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Item 2. Management’s Discussion and Analysis

2023-08-02 compared with 2023-05-03 · 46 added, 34 removed, 226 unchanged (26% of the section changed)

18 unchanged sentences

Pricing Trends.

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

To price our health care benefits, products and services, we start with our view of expected future costs, including medical cost trends, 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 thresholds and similar revenue adjustments.

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Our medical cost trends primarily relate to changes in unit costs, care activity and prescription drug costs.

During the second quarter, we observed increased care patterns, primarily related to outpatient procedures for seniors, which may continue in future periods.

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 quality, affordable care.

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SELECTED OPERATING PERFORMANCE AND OTHER SIGNIFICANT ITEMS

The following summarizes select first quarter 2023 year-over-year operating comparisons to first quarter 2022 and other financial results.

The following summarizes select second quarter 2023 year-over-year operating comparisons to second quarter 2022 and other financial results.

• Consolidated revenues grew 16%, UnitedHealthcare revenues grew 13% and Optum revenues grew 25%.

• UnitedHealthcare served 1.6 million more people, driven by growth across our U.S.

• Consolidated earnings from operations of $8.1 billion compared to $7.0 billion last year, included growth of 14% at UnitedHealthcare and 19% at Optum.

• Consolidated earnings from operations of $8.1 billion compared to $7.1 billion last year, included growth of 13% at both UnitedHealthcare and Optum.

• Diluted earnings per common share were $5.82.

• Cash flows from operations for the three months ended March 31, 2023 were $16.3 billion.

• Cash flows from operations for the six months ended June 30, 2023 were $27.4 billion.

• Return on equity was 26.8%.

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

March 31, Increase/(Decrease)

June 30, Increase/(Decrease) Six Months Ended

June 30, Increase/(Decrease)

2023 2022 2023 vs.

2022 2023 2022 2023 vs.

Premiums $ 72,474 $ 63,896 $ 8,578 13 % $ 145,260 $ 127,966 $ 17,294 14 %

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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.

Revenues also increased due to increased investment income, primarily driven by increased interest rates.

Medical Costs and MCR

Medical costs increased primarily due to growth in people served through Medicare Advantage and Medicaid.

The MCR increased as a result of business mix.

The MCR increased as a result of elevated care activity, primarily relating to outpatient care for seniors, and business mix.

For the three months ended June 30, 2023, the MCR also increased due to decreased favorable reserve development.

Operating Cost Ratio

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Three Months Ended

March 31, Increase/(Decrease)

June 30, Increase/

(Decrease) Six Months Ended

June 30, Increase/(Decrease)

(in millions, except percentages) 2023 2022 2023 vs.

2022 2023 2022 2023 vs.

UnitedHealthcare $ 70,231 $ 62,105 $ 8,126 13 % $ 140,699 $ 124,700 $ 15,999 13 %

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The following table summarizes UnitedHealthcare revenues by business:

Three Months Ended March 31, Increase/(Decrease)

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

(in millions, except percentages) 2023 2022 2023 vs.

2022 2023 2022 2023 vs.

UnitedHealthcare Employer & Individual - Domestic $ 16,759 $ 15,567 $ 1,192 8 % $ 33,303 $ 31,389 $ 1,914 6 %

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

March 31, Increase/(Decrease)

June 30, Increase/(Decrease)

(in thousands, except percentages) 2023 2022 2023 vs.

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Medicare Part D stand-alone 3,355 3,330 25 1 %

UnitedHealthcare’s revenues and earnings from operations increased due to growth in the number of people served through individual and group Medicare Advantage plans;

growth in existing Medicaid markets;

including a greater mix of people with higher acuity needs;

and an increase in the number of people served through risk-based and fee-based commercial offerings.

UnitedHealthcare’s revenues increased due to growth in the number of people served through individual and group Medicare Advantage plans;

growth in existing Medicaid markets, including a greater mix of people with higher acuity needs;

and an increase in the number of people served through commercial offerings.

Earnings from operations increased due to increased investment income and the factors impacting revenue, partially offset by elevated care activity, primarily relating to outpatient care for seniors.

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 patients served under value-based care arrangements and business combinations.

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

Optum Health served approximately 103 million people as of March 31, 2023 compared to 100 million people as of March 31, 2022.

Earnings from operations increased due to increased investment income and cost management initiatives, partially offset by higher senior outpatient and behavioral health care activity and costs associated with serving newly added patients under value-based care arrangements.

Optum Health served approximately 103 million people as of June 30, 2023 compared to 101 million people as of June 30, 2022.

Optum Insight

Revenues and earnings from operations at Optum Insight increased due growth in business services as a result of business combinations and growth in technology services.

Revenues and earnings from operations at Optum Rx increased due to higher script volumes from growth in people served and growth in specialty pharmacy offerings.

Revenues and earnings from operations at Optum Insight increased due to growth in business services as a result of business combinations and growth in technology services.

Revenues and earnings from operations at Optum Rx increased due to growth in specialty pharmacy offerings and higher script volumes from growth in people served.

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

Optum Rx fulfilled 378 million and 352 million adjusted scripts in the first quarters of 2023 and 2022, respectively.

Optum Rx fulfilled 381 million and 357 million adjusted scripts in the second quarters of 2023 and 2022, respectively.

LIQUIDITY, FINANCIAL CONDITION AND CAPITAL RESOURCES

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

Three Months Ended March 31, Increase/(Decrease)

Six Months Ended June 30, Increase/(Decrease)

(in millions) 2023 2022 2023 vs.

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2023 Cash Flows Compared to 2022 Cash Flows

Increased cash flows provided by operating activities were primarily driven by an increase in unearned revenue due to the March receipt of our April CMS premium payment of $11.2 billion and 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 net issuances of short-term borrowings and long-term debt, partially offset by increased cash paid for acquisitions and net purchases of investments.

Increased cash flows provided by operating activities were primarily driven by an increase in unearned revenue due to the June receipt of our July CMS premium payment of $11.8 billion and changes in working capital accounts.

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

Financial Condition

As of March 31, 2023, our cash, cash equivalent, available-for-sale debt securities and equity securities balances of $91.2 billion included approximately $41.9 billion of cash and cash equivalents (of which $7.0 billion was available for general corporate use), $45.4 billion of debt securities and $3.9 billion of investments in equity securities.

As of June 30, 2023, our cash, cash equivalent, available-for-sale debt securities and equity securities balances of $90.1 billion included approximately $41.8 billion of cash and cash equivalents (of which $1.2 billion was available for general corporate use), $44.1 billion of debt securities and $4.2 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 4.0 years and a weighted-average credit rating of “Double A” as of March 31, 2023.

Our available-for-sale debt securities portfolio had a weighted-average duration of 3.9 years and a weighted-average credit rating of “Double A” as of June 30, 2023.

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, 2022 was disclosed in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2022 10-K.

During the three months ended March 31, 2023, there were no material changes to this previously disclosed information outside the ordinary course of business.

During the six months ended June 30, 2023, 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 March 31, 2023, our debt to debt-plus-shareholders’ equity ratio, as defined and calculated under the credit facilities, was approximately 42%.

As of June 30, 2023, our debt to debt-plus-shareholders’ equity ratio, as defined and calculated under the credit facilities, was approximately 40%.

Long-Term Debt.

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Credit Ratings.

Our credit ratings as of March 31, 2023 were as follows:

Moody’s S&P Global Fitch A.M.

Our credit ratings as of June 30, 2023 were as follows:

Moody’s (a) S&P Global Fitch A.M.

Ratings Outlook Ratings Outlook Ratings Outlook Ratings Outlook

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

(a) On July 27, 2023, Moody’s upgraded the credit rating on our senior unsecured debt to A2 with an outlook of Stable and the credit rating on our commercial paper to P-1.

The availability of financing in the form of debt or equity is influenced by many factors, including our profitability, operating cash flows, debt levels, credit ratings, debt covenants and other contractual restrictions, regulatory requirements and economic and market conditions.

1 unchanged sentence

Share Repurchase Program.

During the three months ended March 31, 2023, we repurchased approximately 4 million shares at an average price of $484.83 per share.

As of March 31, 2023, we had Board of Directors’ authorization to purchase up to 27 million shares of our common stock.

Our quarterly cash dividend to shareholders reflects an annual dividend rate of $6.60 per share.

During the six months ended June 30, 2023, we repurchased approximately 10 million shares at an average price of $483.78 per share.

As of June 30, 2023, we had Board of Directors’ authorization to purchase up to 21 million shares of our common stock.

In June 2023, the Company’s Board of Directors increased our quarterly cash dividend to shareholders to an annual rate of $7.52 compared to $6.60 per share.

For more information on our dividend, see Note 6 of Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this report.

Pending Acquisitions.

As of June 30, 2023, we have entered into agreements to acquire companies in the health care sector, subject to regulatory approval and other customary closing conditions.

The total anticipated consideration required for these acquisitions, excluding the payoff of acquired indebtedness, is approximately $5 billion.

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 2022 10-K.

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failure to develop and maintain satisfactory relationships with health care payers, physicians, hospitals and other service providers;

the impact of potential changes in tax laws and regulations (including any increase in the U.S.

income tax rate applicable to corporations);

the impact of potential changes in tax laws and regulations;

increases in costs and other liabilities associated with litigation, government investigations, audits or reviews;

failure to manage successfully our strategic alliances or complete, manage or integrate strategic transactions;

failure to complete, manage or integrate strategic transactions;

risks associated with public health crises arising from large-scale medical emergencies, pandemics, natural disasters and other extreme events;

fluctuations in foreign currency exchange rates;

failure to attract, develop, retain, and manage the succession of key employees and executives;

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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