What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-09 compared with 2024-05-09 · 73 added, 58 removed, 231 unchanged (36% of the section changed)

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We have made substantial progress in mitigating the impact to consumers and care providers of the unprecedented cyberattack on the U.S.

health system and certain Change Healthcare services.

To support care providers, we accelerated funding and provided interest-free loans of approximately $3.9 billion through March 31, 2024, which has increased to over $6.5 billion through April 30, 2024.

For the three months ended March 31, 2024, we incurred $593 million of direct response costs, including network restoration and increased medical care expenditures, as we suspended some care management activities to help care providers with their workflow processes.

Optum Insight also experienced estimated business disruption impacts of $279 million for the three months ended March 31, 2024, reflecting lost revenue while maintaining full readiness of the affected Change Healthcare services.

We expect to continue to incur direct response costs and experience business disruption impacts over the remainder of the year, including costs to continue to restore Change Healthcare’s services and the impact of suspended care management activities.

In April 2024, we also announced that based on initial targeted data sampling to date, we have found files containing protected health information (PHI) or personally identifiable information (PII), which could cover a substantial proportion of people in America.

health system and have restored the majority of the affected Change Healthcare services.

To support care providers, we accelerated funding and provided interest-free loans of more than $9 billion through June 30, 2024.

For the three and six months ended June 30, 2024, we incurred $776 million and $1.4 billion of direct response costs, respectively, including network restoration and increased medical care expenditures, as we suspended some care management activities to help care providers with their workflow processes.

Optum Insight also experienced estimated business disruption impacts of $334 million and $613 million for the three and six months ended June 30, 2024, respectively, reflecting lost revenue while maintaining full readiness of the affected Change Healthcare services.

We expect to continue to incur direct response costs and experience business disruption impacts over the remainder of the year, including costs to continue to restore Change Healthcare’s services.

Based upon our ongoing review of the impacted data, we have found files containing protected health information (PHI) or personally identifiable information (PII), which cover a substantial proportion of people in America.

In June 2024, Change Healthcare gave public notice of the breach under HIPAA and began notifying affected customer entities in June and individuals in late July.

The investigation of impacted data is ongoing.

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

As expected and contemplated in our benefits design, during the first quarter we continued to observe increased care patterns, primarily related to outpatient procedures for seniors, which may continue in future periods.

As expected and contemplated in our benefits design, we have continued to observe 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.

In the first quarter 2024, as a result of the Change Healthcare cyberattack, we incurred $340 million of medical costs related to the temporary suspension of some care management activities, impacting our UnitedHealthcare and Optum Health businesses, to help care providers with their workflow processes.

Early in the second quarter we have resumed these activities.

Additionally, the business disruption impacted claims receipt timing for payer customers, including UnitedHealthcare, which could potentially result in increased variability to our medical cost reserve development in future periods.

As a result of the Change Healthcare cyberattack, we incurred medical costs related to the impact of the temporary suspension of some care management activities, impacting our UnitedHealthcare and Optum Health businesses, to help care providers with their workflow processes.

Early in the second quarter we resumed these activities.

For the three and six months June 30, 2024, medical costs related to the temporary suspension of some care management activities were $290 million and $630 million, respectively.

Medicaid Redeterminations.

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Medicare Advantage Rates.

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

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

For example, the Final Notices for 2024 and 2025 rates resulted in an industry base rate decrease, both well short of an increasing industry forward medical cost trend, creating continued pressure in the Medicare Advantage program.

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SELECTED OPERATING PERFORMANCE AND OTHER SIGNIFICANT ITEMS

The following summarizes select first quarter 2024 year-over-year operating comparisons to first quarter 2023 and other financial results.

The following summarizes select second quarter 2024 year-over-year operating comparisons to second quarter 2023 and other financial results.

• Consolidated revenues grew 6%, UnitedHealthcare revenues grew 5% and Optum revenues grew 12%.

• UnitedHealthcare served 1.6 million more people domestically, driven by growth in commercial and Medicare offerings.

• UnitedHealthcare served 1.6 million more people domestically, driven by growth in commercial offerings, partially offset by the impact of Medicaid redeterminations.

• Consolidated earnings from operations of $7.9 billion compared to $8.1 billion last year, impacted by the Change Healthcare cyberattack.

• Diluted loss per common share was $1.53, impacted by the loss on the sale of our Brazil operations and the Change Healthcare cyberattack.

• Cash flows from operations for the three months ended March 31, 2024 were $1.1 billion.

• Diluted earnings per common share was $4.54, impacted by the loss on our South American subsidiaries held for sale and the Change Healthcare cyberattack.

• Cash flows from operations for the six months ended June 30, 2024 were $7.9 billion.

RESULTS SUMMARY

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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/

2024 2023 2024 vs.

2023 2024 2023 2024 vs.

Premiums $ 76,897 $ 72,474 $ 4,423 6 % $ 154,885 $ 145,260 $ 9,625 7 %

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Interest expense (985) (828) (157) 19 (1,829) (1,582) (247) 16

Loss on sale of subsidiary (7,086) — (7,086) nm

Earnings before income taxes 1 7,332 (7,331) nm

Loss on sale of subsidiary and subsidiaries held for sale (1,225) — (1,225) nm (8,311) — (8,311) nm

Earnings before income taxes 5,665 7,229 (1,564) (22) 5,666 14,561 (8,895) (61)

Provision for income taxes (1,244) (1,572) 328 (21) (2,466) (3,130) 664 (21)

Net (loss) earnings (1,221) 5,774 (6,995) nm

Net earnings 4,421 5,657 (1,236) (22) 3,200 11,431 (8,231) (72)

Earnings attributable to noncontrolling interests (205) (183) (22) 12 (393) (346) (47) 14

Net (loss) earnings attributable to UnitedHealth Group common shareholders $ (1,409) $ 5,611 $ (7,020) nm

Diluted (loss) earnings per share attributable to UnitedHealth Group common shareholders $ (1.53) $ 5.95 $ (7.48)

Net earnings attributable to UnitedHealth Group common shareholders $ 4,216 $ 5,474 $ (1,258) (23) $ 2,807 $ 11,085 $ (8,278) (75)

Diluted earnings per share attributable to UnitedHealth Group common shareholders $ 4.54 $ 5.82 $ (1.28) $ 3.02 $ 11.77 $ (8.75)

Medical care ratio (a) 85.1 % 83.2% 1.9 % 84.7 % 82.7% 2.0 %

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Operating margin 8.0 8.7 (0.7) 8.0 8.7 (0.7)

Tax rate nm 21.2 nm

Tax rate 22.0 21.7 0.3 43.5 21.5 22.0

Net earnings margin (b) 4.3 5.9 (1.6) 1.4 6.0 (4.6)

Return on equity (c) nm 28.2 % nm

Return on equity (c) 19.2% 26.8% (7.6) 6.4% 27.5% (21.1)

nm = not meaningful

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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 domestic commercial offerings, pricing trends and growth in Optum Health and Optum Rx.

The increases in revenues were primarily driven by growth in Optum Rx and Optum Health, growth across our UnitedHealthcare domestic offerings and pricing trends, partially offset by decreased UnitedHealthcare international revenue due to the sale of our Brazil operations.

Medical Costs and MCR

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

The MCR increased as a result of the revenue effects of the Medicare funding reductions, incremental medical costs for accommodations made to care providers as a result of the Change Healthcare cyberattack and decreased favorable reserve development.

Medical costs increased primarily due to growth in people served through Medicare Advantage, those with higher acuity needs and domestic commercial offerings.

Operating Cost Ratio

The operating cost ratio decreased primarily due to operating cost management, partially offset by the impact of our direct response efforts to the Change Healthcare cyberattack, business mix and investments to support future growth.

Loss on Sale of Subsidiary

Loss on Sale of Subsidiary and Subsidiaries Held for Sale

On February 6, 2024, the Company completed the sale of its Brazil operations.

During the three months ended March 31, 2024, we recorded a loss of $7.1 billion, of which $4.1 billion related to the impact of cumulative foreign currency translation losses previously included in accumulated other comprehensive loss.

As a result of the loss, which was non-deductible for income tax purposes, the income tax rate and return on equity were not meaningful for the three months ended March 31, 2024.

During the six months ended June 30, 2024, we recorded a loss of $7.1 billion, of which $4.1 billion related to the impact of cumulative foreign currency translation losses previously included in accumulated other comprehensive loss.

In the second quarter of 2024, the Company initiated a plan to sell its remaining South American operations, which were classified as held for sale as of June 30, 2024.

As a result, the Company recorded a loss of $1.2 billion, of which $867 million related to the impact of cumulative foreign currency translation losses.

Reportable Segments

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Three Months Ended

March 31, Increase/

June 30, Increase/

(Decrease) Six Months Ended

June 30, Increase/

(in millions, except percentages) 2024 2023 2024 vs.

2023 2024 2023 2024 vs.

UnitedHealthcare $ 73,866 $ 70,231 $ 3,635 5 % $ 149,223 $ 140,699 $ 8,524 6 %

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Three Months Ended

March 31, Increase/

June 30, Increase/

(Decrease) Six Months Ended

June 30, Increase/

(in millions, except percentages) 2024 2023 2024 vs.

2023 2024 2023 2024 vs.

UnitedHealthcare Employer & Individual - Domestic $ 18,646 $ 16,759 $ 1,887 11 % $ 36,485 $ 33,303 $ 3,182 10 %

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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) 2024 2023 2024 vs.

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Medicare Part D stand-alone 3,065 3,355 (290) (9) %

UnitedHealthcare’s revenues increased due to growth in the number of people served through Medicare Advantage, those with higher acuity needs and domestic commercial offerings, partially offset by decreased people served globally due to the sale of our Brazil operations and Medicaid offerings due to continued redeterminations.

UnitedHealthcare’s revenues increased due to growth in the number of people served through Medicare Advantage, domestic commercial offerings and those with higher acuity needs, partially offset by decreased people served globally due to the sale of our Brazil operations and Medicaid offerings due to continued redeterminations.

Earnings from operations increased due to the factors impacting revenue, partially offset by Medicare Advantage funding reductions and incremental medical costs for accommodations to support care providers as a result of the Change Healthcare cyberattack.

Total revenues increased due to growth at Optum Health and Optum Rx.

Earnings from operations decreased due to the impacts of the Change Healthcare cyberattack.

Total revenues increased due to growth at Optum Rx and Optum Health.

Earnings from operations increased for the three months ended June 30, 2024 and were consistent for the six months ended June 30, 2024, with growth at Optum Rx and Optum Health offset by the impacts of the Change Healthcare cyberattack.

The results by segment were as follows:

Revenues at Optum Health increased primarily due to organic growth in patients served under value-based care arrangements.

Earnings from operations increased due to cost management initiatives, partially offset by costs associated with serving newly added patients under value-based care arrangements and incremental medical costs for accommodations to support care providers as a result of the Change Healthcare cyberattack.

Optum Health served approximately 104 million people and 103 million people as of March 31, 2024 and March 31, 2023, respectively.

Earnings from operations increased due to cost management initiatives, partially offset by costs associated with serving newly added patients under value-based care arrangements.

For the six months ended June 30, 2024, earnings from operations increases were also partially offset by incremental medical costs for accommodations to support care providers as a result of the Change Healthcare cyberattack.

Optum Health served approximately 104 million people and 103 million people as of June 30, 2024 and June 30, 2023, respectively.

Optum Insight

Revenues at Optum Insight were consistent due to growth in technology services, offset by the business disruption impacts from the Change Healthcare cyberattack.

Revenues at Optum Insight decreased due the business disruption impacts from the Change Healthcare cyberattack, partially offset by growth in technology services.

Earnings from operations decreased primarily due to the business disruption impacts and direct response costs related to the Change Healthcare cyberattack.

Revenues and earnings from operations at Optum Rx increased due to higher script volumes from both new clients and growth in existing clients and growth in pharmacy services.

Optum Rx fulfilled 395 million and 378 million adjusted scripts in the first quarters of 2024 and 2023, respectively.

Optum Rx fulfilled 399 million and 381 million adjusted scripts in the second quarters of 2024 and 2023, 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) 2024 2023 2024 vs.

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Customer funds administered 990 4,069 (3,079)

Sales and maturities of investments, net of purchases 492 — 492

Total sources of cash 22,414 39,751 (17,337)

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Cash dividends paid (3,664) (3,284) (380)

Loans to providers - cyberattack (8,100) — (8,100)

Other (1,562) (1,801) 239

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Effect of exchange rate changes on cash and cash equivalents (44) 106 (150)

Increase in cash and cash equivalents, including cash classified within assets held for sale $ 1,124 $ 18,448 $ (17,324)

net increase in cash classified within assets held for sale (265) — (265)

Net increase in cash and cash equivalents $ 859 $ 18,448 $ (17,589)

2024 Cash Flows Compared to 2023 Cash Flows

Decreased cash flows provided by operating activities were primarily driven by the receipt of the April CMS premium payment of $11.2 billion in March 2023 and Change Healthcare cyberattack response actions, including the acceleration of provider payments and the timing of public-sector cash receipts.

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 customer funds administered;

loans to care providers in response to the Change Healthcare cyberattack, included in other uses of cash;

increased common stock repurchases and decreased net issuances of short-term borrowings and long-term debt.

Decreased cash flows provided by operating activities were primarily driven by the receipt of the July CMS premium payment of $11.8 billion in June 2023 and Change Healthcare cyberattack response actions, including the acceleration of provider payments.

Other significant changes in sources or uses of cash year-over-year included decreased cash paid for acquisitions, increased net issuances of short-term borrowings and long-term debt, decreased share repurchases and net purchases of investments, offset by loans to care providers in response to the Change Healthcare cyberattack and decreased customer funds administered.

Financial Condition

As of March 31, 2024, our cash, cash equivalent, available-for-sale debt securities and equity securities balances of $76.7 billion included approximately $28.4 billion of cash and cash equivalents (of which $2.1 billion was available for general corporate use), $44.1 billion of debt securities and $4.1 billion of investments in equity securities.

As of June 30, 2024, our cash, cash equivalent, available-for-sale debt securities and equity securities balances of $75.2 billion included approximately $26.3 billion of cash and cash equivalents (of which $4.1 billion was available for general corporate use), $44.7 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, 2024.

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 June 30, 2024.

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, 2023 was disclosed in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2023 10-K.

During the three months ended March 31, 2024, there were no material changes to this previously disclosed information outside the ordinary course of business.

During the six months ended June 30, 2024, 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, 2024, our debt to debt-plus-shareholders’ equity ratio, as defined and calculated under the credit facilities, was approximately 43%.

As of June 30, 2024, our debt to debt-plus-shareholders’ equity ratio, as defined and calculated under the credit facilities, was approximately 43%.

Long-Term Debt.

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Credit Ratings.

Our credit ratings as of March 31, 2024 were as follows:

Our credit ratings as of June 30, 2024 were as follows:

Moody’s S&P Global Fitch A.M.

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Share Repurchase Program.

During the three months ended March 31, 2024, we repurchased approximately 6 million shares at an average price of $505.46 per share.

As of March 31, 2024, we had Board of Directors’ authorization to purchase up to 9 million shares of our common stock.

During the six months ended June 30, 2024, we repurchased approximately 6 million shares at an average price of $505.46 per share.

In June 2024, our Board of Directors amended our share repurchase program to authorize the repurchase of up to 35 million shares of Common Stock, in addition to all remaining shares authorized to be repurchased under the Board’s 2018 renewal of the program.

As of June 30, 2024, we had Board of Directors’ authorization to purchase up to 44 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.

Our quarterly cash dividend to shareholders reflects an annual rate of $7.52.

Pending Acquisitions.

As of March 31, 2024, 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 $4 billion.

In June 2024, our Board of Directors increased our quarterly cash dividend to an annual rate of $8.40 compared to $7.52 per share, which we had paid since June 2023.

For more information on our dividend, see Note 6 of Not es to the Condensed Consolidated Fina ncial Stateme nts included in Part I, Item 1 of this report.

Pending Transactions.

As of June 30, 2024, the Company had entered into transaction agreements in the health care sector, subject to regulatory approval and/or other customary closing conditions.

The total anticipated consideration required for these transactions, excluding the payoff of acquired indebtedness, was approximately $6 billion.

In July, 2024, the Company completed transactions in the health care sector for total consideration of approximately $10 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 2023 10-K.

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failure to complete, manage or integrate strategic transactions;

risk and uncertainties associated with the continuing sale of operations in South America;

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

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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