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Item 7. Management’s Discussion and Analysis

2022-02-15 compared with 2021-03-01 · 109 added, 119 removed, 280 unchanged (45% of the section changed)

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

” Readers are cautioned the statements, estimates, projections or outlook contained in this report, including discussions regarding financial prospects, economic conditions, trends and uncertainties contained in this Item 7, may constitute forward-looking statements within the meaning of the PSLRA.

The following discussion should be read together with the accompanying Consolidated Financial Statements and Notes to the Consolidated Financial Statements thereto included in Part II Item 8, “Financial Statements and Supplementary Data .” Readers are cautioned the statements, estimates, projections or outlook contained in this report, including discussions regarding financial prospects, economic conditions, trends and uncertainties contained in this Item 7, may constitute forward-looking statements within the meaning of the PSLRA.

These forward-looking statements involve risks and uncertainties which may cause our actual results to differ materially from the expectations expressed or implied in the forward-looking statements.

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We have four reportable segments across our two business platforms, Optum and UnitedHealthcare:

• OptumHealth;

• OptumInsight;

• Optum Health;

• Optum Insight;

• UnitedHealthcare, which includes UnitedHealthcare Employer & Individual, UnitedHealthcare Medicare & Retirement, UnitedHealthcare Community & State and UnitedHealthcare Global.

Further information on our business and reportable segments is presented in Part I, Item 1, “Business” and in Note 14 of the Notes to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statements.”

COVID-19 Trends and Uncertainties

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 second quarter, the global health system experienced unprecedented levels of care deferral, which impacted all of our businesses.

As the pandemic advanced, access to and demand for care was most constrained from mid-March through April, began to recover in May and June and restored to near normal seasonal levels in the third quarter.

Care patterns continued to normalize in the fourth quarter, returning to, and even exceeding, seasonal baselines, including COVID-19 treatment and testing costs, towards the end of the quarter.

The temporary deferral of care experienced in 2020 may cause care patterns to moderately exceed normal baselines in future periods as utilization of health system capacity continues to increase.

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

Specific trends and uncertainties related to our two business platforms are as follows:

The temporary deferral of care impacted the Optum businesses for the year ended December 31, 2020.

For example, our fee-for-service care delivery business, such as traditional procedure work at our ambulatory surgery centers, was negatively impacted, while our risk-based care delivery business performance reflected lower demand for care.

Our OptumInsight and OptumRx volume-based businesses were negatively impacted by the lower level of care encounters which took place, as well as by broader economic factors, contributing to lower managed services and prescription volume.

As the health system returned to normal seasonally adjusted levels of care, we have seen business activity approach normal levels.

COVID-19 will also 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.

The impact of COVID-19 on our care provider and payer clients could impact the volume and types of services Optum provides, as well as the pacing of potential new business opportunities.

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.

UnitedHealthcare.

During 2020, we expanded benefit coverage in areas such as COVID-19 care and testing, telemedicine, and pharmacy benefits;

provided customers assistance in the form of co-pay waivers and premium forgiveness;

offered additional enrollment opportunities to those who previously declined employer-sponsored offerings;

extended certain premium payment terms for customers experiencing financial hardship;

simplified administrative practices;

and accelerated payments to care providers, all with the aim of assisting our customers, care providers, members and communities in addressing the COVID-19 crisis.

Temporary care deferrals significantly impacted UnitedHealthcare’s results of operations for the year ended December 31, 2020.

The impact of temporary care deferrals was offset by COVID-19 related care and testing, the significant financial assistance we provided our customers, rebate requirements 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 care and testing costs are expected to result in increased future medical costs.

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

The ultimate overall impact is uncertain and dependent on the future pacing and intensity of the pandemic, the duration of policies and initiatives to address COVID-19, and general economic uncertainty.

Further information on our business and reportable segments is presented in Part I, Item 1, “Business” and in Note 13 of the Notes to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and Supplementary Data .

Business Trends

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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, such as the economic impact of COVID-19, and regulatory changes, which could impact our results of operations, including our continued efforts to control health care costs.

The rate of market growth may be affected by a variety of factors, including macroeconomic conditions, such as the economic impact of COVID-19, and regulatory changes, which could impact our results of operations, including our continued efforts to control health care costs.

Pricing Trends.

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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.

The commercial risk market remains highly competitive in the small group, large group and individual segments.

We expect broad-based competition to continue as the industry adapts to individual and employer needs.

The ACA had an annual, nondeductible insurance industry tax (Health Insurance Industry Tax) to be levied proportionally across the insurance industry for risk-based health insurance products.

Pricing for contracts covering some portion of calendar year 2021 reflected the permanent repeal of the Health Insurance Industry Tax.

Medicare Advantage funding continues to be pressured, as discussed below in “Regulatory Trends and Uncertainties.”

We expect Medicaid revenue growth due to anticipated changes in mix and increases in the number of people we serve;

We expect Medicaid revenue growth due to anticipated changes in mix and pricing trends;

we also believe the payment rate environment creates the risk of continued downward pressure on Medicaid margin percentages.

We continue to take a prudent, market-sustainable posture for both new business and maintenance of existing relationships.

We continue to advocate for actuarially sound rates commensurate with our medical cost trends and we remain dedicated to partnering with those states who are committed to the long-term viability of their programs.

We continue to advocate for actuarially sound rates 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.

COVID-19 care and testing costs and certain of our customer assistance initiatives 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 impacted medical cost trends in 2021 and may continue to do so in 2022 and subsequent 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.

The uncertain impact of COVID-19 may impact our ability to estimate medical costs payable, which could result in increased variability to medical cost reserve development in future periods.

The continued uncertain impact of COVID-19 may impact our ability to estimate medical costs payable, which has resulted in, and could continue to result in, increased variability to medical cost reserve development.

Delivery System and Payment Modernization.

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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, 2020, we served nearly 18 million people through some form of aligned contractual arrangement, including full-risk, shared-risk and bundled episode-of-care and performance incentive payment approaches.

This trend is creating needs for health management services which 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

Following is a summary of management’s view of the trends and uncertainties related to some of the key provisions of the ACA and other regulatory matters.

For additional information regarding the ACA and regulatory trends and uncertainties, see Part I, Item 1 “Business - Government Regulation” and Item 1A, “Risk Factors.”

Following is a summary of management’s view of the trends and uncertainties related to regulatory matters.

For additional information regarding regulatory trends and uncertainties, see Part I, Item 1 “Business - Government Regulation” and Item 1A, “Risk Factors.”

Medicare Advantage Rates.

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The level of Star ratings from CMS, based upon specified clinical and operational performance standards, will impact future quality bonuses.

After a moratorium in 2019, the industry-wide amount of the Health Insurance Industry Tax for 2020, which was primarily borne by customers, was $15.5 billion, with our portion being approximately $3.0 billion.

The return of the tax impacted year-over-year comparability of our financial statements, including revenues, operating costs, medical care ratio (MCR), operating cost ratio, effective tax rate and cash flows from operations.

The Health Insurance Industry Tax was permanently repealed by Congress, effective January 1, 2021.

ACA Tax (Health Insurance Tax).

The Health Insurance Tax was permanently repealed by Congress, effective January 1, 2021.

The permanent repeal of the tax impacts year-over-year comparability of our financial statements, including revenues, operating costs, medical care ratio (MCR), operating cost ratio, effective tax rate and cash flows from operations.

COVID-19 Trends and Uncertainties

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

In 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 other revenue impacts 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.

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

Specific trends and uncertainties related to our two business platforms are as follows:

COVID-19 related care costs continued to impact our Optum Health value-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 Optum Insight and Optum Rx 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.

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.

UnitedHealthcare.

In 2021, we continued expanded benefit coverage in areas such as COVID-19 related care and testing, telemedicine, and pharmacy;

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

UnitedHealthcare’s 2021 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 eligibility redetermination requirements due to the COVID-19 public health emergency.

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

The ultimate overall impact is uncertain and dependent on the future pacing, intensity and duration of the pandemic, the severity of new variants of the COVID-19 virus, the effectiveness and extent of administration of vaccination and treatments and general economic uncertainty.

SELECTED OPERATING PERFORMANCE ITEMS

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• Consolidated revenues increased by 12%, UnitedHealthcare revenues increased 11% and Optum revenues grew 14%.

• UnitedHealthcare served 420,000 fewer people domestically primarily due to increased unemployment and attrition in commercial group benefits, partially offset by growth in government programs.

• Earnings from operations increased by 14%, including increases of 20% at UnitedHealthcare and 7% at Optum.

• UnitedHealthcare served 2.1 million more people domestically, primarily driven by growth in community and senior programs.

• Earnings from operations increased by 7%, including an increase of 19% at Optum, partially offset by a decrease of 3% at UnitedHealthcare.

• Diluted earnings per common share increased 13% to $18.08.

• Cash flows from operations were $22.2 billion, an increase of 20%.

• Cash flows from operations were $22.3 billion.

• Return on equity was 25.2%.

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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 revenues 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 pharmacy care services and care delivery.

The increases were partially offset by decreased individuals served through our commercial and Global benefits businesses, certain voluntary customer assistance programs and rebate requirements.

Revenues were also negatively impacted by decreases in our fee-for-service care delivery and other volume-based businesses, primarily as a result of the care deferral and economic impacts of COVID-19.

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

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 care and testing costs, partially offset by decreased people served in commercial and Global, modestly lower care patterns and increased prior year favorable development.

The MCR decreased primarily due to the temporary deferral of care and the revenue effects of the return of the Health Insurance Industry Tax, partially offset by COVID-19 care and testing costs, rebate requirements and voluntary customer assistance measures.

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 increased COVID-19 related care costs and the permanent repeal of the Health Insurance Tax, partially offset by increased temporary care deferrals.

Medical costs and the MCR were also impacted by increased prior year favorable reserve development.

Operating Cost Ratio

The operating cost ratio increased primarily due to the impact of the return of the Health Insurance Industry Tax, COVID-19 response efforts and business mix, partially offset by operating efficiency gains.

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

Our effective tax rate increased primarily due to the impact of the return of the nondeductible Health Insurance Industry Tax.

Our effective tax rate decreased primarily due to the permanent repeal of the nondeductible Health Insurance Tax.

Reportable Segments

See Note 14 of Notes to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statements ” for more information on our segments.

We utilize various metrics to evaluate and manage our reportable segments, including individuals served by UnitedHealthcare by major market segment and funding arrangement, people served by OptumHealth and adjusted scripts for OptumRx.

See Note 13 of Notes to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and Supplement ary Data ” for more information on our segments.

These metrics are the main drivers of revenue, earnings and cash flows at each business.

The metrics also allow management and investors to evaluate and understand business mix, customer penetration and pricing trends when comparing the metrics to revenue by segment.

The metrics also allow management and investors to evaluate and understand business mix, including the mix of care delivered through accountable care models at Optum Health, customer penetration and pricing trends when comparing the metrics to revenue by segment.

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

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UnitedHealthcare $ 222,899 $ 200,875 $ 193,842 $ 22,024 11 %

OptumHealth 39,808 30,317 24,145 9,491 31

OptumInsight 10,802 10,006 9,008 796 8

OptumRx 87,498 74,288 69,536 13,210 18

Optum Health 54,065 39,808 30,317 14,257 36

Optum Insight 12,199 10,802 10,006 1,397 13

Optum Rx 91,314 87,498 74,288 3,816 4

Optum eliminations (2,013) (1,800) (1,661) (213) 12

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UnitedHealthcare $ 11,975 $ 12,359 $ 10,326 $ (384) (3) %

OptumHealth 3,434 2,963 2,430 471 16

OptumInsight 2,725 2,494 2,243 231 9

OptumRx 3,887 3,902 3,558 (15) —

Optum Health 4,462 3,434 2,963 1,028 30

Optum Insight 3,398 2,725 2,494 673 25

Optum Rx 4,135 3,887 3,902 248 6

11,995 10,046 9,359 1,949 19

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UnitedHealthcare 5.4 % 6.2 % 5.3 % (0.8) %

OptumHealth 8.6 9.8 10.1 (1.2)

OptumInsight 25.2 24.9 24.9 0.3

OptumRx 4.4 5.3 5.1 (0.9)

Optum Health 8.3 8.6 9.8 (0.3)

Optum Insight 27.9 25.2 24.9 2.7

Optum Rx 4.5 4.4 5.3 0.1

7.7 7.4 8.3 0.3

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Medicare Supplement (Standardized) 4,395 4,460 4,500 (65) (1)

Total public and senior 16,790 15,670 15,940 1,120 7

Total community and senior 18,540 16,790 15,670 1,750 10

Total UnitedHealthcare - domestic medical 45,120 43,010 43,430 2,110 5

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Medicare Part D stand-alone 3,700 4,045 4,405 (345) (9) %

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

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

The increase in people served through Medicaid was primarily driven by states easing redetermination requirements due to COVID-19 and growth in people served via Dual Special Needs Plans.

The decrease in people served by UnitedHealthcare Global is a result of increased unemployment and underwriting discipline.

UnitedHealthcare’s revenue increased due to growth in the number of individuals served through Medicare Advantage and Medicaid, a greater mix of people with higher acuity needs and the return of the Health Insurance Industry Tax, partially offset by a decrease in the number of individuals served through the commercial and Global businesses and foreign currency impacts.

In 2020, earnings from operations increased due to the deferral of care caused by COVID-19 on the health system and the factors impacting revenue, partially offset by the return of the Health Insurance Industry Tax, COVID-19 care and testing costs, customer assistance programs and broader economic effects.

Total revenues increased as each segment reported revenue growth.

Earnings from operations increased due to growth at OptumHealth and OptumInsight.

Commercial business increased primarily due to acquisitions in risk-based and fee-based offerings and organic growth in innovative products.

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 revenues 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 decreased due to increased 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.

The results by segment were as follows:

Revenue and earnings at OptumHealth increased primarily due to organic growth and acquisitions in risk-based care delivery.

Reduced care volumes in fee-for-service arrangements as a result of COVID-19 partially offset the increases in revenues and earnings.

OptumHealth served approximately 98 million people as of December 31, 2020 compared to 96 million people as of December 31, 2019.

Revenue and earnings from operations 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 OptumRx and the corresponding eliminations increased due to the inclusion of retail pharmacy co-payments.

See Note 2 of the Notes to the Consolidated Financial Statements included in Part II, Item 8, "Financial Statements " for further detail.

Revenue at OptumRx also increased due to organic and acquisition growth in pharmacy care services, including specialty pharmacy, and new client wins, partially offset by an expected large client transition and lower script volumes driven by COVID-19 related care deferral and fewer people served due to economic-driven employment attrition.

Earnings from operations remained relatively flat as COVID-19 impacts were partially offset by the factors impacting revenue and improved

supply chain management.

OptumRx fulfilled 1.3 billion adjusted scripts in both 2020 and 2019 with growth offset by the large client transition.

Revenues at Optum Health increased primarily due to organic growth in value-based arrangements, 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 the factors impacting revenues as well as cost management initiatives and increased investment income.

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

Optum Health served approximately 100 million people as of December 31, 2021 compared to 98 million people as of December 31, 2020.

Optum Insight

Revenues and earnings from operations at Optum Insight increased due to growth in technology and managed services, including expanding relationships serving health systems.

Earnings from operations also increased due to productivity gains and cost management initiatives.

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

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

Optum Rx fulfilled 1.4 billion and 1.3 billion adjusted scripts in 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

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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, among other things, minimal levels of statutory capital, as defined by their respective jurisdiction, and restrictions on the timing and amount of dividends paid to their parent companies.

Our regulated subsidiaries generate significant cash flows from operations and are subject to, among other things, minimum levels of statutory capital, as defined by their respective jurisdictions, and restrictions on the timing and amount of dividends paid to their parent companies.

regulated subsidiaries paid their parent companies dividends of $8.0 billion and $8.3 billion in 2021 and 2020, respectively.

See Note 10 of the Notes to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statements ” for further detail concerning our regulated subsidiary dividends.

See Note 10 of the Notes to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and Supplementary Data ” for further detail concerning our regulated subsidiary dividends.

Our nonregulated businesses also generate significant cash flows from operations available for general corporate use.

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Purchases of investments, net of sales and maturities (1,843) (2,836) (2,504) 993

Purchases of redeemable noncontrolling interests (1,338) — (618) (1,338)

Other (1,549) (965) (619) (584)

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(62) (116) (20) 54

Net increase (decrease) in cash and cash equivalents $ 5,936 $ 119 $ (1,115) $ 5,817

Net increase in cash and cash equivalents $ 4,454 $ 5,936 $ 119 $ (1,482)

2021 Cash Flows Compared to 2020 Cash Flows

Increased cash flows provided by operating activities were primarily driven by higher net earnings as well as changes in working capital accounts.

Other significant changes in sources or uses of cash year-over-year included an increase in customer funds administered and net purchases of investments, and decreases in net issuances of long-term debt and short-term borrowings, cash paid for acquisitions and share repurchases.

Cash flows provided by operating activities were largely consistent, with higher net earnings being offset by changes in working capital accounts.

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

Financial Condition

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Other sources of liquidity, primarily from operating cash flows and our commercial paper program, which is fully supported by our bank credit facilities, reduce the need to sell investments during adverse market conditions.

See Note 4 of the Notes to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statements ” for further detail concerning our fair value measurements.

See Note 4 of the Notes to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and Supplementary Data ” for further detail concerning our fair value measurements.

Our available-for-sale debt portfolio had a weighted-average duration of 3.9 years and a weighted-average credit rating of “Double A” as of December 31, 2021.

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Cash Requirements.

The Company’s cash requirements within the next twelve months include medical costs payable, accounts payable and accrued liabilities, commercial paper and current maturities of long-term debt, other current liabilities, and purchase commitments and other obligations.

The Company’s cash requirements within the next twelve months include medical costs payable, accounts payable and accrued liabilities, short-term borrowings and current maturities of long-term debt, other current liabilities, and purchase commitments and other obligations.

We expect the cash required to meet these obligations to be primarily generated through cash flows from current operations;

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• Debt Obligations.

See Note 8 of the Notes to the Consolidated Financial Statements included in Part II , I tem 8 , “ Financial Statements ” for further detail of our commercial paper and long-term debt and the timing of expected future payments.

See Note 8 of the Notes to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and Supplementary Data ” for further detail of our long-term debt and the timing of expected future payments.

Interest coupon payments are typically paid semi-annually.

• Operating leases.

See Note 12 of the Notes to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statements ” for further detail of our obligations and the timing of expected future payments.

See Note 12 of the Notes to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and Supplementary Data ” for further detail of our obligations and the timing of expected future payments.

• Purchase and other obligations.

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• Redeemable noncontrolling interests.

See Note 2 of the Notes to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statements ” for further detail.

See Note 2 of the Notes to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and Supplementary Data ” for further detail.

We do not have any material required redemptions in the next twelve months.

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Our revolving bank credit facilities provide liquidity support for our commercial paper borrowing program, which facilitates the private placement of senior 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 8 of the Notes to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statement s .

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

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%, subject to increase in certain circumstances set forth in the applicable credit agreement.

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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.

For more information on our debt, see Note 8 of the Notes to the Consolidated Financial Statements included in Part II, Item 8 “Financial Statements .”

For more information on our debt, see Note 8 of the Notes to the Consolidated Financial Statements included in Part II, Item 8 “Financial Statements and Supplementary Data .

Credit Ratings.

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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 Stable

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

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For more information on our share repurchase program, see Note 10 of the Notes to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statements.

and Supplementary Data .

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, which the Company had paid since June 2020.

For more information on our dividend, see Note 10 of the Notes to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statements.

and Supplementary Data .

Pending Acquisitions.

In the fourth quarter of 2020, we entered into agreements to acquire multiple companies in the health care sector, which are expected to close in the first half of 2021, subject to regulatory approval and other customary closing conditions.

Additionally, in January 2021, we entered into agreements to purchase multiple companies in the health care sector, most notably, Change Healthcare (NASDAQ:

This acquisition is expected to close in the second half of 2021, subject to Change Healthcare shareholders’ approval, regulatory approvals and other customary closing conditions.

In 2021, we entered into agreements to acquire multiple companies in the health care sector, most notably, Change Healthcare (NASDAQ:

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

Additionally, in January 2022, we entered into agreements to acquire multiple companies in the health care sector, subject to regulatory approval and other customary closing conditions.

The total anticipated capital required for these acquisitions, excluding the payoff of acquired indebtedness, is approximately $12 billion.

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However, we continually evaluate opportunities to expand our operations, which include internal development of new products, programs and technology applications and may include acquisitions.

RECENTLY ISSUED ACCOUNTING STANDARDS

See Note 2 of t he Notes to the Consolidated Financial Statements in Part II, Item 8 “Financial Statements ” for a discussion of new accounting pronouncements which affect us.

CRITICAL ACCOUNTING ESTIMATES

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Medical Costs Payable

Medical costs and medical costs payable include estimates of our obligations for medical care services rendered on behalf of insured consumers, but for which claims have either not yet been received or processed.

Medical costs and medical costs payable include estimates of our obligations for medical care services rendered on behalf of 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.

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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 2020, 2019 and 2018 included favorable medical cost development related to prior years of $880 million, $580 million and $320 million, respectively.

Medical costs in 2021, 2020 and 2019 included favorable medical cost development related to prior years of $1.7 billion, $880 million and $580 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.

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.

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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 levels and processing cycles, as well as other factors.

Completion factors include judgments in relation to claim submissions such as the time from date of service

to claim receipt, claim levels and processing cycles, as well as other factors.

Our judgments also consider the impacts of COVID-19 on these factors.

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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 a review of a broad set of health care utilization indicators, which included consideration of COVID-19 in 2020.

These factors include but are not limited to pharmacy utilization trends, inpatient hospital authorization data and influenza incidence data from the National Centers for Disease Control.

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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, epidemics and pandemics, such as COVID-19.

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;

and catastrophes, epidemics and pandemics, such as COVID-19.

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, 2021:

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Assuming a hypothetical 1% difference between our December 31, 2021 estimates of medical costs payable and actual medical costs payable, excluding AARP Medicare Supplement Insurance and any potential offsetting impact from premium rebates, 2021 net earnings would have increased or decreased by approximately $184 million.

For more detail related to our medical cost estimates, see Note 2 of the Notes to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statements .”

For more detail related to our medical cost estimates, see Note 2 of the Notes to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and Supplementary Data .”

We evaluate goodwill for impairment annually or more frequently when an event occurs or circumstances change indicating the carrying value may not be recoverable.

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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.

macroeconomic, industry and market factors;

changes in overall financial performance;

and any other relevant events and uncertainties impacting a reporting unit.

If our qualitative assessment indicates a goodwill impairment is more likely than not, we perform additional quantitative analyses.

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Additionally, as part of our quantitative impairment testing, we perform various sensitivity analyses on certain key assumptions, such as discount rates, cash flow projections and peer company multiples to analyze the potential for a material impact.

The market-based method requires determination of appropriate peer group whose securities are traded on an active market.

The market-based method requires determination of an appropriate peer group whose securities are traded on an active market.

The peer group is used to derive market multiples to estimate fair value.

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LEGAL MATTERS

A description of our legal proceedings is presented in Note 12 of Notes to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statements .

A description of our legal proceedings is presented in Note 12 of Notes to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and Supplementary Data .”

CONCENTRATIONS OF CREDIT RISK

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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-K

Item 7. Management’s Discussion and Analysis