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Item 8. Financial Statements and Supplementary Data

2023-02-24 compared with 2022-02-15 · 134 added, 118 removed, 960 unchanged (21% of the section changed)

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

R eport of Independent Registered Public Accounting Firm ( PCAOB ID No 34 )

Report of Independent Registered Public Accounting Firm ( PCAOB ID No 34 )

Consolidated Balance Sheets

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Commitments and Contingencies

Business Combinations

Segment Financial Information

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit and finance committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the Audit and Finance Committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Incurred but not Reported (IBNR) Claim Liability - Refer to Notes 2 and 7 to the financial statements.

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The Company develops IBNR estimates using an actuarial model that requires management to exercise certain judgments in developing its estimates.

Judgments made by management include medical cost per member per month trend factors and completion factors, which include assumptions over the time from date of service to claim receipt, the impact of claim levels, processing cycles, and consideration of COVID-19.

We identified the IBNR claim liability as a critical audit matter because of the significant assumptions made by management in estimating the liability.

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◦ Performing a retrospective review comparing management’s prior year estimate of IBNR to claims processed in 2022 with dates of service in 2021 or prior.

Goodwill - Refer to Notes 2 and 6 to the financial statements.

Critical Audit Matter Description

At December 31, 2021, the Company’s goodwill balance was $76 billion.

As discussed in Note 2 of the financial statements, for reporting units where a quantitative analysis is performed, the Company performs an annual impairment test measuring the fair values of the reporting units and comparing them to their aggregate carrying values including goodwill.

The estimates of the reporting unit fair values are calculated using a discounted cash flow method or a weighted combination of discounted cash flows and a market-based method.

The discounted cash flow method includes assumptions about revenue trends, medical cost trends, and operating costs as well as discount rates.

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

The annual impairment test indicated that the fair values of the reporting units exceeded the carrying values as of the impairment testing date;

therefore, no impairment was recognized.

We identified a critical audit matter related to the quantitative analysis performed for such reporting units because of the significant assumptions made by management to estimate the fair value of the reporting unit.

This required increased auditor judgment and extent of effort, including involvement of fair value specialists to evaluate the reasonableness of management’s estimates and assumptions related to peer company selection and financial projections, which can be impacted by regulatory and macro-economic factors.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the valuation, business, and market assumptions including the discount rate, financial forecasts, and peer group used by management to estimate the fair value of reporting units where a quantitative analysis was performed, included the following, among others:

• We tested the effectiveness of controls over management’s annual goodwill impairment assessment, including those over the determination of the fair value such as controls related to management’s financial forecasts, as well as controls over the selection of discount rates, company specific risks, peer companies, and market multiples.

• We evaluated management’s ability to forecast and meet future revenue, medical cost trend, and operating costs by comparing:

◦ Actual results to historical forecasts.

◦ Forecasted information to:

internal communications to management and the Board of Directors, industry and economic trends, and analyst reports of revenue and earnings expectations for the Company and its peers.

• We evaluated the impact of changes in management’s forecasts from the October 1, 2021 annual measurement date to December 31, 2021.

• We evaluated management’s selection of peer companies and market multiples.

• With the assistance of our fair value specialists, we evaluated the reasonableness of (1) the valuation methodologies, including testing the mathematical accuracy of the calculation, (2) the weighting of such valuation methodologies, and (3) discount rate and company specific risks by:

◦ Testing the source information underlying the determination of the discount rate and the mathematical accuracy of the calculation.

◦ Developing a range of independent discount rate estimates and comparing to those selected by management.

/ S / DELOITTE & TOUCHE LLP

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934 and 941 issued and outstanding

Additional paid-in capital — —

Retained earnings 86,156 77,134

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Net earnings $ 20,639 $ 17,732 $ 15,769

Other comprehensive (loss) income:

Other comprehensive loss:

Gross unrealized (losses) gains on investment securities during the period ( 4,292 ) ( 1,028 ) 1,058

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Total unrealized (losses) gains, net of tax ( 3,308 ) ( 780 ) 805

Gross reclassification adjustment for net realized gains included in net earnings

( 173 ) ( 75 ) ( 104 )

Gross reclassification adjustment for net realized losses (gains) included in net earnings 139 ( 173 ) ( 75 )

Income tax effect ( 32 ) 40 17

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107 ( 133 ) ( 58 )

Total foreign currency translation losses

( 657 ) ( 983 ) ( 271 )

Other comprehensive (loss) income ( 1,570 ) ( 236 ) 582

Total foreign currency translation gains (losses) 192 ( 657 ) ( 983 )

Other comprehensive loss ( 3,009 ) ( 1,570 ) ( 236 )

Comprehensive income 17,630 16,162 15,533

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Consolidated Statements of Changes in Equity

Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive (Loss) Income Nonredeemable

Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Nonredeemable

Noncontrolling

Interests Total

(in millions) Shares Amount Net Unrealized (Losses) Gains on Investments Foreign Currency Translation Losses

(in millions) Shares Amount Net Unrealized Gains (Losses) on Investments Foreign Currency Translation (Losses) Gains

Balance at January 1, 2020 948 $ 9 $ 7 $ 61,178 $ 589 $ ( 4,167 ) $ 2,820 $ 60,436

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Issuances of common stock, and related tax effects

12 1 1,119 1,120

Share-based compensation 647 647

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( 4,584 ) ( 4,584 )

Redeemable noncontrolling interest fair value and other adjustments

( 316 ) ( 316 )

Redeemable noncontrolling interests fair value and other adjustments ( 197 ) ( 197 )

Acquisition and other adjustments of nonredeemable noncontrolling interests

( 109 ) 196 87

Distributions to nonredeemable noncontrolling interest

( 279 ) ( 279 )

Distributions to nonredeemable noncontrolling interests ( 277 ) ( 277 )

Balance at December 31, 2020 946 10 — 69,295 1,336 ( 5,150 ) 2,837 68,328

Adjustment to adopt ASU 2016-13 ( 28 ) ( 28 )

17,285 360 17,645

Other comprehensive income (loss)

747 ( 983 ) ( 236 )

Other comprehensive loss ( 913 ) ( 657 ) ( 1,570 )

Issuances of common stock, and related tax effects

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( 5,280 ) ( 5,280 )

Redeemable noncontrolling interest fair value and other adjustments

( 197 ) ( 197 )

Redeemable noncontrolling interests fair value and other adjustments ( 889 ) (106) ( 995 )

Acquisition and other adjustments of nonredeemable noncontrolling interests

Distributions to nonredeemable noncontrolling interest

( 277 ) ( 277 )

Distributions to nonredeemable noncontrolling interests ( 319 ) ( 319 )

Balance at December 31, 2021 941 10 — 77,134 423 ( 5,807 ) 3,285 75,045

20,120 406 20,526

Other comprehensive loss ( 913 ) ( 657 ) ( 1,570 )

Other comprehensive (loss) gains ( 3,201 ) 192 ( 3,009 )

Issuances of common stock, and related tax effects

8 — 1,100 1,100

Share-based compensation 875 875

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Redeemable noncontrolling interests fair value and other adjustments

( 889 ) ( 106 ) ( 995 )

Acquisition and other adjustments of nonredeemable noncontrolling interests

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Purchases of property, equipment and capitalized software ( 2,802 ) ( 2,454 ) ( 2,051 )

Cash received from dispositions 3,414 15 221

Other, net ( 793 ) ( 1,269 ) ( 727 )

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Repayments of long-term debt ( 3,015 ) ( 3,150 ) ( 3,150 )

(Repayments of) proceeds from short-term borrowings, net ( 1,302 ) 872 300

Proceeds from (repayments of) short-term borrowings, net 732 ( 1,302 ) 872

Proceeds from issuance of long-term debt 14,819 6,933 4,864

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Other, net ( 1,944 ) ( 295 ) ( 459 )

Cash flows used for financing activities ( 7,455 ) ( 3,590 ) ( 5,625 )

Cash flows from (used for) financing activities 4,226 ( 7,455 ) ( 3,590 )

Effect of exchange rate changes on cash and cash equivalents 34 ( 62 ) ( 116 )

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The impact of any change in estimates is included in earnings in the period in which the estimate is adjusted.

Premium revenues are primarily derived from risk-based health insurance arrangements in which the premium is typically at a fixed rate per individual served for a one-year period, and the Company assumes the economic risk of funding its customers’ health care and related administrative costs.

Premium revenues are primarily derived from risk-based arrangements in which the premium is typically at a fixed rate per individual served for a one-year period, and the Company assumes the economic risk of funding its customers’ health care and related administrative costs.

Premium revenues are recognized in the period in which eligible individuals are entitled to receive health care benefits.

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The Company also records premium revenues for certain value-based arrangements at its Optum Health care delivery businesses.

Under these value-based arrangements, the Company enters into agreements with health plans to stand ready to deliver, integrate, direct and control certain health care services for the individuals enrolled.

In exchange, the Company receives a premium that is typically paid on a per-member per-month basis.

Under these value-based arrangements, the Company enters into agreements with health plans to stand ready to deliver, integrate, direct and control certain health care services for patients.

In exchange, the Company receives a premium that is typically paid on a per-patient per-month basis.

The Company considers these value-based arrangements to represent a single performance obligation where premium revenues are recognized in the period in which health care services are made available.

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For the Company’s Optum Rx pharmacy care services business, the majority of revenues are derived from products sold through a contracted network of retail pharmacies or home delivery, specialty and community health pharmacies.

Product revenues include the cost of pharmaceuticals (net of rebates), a negotiated dispensing fee and customer co-payments for drugs dispensed through the Company’s home delivery, specialty and community pharmacies.

For the years ended December 31, 2021 and 2020, the Company recognized revenue and cost of products sold for retail pharmacy co-payments related to its Optum Rx business.

Revenue recognized in prior periods related to retail pharmacy transactions excludes the member’s applicable co-payment.

There was no impact on earnings from operations, net earnings, earnings per share or total equity.

Product revenues include the cost of pharmaceuticals (net of rebates), a negotiated dispensing fee and customer co-payments.

Pharmacy products are billed to customers based on the number of transactions occurring during the billing period.

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The Company has entered into contracts in which it is primarily obligated to pay its network pharmacy providers for benefits provided to their customers regardless of whether the Company is paid.

The Company is also involved in establishing the prices charged by retail pharmacies, determining which drugs will be included in formulary listings and selecting which retail pharmacies will be included in the network offered to plan sponsors’ members and accordingly, are reported on a gross basis.

Services revenue are comprised of a number of services and products sold through Optum.

Services revenue includes a number of services and products sold through Optum.

Optum Health’s service revenues include net patient service revenues recorded based upon established billing rates, less allowances for contractual adjustments, and are recognized as services are provided.

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For the years ended December 31, 2022, 2021 and 2020, revenue recognized from performance obligations related to prior periods (for example, due to changes in transaction price) was not material.

Revenue expected to be recognized in any future year related to remaining performance obligations, excluding revenue pertaining to contracts having an original expected duration of one year or less, contracts where revenue is recognized as invoiced and contracts with variable consideration related to undelivered performance obligations, is not material.

See Note 14 for disaggregation of revenue by segment and type.

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The Company develops estimates for medical care services incurred but not reported (IBNR), which includes estimates for claims which have not been received or fully processed, using an actuarial process consistently applied, centrally controlled and automated.

The actuarial

models consider factors such as time from date of service to claim processing, seasonal variances in medical care consumption, health care professional contract rate changes, medical care utilization and other medical cost trends, membership volume and demographics, the introduction of new technologies, benefit plan changes, and business mix changes related to products, customers and geography.

Judgments related to these factors contemplated the impact of COVID-19.

The actuarial models consider factors such as time from date of service to claim processing, seasonal variances in medical care consumption, health care professional contract rate changes, care activity and other medical cost trends, membership volume and

demographics, the introduction of new technologies, benefit plan changes, and business mix changes related to products, customers and geography.

In developing its medical costs payable estimates, the Company applies different estimation methods depending on which incurred claims are being estimated.

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As of December 31, 2022 and 2021, the Company’s Medicare Part D receivables amounted to $ 1.3 billion and $ 3.4 billion, respectively.

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets include pharmaceutical drug and supplies inventory of $ 3.5 billion and $ 2.9 billion as of December 31, 2022 and 2021, respectively.

Property, Equipment and Capitalized Software

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The Company may also elect to skip the qualitative testing and proceed directly to the quantitative testing.

When performing quantitative testing, the Company first estimates the fair values of its reporting units using discounted cash flows or a weighted combination of discounted cash flows and a market-based method.

When performing quantitative testing, the Company first estimates the fair values of its reporting units using discounted cash flows.

To determine fair values, the Company must make assumptions about a wide variety of internal and external factors.

Significant assumptions used in the impairment analysis include financial projections of free cash flow (including significant assumptions about operations, capital requirements and income taxes), long-term growth rates for determining terminal value, discount rates and the selection of comparable peer companies.

Comparative market multiples are used to corroborate the results of the discounted cash flow test.

If the fair value is less than the carrying value of the reporting unit, an impairment is recognized for the difference, up to the carrying amount of goodwill.

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Redeemable Noncontrolling Interests

Redeemable noncontrolling interests in the Company’s subsidiaries whose redemption is outside the control of the Company are classified as temporary equity.

Redeemable noncontrolling interests in the Company’s subsidiaries whose redemption is outside of the Company’s control are classified as temporary equity.

These interests primarily relate to put options on unowned shares, which are typically redeemable at fair value after a certain time period.

The Company accretes changes in the redemption value to the earliest redemption date utilizing the interest method.

If all interests were currently redeemable, the difference between the carrying value and the estimated redemption value is not material.

The following table provides details of the Company's redeemable noncontrolling interests’ activity for the years ended December 31, 2022 and 2021:

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The difference between the number of shares assumed issued and number of shares assumed purchased represents the dilutive shares.

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.

A summary of debt securities by major security type is as follows:

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The Company held $ 3.7 billion and $ 3.5 billion of equity securities as of December 31, 2022 and 2021, respectively.

The Company’s investments in equity securities primarily consist of employee savings plan related investments, other venture investments and shares of Brazilian real denominated fixed-income funds with readily determinable fair values.

Additionally, the Company’s investments included $ 1.3 billion of equity method investments in operating businesses in the health care sector, as of both December 31, 2021 and 2020.

The Company’s investments in equity securities primarily consist of employee savings plan related investments, venture investments and shares of Brazilian real denominated fixed-income funds with readily determinable fair values.

Additionally, the Company’s investments included $ 1.5 billion and $ 1.3 billion of equity method investments in operating businesses in the health care sector, as of December 31, 2022 and 2021, respectively.

The allowance for credit losses on held-to-maturity securities as of December 31, 2022 and 2021 was not material.

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government and agency obligations $ 1,976 $ ( 18 ) $ 249 $ ( 13 ) $ 2,225 $ ( 31 )

State and municipal obligations 1,386 ( 19 ) 31 ( 1 ) 1,417 ( 20 )

Corporate obligations 9,357 ( 130 ) 376 ( 15 ) 9,733 ( 145 )

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Nonfinancial assets and liabilities or financial assets and liabilities measured at fair value on a nonrecurring basis are subject to fair value adjustments only in certain circumstances, such as when the Company records an impairment.

For the year ended December 31, 2021, the Company recognized $ 840 million of unrealized gains in investment and other income related to fair value adjustments on equity securities primarily in our venture portfolio, based on transactions of the same or similar security.

For the years ended December 31, 2022 and 2021, the Company recognized $ 211 million and $ 840 million, respectively, of unrealized gains in investment and other income related to fair value adjustments on equity securities primarily in our venture portfolio, based upon transaction of the same or similar security.

There were no other significant fair value adjustments for these assets and liabilities recorded during the years ended December 31, 2022 or 2021.

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Debt and Equity Securities.

Fair values of debt and equity securities are based on quoted market prices, where available.

Fair values of debt securities and equity securities reported at fair value on a recurring basis are based on quoted market prices, where available.

The Company obtains one price for each security primarily from a third-party pricing service (pricing service), which generally uses quoted or other observable inputs for the determination of fair value.

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Fair values of debt securities which do not trade on a regular basis in active markets but are priced using other observable inputs are classified as Level 2.

Fair value estimates for Level 1 and Level 2 equity securities are based on quoted market prices for actively traded equity securities and/or other market data for the same or comparable instruments and transactions in establishing the prices.

Fair value estimates for Level 1 and Level 2 equity securities reported at fair value on a recurring basis are based on quoted market prices for actively traded equity securities and/or other market data for the same or comparable instruments and transactions in establishing the prices.

The fair values of Level 3 investments in corporate bonds, which are not a significant portion of our investments, are estimated using valuation techniques relying heavily on management assumptions and qualitative observations.

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Total property, equipment and capitalized software, net $ 10,128 $ 8,969

Depreciation expense for property and equipment for the years ended December 31, 2021, 2020 and 2019 was $ 996 million, $ 997 million and $ 995 million, respectively.

Amortization expense for capitalized software for the years ended December 31, 2021, 2020 and 2019 was $ 923 million, $ 814 million and $ 721 million, respectively.

Depreciation expense for property and equipment was $ 1.1 billion for the year ended December 31, 2022, and $ 1.0 billion for both years ended December 31, 2021 and 2020.

Amortization expense for capitalized software for the years ended December 31, 2022, 2021 and 2020 was $ 1.0 billion, $ 0.9 billion and $ 0.8 billion, respectively.

Goodwill and Other Intangible Assets

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Medical costs payable, end of period $ 29,056 $ 24,483 $ 21,872

For the years ended December 31, 2021, 2020 and 2019 medical cost reserve development was primarily driven by lower than expected health system utilization levels.

Additionally, medical cost reserve development in the year ended December 31, 2021 was driven by the uncertainty of care patterns due to the disruption of the health care system caused by COVID-19.

For the year ended December 31, 2022, prior year’s medical cost reserve development included no individual factors that were significant.

For the years ended December 31, 2021 and 2020, prior years’ medical cost reserve development was primarily driven by lower than expected care activity.

Additionally, prior years’ medical cost reserve development in the year ended December 31, 2021 was driven by care patterns disrupted by COVID-19.

Medical costs payable included IBNR of $ 20.0 billion and $ 17.1 billion at December 31, 2022 and 2021, respectively.

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Commercial paper $ 800 $ —

$ 400 million 4.700 % notes due February 2021

$ 1,100 million 2.875 % notes due March 2022

$ 350 million Floating rate notes due June 2021

$ 400 million 3.150 % notes due June 2021

$ 500 million 3.375 % notes due November 2021

$ 750 million 2.875 % notes due December 2021

$ 1,100 million 2.875 % notes due March 2022

$ 1,000 million 3.350 % notes due July 2022

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$ 750 million 2.375 % notes due August 2024

$ 500 million 5.000 % notes due October 2024

$ 2,000 million 3.750 % notes due July 2025

$ 750 million 5.150 % notes due October 2025

$ 300 million 3.700 % notes due December 2025

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$ 625 million 3.375 % notes due April 2027

$ 600 million 3.700 % notes due May 2027

$ 950 million 2.950 % notes due October 2027

$ 1,000 million 5.250 % notes due February 2028

$ 1,150 million 3.850 % notes due June 2028

$ 850 million 3.875 % notes due December 2028

$ 900 million 4.000 % notes due May 2029

$ 1,000 million 2.875 % notes due August 2029

$ 1,250 million 5.300 % notes due February 2030

$ 1,250 million 2.000 % notes due May 2030

$ 1,500 million 2.300 % notes due May 2031

$ 1,500 million 4.200 % notes due May 2032

$ 2,000 million 5.350 % notes due February 2033

$ 1,000 million 4.625 % notes due July 2035

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$ 1,500 million 3.050 % notes due May 2041

Carrying Value As of December 31,

(in millions, except percentages) 2022 2021

$ 600 million 4.625 % notes due November 2041

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$ 2,000 million 3.250 % notes due May 2051

$ 2,000 million 4.750 % notes due May 2052

$ 2,000 million 5.875 % notes due February 2053

$ 1,250 million 3.875 % notes due August 2059

$ 1,000 million 3.125 % notes due May 2060

$ 1,000 million 4.950 % notes due May 2062

$ 1,500 million 6.050 % notes due February 2063

Total short-term borrowings and long-term debt $ 56,756 $ 44,632

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Total current provision 6,377 4,448 4,981

Deferred provision (benefit) 130 ( 8 ) 230

Deferred (benefit) provision ( 673 ) 130 ( 8 )

Total provision for income taxes $ 5,704 $ 4,578 $ 4,973

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Lease liability

Net unrealized losses on investments 829 —

Other-domestic

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( 21 ) ( 47 ) ( 130 )

Settlements — — ( 46 )

Statute of limitations lapses

( 20 ) — ( 5 )

Gross unrecognized tax benefits, end of period $ 3,081 $ 2,310 $ 1,829

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Regulatory Capital and Dividend Restrictions

The Company’s regulated insurance and health maintenance organization (HMO) subsidiaries are subject to regulations and standards in their respective jurisdictions.

The Company’s regulated insurance and HMO subsidiaries are subject to regulations and standards in their respective jurisdictions.

These standards, among other things, require these subsidiaries to maintain specified levels of statutory capital, as defined by each jurisdiction, and restrict the timing and amount of dividends and other distributions which may be paid to their parent companies.

In the United States, most of these state regulations and standards are generally consistent with model regulations established by the National Association of Insurance Commissioners.

In the United States, most of these state regulations and standards are generally consistent with model regulations established by the NAIC.

These standards generally permit dividends to be paid from statutory unassigned surplus of the regulated subsidiary and are limited based on the regulated subsidiary’s level of statutory net income and statutory capital and surplus.

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The estimated statutory capital and surplus necessary to satisfy regulatory requirements of the Company's global financially regulated subsidiaries was approximately $ 15.4 billion as of December 31, 2022.

Optum Bank must meet minimum capital requirements of the Federal Deposit Insurance Corporation (FDIC) under the capital adequacy rules to which it is subject.

Optum Bank must meet minimum capital requirements of the FDIC under the capital adequacy rules to which it is subject.

At December 31, 2022, the Company believes Optum Bank met the FDIC requirements to be considered “Well Capitalized.”

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The objectives of the share repurchase program are to optimize the Company’s capital structure and cost of capital, thereby improving returns to shareholders, as well as to offset the dilutive impact of share-based awards.

Repurchases may be made from time to time in open market purchases or other types of transactions (including prepaid or structured share repurchase programs), subject to certain Board restrictions.

In June 2018, the Board renewed the Company’s share repurchase program with an authorization to repurchase up to 100 million shares of its common stock.

Repurchases may be made from time to time in open market purchases or other types of transactions (including prepaid or structured share repurchase programs), subject to certain restrictions.

In June 2018, the Board of Directors renewed the Company’s share repurchase program with an authorization to repurchase up to 100 million shares of its common stock.

A summary of common share repurchases for the years ended December 31, 2022 and 2021 is as follows:

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As of December 31, 2022, the Company had 59 million shares available for future grants of share-based awards under the 2020 Stock Incentive Plan.

In June 2021, the Company’s shareholders approved 15 million additional shares under the ESPP.

As of December 31, 2022, there were 18 million shares of common stock available for issuance under the ESPP.

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Commitments and Contingencies

Operating lease costs were $ 1.2 billion, $ 1.1 billion and $ 1.0 billion for the years ended December 31, 2021, 2020 and 2019, respectively, and included immaterial variable and short-term lease costs for the year ended December 31, 2021, 2020 and 2019.

Operating lease costs, including immaterial variable and short-term lease costs, were $ 1.3 billion, $ 1.2 billion and $ 1.1 billion for the years ended December 31, 2022, 2021 and 2020, respectively.

Cash payments made on the Company’s operating lease liabilities were $ 996 million, $ 921 million and $ 865 million for the years ended December 31, 2022, 2021 and 2020, respectively, which were classified within operating activities in the Consolidated Statements of Cash Flows.

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None of the amounts accrued, paid or charged to income for service level guarantees were material as of December 31, 2022, 2021 or 2020.

As of December 31, 2021, the Company had outstanding, undrawn letters of credit with financial institutions of $ 181 million and surety bonds outstanding with insurance companies of $ 1.3 billion, primarily to bond contractual performance.

Pending Acquisitions

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.

As of December 31, 2022, the Company has entered into agreements to acquire companies in the health care sector, most notably, LHC Group, Inc.

LHCG), 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 $ 9 billion.

The Company completed the acquisition of LHC Group, Inc.

on February 22, 2023.

Legal Matters

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or could result in a change in business practices.

Accordingly, the Company is often unable to estimate the losses or ranges of losses for those matters where there is a reasonable possibility or it is probable a loss may be incurred.

Accordingly, the Company is often unable to

estimate the losses or ranges of losses for those matters where there is a reasonable possibility or it is probable a loss may be incurred.

Government Investigations, Audits and Reviews

The Company has been involved or is currently involved in various governmental investigations, audits and reviews.

These include routine, regular and special investigations, audits and reviews by CMS, state insurance and health and welfare departments, state attorneys general, the Office of the Inspector General, the Office of Personnel Management, the Office of

Civil Rights, the Government Accountability Office, the Federal Trade Commission, U.S.

Congressional committees, the U.S.

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Drug Enforcement Administration, the U.S.

Department of Labor, the FDIC, the Defense Contract Audit Agency and other governmental authorities.

Department of Labor, the FDIC, Consumer Financial Protection Bureau, the Defense Contract Audit Agency and other governmental authorities.

Similarly, our international businesses are also subject to investigations, audits and reviews by applicable foreign governments, including South American and other non-U.S.

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On February 12, 2018, the court granted in part and denied in part the Company’s motion to dismiss.

In May 2018, DOJ moved to dismiss the Company’s counterclaims, which were filed in March 2018, and moved for partial summary judgment.

In May 2018, the DOJ moved to dismiss the Company’s counterclaims, which were filed in March 2018, and moved for partial summary judgment.

In March 2019, the court denied the government’s motion for partial summary judgment and dismissed the Company’s counterclaims without prejudice.

The Company cannot reasonably estimate the outcome which may result from this matter given its procedural status.

Business Combinations

On October 3, 2022, the Company acquired all of the outstanding common shares of Change Healthcare Inc.

(Change) and funded Change’s payoff of its outstanding debt and credit facility for a total of $ 13.9 billion in cash.

The combination of the Company and Change will connect and simplify the core clinical, administrative and payment processes health care providers and payers depend on to serve patients.

Change brings key technologies, connections and advanced clinical decision, administrative and financial support capabilities, enabling better workflow and transactional connectivity across the health care system.

Subsequent to closing and as planned, the Company sold Change’s claims editing business to an affiliate of investment funds of TPG Inc.

for $ 2.2 billion in cash.

The net assets and net liabilities associated with this sale were classified as held-for-sale at the time of acquisition.

There was no gain or loss associated with this transaction.

During the year ended December 31, 2022, the Company completed several other business combinations for total consideration of $ 8.8 billion.

The Company also sold other businesses for $ 1.2 billion of cash, with a carrying value of $ 600 million, and the difference reflected in the Consolidated Statement of Operations.

Acquired assets (liabilities) at acquisition date were:

(in millions) Change Other Acquisitions Total

Cash and cash equivalents $ 222 $ 523 $ 745

Accounts receivable and other current assets 925 696 1,621

Assets held-for-sale 2,310 — 2,310

Property, equipment and other long-term assets 254 1,882 2,136

Other intangible assets 4,050 1,764 5,814

Total identifiable assets acquired 7,761 4,865 12,626

Medical costs payable — ( 308 ) ( 308 )

Accounts payable and other current liabilities ( 1,017 ) ( 843 ) ( 1,860 )

Liabilities held-for-sale ( 101 ) — ( 101 )

Other long-term liabilities ( 1,193 ) ( 713 ) ( 1,906 )

Total identifiable liabilities acquired ( 2,311 ) ( 1,864 ) ( 4,175 )

Total net identifiable assets 5,450 3,001 8,451

Goodwill 8,496 9,214 17,710

Redeemable noncontrolling interests — ( 3,108 ) ( 3,108 )

Nonredeemable noncontrolling interests — ( 370 ) ( 370 )

Net assets acquired $ 13,946 $ 8,737 $ 22,683

The majority of goodwill is not deductible for income tax purposes.

The preliminary purchase price allocations for the various business combinations are subject to adjustment as valuation analyses, primarily related to intangible assets and contingent liabilities, are finalized.

The acquisition date fair values and weighted-average useful lives assigned to finite-lived intangible assets acquired consisted of the following:

Change Other Acquisitions Total

(in millions, except years) Fair Value Weighted-Average Useful Life Fair Value Weighted-Average Useful Life Fair Value Weighted-Average Useful Life

Customer-related $ 3,063 15 years $ 864 13 years $ 3,927 15 years

Trademarks and technology 977 6 years 81 4 years 1,058 6 years

Other 10 1 year 766 13 years 776 13 years

Total acquired finite-lived intangible assets $ 4,050 13 years $ 1,711 13 years $ 5,761 13 years

The results of operations and financial condition of acquired entities have been included in the Company’s consolidated results and the results of the corresponding operating segment as of the date of acquisition.

Through December 31, 2022, acquired entities impact on revenues and net earnings was not material.

Unaudited pro forma revenues and net earnings for the years ended December 31, 2022 and 2021, as if the business combinations had occurred on January 1, 2021, were immaterial for both periods.

Segment Financial Information

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The following is a description of the types of products and services from which each of the Company’s four reportable segments derives its revenues:

• UnitedHealthcare includes the combined results of operations of UnitedHealthcare Employer & Individual, UnitedHealthcare Medicare & Retirement, UnitedHealthcare Community & State and UnitedHealthcare Global.

• UnitedHealthcare includes the combined results of operations of UnitedHealthcare Employer & Individual, UnitedHealthcare Medicare & Retirement and UnitedHealthcare Community & State.

businesses share significant common assets, including a contracted network of physicians, health care professionals, hospitals and other facilities, information technology and consumer engagement infrastructure and other resources.

UnitedHealthcare Employer & Individual offers an array of consumer-oriented health benefit plans and services for large national employers, public sector employers, mid-sized employers, small businesses, sole proprietorships and individuals nationwide.

UnitedHealthcare Medicare & Retirement provides health care coverage and health and well-being services to individuals age 50 and older, addressing their unique needs for preventive and acute health care services as well as services dealing with chronic disease and other specialized issues for older individuals.

Domestically, UnitedHealthcare Employer & Individual offers an array of consumer-oriented health benefit plans and services for employers and individuals.

Globally, UnitedHealthcare Employer & Individual provides health and dental benefits and hospital and clinical services to employers and individuals in South America and other diversified global businesses.

UnitedHealthcare Medicare & Retirement provides health care coverage and health and well-being services to individuals age 50 and older, addressing their unique needs.

UnitedHealthcare Community & State provides diversified health care benefits products and services to state programs caring for the economically disadvantaged, the medically underserved and those without the benefit of employer-funded health care coverage.

UnitedHealthcare Community & State’s primary customers oversee Medicaid plans, the Children’s Health Insurance Program and other federal, state and community health care programs.

UnitedHealthcare Global provides health and dental benefits and hospital and clinical services to employer groups and individuals in South America, and other diversified global health businesses.

• Optum Health focuses on care delivery, care management, wellness and consumer engagement, and health financial services.

Optum Health is building a comprehensive, connected health care delivery and engagement platform by directly providing high-quality care, helping people manage chronic and complex health needs, and proactively engaging consumers in managing their health through in-person, in-home, virtual and digital clinical platforms.

Optum Health offers access to networks of care provider specialists, health management services, care delivery, consumer engagement and financial services.

• Optum Insight brings together advanced analytics, technology and health care expertise to deliver integrated services and solutions.

Hospital systems, physicians, health plans, governments, life sciences companies and other organizations comprising the health care industry depend on Optum Insight to help them improve performance, achieve efficiency, reduce costs, meet compliance mandates and modernize their core operating systems to meet the changing needs of the health system.

Hospital systems, physicians, health plans, governments, life sciences companies and other organizations depend on Optum Insight to help them improve performance, achieve efficiency, reduce costs, meet compliance mandates and modernize their core operating systems to meet the changing needs of the health system.

• Optum Rx offers pharmacy care services and programs, including retail network contracting, home delivery, specialty and community health pharmacy services, purchasing and clinical capabilities, and develops programs in areas such as step therapy, formulary management, drug adherence and disease/drug therapy management.

Optum Rx integrates

pharmacy and medical care and is positioned to serve patients with complex clinical needs and consumers looking for a better digital pharmacy experience with transparent pricing.

Optum Rx integrates pharmacy and medical care and is positioned to serve patients with complex clinical needs and consumers looking for a better digital pharmacy experience with transparent pricing.

The Company’s accounting policies for reportable segment operations are consistent with those described in the Summary of Significant Accounting Policies (see Note 2 ).

Transactions between reportable segments principally consist of sales of pharmacy care products and services to UnitedHealthcare customers by Optum Rx, certain product offerings and care management and local and in-home care delivery services sold to UnitedHealthcare by Optum Health, and health information and technology solutions, consulting and other services sold to UnitedHealthcare by Optum Insight.

Transactions between reportable segments principally consist of sales of pharmacy care products and services to UnitedHealthcare customers by Optum Rx;

care delivery, care management services and certain product offerings sold to UnitedHealthcare by Optum Health;

and health information and technology solutions, consulting and other services sold to UnitedHealthcare by Optum Insight.

These transactions are recorded at management’s estimate of fair value.

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As a percentage of the Company’s total consolidated revenues, premium revenues from CMS were 38 %, 36 % and 36 % for 2022, 2021 and 2020, respectively, most of which were generated by UnitedHealthcare Medicare & Retirement and included in the UnitedHealthcare segment.

customer revenue represented approximately 97 %, 97 % and 96 % of consolidated total revenues for 2021, 2020 and 2019, respectively.

customer revenue represented approximately 97 % of consolidated total revenues for 2022, 2021 and 2020.

Long-lived fixed assets located in the United States represented approximately 81 % and 78 % of the total long-lived fixed assets as of December 31, 2022 and 2021, respectively.

revenues and fixed assets are primarily related to UnitedHealthcare Global.

revenues and fixed assets are primarily related to UnitedHealthcare Employer & Individual’s international businesses.

The following table presents the reportable segment financial information:

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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 8. Financial Statements and Supplementary Data