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Item 7. Management’s Discussion and Analysis

2024-02-28 compared with 2023-02-24 · 41 added, 35 removed, 320 unchanged (19% of the section changed)

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EXECUTIVE OVERVIEW

UnitedHealth Group is a diversified health care company with a mission to help people live healthier lives and help make the health system work better for everyone.

Our two complementary businesses — Optum and UnitedHealthcare — are driven by this unified mission and vision to improve health care access, affordability, experiences and outcomes for the individuals and organizations we are privileged to serve.

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

UnitedHealth Group is a health care and well-being company with a mission to help people live healthier lives and help make the health system work better for everyone.

Our two distinct, yet complementary businesses — Optum and UnitedHealthcare — are working to help build a modern, high-performing health system through improved access, affordability, outcomes and experiences for the individuals and organizations we are privileged to serve.

We have four reportable segments across our two businesses:

• Optum Health;

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Business Trends

Our businesses participate in the United States, South America and certain other international health markets.

Our businesses participate in the United States and certain other international health markets.

In the United States, health care spending has grown consistently for many years and comprises 18% of gross domestic product (GDP).

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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 care patterns, inflation and labor market dynamics.

We frequently evaluate and adjust our approach in each of the local markets we serve, considering 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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We expect broad-based competition to continue as the industry adapts to individual and employer needs.

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

Medicare Advantage funding continues to be pressured, as discussed below in “Regulatory Trends and Uncertainties ” and we have observed increased care patterns as discussed below in “Medical Cost Trends.” Our 2024 benefit design approach contemplates these trends.

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

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and prescription drug costs.

During 2023, we observed increased care patterns, primarily related to outpatient procedures for seniors, which we expect will persist throughout 2024, and 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 high-quality, affordable care.

Medicaid Redeterminations.

In December 2022, Congress passed the 2023 Omnibus Appropriations bill that allows states to resume Medicaid redeterminations beginning in April 2023.

Redeterminations will result in a decline in people served through our Medicaid business and an expected increase in people served through our commercial and exchange-based offerings as we endeavor to ensure that people have continued access to benefits.

The resumption of Medicaid redeterminations have impacted the number of people served through our Medicaid offerings, partially offset by an increase in consumers served through our commercial offerings as we endeavor to ensure that people and families have continued access to care.

Delivery System and Payment Modernization.

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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.

A key focus of our future growth is to accelerate the transition from fee-for-service care delivery and payment models to fully accountable value-based care.

This transition requires initial costs such as system enhancements, integrated care coordination technology, physician training and clinical engagement.

Enhanced clinical engagement is a critical step to improving the health outcomes of the people we serve and should result in lower costs to the overall health system over time.

Regulatory Trends and Uncertainties

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Medicare Advantage rate notices over the years have at times resulted in industry base rates well below industry forward medical trend.

For example, the February 2023 Advance Notice for 2024 rates would result in an industry base rate decrease, well short of what is an increasing industry forward medical cost trend, creating continued pressure in the Medicare Advantage program.

Further, proposed substantial revisions to the risk adjustment model, which serves to adjust rates to reflect a patient’s health status and care resource needs, would result in reduced funding and benefits for people, especially those with some of the greatest health and social challenges.

For example, the Final Notice for 2024 rates resulted in an industry base rate decrease, as did the January 2024 Advance Notice for 2025 rates, both of which are well short of what is an increasing industry forward medical cost trend, creating continued pressure in the Medicare Advantage program.

Further, substantial revisions to the risk adjustment model, which serves to adjust rates to reflect a patient’s health status and care resource needs, will continue to result in reduced funding and potentially benefits for people, especially those with some of the greatest health and social challenges.

As a result of ongoing Medicare funding pressures, there are adjustments we can make to partially offset these rate pressures and reductions for a particular period.

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Additionally, we decide annually on a county-by-county basis where we will offer Medicare Advantage plans.

Pending Disposition.

On December 22, 2023, we entered into an agreement to sell our operations in Brazil to a private investor, subject to regulatory approval and other closing conditions.

We completed the disposition on February 6, 2024, and will record a loss of approximately $7 billion in the quarter ended March 31, 2024, the majority of which was due to foreign currency translation losses in accumulated other comprehensive income.

SELECTED OPERATING PERFORMANCE ITEMS

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• Consolidated revenues increased by 15%, UnitedHealthcare revenues increased 13% and Optum revenues grew 24%.

• UnitedHealthcare served nearly 1.1 million more people, led by growth in community-based and senior offerings.

• UnitedHealthcare served nearly 1.1 million more people, driven by growth in commercial and senior offerings.

• Earnings from operations increased by 14%, including an increase of 14% at UnitedHealthcare and 13% at Optum.

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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 and Medicaid, pricing trends and growth across the Optum businesses.

The increases in revenues were primarily driven by growth in the number of people served throughout the year in 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 due to growth in people served.

The MCR decreased due to COVID-19 effects, partially offset by decreased prior years favorable development and business mix.

Medical costs increased primarily due to growth in people served throughout the year in Medicare Advantage and Medicaid.

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

Operating Cost Ratio

The operating cost ratio decreased primarily due to productivity gains, partially offset by investments and business mix.

The operating cost ratio was consistent primarily due to operating cost management, offset by business mix and investments to support future growth.

Reportable Segments

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Medicare Part D stand-alone 3,315 3,295 3,700 20 1 %

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 and growth in people served through Dual Special Needs Plans.

UnitedHealthcare’s revenues increased due to growth in the number of people served through Medicare Advantage and Medicaid.

Earnings from operations increased due to growth in people served and COVID-19 effects, partially offset by decreased prior years favorable development.

UnitedHealthcare’s revenues increased due to growth in the number of people served throughout the year in Medicare Advantage, Medicaid and commercial offerings.

People served in Medicaid as of December 31, 2023 decreased primarily due to redeterminations, largely occurring in the second half of 2023, partially offset by increased people served with higher acuity needs.

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, cost management initiatives, asset dispositions and COVID-19 effects.

Earnings from operations increased due to cost management initiatives and increased investment income, 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 December 31, 2023 compared to 102 million people as of December 31, 2022.

Optum Insight

Revenues and earnings from operations at Optum Insight increased due to growth in technology and managed services, with managed services revenue growth driven by business combinations 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 health, specialty and home delivery pharmacies.

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

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 pharmacy offerings and higher script volumes from both new clients and growth in existing clients.

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

Optum Rx fulfilled 1,542 million and 1,438 million adjusted scripts in 2023 and 2022, respectively.

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(10,136) (21,458) (4,821) 11,322

Cash dividends paid (5,991) (5,280) (4,584) (711)

Common share repurchases (8,000) (7,000) (5,000) (1,000)

Cash dividends paid (6,761) (5,991) (5,280) (770)

Purchases of property, equipment and capitalized software

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Purchases of redeemable noncontrolling interests (730) (176) (1,338) (554)

Customer funds administered (521) — — (521)

Other (2,110) (2,737) (1,564) 627

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2023 Cash Flows Compared to 2022 Cash Flows

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

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

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

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

Financial Condition

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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 expected redemptions in the next twelve months.

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

We expect the cash required to meet our long-term obligations to be primarily generated through future cash flows from operations.

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Ratings Outlook Ratings Outlook Ratings Outlook Ratings Outlook

Senior unsecured debt A3 Positive A+ Stable A Stable A Stable

Senior unsecured debt A2 Stable A+ Stable A Stable A Stable

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

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As of December 31, 2023, we had Board of Directors’ authorization to purchase up to 15 million shares of our common stock.

The Board of Directors from time to time may further amend the share repurchase program in order to increase the authorized number of shares which may be repurchased under the program.

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

In June 2023, our Board of Directors increased the Company’s 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 10 of the Notes to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and Supplementary Data.”

Pending Acquisitions.

As of December 31, 2022, we have 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.

As of December 31, 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 capital required for these acquisitions, excluding the payoff of acquired indebtedness, is approximately $6 billion.

We completed the acquisition of LHC Group, Inc.

on February 22, 2023.

We do not have other significant contractual obligations or commitments requiring cash resources.

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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 2022, 2021 and 2020 included favorable medical cost development related to prior years of $410 million, $1.7 billion and $880 million, respectively.

Medical costs in 2023, 2022 and 2021 included favorable medical cost development related to prior years of $840 million, $410 million and $1.7 billion, 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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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