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MarketScreener Homepage  >  Equities  >  Nyse  >  UnitedHealth Group    UNH

UNITEDHEALTH GROUP

(UNH)
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UNITEDHEALTH : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-K)

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02/14/2020 | 05:50pm EST

The following discussion should be read together with the accompanying

  Consolidated Financial Statements and Notes to the Consolidated Financial
Statements thereto included in Item 8, "Financial Statements and Supplementary
Data."   Readers are cautioned that the statements, estimates, projections or
outlook contained in this report, including discussions regarding financial
prospects, economic conditions, trends and uncertainties contained in this Item
7, may constitute forward-looking statements within the meaning of the PSLRA.
These forward-looking statements involve risks and uncertainties that may cause
our actual results to differ materially from the expectations expressed or
implied in the forward-looking statements. A description of some of the risks
and uncertainties can be found further below in this Item 7 and in   Part I,
Item 1A, "Risk Factors."
Discussions of year-over-year comparisons between 2018 and 2017 that are not
included in this Form 10-K can be found in   Part II, Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations"   of
the Company's Form 10-K for the fiscal year ended December 31, 2018.

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EXECUTIVE OVERVIEW
General
UnitedHealth Group is a diversified health care company dedicated to helping
people live healthier lives and helping make the health system work better for
everyone. Through our diversified businesses, we leverage core competencies in
data analytics and health information; advanced technology; and clinical
expertise. These core competencies are deployed within two distinct, but
strategically aligned, business platforms: health benefits operating under
UnitedHealthcare and health services operating under Optum.
We have four reportable segments across our two business platforms,
UnitedHealthcare and Optum:
•    UnitedHealthcare, which includes UnitedHealthcare Employer & Individual,

UnitedHealthcare Medicare & Retirement, UnitedHealthcare Community & State

and UnitedHealthcare Global;

OptumHealth;


• OptumInsight; and


• OptumRx.

Further information on our business and reportable segments is presented in

  Part I, Item 1, "Business"   and in   Note 14 of Notes to the Consolidated
Financial Statements included in Part II, Item 8, "Financial Statements and
Supplementary Data."
Business Trends
Our businesses participate in the United States, South America 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). We expect overall spending on health care to continue to grow in the
future, due to inflation, medical technology and pharmaceutical advancement,
regulatory requirements, demographic trends in the population and national
interest in health and well-being. The rate of market growth may be affected by
a variety of factors, including macro-economic conditions and regulatory
changes, which could impact our results of operations, including our continued
efforts to control health care costs.
Pricing Trends. To price our health care benefit products, we start with our
view of expected future costs. 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 MLR thresholds. We
will continue seeking to balance growth and profitability across all of these
dimensions.
The commercial risk market remains highly competitive in both the small group
and large group segments. We expect broad-based competition to continue as the
industry adapts to individual and employer needs. The ACA, which includes three
distinct taxes (ACA Tax), has an annual, nondeductible insurance industry tax
(Health Insurance Industry Tax) to be levied proportionally across the insurance
industry for risk-based health insurance products. A provision in the 2018
federal budget imposed a one year moratorium for 2019 on the collection of the
Health Insurance Industry Tax. Pricing for contracts that cover some portion of
calendar year 2020 reflect the return of the Health Insurance Industry Tax. The
ACA Tax was permanently repealed by Congress, effective January 1, 2021.
Medicare Advantage funding continues to be pressured, as discussed below in
  "Regulatory Trends and Uncertainties."
We expect Medicaid revenue growth due to anticipated changes in mix and
increases in the number of people we serve; we also believe that the payment
rate environment creates the risk of continued downward pressure on Medicaid
margin percentages. We continue to take a prudent, market-sustainable posture
for both new business and maintenance of existing relationships. We continue to
advocate for actuarially sound rates that are commensurate with our medical cost
trends and we remain dedicated to partnering with those states that are
committed to the long-term viability of their programs.
Medical Cost Trends. Our medical cost trends primarily relate to changes in unit
costs, health system utilization and prescription drug costs. 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.
Delivery System and Payment Modernization. The health care market continues to
change based on demographic shifts, new regulations, political forces and both
payer and patient expectations. Health plans and care providers are being called
upon to work together to close gaps in care and improve overall care quality,
improve the health of populations and reduce costs. We continue to see a greater
number of people enrolled in plans with underlying incentive-based care provider
payment models that reward high-quality, affordable care and foster
collaboration. We work together with clinicians to leverage our data and
analytics to provide the necessary information to close gaps in care and improve
overall health outcomes for patients.

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We are increasingly rewarding care providers for delivering improvements in
quality and cost-efficiency. As of December 31, 2019, we served over 17 million
people through some form of aligned contractual arrangement, including
full-risk, shared-risk and bundled episode-of-care and performance incentive
payment approaches. As of December 31, 2019, our contracts with value-based
elements totaled $79 billion in annual spending, including $20 billion through
risk-transfer agreements.
This trend is creating needs for health management services that 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.
Regulatory Trends and Uncertainties
Following is a summary of management's view of the trends and uncertainties
related to some of the key provisions of the ACA and other regulatory matters.
For additional information regarding the ACA and regulatory trends and
uncertainties, see   Part I, Item 1 "Business - Government Regulation"   and
  Item 1A, "Risk Factors."
Medicare Advantage Rates. Final 2020 Medicare Advantage rates resulted in an
increase in industry base rates of approximately 2.5%, short of the industry
forward medical cost trend. This combined with the return of the Health
Insurance Industry Tax creates continued pressure in the Medicare Advantage
program.
The ongoing Medicare Advantage funding pressure places continued importance on
effective medical management and ongoing improvements in administrative
efficiency. There are a number of adjustments we have made to partially offset
these rate pressures and reductions. In some years, these adjustments impact the
majority of the seniors we serve through Medicare Advantage. For example, we
seek to intensify our medical and operating cost management, make changes to the
size and composition of our care provider networks, adjust members' benefits and
implement or increase the member premiums that supplement the monthly payments
we receive from the government. Additionally, we decide annually on a
county-by-county basis where we will offer Medicare Advantage plans.
Our Medicare Advantage rates are currently enhanced by CMS quality bonuses in
certain counties based on our local plans' Star ratings. The level of Star
ratings from CMS, based upon specified clinical and operational performance
standards, will impact future quality bonuses.
ACA Tax. A provision in the 2019 Federal Budget imposed a one year moratorium
for 2019 on the collection of the Health Insurance Industry Tax. In 2020, the
industry-wide amount of the Health Insurance Industry Tax, which is primarily
borne by customers, will be $15.5 billion and we expect our portion to be
approximately $3.0 billion. The ACA Tax was repealed by Congress, effective
January 1, 2021.
SELECTED OPERATING PERFORMANCE ITEMS
The following represents a summary of select 2019 year-over-year operating
comparisons to 2018.
•    Consolidated revenues increased by 7%, UnitedHealthcare revenues increased

6% and Optum revenues grew 12%.

• UnitedHealthcare served 575,000 additional people domestically as a result

of growth in commercial business and services to seniors, partially offset

by the proactive withdrawal from the Iowa medicaid market.

• Earnings from operations increased by 13%, including increases of 13% at

UnitedHealthcare and 14% at Optum.

• Diluted earnings per common share increased 18% to $14.33.

• Cash flows from operations were $18.5 billion, an increase of 18%.

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RESULTS SUMMARY
The following table summarizes our consolidated results of operations and other
financial information:
(in millions, except percentages          For the Years Ended December 31,                Change
and per share data)                      2019            2018           2017          2019 vs. 2018
Revenues:
Premiums                            $   189,699$  178,087$  158,453$ 11,612         7 %
Products                                 31,597          29,601         26,366        1,996         7
Services                                 18,973          17,183         15,317        1,790        10
Investment and other income               1,886           1,376          1,023          510        37
Total revenues                          242,155         226,247        201,159       15,908         7
Operating costs:
Medical costs                           156,440         145,403        130,036       11,037         8
Operating costs                          35,193          34,074         29,557        1,119         3
Cost of products sold                    28,117          26,998         24,112        1,119         4
Depreciation and amortization             2,720           2,428          2,245          292        12
Total operating costs                   222,470         208,903        185,950       13,567         6
Earnings from operations                 19,685          17,344         15,209        2,341        13
Interest expense                         (1,704 )        (1,400 )       (1,186 )       (304 )      22
Earnings before income taxes             17,981          15,944         14,023        2,037        13
Provision for income taxes               (3,742 )        (3,562 )       (3,200 )       (180 )       5
Net earnings                             14,239          12,382         10,823        1,857        15
Earnings attributable to
noncontrolling interests                   (400 )          (396 )         (265 )         (4 )       1
Net earnings attributable to
UnitedHealth Group common
shareholders                        $    13,839$   11,986$   10,558$  1,853        15 %
Diluted earnings per share
attributable to UnitedHealth
Group common shareholders           $     14.33$    12.19$    10.72$   2.14        18 %
Medical care ratio (a)                     82.5 %          81.6 %         82.1 %        0.9  %
Operating cost ratio                       14.5            15.1           14.7         (0.6 )
Operating margin                            8.1             7.7            7.6          0.4
Tax rate                                   20.8            22.3           22.8         (1.5 )
Net earnings margin (b)                     5.7             5.3            5.2          0.4
Return on equity (c)                       25.7 %          24.4 %         24.4 %        1.3  %


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

revenue.

(b) Net earnings margin attributable to UnitedHealth Group shareholders.

(c) Return on equity is calculated as net earnings attributable to UnitedHealth

Group common shareholders divided by average shareholders' equity. Average

shareholders' equity is calculated using the shareholders' equity balance at

the end of the preceding year and the shareholders' equity balances at the

end of each of the four quarters of the year presented.



2019 RESULTS OF OPERATIONS COMPARED TO 2018 RESULTS
Consolidated Financial Results
Revenue
The increase in revenue was primarily driven by the increase in the number of
individuals served through Medicare Advantage; pricing trends; and organic and
acquisition growth across the Optum business, primarily due to expansion in
pharmacy care services and care delivery, partially offset by the moratorium of
the Health Insurance Industry Tax in 2019.
Medical Costs and MCR
Medical costs increased due to growth in people served through Medicare
Advantage and medical cost trends, partially offset by increased prior year
favorable medical development. The MCR increased due to the revenue effects of
the Health Insurance Industry Tax moratorium.

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Reportable Segments
See   Note 14 of Notes to the Consolidated Financial Statements included in Part
II, Item 8, "Financial Statements and Supplementary Data"   for more information
on our segments. The following table presents a summary of the reportable
segment financial information:
                                             For the Years Ended December 31,               Change
(in millions, except percentages)            2019           2018          2017           2019 vs. 2018
Revenues
UnitedHealthcare                        $   193,842$ 183,476$ 163,257$ 10,366          6 %
OptumHealth                                  30,317         24,145        20,570        6,172         26
OptumInsight                                 10,006          9,008         8,087          998         11
OptumRx                                      74,288         69,536        63,755        4,752          7
Optum eliminations                           (1,661 )       (1,409 )      (1,227 )       (252 )       18
Optum                                       112,950        101,280        91,185       11,670         12
Eliminations                                (64,637 )      (58,509 )     (53,283 )     (6,128 )       10
Consolidated revenues                   $   242,155$ 226,247$ 201,159$ 15,908          7 %
Earnings from operations
UnitedHealthcare                        $    10,326$   9,113$   8,498$  1,213         13 %
OptumHealth                                   2,963          2,430         1,823          533         22
OptumInsight                                  2,494          2,243         1,770          251         11
OptumRx                                       3,902          3,558         3,118          344         10
Optum                                         9,359          8,231         6,711        1,128         14
Consolidated earnings from operations   $    19,685$  17,344$  15,209$  2,341         13 %
Operating margin
UnitedHealthcare                                5.3 %          5.0 %         5.2 %        0.3  %
OptumHealth                                     9.8           10.1           8.9         (0.3 )
OptumInsight                                   24.9           24.9          21.9            -
OptumRx                                         5.3            5.1           4.9          0.2
Optum                                           8.3            8.1           7.4          0.2
Consolidated operating margin                   8.1 %          7.7 %        

7.6 % 0.4 %

UnitedHealthcare

The following table summarizes UnitedHealthcare revenues by business:

                                                For the Years Ended December 31,                   Change
(in millions, except percentages)               2019              2018          2017            2019 vs. 2018

UnitedHealthcare Employer & Individual $ 56,945$ 54,761

  $  52,066$     2,184         4 %
UnitedHealthcare Medicare & Retirement         83,252             75,473        65,995           7,779        10
UnitedHealthcare Community & State             43,790             43,426        37,443             364         1
UnitedHealthcare Global                         9,855              9,816         7,753              39         -

Total UnitedHealthcare revenues $ 193,842$ 183,476

 $ 163,257$    10,366         6 %



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

                                                   December 31,             

Change

(in thousands, except percentages)           2019      2018      2017       2019 vs. 2018
Commercial:
Risk-based                                   8,575     8,495     8,420        80       1  %
Fee-based                                   19,185    18,420    18,595       765       4
Fee-based TRICARE                                -         -     2,850         -       -
Total commercial                            27,760    26,915    29,865       845       3
Medicare Advantage                           5,270     4,945     4,430       325       7
Medicaid                                     5,900     6,450     6,705      (550 )    (9 )
Medicare Supplement (Standardized)           4,500     4,545     4,445       (45 )    (1 )
Total public and senior                     15,670    15,940    15,580      (270 )    (2 )
Total UnitedHealthcare - domestic medical   43,430    42,855    45,445       575       1
International                                5,720     6,220     4,080      (500 )    (8 )
Total UnitedHealthcare - medical            49,150    49,075    49,525        75       -  %
Supplemental Data:
Medicare Part D stand-alone                  4,405     4,710     4,940      (305 )    (6 )%


Fee-based commercial group business increased primarily due to an acquisition.
Medicare Advantage increased due to the growth in people served through
individual and employer-sponsored group Medicare Advantage plans. The decrease
in people served through Medicaid was primarily driven by the proactive
withdrawal from the Iowa market as well as by states adding new carriers to
existing programs and managing eligibility, partially offset by increases in
Dual Special Needs Plans. The decrease in people served internationally is a
result of our continued affordability efforts and underwriting discipline.
UnitedHealthcare's revenue and earnings from operations increased due to growth
in the number of individuals served through Commercial and Medicare Advantage,
including a greater mix of people with a higher acuity needs. Revenue increases
were partially offset by the moratorium on the Health Insurance Industry Tax in
2019. Earnings from operations were also favorably impacted by operating cost
management.
Optum
Total revenues and earnings from operations increased as each segment reported
increased revenues and earnings from operations as a result of the factors
discussed below. Earnings from operations also increased due to productivity and
overall cost management initiatives.
The results by segment were as follows:
OptumHealth
Revenue increased at OptumHealth primarily due to organic growth and
acquisitions in care delivery, increased care services and organic growth in
behavioral health services. Earnings from operations increased primarily due to
care delivery. OptumHealth served approximately 96 million and 93 million people
as of December 31, 2019 and 2018, respectively.
OptumInsight
Revenue and earnings from operations at OptumInsight increased primarily due to
organic and acquisition growth in managed services.
OptumRx
Revenue at OptumRx increased primarily due to organic growth and acquisitions in
specialty pharmacy, partially offset by an expected large client transition.
Earnings from operations increased primarily due to the factors that increased
revenue as well as improved supply chain management. OptumRx fulfilled 1,340
million and 1,343 million adjusted scripts in 2019 and 2018, respectively, with
2019 impacted by the large client transition.



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LIQUIDITY, FINANCIAL CONDITION AND CAPITAL RESOURCES
Liquidity
Introduction
We manage our liquidity and financial position in the context of our overall
business strategy. 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.
Our regulated subsidiaries generate significant cash flows from operations and
are subject to, among other things, minimal levels of statutory capital, as
defined by their respective jurisdiction, and restrictions on the timing and
amount of dividends paid to their parent companies.
Our U.S. regulated subsidiaries paid their parent companies dividends of $5.6
billion and $3.7 billion in 2019 and 2018, respectively. See   Note 10 of Notes
to the Consolidated Financial Statements included in Part II, Item 8, "Financial
Statements and Supplementary Data"   for further detail concerning our regulated
subsidiary dividends.
Our nonregulated businesses also generate significant cash flows from operations
that are available for general corporate use. Cash flows generated by these
entities, combined with dividends from our regulated entities and financing
through the issuance of long-term debt as well as issuance of commercial paper
or the ability to draw under our committed credit facilities, further strengthen
our operating and financial flexibility. We use these cash flows to expand our
businesses through acquisitions, reinvest in our businesses through capital
expenditures, repay debt and return capital to our shareholders through
dividends and repurchases of our common stock.
Summary of our Major Sources and Uses of Cash and Cash Equivalents
                                                      For the Years Ended December 31,            Change
(in millions)                                         2019            2018          2017       2019 vs. 2018
Sources of cash:
Cash provided by operating activities            $    18,463$  15,713$ 13,596$       2,750
Issuances of long-term debt and commercial
paper, net of repayments                               3,994           4,134            -              (140 )
Proceeds from common share issuances                   1,037             838          688               199
Customer funds administered                               13               -        3,172                13
Other                                                    219               -            -               219
Total sources of cash                                 23,726          20,685       17,456
Uses of cash:
Cash paid for acquisitions, net of cash
assumed                                               (8,343 )        (5,997 )     (2,131 )          (2,346 )
Cash dividends paid                                   (3,932 )        (3,320 )     (2,773 )            (612 )
Common share repurchases                              (5,500 )        (4,500 )     (1,500 )          (1,000 )
Repayments of long-term debt and commercial
paper, net of issuances                                    -               -       (2,615 )               -
Purchases of property, equipment and
capitalized software                                  (2,071 )        (2,063 )     (2,023 )              (8 )
Purchases of investments, net of sales and
maturities                                            (2,504 )        (4,099 )     (4,319 )           1,595
Other                                                 (1,237 )        (1,743 )       (539 )             506
Total uses of cash                                   (23,587 )       (21,722 )    (15,900 )
Effect of exchange rate changes on cash and
cash equivalents                                         (20 )           (78 )         (5 )              58
Net increase (decrease) in cash and cash
equivalents                                      $       119$  (1,115 )$  1,551$       1,234



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2019 Cash Flows Compared to 2018 Cash Flows
Increased cash flows provided by operating activities were primarily driven by
higher net earnings as well as changes in working capital accounts. Other
significant changes in sources or uses of cash year-over-year included an
increase in cash paid for acquisitions, increased share repurchases and
decreased net purchases of investments.
Financial Condition
As of December 31, 2019, our cash, cash equivalent, available-for-sale debt
securities and equity securities balances of $49.1 billion included $11.0
billion of cash and cash equivalents (of which $584 million was available for
general corporate use), $36.1 billion of debt securities and $2.0 billion of
investments in 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. Other sources of liquidity, primarily from operating cash
flows and our commercial paper program, which is supported by our bank credit
facilities, reduce the need to sell investments during adverse market
conditions. See   Note 4 of Notes to the Consolidated Financial Statements
included in Part II, Item 8, "Financial Statements and Supplementary Data"  

for

further detail concerning our fair value measurements.
Our available-for-sale debt portfolio had a weighted-average duration of 3.4
years and a weighted-average credit rating of "Double A" as of December 31,
2019. 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.
Capital Resources and Uses of Liquidity
In addition to cash flows from operations and cash and cash equivalent balances
available for general corporate use, our capital resources and uses of liquidity
are as follows:
Commercial Paper and Bank Credit Facilities. Our revolving bank credit
facilities provide liquidity support for our commercial paper borrowing program,
which facilitates the private placement of senior unsecured debt through
independent broker-dealers, and are available for general corporate purposes.
For more information on our commercial paper and bank credit facilities, see
  Note 8 of 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, 2019, our debt
to debt-plus-shareholders' equity ratio, as defined and calculated under the
credit facilities, was 39%.
Long-Term Debt. Periodically, we access capital markets to issue long-term debt
for general corporate purposes, such as, to meet our working capital
requirements, to refinance debt, to finance acquisitions or for share
repurchases. For more information on our debt, see   Note 8 of Notes to the
Consolidated Financial Statements included in Part II, Item 8 "Financial
Statements and Supplementary Data."
Credit Ratings. Our credit ratings as of December 31, 2019 were as follows:
                           Moody's             S&P Global             Fitch             A.M. Best
                      Ratings   Outlook    Ratings   Outlook    Ratings   Outlook   Ratings   Outlook
Senior unsecured debt   A3       Stable      A+       Stable      A-      Stable      A-      Positive
Commercial paper        P-2       n/a        A-1       n/a        F1        n/a      AMB-1      n/a


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. A significant downgrade in our
credit ratings or adverse conditions in the capital markets may increase the
cost of borrowing for us or limit our access to capital.
Share Repurchase Program. As of December 31, 2019, we had Board authorization to
purchase up to 72 million shares of our common stock. For more information on
our share repurchase program, see   Note 10 of Notes to the Consolidated
Financial Statements included in Part II, Item 8, "Financial Statements and
Supplementary Data."
Dividends. In June 2019, the Company's Board of Directors increased the
Company's quarterly cash dividend to shareholders to an annual rate of $4.32
compared to $3.60 per share. For more information on our dividend, see   Note 10
of Notes to the Consolidated Financial Statements included in Part II, Item 8,
"Financial Statements and Supplementary Data."

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CONTRACTUAL OBLIGATIONS AND COMMITMENTS
The following table summarizes future obligations due by period as of
December 31, 2019, under our various contractual obligations and commitments:
(in millions)                     2020         2021 to 2022      2023 to 2024       Thereafter        Total
Debt (a)                      $    5,532$        9,118$       6,122$     44,302$   65,074
Operating leases                     804              1,327               901            1,671          4,703
Purchase and other
obligations (b)                    1,617              2,483               768              248          5,116
Other liabilities (c)                914                344               285            7,767          9,310
Redeemable noncontrolling
interests (d)                        852                542                 -              332          1,726
Total contractual
obligations                   $    9,719$       13,814$       8,076$     54,320$   85,929



(a)  Includes interest coupon payments and maturities at par or put values. The

table also assumes amounts are outstanding through their contractual term.

See Note 8 of Notes to the Consolidated Financial Statements included in

Part II, Item 8, "Financial Statements and Supplementary Data" for more

detail.

(b) Includes fixed or minimum commitments under existing purchase obligations

for goods and services, including agreements that are cancelable with the

payment of an early termination penalty and remaining capital commitments

for venture capital funds and other funding commitments. Excludes agreements

that are cancelable without penalty and excludes liabilities to the extent

recorded in our Consolidated Balance Sheets as of December 31, 2019.

(c) Includes obligations associated with contingent consideration and payments

related to business acquisitions, certain employee benefit programs, amounts

accrued for guaranty fund assessments, unrecognized tax benefits, and

various long-term liabilities. Due to uncertainty regarding payment timing,

obligations for employee benefit programs, charitable contributions, future

     settlements, unrecognized tax benefits and other liabilities have been
     classified as "Thereafter."


(d)  Includes commitments for redeemable shares of our subsidiaries. When the
     timing of the redemption is indeterminable, the commitment has been
     classified as "Thereafter."


We do not have other significant contractual obligations or commitments that
require cash resources. However, we continually evaluate opportunities to expand
our operations, which include internal development of new products, programs and
technology applications and may include acquisitions.
OFF-BALANCE SHEET ARRANGEMENTS
As of December 31, 2019, we were not involved in any off-balance sheet
arrangements, which have or are reasonably likely to have a material effect on
our financial condition, results of operations or liquidity.
RECENTLY ISSUED ACCOUNTING STANDARDS
See   Note 2 of Notes to the Consolidated Financial Statements in Part II, Item
8 "Financial Statements and Supplementary Data"   for a discussion of new
accounting pronouncements that affect us.
CRITICAL ACCOUNTING ESTIMATES
Critical accounting estimates are those estimates that require management to
make challenging, subjective or complex judgments, often because they must
estimate the effects of matters that are inherently uncertain and may change in
subsequent periods. Critical accounting estimates involve judgments and
uncertainties that are sufficiently sensitive and may result in materially
different results under different assumptions and conditions.
Medical Costs Payable
Medical costs and medical costs payable include estimates of our obligations for
medical care services that have been rendered on behalf of insured consumers,
but for which claims have either not yet been received or processed. Depending
on the health care professional and type of service, the typical billing lag for
services can be up to 90 days from the date of service. Approximately 90% of
claims related to medical care services are known and settled within 90 days
from the date of service and substantially all within twelve months. As of
December 31, 2019, our days outstanding in medical payables was 51 days,
calculated as total medical payables divided by total medical costs times the
number of days in the period.
In each reporting period, our operating results include the effects of more
completely developed medical costs payable estimates associated with previously
reported periods. If the revised estimate of prior period medical costs is less
than the previous estimate, we will decrease reported medical costs in the
current period (favorable development). If the revised estimate of prior period
medical costs is more than the previous estimate, we will increase reported
medical costs in the current

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period (unfavorable development). Medical costs in 2019, 2018 and 2017 included
favorable medical cost development related to prior years of $580 million, $320
million and $690 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.
Completion Factors. A completion factor is an actuarial estimate, based upon
historical experience and analysis of current trends, of the percentage of
incurred claims during a given period that have been adjudicated by us at the
date of estimation. Completion factors are the most significant factors we use
in developing our medical costs payable estimates for periods prior to the most
recent two months. Completion factors include judgments in relation to claim
submissions such as the time from date of service to claim receipt, claim levels
and processing cycles, as well as other factors. If actual claims submission
rates from providers (which can be influenced by a number of factors, including
provider mix and electronic versus manual submissions) or our claim processing
patterns are different than estimated, our reserve estimates may be
significantly impacted.
The following table illustrates the sensitivity of these factors and the
estimated potential impact on our medical costs payable estimates for those
periods as of December 31, 2019:
Completion Factors                   Increase (Decrease)

(Decrease) Increase in Factors In Medical Costs Payable

                                        (in millions)
(0.75)%                          $                 584
(0.50)                                             388
(0.25)                                             194
0.25                                              (193 )
0.50                                              (384 )
0.75                                              (575 )


Medical Cost Per Member Per Month Trend Factors. Medical cost PMPM trend factors
are significant factors we use in developing our medical costs payable estimates
for the most recent two months. Medical cost trend factors are developed through
a comprehensive analysis of claims incurred in prior months, provider
contracting and expected unit costs, benefit design and a review of a broad set
of health care utilization indicators, including but not limited to, pharmacy
utilization trends, inpatient hospital authorization data and influenza
incidence data from the National Centers for Disease Control. We also consider
macroeconomic variables such as GDP growth, employment and disposable income. A
large number of factors can cause the medical cost trend to vary from our
estimates, including: our ability and practices to manage medical and
pharmaceutical costs, changes in level and mix of services utilized, mix of
benefits offered, including the impact of co-pays and deductibles, changes in
medical practices, catastrophes and epidemics.
The following table illustrates the sensitivity of these factors and the
estimated potential impact on our medical costs payable estimates for the most
recent two months as of December 31, 2019:
Medical Cost PMPM Quarterly Trend       Increase (Decrease)
Increase (Decrease) in Factors       In Medical Costs Payable
                                           (in millions)
3%                                  $                 754
2                                                     502
1                                                     251
(1)                                                  (251 )
(2)                                                  (502 )
(3)                                                  (754 )


The completion factors and medical costs PMPM trend factors analyses above
include outcomes that are considered reasonably likely based on our historical
experience estimating liabilities for incurred but not reported benefit claims.
Management believes the amount of medical costs payable is reasonable and
adequate to cover our liability for unpaid claims as of December 31, 2019;
however, actual claim payments may differ from established estimates as
discussed above. Assuming a hypothetical 1% difference between our December 31,
2019 estimates of medical costs payable and actual medical costs

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payable, excluding AARP Medicare Supplement Insurance and any potential
offsetting impact from premium rebates, 2019 net earnings would have increased
or decreased by approximately $160 million.
For more detail related to our medical cost estimates, see   Note 2 of Notes to
the Consolidated Financial Statements included in Part II, Item 8, "Financial
Statements and Supplementary Data."
Goodwill
We evaluate goodwill for impairment annually or more frequently when an event
occurs or circumstances change that indicate the carrying value may not be
recoverable. When testing goodwill for impairment, we may first assess
qualitative factors to determine if it is more likely than not that the carrying
value of a reporting unit exceeds its estimated fair value. During a qualitative
analysis, we consider the impact of changes, if any, to the following factors:
macroeconomic, industry and market factors, cost factors, changes in overall
financial performance, and any other relevant events and uncertainties impacting
a reporting unit. If our qualitative assessment indicates that goodwill
impairment is more likely than not, we perform additional quantitative analyses.
We may also elect to skip the qualitative testing and proceed directly to the
quantitative testing. For reporting units where a quantitative analysis is
performed, we perform a multi-step test measuring the fair values of the
reporting units and comparing them to their aggregate carrying values, including
goodwill. If the fair value is less than the carrying value of the reporting
unit, then the implied value of goodwill would be calculated and compared to the
carrying amount of goodwill to determine whether goodwill is impaired.
We estimate the fair values of our reporting units using discounted cash flows,
which include assumptions about a wide variety of internal and external factors.
Significant assumptions used in the impairment analysis include financial
projections of free cash flow (including significant assumptions about
operations, capital requirements and income taxes), long-term growth rates for
determining terminal value beyond the discretely forecasted periods and discount
rates. For each reporting unit, comparative market multiples are used to
corroborate the results of our discounted cash flow test.
Forecasts and long-term growth rates used for our reporting units are consistent
with, and use inputs from, our internal long-term business plan and strategies.
Key assumptions used in these forecasts include:
•    Revenue trends. Key revenue drivers for each reporting unit are determined

and assessed. Significant factors include: customer and/or membership

growth, medical trends and the impact and expectations of regulatory

environments. Additional macro-economic assumptions relating to

unemployment, GDP growth, interest rates and inflation are also evaluated

and incorporated, as appropriate.

• Medical cost trends. For further discussion of medical cost trends, see the

"Medical Cost Trend" section of Executive Overview- Business Trends and

the "Medical Costs Payable" critical accounting estimate above. Similar

factors, including historical and expected medical cost trend levels, are

considered in estimating our long-term medical trends at the reporting unit

level.

• Operating productivity. We forecast expected operating cost levels based on

historical levels and expectations of future operating cost levels.

• Capital levels. The operating and long-term capital requirements for each

business are considered.



Discount rates are determined for each reporting unit and include consideration
of the implied risk inherent in their forecasts. Our most significant estimate
in the discount rate determinations involves our adjustments to the peer company
weighted average costs of capital that reflect reporting unit-specific factors.
We have not made any adjustments to decrease a discount rate below the
calculated peer company weighted average cost of capital for any reporting unit.
Company-specific adjustments to discount rates are subjective and thus are
difficult to measure with certainty. The passage of time and the availability of
additional information regarding areas of uncertainty with respect to the
reporting units' operations could cause these assumptions to change in the
future. As of October 1, 2019, we completed our annual impairment tests for
goodwill with all of our reporting units having fair values substantially in
excess of their carrying values.
LEGAL MATTERS
A description of our legal proceedings is presented in   Note 12 of Notes to the
Consolidated Financial Statements included in Part II, Item 8, "Financial
Statements and Supplementary Data."
CONCENTRATIONS OF CREDIT RISK
Investments in financial instruments such as marketable securities and accounts
receivable may subject us to concentrations of credit risk. Our investments in
marketable securities are managed under an investment policy authorized by our
Board of Directors. This policy limits the amounts that may be invested in any
one issuer and generally limits our investments to U.S. government and agency
securities, state and municipal securities and corporate debt obligations that
are investment grade.

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Concentrations of credit risk with respect to accounts receivable are limited
due to the large number of employer groups and other customers that constitute
our client base. As of December 31, 2019, there were no significant
concentrations of credit risk.

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