UNITEDHEALTH GROUP INC. The following discussion should be read together with the accompanying
Consolidated Financial Statements and Notes to the Consolidated Financial Statements thereto included in Part II Item 8, "Financial Statements and Supplementary Data ." Readers are cautioned 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 which 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 2020 and 2019 are not included in this Form 10-K and 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 endedDecember 31, 2020 . EXECUTIVE OVERVIEW GeneralUnitedHealth Group is a diversified health care company with a mission to help people live healthier lives and help make the health system work better for everyone. Our two complementary businesses - Optum and UnitedHealthcare - are driven by this unified mission and vision to improve health care access, affordability, experiences and outcomes for the individuals and organizations we are privileged to serve. We have four reportable segments across our two business platforms, Optum and UnitedHealthcare: •Optum Health; •Optum Insight; •Optum Rx; and •UnitedHealthcare, which includes UnitedHealthcare Employer & Individual, UnitedHealthcare Medicare & Retirement,UnitedHealthcare Community & State and UnitedHealthcare Global. Further information on our business and reportable segments is presented in Part I, Item 1, "Business" and in Note 13 of the Notes to the Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data . " Business Trends Our businesses participate inthe United States ,South America and certain other international health markets. Inthe 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 macroeconomic 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. 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 the small group, large group and individual segments. We expect broad-based competition to continue as the industry adapts to individual and employer needs. 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 pricing trends; we also believe 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 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. 25 -------------------------------------------------------------------------------- Table of Contents Medical Cost Trends. Our medical cost trends primarily relate to changes in unit costs, health system utilization and prescription drug costs. COVID-19 related care costs as well as the deferral of care have impacted medical cost trends in 2021 and may continue to do so in 2022 and subsequent years. Future medical cost trends may be impacted by increased consumer demand for care, potentially even higher acuity care, due to the temporary deferral of care since the onset of the pandemic. 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 continued uncertain impact of COVID-19 may impact our ability to estimate medical costs payable, which has resulted in, and could continue to result in, increased variability to medical cost reserve development. 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 performance-based care provider payment models rewarding 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. This trend is creating needs for health management services which 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 regulatory matters. For additional information regarding regulatory trends and uncertainties, see Part I, Item 1 "Business - Government Regulation" and Item 1A, "Risk Factors." Medicare Advantage Rates. Final 2022 Medicare Advantage rates resulted in an increase in industry base rates of approximately 4.1%, short of the industry forward medical cost trend, creating 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 supplementing 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 (Health Insurance Tax). The Health Insurance Tax was permanently repealed byCongress , effectiveJanuary 1, 2021 . The permanent repeal 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. 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. In 2021, overall care activity continued to increase, including a mix of temporary deferral of care activity and COVID-19 related care costs. The temporary deferral of care was more than offset by COVID-19 related care and testing costs, rebate requirements and other revenue impacts and general economic impacts. In future periods, care patterns may moderately exceed normal baselines as previously deferred care is obtained and acuity temporarily rises due to missed regular care. From time to time, health system capacity may be subject to possible increased volatility due to the pandemic. Specific trends and uncertainties related to our two business platforms are as follows: Optum. COVID-19 related care costs continued to impact ourOptum Health value-based care delivery businesses, which were partially offset by the continued temporary deferral of care. The temporary deferral of care reduced fee-for-service care delivery volume, as well as Optum Insight and Optum Rx volume-based business activity, although we expect the impact to continue decreasing as care returns to, and potentially exceeds, normal levels. We believe COVID-19 will continue to influence customer and consumer behavior, both during and after the pandemic, which could impact how and where care is delivered and the manner in which consumers wish to receive their prescription drugs or infusion services. As a result of the dynamic situation and broad-reaching impact to the health system, the ultimate impact of COVID-19 on our Optum businesses is uncertain. 26 -------------------------------------------------------------------------------- Table of Contents UnitedHealthcare. In 2021, we continued expanded benefit coverage in areas such as COVID-19 related care and testing, telemedicine, and pharmacy; we also continued to assist our customers, care providers, members and communities in addressing the COVID-19 crisis. UnitedHealthcare's 2021 results of operations were negatively impacted by COVID-19 related care and testing, rebate requirements and other revenue impacts, as well as broader economic impacts, partially offset by the continued deferral of care. The increase in people served through Medicaid was attributable in part to continuing action by states to ease eligibility redetermination requirements due to the COVID-19 public health emergency. Disrupted care patterns, as a result of the pandemic, have affected and may continue to temporarily affect the ability to obtain complete member health status information, impacting revenue in businesses utilizing risk adjustment methodologies. The ultimate overall impact is uncertain and dependent on the future pacing, intensity and duration of the pandemic, the severity of new variants of the COVID-19 virus, the effectiveness and extent of administration of vaccination and treatments and general economic uncertainty. SELECTED OPERATING PERFORMANCE ITEMS The following represents a summary of select 2021 year-over-year operating comparisons to 2020. •Consolidated revenues increased by 12%, UnitedHealthcare revenues increased 11% and Optum revenues grew 14%. •UnitedHealthcare served 2.1 million more people domestically, primarily driven by growth in community and senior programs. •Earnings from operations increased by 7%, including an increase of 19% at Optum, partially offset by a decrease of 3% at UnitedHealthcare. •Diluted earnings per common share increased 13% to$18.08 . •Cash flows from operations were$22.3 billion . •Return on equity was 25.2%. 27 -------------------------------------------------------------------------------- Table of Contents RESULTS SUMMARY The following table summarizes our consolidated results of operations and other financial information: (in millions, except percentages and For the Years Ended December 31, Change per share data) 2021 2020 2019 2021 vs. 2020 Revenues: Premiums$ 226,233 $ 201,478 $ 189,699 $ 24,755 12 % Products 34,437 34,145 31,597 292 1 Services 24,603 20,016 18,973 4,587 23 Investment and other income 2,324 1,502 1,886 822 55 Total revenues 287,597 257,141 242,155 30,456 12 Operating costs: Medical costs 186,911 159,396 156,440 27,515 17 Operating costs 42,579 41,704 35,193 875 2 Cost of products sold 31,034 30,745 28,117 289 1 Depreciation and amortization 3,103 2,891 2,720 212 7 Total operating costs 263,627 234,736 222,470 28,891 12 Earnings from operations 23,970 22,405 19,685 1,565 7 Interest expense (1,660) (1,663) (1,704) 3 - Earnings before income taxes 22,310 20,742 17,981 1,568 8 Provision for income taxes (4,578) (4,973) (3,742) 395 (8) Net earnings 17,732 15,769 14,239 1,963 12 Earnings attributable to noncontrolling interests (447) (366) (400) (81) 22
Net earnings attributable to
12 %
Diluted earnings per share attributable
to UnitedHealth Group common
shareholders $ 18.08 $ 16.03 $ 14.33 $ 2.05 13 %
Medical care ratio (a) 82.6 % 79.1 % 82.5 % 3.5 %
Operating cost ratio 14.8 16.2 14.5 (1.4)
Operating margin 8.3 8.7 8.1 (0.4)
Tax rate 20.5 24.0 20.8 (3.5)
Net earnings margin (b) 6.0 6.0 5.7 -
Return on equity (c) 25.2 % 24.9 % 25.7 % 0.3 %
________
(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.
2021 RESULTS OF OPERATIONS COMPARED TO 2020 RESULTS
Consolidated Financial Results
Revenues
The increases in revenues were primarily driven by the increase in the number of
individuals served through Medicare Advantage, Medicaid and commercial
offerings; pricing trends; and organic and acquisition growth across the Optum
business, primarily due to expansion in care delivery.
Medical Costs and MCR
Medical costs increased as a result of growth in people served through Medicare
Advantage, Medicaid and commercial offerings, as well as increased COVID-19
related care costs and medical cost trends, partially offset by higher temporary
care deferrals. The MCR increased due to increased COVID-19 related care costs
and the permanent repeal of the Health Insurance Tax, partially offset by
increased temporary care deferrals. Medical costs and the MCR were also impacted
by increased prior year favorable reserve development.
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Operating Cost Ratio
The operating cost ratio decreased primarily due to the permanent repeal of the
Health Insurance Tax, COVID-19 impacts on revenue and operating costs in the
prior year and operating efficiency gains, partially offset by business mix.
Income Tax Rate
Our effective tax rate decreased primarily due to the permanent repeal of the
nondeductible Health Insurance Tax.
Reportable Segments
See Note 13 of Notes to the Consolidated Financial Statements included in Part
II, Item 8, "Financial Statements and Supplement ary Data " 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 by Optum Health
and adjusted scripts for Optum Rx. 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, including the
mix of care delivered through accountable care models at Optum Health , 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:
For the Years Ended December 31, Change
(in millions, except percentages) 2021 2020 2019 2021 vs. 2020
Revenues
UnitedHealthcare $ 222,899 $ 200,875 $ 193,842 $ 22,024 11 %
Optum Health 54,065 39,808 30,317 14,257 36
Optum Insight 12,199 10,802 10,006 1,397 13
Optum Rx 91,314 87,498 74,288 3,816 4
Optum eliminations (2,013) (1,800) (1,661) (213) 12
Optum 155,565 136,308 112,950 19,257 14
Eliminations (90,867) (80,042) (64,637) (10,825) 14
Consolidated revenues $ 287,597 $ 257,141 $ 242,155 $ 30,456 12 %
Earnings from operations
UnitedHealthcare $ 11,975 $ 12,359 $ 10,326 $ (384) (3) %
Optum Health 4,462 3,434 2,963 1,028 30
Optum Insight 3,398 2,725 2,494 673 25
Optum Rx 4,135 3,887 3,902 248 6
Optum 11,995 10,046 9,359 1,949 19
Consolidated earnings from operations $ 23,970 $ 22,405 $ 19,685 $ 1,565 7 %
Operating margin
UnitedHealthcare 5.4 % 6.2 % 5.3 % (0.8) %
Optum Health 8.3 8.6 9.8 (0.3)
Optum Insight 27.9 25.2 24.9 2.7
Optum Rx 4.5 4.4 5.3 0.1
Optum 7.7 7.4 8.3 0.3
Consolidated operating margin 8.3 % 8.7 % 8.1 % (0.4) %
UnitedHealthcare
The following table summarizes UnitedHealthcare revenues by business:
For the Years Ended December 31, Change
(in millions, except percentages) 2021 2020 2019 2021 vs. 2020
UnitedHealthcare Employer & Individual $ 60,023 $ 55,872 $ 56,945 $ 4,151 7 %
UnitedHealthcare Medicare & Retirement 100,552 90,764 83,252 9,788 11
UnitedHealthcare Community & State 53,979 46,487 43,790 7,492 16
UnitedHealthcare Global 8,345 7,752 9,855 593 8
Total UnitedHealthcare revenues $ 222,899 $ 200,875 $ 193,842 $ 22,024 11 %
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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:
December 31, Change
(in thousands, except percentages) 2021 2020 2019 2021 vs. 2020
Commercial:
Risk-based 7,985 7,910 8,575 75 1 %
Fee-based 18,595 18,310 19,185 285 2
Total commercial 26,580 26,220 27,760 360 1
Medicare Advantage 6,490 5,710 5,270 780 14
Medicaid 7,655 6,620 5,900 1,035 16
Medicare Supplement (Standardized) 4,395 4,460 4,500 (65) (1)
Total community and senior 18,540 16,790 15,670 1,750
10
Total UnitedHealthcare - domestic medical 45,120 43,010 43,430 2,110 5 Global 5,510 5,425 5,720 85 2 Total UnitedHealthcare - medical 50,630 48,435 49,150 2,195 5 % Supplemental Data: Medicare Part D stand-alone 3,700 4,045 4,405 (345)
(9) %
Commercial business increased primarily due to acquisitions in risk-based and fee-based offerings and organic growth in innovative products. Medicare Advantage increased due to growth in people served through individual and group Medicare Advantage plans. The increase in people served through Medicaid was primarily driven by states continuing to ease redetermination requirements due to COVID-19, new state-based awards and growth in people served through Dual Special Needs Plans. UnitedHealthcare's revenues increased due to growth in the number of individuals served through Medicare Advantage and Medicaid, including a greater mix of people with higher acuity needs, and an increase in the number of individuals served through commercial benefits, partially offset by the permanent repeal of the Health Insurance Tax and the impacts of COVID-19 on risk adjusted business. Earnings from operations decreased due to increased COVID-19 related care costs and the impacts of COVID-19 on risk adjusted business, partially offset by higher temporary deferral of care and growth in people served across our domestic businesses. Optum Total revenues and earnings from operations increased due to growth across the Optum businesses. The results by segment were as follows:Optum Health Revenues atOptum Health increased primarily due to organic growth in value-based arrangements, acquisitions in care delivery and the impact of COVID-19 at our fee-based businesses as consumers resumed elective care. Earnings from operations increased due to the factors impacting revenues as well as cost management initiatives and increased investment income. COVID-19 related care costs and temporary care deferrals affected earnings from operations at our value-based and fee-based businesses in offsetting manners.Optum Health served approximately 100 million people as ofDecember 31, 2021 compared to 98 million people as ofDecember 31, 2020 . Optum Insight Revenues and earnings from operations at Optum Insight increased due to growth in technology and managed services, including expanding relationships serving health systems. Earnings from operations also increased due to productivity gains and cost management initiatives. Optum Rx Revenues and earnings from operations at Optum Rx increased due to higher script volumes from growth in people served, increased utilization and organic growth in pharmacy care services. Earnings from operations also increased as a result of continued supply chain and cost management initiatives. Optum Rx fulfilled 1.4 billion and 1.3 billion adjusted scripts in 2021 and 2020, respectively. In addition to the factors contributing to revenue growth, adjusted scripts also increased due to the dispensing of COVID-19 vaccines. 30 -------------------------------------------------------------------------------- Table of Contents 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, minimum levels of statutory capital, as defined by their respective jurisdictions, and restrictions on the timing and amount of dividends paid to their parent companies. OurU.S. regulated subsidiaries paid their parent companies dividends of$8.0 billion and$8.3 billion in 2021 and 2020, respectively. See Note 10 of the Notes to the Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data " for further detail concerning our regulated subsidiary dividends. Our nonregulated businesses also generate significant cash flows from operations available for general corporate use. Cash flows generated by these entities, combined with dividends from our regulated entities and financing through the issuance of long-term debt as well as issuance of commercial paper or the ability to draw under our committed credit facilities, further strengthen our operating and financial flexibility. We use these cash flows to expand our businesses through acquisitions, reinvest in our businesses through capital expenditures, repay debt and return capital to our shareholders through dividends and repurchases of our common stock. Summary of our Major Sources and Uses of Cash and Cash Equivalents For the Years Ended December 31, Change (in millions) 2021 2020 2019 2021 vs. 2020 Sources of cash: Cash provided by operating activities$ 22,343
2,481 2,586 3,994 (105)
Proceeds from common share issuances 1,355 1,440 1,037 (85)
Customer funds administered 622 1,677 13 (1,055)
Other - - 219 -
Total sources of cash 26,801 27,877 23,726
Uses of cash:
Cash paid for acquisitions, net of cash assumed (4,821) (7,139) (8,343) 2,318
Cash dividends paid (5,280) (4,584) (3,932) (696)
Common share repurchases (5,000) (4,250) (5,500) (750)
Purchases of property, equipment and capitalized
software (2,454) (2,051) (2,071) (403)
Purchases of investments, net of sales and maturities (1,843) (2,836) (2,504) 993
Purchases of redeemable noncontrolling interests (1,338) - (618) (1,338)
Other (1,549) (965) (619) (584)
Total uses of cash (22,285) (21,825) (23,587)
Effect of exchange rate changes on cash and cash
equivalents (62) (116) (20) 54
Net increase in cash and cash equivalents $ 4,454
2021 Cash Flows Compared to 2020 Cash Flows
Cash flows provided by operating activities were largely consistent, with higher
net earnings being offset by changes in working capital accounts. Other
significant changes in sources or uses of cash year-over-year included decreased
customer funds administered and increased purchases of redeemable noncontrolling
interests, share repurchases and cash dividends paid, partially offset by
decreased cash paid for acquisitions and net purchases of investments.
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Financial Condition
As of December 31, 2021 , our cash, cash equivalent, available-for-sale debt
securities and equity securities balances of $65.1 billion included $21.4
billion of cash and cash equivalents (of which $2.8 billion was available for
general corporate use), $40.2 billion of debt securities and $3.5 billion of
equity securities. Given the significant portion of our portfolio held in cash
equivalents, we do not anticipate fluctuations in the aggregate fair value of
our financial assets to have a material impact on our liquidity or capital
position. Other sources of liquidity, primarily from operating cash flows and
our commercial paper program, which is fully supported by our bank credit
facilities, reduce the need to sell investments during adverse market
conditions. See Note 4 of the 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 3.9
years and a weighted-average credit rating of "Double A" as of December 31,
2021 . 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
Cash Requirements. The Company's cash requirements within the next twelve months
include medical costs payable, accounts payable and accrued liabilities,
short-term borrowings and current maturities of long-term debt, other current
liabilities, and purchase commitments and other obligations. We expect the cash
required to meet these obligations to be primarily generated through cash flows
from current operations; cash available for general corporate use; and the
realization of current assets, such as accounts receivable.
Our long-term cash requirements under our various contractual obligations and
commitments include:
•Debt Obligations. See Note 8 of the Notes to the Consolidated Financial
Statements included in Part II, Item 8, "Financial Statements and
Supplementary Data " for further detail of our long-term debt and the
timing of expected future payments. Interest coupon payments are typically paid
semi-annually.
•Operating leases. See Note 12 of the Notes to the Consolidated Financial
Statements included in Part II, Item 8, "Financial Statements and
Supplementary Data " for further detail of our obligations and the timing
of expected future payments.
•Purchase and other obligations. These include $4.7 billion , $2.7 billion of
which is expected to be paid within the next twelve months, of fixed or minimum
commitments under existing purchase obligations for goods and services,
including agreements cancelable with the payment of an early termination
penalty, and remaining capital commitments for venture capital funds and other
funding commitments. These amounts exclude agreements cancelable without penalty
and liabilities to the extent recorded in our Consolidated Balance Sheets as of
December 31, 2021 .
•Other Liabilities. These include other long-term liabilities reflected in our
Consolidated Balance Sheets as of December 31, 2021 , including obligations
associated with certain employee benefit programs, unrecognized tax benefits and
various long-term liabilities, which have some inherent uncertainty in the
timing of these payments.
•Redeemable noncontrolling interests. See Note 2 of the Notes to the
Consolidated Financial Statements included in Part II, Item 8, "Financial
Statements and Supplementary Data " for further detail. We do not have
any material required redemptions in the next twelve months.
We expect the cash required to meet our long-term obligations to be primarily
generated through future cash flows from operations. However, we also have the
ability to generate cash to satisfy both our current and long-term requirements
through the issuance of commercial paper, issuance of long-term debt, or drawing
under our committed credit facilities or the ability to sell investments. We
believe our capital resources are sufficient to meet future, short-term and
long-term, liquidity needs.
Short-Term Borrowings. 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 the Notes to the
Consolidated Financial Statements included in Part II, Item 8, "Financial
Statements and Supplementary Data . "
Our revolving bank credit facilities contain various covenants, including
covenants requiring us to maintain a defined debt to debt-plus-shareholders'
equity ratio of not more than 60%, subject to increase in certain circumstances
set forth in the applicable credit agreement. As of December 31, 2021 , our debt
to debt-plus-shareholders' equity ratio, as defined and calculated under the
credit facilities, was 36%.
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 the Notes to the
Consolidated Financial Statements included in Part II, Item 8 "Financial
Statements and Supplementary Data . "
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Credit Ratings. Our credit ratings as of December 31, 2021 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 Stable
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, 2021 , we had Board authorization to
purchase up to 45 million shares of our common stock. For more information on
our share repurchase program, see Note 10 of the Notes to the Consolidated
Financial Statements included in Part II, Item 8, "Financial Statements. and
Supplementary Data . "
Dividends. In June 2021 , the Company's Board of Directors increased the
Company's quarterly cash dividend to shareholders to an annual rate of $5.80
compared to $5.00 per share, which the Company had paid since June 2020 . For
more information on our dividend, see Note 10 of the Notes to the Consolidated
Financial Statements included in Part II, Item 8, "Financial Statements. and
Supplementary Data . "
Pending Acquisitions. In 2021, we entered into agreements to acquire multiple
companies in the health care sector, most notably, Change Healthcare (NASDAQ:
CHNG), subject to regulatory approval and other customary closing conditions.
Additionally, in January 2022 , we entered into agreements to acquire multiple
companies in the health care sector, subject to regulatory approval and other
customary closing conditions. The total anticipated capital required for these
acquisitions, excluding the payoff of acquired indebtedness, is approximately
$12 billion .
We do not have other significant contractual obligations or commitments
requiring 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.
CRITICAL ACCOUNTING ESTIMATES
Critical accounting estimates are those estimates requiring management to make
challenging, subjective or complex judgments, often because they must estimate
the effects of matters inherently uncertain and may change in subsequent
periods. Critical accounting estimates involve judgments and uncertainties which
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 rendered on behalf of 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, 2021 , our
days outstanding in medical payables was 47 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 period (unfavorable development). Medical costs in
2021, 2020 and 2019 included favorable medical cost development related to prior
years of $1.7 billion , $880 million and $580 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 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
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to claim receipt, claim levels and processing cycles, as well as other factors.
Our judgments also consider the impacts of COVID-19 on these 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, 2021 :
Completion Factors Increase (Decrease)
(Decrease) Increase in Factors In Medical Costs Payable
(in millions)
(0.75)% $ 686
(0.50) 456
(0.25) 228
0.25 (226)
0.50 (452)
0.75 (676)
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, which included consideration of COVID-19.
These factors include but are 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; and
catastrophes, epidemics and pandemics, such as COVID-19.
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, 2021 :
Medical Cost PMPM Quarterly Trend Increase (Decrease)
Increase (Decrease) in Factors In Medical Costs Payable
(in millions)
3% $ 895
2 597
1 298
(1) (298)
(2) (597)
(3) (895)
The completion factors and medical costs PMPM trend factors analyses above
include outcomes 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, 2021 ;
however, actual claim payments may differ from established estimates as
discussed above. Assuming a hypothetical 1% difference between our December 31,
2021 estimates of medical costs payable and actual medical costs payable,
excluding AARP Medicare Supplement Insurance and any potential offsetting impact
from premium rebates, 2021 net earnings would have increased or decreased by
approximately $184 million .
For more detail related to our medical cost estimates, see Note 2 of the Notes
to the Consolidated Financial Statements included in Part II, Item 8, "Financial
Statements and Supplementary Data ."
Goodwill
We evaluate goodwill for impairment annually or more frequently when an event
occurs or circumstances change indicating 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 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
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Table of Contents factors; changes in overall financial performance; and any other relevant events and uncertainties impacting a reporting unit. If our qualitative assessment indicates a 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 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, an impairment is recognized for the difference, up to the carrying amount of goodwill. We estimate the fair values of our reporting units using a discounted cash flow method or a weighted combination of discounted cash flows and a market-based method. The discounted cash flow method includes assumptions about a wide variety of internal and external factors. Significant assumptions used in the discounted cash flow method include financial projections of free cash flow, including revenue trends, medical costs trends, operating productivity, income taxes and capital levels; long-term growth rates for determining terminal value beyond the discretely forecasted periods; and discount rates. Financial projections 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. 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 reflecting 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. Additionally, as part of our quantitative impairment testing, we perform various sensitivity analyses on certain key assumptions, such as discount rates, cash flow projections and peer company multiples to analyze the potential for a material impact. The market-based method requires determination of an appropriate peer group whose securities are traded on an active market. The peer group is used to derive market multiples to estimate fair value. As ofOctober 1, 2021 , 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 which may be invested in any one issuer and generally limits our investments toU.S. government and agency securities, state and municipal securities and corporate debt obligations of investment grade. Concentrations of credit risk with respect to accounts receivable are limited due to the large number of employer groups and other customers constituting our client base. As ofDecember 31, 2021 , there were no significant concentrations of credit risk.
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