UnitedHealth Group Reports Second Quarter Results

UnitedHealth Group (NYSE:UNH) today reported second quarter results, including better-than-projected growth in Health Benefits and Health Services. Key performance metrics and costs were in line with or better than Company expectations.

Stephen J. Hemsley, president and chief executive officer of UnitedHealth Group, said, "The growth performances of both of our business platforms – Health Benefits and Health Services – are the result of our continued focus on fundamental execution and practical innovation on behalf of our customers. We believe our market share in both business groups is increasing, due to the quality of our innovative offerings, distinctive service and the consistent value we bring to customers.”

The Company updated its financial outlook, and now anticipates full year 2010 revenues of approximately $93 billion, net earnings in the range of $3.40 to $3.60 per share and cash flows from operations approaching $5 billion.

Management views year-over-year comparisons of results to generally be more meaningful than sequential comparisons, given the seasonality of revenues, medical expenses, operating costs and earnings from operations, primarily in its health benefits product offerings.

• UnitedHealth Group’s consolidated second quarter 2010 revenues of $23.3 billion increased $1.6 billion or 7 percent year-over-year. Health Benefits second quarter sequential growth in consumers served was led by increases in UnitedHealthcare risk-based products and in Medicaid membership, while the sequential advance in combined revenues for Health Services businesses was led by Ingenix and Prescription Solutions. Four of the Company’s business units – Ovations, AmeriChoice, Ingenix and Prescription Solutions – increased revenues by more than 10 percent year-over-year in the quarter.
• Second quarter earnings from operations were $1.9 billion and net earnings were $1.1 billion.
• The second quarter net margin of 4.8 percent compares with a 5.1 percent net margin in the first quarter of 2010 and a 4.0 percent net margin in the second quarter of 2009. The year-over-year increase was driven by strong growth and effective cost management.
• Second quarter investment income included net capital gains of $16 million in 2010 and $3 million in 2009.
• Net earnings per share of $0.99 in the second quarter increased $0.26 over the prior year and decreased $0.04 from the first quarter of 2010.
• Second quarter cash flows from operations of $723 million increased from $492 million in the second quarter of 2009. First half 2010 cash flows from operations of $1.9 billion were 83 percent of year-to-date net earnings.
• There were 11 days sales outstanding in accounts receivable at the end of the second quarter of both 2009 and 2010. Acceleration in the payment of Part D prescription drug plan claims, continuing advancements in the Company’s claims processing cycle and increased prior period development contributed to a four-day decrease year-over-year in days claims payable to 49 days on an adjusted basis¹ at June 30, 2010. Adjusted days claims payable increased one day from 48¹ at March 31, 2010.
• The second quarter 2010 medical care ratio of 81.5 percent decreased 210 basis points year-over-year. The majority of the year-over-year decrease was from prior period reserve development. In the second quarter the Company realized $270 million in favorable development in its estimates of medical costs incurred in prior periods, including $90 million from prior years, as compared to $30 million in the second quarter of 2009, none of which related to prior years.
• Second quarter operating costs of 14.4 percent of revenue increased 40 basis points year-over-year, and remained well within the range of Company expectations. The year-over-year comparison included the effect of a higher mix of more operating-cost-intensive service revenues, the absorption of new business development and start up costs and costs related to health care reform readiness.
• The second quarter income tax rate of 37 percent increased from 34 percent in the second quarter of 2009 as expected, driven by federal statutory changes in the deductibility of employee compensation, as well as a benefit in the 2009 tax rate from the resolution of various historical federal and state income tax matters.
• UnitedHealth Group’s quarter-end debt to debt-plus-equity ratio decreased to 30.1 percent from 35.2 percent at June 30, 2009.
• During the second quarter, the Board of Directors increased the Company’s dividend to an annual rate of $0.50 per share and moved the Company to a quarterly dividend payment cycle. UnitedHealth Group repurchased 39.1 million shares through the first six months of 2010, including 20 million shares during the second quarter, and ended the quarter with approximately $2 billion in cash available for general corporate use.

Through its Health Benefits businesses – UnitedHealthcare, Ovations and AmeriChoice – the Company provides network-based health care benefits and related services for a full spectrum of customers. UnitedHealthcare serves employers ranging from sole proprietorships to large, multi-site and national employers, as well as students and individuals. In the Public and Senior Markets Group, the Company delivers UnitedHealthcare-branded health and well-being services to Americans over the age of 50 and manages health care services for state Medicaid and other publicly funded programs and their beneficiaries.

• Second quarter 2010 Health Benefits revenues of $21.6 billion increased $1.4 billion or 7 percent year-over-year. The year-over-year revenue advance was driven by growth of 1.1 million people served across the public and senior markets in the past year, partially offset by a year-over-year decrease of 0.4 million people served in the commercial benefits market, largely due to the significant decline in U.S. employment in 2009.
• Health Benefits earnings from operations for the second quarter of 2010 increased year-over-year to $1.5 billion. The second quarter operating margin declined by 70 basis points sequentially to 7.1 percent, but improved on a year-over-year basis, due to both growth and appropriate cost management on behalf of governmental and commercial customers.
• UnitedHealthcare grew the number of people served in commercial markets by 70,000 in the second quarter. Results included organic growth of 95,000 people in risk-based benefit programs, partially offset by a decrease of 25,000 people in fee-based plans. UnitedHealthcare second quarter 2010 revenues were $10.2 billion.
• UnitedHealthcare’s commercial medical care ratio of 82.2 percent decreased 2 percentage points from the second quarter of 2009 due to successful clinical management in the quarter and prior period favorable development, reflecting effective historical performance on medical costs. The second quarter medical care ratio increased 310 basis points from first quarter 2010 due to the normal seasonal variation in medical costs and the increase in medical costs incurred under high deductible policies that occur as the year progresses, as well as a lower level of positive reserve development.
• Second quarter Ovations revenues of $9.0 billion grew $1.0 billion or 13 percent year-over-year. This strong growth included revenue advances in the Medicare Advantage, Medicare Supplement and Part D prescription drug businesses. The Company’s senior health business has increased its customer base in its primary offerings by 640,000 people in the past 12 months.
  • In Medicare Advantage, the Company brought its services to 300,000 more seniors in the past year, a 17 percent year-over-year increase, including net growth of 35,000 people in the second quarter.
  • Growth in active Medicare Supplement products continued, with the number of seniors served increasing by 100,000 or 4 percent in the past 12 months, including 10,000 people in the second quarter of 2010.
  • At June 30, 2010, 4.5 million people participated in the Company’s stand-alone Part D prescription drug plans, an increase of 240,000 people over the past 12 months.

• Second quarter AmeriChoice Medicaid revenues of $2.5 billion increased $420 million or 21 percent year-over-year, driven by strong organic growth. During the past 12 months, the Company has expanded its Medicaid programs by 435,000 people, including 140,000 people in the second quarter. Membership grew 14 percent organically year-over-year, driven by the combination of continued geographic expansion and the successful capture of a portion of the overall increase in local Medicaid program participation from the economic downturn.

Through its Health Services businesses, the Company serves consumer health needs and provides software, pharmaceutical and specialty benefit management, financial services dedicated to health care, health data and analytics, consulting and other services to a broad variety of customers in the United States and international markets. Through these offerings, the Health Services businesses seek to improve overall health system performance.

• Second quarter 2010 Health Services combined revenues increased $864 million or 16 percent to $6.2 billion. The revenue advance was driven by growth in consumers served, particularly through pharmaceutical benefit management programs, as well as increasing revenues from public sector programs and health care technology software and services.
• Health Services combined earnings from operations of $357 million decreased $10 million or 3 percent year-over-year in the second quarter. The operating margin decreased 110 basis points year-over-year to 5.8 percent in the second quarter. As in first quarter, the operating margin was impacted year-over-year by changes in performance-based pricing contracts with Medicare Part D plan sponsors in the pharmacy benefit market and investments in areas of expected future business expansion and growth.

OptumHealth is a national leader in health and wellness services. Employers, payers and public sector organizations use OptumHealth behavioral benefit solutions, clinical care management, financial services and specialty benefits such as dental and vision. OptumHealth helps consumers navigate the health care system, finance their health care needs and better achieve their health and well-being goals.

• OptumHealth revenues grew $98 million or 7 percent year-over-year to $1.45 billion in the second quarter of 2010, driven by growth from large scale public sector programs and external employer offerings.
• Second quarter 2010 earnings from operations of $161 million increased by $19 million or 13 percent year-over-year, and the operating margin increased by 60 basis points to 11.1 percent. Second quarter 2010 earnings growth included strong operating earnings and margin contributions from behavioral and specialty benefits, partially offset by public sector business mix.
• OptumHealth Financial Services continued to generate strong growth as a dedicated health banking organization. At June 30, 2010, assets under management grew 26 percent year-over-year to $1.02 billion, and the business grew to 2 million consumer accounts, up 10 percent year-over-year.
• In the second quarter, OptumHealth Financial Services electronically transmitted $10.6 billion in medical payments for 48 million claims through its state-of-the-art care provider connectivity network, an increase of 20 percent in dollars transmitted year-over-year. This health care modernization program simplifies and speeds the payment process and reduces costs.

Ingenix is a leader in the field of health care information, services and consulting, serving physicians, hospitals and other health care providers, large employers and governments, health insurers and benefits payers and pharmaceutical companies.

• Ingenix second quarter 2010 revenues increased $108 million or 26 percent year-over-year to $529 million. Second quarter sales bookings increased 27 percent year-over-year, driven by strength in health care information technology offerings and services focused on cost management, regulatory compliance and clinical research.
• The Ingenix contract revenue backlog of $2.3 billion at June 30, 2010 included $1.6 billion in backlog expected to be realized within 12 months, an increase of 15 percent year-over-year.
• Ingenix second quarter earnings from operations of $60 million increased 2 percent year-over-year. The second quarter operating margin decreased to 11.3 percent, primarily due to business mix changes, continued margin pressure in the pharmaceutical services business, and continued investments in new growth areas.

Prescription Solutions offers a comprehensive array of pharmacy benefit management and specialty pharmacy management services to employer groups, union trusts, seniors and commercial health plans.

• Prescription Solutions second quarter revenues grew $658 million or 19 percent year-over-year to $4.2 billion, driven by growth in people served and related higher prescription volumes.
• As in first quarter, 2010 program changes in performance-based pricing contracts with Medicare Part D plan sponsors impacted second quarter earnings from operations and operating margin. This pressure was partially offset by membership growth, increased use of mail service and generic drugs by consumers and effective operating cost management. Earnings from operations of $136 million decreased by $30 million or 18 percent year-over-year and the operating margin normalized to 3.2 percent.

About UnitedHealth Group

UnitedHealth Group is a diversified health and well-being company dedicated to making health care work better. Headquartered in Minneapolis, Minn., UnitedHealth Group offers a broad spectrum of products and services through six operating businesses: UnitedHealthcare, Ovations, AmeriChoice, OptumHealth, Ingenix and Prescription Solutions. Through its family of businesses, UnitedHealth Group serves more than 75 million individuals worldwide. Visit www.unitedhealthgroup.com for more information.

Earnings Conference Call

As previously announced, UnitedHealth Group will discuss the Company’s results, strategy and future outlook on a conference call with investors at 8:45 a.m. Eastern time today. UnitedHealth Group will host a live webcast of this conference call from the Investors page of the Company’s Web site (www.unitedhealthgroup.com). The webcast replay of the call will be available on the same site through August 3, 2010, following the live call. The conference call replay can also be accessed by dialing 1-800-642-1687, conference ID # 21769332. This earnings release and the Form 8-K dated July 20, 2010, which may also be accessed from the Investors page of the Company’s Web site, include a reconciliation of non-GAAP financial measures.

Forward-Looking Statements

This press release may contain statements, estimates, projections, guidance or outlook that constitute "forward-looking” statements as defined under U.S. federal securities laws. Generally the words "believe,” "expect,” "intend,” "estimate,” "anticipate,” "plan,” "project,” "should” and similar expressions identify forward-looking statements, which generally are not historical in nature. These statements may contain information about financial prospects, economic conditions, trends and uncertainties and involve risks and uncertainties. We caution that actual results could differ materially from those that management expects, depending on the outcome of certain factors.

Some factors that could cause results to differ materially from the forward-looking statements include: the ultimate impact of the Patient Protection and Affordable Care Act, which could materially adversely affect our financial position and results of operations through reduced revenues, increased costs, new taxes, and expanded liability, or require changes to the ways in which we conduct business or put us at risk for loss of business; our ability to effectively estimate, price for and manage our medical costs, including the impact of any new coverage requirements; the potential impact that new laws or regulations or changes in existing laws or regulations or their enforcement could have on our results of operations, financial position and cash flows, including as a result of increases in medical, administrative, technology or other costs resulting from federal and state regulations affecting the health care industry; the potential impact of adverse economic conditions on our revenues (including decreases in enrollment resulting from increases in the unemployment rate and commercial attrition) and results of operations; regulatory and other risks and uncertainties associated with the pharmacy benefits management industry; competitive pressures, which could affect our ability to maintain or increase our market share; uncertainties regarding changes in Medicare; potential reductions in revenue received from Medicare and Medicaid programs; our ability to execute contracts on competitive terms with physicians, hospitals and other service professionals; our ability to attract, retain and provide support to a network of independent third party brokers, consultants and agents; failure to comply with restrictions on patient privacy and data security regulations; events that may negatively affect our contracts with AARP; increases in costs and other liabilities associated with increased litigation; possible impairment of the value of our intangible assets if future results do not adequately support goodwill and intangible assets recorded for businesses that we acquire; increases in health care costs resulting from large-scale medical emergencies; failure to maintain effective and efficient information systems; misappropriation of our proprietary technology; our ability to obtain sufficient funds from our regulated subsidiaries to fund our obligations; the potential impact of our future cash and capital requirements on our ability to maintain our quarterly dividend payment cycle; failure to complete or receive anticipated benefits of acquisitions; potential downgrades in our credit ratings; and failure to achieve targeted operating cost productivity improvements, including savings resulting from technology enhancement and administrative modernization.

This list of important factors is not intended to be exhaustive. A further list and description of some of these risks and uncertainties can be found in our reports filed with the Securities and Exchange Commission from time to time, including the cautionary statements in our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. Any or all forward-looking statements we make may turn out to be wrong. You should not place undue reliance on forward-looking statements, which speak only as of the date they are made. We do not undertake to update or revise any forward-looking statements.