What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-03 compared with 2021-08-03 · 42 added, 46 removed, 259 unchanged (25% of the section changed)

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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.

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 the quarter ended September 30, 2021, overall care activity continued to increase, 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.

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.

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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.

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.

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

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.

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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SELECTED OPERATING PERFORMANCE AND OTHER SIGNIFICANT ITEMS

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

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

• Consolidated revenues grew 11%, UnitedHealthcare revenues grew 11% and Optum revenues grew 14%.

• 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.

• UnitedHealthcare served 2.0 million more people domestically, driven by growth in community and senior programs.

• Earnings from operations increased at both UnitedHealthcare and Optum.

• Diluted earnings per common share were $4.28.

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

• Cash flows from operations for the nine months ended September 30, 2021 were $19.1 billion.

• Return on equity was 23.5%.

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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 June 30, Increase/(Decrease) Six Months Ended

June 30, Increase/(Decrease)

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

2021 2020 2021 vs.

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Consolidated Financial Results

The increases in revenue were primarily driven by the increase in the number of individuals served through Medicare Advantage and Medicaid;

The increases in revenue were primarily driven by the increase in the number of individuals served through Medicare Advantage, Medicaid and commercial offerings;

pricing trends;

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

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 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.

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

The MCR increased due to the permanent repeal of the Health Insurance Tax and increased COVID-19 related care costs, partially offset by increased deferral of care.

For the nine months ended September 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 Health Insurance Tax, COVID-19 impacts on revenue and operating costs in the prior year 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 and operating efficiency gains, partially offset by business mix.

For the nine months ended September 30, 2021, the operating cost ratio also decreased due to COVID-19 impacts on revenue and operating costs in the prior year.

Income Tax Rate

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

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

Three Months Ended September 30, Increase/(Decrease) Nine Months Ended September 30, Increase/(Decrease)

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

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The following table summarizes UnitedHealthcare revenues by business:

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

Three Months Ended September 30, Increase/(Decrease) Nine Months Ended September 30, Increase/(Decrease)

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

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

June 30, Increase/(Decrease)

September 30, Increase/(Decrease)

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

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Medicare Part D stand-alone 3,725 4,075 (350) (9) %

Commercial business decreased primarily due to increased unemployment.

Commercial business increased primarily due to acquisitions in risk-based and fee-based offerings.

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, 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.

UnitedHealthcare’s revenue increased due to growth in the number of individuals served through Medicare Advantage and Medicaid, including a greater mix of people with higher acuity needs, and an increase in the number of individuals served through commercial benefits, partially offset by 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 September 30, 2021 increased primarily due to the higher temporary deferral of care and growth in people served across our domestic businesses, partially offset by COVID-19 related care costs and other economic factors.

For the nine months ended September 30, 2021, earnings from operations decreased due to COVID-19 related care costs and the impacts of COVID-19 on risk adjusted business, partially offset by higher temporary deferral of care and growth in people served across our domestic businesses.

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

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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 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.

OptumHealth served approximately 99 million people as of September 30, 2021 compared to 98 million people as of September 30, 2020.

Revenue and earnings from operations at OptumInsight increased 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 also increased due to productivity gains and cost management initiatives.

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

Revenue for the nine months ended September 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.

OptumRx fulfilled 344 million and 325 million adjusted scripts in the third quarters of 2021 and 2020, respectively.

In addition to the factors contributing to revenue growth, adjusted scripts also increased due to the dispensing of COVID-19 vaccines.

LIQUIDITY, FINANCIAL CONDITION AND CAPITAL RESOURCES

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

Six Months Ended June 30, Increase/(Decrease)

Nine Months Ended September 30, Increase/(Decrease)

(in millions) 2021 2020 2021 vs.

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Customer funds administered 1,402 249 1,153

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

Total sources of cash 25,337 20,469

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2021 Cash Flows Compared to 2020 Cash Flows

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.

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

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

Financial Condition

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.

As of September 30, 2021, our cash, cash equivalent, available-for-sale debt securities and equity securities balances of $66.8 billion included approximately $21.1 billion of cash and cash equivalents (of which $3.7 billion was available for general corporate use), $42.8 billion of debt securities and $2.9 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 June 30, 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 September 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 six months ended June 30, 2021, there were no material changes to this previously disclosed information outside the ordinary course of business.

During the nine months ended September 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 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 June 30, 2021, our debt to debt-plus-shareholders’ equity ratio, as defined and calculated under the credit facilities, was approximately 39%.

As of September 30, 2021, our debt to debt-plus-shareholders’ equity ratio, as defined and calculated under the credit facilities, was approximately 38%.

Long-Term Debt.

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Credit Ratings.

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

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

Moody’s S&P Global Fitch A.M.

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Share Repurchase Program.

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.

During the nine months ended September 30, 2021, we repurchased approximately 10 million shares at an average price of $376.93 per share.

As of September 30, 2021, we had Board authorization to purchase up to 48 million shares of our common stock.

In June 2021, the Company’s Board of Directors increased our 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 to the Condensed Consolidated Financial Statements 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:

We have entered into agreements to purchase companies in the health care sector, most notably Change Healthcare (NASDAQ:

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

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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