What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-02 compared with 2022-08-03 · 46 added, 55 removed, 231 unchanged (30% of the section changed)

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

Further information on our business is presented in Part I, Item 1, “Business” and Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2021 10-K and additional information on our segments, including the realignment of our UnitedHealthcare operating segments to combine UnitedHealthcare Global and UnitedHealthcare Employer and Individual, can be found in this Item 2 and in Note 9 of Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this report.

Further information on our business is presented in Part I, Item 1, “Business” and Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2021 10-K and additional information on our segments, including the realignment of our UnitedHealthcare operating segments to combine UnitedHealthcare Global and UnitedHealthcare Employer & Individual, can be found in this Item 2 and in Note 9 of Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this report.

Business Trends

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Overall spending on health care is impacted by inflation, utilization, 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 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.

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

Pricing Trends.

To price our health care benefit products, we start with our view of expected future costs, including any potential impacts from COVID-19.

To price our health care benefit products, we start with our view of expected future costs, including inflation and labor market dynamics.

We frequently evaluate and adjust our approach in each of the local markets we serve, considering all relevant factors, such as product positioning, price competitiveness and environmental, competitive, legislative and regulatory considerations, including minimum medical loss ratio (MLR) thresholds and similar revenue adjustments.

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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.

Future medical cost trends may be impacted by increased consumer

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

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.

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 six months ended June 30, 2022, overall care was near normal baseline levels, with certain areas of care at or approaching seasonal baselines, and other areas below.

COVID-19 treatment and testing costs continue to be mitigated by the temporary deferral of care, both generally varying with COVID-19 incidence rates.

The relationship between COVID-19 care costs and non-COVID-19 utilization lagged in the second quarter, with increased non-COVID-19 utilization not as rapidly coinciding with decreased COVID-19 care and incidence rates as it had throughout the pandemic.

In future periods, care patterns may moderately exceed normal baselines as previously deferred care is obtained.

Though not yet experienced, acuity may temporarily rise due to missed regular care.

COVID-19 may continue to influence customer and consumer behavior, which could impact how and where care is delivered, benefit product designs, and the manner in which consumers wish to receive their prescription drugs or infusion services.

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.

During the nine months ended September 30, 2022, overall care was near normal baseline levels, with certain areas of care at or approaching seasonal baselines, and other areas below.

Future care patterns and acuity may temporarily rise due to missed regular care.

Future developments, such as the severity of new COVID-19 variants, could introduce new uncertainties to care patterns and our business.

SELECTED OPERATING PERFORMANCE AND OTHER SIGNIFICANT ITEMS

The following summarizes select second quarter 2022 year-over-year operating comparisons to second quarter 2021 and other financial results.

The following summarizes select third quarter 2022 year-over-year operating comparisons to third quarter 2021 and other financial results.

• Consolidated revenues grew 12%, UnitedHealthcare revenues grew 11% and Optum revenues grew 17%.

• UnitedHealthcare served 1.6 million more people, led by growth in community and senior programs.

• UnitedHealthcare served 910,000 more people, led by growth in community and senior programs.

• Consolidated earnings from operations of $7.5 billion compared to $5.7 billion last year, included growth of 43% at UnitedHealthcare and 20% at Optum.

• Diluted earnings per common share were $5.55.

• Cash flows from operations for the six months ended June 30, 2022 were $12.2 billion.

• Cash flows from operations for the nine months ended September 30, 2022 were $30.7 billion.

• Return on equity was 28.5%.

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(in millions, except percentages and per share data) Three Months Ended

June 30, Increase/

(Decrease) Six Months Ended

June 30, Increase/(Decrease)

September 30, Increase/(Decrease) Nine Months Ended

September 30, Increase/(Decrease)

2022 2021 2022 vs.

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Consolidated Financial Results

The increases in revenues were primarily driven by growth in the number of people served through Medicare Advantage, Medicaid and commercial offerings;

pricing trends;

and growth across the Optum businesses.

The increases in revenues were primarily driven by growth in the number of people served through Medicare Advantage and Medicaid, pricing trends and growth across the Optum businesses.

Medical Costs and MCR

Medical costs increased due to growth in people served through Medicare Advantage, Medicaid and commercial offerings.

For the three months ended June 30, 2022, MCR decreased due to COVID-19 effects and business mix.

For the six months ended June 30, 2022, MCR decreased as a result of COVID-19 effects offset by business mix and decreased prior years favorable development, primarily due to the effects of COVID-19 in 2021.

For the three and nine months ended September 30, 2022, medical costs increased due to growth in people served through Medicare Advantage and Medicaid.

The MCR decreased due to COVID-19 effects, partially offset by business mix.

For the nine months ended September 30, 2022, the decreases to the MCR were also partially offset by decreased prior years favorable development, primarily due to the effects of COVID-19 in 2021.

Operating Cost Ratio

For the three months ended June 30, 2022, the operating cost ratio increased primarily due to business mix and investments, partially offset by COVID-19 related revenue effects.

For the six months ended June 30, 2022, the operating cost ratio decreased as a result of COVID-19 related revenue effects, partially offset by business mix.

For the three and nine months ended September 30, 2022, the operating cost ratio decreased primarily due to productivity gains, offset by business mix and investments.

For the nine months ended September 30, 2022, the operating cost ratio also decreased due to COVID-19 related revenue effects.

Reportable Segments

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Three Months Ended

June 30, Increase/(Decrease) Six Months Ended

June 30, Increase/(Decrease)

September 30, Increase/(Decrease) Nine Months Ended

September 30, Increase/(Decrease)

(in millions, except percentages) 2022 2021 2022 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) 2022 2021 2022 vs.

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

June 30, Increase/(Decrease)

September 30, Increase/(Decrease)

(in thousands, except percentages) 2022 2021 2022 vs.

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Medicare Part D stand-alone 3,310 3,725 (415) (11) %

Commercial business increased primarily due to organic growth and business combinations.

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.

For the three months ended June 30, 2022, earnings from operations increased due growth in people served and COVID-19 effects.

For the six months ended June 30, 2022, earnings from operations increased due to growth in people served and COVID-19 effects, partially offset by decreased prior years favorable development, primarily due to the effects of COVID-19 in 2021.

The increase in people served through Medicaid was primarily driven by states continuing to ease redetermination requirements due to COVID-19 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.

For the three months ended September 30, 2022, earnings from operations increased due to growth in people served and COVID-19 effects.

For the nine months ended September 30, 2022, earnings from operations increased due to growth in people served and COVID-19 effects, partially offset by decreased prior years favorable development, primarily due to the effects of COVID-19 in 2021.

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

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Revenues at Optum Health increased primarily due to organic growth in value-based care arrangements and business combinations.

Earnings from operations increased due to organic growth in value-based care arrangements, cost management initiatives and COVID-19 effects.

Optum Health served approximately 101 million people as of June 30, 2022 compared to 99 million people as of June 30, 2021.

Earnings from operations increased due to organic growth in the number of people served under value-based care arrangements, cost management initiatives, asset dispositions and COVID-19 effects.

For the three months ended September 30, 2022, increases in earnings from operations were partially offset by care activity levels at fee-for-service practices.

Optum Health served approximately 101 million people as of September 30, 2022 compared to 99 million people as of September 30, 2021.

Optum Insight

Revenues and earnings from operations at Optum Insight increased due to growth in managed services and technology, with managed services growth driven by higher payer volumes and new health system partnerships.

Revenues and earnings from operations at Optum Insight increased due to growth in technology and managed services, with managed services growth driven by higher payer volumes and new health system partnerships.

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, including community-behavioral and specialty pharmacy.

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

Optum Rx fulfilled 357 million and 342 million adjusted scripts in the second quarters of 2022 and 2021, respectively.

Optum Rx fulfilled 359 million and 344 million adjusted scripts in the third quarters of 2022 and 2021, respectively.

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) 2022 2021 2022 vs.

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Customer funds administered 7,028 1,402 5,626

Other 50 — 50

Total sources of cash 42,707 25,337

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2022 Cash Flows Compared to 2021 Cash Flows

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

Other significant changes in sources or uses of cash year-over-year included increased customer funds administered, primarily driven by Medicare Part D timing, net issuances of short-term borrowings and long-term debt and decreased purchases of redeemable noncontrolling interests, partially offset by increased cash paid for acquisitions and share repurchases.

Increased cash flows provided by operating activities were primarily driven by an increase in unearned revenue due to the September receipt of our October CMS premium payment of $9.8 billion and increased net earnings.

Other significant changes in sources or uses of cash year-over-year included increased customer funds administered, primarily driven by Medicare Part D timing, and decreased purchases of redeemable noncontrolling interests, partially offset by increased cash paid for acquisitions and common stock repurchases.

Financial Condition

As of June 30, 2022, our cash, cash equivalent, available-for-sale debt securities and equity securities balances of $68.0 billion included approximately $24.6 billion of cash and cash equivalents (of which $1.7 billion was available for general corporate use), $40.0 billion of debt securities and $3.4 billion of investments in equity securities.

As of September 30, 2022, our cash, cash equivalent, available-for-sale debt securities and equity securities balances of $81.8 billion included approximately $38.8 billion of cash and cash equivalents (of which $3.7 billion was available for general corporate use), $39.6 billion of debt securities and $3.4 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 4.1 years and a weighted-average credit rating of “Double A” as of June 30, 2022.

Our available-for-sale debt securities portfolio had a weighted-average duration of 4.1 years and a weighted-average credit rating of “Double A” as of September 30, 2022.

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, 2021 was disclosed in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2021 10-K.

During the six months ended June 30, 2022, there were no material changes to this previously disclosed information outside the ordinary course of business.

During the nine months ended September 30, 2022, 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, 2022, our debt to debt-plus-shareholders’ equity ratio, as defined and calculated under the credit facilities, was approximately 37%.

As of September 30, 2022, our debt to debt-plus-shareholders’ equity ratio, as defined and calculated under the credit facilities, was approximately 35%.

Long-Term Debt.

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Credit Ratings.

Our credit ratings as of June 30, 2022 were as follows:

Our credit ratings as of September 30, 2022 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, 2022, we repurchased approximately 10 million shares at an average price of $492.11 per share.

As of June 30, 2022, we had Board of Directors’ authorization to purchase up to 35 million shares of our common stock.

During the nine months ended September 30, 2022, we repurchased approximately 12 million shares at an average price of $497.41 per share.

As of September 30, 2022, we had Board of Directors’ authorization to purchase up to 33 million shares of our common stock.

In June 2022, the Company’s Board of Directors increased our quarterly cash dividend to shareholders to an annual rate of $6.60 compared to $5.80 per share.

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Pending Business Combinations.

As of June 30, 2022, we have entered into agreements to acquire companies in the health care sector, most notably Change Healthcare (NASDAQ:

As of September 30, 2022, we have entered into agreements to acquire companies in the health care sector, most notably Change Healthcare (NASDAQ:

CHNG) and LHC Group, Inc.

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

The total anticipated capital required for these business combinations, excluding associated disposition proceeds and the payoff of acquired indebtedness, is approximately $14 billion.

As of that date, the total anticipated capital required for these business combinations, excluding associated disposition proceeds and the payoff of acquired indebtedness, was approximately $14 billion.

The Company completed the acquisition of Change Healthcare on October 3, 2022.

For additional liquidity discussion, see Note 10 of Notes to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and Supplementary Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Part II, Item 7 in our 2021 10-K.

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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