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ITEM 7.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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EXECUTIVE OVERVIEW
General
UnitedHealth Group is a diversified health and well-being company dedicated to helping people live healthier lives and helping to make the health system work better for everyone. 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.
We have four reportable segments across our two business platforms, UnitedHealthcare and Optum:
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•
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UnitedHealthcare, which includes UnitedHealthcare Employer & Individual, UnitedHealthcare Medicare & Retirement, UnitedHealthcare Community & State and UnitedHealthcare Global;
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Recent Developments
We have recognized in our financial results for the fourth quarter 2016 and the year ended December 31, 2016 the previously disclosed
$350 million
impact of our estimated share of guaranty association assessments resulting from the liquidation of Penn Treaty Network America Insurance Company and its subsidiary (Penn Treaty), following accounting, legal and regulatory consultations in connection with our 10-K filing. This charge will be funded over several years and affected by premium tax credits over time.
Business Trends
Our businesses participate in the United States, Brazilian and certain other international health markets. In the United States, health care spending has grown consistently for many years and comprises approximately 18% of gross domestic product. 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, which have impacted and could further impact our results of operations.
Pricing Trends
. To price our health care benefit products, we start with our view of expected future costs. We frequently evaluate and adjust our approach in each of the local markets we serve, considering all relevant factors, such as product positioning, price competitiveness and environmental, competitive, legislative and regulatory considerations. Our review of regulatory considerations involves a focus on minimum MLR thresholds and the risk adjustment that impacts the small group and individual markets. We will continue seeking to balance growth and profitability across all of these dimensions.
The commercial risk market remains highly competitive in both the small group and large group segments. We expect broad-based competition to continue as the industry adapts to individual and employer needs amid reform changes. The ACA included an annual, nondeductible insurance industry tax (Health Insurance Industry Tax) to be levied proportionally across the insurance industry for risk-based health insurance products. A provision in the 2016 Federal Budget imposes a one year moratorium for 2017 on the collection of the Health Insurance Industry Tax. Pricing for contracts that cover some portion of calendar year 2017 will reflect the impact of the moratorium. Additionally, the industry has continued to experience favorable medical cost trends due to moderated utilization, which has impacted the competitive pricing environment.
We expect continued Medicaid revenue growth due to anticipated increases in the number of people we serve; we also believe that the payment rate environment creates the risk of downward pressure on Medicaid net margin percentages. We continue to take a prudent, market-sustainable posture for both new business and maintenance of existing relationships. We advocate for actuarially sound rates that are commensurate with our medical cost trends and we remain dedicated to partnering with those states that are committed to the long-term viability of their programs.
Medical Cost Trends.
Our medical cost trends primarily relate to changes in unit costs, health system utilization and prescription drug costs. We endeavor to mitigate those increases with medical management. Our 2017 management activities include managing costs across all health care categories, including specialty pharmacy spending, as new therapies are introduced at high costs and older drugs experience price increases.
Delivery System and Payment Modernization.
The health care market continues to change based on demographic shifts, new regulations, political forces and both payer and patient expectations. Health plans and care providers are being called upon to work together to close gaps in care and improve overall care quality, improve the health of populations and reduce costs. We continue to see a greater number of people enrolled in plans with underlying incentive-based care provider payment models that reward high-quality, affordable care and foster collaboration. We work together with clinicians to leverage our data and analytics to provide the necessary information to close gaps in care and improve overall health outcomes for patients.
We are increasingly rewarding care providers for delivering improvements in quality and cost-efficiency. As of December 31, 2016, we served more than 15 million people through some form of aligned contractual arrangement, including full-risk, shared-risk and bundled episode-of-care and performance incentive payment approaches. As of December 31, 2016, our contracts with value-based elements total nearly $53 billion in annual spending.
This trend is creating needs for health management services that can coordinate care around the primary care physician, including new primary care channels, and for investments in new clinical and administrative information and management systems, which we believe provide growth opportunities for our Optum business platform.
Regulatory Trends and Uncertainties
Medicare Advantage Rates.
Final 2017 Medicare Advantage rates resulted in an increase in industry base rates of approximately 0.85%, well short of the industry forward medical cost trend of 3%, which creates continued pressure in the Medicare Advantage program. The impact of this funding shortfall in Medicare Advantage is partially mitigated by reductions in provider payments for those care providers with rates indexed to Medicare Advantage revenues or Medicare fee-for-service payment rates. These factors can affect our plan benefit designs, pricing, growth prospects and earnings expectations for our Medicare Advantage plans.
The ongoing pressure on Medicare Advantage funding places continued importance on effective medical management and ongoing improvements in administrative efficiency. There are a number of adjustments we have made to partially offset these rate pressures and reductions. In some years, these adjustments will impact the majority of the seniors we serve through Medicare Advantage. For example, we seek to intensify our medical and operating cost management, make changes to the size and composition of our care provider networks, adjust members' benefits, implement or increase the member premiums that supplement the monthly payments we receive from the government and decide on a county-by-county basis where we will offer Medicare Advantage plans.
As Medicare Advantage payments change, other products may become relatively more attractive to Medicare beneficiaries and increase the demand for other senior health benefits products such as our market-leading Medicare Supplement and stand-alone Medicare Part D insurance offerings.
As provided in the ACA, our Medicare Advantage rates are currently enhanced by CMS quality bonuses in certain counties based on our local plans’ Star ratings. The level of Star ratings from CMS, based upon specified clinical and operational performance standards, will impact future quality bonuses. In addition, Star ratings affect the amount of savings a plan can use to offer supplemental benefits, which ultimately may affect the plan’s membership and revenue. For the 2016 payment year, approximately 57% of our Medicare Advantage members were in plans rated four stars or higher. We expect that at least 80% of our Medicare Advantage members will be in plans rated four stars or higher for payment year 2017. We continue to dedicate substantial resources to advance our quality scores and Star ratings to strengthen our local market programs and further improve our performance.
Health Insurance Industry Tax and Premium Stabilization Programs.
The industry-wide amount of the Health Insurance Industry Tax was $11.3 billion in 2016 and we paid our portion of the tax, which was $1.8 billion, in September 2016. A provision in the 2016 Federal Budget imposes a one year moratorium for 2017 on the collection of the Health Insurance Industry Tax. The Health Insurance Industry Tax is scheduled to be imposed for 2018 and beyond. In 2018, the industry-wide amount of the Health Insurance Industry Tax is expected to be $14.3 billion. The ACA also included three programs designed to stabilize the health insurance markets. These programs encompassed: a transitional reinsurance program; a temporary risk corridors program; and a permanent risk adjustment program. The transitional reinsurance and temporary risk corridors programs expired at the end of 2016.
Individual Public Exchanges.
In 2016, we participated in individual public exchanges in 34 states and offered individual ACA compliant products. We recorded a premium deficiency reserve for a portion of our estimated 2016 losses in our 2015 results
for in-force contracts as of January 1, 2016. During 2016, we incurred additional losses in our individual ACA compliant products and, for 2017, reduced our participation to three individual public exchanges. We expect to reduce the number of consumers we serve through individual insurance plans by nearly 1 million people in 2017, which will reduce our premium revenues by more than $4 billion.
RESULTS SUMMARY
The following table summarizes our consolidated results of operations and other financial information:
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(in millions, except percentages and per share data)
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For the Years Ended December 31,
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Change
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Change
|
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2016
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2015
|
|
2014
|
|
2016 vs. 2015
|
|
2015 vs. 2014
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
Premiums
|
|
$
|
144,118
|
|
|
$
|
127,163
|
|
|
$
|
115,302
|
|
|
$
|
16,955
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|
13
|
%
|
|
$
|
11,861
|
|
|
10
|
%
|
Products
|
|
26,658
|
|
|
17,312
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|
|
4,242
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|
|
9,346
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|
54
|
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13,070
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|
308
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Services
|
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13,236
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|
11,922
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|
10,151
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|
1,314
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|
11
|
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|
1,771
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|
17
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Investment and other income
|
|
828
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|
710
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|
779
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|
118
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|
17
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|
(69
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)
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|
(9
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)
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Total revenues
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184,840
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157,107
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|
130,474
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|
27,733
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|
18
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26,633
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|
20
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|
Operating costs:
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Medical costs
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117,038
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103,875
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93,633
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13,163
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|
13
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|
10,242
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|
|
11
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Operating costs
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28,401
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|
|
24,312
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|
21,263
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|
|
4,089
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|
17
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|
3,049
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|
14
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Cost of products sold
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24,416
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|
|
16,206
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|
|
3,826
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|
|
8,210
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|
|
51
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|
|
12,380
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|
|
324
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|
Depreciation and amortization
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|
2,055
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|
|
1,693
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|
|
1,478
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|
|
362
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|
|
21
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|
|
215
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|
|
15
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Total operating costs
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171,910
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|
146,086
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|
120,200
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|
25,824
|
|
|
18
|
|
|
25,886
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|
22
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Earnings from operations
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|
12,930
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|
|
11,021
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|
|
10,274
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|
|
1,909
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|
17
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|
747
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|
7
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Interest expense
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|
(1,067
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)
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|
(790
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)
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|
(618
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)
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|
(277
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)
|
|
35
|
|
|
(172
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)
|
|
28
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|
Earnings before income taxes
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|
11,863
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|
10,231
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|
|
9,656
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|
1,632
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|
16
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|
575
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|
6
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Provision for income taxes
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|
(4,790
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)
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|
(4,363
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)
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(4,037
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)
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(427
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)
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|
10
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|
(326
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)
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|
8
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Net earnings
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7,073
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|
|
5,868
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|
|
5,619
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|
1,205
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|
21
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|
|
249
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|
|
4
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Earnings attributable to noncontrolling interests
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|
(56
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)
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|
(55
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)
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—
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(1
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)
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2
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(55
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)
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nm
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Net earnings attributable to UnitedHealth Group common shareholders
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$
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7,017
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$
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5,813
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$
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5,619
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$
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1,204
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21
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%
|
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$
|
194
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|
3
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%
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Diluted earnings per share attributable to UnitedHealth Group common shareholders
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$
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7.25
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$
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6.01
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$
|
5.70
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|
$
|
1.24
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|
|
21
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%
|
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$
|
0.31
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|
|
5
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%
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Medical care ratio (a)
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81.2
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%
|
|
81.7
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%
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|
81.2
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%
|
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(0.5
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)%
|
|
|
|
0.5
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%
|
|
|
Operating cost ratio
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|
15.4
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|
|
15.5
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|
|
16.3
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(0.1
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)
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|
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(0.8
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)
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Operating margin
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7.0
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|
|
7.0
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7.9
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|
—
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|
(0.9
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)
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Tax rate
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40.4
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42.6
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41.8
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(2.2
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)
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|
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0.8
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Net earnings margin (b)
|
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3.8
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|
3.7
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|
4.3
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|
0.1
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|
(0.6
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)
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Return on equity (c)
|
|
19.4
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%
|
|
17.7
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%
|
|
17.3
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%
|
|
1.7
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%
|
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|
|
0.4
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%
|
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|
nm= not meaningful
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(a)
|
Medical care ratio is calculated as medical costs divided by premium revenue.
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(b)
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Net earnings margin attributable to UnitedHealth Group shareholders.
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(c)
|
Return on equity is calculated as annualized 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 each of the four quarters in the year presented.
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SELECTED OPERATING PERFORMANCE AND OTHER SIGNIFICANT ITEMS
The following represents a summary of select
2016
year-over-year operating comparisons to
2015
and other
2016
significant items.
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•
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Consolidated revenues increased by
18%
, UnitedHealthcare revenues increased
13%
and Optum revenues grew
24%
.
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•
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UnitedHealthcare grew to serve an additional
2.1 million
people domestically.
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|
•
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Earnings from operations increased by
17%
, including increases of
8%
at UnitedHealthcare and
32%
at Optum.
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|
•
|
Diluted earnings per common share increased
21%
to
$7.25
.
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|
|
•
|
Cash flows from operations were
$9.8 billion
.
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2016 RESULTS OF OPERATIONS COMPARED TO 2015 RESULTS
Our results of operations were affected by our acquisition of Catamaran in the third quarter of 2015.
Consolidated Financial Results
Revenues
The increases in revenues were primarily driven by organic growth in the number of individuals served across our UnitedHealthcare benefits businesses and growth across all of our Optum services businesses.
Medical Costs
Medical costs increased due to risk-based membership growth and medical cost trends, partially offset by medical management initiatives.
Income Tax Rate
Reportable Segments
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|
|
|
|
|
|
|
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For the Years Ended December 31,
|
|
Change
|
|
Change
|
(in millions, except percentages)
|
|
2016
|
|
2015
|
|
2014
|
|
2016 vs. 2015
|
|
2015 vs. 2014
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UnitedHealthcare
|
|
$
|
148,581
|
|
|
$
|
131,343
|
|
|
$
|
119,798
|
|
|
$
|
17,238
|
|
|
13
|
%
|
|
$
|
11,545
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|
|
10
|
%
|
OptumHealth
|
|
16,908
|
|
|
13,927
|
|
|
11,032
|
|
|
2,981
|
|
|
21
|
|
|
2,895
|
|
|
26
|
|
OptumInsight
|
|
7,333
|
|
|
6,196
|
|
|
5,227
|
|
|
1,137
|
|
|
18
|
|
|
969
|
|
|
19
|
|
OptumRx
|
|
60,440
|
|
|
48,272
|
|
|
31,976
|
|
|
12,168
|
|
|
25
|
|
|
16,296
|
|
|
51
|
|
Optum eliminations
|
|
(1,088
|
)
|
|
(791
|
)
|
|
(489
|
)
|
|
(297
|
)
|
|
38
|
|
|
(302
|
)
|
|
62
|
|
Optum
|
|
83,593
|
|
|
67,604
|
|
|
47,746
|
|
|
15,989
|
|
|
24
|
|
|
19,858
|
|
|
42
|
|
Eliminations
|
|
(47,334
|
)
|
|
(41,840
|
)
|
|
(37,070
|
)
|
|
(5,494
|
)
|
|
13
|
|
|
(4,770
|
)
|
|
13
|
|
Consolidated revenues
|
|
$
|
184,840
|
|
|
$
|
157,107
|
|
|
$
|
130,474
|
|
|
$
|
27,733
|
|
|
18
|
%
|
|
$
|
26,633
|
|
|
20
|
%
|
Earnings from operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UnitedHealthcare
|
|
$
|
7,307
|
|
|
$
|
6,754
|
|
|
$
|
6,992
|
|
|
$
|
553
|
|
|
8
|
%
|
|
$
|
(238
|
)
|
|
(3
|
)%
|
OptumHealth
|
|
1,428
|
|
|
1,240
|
|
|
1,090
|
|
|
188
|
|
|
15
|
|
|
150
|
|
|
14
|
|
OptumInsight
|
|
1,513
|
|
|
1,278
|
|
|
1,002
|
|
|
235
|
|
|
18
|
|
|
276
|
|
|
28
|
|
OptumRx
|
|
2,682
|
|
|
1,749
|
|
|
1,190
|
|
|
933
|
|
|
53
|
|
|
559
|
|
|
47
|
|
Optum
|
|
5,623
|
|
|
4,267
|
|
|
3,282
|
|
|
1,356
|
|
|
32
|
|
|
985
|
|
|
30
|
|
Consolidated earnings from operations
|
|
$
|
12,930
|
|
|
$
|
11,021
|
|
|
$
|
10,274
|
|
|
$
|
1,909
|
|
|
17
|
%
|
|
$
|
747
|
|
|
7
|
%
|
Operating margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UnitedHealthcare
|
|
4.9
|
%
|
|
5.1
|
%
|
|
5.8
|
%
|
|
(0.2
|
)%
|
|
|
|
(0.7
|
)%
|
|
|
OptumHealth
|
|
8.4
|
|
|
8.9
|
|
|
9.9
|
|
|
(0.5
|
)
|
|
|
|
(1.0
|
)
|
|
|
OptumInsight
|
|
20.6
|
|
|
20.6
|
|
|
19.2
|
|
|
—
|
|
|
|
|
1.4
|
|
|
|
OptumRx
|
|
4.4
|
|
|
3.6
|
|
|
3.7
|
|
|
0.8
|
|
|
|
|
(0.1
|
)
|
|
|
Optum
|
|
6.7
|
|
|
6.3
|
|
|
6.9
|
|
|
0.4
|
|
|
|
|
(0.6
|
)
|
|
|
Consolidated operating margin
|
|
7.0
|
%
|
|
7.0
|
%
|
|
7.9
|
%
|
|
—
|
%
|
|
|
|
(0.9
|
)%
|
|
|
UnitedHealthcare
The following table summarizes UnitedHealthcare revenues by business:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
Change
|
|
Change
|
(in millions, except percentages)
|
|
2016
|
|
2015
|
|
2014
|
|
2016 vs. 2015
|
|
2015 vs. 2014
|
UnitedHealthcare Employer & Individual
|
|
$
|
53,084
|
|
|
$
|
47,194
|
|
|
$
|
43,017
|
|
|
$
|
5,890
|
|
|
12
|
%
|
|
$
|
4,177
|
|
|
10
|
%
|
UnitedHealthcare Medicare & Retirement
|
|
56,329
|
|
|
49,735
|
|
|
46,258
|
|
|
6,594
|
|
|
13
|
|
|
3,477
|
|
|
8
|
|
UnitedHealthcare Community & State
|
|
32,945
|
|
|
28,911
|
|
|
23,586
|
|
|
4,034
|
|
|
14
|
|
|
5,325
|
|
|
23
|
|
UnitedHealthcare Global
|
|
6,223
|
|
|
5,503
|
|
|
6,937
|
|
|
720
|
|
|
13
|
|
|
(1,434
|
)
|
|
(21
|
)
|
Total UnitedHealthcare revenues
|
|
$
|
148,581
|
|
|
$
|
131,343
|
|
|
$
|
119,798
|
|
|
$
|
17,238
|
|
|
13
|
%
|
|
$
|
11,545
|
|
|
10
|
%
|
The following table summarizes the number of individuals served by our UnitedHealthcare businesses, by major market segment and funding arrangement:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
Change
|
|
Change
|
(in thousands, except percentages)
|
|
2016
|
|
2015
|
|
2014
|
|
2016 vs. 2015
|
|
2015 vs. 2014
|
Commercial risk-based - group
|
|
7,470
|
|
|
7,095
|
|
|
6,765
|
|
|
375
|
|
|
5
|
%
|
|
330
|
|
|
5
|
%
|
Commercial risk-based - individual
|
|
1,350
|
|
|
1,190
|
|
|
740
|
|
|
160
|
|
|
13
|
|
|
450
|
|
|
61
|
|
Commercial fee-based
|
|
18,900
|
|
|
18,565
|
|
|
18,350
|
|
|
335
|
|
|
2
|
|
|
215
|
|
|
1
|
|
Fee-based TRICARE
|
|
2,860
|
|
|
2,880
|
|
|
2,895
|
|
|
(20
|
)
|
|
(1
|
)
|
|
(15
|
)
|
|
(1
|
)
|
Total commercial
|
|
30,580
|
|
|
29,730
|
|
|
28,750
|
|
|
850
|
|
|
3
|
|
|
980
|
|
|
3
|
|
Medicare Advantage
|
|
3,630
|
|
|
3,235
|
|
|
3,005
|
|
|
395
|
|
|
12
|
|
|
230
|
|
|
8
|
|
Medicaid
|
|
5,890
|
|
|
5,305
|
|
|
5,055
|
|
|
585
|
|
|
11
|
|
|
250
|
|
|
5
|
|
Medicare Supplement (Standardized)
|
|
4,265
|
|
|
4,035
|
|
|
3,750
|
|
|
230
|
|
|
6
|
|
|
285
|
|
|
8
|
|
Total public and senior
|
|
13,785
|
|
|
12,575
|
|
|
11,810
|
|
|
1,210
|
|
|
10
|
|
|
765
|
|
|
6
|
|
Total UnitedHealthcare - domestic medical
|
|
44,365
|
|
|
42,305
|
|
|
40,560
|
|
|
2,060
|
|
|
5
|
|
|
1,745
|
|
|
4
|
|
International
|
|
4,220
|
|
|
4,090
|
|
|
4,425
|
|
|
130
|
|
|
3
|
|
|
(335
|
)
|
|
(8
|
)
|
Total UnitedHealthcare - medical
|
|
48,585
|
|
|
46,395
|
|
|
44,985
|
|
|
2,190
|
|
|
5
|
%
|
|
1,410
|
|
|
3
|
%
|
Supplemental Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medicare Part D stand-alone
|
|
4,930
|
|
|
5,060
|
|
|
5,165
|
|
|
(130
|
)
|
|
(3
|
)%
|
|
(105
|
)
|
|
(2
|
)%
|
Growth in services to the public sector, mid-sized employers, small groups and individuals led the overall increase in people served through risk-based benefit plans in the commercial market. Medicare Advantage increased year-over-year due to growth in people served through individual and employer-sponsored group Medicare Advantage plans. Medicaid growth was driven by the combination of new state-based awards and growth in established programs. Medicare Supplement growth reflected strong customer retention and new sales.
UnitedHealthcare’s revenue increase was due to growth in the number of individuals served across its businesses and price increases for underlying medical cost trends.
Optum
Total revenues and operating earnings increased as each segment reported increased revenues and earnings from operations as a result of the factors discussed below.
The results by segment were as follows:
OptumHealth
Revenue increased at OptumHealth primarily due to growth in its health care delivery businesses as well as expansion of behavioral services into new Medicaid markets. Strong performance in business supporting UnitedHealthcare partially offset by investments in the health care delivery business drove the increase in earnings from operations.
OptumInsight
Revenue and earnings from operations at OptumInsight increased primarily due to growth in revenue management, business process outsourcing and technology services.
OptumRx
Revenue and earnings from operations at OptumRx increased primarily due to the full-year impact of Catamaran and organic growth. In 2016, OptumRx fulfilled 1.24 billion adjusted scripts compared to 932 million in 2015.
2015 RESULTS OF OPERATIONS COMPARED TO 2014 RESULTS
Consolidated Financial Results
Revenues
The increase in revenues was primarily driven by the effect of the Catamaran acquisition and organic growth in the number of individuals served across our benefits businesses and across all of Optum’s businesses.
Medical Costs
Medical costs increased primarily due to risk-based membership growth in our benefits businesses. Medical costs also included losses on individual ACA compliant products related to 2015, and the establishment of premium deficiency reserves related to the 2016 policy year for anticipated future losses for in-force individual ACA compliant contracts and a new state Medicaid contract.
Operating Cost Ratio
The decrease in our operating cost ratio was due to the inclusion of Catamaran and growth in government benefits programs, both of which have lower operating cost ratios and Company wide productivity gains.
Reportable Segments
UnitedHealthcare
UnitedHealthcare’s revenue growth during the year ended December 31, 2015 was due to growth in the number of individuals served across its businesses and price increases reflecting underlying medical cost trends.
UnitedHealthcare’s operating earnings for the year ended December 31, 2015 decreased as the combined individual ACA compliant losses and premium deficiency reserves totaling $815 million more than offset strong growth across the business, improved medical cost management and increased productivity.
Optum
Total revenues and operating earnings increased for the year ended December 31, 2015 as each reporting segment increased revenues and earnings from operations by double-digit percentages as a result of the factors discussed below.
The results by segment were as follows:
OptumHealth
Revenue and earnings from operations increased at OptumHealth during the year ended December 31, 2015 primarily due to growth in its care delivery businesses and the impact of acquisitions in patient care centers and population health management services. The operating margins for the year ended December 31, 2015 decreased from the prior year primarily due to investments made to develop future growth opportunities.
OptumInsight
Revenue, earnings from operations and operating margins at OptumInsight for the year ended December 31, 2015 increased primarily due to expansion and growth in care provider revenue management services and payer services.
OptumRx
Revenue and earnings from operations for the year ended December 31, 2015 increased due to the mid-year acquisition of Catamaran as well as strong organic growth. Operating margins for the year ended December 31, 2015 decreased slightly due to the inclusion of lower margin Catamaran business.
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-term 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 noncash 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.
Our nonregulated businesses also generate cash flows from operations that are available 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 the ability to draw under our committed credit facilities, 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.
Summary of our Major Sources and Uses of Cash and Cash Equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
Change
|
|
Change
|
(in millions)
|
|
2016
|
|
2015
|
|
2014
|
|
2016 vs. 2015
|
|
2015 vs. 2014
|
Sources of cash:
|
|
|
|
|
|
|
|
|
|
|
Cash provided by operating activities
|
|
$
|
9,795
|
|
|
$
|
9,740
|
|
|
$
|
8,051
|
|
|
$
|
55
|
|
|
$
|
1,689
|
|
Issuances of long-term debt and commercial paper, net of repayments
|
|
990
|
|
|
14,607
|
|
|
391
|
|
|
(13,617
|
)
|
|
14,216
|
|
Proceeds from common share issuances
|
|
429
|
|
|
402
|
|
|
462
|
|
|
27
|
|
|
(60
|
)
|
Sales and maturities of investments, net of purchases
|
|
—
|
|
|
—
|
|
|
799
|
|
|
—
|
|
|
(799
|
)
|
Customer funds administered
|
|
1,692
|
|
|
768
|
|
|
—
|
|
|
924
|
|
|
768
|
|
Other
|
|
37
|
|
|
—
|
|
|
115
|
|
|
37
|
|
|
(115
|
)
|
Total sources of cash
|
|
12,943
|
|
|
25,517
|
|
|
9,818
|
|
|
|
|
|
Uses of cash:
|
|
|
|
|
|
|
|
|
|
|
Cash paid for acquisitions and noncontrolling interest shares, net of cash assumed
|
|
(2,017
|
)
|
|
(16,282
|
)
|
|
(1,923
|
)
|
|
14,265
|
|
|
(14,359
|
)
|
Cash dividends paid
|
|
(2,261
|
)
|
|
(1,786
|
)
|
|
(1,362
|
)
|
|
(475
|
)
|
|
(424
|
)
|
Common share repurchases
|
|
(1,280
|
)
|
|
(1,200
|
)
|
|
(4,008
|
)
|
|
(80
|
)
|
|
2,808
|
|
Purchases of property, equipment and capitalized software
|
|
(1,705
|
)
|
|
(1,556
|
)
|
|
(1,525
|
)
|
|
(149
|
)
|
|
(31
|
)
|
Purchases of investments, net of sales and maturities
|
|
(5,927
|
)
|
|
(531
|
)
|
|
—
|
|
|
(5,396
|
)
|
|
(531
|
)
|
Customer funds administered
|
|
—
|
|
|
—
|
|
|
(638
|
)
|
|
—
|
|
|
638
|
|
Other
|
|
(324
|
)
|
|
(578
|
)
|
|
(138
|
)
|
|
254
|
|
|
(440
|
)
|
Total uses of cash
|
|
(13,514
|
)
|
|
(21,933
|
)
|
|
(9,594
|
)
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
78
|
|
|
(156
|
)
|
|
(5
|
)
|
|
234
|
|
|
(151
|
)
|
Net (decrease) increase in cash and cash equivalents
|
|
$
|
(493
|
)
|
|
$
|
3,428
|
|
|
$
|
219
|
|
|
$
|
(3,921
|
)
|
|
$
|
3,209
|
|
2016 Cash Flows Compared to 2015 Cash Flows
Cash flows provided by operating activities increased slightly as higher net earnings were mostly offset by increased CMS receivables and other operating items.
Other significant changes in sources or uses of cash year-over-year included increased net purchases of investments in 2016 and the decreases in cash paid for acquisitions and proceeds from debt issuances due to the 2015 acquisition of Catamaran.
2015 Cash Flows Compared to 2014 Cash Flows
Cash flows provided by operating activities in 2015 increased primarily due to growth in risk-based products, which increased medical costs payable and an increase in CMS risk share payables, which increased other liabilities. These increases were partially offset by an increase in pharmacy rebates, which increased other receivables, the increase in the payment of the 2015 Health Insurance Industry Tax and the payment of Reinsurance Program fees in 2015.
Other significant changes in sources or uses of cash year-over-year included increased cash paid for acquisitions and net debt issuances and decreased share repurchases, all due to the Catamaran acquisition.
Financial Condition
As of
December 31, 2016
, our cash, cash equivalent and available-for-sale investment balances of
$36.7 billion
included
$10.4 billion
of cash and cash equivalents (of which approximately
$700 million
was available for general corporate use),
$24.2 billion
of debt securities and
$2.0 billion
of investments in equity securities consisting of investments in non-U.S. dollar fixed-income funds; employee savings plan related investments; venture capital funds; and dividend paying stocks. 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. Other sources of liquidity, primarily from operating cash flows and our commercial paper program, which is supported by our 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 Part II, Item 8, “Financial Statements”
for further detail concerning our fair value measurements.
Our available-for-sale debt portfolio had a weighted-average duration of 3.3 years and a weighted-average credit rating of “AA” as of
December 31, 2016
. 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 flows from operations and cash and cash equivalent balances available for general corporate use, our capital resources and uses of liquidity are as follows:
Our revolving bank credit facilities contain various covenants, including covenants requiring us to maintain a defined debt to debt-plus-shareholders’ equity ratio of not more than 55%. As of December 31, 2016, our debt to debt-plus-shareholders’ equity ratio, as defined and calculated under the credit facilities was approximately 44%.
Long-Term Debt.
Periodically, we access capital markets to issue long-term debt for general corporate purposes, such as, to meet our working capital requirements, to refinance debt, to finance acquisitions or for share repurchases. In February 2016, we issued debt to repay commercial paper borrowings, which were incurred for general corporate and working capital purposes, and to repay our 5.375% notes that were due March 15, 2016. In December 2016, we issued debt to repay commercial paper borrowings, which were incurred for general corporate and working capital purposes. For more information on these debt issuances, see
Note 8 of Notes to the Consolidated Financial Statements included in Part II, Item 8 “Financial Statements.”
Credit Ratings.
Our credit ratings as of
December 31, 2016
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Moody’s
|
|
Standard & Poor’s
|
|
Fitch
|
|
A.M. Best
|
|
Ratings
|
|
Outlook
|
|
Ratings
|
|
Outlook
|
|
Ratings
|
|
Outlook
|
|
Ratings
|
|
Outlook
|
Senior unsecured debt
|
A3
|
|
Negative
|
|
A+
|
|
Negative
|
|
A-
|
|
Negative
|
|
bbb+
|
|
Stable
|
Commercial paper
|
P-2
|
|
n/a
|
|
A-1
|
|
n/a
|
|
F1
|
|
n/a
|
|
AMB-2
|
|
n/a
|
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 adverse conditions in the capital markets may increase the cost of borrowing for us or limit our access to capital.
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
The following table summarizes future obligations due by period as of December 31, 2016, under our various contractual obligations and commitments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2017
|
|
2018 to 2019
|
|
2020 to 2021
|
|
Thereafter
|
|
Total
|
Debt (a)
|
|
$
|
8,262
|
|
|
$
|
6,282
|
|
|
$
|
6,059
|
|
|
$
|
27,899
|
|
|
$
|
48,502
|
|
Operating leases
|
|
453
|
|
|
771
|
|
|
587
|
|
|
499
|
|
|
2,310
|
|
Purchase and other obligations (b)
|
|
623
|
|
|
617
|
|
|
297
|
|
|
170
|
|
|
1,707
|
|
Future policy benefits (c)
|
|
133
|
|
|
271
|
|
|
273
|
|
|
1,980
|
|
|
2,657
|
|
Unrecognized tax benefits (d)
|
|
19
|
|
|
—
|
|
|
—
|
|
|
234
|
|
|
253
|
|
Other liabilities recorded on the Consolidated Balance Sheet (e)
|
|
269
|
|
|
14
|
|
|
5
|
|
|
2,288
|
|
|
2,576
|
|
Redeemable noncontrolling interests (f)
|
|
958
|
|
|
1,054
|
|
|
—
|
|
|
—
|
|
|
2,012
|
|
Total contractual obligations
|
|
$
|
10,717
|
|
|
$
|
9,009
|
|
|
$
|
7,221
|
|
|
$
|
33,070
|
|
|
$
|
60,017
|
|
|
|
(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 and remaining capital commitments for venture capital funds and other funding commitments. Excludes agreements that are cancelable without penalty and excludes liabilities to the extent recorded in our Consolidated Balance Sheets as of
December 31, 2016
.
|
|
|
(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, amounts accrued for guaranty fund assessments 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 commitments for redeemable shares of our subsidiaries.
|
We do not have other significant contractual obligations or commitments that require cash resources. However, we continually evaluate opportunities to expand our operations, which include internal development of new products, programs and technology applications and may include acquisitions.
OFF-BALANCE SHEET ARRANGEMENTS
As of December 31, 2016, we were not involved in any off-balance sheet arrangements, which have or are reasonably likely to have a material effect on our financial condition, results of operations or liquidity.
RECENTLY ISSUED ACCOUNTING STANDARDS
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
Medical costs and medical costs payable include estimates of 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. 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. Approximately
90%
of claims related to medical care services are known and settled within 90 days from the date of service and substantially all within twelve months. As of
December 31, 2016
, our days outstanding in medical payables was 51 days, calculated as total medical payables divided by total medical costs times the number of days in the period.
In each 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 2016, 2015 and 2014 included favorable medical cost development related to prior years of
$220 million
,
$320 million
and
$420 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, for the most recent two months, we estimate claim costs incurred 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.
Completion Factors.
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. Completion factors are the most significant factors we use in developing our medical costs payable estimates for periods prior to the most recent two months. Completion factors include judgments in relation to claim submissions such as the time from date of service to claim receipt, claim inventory levels and claim processing backlogs, as well as other factors. If actual claims submission rates from providers (which can be influenced by a number of factors, including provider mix and electronic versus manual submissions) or our claim processing patterns are different than estimated, our reserves may be significantly impacted.
The following table illustrates the sensitivity of these factors and the estimated potential impact on our medical costs payable estimates for those periods as of
December 31, 2016
:
|
|
|
|
|
|
Completion Factors
(Decrease) Increase in Factors
|
|
Increase (Decrease)
In Medical Costs Payable
|
|
|
(in millions)
|
(0.75)%
|
|
$
|
437
|
|
(0.50)
|
|
291
|
|
(0.25)
|
|
145
|
|
0.25
|
|
(144
|
)
|
0.50
|
|
(288
|
)
|
0.75
|
|
(430
|
)
|
Medical Cost Per Member Per Month Trend Factors.
Medical cost PMPM trend factors are significant factors we use in developing our medical costs payable estimates for the most recent two 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 and
pharmaceutical 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 two months as of
December 31, 2016
:
|
|
|
|
|
|
Medical Cost PMPM Trend
Increase (Decrease) in Factors
|
|
Increase (Decrease)
In Medical Costs Payable
|
|
|
(in millions)
|
3%
|
|
$
|
557
|
|
2
|
|
371
|
|
1
|
|
186
|
|
(1)
|
|
(186
|
)
|
(2)
|
|
(371
|
)
|
(3)
|
|
(557
|
)
|
The completion factors and medical costs PMPM trend factors analyses above include outcomes that are considered reasonably likely based on our historical experience estimating liabilities for incurred but not reported benefit claims.
Management believes the amount of medical costs payable is reasonable and adequate to cover our liability for unpaid claims as of
December 31, 2016
; however, actual claim payments may differ from established estimates as discussed above. Assuming a hypothetical 1% difference between our
December 31, 2016
estimates of medical costs payable and actual medical costs payable, excluding AARP Medicare Supplement Insurance and any potential offsetting impact from premium rebates, 2016 net earnings would have increased or decreased by $90 million.
Revenues
We derive a substantial portion of our revenues 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.
Our Medicare Advantage and Medicare Part D premium revenues are subject to periodic adjustment under the 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 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. For more detail on premium revenues see
Note 2 of Notes to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statements.”
Risk adjustment data for certain of our plans is subject to review by the federal and state governments, including audit by regulators. See
Note 12 of Notes to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statements”
for additional information regarding these audits. Our estimates of premiums to be recognized are reduced by any expected premium minimum MLR rebates payable by us to CMS.
Goodwill and Intangible Assets
Goodwill.
We evaluate goodwill for impairment annually or more frequently when an event occurs or circumstances change that indicate the carrying value may not be recoverable. When testing goodwill for impairment, we may first assess qualitative factors to determine if it is more likely than not that the carrying value of a reporting unit exceeds its estimated fair value. During a qualitative analysis, we consider the impact of changes, if any, to the following factors: macroeconomic, industry and market factors, cost factors, changes in overall financial performance, and any other relevant events and uncertainties impacting a reporting unit. If our qualitative assessment indicates that goodwill impairment is more likely than not, we perform additional quantitative analysis. We may also elect to skip the qualitative testing and proceed directly to the quantitative testing. For reporting units where a quantitative analysis is performed, we perform a multi-step test measuring the fair values of the reporting units and comparing 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 strategies. Key assumptions used in these forecasts include:
|
|
•
|
Revenue trends.
Key revenue 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 relating to unemployment, GDP growth, interest rates and inflation are also evaluated and incorporated, as appropriate.
|
|
|
•
|
Medical cost trends.
For further discussion of medical cost trends, see the “Medical Cost Trend” section of Executive Overview-
Business Trends
above and the discussion in the “Medical Costs Payable” critical accounting estimate above. Similar factors, including historical and expected medical cost trend levels, 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 levels.
|
|
|
•
|
Capital levels.
The operating and long-term capital requirements for each business are considered.
|
Discount rates are determined for each reporting unit and include consideration of the implied risk inherent in their forecasts. Our most significant estimate in the discount rate determinations involves our adjustments to the peer company weighted average costs of capital that reflect reporting unit-specific factors. 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 with respect to the reporting units’ operations could cause these assumptions to change in the future. We completed our annual impairment tests for goodwill as of October 1, 2016. All of our reporting units had fair values substantially in excess of their carrying values.
Intangible Assets.
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.
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 compare 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 2016.
Investments
Our investments are principally classified as available-for-sale and are recorded at fair value. We continually monitor the difference between the cost and fair value of our investments.
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 their liquidity. Given the nature of our portfolio, primarily investment grade securities, historical impairments were largely market related (e.g., interest rate fluctuations) as opposed to credit related. 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.
The judgments and estimates related to 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 changes to current facts and circumstances, or as unknown or estimated unlikely trends develop.
LEGAL MATTERS
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, 2016
, there were no significant concentrations of credit risk.
ITEM 8. FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of UnitedHealth Group Incorporated and Subsidiaries:
We have audited the accompanying consolidated balance sheets of UnitedHealth Group Incorporated and subsidiaries (the "Company") as of December 31, 2016 and 2015, and the related consolidated statements of operations, comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 2016. 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, 2016 and 2015, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2016, 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, 2016, based on the criteria established in
Internal Control-Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated
February 8, 2017
, expressed an unqualified opinion on the Company's internal control over financial reporting.
|
|
|
/
S
/ DELOITTE & TOUCHE LLP
|
|
Minneapolis, Minnesota
|
February 8, 2017
|
UnitedHealth Group
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
(in millions, except per share data)
|
|
December 31,
2016
|
|
December 31,
2015
|
Assets
|
|
|
|
|
Current assets:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
10,430
|
|
|
$
|
10,923
|
|
Short-term investments
|
|
2,845
|
|
|
1,988
|
|
Accounts receivable, net of allowances of $514 and $333
|
|
8,152
|
|
|
6,523
|
|
Other current receivables, net of allowances of $409 and $138
|
|
7,499
|
|
|
6,801
|
|
Assets under management
|
|
3,105
|
|
|
2,998
|
|
Prepaid expenses and other current assets
|
|
1,848
|
|
|
2,406
|
|
Total current assets
|
|
33,879
|
|
|
31,639
|
|
Long-term investments
|
|
23,868
|
|
|
18,792
|
|
Property, equipment and capitalized software, net of accumulated depreciation and amortization of $3,749 and $3,173
|
|
5,901
|
|
|
4,861
|
|
Goodwill
|
|
47,584
|
|
|
44,453
|
|
Other intangible assets, net of accumulated amortization of $3,847 and $3,128
|
|
8,541
|
|
|
8,391
|
|
Other assets
|
|
3,037
|
|
|
3,118
|
|
Total assets
|
|
$
|
122,810
|
|
|
$
|
111,254
|
|
Liabilities, redeemable noncontrolling interests and equity
|
|
|
|
|
Current liabilities:
|
|
|
|
|
Medical costs payable
|
|
$
|
16,391
|
|
|
$
|
14,330
|
|
Accounts payable and accrued liabilities
|
|
13,361
|
|
|
11,994
|
|
Commercial paper and current maturities of long-term debt
|
|
7,193
|
|
|
6,634
|
|
Unearned revenues
|
|
1,968
|
|
|
2,142
|
|
Other current liabilities
|
|
10,339
|
|
|
7,798
|
|
Total current liabilities
|
|
49,252
|
|
|
42,898
|
|
Long-term debt, less current maturities
|
|
25,777
|
|
|
25,331
|
|
Future policy benefits
|
|
2,524
|
|
|
2,496
|
|
Deferred income taxes
|
|
2,761
|
|
|
3,587
|
|
Other liabilities
|
|
2,307
|
|
|
1,481
|
|
Total liabilities
|
|
82,621
|
|
|
75,793
|
|
|
|
|
|
|
|
Redeemable noncontrolling interests
|
|
2,012
|
|
|
1,736
|
|
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; 952 and 953 issued and outstanding
|
|
10
|
|
|
10
|
|
Additional paid-in capital
|
|
—
|
|
|
29
|
|
Retained earnings
|
|
40,945
|
|
|
37,125
|
|
Accumulated other comprehensive loss
|
|
(2,681
|
)
|
|
(3,334
|
)
|
Nonredeemable noncontrolling interest
|
|
(97
|
)
|
|
(105
|
)
|
Total equity
|
|
38,177
|
|
|
33,725
|
|
Total liabilities, redeemable noncontrolling interests and equity
|
|
$
|
122,810
|
|
|
$
|
111,254
|
|
UnitedHealth Group
Consolidated Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
(in millions, except per share data)
|
|
2016
|
|
2015
|
|
2014
|
Revenues:
|
|
|
|
|
|
|
Premiums
|
|
$
|
144,118
|
|
|
$
|
127,163
|
|
|
$
|
115,302
|
|
Products
|
|
26,658
|
|
|
17,312
|
|
|
4,242
|
|
Services
|
|
13,236
|
|
|
11,922
|
|
|
10,151
|
|
Investment and other income
|
|
828
|
|
|
710
|
|
|
779
|
|
Total revenues
|
|
184,840
|
|
|
157,107
|
|
|
130,474
|
|
Operating costs:
|
|
|
|
|
|
|
Medical costs
|
|
117,038
|
|
|
103,875
|
|
|
93,633
|
|
Operating costs
|
|
28,401
|
|
|
24,312
|
|
|
21,263
|
|
Cost of products sold
|
|
24,416
|
|
|
16,206
|
|
|
3,826
|
|
Depreciation and amortization
|
|
2,055
|
|
|
1,693
|
|
|
1,478
|
|
Total operating costs
|
|
171,910
|
|
|
146,086
|
|
|
120,200
|
|
Earnings from operations
|
|
12,930
|
|
|
11,021
|
|
|
10,274
|
|
Interest expense
|
|
(1,067
|
)
|
|
(790
|
)
|
|
(618
|
)
|
Earnings before income taxes
|
|
11,863
|
|
|
10,231
|
|
|
9,656
|
|
Provision for income taxes
|
|
(4,790
|
)
|
|
(4,363
|
)
|
|
(4,037
|
)
|
Net earnings
|
|
7,073
|
|
|
5,868
|
|
|
5,619
|
|
Earnings attributable to noncontrolling interests
|
|
(56
|
)
|
|
(55
|
)
|
|
—
|
|
Net earnings attributable to UnitedHealth Group common shareholders
|
|
$
|
7,017
|
|
|
$
|
5,813
|
|
|
$
|
5,619
|
|
Earnings per share attributable to UnitedHealth Group common shareholders:
|
|
|
|
|
|
|
Basic
|
|
$
|
7.37
|
|
|
$
|
6.10
|
|
|
$
|
5.78
|
|
Diluted
|
|
$
|
7.25
|
|
|
$
|
6.01
|
|
|
$
|
5.70
|
|
Basic weighted-average number of common shares outstanding
|
|
952
|
|
|
953
|
|
|
972
|
|
Dilutive effect of common share equivalents
|
|
16
|
|
|
14
|
|
|
14
|
|
Diluted weighted-average number of common shares outstanding
|
|
968
|
|
|
967
|
|
|
986
|
|
Anti-dilutive shares excluded from the calculation of dilutive effect of common share equivalents
|
|
3
|
|
|
8
|
|
|
6
|
|
Cash dividends declared per common share
|
|
$
|
2.375
|
|
|
$
|
1.875
|
|
|
$
|
1.405
|
|
UnitedHealth Group
Consolidated Statements of Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
(in millions)
|
|
2016
|
|
2015
|
|
2014
|
Net earnings
|
|
$
|
7,073
|
|
|
$
|
5,868
|
|
|
$
|
5,619
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
Gross unrealized (losses) gains on investment securities during the period
|
|
(73
|
)
|
|
(123
|
)
|
|
476
|
|
Income tax effect
|
|
26
|
|
|
44
|
|
|
(173
|
)
|
Total unrealized (losses) gains, net of tax
|
|
(47
|
)
|
|
(79
|
)
|
|
303
|
|
Gross reclassification adjustment for net realized gains included in net earnings
|
|
(166
|
)
|
|
(141
|
)
|
|
(211
|
)
|
Income tax effect
|
|
60
|
|
|
53
|
|
|
77
|
|
Total reclassification adjustment, net of tax
|
|
(106
|
)
|
|
(88
|
)
|
|
(134
|
)
|
Total foreign currency translation gains (losses)
|
|
806
|
|
|
(1,775
|
)
|
|
(653
|
)
|
Other comprehensive income (loss)
|
|
653
|
|
|
(1,942
|
)
|
|
(484
|
)
|
Comprehensive income
|
|
7,726
|
|
|
3,926
|
|
|
5,135
|
|
Comprehensive income attributable to noncontrolling interests
|
|
(56
|
)
|
|
(55
|
)
|
|
—
|
|
Comprehensive income attributable to UnitedHealth Group common shareholders
|
|
$
|
7,670
|
|
|
$
|
3,871
|
|
|
$
|
5,135
|
|
UnitedHealth Group
Consolidated Statements of Changes in Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Additional Paid-In Capital
|
|
Retained Earnings
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
Nonredeemable
Noncontrolling
Interest
|
|
Total
Equity
|
(in millions)
|
|
Shares
|
|
Amount
|
|
|
|
Net Unrealized Gains (Losses) on Investments
|
|
Foreign Currency Translation (Losses) Gains
|
|
|
Balance at January 1, 2014
|
|
988
|
|
|
$
|
10
|
|
|
$
|
—
|
|
|
$
|
33,047
|
|
|
$
|
54
|
|
|
$
|
(962
|
)
|
|
$
|
—
|
|
|
$
|
32,149
|
|
Net earnings
|
|
|
|
|
|
|
|
5,619
|
|
|
|
|
|
|
|
|
5,619
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
169
|
|
|
(653
|
)
|
|
|
|
(484
|
)
|
Issuances of common stock, and related tax effects
|
|
15
|
|
|
—
|
|
|
146
|
|
|
|
|
|
|
|
|
|
|
146
|
|
Share-based compensation, and related tax benefits
|
|
|
|
|
|
394
|
|
|
|
|
|
|
|
|
|
|
394
|
|
Common share repurchases
|
|
(49
|
)
|
|
—
|
|
|
(540
|
)
|
|
(3,468
|
)
|
|
|
|
|
|
|
|
(4,008
|
)
|
Cash dividends paid on common shares
|
|
|
|
|
|
|
|
(1,362
|
)
|
|
|
|
|
|
|
|
(1,362
|
)
|
Balance at December 31, 2014
|
|
954
|
|
|
10
|
|
|
—
|
|
|
33,836
|
|
|
223
|
|
|
(1,615
|
)
|
|
—
|
|
|
32,454
|
|
Net earnings
|
|
|
|
|
|
|
|
5,813
|
|
|
|
|
|
|
26
|
|
|
5,839
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
(167
|
)
|
|
(1,775
|
)
|
|
|
|
(1,942
|
)
|
Issuances of common stock, and related tax effects
|
|
10
|
|
|
—
|
|
|
127
|
|
|
|
|
|
|
|
|
|
|
127
|
|
Share-based compensation, and related tax benefits
|
|
|
|
|
|
589
|
|
|
|
|
|
|
|
|
|
|
589
|
|
Common share repurchases
|
|
(11
|
)
|
|
—
|
|
|
(462
|
)
|
|
(738
|
)
|
|
|
|
|
|
|
|
(1,200
|
)
|
Cash dividends paid on common shares
|
|
|
|
|
|
|
|
(1,786
|
)
|
|
|
|
|
|
|
|
(1,786
|
)
|
Redeemable noncontrolling interests fair value and other adjustments
|
|
|
|
|
|
(225
|
)
|
|
|
|
|
|
|
|
|
|
(225
|
)
|
Acquisition of nonredeemable noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
9
|
|
Distributions to nonredeemable noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(140
|
)
|
|
(140
|
)
|
Balance at December 31, 2015
|
|
953
|
|
|
10
|
|
|
29
|
|
|
37,125
|
|
|
56
|
|
|
(3,390
|
)
|
|
(105
|
)
|
|
33,725
|
|
Adjustment to adopt ASU 2016-09
|
|
|
|
|
|
|
|
28
|
|
|
|
|
|
|
|
|
28
|
|
Net earnings
|
|
|
|
|
|
|
|
7,017
|
|
|
|
|
|
|
40
|
|
|
7,057
|
|
Other comprehensive (loss) income
|
|
|
|
|
|
|
|
|
|
(153
|
)
|
|
806
|
|
|
|
|
653
|
|
Issuances of common stock, and related tax effects
|
|
9
|
|
|
—
|
|
|
191
|
|
|
|
|
|
|
|
|
|
|
191
|
|
Share-based compensation
|
|
|
|
|
|
455
|
|
|
|
|
|
|
|
|
|
|
455
|
|
Common share repurchases
|
|
(10
|
)
|
|
—
|
|
|
(316
|
)
|
|
(964
|
)
|
|
|
|
|
|
|
|
(1,280
|
)
|
Cash dividends paid on common shares
|
|
|
|
|
|
|
|
(2,261
|
)
|
|
|
|
|
|
|
|
(2,261
|
)
|
Acquisition of redeemable noncontrolling interest shares
|
|
|
|
|
|
(143
|
)
|
|
|
|
|
|
|
|
|
|
(143
|
)
|
Redeemable noncontrolling interests fair value and other adjustments
|
|
|
|
|
|
(216
|
)
|
|
|
|
|
|
|
|
|
|
(216
|
)
|
Distributions to nonredeemable noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(32
|
)
|
|
(32
|
)
|
Balance at December 31, 2016
|
|
952
|
|
|
$
|
10
|
|
|
$
|
—
|
|
|
$
|
40,945
|
|
|
$
|
(97
|
)
|
|
$
|
(2,584
|
)
|
|
$
|
(97
|
)
|
|
$
|
38,177
|
|
UnitedHealth Group
Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
(in millions)
|
|
2016
|
|
2015
|
|
2014
|
Operating activities
|
|
|
|
|
|
|
Net earnings
|
|
$
|
7,073
|
|
|
$
|
5,868
|
|
|
$
|
5,619
|
|
Noncash items:
|
|
|
|
|
|
|
Depreciation and amortization
|
|
2,055
|
|
|
1,693
|
|
|
1,478
|
|
Deferred income taxes
|
|
81
|
|
|
(73
|
)
|
|
(117
|
)
|
Share-based compensation
|
|
485
|
|
|
406
|
|
|
364
|
|
Other, net
|
|
(82
|
)
|
|
(235
|
)
|
|
(298
|
)
|
Net change in other operating items, net of effects from acquisitions and changes in AARP balances:
|
|
|
|
|
|
|
Accounts receivable
|
|
(1,357
|
)
|
|
(591
|
)
|
|
(911
|
)
|
Other assets
|
|
(1,601
|
)
|
|
(1,430
|
)
|
|
(590
|
)
|
Medical costs payable
|
|
1,849
|
|
|
2,585
|
|
|
484
|
|
Accounts payable and other liabilities
|
|
1,494
|
|
|
1,280
|
|
|
1,637
|
|
Unearned revenues
|
|
(202
|
)
|
|
237
|
|
|
385
|
|
Cash flows from operating activities
|
|
9,795
|
|
|
9,740
|
|
|
8,051
|
|
Investing activities
|
|
|
|
|
|
|
Purchases of investments
|
|
(17,547
|
)
|
|
(9,939
|
)
|
|
(9,928
|
)
|
Sales of investments
|
|
7,339
|
|
|
6,054
|
|
|
7,701
|
|
Maturities of investments
|
|
4,281
|
|
|
3,354
|
|
|
3,026
|
|
Cash paid for acquisitions, net of cash assumed
|
|
(1,760
|
)
|
|
(16,164
|
)
|
|
(1,923
|
)
|
Purchases of property, equipment and capitalized software
|
|
(1,705
|
)
|
|
(1,556
|
)
|
|
(1,525
|
)
|
Other, net
|
|
37
|
|
|
(144
|
)
|
|
115
|
|
Cash flows used for investing activities
|
|
(9,355
|
)
|
|
(18,395
|
)
|
|
(2,534
|
)
|
Financing activities
|
|
|
|
|
|
|
Acquisition of redeemable noncontrolling interest shares
|
|
(257
|
)
|
|
(118
|
)
|
|
—
|
|
Common share repurchases
|
|
(1,280
|
)
|
|
(1,200
|
)
|
|
(4,008
|
)
|
Cash dividends paid
|
|
(2,261
|
)
|
|
(1,786
|
)
|
|
(1,362
|
)
|
Proceeds from common stock issuances
|
|
429
|
|
|
402
|
|
|
462
|
|
Repayments of long-term debt
|
|
(2,596
|
)
|
|
(1,041
|
)
|
|
(812
|
)
|
(Repayments of) proceeds from commercial paper, net
|
|
(382
|
)
|
|
3,666
|
|
|
(794
|
)
|
Proceeds from issuance of long-term debt
|
|
3,968
|
|
|
11,982
|
|
|
1,997
|
|
Customer funds administered
|
|
1,692
|
|
|
768
|
|
|
(638
|
)
|
Other, net
|
|
(324
|
)
|
|
(434
|
)
|
|
(138
|
)
|
Cash flows (used for) from financing activities
|
|
(1,011
|
)
|
|
12,239
|
|
|
(5,293
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
|
78
|
|
|
(156
|
)
|
|
(5
|
)
|
(Decrease) increase in cash and cash equivalents
|
|
(493
|
)
|
|
3,428
|
|
|
219
|
|
Cash and cash equivalents, beginning of period
|
|
10,923
|
|
|
7,495
|
|
|
7,276
|
|
Cash and cash equivalents, end of period
|
|
$
|
10,430
|
|
|
$
|
10,923
|
|
|
$
|
7,495
|
|
|
|
|
|
|
|
|
Supplemental cash flow disclosures
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
1,055
|
|
|
$
|
639
|
|
|
$
|
644
|
|
Cash paid for income taxes
|
|
4,726
|
|
|
4,401
|
|
|
4,024
|
|
UnitedHealth Group
Notes to the Consolidated Financial Statements
|
|
1.
|
Description of Business
|
UnitedHealth Group Incorporated (individually and together with its subsidiaries, “UnitedHealth Group” and “the Company”) is a diversified health and well-being company dedicated to helping people live healthier lives and helping to make the health system work better for everyone.
Through its diversified family of businesses, the Company 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. These core competencies are deployed within the Company’s two distinct, but strategically aligned, business platforms: health benefits operating under UnitedHealthcare and health services operating under Optum.
2.
Basis of Presentation, Use of Estimates and Significant Accounting Policies
Basis of Presentation
The Company has prepared the Consolidated Financial Statements according to U.S. Generally Accepted Accounting Principles (GAAP) and has included the accounts of UnitedHealth Group and its subsidiaries.
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 estimates and judgments for medical costs payable and revenues, valuation and impairment analysis of goodwill and other intangible assets, estimates of other current liabilities and other current receivables and valuations of certain investments. Certain of 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 change in estimates is included in earnings in the period in which the estimate is adjusted.
Revenues
Premiums
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 the Company’s customers in advance of the service period are recorded as unearned revenues. Fully insured commercial products of U.S. health plans, Medicare Advantage and Medicare Prescription Drug Benefit (Medicare Part D) plans with medical loss ratios as calculated under the definitions in the Patient Protection and Affordable Care Act (ACA) and related federal and state regulations and implementing regulations, that fall below certain targets are required to rebate ratable portions of their premiums annually. Medicare Advantage premium revenue includes the impact of Centers for Medicare & Medicaid Services (CMS) quality bonuses based on plans’ Star ratings.
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. The Company also records premium revenues from capitation arrangements at its OptumHealth businesses.
The Company’s Medicare Advantage and Medicare Part D premium revenues are subject to periodic adjustment under 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 are subject to review by the government, including audit by regulators. See
Note 12
for additional information regarding these audits.
Products and Services
For the Company’s OptumRx pharmacy care services business, the majority of revenues are derived from products sold through a contracted network of retail pharmacies or home delivery and specialty pharmacy facilities. 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. Pharmacy products are billed to customers based on the number of transactions occurring during the billing period. Product revenues are recognized when the prescriptions are dispensed through the retail network or received by consumers through the Company’s mail-service pharmacy. The Company has entered into contracts in which it is primarily obligated to pay its network pharmacy providers for benefits provided to their customers regardless of whether 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.
Services revenue consists of fees derived from services performed for customers that self-insure the health care costs of their employees and employees’ dependents. Under service fee contracts, the Company receives monthly, a fixed fee per employee, which is recognized as revenue as the Company performs, or makes available the applicable services to the customer. The customers retain the risk of financing health care costs for their employees and employees’ dependents, and the Company administers the payment of customer funds to physicians and other health care professionals from customer-funded bank accounts. As the Company has neither the obligation for funding the health care costs, nor the primary responsibility for providing the medical care, the Company does not recognize premium revenue and medical costs for these contracts in its Consolidated Financial Statements. For these 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.
Revenues are also comprised of a number of services and products sold through Optum. For its financial services offerings, OptumHealth charges fees and earns investment income on managed funds. OptumInsight provides software and information products, advisory consulting arrangements and services outsourcing contracts, which may be delivered over several years. OptumInsight revenues are generally recognized over time on either a time and materials basis, or ratably as services are performed or made available to customers.
Medical Costs and Medical Costs Payable
The Company’s estimate of medical costs payable represents management’s best estimate of its liability for unpaid medical costs as of December 31, 2016.
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 more complete claim information becomes available, 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. Approximately
90%
of claims related to medical care services are known and settled within 90 days from the date of service and substantially all within twelve months.
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, processed, or paid. The Company develops estimates for medical care services incurred but not reported (IBNR), which includes estimates for claims that have not been received or fully processed, 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 processing, 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.
In developing its medical costs payable estimates, the Company applies different estimation methods depending on which incurred claims are being estimated. For the most recent two months, the Company estimates claim costs incurred 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 are available, supplemented by a review of near-term completion factors (actuarial estimates, based upon historical experience and analysis of current trends, of the percentage of incurred claims during a given period that have been adjudicated by the Company at the date of estimation).
For months prior to the most recent two months, the Company applies the completion factors to actual claims adjudicated-to-date to estimate the expected amount of ultimate incurred claims for those months.
Cost of Products Sold
The Company’s cost of products sold includes the cost of pharmaceuticals dispensed to unaffiliated customers either directly at its mail and specialty pharmacy locations, or indirectly through its nationwide network of participating pharmacies. 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 those non-affiliated clients in accordance with their contracts and recorded in the Consolidated Statements of Operations as a reduction of product revenue. Cost of products sold also includes the cost of personnel to support the Company’s transaction processing services, system sales, maintenance and professional services.
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.
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 net earnings and reports them as comprehensive income and, net of income tax effects, as a separate component of 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.
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 investment grade quality. Securities downgraded below policy minimums after purchase will be disposed of in accordance with the Company’s 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, hospital indemnity insurance, including insurance for individuals between 50 to 64 years of age and other related products.
Pursuant to the Company’s agreement, AARP Program assets are managed separately from the Company’s 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 any 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.
The effects of changes in other 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.
Other Current Receivables
Other current receivables include amounts due from pharmaceutical manufacturers for rebates and Medicare Part D drug discounts and other miscellaneous amounts due to the Company.
The Company’s pharmacy care services businesses contract with pharmaceutical manufacturers, some of which provide rebates based on use of the manufacturers’ products by its 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 pharmacy care services businesses bill these rebates to the manufacturers on a monthly or quarterly basis depending on the contractual terms and records rebates attributable to affiliated clients as a reduction to medical costs. The Company generally receives rebates from two to five months after billing. As of December 31, 2016 and 2015, total pharmaceutical manufacturer
rebates receivable included in other receivables in the Consolidated Balance Sheets amounted to $
3.3 billion
and
$2.6 billion
, respectively.
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 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 current liabilities or other current receivables in the Consolidated Balance Sheets.
|
|
|
•
|
Drug Discount.
The ACA mandated a consumer discount on brand name prescription drugs for Medicare Part D plan participants in the coverage gap. This discount is funded by CMS and pharmaceutical manufacturers while the Company administers the application of these funds. Accordingly, 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 care 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 2016 risk-share amount is expected to be settled during the second half of 2017, and is subject to the reconciliation process with CMS.
The Consolidated Balance Sheets include the following amounts associated with the Medicare Part D program:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
(in millions)
|
|
Subsidies
|
|
Drug Discount
|
|
Risk-Share
|
|
Subsidies
|
|
Drug Discount
|
|
Risk-Share
|
Other current receivables
|
|
$
|
934
|
|
|
$
|
543
|
|
|
$
|
—
|
|
|
$
|
1,703
|
|
|
$
|
423
|
|
|
$
|
—
|
|
Other current liabilities
|
|
—
|
|
|
267
|
|
|
471
|
|
|
—
|
|
|
58
|
|
|
496
|
|
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 calculates depreciation and amortization using the straight-line method over the estimated useful lives of the assets. The useful lives for property, equipment and capitalized software are:
|
|
|
Furniture, fixtures and equipment
|
3 to 7 years
|
Buildings
|
35 to 40 years
|
Capitalized software
|
3 to 5 years
|
Leasehold improvements are depreciated over the shorter of the remaining lease term or their estimated useful economic life.
Goodwill
To determine whether goodwill is impaired, annually or more frequently if needed, the Company performs a multi-step impairment test. The Company may first assess qualitative factors to determine if it is more likely than not that the carrying value of a reporting unit exceeds its estimated fair value. The Company may also elect to skip the qualitative testing and proceed directly to the quantitative testing. When performing quantitative testing, the Company first estimates the fair values of its reporting units using discounted cash flows. To determine fair values, the Company must make assumptions about a wide variety 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. 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.
There was no impairment of goodwill during the year ended
December 31, 2016
.
Intangible Assets
The Company’s intangible assets are subject to impairment tests when events or circumstances indicate that an intangible asset (or asset group) may be impaired. The Company’s indefinite lived intangible assets are also tested for impairment annually. There was no impairment of intangible assets during the year ended
December 31, 2016
.
Accounts Payable and Accrued Liabilities
The Company had checks outstanding of
$1.5 billion
and
$1.6 billion
as of
December 31, 2016
and 2015, respectively, which were classified as accounts payable and accrued liabilities and the change in this balance has been reflected within other financing activities in the Consolidated Statements of Cash Flows.
Other Current Liabilities
Other current liabilities include health savings account deposits (
$5.7 billion
and
$3.6 billion
as of
December 31, 2016
and
2015
, respectively), the RSF associated with the AARP Program, deposits under the Medicare Part D program (see
“Medicare Part D Pharmacy Benefits”
above), accruals for premium rebate payments under the ACA, the current portion of future policy benefits and customer balances.
Future Policy Benefits
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.
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.
Redeemable Noncontrolling Interests
Redeemable noncontrolling interests in the Company’s subsidiaries whose redemption is outside the control of the Company are classified as temporary equity. The following table provides details of the Company's redeemable noncontrolling interests’ activity for the years ended
December 31, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2016
|
|
2015
|
Redeemable noncontrolling interests, beginning of period
|
|
$
|
1,736
|
|
|
$
|
1,388
|
|
Net earnings
|
|
16
|
|
|
29
|
|
Acquisitions
|
|
34
|
|
|
196
|
|
Redemptions
|
|
(123
|
)
|
|
(116
|
)
|
Distributions
|
|
(11
|
)
|
|
(19
|
)
|
Fair value and other adjustments
|
|
360
|
|
|
258
|
|
Redeemable noncontrolling interests, end of period
|
|
$
|
2,012
|
|
|
$
|
1,736
|
|
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
two
to
five
years and compensation expense related to restricted shares is based on the share price on date of grant. Stock options and SARs vest ratably primarily over
four
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 Consolidated Statements of Operations.
Net Earnings Per Common Share
The Company computes basic earnings per common share attributable to UnitedHealth Group common shareholders by dividing net earnings attributable to UnitedHealth Group common shareholders by the weighted-average number of common shares outstanding during the period. The Company determines diluted net earnings per common share attributable to UnitedHealth Group common shareholders 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, (collectively, common stock equivalents) 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 and any unrecognized compensation cost. The difference between the number of shares assumed issued and number of shares assumed purchased represents the dilutive shares.
Health Insurance Industry Tax
The ACA includes an annual, nondeductible insurance industry tax (Health Insurance Industry Tax) to be levied proportionally across the insurance industry for risk-based health insurance products.
The Company estimates its liability for the Health Insurance Industry Tax based on a ratio of the Company’s applicable net premiums written compared to the U.S. health insurance industry total applicable net premiums, both for the previous calendar year. The Company records in full the estimated liability for the Health Insurance Industry Tax at the beginning of the calendar year with a corresponding deferred cost that is amortized to operating costs on the Consolidated Statements of Operations using a straight-line method of allocation over the calendar year. The liability is recorded in accounts payable and accrued liabilities and the corresponding deferred cost is recorded in prepaid expenses and other current assets on the Consolidated Balance Sheets. A provision in the 2016 Federal Budget imposed a one year moratorium for 2017 on the collection of the Health Insurance Industry Tax.
Premium Stabilization Programs
The ACA included three programs designed to stabilize health insurance markets (Premium Stabilization Programs): a permanent risk adjustment program; a temporary risk corridors program; and a transitional reinsurance program (Reinsurance Program).
The risk-adjustment provisions apply to market reform compliant individual and small group plans in the commercial markets. Under the program, each covered member is assigned a risk score based upon demographic information and applicable diagnostic codes from the current year paid claims, in order to determine an average risk score for each plan in a particular state and market risk pool. Generally, a plan with a risk score that is less than the state’s average risk score will pay into the pool, while a plan with a risk score that is greater than the state’s average will receive money from the pool. The temporary risk corridors provisions are intended to limit the gains and losses of individual and small group qualified health plans. Plans are required to calculate the U.S. Department of Health and Human Services (HHS) risk corridor ratio of allowable costs to the defined target amount. Qualified health plans with ratios below 97% are required to make payments to HHS, while plans with ratios greater than 103% expect to receive funds from HHS. The Reinsurance Program and temporary risk corridors program expired at the end of 2016.
For the Premium Stabilization Programs, the Company records a receivable or payable as an adjustment to premium revenue based on year-to-date experience when the amounts are reasonably estimable and collection is reasonably assured. Final adjustments or recoverable amounts to the Premium Stabilization Programs are determined by HHS in the year following the policy year.
Recently Issued Accounting Standards
In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) No. 2016-02, “Leases (Topic 842)” (ASU 2016-02). Under ASU 2016-02, an entity will be required to recognize assets and liabilities for the rights and obligations created by leases on the entity’s balance sheet for both finance and operating leases. For leases with a term of 12 months or less, an entity can elect to not recognize lease assets and lease liabilities and expense the lease over a straight-line basis for the term of the lease. ASU 2016-02 will require new disclosures that depict the amount, timing, and uncertainty of cash flows pertaining to an entity’s leases. Companies are required to adopt the new standard using a modified retrospective approach for annual and interim periods beginning after December 15, 2018. Early adoption of ASU 2016-02 is permitted. When adopted, the Company does not expect ASU 2016-02 to have a material impact on its results of operations, equity or cash flows. The impact of ASU 2016-02 on the Company’s consolidated financial position will be based on leases outstanding at the time of adoption.
In January 2016, the FASB issued ASU 2016-01, “Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities” (ASU 2016-01). The new guidance changes the current accounting related to (i) the classification and measurement of certain equity investments, (ii) the presentation of changes in the fair value of financial liabilities measured under the fair value option that are due to instrument-specific credit risk, and (iii) certain disclosures associated with the fair value of financial instruments. Most notably, ASU 2016-01 requires that equity investments, with certain exemptions, be measured at fair value with changes in fair value recognized in net income as opposed to other comprehensive income. The new guidance is effective for annual and interim reporting periods beginning after December 15, 2017. As of December 31, 2016, based on equity securities held, the Company does not expect ASU 2016-01 to have a material impact on its consolidated financial position, results of operations, equity or cash flows. The Company will continue to evaluate any changes in its mix of investments or market conditions and the related impact of ASU 2016-01.
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (ASU 2014-09) as modified by ASU No. 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date,” ASU 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net),” ASU No. 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing,” ASU No. 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients,” and ASU 2016-20, “Revenue from Contracts with Customers (Topic 606): Technical Corrections and Improvements.” ASU 2014-09 will supersede existing revenue recognition standards with a single model unless those contracts are within the scope of other standards (e.g., an insurance entity’s insurance contracts). The revenue recognition principle in ASU 2014-09 is that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, new and enhanced disclosures will be required. Companies may adopt the new standard either using the full retrospective approach, a modified retrospective approach with practical expedients, or a cumulative effect upon adoption approach. The Company early adopted the new standard effective January 1, 2017, as allowed, using the modified retrospective approach. As the majority of the Company’s revenues are not subject to the new guidance, the adoption of ASU 2014-09 did not have a material impact on the Company’s consolidated financial position, results of operations, equity or cash flows.
Recently Adopted Accounting Standards
In March 2016, the FASB issued ASU No. 2016-09, “Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” (ASU 2016-09). ASU 2016-09 modifies several aspects of the accounting for
share-based payment awards, including income tax consequences, and classification on the statement of cash flows. The Company early adopted ASU 2016-09 in the first quarter of 2016. The provisions of ASU 2016-09 related to the timing of when excess tax benefits are recognized, minimum statutory withholding requirements and forfeitures were adopted using a modified retrospective transition method by means of a cumulative-effect adjustment to equity as of January 1, 2016. The provisions of ASU 2016-09 related to the recognition of excess tax benefits in the income statement and classification in the statement of cash flows were adopted prospectively and the prior periods were not retrospectively adjusted. The adoption of ASU 2016-09 did not materially impact the Company’s consolidated financial position, results of operations, equity or cash flows.
In November 2015, the FASB issued ASU No. 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes” (ASU 2015-17). ASU 2015-17 requires entities to present deferred tax assets and deferred tax liabilities as noncurrent on the balance sheet. Prior to the issuance of ASU 2015-17, deferred taxes were required to be presented as a net current asset or liability and a net noncurrent asset or liability. The Company adopted ASU 2015-17 on a prospective basis in the first quarter of 2016 and the prior period was not retrospectively adjusted. The adoption of ASU 2015-17 did not impact the Company’s consolidated financial position, results of operations, equity or cash flows.
In May 2015, the FASB issued ASU No. 2015-09, “Financial Services - Insurance (Topic 944): Disclosures about Short-Duration Contracts” (ASU 2015-09). ASU 2015-09 requires insurance entities to provide additional disclosures about short-duration insurance liabilities, including incurred and paid medical costs information by year. The Company adopted the disclosure requirements of ASU 2015-09 and has included the new disclosures within
Notes 2
and
7
.
In April 2015, the FASB issued ASU No. 2015-03, “Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs” (ASU 2015-03). ASU 2015-03 requires debt issuance costs to be presented as a reduction of the carrying amount of the related debt liability. Prior to the issuance of ASU 2015-03, debt issuance costs were required to be presented as an asset on the balance sheet. The Company adopted ASU 2015-03 on a retrospective basis, as required, in the first quarter of 2016. The Company reclassified
$129 million
and
$82 million
in debt issuance costs that were recorded in other assets to long-term debt, less current maturities on the Consolidated Balance Sheet as of December 31, 2015 and 2014, respectively.
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 by major security type is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
December 31, 2016
|
|
|
|
|
|
|
|
|
Debt securities - available-for-sale:
|
|
|
|
|
|
|
|
|
U.S. government and agency obligations
|
|
$
|
2,294
|
|
|
$
|
1
|
|
|
$
|
(31
|
)
|
|
$
|
2,264
|
|
State and municipal obligations
|
|
7,120
|
|
|
40
|
|
|
(101
|
)
|
|
7,059
|
|
Corporate obligations
|
|
10,944
|
|
|
41
|
|
|
(58
|
)
|
|
10,927
|
|
U.S. agency mortgage-backed securities
|
|
2,963
|
|
|
7
|
|
|
(43
|
)
|
|
2,927
|
|
Non-U.S. agency mortgage-backed securities
|
|
1,009
|
|
|
3
|
|
|
(10
|
)
|
|
1,002
|
|
Total debt securities - available-for-sale
|
|
24,330
|
|
|
92
|
|
|
(243
|
)
|
|
24,179
|
|
Equity securities
|
|
2,036
|
|
|
52
|
|
|
(47
|
)
|
|
2,041
|
|
Debt securities - held-to-maturity:
|
|
|
|
|
|
|
|
|
U.S. government and agency obligations
|
|
250
|
|
|
1
|
|
|
—
|
|
|
251
|
|
State and municipal obligations
|
|
5
|
|
|
—
|
|
|
—
|
|
|
5
|
|
Corporate obligations
|
|
238
|
|
|
—
|
|
|
—
|
|
|
238
|
|
Total debt securities - held-to-maturity
|
|
493
|
|
|
1
|
|
|
—
|
|
|
494
|
|
Total investments
|
|
$
|
26,859
|
|
|
$
|
145
|
|
|
$
|
(290
|
)
|
|
$
|
26,714
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
Debt securities - available-for-sale:
|
|
|
|
|
|
|
|
|
U.S. government and agency obligations
|
|
$
|
1,982
|
|
|
$
|
1
|
|
|
$
|
(6
|
)
|
|
$
|
1,977
|
|
State and municipal obligations
|
|
6,022
|
|
|
149
|
|
|
(3
|
)
|
|
6,168
|
|
Corporate obligations
|
|
7,446
|
|
|
41
|
|
|
(81
|
)
|
|
7,406
|
|
U.S. agency mortgage-backed securities
|
|
2,127
|
|
|
13
|
|
|
(16
|
)
|
|
2,124
|
|
Non-U.S. agency mortgage-backed securities
|
|
962
|
|
|
5
|
|
|
(11
|
)
|
|
956
|
|
Total debt securities - available-for-sale
|
|
18,539
|
|
|
209
|
|
|
(117
|
)
|
|
18,631
|
|
Equity securities
|
|
1,638
|
|
|
58
|
|
|
(57
|
)
|
|
1,639
|
|
Debt securities - held-to-maturity:
|
|
|
|
|
|
|
|
|
U.S. government and agency obligations
|
|
163
|
|
|
1
|
|
|
—
|
|
|
164
|
|
State and municipal obligations
|
|
8
|
|
|
—
|
|
|
—
|
|
|
8
|
|
Corporate obligations
|
|
339
|
|
|
—
|
|
|
—
|
|
|
339
|
|
Total debt securities - held-to-maturity
|
|
510
|
|
|
1
|
|
|
—
|
|
|
511
|
|
Total investments
|
|
$
|
20,687
|
|
|
$
|
268
|
|
|
$
|
(174
|
)
|
|
$
|
20,781
|
|
Nearly all of the Company’s investments in mortgage-backed securities were rated AAA as of
December 31, 2016
.
The amortized cost and fair value of debt securities as of
December 31, 2016
, by contractual maturity, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale
|
|
Held-to-Maturity
|
(in millions)
|
|
Amortized
Cost
|
|
Fair
Value
|
|
Amortized
Cost
|
|
Fair
Value
|
Due in one year or less
|
|
$
|
2,893
|
|
|
$
|
2,895
|
|
|
$
|
151
|
|
|
$
|
151
|
|
Due after one year through five years
|
|
9,646
|
|
|
9,625
|
|
|
153
|
|
|
153
|
|
Due after five years through ten years
|
|
5,706
|
|
|
5,645
|
|
|
124
|
|
|
124
|
|
Due after ten years
|
|
2,113
|
|
|
2,085
|
|
|
65
|
|
|
66
|
|
U.S. agency mortgage-backed securities
|
|
2,963
|
|
|
2,927
|
|
|
—
|
|
|
—
|
|
Non-U.S. agency mortgage-backed securities
|
|
1,009
|
|
|
1,002
|
|
|
—
|
|
|
—
|
|
Total debt securities
|
|
$
|
24,330
|
|
|
$
|
24,179
|
|
|
$
|
493
|
|
|
$
|
494
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than 12 Months
|
|
12 Months or Greater
|
|
Total
|
(in millions)
|
|
Fair
Value
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
|
Gross
Unrealized
Losses
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities - available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency obligations
|
|
$
|
1,794
|
|
|
$
|
(31
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,794
|
|
|
$
|
(31
|
)
|
State and municipal obligations
|
|
4,376
|
|
|
(101
|
)
|
|
—
|
|
|
—
|
|
|
4,376
|
|
|
(101
|
)
|
Corporate obligations
|
|
5,128
|
|
|
(56
|
)
|
|
137
|
|
|
(2
|
)
|
|
5,265
|
|
|
(58
|
)
|
U.S. agency mortgage-backed securities
|
|
2,247
|
|
|
(40
|
)
|
|
79
|
|
|
(3
|
)
|
|
2,326
|
|
|
(43
|
)
|
Non-U.S. agency mortgage-backed securities
|
|
544
|
|
|
(7
|
)
|
|
97
|
|
|
(3
|
)
|
|
641
|
|
|
(10
|
)
|
Total debt securities - available-for-sale
|
|
$
|
14,089
|
|
|
$
|
(235
|
)
|
|
$
|
313
|
|
|
$
|
(8
|
)
|
|
$
|
14,402
|
|
|
$
|
(243
|
)
|
Equity securities
|
|
$
|
93
|
|
|
$
|
(5
|
)
|
|
$
|
91
|
|
|
$
|
(42
|
)
|
|
$
|
184
|
|
|
$
|
(47
|
)
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities - available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency obligations
|
|
$
|
1,473
|
|
|
$
|
(6
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,473
|
|
|
$
|
(6
|
)
|
State and municipal obligations
|
|
650
|
|
|
(3
|
)
|
|
—
|
|
|
—
|
|
|
650
|
|
|
(3
|
)
|
Corporate obligations
|
|
4,629
|
|
|
(63
|
)
|
|
339
|
|
|
(18
|
)
|
|
4,968
|
|
|
(81
|
)
|
U.S. agency mortgage-backed securities
|
|
1,304
|
|
|
(12
|
)
|
|
116
|
|
|
(4
|
)
|
|
1,420
|
|
|
(16
|
)
|
Non-U.S. agency mortgage-backed securities
|
|
593
|
|
|
(7
|
)
|
|
127
|
|
|
(4
|
)
|
|
720
|
|
|
(11
|
)
|
Total debt securities - available-for-sale
|
|
$
|
8,649
|
|
|
$
|
(91
|
)
|
|
$
|
582
|
|
|
$
|
(26
|
)
|
|
$
|
9,231
|
|
|
$
|
(117
|
)
|
Equity securities
|
|
$
|
112
|
|
|
$
|
(11
|
)
|
|
$
|
89
|
|
|
$
|
(46
|
)
|
|
$
|
201
|
|
|
$
|
(57
|
)
|
The Company’s unrealized losses from all securities as of
December 31, 2016
were generated from approximately
12,000
positions out of a total of
27,000
positions. The Company believes that it will collect the principal and interest due on its debt securities 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 quality 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 no significant deterioration since purchase. As of
December 31, 2016
, the Company did not have the intent to sell any of the securities in an unrealized loss position. Therefore, the Company believes these losses to be temporary.
The Company’s investments in equity securities consist of investments in Brazilian real denominated fixed-income funds, employee savings plan related investments, venture capital funds and dividend paying stocks. The Company evaluated its investments in equity securities for severity and duration of unrealized loss, overall market volatility and other market factors.
Net realized gains reclassified out of accumulated other comprehensive income were from the following sources:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
(in millions)
|
|
2016
|
|
2015
|
|
2014
|
Total other-than-temporary impairment recognized in earnings
|
|
$
|
(45
|
)
|
|
$
|
(22
|
)
|
|
$
|
(26
|
)
|
Gross realized losses from sales
|
|
(44
|
)
|
|
(28
|
)
|
|
(47
|
)
|
Gross realized gains from sales
|
|
255
|
|
|
191
|
|
|
284
|
|
Net realized gains (included in investment and other income on the Consolidated Statements of Operations)
|
|
166
|
|
|
141
|
|
|
211
|
|
Income tax effect (included in provision for income taxes on the Consolidated Statements of Operations)
|
|
(60
|
)
|
|
(53
|
)
|
|
(77
|
)
|
Realized gains, net of taxes
|
|
$
|
106
|
|
|
$
|
88
|
|
|
$
|
134
|
|
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 inactive markets (e.g., few transactions, limited information, noncurrent 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 was
no
transfer between Levels 1, 2 or 3 of any financial assets or liabilities during the years ended
December 31, 2016
or
2015
.
Nonfinancial 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, 2016
or
2015
.
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 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 nonbinding 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 prices reported by a secondary pricing source, such as 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 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 that also have similar revenue and growth characteristics and 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 values of certain of the Company’s venture capital securities are based on 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.
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.
Assets Under Management.
Assets under management consists of debt securities and other investments held to fund costs associated with the AARP Program and are priced and classified using the same methodologies as the Company’s investments in debt and equity securities.
Other Assets.
The fair values of the Company’s other assets are estimated and classified using the same methodologies as the Company’s investments in debt securities.
Interest Rate 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 values of the Company’s long-term debt are estimated and classified using the same methodologies as the Company’s investments in debt securities.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Quoted Prices
in Active
Markets
(Level 1)
|
|
Other
Observable
Inputs
(Level 2)
|
|
Unobservable
Inputs
(Level 3)
|
|
Total
Fair and Carrying
Value
|
December 31, 2016
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
10,386
|
|
|
$
|
44
|
|
|
$
|
—
|
|
|
$
|
10,430
|
|
Debt securities - available-for-sale:
|
|
|
|
|
|
|
|
|
U.S. government and agency obligations
|
|
2,017
|
|
|
247
|
|
|
—
|
|
|
2,264
|
|
State and municipal obligations
|
|
—
|
|
|
7,059
|
|
|
—
|
|
|
7,059
|
|
Corporate obligations
|
|
21
|
|
|
10,804
|
|
|
102
|
|
|
10,927
|
|
U.S. agency mortgage-backed securities
|
|
—
|
|
|
2,927
|
|
|
—
|
|
|
2,927
|
|
Non-U.S. agency mortgage-backed securities
|
|
—
|
|
|
1,002
|
|
|
—
|
|
|
1,002
|
|
Total debt securities - available-for-sale
|
|
2,038
|
|
|
22,039
|
|
|
102
|
|
|
24,179
|
|
Equity securities
|
|
1,591
|
|
|
13
|
|
|
437
|
|
|
2,041
|
|
Assets under management
|
|
1,064
|
|
|
2,041
|
|
|
—
|
|
|
3,105
|
|
Interest rate swap assets
|
|
—
|
|
|
55
|
|
|
—
|
|
|
55
|
|
Total assets at fair value
|
|
$
|
15,079
|
|
|
$
|
24,192
|
|
|
$
|
539
|
|
|
$
|
39,810
|
|
Percentage of total assets at fair value
|
|
38
|
%
|
|
61
|
%
|
|
1
|
%
|
|
100
|
%
|
Interest rate swap liabilities
|
|
$
|
—
|
|
|
$
|
14
|
|
|
$
|
—
|
|
|
$
|
14
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
10,906
|
|
|
$
|
17
|
|
|
$
|
—
|
|
|
$
|
10,923
|
|
Debt securities - available-for-sale:
|
|
|
|
|
|
|
|
|
U.S. government and agency obligations
|
|
1,779
|
|
|
198
|
|
|
—
|
|
|
1,977
|
|
State and municipal obligations
|
|
—
|
|
|
6,168
|
|
|
—
|
|
|
6,168
|
|
Corporate obligations
|
|
5
|
|
|
7,308
|
|
|
93
|
|
|
7,406
|
|
U.S. agency mortgage-backed securities
|
|
—
|
|
|
2,124
|
|
|
—
|
|
|
2,124
|
|
Non-U.S. agency mortgage-backed securities
|
|
—
|
|
|
951
|
|
|
5
|
|
|
956
|
|
Total debt securities - available-for-sale
|
|
1,784
|
|
|
16,749
|
|
|
98
|
|
|
18,631
|
|
Equity securities
|
|
1,223
|
|
|
14
|
|
|
402
|
|
|
1,639
|
|
Assets under management
|
|
832
|
|
|
2,166
|
|
|
—
|
|
|
2,998
|
|
Interest rate swap assets
|
|
—
|
|
|
93
|
|
|
—
|
|
|
93
|
|
Total assets at fair value
|
|
$
|
14,745
|
|
|
$
|
19,039
|
|
|
$
|
500
|
|
|
$
|
34,284
|
|
Percentage of total assets at fair value
|
|
43
|
%
|
|
56
|
%
|
|
1
|
%
|
|
100
|
%
|
Interest rate swap liabilities
|
|
$
|
—
|
|
|
$
|
11
|
|
|
$
|
—
|
|
|
$
|
11
|
|
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)
|
|
Quoted Prices
in Active
Markets
(Level 1)
|
|
Other
Observable
Inputs
(Level 2)
|
|
Unobservable
Inputs
(Level 3)
|
|
Total
Fair
Value
|
|
Total Carrying Value
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
Debt securities - held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency obligations
|
|
$
|
251
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
251
|
|
|
$
|
250
|
|
State and municipal obligations
|
|
—
|
|
|
—
|
|
|
5
|
|
|
5
|
|
|
5
|
|
Corporate obligations
|
|
20
|
|
|
8
|
|
|
210
|
|
|
238
|
|
|
238
|
|
Total debt securities - held-to-maturity
|
|
$
|
271
|
|
|
$
|
8
|
|
|
$
|
215
|
|
|
$
|
494
|
|
|
$
|
493
|
|
Other assets
|
|
$
|
—
|
|
|
$
|
476
|
|
|
$
|
—
|
|
|
$
|
476
|
|
|
$
|
471
|
|
Long-term debt and other financing obligations
|
|
$
|
—
|
|
|
$
|
31,295
|
|
|
$
|
—
|
|
|
$
|
31,295
|
|
|
$
|
29,337
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
Debt securities - held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency obligations
|
|
$
|
164
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
164
|
|
|
$
|
163
|
|
State and municipal obligations
|
|
—
|
|
|
—
|
|
|
8
|
|
|
8
|
|
|
8
|
|
Corporate obligations
|
|
91
|
|
|
10
|
|
|
238
|
|
|
339
|
|
|
339
|
|
Total debt securities - held-to-maturity
|
|
$
|
255
|
|
|
$
|
10
|
|
|
$
|
246
|
|
|
$
|
511
|
|
|
$
|
510
|
|
Other assets
|
|
$
|
—
|
|
|
$
|
493
|
|
|
$
|
—
|
|
|
$
|
493
|
|
|
$
|
500
|
|
Long-term debt and other financing obligations
|
|
$
|
—
|
|
|
$
|
29,455
|
|
|
$
|
—
|
|
|
$
|
29,455
|
|
|
$
|
27,978
|
|
The carrying amounts reported on the Consolidated Balance Sheets for other current financial assets and 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
|
December 31, 2014
|
(in millions)
|
|
Debt
Securities
|
|
Equity
Securities
|
|
Total
|
|
Debt
Securities
|
|
Equity
Securities
|
|
Total
|
|
Debt
Securities
|
|
Equity
Securities
|
|
Total
|
Balance at beginning of period
|
|
$
|
98
|
|
|
$
|
402
|
|
|
$
|
500
|
|
|
$
|
74
|
|
|
$
|
310
|
|
|
$
|
384
|
|
|
$
|
42
|
|
|
$
|
269
|
|
|
$
|
311
|
|
Purchases
|
|
12
|
|
|
100
|
|
|
112
|
|
|
27
|
|
|
106
|
|
|
133
|
|
|
32
|
|
|
105
|
|
|
137
|
|
Sales
|
|
(9
|
)
|
|
(29
|
)
|
|
(38
|
)
|
|
(4
|
)
|
|
(24
|
)
|
|
(28
|
)
|
|
(1
|
)
|
|
(180
|
)
|
|
(181
|
)
|
Net unrealized gains (losses) in accumulated other comprehensive income
|
|
1
|
|
|
(13
|
)
|
|
(12
|
)
|
|
2
|
|
|
5
|
|
|
7
|
|
|
1
|
|
|
6
|
|
|
7
|
|
Net realized (losses) gains in investment and other income
|
|
—
|
|
|
(23
|
)
|
|
(23
|
)
|
|
(1
|
)
|
|
5
|
|
|
4
|
|
|
—
|
|
|
110
|
|
|
110
|
|
Balance at end of period
|
|
$
|
102
|
|
|
$
|
437
|
|
|
$
|
539
|
|
|
$
|
98
|
|
|
$
|
402
|
|
|
$
|
500
|
|
|
$
|
74
|
|
|
$
|
310
|
|
|
$
|
384
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range
|
(in millions)
|
|
Fair Value
|
|
Valuation Technique
|
|
Unobservable Input
|
|
Low
|
|
High
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
Venture capital portfolios
|
|
$
|
404
|
|
|
Market approach - comparable companies
|
|
Revenue multiple
|
|
1.0
|
|
6.0
|
|
|
|
|
|
|
EBITDA
multiple
|
|
8.0
|
|
12.0
|
|
|
33
|
|
|
Market approach - recent transactions
|
|
Inactive market transactions
|
|
N/A
|
|
N/A
|
Total equity securities
|
|
$
|
437
|
|
|
|
|
|
|
|
|
|
Also included in the Company’s assets measured at fair value on a recurring basis using Level 3 inputs were
$102 million
of available-for-sale debt securities as of
December 31, 2016
, which were not significant.
5. Property, Equipment and Capitalized Software
A summary of property, equipment and capitalized software is as follows:
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
December 31, 2016
|
|
December 31, 2015
|
Land and improvements
|
|
$
|
324
|
|
|
$
|
237
|
|
Buildings and improvements
|
|
3,148
|
|
|
2,420
|
|
Computer equipment
|
|
2,021
|
|
|
1,945
|
|
Furniture and fixtures
|
|
999
|
|
|
790
|
|
Less accumulated depreciation
|
|
(2,621
|
)
|
|
(2,163
|
)
|
Property and equipment, net
|
|
3,871
|
|
|
3,229
|
|
Capitalized software
|
|
3,158
|
|
|
2,642
|
|
Less accumulated amortization
|
|
(1,128
|
)
|
|
(1,010
|
)
|
Capitalized software, net
|
|
2,030
|
|
|
1,632
|
|
Total property, equipment and capitalized software, net
|
|
$
|
5,901
|
|
|
$
|
4,861
|
|
Depreciation expense for property and equipment for the years ended
December 31, 2016
,
2015
and 2014 was
$698 million
,
$613 million
and
$532 million
, respectively. Amortization expense for capitalized software for the years ended
December 31, 2016
,
2015
and 2014 was
$475 million
,
$430 million
and
$422 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, 2015
|
|
$
|
24,030
|
|
|
$
|
3,834
|
|
|
$
|
4,236
|
|
|
$
|
840
|
|
|
$
|
32,940
|
|
Acquisitions
|
|
128
|
|
|
1,817
|
|
|
89
|
|
|
10,732
|
|
|
12,766
|
|
Foreign currency effects and adjustments, net
|
|
(1,233
|
)
|
|
9
|
|
|
(29
|
)
|
|
—
|
|
|
(1,253
|
)
|
Balance at December 31, 2015
|
|
22,925
|
|
|
5,660
|
|
|
4,296
|
|
|
11,572
|
|
|
44,453
|
|
Acquisitions
|
|
526
|
|
|
683
|
|
|
—
|
|
|
1,387
|
|
|
2,596
|
|
Foreign currency effects and adjustments, net
|
|
403
|
|
|
(21
|
)
|
|
153
|
|
|
—
|
|
|
535
|
|
Balance at December 31, 2016
|
|
$
|
23,854
|
|
|
$
|
6,322
|
|
|
$
|
4,449
|
|
|
$
|
12,959
|
|
|
$
|
47,584
|
|
During the third quarter of 2015, the Company acquired all of the outstanding common shares of Catamaran Corporation and funded Catamaran’s payoff of its outstanding debt and credit facility for a total of
$14.3 billion
in cash. This combination diversified OptumRx’s customer and business mix and enhanced OptumRx’s technology capabilities and flexible service offerings. The total consideration exceeded the estimated fair value of the net tangible assets acquired by
$16.0 billion
, of which
$5.4 billion
has been allocated to finite-lived intangible assets and
$10.6 billion
to goodwill. The goodwill is not deductible for income tax purposes.
The gross carrying value, accumulated amortization and net carrying value of other intangible assets were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
(in millions)
|
|
Gross Carrying Value
|
|
Accumulated Amortization
|
|
Net Carrying Value
|
|
Gross Carrying Value
|
|
Accumulated Amortization
|
|
Net Carrying Value
|
Customer-related
|
|
$
|
10,942
|
|
|
$
|
(3,416
|
)
|
|
$
|
7,526
|
|
|
$
|
10,270
|
|
|
$
|
(2,796
|
)
|
|
$
|
7,474
|
|
Trademarks and technology
|
|
720
|
|
|
(323
|
)
|
|
397
|
|
|
682
|
|
|
(249
|
)
|
|
433
|
|
Trademarks - indefinite-lived
|
|
468
|
|
|
—
|
|
|
468
|
|
|
358
|
|
|
—
|
|
|
358
|
|
Other
|
|
258
|
|
|
(108
|
)
|
|
150
|
|
|
209
|
|
|
(83
|
)
|
|
126
|
|
Total
|
|
$
|
12,388
|
|
|
$
|
(3,847
|
)
|
|
$
|
8,541
|
|
|
$
|
11,519
|
|
|
$
|
(3,128
|
)
|
|
$
|
8,391
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
(in millions, except years)
|
|
Fair Value
|
|
Weighted-Average Useful Life
|
|
Fair Value
|
|
Weighted-Average Useful Life
|
Customer-related
|
|
$
|
785
|
|
|
17 years
|
|
$
|
5,518
|
|
|
19 years
|
Trademarks and technology
|
|
82
|
|
|
4 years
|
|
194
|
|
|
4 years
|
Other
|
|
22
|
|
|
5 years
|
|
—
|
|
|
|
Total acquired finite-lived intangible assets
|
|
$
|
889
|
|
|
16 years
|
|
$
|
5,712
|
|
|
19 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)
|
|
|
2017
|
|
$
|
865
|
|
2018
|
|
755
|
|
2019
|
|
679
|
|
2020
|
|
596
|
|
2021
|
|
536
|
|
Amortization expense relating to intangible assets for the years ended
December 31, 2016
,
2015
and 2014 was
$882 million
,
$650 million
and
$524 million
, respectively.
7. Medical Costs Payable
The following table shows the components of the change in medical costs payable for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2016
|
|
2015
|
|
2014
|
Medical costs payable, beginning of period
|
|
$
|
14,330
|
|
|
$
|
12,040
|
|
|
$
|
11,575
|
|
Reported medical costs:
|
|
|
|
|
|
|
Current year
|
|
117,258
|
|
|
104,195
|
|
|
94,053
|
|
Prior years
|
|
(220
|
)
|
|
(320
|
)
|
|
(420
|
)
|
Total reported medical costs
|
|
117,038
|
|
|
103,875
|
|
|
93,633
|
|
Medical payments:
|
|
|
|
|
|
|
Payments for current year
|
|
(101,696
|
)
|
|
(90,630
|
)
|
|
(82,750
|
)
|
Payments for prior years
|
|
(13,281
|
)
|
|
(10,955
|
)
|
|
(10,418
|
)
|
Total medical payments
|
|
(114,977
|
)
|
|
(101,585
|
)
|
|
(93,168
|
)
|
Medical costs payable, end of period
|
|
$
|
16,391
|
|
|
$
|
14,330
|
|
|
$
|
12,040
|
|
For the years ended
December 31, 2016
, 2015 and 2014 the medical cost reserve development included no individual factors that were material
.
Medical costs payable included IBNR of
$11.6 billion
and
$9.8 billion
at December 31, 2016 and 2015, respectively. Substantially all of the IBNR balance as of
December 31, 2016
relates to the current year. The following is information about incurred and paid medical cost development as of
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
Net Incurred Medical Costs
|
(in millions)
|
|
For the Years ended December 31,
|
Year
|
|
2015
|
|
2016
|
2015
|
|
$
|
104,195
|
|
|
$
|
103,973
|
|
2016
|
|
|
|
117,258
|
|
Total
|
|
|
|
$
|
221,231
|
|
|
|
|
|
|
|
|
Net Cumulative Medical Payments
|
(in millions)
|
|
For the Years ended December 31,
|
Year
|
|
2015
|
|
2016
|
2015
|
|
$
|
(90,630
|
)
|
|
$
|
(103,885
|
)
|
2016
|
|
|
|
(101,696
|
)
|
Total
|
|
|
|
(205,581
|
)
|
Net remaining outstanding liabilities prior to 2015
|
|
|
|
741
|
|
Total medical costs payable
|
|
|
|
$
|
16,391
|
|
8. Commercial Paper and Long-Term Debt
Commercial paper, term loan and senior unsecured long-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
(in millions, except percentages)
|
|
Par
Value
|
|
Carrying
Value
|
|
Fair
Value
|
|
Par
Value
|
|
Carrying
Value (a)
|
|
Fair
Value
|
Commercial paper
|
|
$
|
3,633
|
|
|
$
|
3,633
|
|
|
$
|
3,633
|
|
|
$
|
3,987
|
|
|
$
|
3,987
|
|
|
$
|
3,987
|
|
Floating rate term loan due July 2016
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,500
|
|
|
1,500
|
|
|
1,500
|
|
5.375% notes due March 2016
|
|
—
|
|
|
—
|
|
|
—
|
|
|
601
|
|
|
605
|
|
|
606
|
|
1.875% notes due November 2016
|
|
—
|
|
|
—
|
|
|
—
|
|
|
400
|
|
|
400
|
|
|
403
|
|
5.360% notes due November 2016
|
|
—
|
|
|
—
|
|
|
—
|
|
|
95
|
|
|
95
|
|
|
98
|
|
Floating rate notes due January 2017
|
|
750
|
|
|
750
|
|
|
750
|
|
|
750
|
|
|
749
|
|
|
751
|
|
6.000% notes due June 2017
|
|
441
|
|
|
446
|
|
|
450
|
|
|
441
|
|
|
458
|
|
|
469
|
|
1.450% notes due July 2017
|
|
750
|
|
|
750
|
|
|
751
|
|
|
750
|
|
|
749
|
|
|
750
|
|
1.400% notes due October 2017
|
|
625
|
|
|
624
|
|
|
626
|
|
|
625
|
|
|
624
|
|
|
624
|
|
6.000% notes due November 2017
|
|
156
|
|
|
159
|
|
|
163
|
|
|
156
|
|
|
162
|
|
|
168
|
|
1.400% notes due December 2017
|
|
750
|
|
|
751
|
|
|
750
|
|
|
750
|
|
|
751
|
|
|
748
|
|
6.000% notes due February 2018
|
|
1,100
|
|
|
1,107
|
|
|
1,153
|
|
|
1,100
|
|
|
1,114
|
|
|
1,196
|
|
1.900% notes due July 2018
|
|
1,500
|
|
|
1,496
|
|
|
1,507
|
|
|
1,500
|
|
|
1,494
|
|
|
1,505
|
|
1.700% notes due February 2019
|
|
750
|
|
|
748
|
|
|
748
|
|
|
—
|
|
|
—
|
|
|
—
|
|
1.625% notes due March 2019
|
|
500
|
|
|
501
|
|
|
498
|
|
|
500
|
|
|
502
|
|
|
494
|
|
2.300% notes due December 2019
|
|
500
|
|
|
498
|
|
|
504
|
|
|
500
|
|
|
499
|
|
|
502
|
|
2.700% notes due July 2020
|
|
1,500
|
|
|
1,495
|
|
|
1,523
|
|
|
1,500
|
|
|
1,493
|
|
|
1,516
|
|
3.875% notes due October 2020
|
|
450
|
|
|
450
|
|
|
474
|
|
|
450
|
|
|
452
|
|
|
476
|
|
4.700% notes due February 2021
|
|
400
|
|
|
409
|
|
|
433
|
|
|
400
|
|
|
413
|
|
|
438
|
|
2.125% notes due March 2021
|
|
750
|
|
|
745
|
|
|
741
|
|
|
—
|
|
|
—
|
|
|
—
|
|
3.375% notes due November 2021
|
|
500
|
|
|
497
|
|
|
519
|
|
|
500
|
|
|
500
|
|
|
517
|
|
2.875% notes due December 2021
|
|
750
|
|
|
748
|
|
|
760
|
|
|
750
|
|
|
753
|
|
|
760
|
|
2.875% notes due March 2022
|
|
1,100
|
|
|
1,057
|
|
|
1,114
|
|
|
1,100
|
|
|
1,059
|
|
|
1,099
|
|
3.350% notes due July 2022
|
|
1,000
|
|
|
995
|
|
|
1,030
|
|
|
1,000
|
|
|
994
|
|
|
1,023
|
|
0.000% notes due November 2022
|
|
15
|
|
|
11
|
|
|
12
|
|
|
15
|
|
|
10
|
|
|
11
|
|
2.750% notes due February 2023
|
|
625
|
|
|
609
|
|
|
622
|
|
|
625
|
|
|
611
|
|
|
613
|
|
2.875% notes due March 2023
|
|
750
|
|
|
771
|
|
|
753
|
|
|
750
|
|
|
781
|
|
|
742
|
|
3.750% notes due July 2025
|
|
2,000
|
|
|
1,986
|
|
|
2,070
|
|
|
2,000
|
|
|
1,985
|
|
|
2,062
|
|
3.100% notes due March 2026
|
|
1,000
|
|
|
994
|
|
|
986
|
|
|
—
|
|
|
—
|
|
|
—
|
|
3.450% notes due January 2027
|
|
750
|
|
|
745
|
|
|
762
|
|
|
—
|
|
|
—
|
|
|
—
|
|
4.625% notes due July 2035
|
|
1,000
|
|
|
991
|
|
|
1,090
|
|
|
1,000
|
|
|
991
|
|
|
1,038
|
|
5.800% notes due March 2036
|
|
850
|
|
|
837
|
|
|
1,034
|
|
|
850
|
|
|
838
|
|
|
1,003
|
|
6.500% notes due June 2037
|
|
500
|
|
|
491
|
|
|
643
|
|
|
500
|
|
|
492
|
|
|
628
|
|
6.625% notes due November 2037
|
|
650
|
|
|
640
|
|
|
850
|
|
|
650
|
|
|
641
|
|
|
829
|
|
6.875% notes due February 2038
|
|
1,100
|
|
|
1,075
|
|
|
1,497
|
|
|
1,100
|
|
|
1,076
|
|
|
1,439
|
|
5.700% notes due October 2040
|
|
300
|
|
|
296
|
|
|
366
|
|
|
300
|
|
|
296
|
|
|
348
|
|
5.950% notes due February 2041
|
|
350
|
|
|
345
|
|
|
437
|
|
|
350
|
|
|
345
|
|
|
416
|
|
4.625% notes due November 2041
|
|
600
|
|
|
588
|
|
|
634
|
|
|
600
|
|
|
588
|
|
|
609
|
|
4.375% notes due March 2042
|
|
502
|
|
|
483
|
|
|
509
|
|
|
502
|
|
|
483
|
|
|
493
|
|
3.950% notes due October 2042
|
|
625
|
|
|
606
|
|
|
609
|
|
|
625
|
|
|
606
|
|
|
582
|
|
4.250% notes due March 2043
|
|
750
|
|
|
734
|
|
|
765
|
|
|
750
|
|
|
734
|
|
|
728
|
|
4.750% notes due July 2045
|
|
2,000
|
|
|
1,972
|
|
|
2,203
|
|
|
2,000
|
|
|
1,971
|
|
|
2,107
|
|
4.200% notes due January 2047
|
|
750
|
|
|
737
|
|
|
759
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total commercial paper, term loan and long-term debt
|
|
$
|
33,022
|
|
|
$
|
32,770
|
|
|
$
|
34,728
|
|
|
$
|
31,972
|
|
|
$
|
31,801
|
|
|
$
|
33,278
|
|
|
|
(a)
|
In the first quarter of 2016, the Company adopted ASU 2015-03, retrospectively as required. See
Note 2
for more information on the adoption of ASU 2015-03.
|
The Company’s long-term debt obligations also included
$200 million
and
$164 million
of other financing obligations, of which
$80 million
and
$47 million
were current as of
December 31, 2016
and 2015, respectively.
Maturities of commercial paper and long-term debt for the years ending December 31 are as follows:
|
|
|
|
|
|
(in millions)
|
|
|
2017
|
|
$
|
7,185
|
|
2018
|
|
2,622
|
|
2019
|
|
1,769
|
|
2020
|
|
1,955
|
|
2021
|
|
2,407
|
|
Thereafter
|
|
17,284
|
|
Commercial Paper and Revolving 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, 2016
, the Company’s outstanding commercial paper had a weighted-average annual interest rate of
0.9%
.
The Company has
$3.0 billion
five-year,
$2.0 billion
three-year and
$1.0 billion
364-day revolving bank credit facilities with
23
banks, which mature in
December 2021
,
December 2019
, and
December 2017
, respectively. These facilities provide liquidity support for the Company’s commercial paper program and are available for general corporate purposes. As of
December 31, 2016
, no amounts had been drawn on any of the bank credit facilities. The annual interest rates, which are variable based on term, are calculated based on the London Interbank Offered Rate (LIBOR) plus a credit spread based on the Company’s senior unsecured credit ratings. If amounts had been drawn on the bank credit facilities as of
December 31, 2016
, annual interest rates would have ranged from
1.6%
to
2.2%
.
Debt Covenants
The Company’s bank credit facilities contain various covenants, including requiring the Company to maintain a debt to debt-plus-shareholders’ equity ratio of not more than
55%
. The Company was in compliance with its debt covenants as of
December 31, 2016
.
9. Income Taxes
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. 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 components of the provision for income taxes for the years ended
December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2016
|
|
2015
|
|
2014
|
Current Provision:
|
|
|
|
|
|
|
Federal
|
|
$
|
4,397
|
|
|
$
|
4,155
|
|
|
$
|
3,883
|
|
State and local
|
|
312
|
|
|
281
|
|
|
271
|
|
Total current provision
|
|
4,709
|
|
|
4,436
|
|
|
4,154
|
|
Deferred provision (benefit)
|
|
81
|
|
|
(73
|
)
|
|
(117
|
)
|
Total provision for income taxes
|
|
$
|
4,790
|
|
|
$
|
4,363
|
|
|
$
|
4,037
|
|
The reconciliation of the tax provision at the U.S. federal statutory rate to the provision for income taxes and the effective tax rate for the years ended December 31 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions, except percentages)
|
|
2016
|
|
2015
|
|
2014
|
Tax provision at the U.S. federal statutory rate
|
|
$
|
4,152
|
|
|
35.0
|
%
|
|
$
|
3,581
|
|
|
35.0
|
%
|
|
$
|
3,380
|
|
|
35.0
|
%
|
Health insurance industry tax
|
|
645
|
|
|
5.4
|
|
|
627
|
|
|
6.1
|
|
|
469
|
|
|
4.8
|
|
State income taxes, net of federal benefit
|
|
205
|
|
|
1.7
|
|
|
145
|
|
|
1.4
|
|
|
154
|
|
|
1.6
|
|
Share-based awards - excess tax benefit
|
|
(158
|
)
|
|
(1.3
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Non-deductible compensation
|
|
128
|
|
|
1.1
|
|
|
103
|
|
|
1.0
|
|
|
96
|
|
|
1.0
|
|
Other, net
|
|
(182
|
)
|
|
(1.5
|
)
|
|
(93
|
)
|
|
(0.9
|
)
|
|
(62
|
)
|
|
(0.6
|
)
|
Provision for income taxes
|
|
$
|
4,790
|
|
|
40.4
|
%
|
|
$
|
4,363
|
|
|
42.6
|
%
|
|
$
|
4,037
|
|
|
41.8
|
%
|
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 components of deferred income tax assets and liabilities as of December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2016
|
|
2015
|
Deferred income tax assets:
|
|
|
|
|
Accrued expenses and allowances
|
|
$
|
820
|
|
|
$
|
739
|
|
U.S. federal and state net operating loss carryforwards
|
|
147
|
|
|
139
|
|
Share-based compensation
|
|
126
|
|
|
124
|
|
Nondeductible liabilities
|
|
236
|
|
|
205
|
|
Medical costs payable and other current liabilities
|
|
95
|
|
|
71
|
|
Non-U.S. tax loss carryforwards
|
|
434
|
|
|
244
|
|
Net unrealized losses on investments
|
|
55
|
|
|
—
|
|
Other-domestic
|
|
194
|
|
|
214
|
|
Other-non-U.S.
|
|
175
|
|
|
130
|
|
Subtotal
|
|
2,282
|
|
|
1,866
|
|
Less: valuation allowances
|
|
(55
|
)
|
|
(44
|
)
|
Total deferred income tax assets
|
|
2,227
|
|
|
1,822
|
|
Deferred income tax liabilities:
|
|
|
|
|
U.S. federal and state intangible assets
|
|
(3,055
|
)
|
|
(2,951
|
)
|
Non-U.S. goodwill and intangible assets
|
|
(584
|
)
|
|
(397
|
)
|
Capitalized software
|
|
(707
|
)
|
|
(574
|
)
|
Net unrealized gains on investments
|
|
—
|
|
|
(34
|
)
|
Depreciation and amortization
|
|
(332
|
)
|
|
(312
|
)
|
Prepaid expenses
|
|
(228
|
)
|
|
(205
|
)
|
Other-non-U.S.
|
|
(82
|
)
|
|
(76
|
)
|
Total deferred income tax liabilities
|
|
(4,988
|
)
|
|
(4,549
|
)
|
Net deferred income tax liabilities
|
|
$
|
(2,761
|
)
|
|
$
|
(2,727
|
)
|
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
$74 million
expire beginning in 2021 through 2036; state net operating loss carryforwards expire beginning in 2017 through 2036. Substantially all of the non-U.S. tax loss carryforwards have indefinite carryforward periods.
As of
December 31, 2016
, the Company had
$717 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)
|
|
2016
|
|
2015
|
|
2014
|
Gross unrecognized tax benefits, beginning of period
|
|
$
|
224
|
|
|
$
|
92
|
|
|
$
|
89
|
|
Gross increases:
|
|
|
|
|
|
|
|
|
|
Current year tax positions
|
|
37
|
|
|
—
|
|
|
—
|
|
Prior year tax positions
|
|
24
|
|
|
55
|
|
|
4
|
|
Acquired reserves
|
|
—
|
|
|
89
|
|
|
—
|
|
Gross decreases:
|
|
|
|
|
|
|
|
|
|
Prior year tax positions
|
|
(4
|
)
|
|
(2
|
)
|
|
—
|
|
Settlements
|
|
(6
|
)
|
|
(1
|
)
|
|
—
|
|
Statute of limitations lapses
|
|
(12
|
)
|
|
(9
|
)
|
|
(1
|
)
|
Gross unrecognized tax benefits, end of period
|
|
$
|
263
|
|
|
$
|
224
|
|
|
$
|
92
|
|
The Company believes it is reasonably possible that its liability for unrecognized tax benefits will decrease in the next twelve months by
$197 million
as a result of audit settlements and the expiration of statutes of limitations.
The Company classifies interest and penalties associated with uncertain income tax positions as income taxes within its Consolidated Statement of Operations. During the years ended
December 31, 2016
,
2015
and 2014 the Company recognized
$11 million
,
$11 million
and
$6 million
of interest and penalties, respectively. The Company had
$70 million
and
$59 million
of accrued interest and penalties for uncertain tax positions as of
December 31, 2016
and 2015, respectively. These amounts are not included in the reconciliation above.
The Company currently files income tax returns in the United States, various states and non-U.S. jurisdictions. The U.S. Internal Revenue Service (IRS) has completed exams on the consolidated income tax returns for fiscal years 2015 and prior. The Company’s 2016 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 the 2010 tax year. 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.
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. 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.
For the year ended
December 31, 2016
, the Company’s regulated subsidiaries paid their parent companies dividends of
$3.9 billion
, including
$3.3 billion
of extraordinary dividends. For the year ended
December 31, 2015
, the Company’s regulated subsidiaries paid their parent companies dividends of
$4.4 billion
, including
$1.5 billion
of extraordinary dividends. As of
December 31, 2016
, approximately
$700 million
of the Company’s
$10.4 billion
of cash and cash equivalents was available for general corporate use.
The Company's regulated subsidiaries had estimated aggregate statutory capital and surplus of approximately
$17.9 billion
as of
December 31, 2016
. The estimated statutory capital and surplus necessary to satisfy regulatory requirements of the Company's regulated subsidiaries was approximately
$10.5 billion
as of
December 31, 2016
.
Optum Bank must meet minimum requirements for Tier 1 leverage capital, Tier 1 risk-based capital, common equity Tier1 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, 2016
, 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 2014, the Board renewed the Company’s share repurchase program with an authorization to
repurchase up to
100 million
shares of its common stock.
A summary of common share repurchases for the years ended December 31, 2016 and 2015 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
(in millions, except per share data)
|
|
2016
|
|
2015
|
Common share repurchases, shares
|
|
10
|
|
|
11
|
|
Common share repurchases, average price per share
|
|
$
|
128.97
|
|
|
$
|
112.45
|
|
Common share repurchases, aggregate cost
|
|
$
|
1,280
|
|
|
$
|
1,200
|
|
Board authorized shares remaining
|
|
51
|
|
|
61
|
|
Dividends
In June 2016, the Company’s Board of Directors increased the Company’s quarterly cash dividend to shareholders to equal an annual dividend rate of
$2.50
per share compared to the annual dividend rate of
$2.00
per share, which the Company had paid since June 2015. 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.
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, 2016
, the Company had
68 million
shares available for future grants of share-based awards under the Plan. As of
December 31, 2016
, there were also
10 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, 2016
is summarized in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted-
Average
Exercise
Price
|
|
Weighted-
Average
Remaining
Contractual Life
|
|
Aggregate
Intrinsic Value
|
|
(in millions)
|
|
|
|
(in years)
|
|
(in millions)
|
Outstanding at beginning of period
|
34
|
|
|
$
|
68
|
|
|
|
|
|
Granted
|
11
|
|
|
113
|
|
|
|
|
|
Exercised
|
(8
|
)
|
|
57
|
|
|
|
|
|
Forfeited
|
(1
|
)
|
|
103
|
|
|
|
|
|
Outstanding at end of period
|
36
|
|
|
84
|
|
|
6.6
|
|
|
$
|
2,758
|
|
Exercisable at end of period
|
14
|
|
|
56
|
|
|
4.0
|
|
|
1,458
|
|
Vested and expected to vest, end of period
|
35
|
|
|
83
|
|
|
6.6
|
|
|
2,704
|
|
Restricted Shares
Restricted share activity for the year ended
December 31, 2016
is summarized in the table below:
|
|
|
|
|
|
|
|
|
(shares in millions)
|
|
Shares
|
|
Weighted-Average
Grant Date
Fair Value
per Share
|
Nonvested at beginning of period
|
|
7
|
|
|
$
|
82
|
|
Granted
|
|
3
|
|
|
115
|
|
Vested
|
|
(3
|
)
|
|
76
|
|
Nonvested at end of period
|
|
7
|
|
|
96
|
|
Other Share-Based Compensation Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions, except per share amounts)
|
|
For the Years Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Stock Options and SARs
|
|
|
|
|
|
|
Weighted-average grant date fair value of shares granted, per share
|
|
$
|
20
|
|
|
$
|
22
|
|
|
$
|
22
|
|
Total intrinsic value of stock options and SARs exercised
|
|
595
|
|
|
482
|
|
|
526
|
|
Restricted Shares
|
|
|
|
|
|
|
Weighted-average grant date fair value of shares granted, per share
|
|
115
|
|
|
110
|
|
|
71
|
|
Total fair value of restricted shares vested
|
|
$
|
274
|
|
|
$
|
460
|
|
|
$
|
437
|
|
Employee Stock Purchase Plan
|
|
|
|
|
|
|
Number of shares purchased
|
|
2
|
|
|
2
|
|
|
2
|
|
Share-Based Compensation Items
|
|
|
|
|
|
|
Share-based compensation expense, before tax
|
|
$
|
485
|
|
|
$
|
406
|
|
|
$
|
364
|
|
Share-based compensation expense, net of tax effects
|
|
417
|
|
|
348
|
|
|
314
|
|
Income tax benefit realized from share-based award exercises
|
|
236
|
|
|
247
|
|
|
231
|
|
|
|
|
|
|
|
(in millions, except years)
|
|
December 31, 2016
|
Unrecognized compensation expense related to share awards
|
|
$
|
516
|
|
Weighted-average years to recognize compensation expense
|
|
1.3
|
|
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:
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
Risk-free interest rate
|
|
1.2% - 1.4%
|
|
1.6% - 1.7%
|
|
1.7% - 1.8%
|
Expected volatility
|
|
20.8% - 22.5%
|
|
22.3% - 24.1%
|
|
24.1% - 39.6%
|
Expected dividend yield
|
|
1.8%
|
|
1.4% - 1.7%
|
|
1.6% - 1.9%
|
Forfeiture rate
|
|
5.0%
|
|
5.0%
|
|
5.0%
|
Expected life in years
|
|
5.6 - 5.9
|
|
5.5 - 6.1
|
|
5.4
|
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. 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.
Other Employee Benefit Plans
The Company also offers a 401(k) plan for its employees. Compensation expense related to this plan was not material for 2016, 2015 and 2014.
In addition, the Company maintains non-qualified, 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
$672 million
and
$553 million
as of
December 31, 2016
and
2015
, 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. Rent expense under all operating leases for the years ended
December 31, 2016
,
2015
and 2014 was
$608 million
,
$555 million
and
$449 million
, respectively.
As of
December 31, 2016
, future minimum annual lease payments, net of sublease income, under all non-cancelable operating leases were as follows:
|
|
|
|
|
|
(in millions)
|
|
Future Minimum Lease Payments
|
2017
|
|
$
|
453
|
|
2018
|
|
416
|
|
2019
|
|
355
|
|
2020
|
|
314
|
|
2021
|
|
273
|
|
Thereafter
|
|
499
|
|
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 December 31, 2016, 2015 or 2014.
As of December 31, 2016, the Company had outstanding, undrawn letters of credit with financial institutions of
$28 million
and surety bonds outstanding with insurance companies of
$1.2 billion
, primarily to bond contractual performance.
Legal Matters
Because of the nature of its businesses, the Company is frequently made party to a variety of legal actions and regulatory inquiries, including class actions and suits brought by members, care providers, consumer advocacy organizations, 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.
Litigation Matters
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. Although the Company believes that CDI had never before issued a fine in excess of
$8 million
, CDI advocated a fine of approximately
$325 million
in this matter. The matter was the subject of an administrative hearing before a California administrative law judge beginning in December 2009, and in August 2013, the administrative law judge issued a nonbinding proposed decision recommending a fine of
$11.5 million
. The California Insurance Commissioner rejected the administrative law judge’s recommendation and on June 9, 2014, issued his own decision imposing a fine of approximately
$174 million
. On July 10, 2014, the Company filed a lawsuit in California state court challenging the Commissioner’s decision. On September 8, 2015, in the first phase of that lawsuit, the California state court issued an order invalidating certain of the regulations the Commissioner had relied upon in issuing his decision and penalty. 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 wide range of possible outcomes, the legal issues presented (including the legal basis for the majority of the alleged violations), the inherent difficulty in predicting a regulatory fine in the event of a remand, and the various remedies and levels of judicial review that remain available to the Company.
Government Investigations, Audits and Reviews
The Company has been involved or is currently involved in various governmental investigations, audits and reviews. These include routine, regular and special investigations, audits and reviews by the CMS, state insurance and health and welfare departments, the Brazilian national regulatory agency for private health insurance and plans (the Agência Nacional de Saúde Suplementar), state attorneys general, the Office of the Inspector General, the Office of Personnel Management, the Office of Civil Rights, the Government Accountability Office, the Federal Trade Commission, U.S. Congressional committees, the U.S. Department of Justice, the SEC, the Internal Revenue Service, the U.S. Drug Enforcement Administration, the Brazilian federal revenue service (the Secretaria da Receita Federal), the U.S. Department of Labor, the Federal Deposit Insurance Corporation, the Defense Contract Audit Agency and other governmental authorities. Certain of the Company’s businesses have been reviewed or are currently under review, including for, among other matters, compliance with coding and other requirements under the Medicare risk-adjustment model. The Company has produced documents, information and witnesses to the Department of Justice in cooperation with a current review of the Company’s risk-adjustment processes, including the Company’s patient chart review and related programs. CMS has selected certain of the Company’s local plans for risk adjustment data validation (RADV) audits to validate the coding practices of and supporting documentation maintained by health care providers and such audits may result in retrospective adjustments to payments made to the Company’s health plans.
The Company cannot reasonably estimate the range of loss, if any, that may result from any material government investigations, audits and reviews in which it is currently involved given the status of the reviews, the wide range of possible outcomes and the inherent difficulty in predicting regulatory action, fines and penalties, if any, the Company’s legal and factual defenses and the various remedies and levels of judicial review available to the Company in the event of an adverse finding.
Guaranty Fund Assessments
Under state guaranty association laws, certain insurance companies can be assessed (up to prescribed limits) for certain obligations to the policyholders and claimants of impaired or insolvent insurance companies that write the same line or similar lines of business. Some states have similar laws relating to HMOs and other payers such as consumer operated and oriented plans (co-ops) established under the ACA. In 2009, the Pennsylvania Insurance Commissioner placed long term care insurer Penn Treaty Network America Insurance Company and its subsidiary (Penn Treaty), neither of which is affiliated with the Company, in rehabilitation and petitioned a state court for approval to liquidate Penn Treaty. In 2012, the court denied the liquidation petition and ordered the Insurance Commissioner to submit a rehabilitation plan. A second amended plan of rehabilitation was later withdrawn and, as of November 2016, Penn Treaty will be liquidated. As of December 31, 2016, the Company recorded the
$350 million
impact of its estimated share of guaranty association assessments resulting from the Penn Treaty liquidation.
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 used by the Company’s chief operating decision maker to evaluate its results of operations. Reportable segments with similar economic characteristics, products and services, customers, distribution methods and operational processes that operate in a similar regulatory environment 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 Global. The U.S. businesses 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 active and retired military and their families through the TRICARE program. 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’s primary customers oversee Medicaid plans, the Children’s Health Insurance Program and other federal, state and community health care programs. UnitedHealthcare Global 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 health-related financial needs of individuals, enabling population health management 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, care delivery, consumer engagement and financial services.
|
|
•
|
OptumInsight
provides services, technology and health care expertise to major participants in the health care industry. Hospital systems, physicians, health plans, governments, life sciences companies and other organizations that comprise the health care industry depend on OptumInsight to help them improve performance, achieve efficiency, reduce costs, meet compliance mandates and modernize their core operating systems to meet the changing needs of the health system.
|
|
|
•
|
OptumRx
offers pharmacy care services and programs, including retail network contracting, home delivery and specialty pharmacy services, purchasing and clinical capabilities, and develops programs in areas such as step therapy, formulary management, drug adherence and disease/drug therapy management.
|
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 care products and services to UnitedHealthcare customers by OptumRx, certain product offerings and care management and local 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.
As a percentage of the Company’s total consolidated revenues, premium revenues from CMS were
25%
for 2016,
26%
for 2015 and
29%
for 2014, most of which were generated by UnitedHealthcare Medicare & Retirement and included in the UnitedHealthcare segment. U.S. customer revenue represented approximately
97%
,
96%
and
95%
of consolidated total revenues for 2016, 2015 and 2014, respectively. Long-lived fixed assets located in the United States represented approximately
75%
and
81%
of the total long-lived fixed assets as of December 31, 2016 and 2015, respectively. The non-U.S. revenues and fixed assets are primarily related to UnitedHealthcare Global.
The following table presents the reportable segment financial information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Optum
|
|
|
|
|
(in millions)
|
|
UnitedHealthcare
|
|
OptumHealth
|
|
OptumInsight
|
|
OptumRx
|
|
Optum Eliminations
|
|
Optum
|
|
Corporate and
Eliminations
|
|
Consolidated
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues - external customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
140,455
|
|
|
$
|
3,663
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,663
|
|
|
$
|
—
|
|
|
$
|
144,118
|
|
Products
|
|
1
|
|
|
48
|
|
|
103
|
|
|
26,506
|
|
|
—
|
|
|
26,657
|
|
|
—
|
|
|
26,658
|
|
Services
|
|
7,514
|
|
|
2,498
|
|
|
2,670
|
|
|
554
|
|
|
—
|
|
|
5,722
|
|
|
—
|
|
|
13,236
|
|
Total revenues - external customers
|
|
147,970
|
|
|
6,209
|
|
|
2,773
|
|
|
27,060
|
|
|
—
|
|
|
36,042
|
|
|
—
|
|
|
184,012
|
|
Total revenues - intersegment
|
|
—
|
|
|
10,491
|
|
|
4,559
|
|
|
33,372
|
|
|
(1,088
|
)
|
|
47,334
|
|
|
(47,334
|
)
|
|
—
|
|
Investment and other income
|
|
611
|
|
|
208
|
|
|
1
|
|
|
8
|
|
|
—
|
|
|
217
|
|
|
—
|
|
|
828
|
|
Total revenues
|
|
$
|
148,581
|
|
|
$
|
16,908
|
|
|
$
|
7,333
|
|
|
$
|
60,440
|
|
|
$
|
(1,088
|
)
|
|
$
|
83,593
|
|
|
$
|
(47,334
|
)
|
|
$
|
184,840
|
|
Earnings from operations
|
|
$
|
7,307
|
|
|
$
|
1,428
|
|
|
$
|
1,513
|
|
|
$
|
2,682
|
|
|
$
|
—
|
|
|
$
|
5,623
|
|
|
$
|
—
|
|
|
$
|
12,930
|
|
Interest expense
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,067
|
)
|
|
(1,067
|
)
|
Earnings before income taxes
|
|
$
|
7,307
|
|
|
$
|
1,428
|
|
|
$
|
1,513
|
|
|
$
|
2,682
|
|
|
$
|
—
|
|
|
$
|
5,623
|
|
|
$
|
(1,067
|
)
|
|
$
|
11,863
|
|
Total assets
|
|
$
|
70,505
|
|
|
$
|
18,656
|
|
|
$
|
9,017
|
|
|
$
|
29,066
|
|
|
$
|
—
|
|
|
$
|
56,739
|
|
|
$
|
(4,434
|
)
|
|
$
|
122,810
|
|
Purchases of property, equipment and capitalized software
|
|
640
|
|
|
345
|
|
|
571
|
|
|
149
|
|
|
—
|
|
|
1,065
|
|
|
—
|
|
|
1,705
|
|
Depreciation and amortization
|
|
724
|
|
|
297
|
|
|
559
|
|
|
475
|
|
|
—
|
|
|
1,331
|
|
|
—
|
|
|
2,055
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues - external customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
124,011
|
|
|
$
|
3,152
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,152
|
|
|
$
|
—
|
|
|
$
|
127,163
|
|
Products
|
|
2
|
|
|
31
|
|
|
108
|
|
|
17,171
|
|
|
—
|
|
|
17,310
|
|
|
—
|
|
|
17,312
|
|
Services
|
|
6,776
|
|
|
2,375
|
|
|
2,390
|
|
|
381
|
|
|
—
|
|
|
5,146
|
|
|
—
|
|
|
11,922
|
|
Total revenues - external customers
|
|
130,789
|
|
|
5,558
|
|
|
2,498
|
|
|
17,552
|
|
|
—
|
|
|
25,608
|
|
|
—
|
|
|
156,397
|
|
Total revenues - intersegment
|
|
—
|
|
|
8,216
|
|
|
3,697
|
|
|
30,718
|
|
|
(791
|
)
|
|
41,840
|
|
|
(41,840
|
)
|
|
—
|
|
Investment and other income
|
|
554
|
|
|
153
|
|
|
1
|
|
|
2
|
|
|
—
|
|
|
156
|
|
|
—
|
|
|
710
|
|
Total revenues
|
|
$
|
131,343
|
|
|
$
|
13,927
|
|
|
$
|
6,196
|
|
|
$
|
48,272
|
|
|
$
|
(791
|
)
|
|
$
|
67,604
|
|
|
$
|
(41,840
|
)
|
|
$
|
157,107
|
|
Earnings from operations
|
|
$
|
6,754
|
|
|
$
|
1,240
|
|
|
$
|
1,278
|
|
|
$
|
1,749
|
|
|
$
|
—
|
|
|
$
|
4,267
|
|
|
$
|
—
|
|
|
$
|
11,021
|
|
Interest expense
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(790
|
)
|
|
(790
|
)
|
Earnings before income taxes
|
|
$
|
6,754
|
|
|
$
|
1,240
|
|
|
$
|
1,278
|
|
|
$
|
1,749
|
|
|
$
|
—
|
|
|
$
|
4,267
|
|
|
$
|
(790
|
)
|
|
$
|
10,231
|
|
Total assets
(a)
|
|
$
|
64,212
|
|
|
$
|
14,600
|
|
|
$
|
8,335
|
|
|
$
|
26,844
|
|
|
$
|
—
|
|
|
$
|
49,779
|
|
|
$
|
(2,737
|
)
|
|
$
|
111,254
|
|
Purchases of property, equipment and capitalized software
|
|
653
|
|
|
252
|
|
|
572
|
|
|
79
|
|
|
—
|
|
|
903
|
|
|
—
|
|
|
1,556
|
|
Depreciation and amortization
|
|
718
|
|
|
251
|
|
|
492
|
|
|
232
|
|
|
—
|
|
|
975
|
|
|
—
|
|
|
1,693
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues - external customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
$
|
112,645
|
|
|
$
|
2,657
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,657
|
|
|
$
|
—
|
|
|
$
|
115,302
|
|
Products
|
|
3
|
|
|
18
|
|
|
96
|
|
|
4,125
|
|
|
—
|
|
|
4,239
|
|
|
—
|
|
|
4,242
|
|
Services
|
|
6,516
|
|
|
1,300
|
|
|
2,224
|
|
|
111
|
|
|
—
|
|
|
3,635
|
|
|
—
|
|
|
10,151
|
|
Total revenues - external customers
|
|
119,164
|
|
|
3,975
|
|
|
2,320
|
|
|
4,236
|
|
|
—
|
|
|
10,531
|
|
|
—
|
|
|
129,695
|
|
Total revenues - intersegment
|
|
—
|
|
|
6,913
|
|
|
2,906
|
|
|
27,740
|
|
|
(489
|
)
|
|
37,070
|
|
|
(37,070
|
)
|
|
—
|
|
Investment and other income
|
|
634
|
|
|
144
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
145
|
|
|
—
|
|
|
779
|
|
Total revenues
|
|
$
|
119,798
|
|
|
$
|
11,032
|
|
|
$
|
5,227
|
|
|
$
|
31,976
|
|
|
$
|
(489
|
)
|
|
$
|
47,746
|
|
|
$
|
(37,070
|
)
|
|
$
|
130,474
|
|
Earnings from operations
|
|
$
|
6,992
|
|
|
$
|
1,090
|
|
|
$
|
1,002
|
|
|
$
|
1,190
|
|
|
$
|
—
|
|
|
$
|
3,282
|
|
|
$
|
—
|
|
|
$
|
10,274
|
|
Interest expense
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(618
|
)
|
|
(618
|
)
|
Earnings before income taxes
|
|
$
|
6,992
|
|
|
$
|
1,090
|
|
|
$
|
1,002
|
|
|
$
|
1,190
|
|
|
$
|
—
|
|
|
$
|
3,282
|
|
|
$
|
(618
|
)
|
|
$
|
9,656
|
|
Total assets
(a)
|
|
$
|
62,405
|
|
|
$
|
11,148
|
|
|
$
|
8,112
|
|
|
$
|
5,474
|
|
|
$
|
—
|
|
|
$
|
24,734
|
|
|
$
|
(839
|
)
|
|
$
|
86,300
|
|
Purchases of property, equipment and capitalized software
|
|
773
|
|
|
212
|
|
|
484
|
|
|
56
|
|
|
—
|
|
|
752
|
|
|
—
|
|
|
1,525
|
|
Depreciation and amortization
|
|
772
|
|
|
179
|
|
|
433
|
|
|
94
|
|
|
—
|
|
|
706
|
|
|
—
|
|
|
1,478
|
|
|
|
(a)
|
In the first quarter of 2016, the Company adopted ASU 2015-03, retrospectively as required. See
Note 2
for more information on the adoption of ASU 2015-03.
|
14. Quarterly Financial Data (Unaudited)
Selected quarterly financial information for all quarters of 2016 and 2015 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Quarter Ended
|
(in millions, except per share data)
|
|
March 31
|
|
June 30
|
|
September 30
|
|
December 31
|
2016
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
44,527
|
|
|
$
|
46,485
|
|
|
$
|
46,293
|
|
|
$
|
47,535
|
|
Operating costs
|
|
41,567
|
|
|
43,282
|
|
|
42,713
|
|
|
44,348
|
|
Earnings from operations
|
|
2,960
|
|
|
3,203
|
|
|
3,580
|
|
|
3,187
|
|
Net earnings
|
|
1,627
|
|
|
1,760
|
|
|
1,978
|
|
|
1,708
|
|
Net earnings attributable to UnitedHealth Group common shareholders
|
|
1,611
|
|
|
1,754
|
|
|
1,968
|
|
|
1,684
|
|
Net earnings per share attributable to UnitedHealth Group common shareholders:
|
|
|
|
|
|
|
|
|
Basic
|
|
1.69
|
|
|
1.84
|
|
|
2.07
|
|
|
1.77
|
|
Diluted
|
|
1.67
|
|
|
1.81
|
|
|
2.03
|
|
|
1.74
|
|
2015
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
35,756
|
|
|
$
|
36,263
|
|
|
$
|
41,489
|
|
|
$
|
43,599
|
|
Operating costs
|
|
33,116
|
|
|
33,368
|
|
|
38,471
|
|
|
41,131
|
|
Earnings from operations
|
|
2,640
|
|
|
2,895
|
|
|
3,018
|
|
|
2,468
|
|
Net earnings
|
|
1,413
|
|
|
1,585
|
|
|
1,618
|
|
|
1,252
|
|
Net earnings attributable to UnitedHealth Group common shareholders
|
|
1,413
|
|
|
1,585
|
|
|
1,597
|
|
|
1,218
|
|
Net earnings per share attributable to UnitedHealth Group common shareholders:
|
|
|
|
|
|
|
|
|
Basic
|
|
1.48
|
|
|
1.66
|
|
|
1.68
|
|
|
1.28
|
|
Diluted
|
|
1.46
|
|
|
1.64
|
|
|
1.65
|
|
|
1.26
|
|