What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-02-27 compared with 2024-02-28 · 77 added, 56 removed, 305 unchanged (30% of the section changed)

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Further information on our business and reportable segments is presented in Part I, Item 1, “Business” and in Note 14 of the Notes to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and Supplementary Data.”

Change Healthcare Cyberattack

As previously announced, on February 21, 2024, we identified that cybercrime threat actors had gained access to certain Change Healthcare information technology systems.

Upon detection of this outside threat, we isolated the impacted systems to protect our partners and customers.

We have substantially mitigated the impact to consumers and care providers of the unprecedented cyberattack on the U.S.

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

To support care providers we provided interest-free loans of more than $9 billion through December 31, 2024.

For the year ended December 31, 2024, we incurred $2.2 billion of direct response costs, including costs associated with providing interest-free loans;

increased medical care expenditures, as we suspended some care management activities to help care providers with their workflow processes;

network restoration;

and notifications of impacted persons.

Optum Insight also experienced estimated business disruption impacts of $867 million for the year ended December 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 at a lesser extent in 2025 as we work to bring transaction volumes back to pre-event levels and win new business.

We have determined the estimated total number of individuals impacted by the Change Healthcare cyberattack is approximately 190 million.

The vast majority of those people have already been provided individual or substitute notice.

The final number will be confirmed and filed with the Office for Civil Rights.

Change Healthcare is not aware of any misuse of individuals’ information as a result of this incident and has not seen electronic medical record databases appear in the data during the analysis.

It is possible that future risks and uncertainties resulting from the Change Healthcare cyberattack, including risks related to impacted data, litigation, reputational harm, and regulatory actions could adversely affect our financial condition or results of operations.

Business Trends

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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 care patterns, 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 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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Medical Cost Trends.

Our medical cost trends primarily relate to changes in unit costs;

care activity;

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.

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, we have continued to observe increased care patterns, which may continue in future periods.

We also observed an upshift in hospital coding intensity and an acceleration in the prescribing of certain high-cost medications in early response to the Inflation Reduction Act (IRA).

We expect these additional factors to continue into future periods.

We endeavor to mitigate those increases by engaging hospitals, physicians and consumers with information and helping them make clinically sound choices, with the objective of helping them achieve high-quality, affordable care.

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 year ended December 31, 2024, medical costs related to the temporary suspension of some care management activities were approximately $640 million.

Medicaid Redeterminations.

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.

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.

The Medicaid redetermination process has also caused a timing mismatch between the current health status of people served through Medicaid and state rate updates, which remained well short of current care activity.

We expect this gap between people’s health status and rates will narrow in 2025.

Delivery System and Payment Modernization.

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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.

Enhanced clinical engagement is a critical step to improving the experience and 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 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.

For example, the Final Notice for 2024 and 2025 rates resulted in an industry base rate decrease, both of which are well short of what is an increasing industry forward medical cost trend.

The Advance Notice for 2026 rates proposes an industry base rate increase also well short of 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 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

The following represents a summary of select 2023 year-over-year operating comparisons to 2022.

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

• 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.

• Diluted earnings per common share increased 13% to $23.86.

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

• Consolidated revenues grew 8%, UnitedHealthcare revenues grew 6% and Optum revenues grew 12%.

• UnitedHealthcare served 2.1 million more people domestically, driven by growth in commercial offerings, partially offset by the impact of Medicaid redeterminations.

• Earnings from operations of $32.3 billion compared to $32.4 billion last year.

• Diluted earnings per common share was $15.51, impacted by the loss on sale of subsidiary and subsidiaries held for sale.

• Cash flows from operations were $24.2 billion.

• Return on equity was 27.0%.

RESULTS SUMMARY

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Investment and other income 5,202 4,089 2,030 1,113 27

4,089 2,030 2,324 2,059 101

Total revenues 400,278 371,622 324,162 28,656 8

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Depreciation and amortization 4,099 3,972 3,400 127 3

3,972 3,400 3,103 572 17

Total operating costs 367,991 339,264 295,727 28,727 8

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Interest expense (3,906) (3,246) (2,092) (660) 20

Loss on sale of subsidiary and subsidiaries held for sale (8,310) — — (8,310) nm

Earnings before income taxes 20,071 29,112 26,343 (9,041) (31)

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Earnings attributable to noncontrolling interests (837) (763) (519) (74) 10

(763) (519) (447) (244) 47

Net earnings attributable to UnitedHealth Group common shareholders $ 14,405 $ 22,381 $ 20,120 $ (7,976) (36) %

$ 22,381 $ 20,120 $ 17,285 $ 2,261 11 %

Diluted earnings per share attributable to UnitedHealth Group common shareholders $ 15.51 $ 23.86 $ 21.18 $ (8.35) (35) %

$ 23.86 $ 21.18 $ 18.08 $ 2.68 13 %

Medical care ratio (a) 85.5 % 83.2 % 82.0 % 2.3 %

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Return on equity (c) 15.9 % 27.0 % 27.2 % (11.1) %

nm = not meaningful

(a) Medical care ratio (MCR) is calculated as medical costs divided by premium revenue.

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Consolidated Financial Results

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.

The increases in revenues were primarily driven by growth in Optum Rx, UnitedHealthcare’s domestic offerings and Optum Health, partially offset by the sale of UnitedHealthcare’s Brazil operations.

Medical Costs and MCR

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.

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

The MCR increased as a result of the revenue effects of the Medicare funding reductions, Medicaid timing mismatch between people’s health status and rates, upshift in hospital coding intensity, specialty pharmaceutical prescribing patterns, member mix and due to incremental medical costs for accommodations made to care providers as a result of the Change Healthcare cyberattack.

Operating Cost Ratio

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

The operating cost ratio decreased primarily due to operating cost management and gains related to business portfolio refinement, including strategic transactions, partially offset by the impact of our direct response efforts to the Change Healthcare cyberattack and investments to support future growth.

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 year ended December 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.

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 December 31, 2024.

During the year ended December 31, 2024, we recorded a loss of $1.2 billion, of which $855 million related to the impact of cumulative foreign currency translation losses.

Reportable Segments

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UnitedHealthcare Employer & Individual - Domestic $ 74,489 $ 67,187 $ 63,599 $ 7,302 11 %

UnitedHealthcare Employer & Individual - Global (a) 9,307 8,668 8,345 639 7

UnitedHealthcare Employer & Individual - Total (a) 76,494 72,267 68,368 4,227 6

UnitedHealthcare Employer & Individual - Global 3,667 9,307 8,668 (5,640) (61)

UnitedHealthcare Employer & Individual - Total 78,156 76,494 72,267 1,662 2

UnitedHealthcare Medicare & Retirement

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Total UnitedHealthcare revenues $ 298,208 $ 281,360 $ 249,741 $ 16,848 6 %

(a) On January 1, 2022, we realigned our operating segments to combine UnitedHealthcare Global and UnitedHealthcare Employer & Individual.

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

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Medicare Part D stand-alone 3,050 3,315 3,295 (265) (8) %

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.

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

Earnings from operations decreased due to Medicare Advantage funding reductions, the impacts of Medicaid redeterminations, member mix and incremental medical costs for accommodations to support care providers as a result of the Change Healthcare cyberattack, partially offset by gains related to business portfolio refinement, including strategic transactions, and the growth in the number of people served through Medicare Advantage and domestic commercial offerings.

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

Earnings from operations increased with growth at Optum Health and Optum Rx, partially offset by decreased earnings from operations at Optum Insight.

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 and business combinations.

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.

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

Earnings from operations increased due to gains related to business portfolio refinement, including strategic transactions, increased investment income and cost management initiatives, partially offset by Medicare Advantage funding reductions, costs associated with serving newly added patients under value-based care arrangements and medical care activity.

Optum Health served approximately 100 million people as of December 31, 2024 compared to 103 million people as of December 31, 2023.

Optum Insight

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.

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

Earnings from operations decreased primarily due to direct response costs and business disruption impacts related to the Change Healthcare cyberattack, partially offset by gains related to business portfolio refinement, including strategic transactions.

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.

Earnings from operations also increased due to operating cost efficiencies and supply chain initiatives.

Optum Rx fulfilled 1,623 million and 1,542 million adjusted scripts in 2024 and 2023, respectively.

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We continually forecast and manage our cash, investments, working capital balances and capital structure to meet the short-term and long-term obligations of our businesses while seeking to maintain liquidity and financial flexibility.

Cash flows generated from operating activities are principally from earnings before noncash expenses.

Cash flows generated from operating activities are principally derived from earnings before noncash expenses.

Our regulated subsidiaries generate significant cash flows from operations and are subject to, among other things, minimum levels of statutory capital, as defined by their respective jurisdictions, and restrictions on the timing and amount of dividends paid to their parent companies.

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Customer funds administered

— 5,548 622 (5,548)

Cash received for dispositions 2,041 685 3,414 1,356

Sales and maturities of investments, net of purchases 525 — — 525

Total sources of cash 43,276 35,386 48,957 7,890

Uses of cash:

Cash paid for acquisitions, net of cash assumed

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

Cash paid for acquisitions and other transactions, net of cash assumed (13,408) (10,136) (21,458) (3,272)

Common share repurchases (9,000) (8,000) (7,000) (1,000)

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Purchases of redeemable noncontrolling interests (280) (730) (176) 450

Loans to care providers - cyberattack, net of repayments (4,519) — — (4,519)

Customer funds administered (1,560) (521) — (1,039)

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(61) 97 34 (158)

Net increase in cash and cash equivalents $ 2,062 $ 1,990 $ 4,454 $ 72

Net increase in cash and cash equivalents, including cash within businesses held for sale $ 104 $ 2,062 $ 1,990 $ (1,958)

cash within businesses held for sale (219) — — (219)

Net (decrease) increase in cash and cash equivalents $ (115) $ 2,062 $ 1,990 $ (2,177)

2024 Cash Flows Compared to 2023 Cash Flows

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.

Decreased cash flows provided by operating activities were primarily driven by CMS Medicare funding reductions, Change Healthcare cyberattack response actions, increased medical costs 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, net sales and maturities of investments and cash received from dispositions, offset by loans to care providers in response to the Change Healthcare cyberattack, increased cash paid for acquisitions and other transactions, decreased customer funds administered and increased share repurchases.

Financial Condition

As of December 31, 2023, our cash, cash equivalent, available-for-sale debt securities and equity securities balances of $75.2 billion included $25.4 billion of cash and cash equivalents (of which $1.3 billion was available for general corporate use), $44.9 billion of debt securities and $4.9 billion of equity securities.

As of December 31, 2024, our cash, cash equivalent, available-for-sale debt securities and equity securities balances of $77.1 billion included $25.3 billion of cash and cash equivalents (of which approximately $800 million was available for general corporate use), $46.9 billion of debt securities and $4.9 billion of equity securities.

Given the significant portion of our portfolio held in 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.

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• Purchase and other obligations.

These include $7.9 billion, $3.7 billion of which is expected to be paid within the next twelve months, of fixed or minimum commitments under existing purchase obligations for goods and services, including agreements cancelable with the payment of an early termination penalty, and remaining capital commitments for venture capital funds and other funding commitments.

These include $11.5 billion, $2.4 billion of which is expected to be paid within the next twelve months, of fixed or minimum commitments under existing purchase obligations for goods and services, including agreements cancelable with the payment of an early termination penalty, and remaining capital commitments for venture capital funds, strategic transactions and other funding commitments.

These amounts exclude agreements cancelable without penalty and liabilities to the extent recorded in our Consolidated Balance Sheets as of December 31, 2024.

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For more information on our commercial paper and bank credit facilities, see Note 8 of the Notes to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and Supplementary Data.”

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%, subject to increase in certain circumstances set forth in the applicable credit agreement.

As of December 31, 2023, our debt to debt-plus-shareholders’ equity ratio, as defined and calculated under the credit facilities, was 38%.

As of December 31, 2024, we were in compliance with the various covenants under our bank credit facilities.

Long-Term Debt.

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Share Repurchase Program.

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 December 31, 2024, we had Board of Directors’ authorization to purchase up to 33 million shares of our common stock.

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

Medical costs in 2024, 2023 and 2022 included favorable medical cost development related to prior years of $700 million, $840 million and $410 million, 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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however, actual claim payments may differ from established estimates as discussed above.

Assuming a hypothetical 1% difference between our December 31, 2023 estimates of medical costs payable and actual medical costs payable, excluding AARP Medicare Supplement Insurance and any potential offsetting impact from premium rebates, 2023 net earnings would have increased or decreased by approximately $245 million.

Assuming a hypothetical 1% difference between our December 31, 2024 estimates of medical costs payable and actual medical costs payable, 2024 net earnings would have increased or decreased by approximately $260 million.

For more detail related to our medical cost estimates, see Note 2 of the Notes to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and Supplementary Data.”

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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