UNITEDHEALTH GROUP INC. The following discussion should be read together with the accompanying Condensed Consolidated Financial Statements and Notes and with our 2019 10-K, including the Consolidated Financial Statements and Notes in Part II, Item 8, "Financial Statements and Supplementary Data" in that report. Unless the context indicates otherwise, references to the terms "UnitedHealth Group ," "we," "our" or "us" used throughout this Management's Discussion and Analysis of Financial Condition and Results of Operations refer toUnitedHealth Group Incorporated and its consolidated subsidiaries. Readers are cautioned that the statements, estimates, projections or outlook contained in this Management's Discussion and Analysis of Financial Condition and Results of Operations, including discussions regarding financial prospects, economic conditions, trends and uncertainties contained in this Item 2, may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (PSLRA). These forward-looking statements involve risks and uncertainties that may cause our actual results to differ materially from the results discussed or implied in the forward-looking statements. A description of some of the risks and uncertainties is set forth in Part I, Item 1A, "Risk Factors" in our 2019 10-K and in the discussion below. EXECUTIVE OVERVIEW GeneralUnitedHealth 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 family of businesses, we leverage core competencies in data and health information, advanced technology, and clinical expertise, focused on improving health outcomes, lowering health care costs and creating a better experience for patients, their caregivers and physicians. These core competencies are deployed within our two distinct, but strategically aligned, business platforms: health benefits operating under UnitedHealthcare and health services operating under Optum. Further information on our business is presented in Part I, Item 1, "Business" and Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2019 10-K and additional information on our segments can be found in this Item 2 and in Note 8 of Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this report. COVID-19 Trends and Uncertainties The COVID-19 pandemic continues to evolve and the ultimate impact on our business, results of operations, financial condition and cash flows remains uncertain and difficult to predict. During the quarter, the global health system experienced unprecedented levels of care deferral, which meaningfully impacted all of our businesses. As the pandemic advanced, access to and demand for care was most constrained from mid-March through April, began to recover in May and approached more typical levels by the end of the second quarter. The temporary deferral of care may cause care patterns to moderately exceed normal baselines in the second half of this year as utilization of health system capacity continues to increase. Health system capacity may be subject to possible increased volatility due to the pandemic from time to time. Specific trends and uncertainties related to our two business platforms are as follows: UnitedHealthcare. We have expanded benefit coverage in areas such as COVID-19 testing and treatment, telemedicine, and pharmacy benefits; provided customers assistance in the form of co-pay waivers and premium forgiveness; offered additional enrollment opportunities to those who previously declined employer-sponsored offerings; extended certain premium payment terms for customers experiencing financial hardship; simplified administrative practices; and accelerated payments to care providers, all with the aim of assisting our customers, providers and members in addressing the COVID-19 crisis. Temporary care deferrals significantly impacted UnitedHealthcare's results of operations for the three-months endedJune 30, 2020 , contributing to significantly lower medical costs and higher operating earnings than previous periods. The impact of care disruption has been, and will continue to be offset by factors such as COVID-19 related treatment and testing, potential future vaccines and the financial assistance we continue to provide our customers. As health system capacity continues to approach normal levels, consumer demand for care, potentially even higher acuity care, is expected to result in increased future medical costs. Disrupted care patterns, as a result of the pandemic, may temporarily affect the ability to obtain complete member health status information, impacting future revenue in businesses that utilize risk adjustment methodologies. Depending on the future pacing and intensity of the virus, as well as the duration of policies and initiatives to address COVID-19, the ultimate impact is uncertain. 16 -------------------------------------------------------------------------------- Table of Contents Optum. The temporary deferral of care also meaningfully impacted the Optum businesses for the three-months endedJune 30, 2020 . For example, our fee-for-service care delivery business, such as traditional procedure work at our ambulatory surgery centers, was negatively impacted, while our risk-based care delivery business performance reflected lower demand for care. OurOptumInsight andOptumRx volume-based businesses were negatively impacted by the lower level of care encounters which took place, contributing to lower managed services and prescription volume. As the health system continues to return nearer to normal seasonally adjusted levels of care, we have seen business activity approach more normal levels. COVID-19 will also continue to influence customer and consumer behavior, both during and after the pandemic, which could impact how care is delivered and the manner in which consumers wish to receive their prescription drugs or infusion services. The impact of COVID-19 on our care provider and payer clients could impact the volume and types of services that Optum provides, as well as the pacing of potential new business opportunities. As a result of the dynamic situation and broad-reaching impact to the health system, the ultimate impact of COVID-19 is uncertain. Business Trends Our businesses participate inthe United States , South American and certain other international health markets. Overall spending on health care is impacted by inflation; utilization; 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, such as the economic impact of COVID-19, 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, including any potential impacts from COVID-19 and the Health Insurance Tax. We frequently evaluate and adjust our approach in each of the local markets we serve, considering all relevant factors, such as product positioning, price competitiveness and environmental, competitive, legislative and regulatory considerations, including minimum medical loss ratio (MLR) thresholds. We will continue seeking to balance growth and profitability across all 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 amid reform changes. Pricing for contracts that cover some portion of calendar year 2021 will reflect the permanent repeal of the Health Insurance Tax. Government programs in the public and senior sector tend to receive lower rates of increase than the commercial market due to governmental budget pressures and lower cost trends. 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. The uncertain impact of COVID-19 may impact our ability to estimate medical costs payable, which could result in increased variability to medical cost reserve development in future periods. As a result of higher than expected care deferrals, favorable reserve development of$1.4 billion occurred in the second quarter. Regulatory Trends and Uncertainties Following is a summary of management's view of regulatory trends and uncertainties. For additional information regarding regulatory trends and uncertainties, see Part I, Item 1 "Business - Government Regulation," Part 1, Item 1A, "Risk Factors," Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2019 10-K and " Risk Factors " in Part II, Item 1A of this report. Medicare Advantage Rates. Final 2021 Medicare Advantage rates resulted in an increase in industry base rates of approximately 1.7%, short of the industry forward medical cost trend, creating continued pressure in the Medicare Advantage program. Affordable Care Act (ACA) Tax. After a moratorium in 2019, the industry-wide amount of the Health Insurance Tax for 2020, which is primarily borne by customers, is$15.5 billion , with our portion being approximately$3.0 billion . The return of the tax impacts year-over-year comparability of our financial statements, including revenues, operating costs, medical care ratio (MCR), operating cost ratio, effective tax rate and cash flows from operations. The ACA Tax was permanently repealed byCongress , effectiveJanuary 1, 2021 . 17
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SELECTED OPERATING PERFORMANCE AND OTHER SIGNIFICANT ITEMS The following summarizes select second quarter 2020 year-over-year operating comparisons to second quarter 2019, which were significantly impacted by the effects of COVID-19 on the health system. •Consolidated revenues grew 3%, UnitedHealthcare revenues grew 1% and Optum revenues grew 17%. •UnitedHealthcare served 425,000 fewer people domestically primarily due to increased unemployment and expected attrition in commercial group benefits and the proactive withdrawal from a Medicaid market. •Consolidated earnings from operations increased, primarily due to temporary care deferrals caused by COVID-19, including increases at UnitedHealthcare and Optum. •Diluted earnings per common share increased to$6.91 . •Cash flows from operations for the six months endedJune 30, 2020 were$12.9 billion . •Return on equity was 44.0%. RESULTS SUMMARY The following table summarizes our consolidated results of operations and other financial information: Six Months Ended (in millions, except percentages and Three Months EndedJune 30 , Increase/(Decrease)June 30 , Increase/(Decrease) per share data) 2020 2019 2020 vs. 2019 2020 2019 2020 vs. 2019 Revenues: Premiums$ 49,394 $ 47,164 $ 2,230 5 %$ 100,034 $ 94,677 $ 5,357 6 % Products 8,247 8,353 (106) (1) 16,678 16,425 253 2 Services 4,156 4,496 (340) (8) 9,141 8,814 327 4 Investment and other income 341 582 (241) (41) 706 987 (281) (28) Total revenues 62,138 60,595 1,543 3 126,559 120,903 5,656 5 Operating costs: Medical costs 34,678 39,184 (4,506) (11) 75,678 78,123 (2,445) (3) Operating costs 10,001 8,415 1,586 19 20,016 16,932 3,084 18 Cost of products sold 7,501 7,598 (97) (1) 15,188 14,979 209 1 Depreciation and amortization 717 654 63 10 1,440 1,293 147 11 Total operating costs 52,897 55,851 (2,954) (5) 112,322 111,327 995 1 Earnings from operations 9,241 4,744 4,497 95 14,237 9,576 4,661 49 Interest expense (430) (418) (12) 3 (867) (818) (49) 6 Earnings before income taxes 8,811 4,326 4,485 104 13,370 8,758 4,612 53 Provision for income taxes (2,115) (941) (1,174) 125 (3,209) (1,816) (1,393) 77 Net earnings 6,696 3,385 3,311 98 10,161 6,942 3,219 46 Earnings attributable to noncontrolling interests (59) (92) 33 (36) (142) (182) 40 (22) Net earnings attributable toUnitedHealth Group common shareholders$ 6,637 $ 3,293 $ 3,344 102 %$ 10,019 $ 6,760 $ 3,259 48 % Diluted earnings per share attributable toUnitedHealth Group common shareholders$ 6.91 $ 3.42 $ 3.49 102 %$ 10.43 $ 6.97 $ 3.46 50 % Medical care ratio (a) 70.2 % 83.1 % (12.9) % 75.7 % 82.5 % (6.8) % Operating cost ratio 16.1 13.9 2.2 15.8 14.0 1.8 Operating margin 14.9 7.8 7.1 11.2 7.9 3.3 Tax rate 24.0 21.8 2.2 24.0 20.7 3.3 Net earnings margin (b) 10.7 5.4 5.3 7.9 5.6 2.3 Return on equity (c) 44.0 % 25.1 % 18.9 % 33.7 % 25.9 % 7.8 % (a)Medical care ratio is calculated as medical costs divided by premium revenue. (b)Net earnings margin attributable toUnitedHealth Group shareholders. (c)Return on equity is calculated as annualized net earnings attributable toUnitedHealth 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 quarters in the year presented. 18 -------------------------------------------------------------------------------- Table of Contents 2020 RESULTS OF OPERATIONS COMPARED TO 2019 RESULTS OF OPERATIONS Consolidated Financial Results Revenue The increases in revenue were primarily driven by the increase in the number of individuals served through Medicare Advantage; pricing trends; and acquisition and organic growth across the Optum business, primarily due to expansion in pharmacy care services and care delivery. The increases were partially offset by decreased individuals served through our Medicaid, commercial and Global benefits businesses; decreases in our fee-for-service care delivery and other volume-based businesses, primarily as a result of the impacts of COVID-19 on the economy and health system; and certain customer assistance programs. Medical Costs and MCR Medical costs decreased as a result of the temporary deferral of care due to COVID-19 and decreased people served in Medicaid, commercial and Global, partially offset by growth in people served through Medicare Advantage and medical cost trends. The MCR decreased primarily due to the temporary deferral of care and the revenue effects of the return of the Health Insurance Tax. Operating Cost Ratio The operating cost ratio increased primarily due to the impact of the return of the Health Insurance Tax and the Company's COVID-19 response efforts. Income Tax Rate Our effective tax rate increased primarily due to the impact of the return of the nondeductible Health Insurance Tax. 19 -------------------------------------------------------------------------------- Table of Contents Reportable Segments See Note 8 of Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this report for more information on our segments. We utilize various metrics to evaluate and manage our reportable segments, including individuals served by UnitedHealthcare by major market segment and funding arrangement, people served byOptumHealth and adjusted scripts forOptumRx . These metrics are the main drivers of revenue, earnings and cash flows at each business. The metrics also allow management and investors to evaluate and understand business mix, customer penetration and pricing trends when comparing the metrics to revenue by segment. The following table presents a summary of the reportable segment financial information: Six Months Ended Three Months EndedJune 30 , Increase/(Decrease)June 30 , Increase/(Decrease) (in millions, except percentages) 2020 2019 2020 vs. 2019 2020 2019 2020 vs. 2019 Revenues UnitedHealthcare$ 49,107 $ 48,594 $ 513 1 %$ 100,175 $ 97,490 $ 2,685 3 % OptumHealth 9,139 7,148 1,991 28 18,331 13,861 4,470 32 OptumInsight 2,632 2,339 293 13 5,126 4,528 598 13 OptumRx 21,371 18,923 2,448 13 42,928 36,740 6,188 17 Optum eliminations (447) (381) (66) 17 (851) (740) (111) 15 Optum 32,695 28,029 4,666 17 65,534 54,389 11,145 20 Eliminations (19,664) (16,028) (3,636) 23 (39,150) (30,976) (8,174) 26 Consolidated revenues$ 62,138 $ 60,595 $ 1,543 3 %$ 126,559 $ 120,903 $ 5,656 5 % Earnings from operations UnitedHealthcare$ 7,007 $ 2,642 $ 4,365 165 %$ 9,895 $ 5,596 $ 4,299 77 % OptumHealth 841 688 153 22 1,553 1,314 239 18 OptumInsight 561 525 36 7 1,097 957 140 15OptumRx 832 889 (57) (6) 1,692 1,709 (17) (1) Optum 2,234 2,102 132 6 4,342 3,980 362 9 Consolidated earnings from operations$ 9,241 $ 4,744 $ 4,497 95 %$ 14,237 $ 9,576 $ 4,661 49 % Operating margin UnitedHealthcare 14.3 % 5.4 % 8.9 % 9.9 % 5.7 % 4.2 % OptumHealth 9.2 9.6 (0.4) 8.5 9.5 (1.0) OptumInsight 21.3 22.4 (1.1) 21.4 21.1 0.3 OptumRx 3.9 4.7 (0.8) 3.9 4.7 (0.8) Optum 6.8 7.5 (0.7) 6.6 7.3 (0.7) Consolidated operating margin 14.9 % 7.8 % 7.1 % 11.2 % 7.9 % 3.3 % UnitedHealthcare
The following table summarizes UnitedHealthcare revenues by business:
Three Months Ended June 30 , Increase/(Decrease) Six Months Ended June 30 , Increase/(Decrease)
(in millions, except percentages) 2020 2019 2020 vs. 2019 2020 2019 2020 vs. 2019 UnitedHealthcare Employer & Individual$ 12,963 $ 14,032 $ (1,069) (8) %$ 27,243 $ 28,116 $ (873) (3) % UnitedHealthcare Medicare & Retirement 22,855 20,855 2,000 10 46,007 41,951 4,056 10UnitedHealthcare Community & State 11,523 11,186 337 3 22,976 22,368 608 3 UnitedHealthcare Global 1,766 2,521 (755) (30) 3,949 5,055 (1,106) (22) Total UnitedHealthcare revenues$ 49,107 $ 48,594 $ 513 1 %$ 100,175 $ 97,490 $ 2,685 3 % 20
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Table of Contents The following table summarizes the number of individuals served by our UnitedHealthcare businesses, by major market segment and funding arrangement:
June 30, Increase/(Decrease)
(in thousands, except percentages) 2020 2019 2020 vs. 2019
Commercial:
Risk-based 8,065 8,325 (260) (3) %
Fee-based 18,705 19,090 (385) (2)
Total commercial 26,770 27,415 (645) (2)
Medicare Advantage 5,605 5,190 415 8
Medicaid 6,210 6,360 (150) (2)
Medicare Supplement (Standardized) 4,450 4,495 (45) (1)
Total public and senior 16,265 16,045 220 1
Total UnitedHealthcare - domestic medical 43,035 43,460 (425) (1)
Global 5,365 6,070 (705) (12)
Total UnitedHealthcare - medical 48,400 49,530 (1,130) (2) %
Supplemental Data:
Medicare Part D stand-alone 4,120 4,430 (310) (7) %
Fee-based and risk-based commercial business decreased primarily due to
increased unemployment and expected attrition. Medicare Advantage increased due
to growth in people served through individual Medicare Advantage plans. The
decrease in people served through Medicaid was primarily driven by the proactive
withdrawal from a market as well as by states managing eligibility, partially
offset by increases in Dual Special Needs Plans and states easing
redetermination requirements. The decrease in people served by UnitedHealthcare
Global is a result of our continued affordability efforts, underwriting
discipline and increased unemployment.
UnitedHealthcare's revenue increased due to growth in the number of individuals
served through Medicare Advantage, a greater mix of people with higher acuity
needs and the return of the Health Insurance Tax, partially offset by a decrease
in the number of individuals served through the commercial, Medicaid and Global
businesses and foreign currency impacts. Earnings from operations increased due
to the deferral of care caused by COVID-19 on the health system and the factors
impacting revenue, partially offset by the return of the Health Insurance Tax,
COVID-19 treatment and testing costs and customer assistance programs.
Optum
Total revenues increased as each segment reported revenue growth. Earnings from
operations increased due to growth at OptumHealth and OptumInsight , partially
offset by decreased earnings from operations at OptumRx .
The results by segment were as follows:
OptumHealth
Revenue and earnings at OptumHealth increased primarily due to acquisitions and
organic growth in risk-based care delivery, partially offset by reduced care
volumes in fee-for-service arrangements as a result of COVID-19. Earnings from
operations also increased at our risk-based business due to the deferral of care
caused by COVID-19. OptumHealth served approximately 97 million people as of
June 30, 2020 compared to 95 million people as of June 30, 2019 .
OptumInsight
Revenue and earnings from operations at OptumInsight increased primarily due to
organic growth and acquisitions in managed services, partially offset by
decreased activity levels in volume-based services due to the impact of COVID-19
on payer and care provider clients.
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OptumRx
Revenue at OptumRx and the corresponding eliminations increased due to the
inclusion of retail pharmacy co-payments. See Note 1 of Notes to the Condensed
Consolidated Financial Statements included in Part I, Item 1 of this report
for further detail. Revenue at OptumRx also increased due to organic and
acquisition growth in specialty pharmacy and new client wins, partially offset
by an expected large client transition and lower script volumes driven by
COVID-19 related care deferral, primarily related to first fill script volumes.
Earnings from operations decreased primarily due to the impact of lower script
volumes, partially offset by improved supply chain management. OptumRx fulfilled
316 million and 343 million adjusted scripts in the second quarters of 2020 and
2019, respectively. The decrease was due to the expected large client transition
and lower script volumes due to the impacts of COVID-19, partially offset by
organic growth.
LIQUIDITY, FINANCIAL CONDITION AND CAPITAL RESOURCES
Liquidity
Summary of our Major Sources and Uses of Cash and Cash Equivalents
Six Months Ended June 30, Increase/(Decrease)
(in millions) 2020 2019 2020 vs. 2019
Sources of cash:
Cash provided by operating activities $ 12,946 $ 9,108 $ 3,838 Issuances of short-term borrowings and long-term debt, net of repayments
5,215 5,674 (459)
Proceeds from common stock issuances 870 448 422
Customer funds administered 1,263 1,435 (172)
Sales and maturities of investments, net of purchases 573 - 573
Other - 504 (504)
Total sources of cash 20,867 17,169
Uses of cash:
Common stock repurchases (1,691) (4,501) 2,810
Cash paid for acquisitions, net of cash assumed (3,952) (4,751) 799
Purchases of investments, net of sales and maturities - (1,654) 1,654
Purchases of property, equipment and capitalized
software (920) (977) 57
Cash dividends paid (2,212) (1,884) (328)
Other (607) (529) (78)
Total uses of cash (9,382) (14,296)
Effect of exchange rate changes on cash and cash
equivalents (143) 6 (149)
Net increase in cash and cash equivalents $ 11,342 $ 2,879 $ 8,463
2020 Cash Flows Compared to 2019 Cash Flows
Increased cash flows provided by operating activities were primarily driven by
increased net earnings as a result of the temporary deferral of care experienced
at our benefits businesses related to COVID-19 and the timing of federal income
tax payments, which will be paid in the third quarter. Other significant changes
in sources or uses of cash year-over-year included decreased common stock
repurchases and decreased net purchases of investments.
Financial Condition
As of June 30, 2020 , our cash, cash equivalent, available-for-sale debt
securities and equity securities balances of $60.3 billion included
approximately $22.3 billion of cash and cash equivalents (of which $4.2 billion
was available for general corporate use), $36.0 billion of debt securities and
$2.0 billion of investments in equity securities. Given the significant portion
of our portfolio held in cash and cash equivalents, we do not anticipate
fluctuations in the aggregate fair value of our financial assets to have a
material impact on our liquidity or capital position. Our available-for-sale
debt portfolio had a weighted-average duration of 3.5 years and a
weighted-average credit rating of "Double A" as of June 30, 2020 . When multiple
credit ratings are available for an individual security, the average of the
available ratings is used to determine the weighted-average credit rating.
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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 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 5 of
Notes to the Condensed Consolidated Financial Statements included in Part I,
Item 1 of this report.
Our revolving bank credit facilities contain various covenants, including
covenants requiring us to maintain a defined debt to debt-plus-shareholders'
equity ratio of not more than 60%. As of June 30, 2020 , our debt to
debt-plus-shareholders' equity ratio, as defined and calculated under the credit
facilities, was approximately 39%.
Long-Term Debt. Periodically, we access capital markets and 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 long-term debt, see Note 5 of Notes
to the Condensed Consolidated Financial Statements included in Part I, Item 1
of this report.
Credit Ratings. Our credit ratings as of June 30, 2020 were as follows:
Moody's S&P Global Fitch A.M. Best
Ratings Outlook Ratings Outlook Ratings Outlook Ratings OutlookSenior 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, including the impacts of COVID-19 and related governmental market stabilization programs. 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. During the six months endedJune 30, 2020 , we repurchased 6 million shares at an average price of$271.32 per share. As ofJune 30, 2020 , we had Board authorization to purchase up to 66 million shares of our common stock. Dividends. InJune 2020 , the Company's Board of Directors increased the Company's quarterly cash dividend to shareholders to an annual rate of$5.00 compared to$4.32 per share. For more information on our dividend, see Note 6 of Notes to the Condensed Consolidated Fina ncial Statements included in Part 1, Item 1 of this report. For additional liquidity discussion, see Note 10 of Notes to the Consolidated Financial Statements in Part II, Item 8, "Financial Statements and Supplementary Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 in our 2019 10-K. CONTRACTUAL OBLIGATIONS AND COMMITMENTS A summary of future obligations under our various contractual obligations and commitments as of December 31, 2019 was disclosed in our 2019 10-K. During the six months endedJune 30, 2020 , there were no material changes to this previously disclosed information outside the ordinary course of business. However, we continually evaluate opportunities to expand our operations, including through internal development of new products, programs and technology applications and acquisitions. RECENTLY ISSUED ACCOUNTING STANDARDS See Note 1 of Notes to the Condensed Consolidated Financial Statements in Part I, Item 1 of this report for a discussion of new accounting pronouncements that affect us. 23 -------------------------------------------------------------------------------- Table of Contents CRITICAL ACCOUNTING ESTIMATES In preparing our Condensed Consolidated Financial Statements, we are required to make judgments, assumptions and estimates, which we believe are reasonable and prudent based on the available facts and circumstances. These judgments, assumptions and estimates affect certain of our revenues and expenses and their related balance sheet accounts and disclosure of our contingent liabilities. We base our assumptions and estimates primarily on historical experience and consider known and projected trends. On an ongoing basis, we re-evaluate our selection of assumptions and the method of calculating our estimates. Actual results, however, may materially differ from our calculated estimates, and this difference would be reported in our current operations. Our critical accounting estimates include medical costs payable and goodwill. For a detailed description of our critical accounting estimates, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 in our 2019 10-K. For a detailed discussion of our significant accounting policies, see Note 2 of Notes to the Consolidated Financial Statements in Part II, Item 8, "Financial Statements and Supplementary Data" in our 2019 10-K. FORWARD-LOOKING STATEMENTS The statements, estimates, projections, guidance or outlook contained in this document include "forward-looking" statements which are intended to take advantage of the "safe harbor" provisions of the federal securities law. The words "believe," "expect," "intend," "estimate," "anticipate," "forecast," "outlook," "plan," "project," "should" and similar expressions identify forward-looking statements. These statements may contain information about financial prospects, economic conditions and trends and involve risks and uncertainties. Actual results could differ materially from those that management expects, depending on the outcome of certain factors including: risks associated with public health crises, large-scale medical emergencies and pandemics, such as the COVID-19 pandemic; our ability to effectively estimate, price for and manage medical costs; new or changes in existing health care laws or regulations, or their enforcement or application; the DOJ's legal action relating to the risk adjustment submission matter; our ability to maintain and achieve improvement in quality scores impacting revenue; reductions in revenue or delays to cash flows received under government programs; changes in Medicare, the CMS star ratings program or the application of risk adjustment data validation audits; failure to maintain effective and efficient information systems or if our technology products do not operate as intended; cyber-attacks, other privacy/data security incidents, or our failure to comply with related regulations; risks and uncertainties associated with the pharmacy benefits management industry; competitive pressures; changes in or challenges to our public sector contract awards; our ability to contract on competitive terms with physicians, hospitals and other service providers; failure to achieve targeted operating cost productivity improvements; increases in costs and other liabilities associated with litigation, government investigations, audits or reviews; failure to manage successfully our strategic alliances or complete or receive anticipated benefits of strategic transactions; fluctuations in foreign currency exchange rates; downgrades in our credit ratings; our investment portfolio performance; impairment of our goodwill and intangible assets; and our ability to obtain sufficient funds from our regulated subsidiaries or from external financings to fund our obligations, maintain our debt to total capital ratio at targeted levels, maintain our quarterly dividend payment cycle, or continue repurchasing shares of our common stock. This above list is not exhaustive. We discuss these matters, and certain risks that may affect our business operations, financial condition and results of operations more fully in our filings with theSEC , including our reports on Forms 10-K, 10-Q and 8-K. By their nature, forward-looking statements are not guarantees of future performance or results and are subject to risks, uncertainties and assumptions that are difficult to predict or quantify. Actual results may vary materially from expectations expressed or implied in this document or any of our prior communications. 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, except as required by law. 24
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