, state attorneys
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UNITEDHEALTH GROUP
general, the OIG, the Office of Personnel Management,
the Office of Civil Rights, the FTC, U.S. Congressional
committees, the DOJ, U.S. Attorneys, the SEC, the CVM, the
IRS, the SRF, the DOL, the FDIC and other governmental
authorities. Certain of our businesses have been reviewed
or are currently under review, including for, among other
things, compliance with coding and other requirements
under the Medicare risk-adjustment model. Such
investigations, audits or reviews sometimes arise out of or
prompt claims by private litigants or whistleblowers that,
among other things, we failed to disclose certain business
practices or, as a government contractor, submitted false
claims to the government. Governmental investigations,
audits, reviews and assessments could expand to subjects
beyond those targeted by the original investigation, audit,
review, assessment or private action and could lead to
government actions, which could 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, any of which could
have a material adverse effect on our business, results of
operations, financial position and cash flows. See Note 12
of Notes to the Consolidated Financial Statements included
in Item 8, “Financial Statements” for a discussion of certain
of these matters.
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 privacy and security laws,
regulations and requirements may result in increased
operating costs, and may constrain our ability to manage
our business model. For example, final HHS regulations
released in January 2013 implementing the ARRA
amendments to HIPAA may further restrict our ability to
collect, disclose and use sensitive personal information
and may impose additional compliance requirements on
our business. In addition, HHS has announced that it will
continue its audit program to assess HIPAA compliance
efforts by covered entities. 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 and business,
including mandatory disclosure to the media, significant
increases in the cost of managing and remediating privacy
or security incidents and material fines, penalties and
litigation awards, among other consequences, any of which
could have a material and adverse effect on our results of
operations, financial position and cash flows.
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,
physicians, pharmacies, customers and consumers. OptumRx
also conducts business as a mail order pharmacy and
specialty pharmacy, which subjects it to extensive federal,
state and local laws and regulations. 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.
Our PBM businesses would also be materially and
adversely affected by an inability to contract on favorable
terms with pharmaceutical manufacturers and other
suppliers, and could face potential claims in connection
with purported errors by our mail order or specialty
pharmacies, including in connection with the risks inherent
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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 recently began to
transition pharmacy benefit management for approximately
12 million of its commercial members, including pharmacy
claims adjudication and customer service, from Express
Scripts’ subsidiary, Medco Health Solutions, Inc., to OptumRx.
If our customers are not satisfied with our pharmacy
benefit management services as a result of this transition,
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 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 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, with
respect to our Brazilian operations, several established
competitors in Brazil, and other enterprises that serve more
limited geographic areas. For our OptumRx businesses,
competitors include CVS Caremark Corporation, Express
Scripts, Inc. and Catamaran Corporation. Our OptumHealth
and OptumInsight reportable 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
2012 FORM 10-K
21
reputation; superior supplier or health care professional
arrangements; better 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 among our competitors and suppliers (including
hospitals, physician groups and other care professionals).
Consolidation may make it more difficult for us to retain
or increase our customer base, improve the terms on
which we do business with our suppliers, or 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 or 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
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, accountable
care organizations (ACOs), practice management
companies, which aggregate physician practices for
administrative efficiency and marketing leverage, 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. Such organizations or groups of physicians
may compete directly with us, which may impact our
relationships with these providers or 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
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22
UNITEDHEALTH GROUP
adversely affected. In addition, 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.
We have capitation arrangements with some physicians,
hospitals and other health care providers. 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 included in Item 8,
“Financial Statements.”
The success of certain Optum businesses, particularly
Collaborative Care, 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, or to adequately price their contracts
with these third party payers, 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.
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
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, such as medical malpractice by health care
practitioners who are employed by us, have contractual
relationships with us, or serve as providers to our managed
care networks), contract and labor disputes, tax claims 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. In addition,
we periodically acquire businesses or commence operations
in jurisdictions outside of the United States, where
contractual rights, tax positions and applicable regulations
may be subject to interpretation or uncertainty to a
greater degree than in the United States, and therefore
subject to dispute by customers, government authorities or
others. 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 included in Item 8,
“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
72212_Financials_CS55.indd 22
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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.
Any failure by us to successfully manage our strategic
alliances or complete, manage or integrate acquisitions
and other significant strategic transactions 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. For
example, we have a strategic alliance with AARP under
which we provide AARP-branded Medicare Supplement
insurance to AARP members and other AARP-branded
products and services to both AARP members and non-
members. If we fail to meet the needs of AARP and its
members, including by developing additional products and
services, pricing our products and services competitively
or responding effectively to applicable federal and state
regulatory changes, our alliance with the AARP could be
damaged or terminated, which in turn could adversely
impact our reputation, business and results of operations.
Further, 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 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.
As we continue to expand our business outside the
United States, acquired foreign businesses, such as Amil,
will present challenges that are different from those
presented by acquisitions of domestic businesses, including
adapting to new markets, business, labor and cultural
practices and regulatory environments that are materially
different from what we have experienced in our U.S.
operations. For more information on the Amil acquisition,
see Note 6 of Notes to the Consolidated Financial
Statements included in Item 8, “Financial Statements.”
Adapting to these challenges could require us to devote
significant senior management and other resources to the
acquired businesses before we realize anticipated benefits
2012 FORM 10-K
23
or synergies from the acquired businesses. These challenges
vary widely by country and may include political instability,
government intervention, discriminatory regulation, and
currency exchange controls or other restrictions that could
prevent us from transferring funds from these operations
out of the countries in which our acquired businesses
operate or converting local currencies that we hold
into U.S. dollars or other currencies. If we are unable to
successfully manage our foreign acquisitions, our business,
prospects, results of operations and financial position could
be materially and adversely affected.
Additionally, foreign currency exchange rates and
fluctuations may have an impact on our shareholders’
equity from period to period, which could adversely affect
our debt to debt-plus-equity ratio, and the future costs
of or revenues and cash flows from our international
operations, and any measures we may implement to reduce
the effect of volatile currencies may be costly or ineffective.
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 were 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. 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.
Unfavorable economic conditions could materially and
adversely affect our revenues and our results of operations.
Unfavorable economic conditions may impact demand
for certain of our products and services. For example, high
unemployment rates have caused and could continue to
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24
UNITEDHEALTH GROUP
cause lower enrollment or lower rates of renewal in our
employer group plans and our non-employer individual
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
adversely impact our ability to increase premiums or result
in the cancellation by certain customers of our products
and services. 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 be implemented retrospectively to payments
already negotiated and/or received from the government
and could materially and adversely affect our 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, 2012. 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 could 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 $36.0 billion
as of December 31, 2012, representing 44% of our total
consolidated 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 our debt covenants.
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
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technology initiatives and recently enacted regulations,
changes in our system platforms and integration of
new business acquisitions, we periodically consolidate,
integrate, upgrade and expand 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, uncertain and rapidly evolving U.S. federal
and state, non-U.S. and international laws and regulations
related to the health information technology market may
present compliance challenges 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
2012 FORM 10-K
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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
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 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.
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
72212_Financials_CS55.indd 25
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26
UNITEDHEALTH GROUP
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 we own and lease real properties. Our
various reportable 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 included in Item 8, “Financial Statements.”
ITEM 4.
Mine Safety Disclosures
N/A
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,
2013, there were 15,204 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:
2013
First quarter
(through February 6, 2013)
High
$57.83
Low
$51.36
Cash
Dividends
Declared
$0.2125
2012
First quarter
Second quarter
Third quarter
Fourth quarter
2011
First quarter
Second quarter
Third quarter
Fourth quarter
$59.43
$60.75
$59.31
$58.29
$49.82
$53.78
$50.32
$51.09
$0.1625
$0.2125
$0.2125
$0.2125
$45.75
$52.64
$53.50
$51.71
$36.37
$43.30
$41.27
$41.32
$0.1250
$0.1625
$0.1625
$0.1625
DIVIDEND POLICY
In June 2012, our Board of Directors increased our cash
dividend on common stock to an annual dividend rate of
$0.85 per share, paid quarterly. Since May 2011, we had
paid an annual cash dividend on common stock of $0.65
per share, distributed quarterly. 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.
72212_Financials_CS55.indd 26
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2012 FORM 10-K
27
ISSUER PURCHASES OF EQUITY SECURITIES
Issuer Purchases of Equity Securities (a)
Fourth Quarter 2012
For the Month Ended
October 31, 2012
November 30, 2012
December 31, 2012
Total
Total Number
of Shares
Purchased
(in millions)
—
—
9
9
Average Price
Paid per Share
$
$
—
—
54
54
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
Maximum Number
of Shares That May
Yet Be Purchased
Under The Plans
or Programs
(in millions)
—
—
9
9
(in millions)
94
94
85
(a) In November 1997, our Board of Directors adopted a share repurchase program, which the Board evaluates periodically.
In June 2012, the Board renewed and expanded 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.
UNREGISTERED SALE OF EQUITY SECURITIES
On November 2, 2012, we issued and sold, in reliance on
Section 4(a)(2) of the Securities Act of 1933, as amended,
8 million shares of our common stock to CSHG 1122
FUNDO DE INVESTIMENTO MULTIMERCADO - CRÉDITO
PRIVADO INVESTIMENTO NO EXTERIOR, a fund wholly
beneficially owned by Dr. Edson de Godoy Bueno, a
member of our Board of Directors. We received net
proceeds of approximately $470 million in cash and did
not pay underwriting or placement discounts or fees in the
transaction. Dr. Bueno has agreed to hold the shares for five
years from the date of sale, subject to certain exceptions.
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, 2012. 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
by us for the five-year period ended December 31, 2012. 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, 2007 in our common
stock and in each index, and that dividends were reinvested
when paid.
72212_Financials_CS55.indd 27
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28
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 Group
$120
$100
$80
$60
$40
$20
$0
12/07
12/08
12/09
12/10
12/11
12/12
UnitedHealth Group
S&P 500
Fortune 50
UnitedHealth Group
S&P 500 Index
Fortune 50 Group
12/07
12/08
$ 100.00
100.00
100.00
$
45.74
63.00
52.66
$
12/09
52.49
79.67
58.88
$
12/10
62.93
91.67
69.57
$
12/11
89.48
93.61
69.55
$
12/12
97.17
108.59
82.41
The stock price performance included in this graph is not necessarily indicative of future 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
$120
$100
$80
$60
$40
$20
$0
12/07
12/08
12/09
12/10
12/11
12/12
UnitedHealth Group
S&P 500
Peer Group
UnitedHealth Group
S&P 500 Index
Peer Group
12/07
12/08
$ 100.00
100.00
100.00
$
45.74
63.00
44.58
$
12/09
52.49
79.67
60.73
$
12/10
62.93
91.67
62.11
$
12/11
89.48
93.61
80.06
$
12/12
97.17
108.59
83.33
The stock price performance included in this graph is not necessarily indicative of future stock price performance.
72212_Financials_CS55.indd 28
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ITEM 6.
Selected Financial Data
FINANCIAL HIGHLIGHTS
(In millions, except percentages and per share data)
Consolidated operating results
Revenues
Earnings from operations
Net earnings
Return on shareholders’ equity (a)
Basic earnings per share attributable to
UnitedHealth Group common shareholders
Diluted earnings per share attributable to
UnitedHealth Group common shareholders
Cash dividends declared per common 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
Total commercial paper and long-term debt
Shareholders’ equity
Debt to debt-plus-equity ratio
2012 FORM 10-K
29
2012
For the Years Ended December 31,
2009
2010
2011
2008
$ 110,618
9,254
5,526
$ 101,862
8,464
5,142
$ 94,155
7,864
4,634
$ 87,138
6,359
3,822
$ 81,186
5,263
2,977
18.7%
18.9%
18.7%
17.3%
14.9%
$
5.38
$
4.81
$
4.14
$
3.27
$
2.45
5.28
0.8000
4.73
0.6125
4.10
0.4050
3.24
0.0300
2.40
0.0300
$ 7,155
(8,649)
471
$ 6,968
(4,172)
(2,490)
$ 6,273
(5,339)
(1,611)
$ 5,625
(976)
(2,275)
$ 4,238
(5,072)
(605)
$ 29,148
80,885
16,754
31,178
$ 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
35.0%
29.1%
30.1%
32.1%
38.1%
(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 in Item 7 and the Consolidated Financial Statements and Notes to the Consolidated Financial
Statements included in Item 8, “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
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 further below in this Item 7 and
in Item 1A, “Risk Factors.”
EXECUTIVE OVERVIEW
GEnEral
UnitedHealth Group is a diversified health and well-being
company dedicated to helping people live healthier lives
and making health care work better. We offer a broad
spectrum of products and services through two distinct
platforms: UnitedHealthcare, which provides health
care coverage and benefits services; and Optum, which
provides information and technology-enabled health
services. Further information on our business is included in
Item 1, “Business” and additional information on the our
segments can be found in this Item 7 and in Note 13 to the
Consolidated Financial Statements in Item 8, “Financial
Statements.”
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
72212_Financials_CS55.indd 29
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30
UNITEDHEALTH GROUP
for a one-year period, and we assume the economic risk
of funding our customers’ health care benefits and related
administrative costs. 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 relating to care management, consumer
engagement and support, distribution of benefits and
services, health financial services, operational services and
support, health care information technology and pharmacy
services. 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.
Pricing Trends. We seek to price our products consistent
with anticipated underlying medical trends, while balancing
growth, margins, competitive dynamics, cost increases
for the industry fees and tax provisions of Health Reform
Legislation and premium rebates at the local market level.
We endeavor to sustain a commercial medical care ratio in
a stable range for an equivalent mix of business. Changes in
business mix and Health Reform Legislation may impact our
premiums, medical costs and medical care ratio. Further,
we continue to expect premium rates to be under pressure
through continued market competition in commercial
products and government payment rates. Aggregating
UnitedHealthcare’s businesses, we expect the medical care
ratio to rise over time as we continue to grow in the senior
and public markets and participate in the health benefit
exchange market in 2014.
In the commercial market segment, we expect pricing to
continue to be highly competitive in 2013. We plan to hold
to our pricing disciplines and, considering the competitive
environment and persistently weak employment and new
business formation rates, we expect continued pressure on
our commercial risk-based product membership in 2013.
Additionally, self-insured membership as a percent of total
commercial membership is expected to continue to increase
at a modest pace in 2013 and beyond, due in part to the
emerging popularity of midsize employers moving to self-
funded arrangements.
In government programs, we are seeing continuing
rate pressures, and rate changes for some Medicaid
programs are slightly negative. Unlike in prior years, recent
Medicaid reductions have generally not been mitigated
by corresponding benefit reductions or care provider fee
schedule reductions by the state sponsor. We continue
to take a prudent, market-sustainable posture for both
new bids and maintenance of existing Medicaid contracts.
Medicare funding is similarly pressured; see further
discussion below in “Regulatory Trends and Uncertainties.”
We expect these factors to result in pressure on gross
margin percentages for our Medicare and Medicaid
programs in 2013.
In 2013, UnitedHealthcare created a new affordable
“Basic Plan” for Medicare Part D consumers and reclassified
its large 4 million member Medicare Part D plan to an
“Enhanced Plan” status with CMS. The change to Enhanced
Plan status changes the seasonal pattern of earnings to
later in the year with no material impact expected on full
year profitability.
Operating COsts
Medical Costs. Medical costs represent the costs of our
obligations for claims and/or benefits of our risk-based
insurance arrangements. 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.
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.
Medical Cost Trends. In 2012, we managed our commercial
medical cost trend to a level under 5.5 percent. In 2013,
we expect a slight increase in trend from 2012, albeit
with relatively consistent unit cost and utilization trends
compared to 2012. We expect our total trend will be driven
primarily by continued unit cost pressure from health care
providers as they try to compensate for soft utilization
trends and cross-subsidization pressure due to their
government reimbursement levels.
Underlying utilization trends declined significantly
in 2010 and increased modestly in 2011 and 2012. Use
of outpatient services has been the primary driver of
utilization trend increase, with inpatient utilization
declining. We also experienced an increase in prescription
drug costs in 2012 and expect that trend to continue due
to unit cost pressure and a trend towards expensive new
specialty drugs. As we move into 2013, we believe current
utilization trends are slightly below what we believe to be
normal utilization levels. The weak economic environment,
combined with our medical cost management, has had
a favorable impact on utilization trends. We believe
our alignment of progressive benefit designs, consumer
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2012 FORM 10-K
31
engagement, clinical management, pay-for-performance
reimbursement programs for care providers and network
resources is favorably controlling medical and pharmacy
costs, enhancing affordability and quality for our customers
and members and helping to drive strong market response
and growth.
This trend 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,
providing growth opportunities for our Optum business
platform.
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 or an increase in the delivery of
medical services on an integrated basis may impact our
operating costs and operating cost ratio.
Other Business trends
Our businesses participate in the U.S., Brazilian and certain
other health economies. In the U.S., health care spending
comprises approximately 18% of gross domestic product
and has grown consistently for many years. We expect
overall spending on health care to continue to grow in
the future, due to inflation, medical technology and
pharmaceutical advancement, regulatory requirements,
demographic trends in the 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 regulatory changes, including
in the U.S. enacted health care reforms, which could also
impact our results of operations.
Delivery System and Payment Modernization. The market
is changing based on demographic shifts, new regulations,
political forces and both payer and patient expectations.
These factors are creating 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. Health plans and care providers are being
called upon to work together to close gaps in care and
improve the overall care for people, improve the health
of a population and reduce the cost of care. The focus
on delivery system modernization and payment reform
is critical and the alignment of incentives between key
constituents remains an important theme. We have
seen increased participation in incentive-based payment
models such as pay for performance, shared savings,
bundled/episode payment and Patient-Centered Medical
Home models (PCMHs). We also have seen continued
development and deployment of risk-based accountable
care models designed to modernize local delivery systems
by better coordinating care, reducing the fragmentation
of treatments between multiple care providers in the
current system, limiting unnecessary hospital admissions
and readmissions, focusing on preventive care, breaking
down reimbursement and treatment “silos,” and improving
quality and outcomes.
Government Reliance on Private Sector. The government,
as a benefit sponsor, has been increasingly relying on
private sector solutions. We expect this trend to continue
as we believe the private sector provides a more flexible,
better managed, higher quality health care experience than
do traditional passive indemnity programs typically used in
governmental benefit programs.
States are struggling to balance unprecedented budget
pressures with increases in their Medicaid expenditures.
At the same time, many are expanding their interest in
managed care with particular emphasis on consumers
who have complex and expensive health care needs. More
and more, Medicaid managed care is being viewed as an
effective method to improve quality and manage costs.
Additionally, there are more than nine million individuals
eligible for both Medicare and Medicaid. Dually eligible
beneficiaries typically have complex conditions with costs of
care that are far higher than a typical Medicare or Medicaid
beneficiary. While these individuals’ health needs are more
complex and more costly, they have historically been in
unmanaged environments. This provides UnitedHealthcare
an opportunity to integrate Medicare and Medicaid
financing to fund efforts to optimize the health status
of this frail population through close coordination of
care. As of December 31, 2012, UnitedHealthcare served
more than 250,000 members in legacy dually eligible
programs through Medicare Advantage and SNPs. In 2013,
UnitedHealthcare Community & State will help implement
Ohio’s MME program, one of the first in the country under
the new CMS design.
regulatOry trends and uncertainties
Following is a summary of management’s view of the trends
and uncertainties related to some of the key provisions of
the Health Reform Legislation and other regulatory items;
for additional information regarding the Health Reform
Legislation and Regulatory Trends and Uncertainties, see
Item 1, “Business - Government Regulation” and Item 1A,
“Risk Factors.”
Commercial Rate Increase Review. The Health Reform
Legislation 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% and
clarified that HHS review will not supersede existing state
review and approval procedures. Premium rate review
legislation (ranging from new or enhanced rate filing
requirements to prior approval requirements) has been
introduced or passed in more than half of the states as of
the date of this report.
The competitive forces common in our markets do not
support unjustifiable rate increases. We have experienced
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32
UNITEDHEALTH GROUP
and expect to continue to experience a tight, competitive
commercial pricing environment. Further, our rates and rate
filings are developed using methods consistent with the
standards of actuarial practices. We anticipate requesting
rate increases above 10% in a number of markets due to
the combination of medical cost trends and the incremental
costs of health care reform. We have begun to experience
greater regulatory challenges to appropriate premium rate
increases in several states, including California and New
York. 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 in the
commercial health benefits business.
Medicare Advantage Rates and Minimum Loss Ratios.
Medicare Advantage pricing benchmarks have been
cut over the last several years and additional cuts were
implemented in 2012, with changes to continue to be
phased in over the next one to five years (benchmarks
will ultimately range from 95% of Medicare fee-for-
service rates in high cost areas to 115% in low cost areas),
depending on the level of benchmark reduction in a
county. Additionally, Congress passed the Budget Control
Act of 2011, which as amended by the American Taxpayer
Relief Act of 2012, would trigger automatic across-the-
board budget cuts (sequestration), including a reduction in
outlays for Medicare starting in March 2013, absent further
Congressional action. Further, beginning in 2014, Medicare
Advantage plans will be required to have a minimum
medical loss ratio of 85%. CMS has not yet issued guidance
as to how this requirement will be calculated for Medicare
Advantage plans.
A significant portion of our network contracts are
tied to Medicare reimbursement levels. However, future
Medicare Advantage rates may be outpaced by underlying
medical cost trends, placing continued importance on
effective medical management and ongoing improvements
in administrative costs. There are a number of annual
adjustments we can and are making to our operations,
which may partially offset any impact from these rate
reductions. For example, we 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. The expanded stars bonus program is set to
expire in 2014. In 2015, quality bonus payments will only be
paid to 4 and 5 star plans per PPACA (compared to current
bonuses that are available to certain qualifying plans rated
3 stars or higher). Approximately 60% and 10% of our
current Medicare Advantage members are enrolled in plans
that will be rated 3.5 stars or higher and 4 stars or higher,
respectively for the 2014 payment year based on scoring
released by CMS in October 2012. Updated scores, to be
released in October 2013, will determine what portion of
our Medicare Advantage membership will reside in a 4
star or 5 star plan and qualify for quality bonus payments
in 2015. Although we are dedicating substantial resources
to improving our quality scores and star ratings, if we are
unable to significantly increase the level of membership
in plans with a rating of 4 stars or higher for the 2015
payment year, our 2015 results of operations and cash flows
could be adversely impacted.
We also may be able to mitigate the effects of reduced
funding by increasing enrollment due, in part, to the
increasing number of people eligible for Medicare in
coming years. Compared to 2011, our 2012 Medicare
Advantage membership has increased by 400,000
consumers, or 18%, including acquisitions. 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
Supplement and Medicare Part D insurance offerings.
Industry Fees and Taxes. The Health Reform Legislation
includes an annual, non-deductible insurance industry tax
to be levied proportionally across the insurance industry
for risk-based products, beginning January 1, 2014. The
amount of the annual tax is $8 billion in 2014, $11.3
billion in 2015 and 2016, $13.9 billion in 2017 and $14.3
billion in 2018. For 2019 and beyond, the amount will be
equal to the annual tax for the preceding year increased
by the rate of premium growth for the preceding year.
The annual tax will be allocated based on the ratio of
an entity’s net premiums written during the preceding
calendar year to the total health insurance industry’s net
premiums written for any U.S. health risk-based products
during the preceding calendar year, subject to certain
exceptions. This tax will first be paid and expensed in
2014; however, because our policies are annual, we have
included the tax and other Health Reform Legislation
cost factors in our 2013 rate filings relating to 2014 rate
periods and any related premium increases for 2013 policies
that have coverage into 2014 will increase the amount of
premium recognized in 2013. Our effective income tax rate
will increase significantly in 2014 as a result of the non-
deductibility of these taxes.
With the introduction of state health insurance exchanges
in 2014, the Health Reform Legislation includes three
programs designed to stabilize the health insurance markets.
These programs are: a transitional reinsurance program;
a temporary risk corridors program; and a permanent risk
adjustment program. The transitional reinsurance program
is a temporary program which will be funded on a per capita
basis from all commercial lines of business including insured
and self-funded arrangements ($25 billion over a three-
year period beginning in 2014 of which $20 billion (subject
to increases based on state decisions) will fund the state
reinsurance pools and $5 billion funds the U.S. Treasury). The
terms of the specific reinsurance programs to be used in each
state are not yet known.
It is our intention to pass these taxes and fees on to
customers through increases in rates and/or decreases in
benefits, subject to regulatory approval.
72212_Financials_CS55.indd 32
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State-Based Exchanges and Coverage Expansion.
Effective in 2014, state-based exchanges are required to
be established for individuals and small employers with
enrollment processes scheduled to commence in October
of 2013. We expect to selectively respond and participate in
exchanges as they are introduced to the market. Our level
of participation in state-based exchanges will be driven
by how we assess each local market’s current and future
prospects, including how the exchange and its rules are
set up state-by-state and, our market position relative to
others in the market. Our participation will likely evolve
and change over time as the exchange markets mature.
Exchanges will create new market dynamics that could
impact our existing businesses, depending on the ultimate
member migration patterns for each market, its pace and its
impact on our established membership. For example, certain
small employers may no longer offer health benefits to their
employees and larger employers may elect to convert their
benefit plans from risk-based to self-funded programs.
2012 FORM 10-K
33
The Health Reform Legislation also provides for
expanded Medicaid coverage effective in January 2014.
These measures remain subject to implementation at the
state level.
Individual & Small Group Market Reforms. The Health
Reform Legislation includes several provisions that will
take effect on January 1, 2014 and are expected to alter
the individual and small group marketplace. Although HHS
issued proposed regulations in late 2012, these regulations
are not yet final. Key provisions include: (1) adjusted
community rating requirements, which will change how
individual and small group plans are rated in many states
and are expected to result in significant adjustments in
some policyholders’ rates during the transition period; (2)
essential health benefit requirements, which will result
in benefit changes for many individual and small group
policyholders and will also impact rates; and (3) actuarial
value requirements, which will significantly impact benefit
designs (e.g. member cost sharing requirements) and could
also significantly impact rates for some policyholders.
RESULTS SUMMARY
(in millions, except percentages and per share data)
Revenues:
Premiums
Services
Products
Investment and other income
For the Years Ended December 31,
2011
2010
2012
Increase/
(Decrease)
2012 vs. 2011
Increase/
(Decrease)
2011 vs. 2010
$ 99,728 $ 91,983 $ 85,405 $ 7,745
824
161
26
7,437
2,773
680
5,819
2,322
609
6,613
2,612
654
8% $ 6,578
794
290
45
12
6
4
8%
14
12
7
Total revenues
110,618
101,862
94,155
8,756
9
7,707
8
Operating costs:
Medical costs
Operating costs
Cost of products sold
Depreciation and amortization
Total operating costs
Earnings from operations
Interest expense
Earnings before income taxes
Provision for income taxes
Net earnings
80,226
17,306
2,523
1,309
74,332
15,557
2,385
1,124
68,841
14,270
2,116
1,064
101,364
93,398
86,291
9,254
(632)
8,622
(3,096)
8,464
(505)
7,959
(2,817)
7,864
(481)
7,383
(2,749)
$ 5,526 $ 5,142 $ 4,634 $
5,894
1,749
138
185
7,966
790
127
663
279
384
8
11
6
16
9
9
25
8
10
7% $
5,491
1,287
269
60
7,107
600
24
576
68
508
8
9
13
6
8
8
5
8
2
11%
Diluted earnings per share attributable to
UnitedHealth Group common shareholders
Medical care ratio (a)
Operating cost ratio
Operating margin
Tax rate
Net margin
Return on equity (b)
$
5.28 $
80.4%
15.6
8.4
35.9
5.0
18.7%
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 %
0.55
(0.4)%
0.3
0.1
0.5
—
(0.2)%
12% $
0.63
15%
0.2%
0.1
(0.1)
(1.8)
0.1
0.2%
(a) Medical care ratio is calculated as medical costs divided by premium revenue.
(b) 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.
72212_Financials_CS55.indd 33
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which carry comparatively higher operating costs, as well as
investments in the OptumRx pharmacy management services
and UnitedHealthcare Military & Veterans businesses.
Income Tax Rate
The increase in our effective income tax rate for 2012 was
due to the favorable resolution of various tax matters in
2011, which lowered the 2011 effective income tax rate.
RepoRtable segments
We have four reportable segments across our two business
platforms, UnitedHealthcare and Optum:
• UnitedHealthcare, which includes UnitedHealthcare
Employer & Individual, UnitedHealthcare Medicare &
Retirement, UnitedHealthcare Community & State, and
UnitedHealthcare International;
• OptumHealth;
• OptumInsight; and
• OptumRx.
See Note 13 of Notes to the Consolidated Financial
Statements included in Item 8, “Financial Statements” and
Item 1, “Business” for a description of how 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 care management and integrated
care delivery 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.
34
UNITEDHEALTH GROUP
SELECTED OPERATING PERFORMANCE AND
OTHER SIGNIFICANT ITEMS
The following represents a summary of select 2012 year-
over-year operating comparisons to 2011 and other 2012
significant items.
• Consolidated revenues increased 9% and
UnitedHealthcare revenues increased 8%.
• UnitedHealthcare medical enrollment grew by 6.4
million people, including 4.4 million people served in
Brazil as a result of the Amil acquisition; Medicare Part
D stand-alone membership decreased by 0.6 million
people.
• The consolidated medical care ratio of 80.4%
decreased 40 basis points.
• Earnings from operations increased 8% at
UnitedHealthcare and 14% at Optum.
• Net earnings of $5.5 billion and diluted earnings per
share of $5.28 increased 7% and 12%, respectively.
• $1.1 billion in cash was held by non-regulated entities
as of December 31, 2012.
• 2012 debt offerings amounted to $4 billion, including
the August debt exchange.
• Cash paid for acquisitions in 2012, net of cash assumed,
totaled $6.5 billion, including the fourth quarter
acquisition of approximately 65% of the outstanding
shares of Amil. We also plan to acquire an additional
25% of Amil in the first half of 2013. See Note 6
of Notes to the Consolidated Financial Statements
included in Item 8, “Financial Statements” for further
detail on Amil.
• We repurchased 57 million shares for $3.1 billion and
paid dividends of $0.8 billion.
2012 RESULTS OF OPERATIONS
COMPARED TO 2011 RESULTS
Consolidated FinanCial Results
Revenues
Revenue increases in 2012 were driven by growth in
the number of individuals served and premium rate
increases related to underlying medical cost trends in our
UnitedHealthcare businesses and growth in our Optum
health service and technology offerings.
Medical Costs
Medical costs increased in 2012 due to risk-based
membership growth in our public and senior markets
businesses, unit cost inflation across all businesses and
continued moderate increases in health system use,
partially offset by an increase in favorable medical
reserve development. Unit cost increases represented the
primary driver of our medical cost trend, with the largest
contributor being price increases to hospitals.
Operating Costs
The increases in our operating costs for 2012 were due
to business growth, including increases in revenues from
UnitedHealthcare fee-based benefits and Optum services,
72212_Financials_CS55.indd 34
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The following table presents reportable segment financial information:
(in millions, except percentages)
Revenues:
UnitedHealthcare
OptumHealth
OptumInsight
OptumRx
Total Optum
Eliminations
Consolidated revenues
Earnings from operations
UnitedHealthcare
OptumHealth
OptumInsight
OptumRx
Total Optum
For the Years Ended December 31,
2011
2010
2012
2012 FORM 10-K
35
Increase/
(Decrease)
2012 vs. 2011
Increase/
(Decrease)
2011 vs. 2010
$ 103,419 $ 95,336 $ 88,730 $ 8,083
8%
$ 6,606
7%
8,147
2,882
18,359
6,704
2,671
19,278
4,565
2,342
16,724
29,388
(22,189)
28,653
(22,127)
23,631
(18,206)
1,443 22
8
(5)
211
(919)
735
3
62 —
2,139
329
2,554
5,022
3,921
47
14
15
21
22
$ 110,618 $ 101,862 $ 94,155 $ 8,756
9%
$ 7,707
8%
$ 7,815 $ 7,203 $ 6,740 $
612
8%
$
463
7%
561
485
393
1,439
423
381
457
1,261
511
84
529
1,124
138 33
104 27
(64) (14)
178 14
(88) (17)
297 354
(72) (14)
12
137
Consolidated earnings from operations
$ 9,254 $ 8,464 $ 7,864 $
790
9%
$
600
8%
Operating margin
UnitedHealthcare
OptumHealth
OptumInsight
OptumRx
Total Optum
Consolidated operating margin
7.6%
6.9
16.8
2.1
4.9
8.4%
7.6%
6.3
14.3
2.4
4.4
8.3%
7.6%
11.2
3.6
3.2
4.8
8.4%
— %
0.6
2.5
(0.3)
0.5
0.1%
— %
(4.9)
10.7
(0.8)
(0.4)
(0.1)%
UnitedHealthcare
The following table summarizes UnitedHealthcare revenue by business:
(in millions, except percentages)
UnitedHealthcare Employer & Individual
UnitedHealthcare Medicare & Retirement (a)
UnitedHealthcare Community & State (a)
UnitedHealthcare International
For the Years Ended December 31,
2011
2012
2010
Increase/
(Decrease)
2012 vs. 2011
Increase/
(Decrease)
2011 vs. 2010
$ 46,596 $ 45,404 $ 42,550 $ 1,192
39,257
16,422
1,144
34,933
14,954
45
33,018
13,123
39
4,324 12
1,468 10
1,099 nm
3%
$ 2,854
1,915
1,831
6
7%
6
14
15
Total UnitedHealthcare revenue
$ 103,419 $ 95,336 $ 88,730 $ 8,083
8%
$ 6,606
7%
nm = not meaningful
(a) In the fourth quarter of 2012, UnitedHealthcare reclassified 75,000 dually eligible enrollees to UnitedHealthcare
Community & State from UnitedHealthcare Medicare & Retirement to better reflect how these members are served.
Earlier periods presented have been conformed to reflect this change.The following table summarizes the number of
individuals served by our UnitedHealthcare businesses, by major market segment and funding arrangement:
72212_Financials_CS55.indd 35
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36
UNITEDHEALTH GROUP
The following table summarizes the number of individuals served by our UnitedHealthcare businesses, by major market
segment and funding arrangement:
(in thousands, except percentages)
Commercial risk-based
Commercial fee-based
Total commercial
Medicare Advantage (a)
Medicaid (a)
Medicare Supplement (Standardized)
Total public and senior
International
December 31,
2011
2010
2012
Increase/
(Decrease)
2012 vs. 2011
Increase/
(Decrease)
2011 vs. 2010
9,340
17,585
9,550
16,320
9,405
15,405
(210)
1,265
(2)%
8
145
915
2%
6
26,925
25,870
24,810
1,055
4
1,060
2,565
3,830
3,180
9,575
4,425
2,165
3,600
2,935
8,700
—
2,005
3,385
2,770
8,160
400 18
6
230
8
245
875 10
160
215
165
540
—
4,425 nm
— —
4
8
6
6
7
Total UnitedHealthcare - medical
40,925
34,570
32,970
6,355 18%
1,600
5%
Supplemental Data:
Medicare Part D stand-alone
nm= not meaningful
4,225
4,855
4,530
(630) (13)%
325
7%
(a) Earlier periods presented above have been recast such that all periods presented reflect the dually eligible enrollment
change from Medicare Advantage to Medicaid discussed above.
Commercial risk-based membership decreased in 2012
due to a competitive market environment, conversions
to fee-based products by large public sector clients that
we retained and other decreases in the public sector.
In fee-based commercial products, the increase was
due to a number of new business awards and strong
customer retention. Medicare Advantage increased due to
strengthened execution in product design, marketing and
local engagement, which drove sales growth, combined
with the addition of 185,000 Medicare Advantage members
from 2012 acquisitions. Medicaid growth was due to a
combination of winning new state accounts and growth
within existing state customers, partially offset by a
fourth quarter market withdrawal from one product in a
specific region, affecting 175,000 beneficiaries. Medicare
Supplement growth was due to strong retention and
new sales. In our Medicare Part D stand-alone business,
membership decreased primarily as a result of the first
quarter 2012 loss of approximately 470,000 auto-assigned
low-income subsidy Medicare Part D beneficiaries, due
to pricing benchmarks for the government-subsidized
low income Medicare Part D market coming in below
our bids in a number of regions. International represents
commercial membership in Brazil added as a result of the
Amil acquisition in 2012.
UnitedHealthcare’s revenue growth in 2012 was primarily
due to growth in the number of individuals served,
commercial premium rate increases related to expected
increases in underlying medical cost trends and the impact
of lower premium rebates.
UnitedHealthcare’s earnings from operations for 2012
increased compared to the prior year primarily due to
the factors that increased revenues combined with an
improvement in the medical care ratio driven by effective
management of medical costs and increased favorable
medical reserve development. The favorable development
for 2012 was driven by lower than expected health system
utilization levels and increased efficiency in claims handling
and processing.
In March 2012, UnitedHealthcare Military & Veterans
was awarded the TRICARE West Region Managed Care
Support Contract. The contract, for health care operations,
includes a transition period and five one-year renewals at
the government’s option. The first year of operations is
anticipated to begin April 1, 2013. The base administrative
services contract is expected to generate a total of $1.4
billion in revenues over the five years.
Optum. Total revenues increased in 2012 due to business
growth and 2011 acquisitions at OptumHealth, partially
offset by a reduction in pharmacy service revenues related
to reduced levels of UnitedHealthcare Part D prescription
drug membership and related prescription volumes.
Optum’s earnings from operations and operating margin
for 2012 increased compared to 2011 due to improvements
in operating cost structure stemming from advances in
business simplification, integration and overall efficiency
and revenue growth in higher margin products.
The results by segment were as follows:
OptumHealth
Revenue increases at OptumHealth for 2012 were primarily
due to market expansion, including growth related to 2011
acquisitions in integrated care delivery, and strong overall
business growth.
Earnings from operations for 2012 and operating
margins increased compared to 2011 primarily due to gains
in operating efficiency and cost management as well as
increases in earnings from integrated care operations.
OptumInsight
Revenues at OptumInsight for 2012 increased primarily due
to the impact of growth in compliance services for care
72212_Financials_CS55.indd 36
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providers and payment integrity offerings for commercial
payers, which was partially offset by the June 2011
divestiture of the clinical trials services business.
The increases in earnings from operations and operating
margins for 2012 reflect an improved mix of services and
advances in operating efficiency and cost management.
OptumRx
The decreases in OptumRx revenues in 2012 were due
to the reduction in UnitedHealthcare Medicare Part D
plan participants. Intersegment revenues eliminated in
consolidation were $15.6 billion for 2012 and $16.7 billion
for 2011.
OptumRx earnings from operations and operating
margins for 2012 decreased primarily due to decreased
prescription volume in the Medicare Part D business and
investments to support growth initiatives, which were
partially offset by earnings contributions from specialty
pharmacy growth and greater use of generic medications.
Over the course of 2013, we will consolidate and manage
our commercial pharmacy benefit programs from Express
Scripts’ subsidiary, Medco Health Solutions, Inc. As a result
of this transition, OptumRx expects to add approximately
12 million members throughout 2013.
2011 RESULTS OF OPERATIONS
COMPARED TO 2010 RESULTS
Consolidated FinanCial Results
Revenues
The increases in revenues for 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 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.
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.
2012 FORM 10-K
37
Operating Costs
The increase in our operating costs for 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.
Income Tax Rate
The effective income tax rate for 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
UnitedHealthcare
UnitedHealthcare’s revenue growth for 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 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.
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 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 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 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 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.
72212_Financials_CS55.indd 37
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38
UNITEDHEALTH GROUP
The increases in earnings from operations and operating
margins for 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.
OptumRx
The increase in OptumRx revenues for 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 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.
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.
Our regulated subsidiaries generate significant cash flows
from operations and are subject to financial regulations
and standards in their respective jurisdictions. These
standards, among other things, require these subsidiaries
to maintain specified levels of statutory capital, as defined
by each jurisdiction, and restrict the timing and amount
of dividends and other distributions that may be paid to
their parent companies. In the United States, most of these
regulations and standards are generally consistent with
model regulations established by the NAIC. 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 2012, based on
the 2011 statutory net income and statutory capital and
surplus levels, the maximum amount of ordinary dividends
which could be paid by our U.S. regulated subsidiaries to
their parent companies was $4.6 billion.
In 2012, our regulated subsidiaries paid their parent
companies dividends of $4.9 billion, including $1.2 billion of
extraordinary dividends. In 2011, our regulated subsidiaries
paid their parent companies dividends of $4.5 billion,
including $1.1 billion 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, and return capital to our
shareholders through shareholder dividends and/or
repurchases of our common stock, depending on
market conditions.
72212_Financials_CS55.indd 38
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Summary of our Major Sources and Uses of Cash
(in millions)
Sources of cash:
Cash provided by operating activities
Proceeds from issuances of long-term debt and
commercial paper, net of repayments
Proceeds from common stock issuances
Net proceeds from customer funds administered
Other
Total sources of cash
Uses of cash:
Cash paid for acquisitions,
net of cash assumed and dispositions
Common stock repurchases
Purchases of investments,
net of sales and maturities
Purchases of property, equipment and
capitalized software, net of dispositions
Cash dividends paid
Net cash paid for customer funds administered
Acquisition of noncontrolling interest shares
Other
For the Years Ended December 31,
2011
2010
2012
2012 FORM 10-K
39
Increase/
(Decrease)
2012 vs. 2011
Increase/
(Decrease)
2011 vs. 2010
$ 7,155 $ 6,968 $ 6,273
$
187
$ 695
4,567
1,078
—
—
346
381
37
391
94
272
974
20
12,800
8,123
7,633
4,221
697
(37)
(391)
(6,280)
(3,084)
(1,459)
(2,994)
(2,304)
(2,517)
(4,821)
(90)
(1,299)
(1,695)
(2,157)
396
(1,070)
(820)
(324)
(319)
(627)
(1,018)
(651)
—
—
—
(878)
(449)
—
—
(5)
(52)
(169)
(324)
(319)
(627)
252
109
(937)
371
845
(477)
462
(140)
(202)
—
—
5
Total uses of cash
(13,823)
(7,817)
(8,310)
Net (decrease) increase in cash
$ (1,023) $
306 $
(677)
$ (1,329)
$ 983
2012 Cash Flows Compared to 2011 Cash Flows
Cash flows from operating activities for 2012 increased
$187 million, or 3% from 2011 due to increased net income
and related tax accruals, which were partially offset by the
payment in 2012 of 2011 premium rebate obligations as
2012 was the first year rebate payments were made under
the Health Reform Legislation.
Cash flows used for investing activities increased $4.5
billion, or 107%, primarily due to increased investments
in acquisitions in 2012. See Note 6 of Notes to the
Consolidated Financial Statements included in Item 8,
“Financial Statements” for further information on 2012
acquisitions.
Cash flows from financing activities increased $3.0
billion primarily due to increases in long-term debt,
commercial paper and common stock issuances, partially
offset by increases in cash paid for customer funds related
to Part D and increased shareholder dividend payments.
The increases in long-term debt, commercial paper and
common stock issuances were primarily related to the Amil
acquisition.
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.
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.
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.
FInancIal conDItIon
As of December 31, 2012, our cash, cash equivalent and
available-for-sale investment balances of $28.3 billion
included $8.4 billion of cash and cash equivalents (of which
$1.1 billion was held by non-regulated entities), $19.2
billion of debt securities and $677 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, especially
those used in valuing our $241 million of available-
for-sale 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. Other sources
of liquidity, primarily from operating cash flows and our
commercial paper program, which is supported by our
72212_Financials_CS55.indd 39
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40
UNITEDHEALTH GROUP
bank credit facilities, reduce the need to sell investments
during adverse market conditions. See Note 4 of Notes to
the Consolidated Financial Statements included in Item 8,
“Financial Statements” for further detail of our fair value
measurements.
Our cash equivalent and investment portfolio had a
weighted-average duration of 2.1 years and a weighted-
average credit rating of “AA” as of December 31, 2012.
Included in the debt securities balance was $1.9 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 with and without the guarantee was “AA”
as of December 31, 2012. We do not have any significant
exposure to any single guarantor (neither indirect through
the guarantees, nor direct through 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. 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 bank
credit facilities described below. As of December 31, 2012,
we had $1.6 billion of commercial paper outstanding at a
weighted-average annual interest rate of 0.3%.
Bank Credit Facilities. We have $3.0 billion five-year and
$1.0 billion 364-day revolving bank credit facilities with
21 banks, which mature in November 2017 and November
2013, respectively. These facilities provide liquidity support
for our $4.0 billion commercial paper program and are
available for general corporate purposes. There were no
amounts outstanding under these facilities as of December
31, 2012. The interest rates on borrowings are variable
depending on term and are calculated based on the LIBOR
plus a credit spread based on our senior unsecured credit
ratings. As of December 31, 2012, the annual interest
rates on these facilities, had they been drawn, would have
ranged from 1.0% to 1.3%.
Our bank credit facilities contain various covenants,
including requiring us to maintain a debt to debt-plus-
equity ratio of not more than 50%. Our debt to debt-plus-
equity ratio, calculated as the sum of debt divided by the
sum of debt and shareholders’ equity, which reasonably
approximates the actual covenant ratio, was 35.0% as of
December 31, 2012. We were in compliance with our debt
covenants as of December 31, 2012.
Long-term debt. Periodically, we access capital markets
and issue long-term debt for general corporate purposes,
for example, to meet our working capital requirements,
to refinance debt, to finance acquisitions or for share
repurchases.
In connection with the Amil acquisition, we assumed
variable rate debt denominated in Brazilian Reais, Amil’s
functional currency. The total Brazilian Real denominated
long-term debt outstanding at December 31, 2012 was
$611 million, and had an aggregate weighted average
interest rate of approximately 9%. For more detail on the
Amil debt see Note 8 of Notes to the Consolidated Financial
Statements included in Item 8, “Financial Statements.”
In October 2012, we issued $2.5 billion in senior
unsecured notes, which included: $625 million of 0.850%
fixed-rate notes due October 2015, $625 million of 1.400%
fixed-rate notes due October 2017, $625 million of 2.750%
fixed-rate notes due February 2023 and $625 million of
3.950% fixed-rate notes due October 2042.
In August 2012, we completed an exchange of $1.1
billion of our zero coupon senior unsecured notes due
November 2022 for $0.5 billion additional issuance of our
2.875% notes due in March 2022, $0.1 billion additional
issuance of our 4.375% notes due March 2042 and $0.1
billion in cash. The transaction was undertaken to increase
financial flexibility and reduce interest expense.
In March 2012, we issued $1.0 billion in senior unsecured
notes. The issuance included $600 million of 2.875% fixed-
rate notes due March 2022 and $400 million of 4.375%
fixed-rate notes due March 2042.
Credit Ratings. Our credit ratings at December 31, 2012 were as follows:
Senior unsecured debt
Commercial paper
Moody’s
Ratings
A3
P-2
outlook
Negative
n/a
standard & poor’s
Ratings
A
A-1
outlook
Stable
n/a
fitch
Ratings
A-
F1
outlook
Stable
n/a
a.M. Best
Ratings outlook
Stable
n/a
bbb+
AMB-2
72212_Financials_CS55.indd 40
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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 Repurchase Program. Under our Board of Directors’
authorization, we maintain a share repurchase program.
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 June 2012, our Board
renewed and expanded our share repurchase program with
an authorization to repurchase up to 110 million shares of
our common stock. As of December 31, 2012, we had Board
authorization to purchase up to an additional 85 million
shares of our common stock. For details of our 2012 share
repurchases, see Note 10 of Notes to the Consolidated
2012 FORM 10-K
41
Financial Statements included in Item 8, “Financial
Statements.”
Dividends. In June 2012, our Board of Directors increased
our cash dividend to shareholders to an annual dividend
rate of $0.85 per share, paid quarterly. Since May 2011,
we had paid an annual dividend of $0.65 per share, paid
quarterly. 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.
For details of our dividend payments, see Note 10 of Notes
to the Consolidated Financial Statements included in Item
8, “Financial Statements.”
Amil Tender Offer. During the fourth quarter of 2012,
we purchased approximately 65% of the outstanding
shares of Amil for $3.5 billion. We expect to acquire an
additional 25% ownership interest during the first half
of 2013 through a tender offer for Amil’s publicly traded
shares. The tender offer price will be at the same price paid
to Amil’s controlling shareholders, adjusted for statutory
interest under Brazilian law from the date of payment to
the controlling shareholders to the date of payment to the
tendering minority shareholders.
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UNITEDHEALTH GROUP
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
The following table summarizes future obligations due by period as of December 31, 2012, 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)
Redeemable noncontrolling interests (g)
$
2013
2014 to 2015 2016 to 2017
3,413
380
137
135
11
89
50
1,393
$
3,271
676
184
256
—
18
144
182
$
3,384
510
7
265
—
6
60
546
Thereafter
$ 16,769
556
—
1,923
60
Total
$ 26,837
2,122
328
2,579
71
1,511
43
—
1,624
297
2,121
Total contractual obligations
$
5,608
$
4,731
$
4,778
$ 20,862
$ 35,979
(a) Includes interest coupon payments and maturities at par or put values. For variable rate debt, the rates in effect
at December 31, 2012 were used to calculate the interest coupon payments. The table also assumes amounts are
outstanding through their contractual term. See Note 8 of Notes to the Consolidated Financial Statements included in
Item 8, “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, 2012.
(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 included in Item 8, “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.
(g) Includes commitments to purchase the remaining publicly traded Amil shares as well as the put/call for the shares
owned by Amil’s remaining non-public shareholders. See Note 6 of Notes to the Consolidated Financial Statements
included in Item 8, “Financial Statements” for more detail.
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, 2012, we were not involved in any
off-balance sheet arrangements (as that phrase is defined
by SEC rules applicable to this report) which have or are
reasonably likely to have a material adverse effect on our
financial condition, results of operations or liquidity.
RECENTLY ISSUED ACCOUNTING STANDARDS
We have determined that there have been no recently issued,
but not yet adopted, 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 Payable
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
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
72212_Financials_CS55.indd 42
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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, the introduction of new technologies,
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. As of December 31, 2012,
our days outstanding in medical payables was 49 days.
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 2012, 2011,
and 2010 included favorable medical cost development
related to prior years of $860 million, $720 million and $800
million, 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
completion factors. This approach is consistently applied
from period to period.
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,
2012 FORM 10-K
43
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, 2012:
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
$
261
173
87
(86)
(172)
(257)
Medical cost PMPM trend factors. Medical cost PMPM
trend factors are 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 and epidemics.
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, 2012:
Medical Costs PMPM Trend
Increase (Decrease) in Factors
3%
2
1
(1)
(2)
(3)
$
Increase (Decrease)
In Medical Costs Payable
(in millions)
505
337
168
(168)
(337)
(505)
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, 2012, developed using
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44
UNITEDHEALTH GROUP
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, 2012; however, actual claim payments
may differ from established estimates as discussed above.
Assuming a hypothetical 1% difference between our
December 31, 2012 estimates of medical costs payable and
actual medical costs payable, excluding AARP Medicare
Supplement Insurance and any potential offsetting impact
from premium rebates, 2012 net earnings would have
increased or decreased by $62 million.
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, U.S. commercial health plans with
medical loss ratios on fully insured products, as calculated
under the definitions in the Health Reform Legislation, that
fall below certain targets are required to rebate ratable
portions of their premiums to their customers annually.
Premium revenues are recognized based on the estimated
premiums earned net of projected rebates because we
are able to reasonably estimate the ultimate premiums
of these contracts. Each period, we estimate premium
rebates based on the expected financial performance of
the applicable contracts within each defined aggregation
set (e.g., by state, group size and licensed subsidiary).
The most significant factors in estimating the financial
performance are current and future premiums and medical
claim experience, effective tax rates and expected changes
in business mix. The estimated ultimate premium is revised
each period to reflect current and projected experience.
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 health
care providers 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. Risk
adjustment data for certain of our plans is subject to review
by the government, including audit by regulators. See
Note 12 of Notes to the Consolidated Financial Statements
included in Item 8, “Financial Statements” 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 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 beyond the discretely forecasted periods,
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:
• 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.
• 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.
• Operating productivity. We forecast expected
operating cost levels based on historical levels and
expectations of future operating cost productivity
initiatives.
• 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
72212_Financials_CS55.indd 44
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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
and include consideration of 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
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,
2013. 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, 2012.
Intangible assets. 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). Our intangible assets are
initially recorded at their fair values. Finite-lived intangible
assets are amortized over their expected useful lives,
while indefinite-lived intangible assets are evaluated for
impairment on at least an annual basis. Both finite-lived
and indefinite-lived intangible assets are evaluated for
impairment between annual periods if an event occurs or
circumstances change that may indicate impairment. Our
most significant intangible assets are customer-related
intangibles, which represent 77% of our total intangible
asset balance of $4.7 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
2012 FORM 10-K
45
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 finite-lived intangible assets are subject to
impairment tests when events or circumstances indicate
that an 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 the assets,
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 (or asset group) using the undiscounted
cash flows that are expected to result from the use of the
asset or related group of assets. If it is determined that an
impairment exists, the amount by which the carrying value
exceeds its estimated fair value would be recorded as
an impairment.
Our indefinite-lived intangible assets are tested for
impairment on an annual basis, or more frequently if
impairment indicators exist. To determine if an indefinite-
lived intangible asset is impaired, we assess qualitative
factors to determine whether the existence of events and
circumstances indicate that it is more likely than not that
the indefinite-lived intangible asset’s carrying value exceeds
its fair value. If, after assessing the totality of events and
circumstances, we conclude that it is not more likely than
not that the indefinite-lived intangible asset’s carrying
value exceeds its fair value, no impairment exists and no
further testing is performed. If we conclude otherwise,
we would perform a quantitative analysis by comparing
its estimated fair value to its carrying value. If the carrying
value exceeds its estimated fair value, an impairment would
be recorded for the amount by which the carrying value
exceeds its estimated fair value.
Intangible assets were not impaired in 2012.
Investments
As of December 31, 2012, we had investments with a
carrying value of $21 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, 2012, our investments had
gross unrealized gains of $825 million and gross unrealized
losses of $9 million.
For debt securities, if we intend to either sell or
determine that we will be more likely than not be required
to sell the security before recovery of the entire amortized
cost basis or maturity of the 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
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46
UNITEDHEALTH GROUP
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 our income statement.
The most significant judgments and estimates related to
investments are related to determination of their fair values
and the other-than-temporary impairment assessment.
Fair values. 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:
• the prices received from the pricing service to prices
reported by a secondary pricing service, its custodian,
its investment consultant and/or third-party investment
advisors; and
• changes in the reported market values and returns to
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 following factors: our intent to
sell the security or the likelihood that we will be required
to sell the security before recovery of the entire amortized
cost, the length of time and extent of impairment and 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. 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, historical impairments were
largely 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. Our large cash holdings reduce
the risk that we will be required to sell a security. 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 of $9 million and $32
million at December 31, 2012 and 2011, respectively, 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 2012, 2011 and 2010 were $6 million, $12 million
and $23 million, respectively. Our cash equivalent and
investment portfolio had a weighted-average duration of
2.1 years and a weighted-average credit rating of “AA”
as of December 31, 2012. 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 $656 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.
72212_Financials_CS55.indd 46
3/28/13 3:53 AM
An uncertain tax position is 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
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 positions due to changes in tax law resulting from
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 2012 earnings before
income taxes would have caused the provision for income
taxes and net earnings to change by $86 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 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 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. Similarly, the
assessment of the likelihood of assertion of unasserted
claims involves significant judgment.
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 included in Item
8, “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
included in Item 8 “Financial Statements.”
2012 FORM 10-K
47
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, 2012, 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. As of December 31, 2012, the reinsurer was rated
by A.M. Best as “A+.” As of December 31, 2012, 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, (b) foreign currency exchange
rate risk of the U.S. dollar primarily to the Brazilian Real
and (c) changes in equity prices that impact the value of our
equity investments.
As of December 31, 2012, we had $9.4 billion of cash,
cash equivalents and investments on which the interest
rates received vary with market interest rates, which may
materially impact our investment income. Also, $6.7 billion of
our debt and deposit liabilities as of December 31, 2012 were
at interest rates that vary with market rates, either directly or
through the use of related interest rate swap contracts.
The fair value of certain of our fixed-rate investments
and debt also varies with market interest rates. As of
December 31, 2012, $19.1 billion of our investments were
fixed-rate debt securities and $13.6 billion of our debt was
non-swapped 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.
72212_Financials_CS55.indd 47
3/28/13 3:53 AM
48
UNITEDHEALTH GROUP
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, 2012 and 2011 on our investment income and interest expense per annum, and the fair
value of our investments and debt (in millions, except percentages):
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)
189
94
(18)
nm
$
Investment
Income Per
Annum (a)
199
99
(12)
nm
December 31, 2012
Interest
Expense Per
Annum (a)
134
$
67
(14)
nm
Fair Value of
Investments (b)
Fair Value of
Debt
$
(1,303)
(656)
518
686
$
(2,200)
(1,194)
1,366
2,747
December 31, 2011
Interest
Expense Per
Annum (a)
28
$
14
(4)
nm
Fair Value of
Investments (b)
Fair Value of
Debt
$
(1,239)
(622)
586
885
$
(1,946)
(1,082)
1,086
2,343
(a) Given the low absolute level of short-term market rates on our floating-rate assets and liabilities as of December 31, 2012
and 2011, the assumed hypothetical change in interest rates does not reflect the full 100 basis point reduction in interest
income or interest expense as the rate cannot fall below zero and thus the 200 basis point reduction is not meaningful.
(b) As of December 31, 2012, 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 200 basis point reduction.
With the Amil acquisition, we have an exposure to
changes in the value of the Brazilian Real to the U.S. Dollar
in translation of Amil’s operating results at the average
exchange rate over the accounting period, and Amil’s assets
and liabilities at the spot rate at the end of the accounting
period. The gains or losses resulting from translating foreign
currency financial statements into U.S. dollars are included in
shareholders’ equity and comprehensive income.
An appreciation of the U.S. dollar against the
Brazilian Real reduces the carrying value of the net
assets denominated in Brazilian Real. For example, as
of December 31, 2012 a hypothetical 10% increase in
the value of the U.S. Dollar against the Brazilian Real
would cause a reduction in net assets of $510 million. We
manage exposure to foreign currency risk by conducting
our international business operations primarily in their
functional currencies. We funded certain cash needs of
Amil through intercompany notes. At December 31, 2012,
we had currency swaps with a total notional amount of
$256 million hedging the U.S. dollar to the Brazilian Real to
provide a cash flow hedge on the principal amount of the
intercompany notes to Amil.
As of December 31, 2012, we had $677 million of
investments in equity securities, including employee
savings plan related investments of $348 million 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.
72212_Financials_CS55.indd 48
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2012 FORM 10-K
49
ITEM 8.
Financial Statements
TablE of ConTEnTs
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Shareholders’ Equity
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
1.
2.
3.
4.
5.
6.
Description of Business
Basis of Presentation, Use of Estimates and
Significant Accounting Policies
Investments
Fair Value
Property, Equipment and Capitalized Software
Goodwill and Other Intangible Assets
7. Medical Costs and Medical Costs Payable
8.
9.
10
11
11.
13.
Commercial Paper and Long-Term Debt
Income Taxes
Shareholders’ Equity
Share-Based Compensation
Commitments and Contingencies
Segment Financial Information
14. Quarterly Financial Data (Unaudited)
50
51
52
53
54
55
56
56
56
62
65
69
69
71
72
74
76
77
78
79
82
72212_Financials_CS55.indd 49
3/28/13 3:53 AM
50
UNITEDHEALTH GROUP
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, 2012 and 2011,
and the related consolidated statements of operations,
comprehensive income, shareholders’ equity and cash flows
for each of the three years in the period ended December
31, 2012. 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, 2012 and 2011, and the results of their
operations and their cash flows for each of the three years
in the period ended December 31, 2012, 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, 2012, 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 6,
2013, expressed an unqualified opinion on the Company’s
internal control over financial reporting.
/S/ DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
February 6, 2013
72212_Financials_CS55.indd 50
3/28/13 3:53 AM
UnitedHealtH GroUp
Consolidated BalanCe sHeets
(in millions, except per share data)
assets
Current assets:
Cash and cash equivalents
Short-term investments
Accounts receivable, net of allowances of $189 and $196
Other current receivables, net of allowances of $206 and $72
Assets under management
Deferred income taxes
Prepaid expenses and other current assets
Total current assets
Long-term investments
Property, equipment and capitalized software, net of accumulated
depreciation and amortization of $2,564 and $2,440
Goodwill
Other intangible assets, net of accumulated amortization
of $1,824 and $1,451
Other assets
total assets
liabilities and shareholders’ equity
Current liabilities:
2012 FORM 10-K
51
december 31, 2012
december 31, 2011
$
8,406
3,031
2,709
2,889
2,773
463
781
21,052
17,711
3,939
31,286
4,682
2,215
$
9,429
2,577
2,294
2,255
2,708
472
615
20,350
16,166
2,515
23,975
2,795
2,088
$
80,885
$
67,889
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
Other liabilities
Total liabilities
Commitments and contingencies (Note 12)
Redeemable noncontrolling interest
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;
1,019 and 1,039 issued and outstanding
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
Total shareholders’ equity
total liabilities and shareholders’ equity
$
See Notes to the Consolidated Financial Statements
11,004
6,984
4,910
2,713
1,505
27,116
14,041
2,444
2,450
1,535
47,586
2,121
—
10
66
30,664
438
31,178
80,885
$
$
9,799
6,853
5,063
982
1,225
23,922
10,656
2,445
1,351
1,223
39,597
—
—
10
—
27,821
461
28,292
67,889
72212_Financials_CS55.indd 51
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52
UNITEDHEALTH GROUP
UnitedHealtH GroUp
Consolidated statements of operations
(in millions, except per share data)
revenues:
Premiums
Services
Products
Investment and other income
Total revenues
operating costs:
Medical costs
Operating costs
Cost of products sold
Depreciation and amortization
Total operating costs
earnings from operations
Interest expense
earnings before income taxes
Provision for income taxes
net earnings
earnings per share attributable to UnitedHealth Group
common shareholders:
Basic
Diluted
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
for the Years ended december 31,
2011
2012
2010
$
$
$
$
99,728
7,437
2,773
680
110,618
80,226
17,306
2,523
1,309
101,364
9,254
(632)
8,622
(3,096)
5,526
5.38
5.28
1,027
19
1,046
$
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
$
$
$
$
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
17
0.8000
$
47
0.6125
$
94
0.4050
$
72212_Financials_CS55.indd 52
3/28/13 3:53 AM
UnitedHealtH GroUp
Consolidated statements of CompreHensive inCome
(in millions)
net earnings
Other comprehensive (loss) income:
Gross unrealized holding gains on investment
securities during the period
Income tax expense
Total unrealized gains, net of tax
Gross reclassification adjustment for
net realized gains included in net earnings
Income tax effect
Total reclassification adjustment, net of tax
Foreign currency translation adjustments
Other comprehensive (loss) income
Comprehensive income
See Notes to the Consolidated Financial Statements
2012 FORM 10-K
53
for the Years ended december 31,
2011
2012
2010
$
5,526
$
5,142
$
4,634
217
(78)
139
(156)
57
(99)
(63)
(23)
422
(154)
268
(113)
41
(72)
13
209
74
(26)
48
(71)
26
(45)
(4)
(1)
$
5,503
$
5,351
$
4,633
72212_Financials_CS55.indd 53
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54
UNITEDHEALTH GROUP
UnitedHealtH GroUp
Consolidated statements of CHanGes in sHareHolders’ eqUity
accumulated other
Comprehensive
income (loss)
net
foreign
Currency
(in millions)
Balance at January 1, 2010
Net earnings
Other comprehensive income
Issuances of common stock,
and related tax effects
Share-based compensation,
and related tax benefits
Common stock repurchases
Cash dividends paid on
common stock
Balance at december 31, 2010
Net earnings
Other comprehensive income
Issuances of common stock,
and related tax effects
Share-based compensation,
and related tax benefits
Common stock repurchases
Cash dividends paid on
common stock
Balance at december 31, 2011
Net earnings
Other comprehensive income
Issuances of common stock,
and related tax effects
Share-based compensation,
and related tax benefits
Common stock repurchases
Acquisition of noncontrolling
interest
Cash dividends paid on
common stock
Balance at december 31, 2012
Common stock
shares
1,147
amount
11
$
additional
paid-in
Capital
$ —
15
—
207
(76)
—
345
(552)
1,086
11
—
18
—
308
(65)
(1)
453
(761)
1,039
10
—
retained
earnings
$ 23,342
4,634
(1,965)
(449)
25,562
5,142
(2,232)
(651)
27,821
5,526
37
—
704
(57)
—
594
(1,221)
(11)
(1,863)
Unrealized translation
Gains on
(losses)
investments Gains
$ (24)
$ 277
3
(4)
280
(28)
196
13
476
(15)
40
(63)
total
equity
$ 23,606
4,634
(1)
207
345
(2,517)
(449)
25,825
5,142
209
308
453
(2,994)
(651)
28,292
5,526
(23)
704
594
(3,084)
(11)
1,019
$
10
$ 66
(820)
$ 30,664
$ 516
$ (78)
(820)
$ 31,178
See Notes to the Consolidated Financial Statements
72212_Financials_CS55.indd 54
3/28/13 3:53 AM
UnitedHealtH GroUp
Consolidated statements of CasH flows
(in millions)
operating activities
Net earnings
Non-cash items:
Depreciation and amortization
Deferred income taxes
Share-based compensation
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
Purchases of property, equipment and capitalized software
Proceeds from disposal of property, equipment
and capitalized software
Cash flows used for investing activities
financing activities
Common stock repurchases
Proceeds from common stock issuances
Cash dividends paid
Proceeds from (repayments of) commercial paper, net
Proceeds from issuance of long-term debt
Repayments of long-term debt
Interest rate swap termination
Customer funds administered
Checks outstanding
Acquisition of noncontrolling interest shares
Other, net
Cash flows from (used for) financing activities
(decrease) increase 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
2012 FORM 10-K
55
for the Years ended december 31,
2011
2012
2010
$
5,526
$
5,142
$
4,634
1,309
308
421
(231)
(130)
(295)
101
199
(81)
28
7,155
(9,903)
3,794
4,810
(6,280)
—
(1,070)
—
(8,649)
(3,084)
1,078
(820)
1,587
3,966
(986)
—
(324)
(202)
(319)
(425)
471
(1,023)
9,429
8,406
600
2,666
$
$
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
$
$
72212_Financials_CS55.indd 55
3/28/13 3:53 AM
56
UNITEDHEALTH GROUP
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 clinical care management and coordination to help
meet the demands of the health system. See Note 13 for a
description of the Company’s reportable segments and how
the segments generate their revenues.
2. BAsIs Of PREsENTATION, UsE Of EsTImATEs AND
sIGNIfIcANT AccOUNTING POLIcIEs
Basis of Presentation
The Company has prepared the Consolidated Financial
Statements according to United States of America (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.
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, premium rebates and risk-
adjusted and risk-sharing provisions related to revenues,
valuation and impairment analysis of goodwill and other
intangible assets, estimates of other policy liabilities and
other current receivables, valuations of investments,
and estimates and judgments related to 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.
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. Effective in 2011, U.S. 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 a reconciliation
measure, the Health Care and Education Reconciliation
Act of 2010 (together, Health Reform Legislation) and
implementing regulations, that fall below certain targets
are required to rebate ratable portions of their premiums
annually. Premium revenues are recognized based on
the estimated premiums earned net of projected rebates
because the Company is able to reasonably estimate
the ultimate premiums of these contracts. Each period,
the Company estimates premium rebates based on the
expected financial performance of the applicable contracts
within each defined aggregation set (e.g., by state, group
size and licensed subsidiary). The most significant factors
in estimating the financial performance are current and
future premiums and medical claim experience, effective
tax rates and expected changes in business mix. The
estimated ultimate premium is revised each period to
reflect current and projected experience. The Company also
records premium revenues from capitation arrangements at
its OptumHealth businesses.
The Company’s Medicare Advantage and Part D premium
revenues are subject to periodic adjustment under the
Centers for Medicare and Medicaid Services’ (CMS) risk
adjustment payment methodology. 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
provides higher per member payments for enrollees
diagnosed with certain conditions and lower payments
for enrollees who are healthier. 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 review by the government, including audit
by regulators. See Note 12 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.
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
72212_Financials_CS55.indd 56
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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 or mail services, 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 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 utilization 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,
2012 FORM 10-K
57
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 of $1.3 billion
and $1.5 billion as of December 31, 2012 and 2011,
respectively, 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 within financing activities in the Consolidated
Statements of Cash Flows. The outstanding checks are all
related to zero balance accounts; 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 as comprehensive income
and, 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 specifically
identifies the 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.
• For debt securities, if the Company intends to either
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,
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.
• For equity securities, the Company recognizes
impairments in other comprehensive income if it
72212_Financials_CS55.indd 57
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58
UNITEDHEALTH GROUP
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 which are 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
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 $109 million, $99 million
and $107 million in 2012, 2011 and 2010, 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:
• CMS Premium. CMS pays a fixed monthly premium per
member to the Company for the entire plan year.
• Member Premium. Additionally, certain members pay a
fixed monthly premium to the Company for the entire
plan year.
• Low-Income Premium Subsidy. For qualifying low-
income members, CMS pays some or all of the
member’s monthly premiums to the Company on the
member’s behalf.
• Catastrophic Reinsurance Subsidy. CMS pays the
Company a cost reimbursement estimate monthly to
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.
• Low-Income Member Cost Sharing Subsidy. For
72212_Financials_CS55.indd 58
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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.
• 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 to date. The estimate of the settlement
associated with these risk corridor provisions requires
the Company to consider factors that may not be
certain, including estimates of eligible pharmacy
costs and 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.
• 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
2012 FORM 10-K
59
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
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 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 2012 risk-share amount is expected to be
settled during the second half of 2013, 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)
Subsidies
Drug Discount Risk-Share
Subsidies
Drug Discount
Risk-Share
Other current receivables
Other policy liabilities
$
461
—
$
314
319
$
—
438
$
—
70
$
509
649
$
—
170
December 31, 2012
December 31, 2011
72212_Financials_CS55.indd 59
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60
UNITEDHEALTH GROUP
As of January 1, 2013, certain changes were made to the
The Company estimates the fair values of its reporting
Medicare Part D coverage by CMS, including:
The initial coverage limit increased to $2,970 from $2,930
in 2012.
The catastrophic coverage begins at $6,734 as compared
to $6,658 in 2012.
The annual out-of-pocket maximum increased to $4,750
from $4,700 in 2012.
The discounts on prescription drugs within the coverage
gap increased to 52.5% from 50% in 2012 for brand name
drugs and to 21% from 14% in 2012 for generic drugs.
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 applicable
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
Buildings
Leasehold improvements
Capitalized software
3 to 7 years
35 to 40 years
7 years or length
of lease term,
whichever is shorter
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.
units using discounted cash flows. To determine fair
values, the Company must make 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. Comparative market
multiples are used to corroborate the results of the
discounted cash flow test.
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, 2013. As of December 31, 2012, 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
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’s intangible assets are initially
recorded at their fair values. Finite-lived intangible assets
are amortized over their expected useful lives.
The Company’s intangible assets are subject to
impairment tests when events or circumstances indicate
that an intangible asset’s (or asset group’s) may be
impaired. The Company’s indefinite lived intangible assets
are also tested for impairment annually. There were no
material impairments of intangible assets during the year
ended December 31, 2012.
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 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
72212_Financials_CS55.indd 60
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reported in Medical Costs in the Consolidated Statement of
Operations. As of December 31, 2012 and 2011, the balance
in the RSF was $1.3 billion.
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, 2012, the Company had
an aggregate $1.9 billion reinsurance receivable, of which
$135 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, 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. The Company
evaluates the financial condition of the reinsurer and
only records the reinsurance receivable to the extent of
probable recovery. As of December 31, 2012, the reinsurer
was rated by A.M. Best as “A+.”
Foreign currency translation
Assets and liabilities of the Company’s foreign operations
denominated in non-U.S. dollar functional currencies are
translated into U.S. dollars at current exchange rates as
of the end of each accounting period. Related revenue
and expenses are translated at average exchange rates
during the accounting period. The gains or losses resulting
from translating foreign currency financial statements
into U.S. dollars are included in shareholders’ equity and
comprehensive income.
Noncontrolling interests
Noncontrolling interests in the Company’s subsidiaries
whose redemption is outside the control of the Company
are classified as temporary equity. The redeemable
noncontrolling interests are primarily related to holders of
Amil Participações S.A. (Amil) shares. Amil was acquired in
2012 FORM 10-K
61
2012, see Note 6 for more information. During 2012, the
Company purchased noncontrolling interest shares for $319
million, of which $11 million was recorded as a reduction
of Additional Paid-In Capital. For the year ended December
31, 2012, the Company’s net earnings attributable to
redeemable noncontrolling interests was nil and other
noncontrolling interest activity was not material.
Policy Acquisition Costs
The Company’s short duration health insurance contracts
typically have a one-year term and may be canceled 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.
Share-Based Compensation
The Company recognizes compensation expense for
share-based awards, including stock options, stock-settled
stock appreciation rights (SARs) and restricted stock and
restricted stock units (collectively, 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. Restricted shares vest ratably, primarily over three to
four years and compensation expense related to restricted
shares is based on the share price on date of grant. Stock
options and SARs vest ratably over four to six years and
may be exercised up to 10 years from the date of grant.
Compensation expense related to stock options and SARs is
based on the fair value at date of grant, which is estimated
on the date of grant using a binomial option-pricing
model. Under the Company’s Employee Stock Purchase
Plan (ESPP) 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. Share-based compensation expense for all
programs is recognized in Operating Costs in the Company’s
Consolidated Statements of Operations.
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,
SARs, restricted shares and the ESPP, using the treasury
stock method. The treasury stock method assumes a
hypothetical issuance of shares to settle the share-based
awards, with the assumed proceeds used to purchase
common stock at the average market price for the period.
Assumed proceeds include the amount the employee must
pay upon exercise, any unrecognized compensation cost
and any related excess tax benefit. The difference between
the number of shares assumed issued and number of shares
assumed purchased represents the dilutive shares.
Recently Adopted Accounting Standards
In May 2011, the Financial Accounting Standards Board
72212_Financials_CS55.indd 61
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62
UNITEDHEALTH GROUP
(FASB) issued Accounting Standards Update (ASU) No. 2011-
04, “Fair Value Measurement (Topic 820): Amendments to
Achieve Common Fair Value Measurement and Disclosure
Requirements in U.S. GAAP and IFRSs” (ASU 2011-04). This
update provides guidance on how fair value measurement
should be applied where existing GAAP already requires
or permits fair value measurements. In addition, ASU
2011-04 requires expanded disclosures regarding fair
value measurements. ASU 2011-04 became effective
for the Company’s fiscal year 2012. The adoption of the
measurement guidance of ASU 2011-04 did not have a
material impact on the Consolidated Financial Statements.
The new disclosures have been included with the
Company’s fair value disclosures in Note 4.
In June 2011, the FASB issued ASU No. 2011-05,
“Comprehensive Income (Topic 220) - Presentation of
Comprehensive Income” (ASU 2011-05). ASU 2011-05
requires entities to present the total of comprehensive
income, the components of net income, and the
components of other comprehensive income either in a
single continuous statement of comprehensive income or in
two separate but consecutive statements and eliminates the
option to present the components of other comprehensive
income as a part of the statement of equity. ASU 2011-05
became effective for the Company’s fiscal year 2012. The
Company presented separate Consolidated Statements of
Comprehensive Income, which appear consecutive to the
Consolidated Statements of Operations.
The Company has determined that there have been no
other recently adopted or issued accounting standards
that had or will have a material impact on its Consolidated
Financial Statements.
3. Investments
A summary of short-term and long-term investments is as follows:
(in millions)
December 31, 2012
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
$
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
Total debt securities - held-to-maturity
2,501
6,282
6,930
2,168
538
18,419
668
168
30
641
839
$
38
388
283
70
36
815
10
6
—
2
8
Total investments
$
19,926
$
833
December 31, 2011
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
Equity securities - available-for-sale
Debt securities - held-to-maturity:
U.S. government and agency obligations
State and municipal obligations
Corporate obligations
Total debt securities - held-to-maturity
2,319
6,363
5,825
2,279
476
17,262
529
166
13
18
197
$
54
403
205
74
28
764
23
7
—
—
7
$
$
$
(1)
(3)
(4)
—
—
(8)
(1)
—
—
—
—
(9)
—
(1)
(23)
—
—
(24)
(8)
—
—
—
—
$
2,538
6,667
7,209
2,238
574
19,226
677
174
30
643
847
$
20,750
$
2,373
6,765
6,007
2,353
504
18,002
544
173
13
18
204
Total investments
$
17,988
$
794
$
(32)
$
18,750
72212_Financials_CS55.indd 62
3/28/13 3:53 AM
2012 FORM 10-K
63
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, 2012 were as follows:
(in millions)
2012
2011
2010
2007
2006
Pre - 2006
U.S. agency mortgage-backed securities
Total
Non-Investment Total Fair
AAA
$
123
27
—
88
137
167
2,238
$ 2,780
AA
$ —
—
3
—
—
5
—
$
8
A
$ —
—
—
—
11
—
—
$
11
Grade
$ —
—
—
2
8
3
—
$
13
Value
$ 123
27
3
90
156
175
2,238
$ 2,812
The Company includes in the non-investment grade column in the table above any securities backed by Alt-A or sub-prime
mortgages and any commercial mortgage loans in default.
The amortized cost and fair value of available-for-sale debt securities as of December 31, 2012, 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
Total debt securities - available-for-sale
Amortized
Cost
$ 3,107
6,249
4,695
1,662
2,168
538
$ 18,419
Fair
Value
$ 3,120
6,471
5,039
1,784
2,238
574
$ 19,226
The amortized cost and fair value of held-to-maturity debt securities as of December 31, 2012, 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
Total debt securities - held-to-maturity
Amortized
Cost
$
$
435
126
177
101
839
Fair
Value
$ 436
129
180
102
$ 847
72212_Financials_CS55.indd 63
3/28/13 3:53 AM
64
UNITEDHEALTH GROUP
The fair value of available-for-sale investments with gross unrealized losses by major security type and length of time that
individual securities have been in a continuous unrealized loss position were as follows:
(in millions)
December 31, 2012
Debt securities - available-for-sale:
Less Than 12 Months
Gross
Unrealized
Losses
Fair
Value
12 Months or Greater
Gross
Unrealized
Losses
Fair
Value
Total
Fair
Value
Gross
Unrealized
Losses
U.S. government and agency obligations $
State and municipal obligations
Corporate obligations
183
362
695
Total debt securities - available-for-sale
$ 1,240
Equity securities - available-for-sale
$
13
December 31, 2011
Debt securities - available-for-sale:
State and municipal obligations
Corporate obligations
$
85
1,496
Total debt securities - available-for-sale
$ 1,581
Equity securities - available-for-sale
$
24
$
$
$
$
$
$
(1)
(3)
(4)
(8)
(1)
(1)
(22)
(23)
(7)
$ —
—
—
$ —
—
—
$
183
362
695
$ —
$ —
$ 1,240
$ —
$ —
$
13
$
$
$
21
28
49
3
$ —
(1)
$
$
(1)
(1)
$
106
1,524
$ 1,630
$
27
$
$
$
$
$
$
(1)
(3)
(4)
(8)
(1)
(1)
(23)
(24)
(8)
The unrealized losses from all securities as of December 31, 2012 were generated from approximately 1,300 positions out
of a total of 18,000 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 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 and credit ratings of the issuers, noting neither a significant deterioration since
purchase nor other factors leading to an other-than-temporary impairment (OTTI). As of December 31, 2012, the Company
did not have the intent to sell any of the securities in an unrealized loss position.
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)
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
For the Years Ended December 31,
2011
2012
2010
$
$
(6)
—
(6)
(13)
175
156
$
$
(12)
—
(12)
(11)
136
113
$
$
(23)
—
(23)
(6)
100
71
72212_Financials_CS55.indd 64
3/28/13 3:53 AM
4. Fair Value
Certain assets and liabilities are measured at fair value
in the Consolidated Financial Statements or have fair
values disclosed in the Notes to the Consolidated Financial
Statements. These assets and liabilities are classified into
one of three levels of a hierarchy defined by 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 is categorized in its entirety 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 prices (unadjusted) for identical assets
liabilities in active markets.
Level 2 — Other observable inputs, either directly or
indirectly, including:
• Quoted prices for similar assets/liabilities in active
markets;
• Quoted prices for identical or similar assets/liabilities
in non-active markets (e.g., few transactions, limited
information, non-current prices, high variability
over time);
• Inputs other than quoted prices that are observable
for the asset/liability (e.g., interest rates, yield curves,
implied volatilities, credit spreads); and
• Inputs that are corroborated by other observable
market data.
Level 3 — Unobservable inputs that cannot be
corroborated by observable market data.
Transfers between levels, if any, are recorded as of the
beginning of the reporting period in which the transfer
occurs; there were no transfers between Levels 1, 2 or 3 of
any financial assets or liabilities during 2012 or 2011.
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, 2012, 2011, and 2010.
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
included in the tables below:
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 debt and equity
securities are based on quoted market prices, where
available. The Company obtains one price for each security
2012 FORM 10-K
65
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, and, if necessary, makes
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 reviews of fair value methodology
documentation provided by independent pricing services
have 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.
Fair value estimates for Level 1 and Level 2 equity
securities are based on quoted market prices for actively
traded equity securities and/or other market data for
the same or comparable instruments and transactions in
establishing the prices.
The Company’s Level 3 equity securities are primarily
investments in venture capital securities. The fair values of
Level 3 investments in venture capital portfolios are estimated
using a market valuation technique that relies heavily on
management assumptions and qualitative observations.
Under the market approach, 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 Company’s
market modeling utilizes, as applicable, transactions for
comparable companies in similar industries and having similar
revenue and growth characteristics; and similar preferences
in their capital structure. Key significant unobservable inputs
in the market technique include implied earnings before
interest, taxes, depreciation and amortization (EBITDA)
multiples and revenue multiples. Additionally, the fair value
of certain of the Company’s venture capital securities are
based off of recent transactions in inactive markets for
identical or similar securities. Significant changes in any of
these inputs could result in significantly lower or higher fair
value measurements.
72212_Financials_CS55.indd 65
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66
UNITEDHEALTH GROUP
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.
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 debt and equity securities.
Interest Rate and Currency Swaps. Fair values of the
Company’s swaps are estimated using the terms of the
swaps and publicly available information including market
yield curves. Because the swaps are unique and not actively
traded but are valued using other observable inputs, the
fair values are classified as Level 2.
Long-term debt. The fair value of the Company’s
long-term debt is estimated and classified using the
same methodologies as the Company’s investments in
debt securities.
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.
The following table presents a summary of fair value measurements by level and carrying values for items measured at
fair value on a recurring basis in the Consolidated Balance Sheets excluding AARP related assets and liabilities, which are
presented in a separate table below:
Quoted Prices
in Active
Markets
(Level 1)
Other
Observable
Inputs
(Level 2)
Unobservable
Inputs
(Level 3)
(in millions)
December 31, 2012
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
Equity securities - available-for-sale
Interest rate swap assets
Total assets at fair value
Percentage of total assets at fair value
Interest rate and currency swap liabilities
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
Equity securities - available-for-sale
$
7,615
$
791
$
1,752
—
13
—
—
1,765
450
—
786
6,667
7,185
2,238
568
17,444
3
14
$
$
$
$
$
$
9,830
$
18,252
35%
—
8,569
1,551
—
16
—
—
1,567
333
$
$
64%
14
860
822
6,750
5,805
2,353
497
16,227
2
Total
Fair and
Carrying
Value
$
8,406
2,538
6,667
7,209
2,238
574
19,226
677
14
$
28,323
100%
14
9,429
2,373
6,765
6,007
2,353
504
18,002
544
—
—
—
11
—
6
17
224
—
241
—
15
186
—
7
208
209
417
1%
—
—
$
$
Total assets at fair value
$
10,469
$
17,089
$
$
27,975
Percentage of total assets at fair value
37%
61%
2%
100%
72212_Financials_CS55.indd 66
3/28/13 3:53 AM
2012 FORM 10-K
67
The following table presents a summary of fair value measurements by level and carrying values for certain financial
instruments not measured at fair value on a recurring basis in the Consolidated Balance Sheets:
(in millions)
December 31, 2012
Debt securities - held-to-maturity:
U.S. government and agency obligations
State and municipal obligations
Corporate obligations
Total debt securities - held-to-maturity
Long-term debt
December 31, 2011
Debt securities - held-to-maturity:
U.S. government and agency obligations
State and municipal obligations
Corporate obligations
Total debt securities - held-to-maturity
Long-term debt
Quoted Prices
in Active
Markets
(Level 1)
Other
Observable Unobservable
Inputs
(Level 2)
Inputs
(Level 3)
Total
Fair
Value
Total
Carrying
Value
$
$
$
$
$
$
174
—
10
184
—
173
—
9
182
—
$
$
—
1
346
347
$ 17,034
$
$
—
1
9
10
$ 13,149
$ —
29
287
$
316
$ —
$ —
12
—
$
12
$ —
$
$
174
30
643
847
$
$
168
30
641
839
$ 17,034
$ 15,167
$
$
173
13
18
204
$
$
166
13
18
197
$ 13,149
$ 11,638
The carrying amounts reported in the Consolidated Balance Sheets for 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. 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:
(in millions)
Securities Securities
Total
Securities Securities
Total
Securities Securities
Total
December 31, 2012
Equity
Debt
December 31, 2011
Equity
Debt
December 31, 2010
Equity
Debt
$ 208 $ 209
71
(34)
—
11
—
(1)
$ 417
82
(34)
(1)
$ 141
92
—
(25)
$
208 $ 349
127
(17)
(32)
35
(17)
(7)
$ 120
43
(4)
(20)
$ 312
45
(167)
—
$ 432
88
(171)
(20)
Balance at beginning of period
Purchases
Sales
Settlements
Net unrealized (losses) gains
in accumulated other
comprehensive income
Net realized gains (losses) in
9
11
—
—
(14)
(14)
—
(4)
(4)
—
9
investment and other income
Transfers to held-to-maturity
—
(201)
13
(21)
13
(222)
—
—
(6)
—
(6)
—
2
—
9
—
Balance at end of period
$
17 $ 224
$ 241
$ 208
$
209 $ 417
$ 141
$ 208
$ 349
72212_Financials_CS55.indd 67
3/28/13 3:53 AM
68
UNITEDHEALTH GROUP
The following table presents quantitative information regarding unobservable inputs that were significant to the
valuation of assets measured at fair value on a recurring basis using Level 3 inputs:
(in millions)
December 31, 2012
Equity securities - available-for-sale
Fair
Value
Valuation Technique
Unobservable Input
Low
High
Venture capital portfolios
$193
Market approach - comparable companies
Revenue multiple
EBITDA multiple
31
Market approach - recent transactions
Inactive market transactions
1.0
8.0
N/A
10.0
10.0
N/A
Total equity securities
available-for-sale
$224
Also included in the Company’s assets measured at fair value on a recurring basis using Level 3 inputs were $17 million of
available-for-sale debt securities at December 31, 2012, which were not significant.
The Company elected to measure the entirety of the AARP Assets Under Management at fair value pursuant to the fair
value option. See Note 2 for further detail on AARP. The following table presents fair value information about the AARP
Program-related financial assets and liabilities:
(in millions)
December 31, 2012
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
Total debt securities
Equity securities - available-for-sale
Total assets at fair value
Other liabilities
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
Total debt securities
Equity securities - available-for-sale
Total assets at fair value
Other liabilities
Quoted Prices
in Active
Markets
(Level 1)
Other
Observable
Inputs
(Level 2)
Total
Fair and
Carrying
Value
$
$
$
$
$
$
230
545
—
—
—
—
545
—
775
23
257
566
—
—
—
—
566
—
823
27
$
—
$
230
244
51
1,118
427
155
1,995
3
1,998
58
10
214
25
1,048
436
150
1,873
2
1,885
49
$
$
$
$
$
789
51
1,118
427
155
2,540
3
2,773
81
267
780
25
1,048
436
150
2,439
2
2,708
76
$
$
$
$
$
72212_Financials_CS55.indd 68
3/28/13 3:53 AM
5. ProPerty, equiPment and CaPitalized Software
A summary of property, equipment and capitalized software is as follows:
(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
Total property, equipment and capitalized software, net
2012 FORM 10-K
69
december 31, 2012
december 31, 2011
$
$
358
1,910
1,447
488
(1,542)
2,661
2,300
(1,022)
1,278
3,939
$
$
45
1,052
1,345
274
(1,424)
1,292
2,239
(1,016)
1,223
2,515
Depreciation expense for property and equipment for 2012, 2011 and 2010 was $449 million, $386 million and $398 million,
respectively. Amortization expense for capitalized software for 2012, 2011 and 2010 was $412 million, $377 million and $349
million, respectively.
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, 2011
Acquisitions
Dispositions
Adjustments, net
Balance at December 31, 2011
Acquisitions
Adjustments and foreign
currency effects, net
$
$
17,837
101
(2)
(4)
17,932
6,557
(30)
$
760
1,353
—
—
2,113
705
—
$
3,308
—
(214)
(4)
3,090
98
(19)
Balance at December 31, 2012
$
24,459
$
2,818
$
3,169
$
840
—
—
—
840
—
—
840
$
22,745
1,454
(216)
(8)
23,975
7,360
(49)
$
31,286
In October 2012, the Company purchased approximately 60% of the outstanding shares of Amil for approximately $3.2
billion in a private transaction. Later in the fourth quarter of 2012, the Company purchased an additional 17.8 million shares
of Amil for $0.3 billion, bringing the stake in Amil attributable to the Company to approximately 65% of Amil’s outstanding
shares. Amil is a health care company located in Brazil, providing health and dental benefits, hospital and clinical services,
and advanced care management resources to more than 5 million people. The total consideration paid and fair value of the
noncontrolling interest exceeded the estimated fair value of the net tangible assets acquired by $5.9 billion, of which $1.0
billion has been allocated to finite-lived intangible assets, $0.6 billion to indefinite-lived intangible assets and $4.3 billion
to goodwill. To estimate the acquisition date fair value of the noncontrolling interest of $2.2 billion, the Company utilized
the public share price as of the date of acquisition. Contingent liabilities were measured based on the probable amount
that could be reasonably estimated. The results of operations and financial condition of Amil have been included in the
Company’s consolidated results and the results of the UnitedHealthcare reportable segment since the acquisition date. The
pro-forma effects of this acquisition on the Company’s results of operations were not material. In conjunction with the 2012
purchases, the Company generated Brazilian tax deductible goodwill of approximately $2.7 billion.
Because of the acquisition of a controlling interest in Amil, the Company is required by Brazilian law to commence a
mandatory tender offer for the remaining publicly traded shares. The Company expects to acquire an additional 25%
ownership interest during the first half of 2013 through this tender offer. The tender offer price will be at the same price
paid to Amil’s controlling shareholders, adjusted for statutory interest under Brazilian law from the date of payment to the
controlling shareholders to the date of payment to the tendering minority shareholders. The remaining 10% stake in Amil
is held by shareholders, including Amil’s CEO, who has been a member of the Company’s Board of Directors since October
2012, who have committed to retain the shares for at least five years. They have the right to put the shares to the Company
and the Company has the right to call these shares upon expiration of the five year term, unless accelerated upon certain
events, at fair market value. Related to this acquisition, Amil’s CEO invested approximately $470 million in unregistered
UnitedHealth Group common shares in the fourth quarter of 2012 and has committed to hold those shares for the same five
year term, subject to certain exceptions.
72212_Financials_CS55.indd 69
3/28/13 3:53 AM
70
UNITEDHEALTH GROUP
Acquired net tangible assets and liabilities for Amil at acquisition date were:
(in millions)
Cash and cash equivalents
Investments
Accounts receivable and other current assets
Property, equipment and other long-term assets
Medical costs payable
Other current liabilities
Contingent liabilities
Long-term debt and other long-term liabilities
$
240
341
207
1,266
586
638
270
569
Since the Amil acquisition occurred in the fourth quarter, the purchase price allocation is subject to adjustment as valuation
analyses, primarily related to intangible and fixed assets and contingent and tax liabilities, are finalized.
For the years ended December 31, 2012, 2011 and 2010, aggregate consideration paid, net of cash assumed, for
acquisitions excluding Amil was $3.3 billion, $1.8 billion and $2.3 billion, respectively. These acquisitions were not material
to the Company’s Consolidated Financial Statements.
The gross carrying value, accumulated amortization and net carrying value of other intangible assets were as follows:
December 31, 2012
December 31, 2011
Gross
Net
Gross
Net
(in millions)
Customer-related
Trademarks and technology
Trademarks - indefinite-lived
Other
Carrying Accumulated Carrying
Amortization
Value
Value
Carrying Accumulated Carrying
Value Amortization
Value
$ 5,229
445
611
221
$ (1,629)
(146)
—
(49)
$ 3,600
299
611
172
$ 3,766
368
—
112
$ (1,310)
(98)
—
(43)
$ 2,456
270
—
69
Total
$ 6,506
$ (1,824)
$ 4,682
$ 4,246
$ (1,451)
$ 2,795
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:
2012
2011
(in millions, except years)
Customer-related
Trademarks and technology
Other
Weighted-
Average
Weighted-
Average
Fair Value Useful Life Fair Value Useful Life
$ 1,530
79
111
8 years
4 years
15 years
9 years
5 years
15 years
187
49
5
$
Total acquired finite-lived intangible assets
$ 1,720
9 years
$
241
9 years
Estimated full year amortization expense relating to intangible assets for each of the next five years ending December 31 is
as follows:
(in millions)
2013
2014
2015
2016
2017
$
545
527
506
480
456
Amortization expense relating to intangible assets for 2012, 2011 and 2010 was $448 million, $361 million and $317 million,
respectively.
72212_Financials_CS55.indd 70
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2012 FORM 10-K
71
7. Medical costs and Medical costs Payable
The following table provides details of the Company’s favorable medical reserve development:
(in millions)
Related to Prior Years
For the years ended december 31,
2011
2012
2010
$
860
$
720
$
800
The favorable development for 2012, 2011 and 2010 was driven by lower than expected health system utilization levels
and increased efficiency in claims handling and processing. The favorable development for 2010 was also impacted by
a reduction in reserves needed for disputed claims from care providers; and favorable resolution of certain state-based
assessments.
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
Total reported medical costs
Claim payments:
Payments for current year
Payments for prior year
Total claim payments
Medical costs payable, end of period
2012
$
9,799
1,029
81,086
(860)
80,226
(71,832)
(8,218)
(80,050)
11,004
$
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
$
72212_Financials_CS55.indd 71
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72
UNITEDHEALTH GROUP
8. CommerCial PaPer and long-Term debT
Commercial paper and long-term debt consisted of the following:
(in millions)
december 31, 2012
Carrying
Value
Par
Value
Fair
Value
december 31, 2011
Carrying
Value
Fair
Value
Par
Value
Commercial Paper
5.500% senior unsecured notes due November 2012
4.875% senior unsecured notes due February 2013
4.875% senior unsecured notes due April 2013
4.750% senior unsecured notes due February 2014
5.000% senior unsecured notes due August 2014
4.875% senior unsecured notes due March 2015 (a)
0.850% senior unsecured notes due October 2015 (a)
5.375% senior unsecured notes due March 2016
1.875% senior unsecured notes due November 2016
5.360% senior unsecured notes due November 2016
6.000% senior unsecured notes due June 2017
1.400% senior unsecured notes due October 2017 (a)
6.000% senior unsecured notes due November 2017
6.000% senior unsecured notes due February 2018
3.875% senior unsecured notes due October 2020
4.700% senior unsecured notes due February 2021
3.375% senior unsecured notes due November 2021 (a)
2.875% senior unsecured notes due March 2022
0.000% senior unsecured notes due November 2022
2.750% senior unsecured notes due February 2023 (a)
5.800% senior unsecured notes due March 2036
6.500% senior unsecured notes due June 2037
6.625% senior unsecured notes due November 2037
6.875% senior unsecured notes due February 2038
5.700% senior unsecured notes due October 2040
5.950% senior unsecured notes due February 2041
4.625% senior unsecured notes due November 2041
4.375% senior unsecured notes due March 2042
3.950% senior unsecured notes due October 2042
$ 1,587
—
534
409
172
389
416
625
601
400
95
441
625
156
1,100
450
400
500
1,100
15
625
850
500
650
1,100
300
350
600
502
625
$ 1,587
—
534
411
178
411
444
623
660
397
95
489
622
170
1,120
442
417
512
998
9
619
845
495
645
1,084
298
348
593
486
611
$ 1,587
—
536
413
180
414
453
627
682
412
110
528
626
191
1,339
499
466
533
1,128
11
631
1,025
659
860
1,510
364
440
641
521
622
$ —
352
534
409
172
389
416
—
601
400
95
441
—
156
1,100
450
400
500
—
1,095
—
850
500
650
1,100
300
350
600
—
—
$ —
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
—
—
Total U.S. Dollar denominated debt
16,117
16,143
18,008
11,860
11,638
13,149
Cetip Interbank Deposit Rate (CDI) + 1.3%
Subsidiary floating debt due October 2013
CDI + 1.45 % Subsidiary floating debt due October 2014
110% CDI Subsidiary floating debt due December 2014
CDI + 1.6% Subsidiary floating debt due October 2015
Brazilian Extended National Consumer Price Index (IPCA)
+ 7.61% Subsidiary floating debt due October 2015
147
147
147
74
73
Total Brazilian Real denominated debt (in U.S. Dollars)
588
148
149
151
76
87
611
150
150
147
76
90
613
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Total commercial paper and long-term debt
$ 16,705
$ 16,754
$ 18,621
$ 11,860
$ 11,638
$ 13,149
(a) In 2012, the Company entered into interest rate swap contracts with a notional amount of $2.8 billion hedging these
fixed-rate debt instruments. See below for more information on the Company’s interest rate swaps.
72212_Financials_CS55.indd 72
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Maturities of commercial paper and long-term debt for the years ending December 31 are as follows:
(in millions)
2013 (a)
2014
2015
2016
2017
Thereafter
2012 FORM 10-K
73
$ 2,713
920
1,175
1,152
1,281
9,513
(a) Includes $33 million of debt subject to acceleration clauses.
Long-Term Debt
In August 2012, the Company completed an exchange of
$1.1 billion of its zero coupon senior unsecured notes due
November of 2022 for $0.5 billion additional issuance of
its 2.875% notes due in March 2022, $0.1 billion additional
issuance of its 4.375% notes due March 2042 and $0.1
billion in cash.
Commercial Paper and Bank Credit Facilities
Commercial paper consists of short-duration, senior
unsecured debt privately placed on a discount basis
through broker-dealers. As of December 31, 2012, the
Company’s outstanding commercial paper had a weighted-
average annual interest rate of 0.3%.
The Company has $3.0 billion five-year and $1.0 billion
364-day revolving bank credit facility with 21 banks, which
mature in November 2017 and November 2013, respectively.
These facilities provide liquidity support for the Company’s
$4.0 billion commercial paper program and are available
for general corporate purposes. There were no amounts
outstanding under these facilities as of December 31, 2012.
The interest rates on borrowings are variable based on term
and are 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, 2012,
the annual interest rates on both of the credit facilities, had
they been drawn, would have ranged from 1.0% to 1.3%.
Debt Covenants
The Company’s bank credit facilities contain various
covenants including requiring the Company to maintain
a debt to debt-plus-equity ratio not more than 50%. The
Company was in compliance with its debt covenants as of
December 31, 2012.
Interest Rate and Currency Swap Contracts
In 2012, the Company entered into interest rate swap
contracts to convert a portion of its interest rate exposure
from fixed rates to floating rates to more closely align
interest expense with interest income received on its cash
equivalent and variable rate investment balances. The
floating rates are benchmarked to LIBOR. The swaps are
designated as fair value hedges on the Company’s fixed-
rate debt. Since the critical terms of the swaps match
those of the debt being hedged, they are assumed to be
highly effective hedges and all changes in fair value of the
swaps are recorded as an adjustment to the carrying value
of the related debt with no net impact recorded in the
Consolidated Statements of Operations. Both the hedge
fair value changes and the offsetting debt adjustments
are recorded in Interest Expense on the Consolidated
Statements of Operations. The net fair value of these swaps
was $3 million at December 31, 2012 and is recorded in
Other Long-Term Assets for $14 million and Other Long-
Term Liabilities for $11 million in the Consolidated Balance
Sheets.
In December 2012, the Company entered into currency
swap contracts to hedge the foreign currency exposure
on the principal amount of intercompany borrowings
denominated in Brazilian Real. The currency swaps have a
notional amount of $256 million and mature on December
31, 2013. As of December 31, 2012, the fair value of the
currency swap liability was $3 million, which was recorded
in Other Current Liabilities in the Company’s Consolidated
Balance Sheets.
72212_Financials_CS55.indd 73
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74
UNITEDHEALTH GROUP
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
Deferred provision
Total provision for income taxes
2012
2011
2010
$
$
2,638
150
2,788
308
3,096
$
2,608
150
2,758
59
$
2,817
$
$
2,524
180
2,704
45
2,749
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)
2012
2011
2010
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
Non-deductible compensation
Other, net
$ 3,018
143
2
(59)
22
(30)
35.0%
1.7
—
(0.7)
0.2
(0.3)
$ 2,785
136
(29)
(63)
10
(22)
35.0%
1.7
(0.4)
(0.8)
0.1
(0.2)
$ 2,584
129
(3)
(65)
64
40
35.0%
1.7
—
(0.9)
0.9
0.5
Provision for income taxes
$ 3,096
35.9%
$ 2,817
35.4%
$ 2,749
37.2%
The higher effective income tax rate for 2012 as compared to 2011 resulted from the favorable resolution of various tax
matters in 2011. 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:
Accrued expenses and allowances
U.S. Federal and State net operating loss carryforwards
Share-based compensation
Long term liabilities
Medical costs payable and other policy liabilities
Non-U.S. tax loss carryforwards
Unearned revenues
Unrecognized tax benefits
Domestic other
Foreign other
Subtotal
Less: valuation allowances
Total deferred income tax assets
Deferred income tax liabilities:
U.S. Federal and State intangible assets
Non-U.S. goodwill and intangible assets
Capitalized software development
Net unrealized gains on investments
Depreciation and amortization
Prepaid expenses
Foreign other
Total deferred income tax liabilities
Net deferred income tax liabilities
2012
2011
$
$
306
276
238
160
149
126
64
25
93
142
1,579
(271)
1,308
(1,335)
(640)
(482)
(296)
(249)
(113)
(179)
(3,294)
(1,986)
$
$
259
247
417
155
166
—
56
44
192
—
1,536
(184)
1,352
(1,148)
—
(465)
(275)
(256)
(86)
—
(2,230)
(878)
72212_Financials_CS55.indd 74
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2012 FORM 10-K
75
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, state and non-U.S. net operating loss
carryforwards. Federal net operating loss carryforwards of $105 million expire beginning in 2019 through 2032, state net
operating loss carryforwards expire beginning in 2013 through 2032. Substantially all of the non-U.S. tax loss carryforwards
have indefinite carryforward periods.
As of December 31, 2012 the Company had $94 million of undistributed earnings from non-U.S. subsidiaries that are
intended to be reinvested in non-U.S. operations. Because these earnings are considered permanently reinvested, no U.S.
tax provision has been accrued related to the repatriation of these earnings. It is not practicable to estimate the amount of
U.S. tax that might be payable on the eventual remittance of such earnings.
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:
Current year tax positions
Prior year tax positions
Gross decreases:
Prior year tax positions
Settlements
Statute of limitations lapses
2012
2011
2010
$
129
$
220
$
220
6
18
(48)
(10)
(14)
11
10
(34)
(25)
(53)
13
30
—
—
(43)
Gross unrecognized tax benefits, end of period
$
81
$
129
$
220
The Company classifies interest and penalties associated
with uncertain income tax positions as income taxes within
its Consolidated Financial Statements. The Company
recognized tax benefits from the net reduction of interest
and penalties accrued of $20 million and $12 million
during the years ended December 31, 2012 and 2011,
respectively. During the year ended December 31, 2010, the
Company recognized $15 million of interest expense and
penalties. The Company had $23 million and $41 million of
accrued interest and penalties for uncertain tax positions
as of December 31, 2012 and 2011, respectively. These
amounts are not included in the reconciliation above. As of
December 31, 2012, the total amount of unrecognized tax
benefits that, if recognized, would affect the effective tax
rate, was $77 million.
The Company currently files income tax returns in the
U.S., various states and foreign jurisdictions. The U.S.
Internal Revenue Service (IRS) has completed exams on the
consolidated income tax returns for fiscal years 2011 and
prior. The Company’s 2012 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 2007. The
Brazilian federal revenue service - Secretaria da Receita
Federal (SRF) may audit the Company’s Brazilian subsidiaries
for a period of five years from the date on which corporate
income taxes should have been paid and/or the date
when the tax return was filed. Estimated taxes are paid
monthly or quarterly with an annual return due on June 30
following the end of the taxable year.
The Company believes it is reasonably possible that its
liability for unrecognized tax benefits will decrease in the
next twelve months by $37 million as a result of audit
settlements and the expiration of statutes of limitations in
certain major jurisdictions.
72212_Financials_CS55.indd 75
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76
UNITEDHEALTH GROUP
10. ShareholderS’ equity
Regulatory Capital and Dividend Restrictions
The Company’s regulated subsidiaries are subject to
regulations and standards in their respective jurisdictions.
These standards, among other things, require these
subsidiaries to maintain specified levels of statutory capital,
as defined by each jurisdiction, and restrict the timing and
amount of dividends and other distributions that may be
paid to their parent companies. In the United States, most
of these regulations and standards are generally consistent
with model regulations established by the National
Association of Insurance Commissioners. 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 2012, based on the 2011 statutory
net income and statutory capital and surplus levels, the
maximum amount of ordinary dividends that could have
been paid by the Company’s U.S. regulated subsidiaries to
their parent companies was $4.6 billion.
For the year ended December 31, 2012, the Company’s
regulated subsidiaries paid their parent companies
dividends of $4.9 billion, including $1.2 billion of
extraordinary dividends. 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. As of December 31, 2012,
$1.1 billion of the Company’s $8.4 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 $13
billion as of December 31, 2012; regulated entity statutory
capital exceeded aggregate minimum capital requirements.
Optum 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 Corporation
(FDIC) to be considered “Well Capitalized” under the
capital adequacy rules to which it is subject. At December
31, 2012, the Company believes that Optum 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 June 2012, the Board renewed and expanded the
Company’s share repurchase program with an authorization
to repurchase up to 110 million shares of its common stock.
During the year ended December 31, 2012, the Company
repurchased 57 million shares at an average price of $54.45
per share and an aggregate cost of $3.1 billion. As of
December 31, 2012, the Company had Board authorization
to purchase up to an additional 85 million shares of its
common stock.
Dividends
In June 2012, the Company’s Board of Directors increased
the Company’s cash dividend to shareholders to an annual
dividend rate of $0.85 per share, paid quarterly. Since
May 2011, the Company had paid an annual dividend of
$0.65 per share, paid quarterly. 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.
The following table provides details of the Company’s
dividend payments:
Payment date
2010
2011
2012
amount per
Share
$
0.4050
0.6125
0.8000
total amount Paid
(in millions)
$
449
651
820
72212_Financials_CS55.indd 76
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11. Share-BaSed CompenSation
The Company’s outstanding share-based awards consist mainly of non-qualified stock options, SARs and restricted shares.
As of December 31, 2012, the Company had 43 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 16
million of awards in restricted shares. As of December 31, 2012, there were also 20 million shares of common stock available
for issuance under the ESPP.
Stock Options and SARs
Stock option and SAR activity for the year ended December 31, 2012 is summarized in the table below:
2012 FORM 10-K
77
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
exercise
price
Weighted-
average
remaining
Contractual Life
aggregate
intrinsic Value
(in years)
(in millions)
$
42
55
36
43
45
46
45
4.0
3.5
4.0
$
625
460
622
Shares
(in millions)
91
2
(29)
(1)
63
53
62
Restricted Shares
Restricted share activity for the year ended December 31, 2012 is summarized in the table below:
(shares in millions)
Nonvested at beginning of period
Granted
Vested
Forfeited
Nonvested at end of period
Other Share-Based Compensation Data
(in millions, except per share amounts)
Stock options and Sars
Weighted-average grant date fair value
of shares granted, per share
Total intrinsic value of stock options and SARs exercised
restricted Shares
Weighted-average grant date fair value
of shares granted, per share
Total fair value of restricted shares vested
employee Stock purchase plan
Number of shares purchased
Share-Based Compensation items
Share-based compensation expense, before tax
Share-based compensation expense, net of tax effects
Income tax benefit realized from share-based award exercises
(in millions, except years)
Unrecognized compensation expense related to share awards
Weighted-average years to recognize compensation expense
Shares
17
7
(14)
(1)
9
Weighted-average
Grant date
Fair Value per Share
$
36
52
37
44
46
For the Years ended december 31,
2012
2011
2010
$
18
559
$
15
327
$
13
164
52
716
3
421
299
461
$
42
113
3
401
260
170
$
32
99
4
326
278
78
$
december 31, 2012
$
307
1.1
72212_Financials_CS55.indd 77
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78
UNITEDHEALTH GROUP
Share-Based Compensation Recognition and Estimates
The principal assumptions the Company used in calculating grant-date fair value for stock options and SARs were as follows:
Risk free interest rate
Expected volatility
Expected dividend yield
Forfeiture rate
Expected life in years
2012
2011
2010
0.7% - 0.9%
43.2% - 44.0%
1.2% - 1.7%
5.0%
5.3 - 5.6
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
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 cash dividend paid 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 Company provides guarantees related to its service
level under certain contracts. If minimum 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.
None of the amounts accrued, paid or charged to income
for service level guarantees were material as of or for the
years ended December 31, 2012, 2011 and 2010.
As of December 31, 2012, the Company had outstanding,
undrawn letters of credit with financial institutions of
$45 million and surety bonds outstanding with insurance
companies of $432 million, primarily to bond contractual
performance.
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 2012, 2011 and 2010.
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 $348 million and $281 million as of December 31,
2012 and 2011, 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 2012, 2011 and 2010 was $334 million,
$295 million and $297 million, respectively.
As of December 31, 2012, future minimum annual lease
payments, net of sublease income, under all non-cancelable
operating leases were as follows:
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, care providers, customers and
regulators, relating to the Company’s businesses, including
management and administration of health benefit
plans and other services. 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.
The Company records liabilities for its estimates of
probable costs resulting from these matters where
appropriate. Estimates of 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.
(in millions)
2013
2014
2015
2016
2017
Thereafter
Future minimum
Lease Payments
$ 380
357
319
277
233
556
Litigation Matters
Out-of-Network Reimbursement Litigation. The
Company is involved in a number of lawsuits challenging
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), including putative class actions and
multidistrict litigation brought on behalf of members of
Aetna and WellPoint. These suits allege, among other
72212_Financials_CS55.indd 78
3/28/13 3:53 AM
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. In 2012, the
Company was dismissed as a party from a similar lawsuit
involving Cigna and its members. 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, dispositive motions that remain pending, 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. On January 25,
2008, the California Department of Insurance (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
related to an alleged failure to include certain language in
standard claims correspondence, timeliness and accuracy of
claims processing, interest payments, care provider contract
implementation, care provider dispute resolution and other
related matters. The matter has been the subject of an
administrative hearing before a California administrative
law judge since December 2009. Although the Company
believes that CDI has never issued a penalty in excess of
$8 million, CDI is seeking a penalty of approximately $325
million in this matter. 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 in
early 2013, 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 Investigations, Audits and Reviews
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 the Inspector General (OIG), the Office of Personnel
Management, the Office of Civil Rights, the Federal Trade
Commission (FTC), U.S. Congressional committees, the U.S.
Department of Justice (DOJ), U.S. Attorneys, the Securities
and Exchange Commission (SEC), the Brazilian securities
regulator - Comissão de Valores Mobiliários (CVM), IRS,
SRF, the U.S. Department of Labor (DOL), the FDIC and
2012 FORM 10-K
79
other governmental authorities. Certain of the Company’s
businesses have been reviewed or are currently under
review, including for, among other things, compliance with
coding and other requirements under the Medicare risk-
adjustment model.
In February 2012, CMS announced a final RADV audit and
payment adjustment methodology and that it will conduct
RADV audits beginning with the 2011 payment year. These
audits involve a review of medical records maintained by
care providers and may result in retrospective adjustments
to payments made to health plans. CMS has not
communicated how the final payment adjustment under its
methodology will be implemented.
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 effect on
the Company’s results of operations, financial position and
cash flows.
13. Segment Financial inFormation
Factors used to determine 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 four
reportable segments derives its revenues:
• UnitedHealthcare includes the combined results
of operations of UnitedHealthcare Employer &
Individual, UnitedHealthcare Medicare & Retirement,
UnitedHealthcare Community & State and
UnitedHealthcare International because they have
similar economic characteristics, products and services,
customers, distribution methods and operational
processes and operate in a similar regulatory
environment. The U.S. 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 an array of consumer-oriented health
benefit plans and services for large national employers,
public sector employers, mid-sized employers, small
businesses and individuals nationwide and will serve
TRICARE West Region members beginning April
1, 2013. UnitedHealthcare Medicare & Retirement
provides health care coverage and 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),
72212_Financials_CS55.indd 79
3/28/13 3:53 AM
As a percentage of the Company’s total consolidated
revenues, premium revenues from CMS were 29%
for the year ended December 31, 2012, 28% for year
ended December 31, 2011, and 27% for the year ended
December 31, 2010, most of which were generated by
UnitedHealthcare Medicare & Retirement and included
in the UnitedHealthcare segment. U.S. customer revenue
represented approximately 99% of consolidated total
revenues during 2012. Long-lived fixed assets located in the
U.S. represented approximately 70% of the total long-lived
fixed assets as of December 31, 2012.
80
UNITEDHEALTH GROUP
Special Needs Plans, Medicare-Medicaid Eligible
beneficiaries eligible for both Medicare and Medicaid
and other federal, state and community health
care programs. UnitedHealthcare International is a
diversified global health services business with a variety
of offerings, including international commercial health
and dental benefits.
• OptumHealth serves the physical, emotional and
financial needs of individuals, enabling consumer
health management and integrated care delivery
through programs offered by employers, payers,
government entities and directly with the care delivery
system. OptumHealth offers access to networks of
care provider specialists, health management services,
integrated care delivery services, consumer relationship
management and sales distribution platform services
and financial services.
• OptumInsight is a health care information, technology,
operational services and consulting company providing
software and information products, advisory consulting
services, and business process outsourcing services and
support 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.
• OptumRx offers a multitude of pharmacy benefit
management services and programs including
claims processing, retail network contracting, rebate
contracting and management, clinical programs, such
as step therapy, formulary management and disease/
drug therapy management programs to achieve a
low-cost, high-quality pharmacy benefit. OptumRx
also provides patient support programs and dispensing
of prescribed medications, including specialty
medications, through its mail order pharmacies for its
clients’ members.
The Company’s accounting policies for reportable
segment operations are consistent with those described
in the Summary of Significant Accounting Policies (see
Note 2). Transactions between reportable segments
principally consist of sales of pharmacy benefit products
and services to UnitedHealthcare customers by OptumRx,
certain product offerings and care management and
integrated care delivery 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.
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 working capital and/or at least
minimum specified levels of regulatory capital.
72212_Financials_CS55.indd 80
3/28/13 3:53 AM
Corporate and intersegment elimination amounts are presented to reconcile the reportable segment results to the
consolidated results. The following table presents the reportable segment financial information:
2012 FORM 10-K
81
UnitedHealthcare OptumHealth OptumInsight
OptumRx
Total Optum
Corporate and
Intersegment
Eliminations Consolidated
Optum
(in millions)
2012
Revenues - external customers:
Premiums
Services
Products
Total revenues - external customers
102,852
Total revenues - intersegment
Investment and other income
—
567
2,531
5,503
113
$ 97,985
4,867
—
$ 1,743
767
21
$
—
1,720
87
1,807
1,075
—
$
$
—
83
2,665
2,748
$ 1,743
2,570
2,773
7,086
—
—
—
—
$ 99,728
7,437
2,773
109,938
15,611
—
22,189
113
(22,189)
—
—
680
Total revenues
$ 103,419
$ 8,147
$ 2,882
$ 18,359
$ 29,388
$ (22,189) $ 110,618
Earnings from operations
Interest expense
$ 7,815
—
$
Earnings before income taxes
$ 7,815
$
561
—
561
$
$
485
—
485
$
$
393
—
393
$ 1,439
—
$ 1,439
Total Assets
Purchases of property, equipment
$ 63,591
$ 8,274
$ 5,463
$ 3,466
$ 17,203
and capitalized software
Depreciation and amortization
$
$
585
794
$
$
184
193
2011
Revenues - external customers:
Premiums
Services
Products
$ 90,487
4,291
—
$ 1,496
628
24
Total revenues - external customers
94,778
Total revenues - intersegment
Investment and other income
—
558
2,148
4,461
95
$
$
$
$
$
$
165
210
—
1,616
96
1,712
136
112
$
$
485
515
—
78
2,492
2,570
$ 1,496
2,322
2,612
6,430
Earnings from operations
Interest expense
$ 7,203
—
$
Earnings before income taxes
$ 7,203
$
423
—
423
$
$
381
—
381
$
$
457
—
457
$ 1,261
—
$ 1,261
Total Assets
Purchases of property, equipment
and capitalized software
Depreciation and amortization
2010
Revenues - external customers:
Premiums
Services
Products
$ 52,618
$ 6,756
$ 5,308
$ 3,503
$ 15,567
$
$
635
680
$
$
168
154
$ 84,158
4,021
—
$ 1,247
331
19
$
$
$
$
$
$
175
195
—
1,403
93
1,496
89
95
$
$
432
444
—
64
2,210
2,274
$ 1,247
1,798
2,322
5,367
Total revenues - external customers
88,179
Total revenues - intersegment
Investment and other income
—
551
1,597
2,912
56
$
$
$
$
$
$
—
(632)
$ 9,254
(632)
(632) $ 8,622
91
$ 80,885
—
—
$ 1,070
$ 1,309
—
—
—
—
$ 91,983
6,613
2,612
101,208
$
$
$
$
$
$
—
(505)
$ 8,464
(505)
(505) $ 7,959
(296) $ 67,889
—
—
$ 1,067
$ 1,124
—
—
—
—
$ 85,405
5,819
2,322
93,546
845
1
14,449
1
18,206
58
(18,206)
—
—
609
958
1
16,708
—
22,127
96
(22,127)
—
—
654
Total revenues
$ 95,336
$ 6,704
$ 2,671
$ 19,278
$ 28,653
$ (22,127) $ 101,862
Total revenues
$ 88,730
$ 4,565
$ 2,342
$ 16,724
$ 23,631
$ (18,206) $ 94,155
Earnings from operations
Interest expense
$ 6,740
—
$
Earnings before income taxes
$ 6,740
$
511
—
511
$
$
84
—
84
$
$
529
—
529
$ 1,124
—
$ 1,124
Total Assets
Purchases of property, equipment
and capitalized software
Depreciation and amortization
Goodwill impairment
$ 50,913
$ 3,897
$ 5,435
$ 3,087
$ 12,419
$
$
$
525
725
—
$
$
$
117
100
—
$
$
$
156
159
172
$
$
$
80
80
—
$
$
$
353
339
172
$
$
$
$
$
$
—
(481)
$ 7,864
(481)
(481) $ 7,383
(269) $ 63,063
—
—
—
$
878
$ 1,064
172
$
72212_Financials_CS55.indd 81
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82
UNITEDHEALTH GROUP
14. Quarterly Financial Data (unauDiteD)
Selected quarterly financial information for all quarters of 2012 and 2011 is as follows:
(in millions, except per share data)
March 31
June 30
September 30
December 31
For the Quarter ended
2012
Revenues
Operating costs
Earnings from operations
Net earnings
Net earnings per share attributable to
UnitedHealth Group common shareholders:
Basic
Diluted
2011
Revenues
Operating costs
Earnings from operations
Net earnings
Basic net earnings per common share
Diluted net earnings per common share
$
$
27,282
24,965
2,317
1,388
1.34
1.31
25,432
23,211
2,221
1,346
1.24
1.22
$
$
27,265
25,039
2,226
1,337
1.30
1.27
25,234
23,135
2,099
1,267
1.18
1.16
$
$
27,302
24,692
2,610
1,557
1.52
1.50
25,280
23,210
2,070
1,271
1.19
1.17
$
$
28,769
26,668
2,101
1,244
1.22
1.20
25,916
23,842
2,074
1,258
1.19
1.17
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, 2012. 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, 2012.
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,
2012 that have materially affected, or are reasonably likely
to materially affect, our internal control over
financial reporting.
72212_Financials_CS55.indd 82
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RepoRt of ManageMent on InteRnal ContRol oveR
fInanCIal RepoRtIng as of DeCeMbeR 31, 2012
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.
2012 FORM 10-K
83
Management assessed the effectiveness of the Company’s
internal control over financial reporting as of December
31, 2012. 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. Management’s assessment of the
effectiveness of our internal control over financial reporting
excluded an assessment of the effectiveness of our internal
control over financial reporting of Amil Participações S.A
and its subsidiaries (Amil). Such exclusion was in accordance
with Securities and Exchange Commission guidance that
an assessment of a recently acquired business may be
omitted in management’s report on internal control over
financial reporting in the year of acquisition. We acquired
a controlling interest in Amil during October 2012. Amil
represented 10% of our consolidated total assets and 1%
of our consolidated total revenues as of and for the year
ended December 31, 2012. Based on our assessment and
the COSO criteria, we believe that, as of December 31,
2012, 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, 2012, 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, 2012.
72212_Financials_CS55.indd 83
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84
UNITEDHEALTH GROUP
RepoRt of Independent RegIsteRed
publIc AccountIng fIRm
To the Board of Directors and Shareholders 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, 2012,
based on criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. As described in
Report of Management on Internal Control over Financial
Reporting as of December 31, 2012, management excluded
from its assessment the internal control over financial
reporting at Amil Participações S.A and its subsidiaries
(Amil), which was acquired during October 2012 and whose
financial statements collectively constitute approximately
10% of total assets and 1% of total revenues of the
consolidated financial statement amounts as of and for the
year ended December 31, 2012. Accordingly, our audit did
not include the internal control over financial reporting
at Amil. 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, 2012. 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,
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, 2012, 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, 2012 of the Company and our
reports dated February 6, 2013 expressed as an unqualified
opinion on those consolidated financial statements and
financial statement schedule.
/s/ DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
February 6, 2013
72212_Financials_CS55.indd 84
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2012 FORM 10-K
85
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,” “Director
Compensation,” “Corporate Governance - Risk Oversight”
and “Compensation Committee Interlocks and Insider
Participation” in our definitive proxy statement for our
2013 Annual Meeting of Shareholders, and such required
information is incorporated herein by reference.
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.”
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 2013 Annual Meeting of Shareholders,
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, 2012, concerning shares of common stock authorized
for issuance under all of our equity compensation plans:
plan Category
(a)
(b)
number of securities Weighted-average
to be issued upon
exercise of
outstanding
options, warrants
and rights (3)
(in millions)
excercise
price of
outstanding
options, warrants
and rights (3)
(c)
number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected
in column (a))
(in millions)
Equity compensation plans approved by shareholders (1)
Equity compensation plans not approved by shareholders (2)
Total (2)
51
—
51
$
$
43
—
43
63 (4)
—
63
(1) Consists of the UnitedHealth Group Incorporated 2011 Stock Incentive Plan, as amended, and the UnitedHealth Group
1993 Employee Stock Purchase Plan, as amended.
(2) Excludes 0.1 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 $41
and an average remaining term of approximately 2.1 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 12 million shares of common stock of the Company with exercise
prices above $54.24, the closing price of a share of our common stock as reported on the NYSE on December 31, 2012.
(4) Includes 20 million shares of common stock available for future issuance under the Employee Stock Purchase Plan as of
December 31, 2012, and 43 million shares available under the 2011 Stock Incentive Plan as of December 31, 2012. 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 16
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 2013 Annual Meeting of Shareholders, and
such required information is incorporated herein by reference.
72212_Financials_CS55.indd 85
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EXHIBIT INDEX**
86
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
2013 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 2013 Annual Meeting of Shareholders, and such
required information is incorporated herein by reference.
PART IV
ITEM 15.
Exhibits And Financial
Statement Schedules
1. Financial Statements
(a)
The financial statements are included under Item 8 of
this report:
• Reports of Independent Registered Accounting Firm.
• Consolidated Balance Sheets as of December 31, 2012
and 2011.
• Consolidated Statement of Operations for the years
ended December 31, 2012, 2011, and 2010.
• Consolidated Statement of Comprehensive Income for
the years ended December 31, 2012, 2011, and 2010.
• Consolidated Statement of Changes in Shareholders’
Equity for the years ended December 31, 2012, 2011,
and 2010.
• Consolidated Statement of Cash Flows for the years
ended December 31, 2012, 2011, and 2010.
• Notes to the Consolidated Financial Statements.
3.1
3.2
4.1
4.2
4.3
4.4
*10.1
2. Financial Statement Schedules
The following financial statement schedule of the Company
is included in Item 15(c):
*10.2
• Schedule I - Condensed Financial Information of
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.
*10.3
(b)
The following exhibits are filed in response to Item
601 of Regulation S-K.
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
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 23, 2011)
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 23, 2011)
72212_Financials_CS55.indd 86
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*10.4
*10.5
*10.6
*10.7
*10.8
*10.9
*10.10
*10.11
*10.12
*10.13
Form of Agreement for Restricted Stock Unit
Award to Executives under UnitedHealth Group
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 23, 2011)
Form of Agreement for Stock Appreciation Rights
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 23, 2011)
Form of Agreement for Performance-based
Restricted Stock Unit Award to Executives under
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 23, 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 23, 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 23, 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)
Amendment, dated as of December 21, 2012,
of Amended and Restated UnitedHealth Group
Incorporated 2008 Executive Incentive Plan
UnitedHealth Group Executive Savings Plan (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)
*10.14
*10.15
*10.16
*10.17
*10.18
*10.19
*10.20
*10.21
*10.22
*10.23
2012 FORM 10-K
87
Second Amendment to UnitedHealth Group
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)
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)
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)
First Amendment to UnitedHealth Group Directors’
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)
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)
Amendment to Agreement for Supplemental
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)
72212_Financials_CS55.indd 87
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88
UNITEDHEALTH GROUP
*10.24
*10.25
*10.26
*10.27
*10.28
*10.29
*10.30
*10.31
*10.32
*10.33
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)
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)
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)
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)
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)
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)
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)
Amended and Restated Employment Agreement,
dated as of March 26, 2012, between United
HealthCare Services, Inc. and Larry C. Renfro
(incorporated by reference to Exhibit 10.1 to
UnitedHealth Group Incorporated’s Quarterly Report
on Form 10-Q for the quarter ended March 31, 2012)
Amended Employment Agreement, effective as of
November 1, 2012, between Amil Assistência Médica
Internacional S.A. and Dr. Edson de Godoy Bueno
Employment Agreement, effective as of June 29,
2007, and amendment thereto, effective as of
December 31, 2008, between United HealthCare
Services, Inc. and Lori Sweere
*10.34
*10.35
*10.36
*10.37
11.1
12.1
21.1
23.1
24.1
31.1
32.1
101
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)
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)
Form of Agreement for Non-Qualified Stock
Option Award for International Participants under
UnitedHealth Group Incorporated’s 2011 Stock
Incentive Plan
Form of Addendum for Non-Qualified Stock Option
Award Agreement for International Participants
under UnitedHealth Group Incorporated’s 2011
Stock Incentive Plan
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 of Notes to
the Consolidated Financial Statements included in
Item 8, “Financial Statements”)
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, 2012, filed on February
6, 2013, formatted in XBRL (eXtensible Business
Reporting Language): (i) Consolidated Balance
Sheets, (ii) Consolidated Statements of Operations,
(iii) Consolidated Statements of Comprehensive
Income, (iv) Consolidated Statements of Changes in
Shareholders’ Equity, (v) Consolidated Statements
of Cash Flows, and (vi) 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).
72212_Financials_CS55.indd 88
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2012 FORM 10-K
89
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, 2012 and 2011, and for each of the three years in the period ended December 31, 2012,
and the Company’s internal control over financial reporting as of December 31, 2012, and have issued our reports thereon
dated February 6, 2013; 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, Minnesota
February 6, 2013
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90
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, 2012
december 31, 2011
assets
Current assets:
Cash and cash equivalents
Notes receivable from subsidiaries
Deferred income taxes, prepaid expenses and other
current assets
Total current assets
Equity in net assets of subsidiaries
Other assets
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
Long-term debt, less current maturities
Deferred income taxes and other liabilities
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;
1,019 and 1,039 issued and outstanding
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
Total UnitedHealth Group shareholders’ equity
total liabilities and shareholders’ equity
See Notes to the Condensed Financial Statements of Registrant
$
$
$
$
1,025
2,889
225
4,139
43,724
106
47,969
356
175
2,541
3,072
13,602
117
16,791
—
10
66
30,664
438
31,178
47,969
$
$
$
$
1,506
—
179
1,685
38,688
77
40,450
351
145
982
1,478
10,656
24
12,158
—
10
—
27,821
461
28,292
40,450
72212_Financials_CS55.indd 90
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Schedule I
Condensed FinanCial inFormation oF registrant
(Parent ComPany only)
UnitedHealtH groUP
Condensed statements oF ComPreHensive inCome
2012 FORM 10-K
91
(in millions)
revenues:
Investment and other income
Total revenues
operating costs:
Operating costs
Interest expense
Total operating costs
loss before income taxes
Benefit for income taxes
loss of parent company
Equity in undistributed income of subsidiaries
net earnings
Other comprehensive (loss) income
Comprehensive income
For the years ended december 31,
2011
2012
2010
$
28
28
$
3
3
$
(2)
566
564
(536)
192
(344)
5,870
5,526
(23)
25
451
476
(473)
167
(306)
5,448
5,142
209
2
2
54
433
487
(485)
180
(305)
4,939
4,634
(1)
$
5,503
$
5,351
$
4,633
See Notes to the Condensed Financial Statements of Registrant
72212_Financials_CS55.indd 91
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92
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
Cash paid for acquisitions
Capital contributions to subsidiaries
Cash flows used for investing activities
Financing activities
Common stock repurchases
Issuance of notes to subsidiaries
Proceeds from common stock issuance
Cash dividends paid
Proceeds from commercial paper, net
Proceeds from issuance of long term debt
Repayments of long-term debt
Interest rate swap termination
Proceeds of note from subsidiary
Other
Cash flows used for financing activities
(decrease) increase in cash and cash equivalents
Cash and cash equivalents, beginning of period
For the years ended december 31,
2011
2012
2010
$
6,116
$
5,560
$
3,731
(3,737)
(99)
(3,836)
(3,084)
(4,149)
1,078
(820)
1,587
3,966
(986)
—
30
(383)
(2,761)
(481)
1,506
(2,081)
(171)
(2,252)
(2,994)
—
381
(651)
(933)
2,234
(955)
132
15
53
(2,718)
590
916
(2,470)
(104)
(2,574)
(2,517)
—
272
(449)
930
747
(1,583)
—
30
20
(2,550)
(1,393)
2,309
Cash and cash equivalents, end of period
$
1,025
$
1,506
$
916
supplemental cash flow disclosures
Cash paid for interest
Cash paid for income taxes
$
547
2,666
$
418
2,739
$
459
2,725
See Notes to the Condensed Financial Statements of Registrant.
72212_Financials_CS55.indd 92
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2012 FORM 10-K
93
3. CommerCial PaPer and long-term deBt
Maturities of commercial paper and long-term debt for the
years ending December 31 are as follows:
(in millions)
2013 (a)
2014
2015
2016
2017
Thereafter
$ 2,541
589
1,067
1,152
1,281
9,513
(a) Includes $9 million of debt subject to acceleration
clauses.
Long-term debt obligations of the parent company do not
include Brazilian real denominated debt of a subsidiary
with a total par value of $588 million. Further information
on commercial paper and long-term debt can be found in
Note 8 of Notes to the Consolidated Financial Statements
included in Item 8, “Financial Statements.”
4. Commitments and ContingenCies
For a summary of commitments and contingencies, see
Note 12 of Notes to the Consolidated Financial Statements
included in Item 8, “Financial Statements.”
Schedule I
Condensed FinanCial inFormation oF registrant
(Parent ComPany only)
UnitedHealtH groUP
notes to Condensed FinanCial statements
1. Basis oF Presentation
UnitedHealth Group’s parent company financial
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 included in Item 8, “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.
Notes Receivable from Subsidiaries. Notes issued to
subsidiaries were used primarily to fund acquisitions.
During 2012, the parent company completed a non-
cash exchange of a $3.9 billion intercompany note to a
subsidiary for a new term note of $2.6 billion and an equity
interest of $1.3 billion.
Dividends. Cash dividends received from subsidiaries and
included in Cash Flows from Operating Activities in the
Condensed Statements of Cash Flows were $7.8 billion, $5.6
billion and $4.3 billion in 2012, 2011 and 2010, respectively.
72212_Financials_CS55.indd 93
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94
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 6, 2013
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.
Signature
Title
Director, President and Chief Executive Officer
(principal executive officer)
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
Director
/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*
Edson Bueno*
Robert J. Darretta*
Michele J. Hooper*
Rodger A. Lawson*
Douglas W. Leatherdale*
Glenn M. Renwick*
Kenneth I. Shine*
Gail R. Wilensky*
*By
/s/ MARIANNE D. SHORT
Marianne D. Short,
As Attorney-in-Fact
Date
February 6, 2013
February 6, 2013
February 6, 2013
February 6, 2013
February 6, 2013
February 6, 2013
February 6, 2013
February 6, 2013
February 6, 2013
February 6, 2013
February 6, 2013
February 6, 2013
February 6, 2013
72212_Financials_CS55.indd 94
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EXHIBIT INDEX**
3.1
3.2
4.1
4.2
4.3
4.4
*10.1
*10.2
*10.3
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
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 23, 2011)
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 23, 2011)
*10.4
*10.5
*10.6
*10.7
*10.8
*10.9
*10.10
*10.11
*10.12
*10.13
2012 FORM 10-K
95
Form of Agreement for Restricted Stock Unit
Award to Executives under UnitedHealth Group
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 23, 2011)
Form of Agreement for Stock Appreciation Rights
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 23, 2011)
Form of Agreement for Performance-based
Restricted Stock Unit Award to Executives under
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 23, 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 23, 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 23, 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)
Amendment, dated as of December 21, 2012,
of Amended and Restated UnitedHealth Group
Incorporated 2008 Executive Incentive Plan
UnitedHealth Group Executive Savings Plan (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)
72212_Financials_CS55.indd 95
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96
UNITEDHEALTH GROUP
*10.14
*10.15
*10.16
*10.17
*10.18
*10.19
*10.20
*10.21
*10.22
*10.23
Second Amendment to UnitedHealth Group
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)
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)
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)
First Amendment to UnitedHealth Group Directors’
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)
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)
Amendment to Agreement for Supplemental
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)
*10.24
*10.25
*10.26
*10.27
*10.28
*10.29
*10.30
*10.31
*10.32
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)
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)
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)
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)
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)
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)
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)
Amended and Restated Employment Agreement,
dated as of March 26, 2012, between United
HealthCare Services, Inc. and Larry C. Renfro
(incorporated by reference to Exhibit 10.1 to
UnitedHealth Group Incorporated’s Quarterly
Report on Form 10-Q for the quarter ended
March 31, 2012)
Amended Employment Agreement, effective as
of November 1, 2012, between Amil Assistência
Médica Internacional S.A. and Dr. Edson de
Godoy Bueno
72212_Financials_CS55.indd 96
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2012 FORM 10-K
97
*
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.
*10.33
*10.34
*10.35
*10.36
*10.37
11.1
12.1
21.1
23.1
24.1
31.1
32.1
101
Employment Agreement, effective as of June 29,
2007, and amendment thereto, effective as of
December 31, 2008, between United HealthCare
Services, Inc. and Lori Sweere
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)
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)
Form of Agreement for Non-Qualified Stock
Option Award for International Participants under
UnitedHealth Group Incorporated’s 2011 Stock
Incentive Plan
Form of Addendum for Non-Qualified Stock Option
Award Agreement for International Participants
under UnitedHealth Group Incorporated’s 2011
Stock Incentive Plan
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 of Notes to
the Consolidated Financial Statements included in
Item 8, “Financial Statements”)
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, 2012, filed on February
6, 2013, formatted in XBRL (eXtensible Business
Reporting Language): (i) Consolidated Balance
Sheets, (ii) Consolidated Statements of Operations,
(iii) Consolidated Statements of Comprehensive
Income, (iv) Consolidated Statements of Changes in
Shareholders’ Equity, (v) Consolidated Statements
of Cash Flows, and (vi) Notes to the Consolidated
Financial Statements.
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98
UNITEDHEALTH GROUP
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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
performance of the health
We work with health care
professionals and other key
We support the physician/
patient relationship and
system and improve the overall
partners to expand access to
empower people with the
health and well-being of the
quality health care so people
information, guidance and tools
people we serve and their
get the care they need at an
they need to make personal
communities.
affordable price.
health choices and decisions.
OUR CULTURE
The people of this company share basic values that inspire
and preserved through truthfulness, integrity, active
our behavior as individuals and thus as an institution:
engagement and collaboration with our colleagues
Integrity. We are dedicated to the highest levels of
personal and institutional integrity. We make honest
commitments and work to honor those commitments
and clients. We encourage the variety of thoughts and
perspectives that reflect the diversity of our markets,
customers and workforce.
consistently. We are ethical people. We strive to deliver on
Innovation. We pursue a course of continuous, positive
our promises and we have the courage to acknowledge
and practical innovation, using our deep experience in
mistakes and do what is needed to address them.
health care to be thoughtful advocates of change and
Compassion. We try to walk in the shoes of the people
we serve and the people we work with. Our job is to
listen with empathy and then respond appropriately 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.
quickly with service and advocacy for each individual,
Performance. We are committed to deliver and
each group or community and for society as a whole.
demonstrate excellence in everything we do. We will be
We are grateful to have a role in serving people and
accountable and responsible for consistently delivering
society in an area so vitally human as their health.
high-quality and superior results that make a difference
Relationships. We build trust through cultivating
relationships and working in productive collaboration
with government, employers, physicians, nurses and
other health care professionals, hospitals and the
individual consumers of health care. Trust is earned
in the lives of the people we touch. We continue to
challenge ourselves to strive for even better outcomes
in all key performance areas.
INVESTOR INFORMATION
Market price of common stock
The following table shows the range of high and low sales
Investor relations
You can contact UnitedHealth Group Investor Relations
prices for the company’s common stock as reported by
to order, without charge, financial documents such as
the New York Stock Exchange, where it trades under the
the Annual Report on Form 10-K and the Annual Report
symbol UNH. These prices do not include commissions or
to Shareholders.
fees associated with purchasing or selling this security.
2013
First Quarter (through March 15, 2013)
high
$58.26
2012
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2011
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$59.43
$60.75
$59.31
$58.29
$45.75
$52.64
$53.50
$51.71
low
$51.36
$49.82
$53.78
$50.32
$51.09
$36.37
$43.30
$41.27
$41.32
As of January 31, 2013, the company had 15,204 shareholders of record.
Shareholder account questions
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
• Additional administrative services
You can write to them at:
Wells Fargo Shareowner Services
P.O. Box 64854
St. Paul, Minnesota 55164-0854
Or you can call our transfer agent toll free at
(800) 468-9716 or locally at (651) 450-4064.
You can email our transfer agent at:
stocktransfer@wellsfargo.com
You can write to us at:
Investor Relations, MN008-T930
UnitedHealth Group
P.O. Box 1459
Minneapolis, Minnesota 55440-1459
You can also obtain information about UnitedHealth Group
and its businesses, including financial documents, online at
www.unitedhealthgroup.com.
Annual meeting
We invite UnitedHealth Group shareholders to attend our
annual meeting, which will be held at 10 a.m. Eastern Time
on Monday, June 3, 2013, at the following location:
Seaport Boston Hotel
Constitution Conference Room
1 Seaport Lane
Boston, Massachusetts 02210
You will need to bring appropriate proof of UnitedHealth
Group share ownership and a photo ID with you to the
annual meeting in order to be admitted.
Common stock dividends
In June 2012, our Board of Directors increased our cash
dividend on common stock to an annual dividend rate of
$0.85 per share, paid quarterly. 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. Since May 2011, we had paid an annual
cash dividend on common stock of $0.65 per share,
distributed quarterly.
10%
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
forest management, and also uses reduced VOC (Volatile Organic Compounds) vegetable-based inks.
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2012 Annual Report
ADAPTABLE
ENTERPRISE.
CONSTANT
VALUES.
Helping People
Live Healthier Lives
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www.unitedhealthgroup.com
UnitedHealth Group Center
9900 Bren Road East, Minnetonka, Minnesota 55343
100-12310 4/13
©2013 UnitedHealth Group. All Rights Reserved. UnitedHealth Group is a registered trademark with the U.S. Patent and Trademark Office.
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