What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-03 compared with 2021-05-05 · 67 added, 69 removed, 238 unchanged (36% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read together with the accompanying Condensed Consolidated Financial Statements and Notes and with our 2020 10-K, including the Consolidated Financial Statements and Notes in Part II, Item 8, “Financial Statements and Supplementary Data” in that report.

Unless the context indicates otherwise, references to the terms “UnitedHealth Group,” “we,” “our” or “us” used throughout this Management’s Discussion and Analysis of Financial Condition and Results of Operations refer to UnitedHealth Group Incorporated and its consolidated subsidiaries.

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The COVID-19 pandemic continues to evolve and the ultimate impact on our business, results of operations, financial condition and cash flows remains uncertain.

During the three months ended March 31, 2021, overall care activity, including COVID-19 related care, was nearly at seasonal baselines.

This was primarily the result of temporary deferral of elective care activity, which generally tracked with COVID-19 incidence rates during the quarter.

For the three months ended March 31, 2021, the temporary deferral of care was more than offset by COVID-19 related care and testing costs, rebate requirements, and general economic impacts, such as impacts of unemployment.

The temporary deferral of care, along with continued COVID-19 related care costs, may cause care patterns to moderately exceed normal baselines in future periods as utilization of health system capacity increases and consumers resume elective care.

Overall care activity approached seasonal baselines, including a mix of temporary deferral of care activity and COVID-19 related care costs.

The temporary deferral of care was more than offset by COVID-19 related care and testing costs, rebate requirements, and general economic impacts, such as impacts of unemployment.

In future periods, care patterns may moderately exceed normal baselines as previously deferred care is obtained and acuity temporarily rises due to missed regular care.

From time to time, health system capacity may be subject to possible increased volatility due to the pandemic.

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COVID-19 related care costs continued to impact our OptumHealth risk-based care delivery businesses, which were partially offset by the continued temporary deferral of care.

The temporary deferral of care reduced fee-for-service care delivery volume, as well as OptumInsight and OptumRx volume-based business activity.

We believe COVID-19 will continue to influence customer and consumer behavior, both during and after the pandemic, which could impact how care is delivered and the manner in which consumers wish to receive their prescription drugs or infusion services.

We expect COVID-19 related care costs and other economic impacts to only partially be offset by temporary deferrals of care in the second half of the year as health systems return to seasonally adjusted levels of care.

The temporary deferral of care reduced fee-for-service care delivery volume, as well as OptumInsight and OptumRx volume-based business activity, although we expect the impact to continue decreasing as care returns to, and potentially exceeds, normal levels.

We believe COVID-19 will continue to influence customer and consumer behavior, both during and after the pandemic, which could impact how and where care is delivered and the manner in which consumers wish to receive their prescription drugs or infusion services.

We expect COVID-19 related care costs and other economic impacts to be only partially offset by remaining temporary deferrals of care in the second half of the year as health systems return to seasonally adjusted levels of care.

As a result of the dynamic situation and broad-reaching impact to the health system, the ultimate impact of COVID-19 on our Optum businesses is uncertain.

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continuing to assist our customers, care providers, members and communities in addressing the COVID-19 crisis.

Temporary care deferrals continued to impact UnitedHealthcare’s results of operations for the three months ended March 31, 2021, offset by COVID-19 related care and testing, rebate requirements and other revenue impacts and broader economic impacts.

Enrollment in our commercial products declined primarily due to employer actions in response to the pandemic.

Increased consumer demand for care, potentially even higher acuity care, along with continued COVID-19 related care and testing costs are expected to result in increased future medical costs in the second half of the year.

UnitedHealthcare’s results of operations were negatively impacted by COVID-19 related care and testing, rebate requirements and other revenue impacts and broader economic impacts, partially offset by the continued deferral of care.

Enrollment in our commercial products declined primarily due to employer actions in response to the pandemic, while the increase in people served through Medicaid was attributable in part to continuing action by states to ease redetermination requirements due to the COVID-19 public health emergency.

Increased consumer demand for care, potentially even higher acuity care, along with continued COVID-19 related care costs are expected to result in increased future medical costs in the second half of the year.

Disrupted care patterns, as a result of the pandemic, have and may continue to temporarily affect the ability to obtain complete member health status information, impacting revenue in businesses utilizing risk adjustment methodologies.

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Our medical cost trends primarily relate to changes in unit costs, health system utilization and prescription drug costs.

COVID-19 related care and testing costs as well as the deferral of care have also impacted medical cost trends in the current year and may continue in future years.

COVID-19 related care costs as well as the deferral of care have also impacted medical cost trends in the current year and may continue in future years.

Future medical cost trends may be impacted by increased consumer demand for care, potentially even higher acuity care, due to the temporary deferral of care since the onset of the pandemic.

We endeavor to mitigate those increases by engaging physicians and consumers with information and helping them make clinically sound choices, with the objective of helping them achieve high quality, affordable care.

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Following is a summary of management’s view of regulatory trends and uncertainties.

For additional information regarding regulatory trends and uncertainties, see Part I, Item 1 “Business - Government Regulation,” Part 1, Item 1A, “Risk Factors,” Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2020 10-K and “ Risk Factors ” in Part II, Item 1A of this report.

Medicare Advantage Rates.

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SELECTED OPERATING PERFORMANCE AND OTHER SIGNIFICANT ITEMS

The following summarizes select first quarter 2021 year-over-year operating comparisons to first quarter 2020.

The following summarizes select second quarter 2021 year-over-year operating comparisons to second quarter 2020.

• Consolidated revenues grew 15%, UnitedHealthcare revenues grew 13% and Optum revenues grew 17%.

• UnitedHealthcare served 1.1 million more people domestically, driven by growth in community and senior programs, partially offset by decreased people served by our commercial benefits business.

• Consolidated earnings from operations increased 35%, including increases of 42% at UnitedHealthcare and 25% at Optum.

• Diluted earnings per common share increased 44% to $5.08.

• Cash flows from operations for the three months ended March 31, 2021 were $6.0 billion.

• UnitedHealthcare served 1.1 million more people domestically, driven by growth in community and senior programs, partially offset a decrease in people served by our commercial business.

• Consolidated and UnitedHealthcare earnings from operations decreased due to lower temporary deferrals of care caused by COVID-19, partially offset by an increase at Optum.

• Diluted earnings per common share were $4.46.

• Cash flows from operations for the six months ended June 30, 2021 were $11.5 billion.

• Return on equity was 25.2%.

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The following table summarizes our consolidated results of operations and other financial information:

(in millions, except percentages and per share data) Three Months Ended March 31, Increase/(Decrease)

(in millions, except percentages and per share data) Three Months Ended June 30, Increase/(Decrease) Six Months Ended

June 30, Increase/(Decrease)

2021 2020 2021 vs.

2020 2021 2020 2021 vs.

Premiums $ 56,233 $ 49,394 $ 6,839 14 % $ 111,719 $ 100,034 $ 11,685 12 %

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Investment and other income 556 341 215 63 1,008 706 302 43

452 365 87 24

Total revenues 71,321 62,138 9,183 15 141,517 126,559 14,958 12

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Earnings attributable to noncontrolling interests (106) (59) (47) 80 (222) (142) (80) 56

(116) (83) (33) 40

Net earnings attributable to UnitedHealth Group common shareholders $ 4,266 $ 6,637 $ (2,371) (36) % $ 9,128 $ 10,019 $ (891) (9) %

$ 4,862 $ 3,382 $ 1,480 44 %

Diluted earnings per share attributable to UnitedHealth Group common shareholders $ 4.46 $ 6.91 $ (2.45) (35) % $ 9.55 $ 10.43 $ (0.88) (8) %

$ 5.08 $ 3.52 $ 1.56 44 %

Medical care ratio (a) 82.8 % 70.2 % 12.6 % 81.9 % 75.7 % 6.2 %

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and organic and acquisition growth across the Optum business, primarily due to expansion in care delivery and managed services.

The increases were partially offset by decreased individuals served through our commercial benefits business due to the continued economic impacts of COVID-19.

The increases partially offset a decrease in individuals served through our commercial business due to the continued economic impacts of COVID-19.

Medical Costs and MCR

Medical costs increased as a result of growth in people served through Medicare Advantage and Medicaid, medical cost trends and COVID-19 related care and testing costs, partially offset by the temporary deferral of care continued to be caused by COVID-19, decreased people served in commercial, increased prior year favorable reserve development and calendar day impacts.

The MCR was stable due to the temporary deferral of care, increased prior year favorable reserve development and calendar day impacts, being offset by the permanent repeal of the Health Insurance Tax and COVID-19 related care and testing costs.

Medical costs increased as a result of increased COVID-19 related care costs, lower temporary care deferrals, growth in people served through Medicare Advantage and Medicaid and medical cost trends, partially offset by decreased people served in our commercial business.

The MCR increased due to increased COVID-19 related care costs and the decreased deferral of care over the year ago quarter and the permanent repeal of the Health Insurance Tax.

For the six months ended June 30, 2021, medical costs and the MCR were also impacted by increased prior year favorable reserve development.

Operating Cost Ratio

The operating cost ratio decreased primarily due to the permanent repeal of the return of the Health Insurance Tax and operating efficiency gains, partially offset by business mix.

The operating cost ratio decreased primarily due to the permanent repeal of the Health Insurance Tax, COVID-19 impacts on revenue and operating costs in the prior year and operating efficiency gains, partially offset by business mix.

Income Tax Rate

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The following table presents a summary of the reportable segment financial information:

Three Months Ended March 31, Increase/(Decrease)

Three Months Ended June 30, Increase/(Decrease) Six Months Ended June 30, Increase/(Decrease)

(in millions, except percentages) 2021 2020 2021 vs.

2020 2021 2020 2021 vs.

UnitedHealthcare $ 55,474 $ 49,107 $ 6,367 13 % $ 110,588 $ 100,175 $ 10,413 10 %

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Optum eliminations (478) (447) (31) 7 (953) (851) (102) 12

36,384 32,839 3,545 11

Optum 38,303 32,695 5,608 17 74,687 65,534 9,153 14

Eliminations (22,456) (19,664) (2,792) 14 (43,758) (39,150) (4,608) 12

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OptumRx 993 832 161 19 1,883 1,692 191 11

2,631 2,108 523 25

Optum 2,883 2,234 649 29 5,514 4,342 1,172 27

Consolidated earnings from operations $ 5,978 $ 9,241 $ (3,263) (35) % $ 12,717 $ 14,237 $ (1,520) (11) %

$ 6,739 $ 4,996 $ 1,743 35 %

Operating margin

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OptumRx 4.4 3.9 0.5 4.3 3.9 0.4

Optum 7.5 6.8 0.7 7.4 6.6 0.8

Consolidated operating margin 8.4 % 14.9 % (6.5) % 9.0 % 11.2 % (2.2) %

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The following table summarizes UnitedHealthcare revenues by business:

Three Months Ended March 31, Increase/(Decrease)

Three Months Ended June 30, Increase/(Decrease) Six Months Ended June 30, Increase/(Decrease)

(in millions, except percentages) 2021 2020 2021 vs.

2020 2021 2020 2021 vs.

UnitedHealthcare Employer & Individual $ 14,942 $ 12,963 $ 1,979 15 % $ 29,574 $ 27,243 $ 2,331 9 %

$ 14,632 $ 14,280 $ 352 2 %

UnitedHealthcare Medicare & Retirement 25,304 22,855 2,449 11 50,778 46,007 4,771 10

25,474 23,152 2,322 10

UnitedHealthcare Community & State 13,110 11,523 1,587 14 26,083 22,976 3,107 14

12,973 11,453 1,520 13

UnitedHealthcare Global 2,118 1,766 352 20 4,153 3,949 204 5

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The following table summarizes the number of individuals served by our UnitedHealthcare businesses, by major market segment and funding arrangement:

March 31, Increase/(Decrease)

June 30, Increase/(Decrease)

(in thousands, except percentages) 2021 2020 2021 vs.

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Medicare Part D stand-alone 3,750 4,120 (370) (9) %

Fee-based and risk-based commercial business decreased primarily due to increased unemployment.

Commercial business decreased primarily due to increased unemployment.

Medicare Advantage increased due to growth in people served through individual and group Medicare Advantage plans.

The increase in people served through Medicaid was primarily driven by states continuing to ease redetermination requirements due to COVID-19, new state-based awards and growth in people served through Dual Special Needs Plans.

UnitedHealthcare’s revenue increased due to growth in the number of individuals served through Medicare Advantage and Medicaid and a greater mix of people with higher acuity needs, partially offset by a decrease in the number of individuals served through commercial benefits and the permanent repeal of the Health Insurance Tax.

Earnings from operations increased due to the continued deferral of care caused by COVID-19 on the health system, the growth in people served through Medicare Advantage and Medicaid and the repeal of the Health Insurance Tax, partially offset by COVID-19 related care and testing costs, the reduction in people served through commercial benefits and broader economic impacts of COVID-19.

Total revenues and earnings from operations increased due to growth at OptumHealth and OptumInsight.

UnitedHealthcare’s revenue increased due to growth in the number of individuals served through Medicare Advantage and Medicaid and a greater mix of people with higher acuity needs, partially offset by a decrease in the number of individuals served through commercial benefits, the permanent repeal of the Health Insurance Tax and the impacts of COVID-19 on risk adjusted business.

Earnings from operations for the three months ended June 30, 2021 decreased primarily due to the lower temporary deferral of care.

For the three and six months ended June 30, 2021, earnings from operations decreased due to COVID-19 related care costs, reduction in people served through commercial benefits and the impacts of COVID-19 on risk adjusted business, partially offset by growth in people served through Medicare Advantage and Medicaid and the repeal of the Health Insurance Tax.

Total revenues and earnings from operations increased due to growth across the Optum businesses.

The results by segment were as follows:

Revenue and earnings from operations at OptumHealth increased primarily due to organic growth and acquisitions in care delivery.

Earnings from operations were also impacted by the temporary deferral of care at our risk-based businesses caused by COVID-19 and cost management initiatives, partially offset by COVID-19 related care costs.

OptumHealth served approximately 99 million people as of March 31, 2021 compared to 96 million people as of March 31, 2020.

Revenue at OptumInsight increased primarily due to growth in technology and managed services, partially offset by decreased activity levels in volume-based services due to the impact of COVID-19 on payer and care provider clients.

Revenue at OptumHealth increased primarily due to organic growth and acquisitions in care delivery and the impact of COVID-19 at our fee-based businesses as consumers resumed elective care.

Earnings from operations increased due to organic growth and acquisitions and cost management initiatives.

COVID-19 related care costs and temporary care deferrals affected earnings from operations at our risk-based and fee-based businesses in offsetting manners.

OptumHealth served approximately 99 million people as of June 30, 2021 compared to 97 million people as of June 30, 2020.

Revenue at OptumInsight increased primarily due to growth in technology and managed services and increased activity levels in our volume-based services as a result of care activity normalizing for payer and care provider clients.

Earnings from operations increased primarily due to productivity gains and cost management initiatives, as well as the factors impacting revenue.

Revenue and earnings from operations at OptumRx grew modestly due to organic growth and acquisitions in pharmacy care services and pricing trends, offset by lower script volumes.

OptumRx fulfilled 329 million and 339 million adjusted scripts in the first quarters of 2021 and 2020, respectively, as the first quarter 2020 included the advance provision of medications to people served in response to COVID-related supply concerns, with script levels then receding with care deferral patterns.

Revenue and earnings from operations at OptumRx increased due to higher script volumes, pricing trends and organic growth in pharmacy care services.

Revenue for the six months ended June 30, 2021 also increased due to acquisitions.

Earnings from operations also increased as a result of continued supply chain management initiatives.

OptumRx fulfilled 342 million and 316 million adjusted scripts in the second quarters of 2021 and 2020, respectively.

The increase was due to the continued recovery of script volumes from the second quarter of 2020 where volumes were negatively impacted by COVID-19, dispensing of COVID-19 vaccines and organic growth.

LIQUIDITY, FINANCIAL CONDITION AND CAPITAL RESOURCES

Summary of our Major Sources and Uses of Cash and Cash Equivalents

Three Months Ended March 31, Increase/(Decrease)

Six Months Ended June 30, Increase/(Decrease)

(in millions) 2021 2020 2021 vs.

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Issuances of short-term borrowings and long-term debt, net of repayments 4,858 5,215 (357)

2,907 10,797 (7,890)

Proceeds from common stock issuances 764 870 (106)

Customer funds administered 2,395 1,263 1,132

2,131 1,062 1,069

Sales and maturities of investments, net of purchases — 573 (573)

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Cash paid for acquisitions, net of cash assumed (4,642) (3,952) (690)

(1,193) (929) (264)

Purchases of investments, net of sales and maturities (2,789) — (2,789)

Purchases of property, equipment and capitalized software (1,130) (920) (210)

(568) (469) (99)

Cash dividends paid (2,548) (2,212) (336)

(1,181) (1,024) (157)

Purchases of redeemable noncontrolling interests (1,338) — (1,338)

Other (1,310) (607) (703)

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Effect of exchange rate changes on cash and cash equivalents 6 (143) 149

(51) (129) 78

Net increase in cash and cash equivalents $ 2,911 $ 11,342 $ (8,431)

2021 Cash Flows Compared to 2020 Cash Flows

Increased cash flows provided by operating activities were primarily driven by increased net earnings and changes in working capital accounts.

Other significant changes in sources or uses of cash year-over-year included decreased short-term borrowings and increased purchases of investments, partially offset by increased customer funds administered.

Decreased cash flows provided by operating activities were primarily driven by decreased net earnings due to the lower temporary deferral of care, the timing of prior year federal income tax payments and changes in working capital accounts.

Other significant changes in sources or uses of cash year-over-year included increased net purchases of investments, purchases of redeemable noncontrolling interests and increased share repurchases, partially offset by increased customer funds administered.

Financial Condition

As of March 31, 2021, our cash, cash equivalent, available-for-sale debt securities and equity securities balances of $63.4 billion included approximately $20.0 billion of cash and cash equivalents (of which $2.1 billion was available for general corporate use), $40.9 billion of debt securities and $2.6 billion of investments in equity securities.

As of June 30, 2021, our cash, cash equivalent, available-for-sale debt securities and equity securities balances of $64.7 billion included approximately $19.8 billion of cash and cash equivalents (of which $1.5 billion was available for general corporate use), $42.1 billion of debt securities and $2.8 billion of investments in equity securities.

Given the significant portion of our portfolio held in cash and 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.

Our available-for-sale debt securities portfolio had a weighted-average duration of 3.8 years and a weighted-average credit rating of “Double A” as of March 31, 2021.

Our available-for-sale debt securities portfolio had a weighted-average duration of 3.8 years and a weighted-average credit rating of “Double A” as of June 30, 2021.

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.

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A summary of our cash requirements as of December 31, 2020 was disclosed in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2020 10-K.

During the three months ended March 31, 2021, there were no material changes to this previously disclosed information outside the ordinary course of business.

During the six months ended June 30, 2021, there were no material changes to this previously disclosed information outside the ordinary course of business.

We believe our capital resources are sufficient to meet future, short-term and long-term, liquidity needs.

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Our revolving bank credit facilities provide liquidity support for our commercial paper borrowing program, which facilitates the private placement of unsecured debt through independent broker-dealers, and are available for general corporate purposes.

For more information on our commercial paper and bank credit facilities, see Note 5 of Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this report.

For more information on our commercial paper and bank credit facilities, see Note 8 of Notes to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statements” in our 2020 10-K.

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 60%.

As of March 31, 2021, our debt to debt-plus-shareholders’ equity ratio, as defined and calculated under the credit facilities, was approximately 39%.

As of June 30, 2021, our debt to debt-plus-shareholders’ equity ratio, as defined and calculated under the credit facilities, was approximately 39%.

Long-Term Debt.

Periodically, we access capital markets and 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.

For more information on our long-term debt, see Note 5 of Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this report.

For more information on our long-term debt, see Note 5 of Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this report and Note 8 of Notes to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statements” in our 2020 10-K.

Credit Ratings.

Our credit ratings as of March 31, 2021 were as follows:

Our credit ratings as of June 30, 2021 were as follows:

Moody’s S&P Global Fitch A.M.

Ratings Outlook Ratings Outlook Ratings Outlook Ratings Outlook

Senior unsecured debt

A3 Stable A+ Stable A Stable A- Positive

Senior unsecured debt A3 Stable A+ Stable A Stable A- Positive

Commercial paper P-2 n/a A-1 n/a F1 n/a AMB-1 n/a

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Share Repurchase Program.

During the three months ended March 31, 2021, we repurchased approximately 5 million shares at an average price of $345.42 per share.

As of March 31, 2021, we had Board authorization to purchase up to 53 million shares of our common stock.

Our quarterly cash dividend to shareholders reflects an annual dividend rate of $5.00 per share.

During the six months ended June 30, 2021, we repurchased approximately 8 million shares at an average price of $365.03 per share.

As of June 30, 2021, we had Board authorization to purchase up to 50 million shares of our common stock.

In June 2021, the Company’s Board of Directors increased the Company’s quarterly cash dividend to shareholders to an annual rate of $5.80 compared to $5.00 per share.

For more information on our dividend, see Note 6 of Notes t o the Condensed Consolidated Fi nancial St atements included in Part I, Item 1 of this report.

Pending Acquisitions.

The Company has entered into agreements to purchase companies in the health care sector, most notably Change Healthcare (NASDAQ:

CHNG), which is expected to close in the second half of 2021, subject to regulatory approvals and other customary closing conditions.

CHNG), subject to regulatory approvals and other customary closing conditions.

The total anticipated capital required for these acquisitions, excluding the payoff of acquired indebtedness, is approximately $9 billion.

For additional liquidity discussion, see Note 10 of Notes to the Consolidated Financial Statements in Part II, Item 8, “Financial Statements and Supplementary Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 in our 2020 10-K.

For additional liquidity discussion, see Note 10 of Notes to the Consolidated Financial Statements in Part II, Item 8, “Financial Statements” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 in our 2020 10-K.

RECENTLY ISSUED ACCOUNTING STANDARDS

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis