UNITEDHEALTH GROUP INC. The following discussion should be read together with the accompanying Condensed Consolidated Financial Statements and Notes and with our 2021 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 ," the "Company," "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 2021 10-K and in the discussion below. EXECUTIVE OVERVIEW GeneralUnitedHealth Group Incorporated is a health care and well-being company with a mission to help people live healthier lives and help make the health system work better for everyone. Our two distinct, yet complementary business platforms - Optum and UnitedHealthcare - are working to help build a modern, high-performing health system through improved access, affordability, outcomes and experiences 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 and
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 2021 10-K and additional information on our segments, including the realignment of our UnitedHealthcare operating segments to combine UnitedHealthcare Global and UnitedHealthcare Employer and Individual, can be found in this Item 2 and in Note 6 of Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this report. Business Trends Our businesses participate inthe United States ,South America 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 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 all relevant factors, such as product positioning, price competitiveness and environmental, competitive, legislative and regulatory considerations, including minimum medical loss ratio (MLR) thresholds and similar revenue adjustments. We will continue seeking to balance growth and profitability across all 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.
Government programs in the community 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. COVID-19 related
care and testing costs as well as the deferral of care have also impacted
medical cost trends in the current year and may continue in future years. Future
medical cost trends may be impacted by increased consumer
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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 result in, increased variability to medical cost reserve development.
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. During the three months endedMarch 31, 2022 , overall care was near normal baseline levels. COVID-19 treatment and testing costs continue to be mitigated by the temporary deferral of care, both varying with COVID-19 incidence rates. In future periods, care patterns may moderately exceed normal baselines as previously deferred care is obtained. Though not yet experienced, acuity may temporarily rise due to missed regular care. COVID-19 may continue to influence customer and consumer behavior, which could impact how and where care is delivered, benefit product designs, and the manner in which consumers wish to receive their prescription drugs or infusion services. 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 AND OTHER SIGNIFICANT ITEMS
The following summarizes select first quarter 2022 year-over-year operating comparisons to first quarter 2021 and other financial results.
•Consolidated revenues grew 14%, UnitedHealthcare revenues grew 14% and Optum revenues grew 19%.
•UnitedHealthcare served nearly 1.5 million more people, led by growth in community and senior programs.
•Consolidated earnings from operations of$7.0 billion compared to$6.7 billion last year, included growth of 20% at Optum, partially offset by a decrease of 8% at UnitedHealthcare.
•Diluted earnings per common share were
•Cash flows from operations for the three months ended
•Return on equity was 27.8%.
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RESULTS SUMMARY
The following table summarizes our consolidated results of operations and other financial information:
(in millions, except percentages and per Three Months Ended March 31, Increase/(Decrease) share data) 2022 2021 2022 vs. 2021 Revenues: Premiums$ 64,070 $ 55,486 $ 8,584 15 % Products 9,340 8,340 1,000 12 Services 6,372 5,918 454 8 Investment and other income 367 452 (85) (19) Total revenues 80,149 70,196 9,953 14 Operating costs: Medical costs 52,523 44,904 7,619 17 Operating costs 11,401 10,223 1,178 12 Cost of products sold 8,487 7,572 915 12 Depreciation and amortization 788 758 30 4 Total operating costs 73,199 63,457 9,742 15 Earnings from operations 6,950 6,739 211 3 Interest expense (433) (397) (36) 9 Earnings before income taxes 6,517 6,342 175 3 Provision for income taxes (1,369) (1,364) (5) - Net earnings 5,148 4,978 170 3 Earnings attributable to noncontrolling interests (121) (116) (5) 4 Net earnings attributable to UnitedHealth Group common shareholders$ 5,027 $ 4,862 $ 165 3 % Diluted earnings per share attributable to UnitedHealth Group common shareholders$ 5.27 $ 5.08 $ 0.19 4 % Medical care ratio (a) 82.0 % 80.9 % 1.1 % Operating cost ratio 14.2 14.6 (0.4) Operating margin 8.7 9.6 (0.9) Tax rate 21.0 21.5 (0.5) Net earnings margin (b) 6.3 6.9 (0.6) Return on equity (c) 27.8 % 29.5 % (1.7) % (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.
2022 RESULTS OF OPERATIONS COMPARED TO 2021 RESULTS OF OPERATIONS
Consolidated Financial Results
Revenues
The increases in revenues were primarily driven by growth in the number of people served through Medicare Advantage, Medicaid and commercial offerings; pricing trends; and growth across the Optum businesses.
Medical Costs and MCR
Medical costs and MCR increased as a result of business mix and decreased favorable development. Medical costs also increased due to growth in people served through Medicare Advantage, Medicaid and commercial offerings.
Operating Cost Ratio
The operating cost ratio decreased primarily due to COVID-19 related revenue effects, operating efficiency gains and business mix.
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Reportable Segments
See Note 6 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 people served by UnitedHealthcare by major market segment and funding arrangement, people served byOptum 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 value-based care models atOptum Health , level and scope of services provided to people and pricing trends when comparing the metrics to revenue by segment.
The following table presents a summary of the reportable segment financial information:
Three Months Ended March 31, Increase/(Decrease)
(in millions, except percentages) 2022 2021 2022 vs. 2021
Revenues
UnitedHealthcare $ 62,595 $ 55,114 $ 7,481 14 %
Optum Health 16,682 12,403 4,279 34
Optum Insight 3,219 2,852 367 13
Optum Rx 23,911 21,604 2,307 11
Optum eliminations (553) (475) (78) 16
Optum 43,259 36,384 6,875 19
Eliminations (25,705) (21,302) (4,403) 21
Consolidated revenues $ 80,149 $ 70,196 $ 9,953 14 %
Earnings from operations
UnitedHealthcare $ 3,798 $ 4,108 $ (310) (8) %
Optum Health 1,366 962 404 42
Optum Insight 847 779 68 9
Optum Rx 939 890 49 6
Optum 3,152 2,631 521 20
Consolidated earnings from operations $ 6,950 $ 6,739 $ 211 3 %
Operating margin
UnitedHealthcare 6.1 % 7.5 % (1.4) %
Optum Health 8.2 7.8 0.4
Optum Insight 26.3 27.3 (1.0)
Optum Rx 3.9 4.1 (0.2)
Optum 7.3 7.2 0.1
Consolidated operating margin 8.7 % 9.6 % (0.9) %
UnitedHealthcare
The following table summarizes UnitedHealthcare revenues by business:
Three Months Ended March 31, Increase/(Decrease)
(in millions, except percentages) 2022 2021 2022 vs. 2021
UnitedHealthcare Employer & Individual - Domestic
$ 14,632 $ 1,190 8 % UnitedHealthcare Employer & Individual - Global (a) 2,133 2,035 98 5 % UnitedHealthcare Employer & Individual - Total (a) 17,955 16,667 1,288 8 % UnitedHealthcare Medicare & Retirement 29,100 25,474 3,626 14 UnitedHealthcare Community & State 15,540 12,973 2,567 20 Total UnitedHealthcare revenues$ 62,595 $ 55,114 $ 7,481 14 %
(a)On
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The following table summarizes the number of people served by our UnitedHealthcare businesses, by major market segment and funding arrangement:
March 31, Increase/(Decrease)
(in thousands, except percentages) 2022 2021 2022 vs. 2021
Commercial - domestic:
Risk-based 7,950 7,860 90 1 %
Fee-based 18,460 18,455 5 -
Total commercial - domestic 26,410 26,315 95 -
Medicare Advantage 6,890 6,335 555 9
Medicaid 7,810 6,975 835 12
Medicare Supplement (Standardized) 4,355 4,390 (35) (1)
Total community and senior 19,055 17,700 1,355 8
Total UnitedHealthcare - domestic medical 45,465 44,015 1,450 3
Commercial - global 5,500 5,460 40 1
Total UnitedHealthcare - medical 50,965 49,475 1,490 3 %
Supplemental Data:
Medicare Part D stand-alone 3,360 3,795 (435) (11) %
Commercial business increased due to growth in risk-based offerings. 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. Earnings from operations declined primarily
due to decreased favorable development partially offset by the factors impacting
revenue and COVID-19 impacts.
Optum
Total revenues and earnings from operations increased due to growth across the Optum businesses. The results by segment were as follows:
Revenues atOptum Health increased primarily due to organic growth in value-based care arrangements and acquisitions. Earnings from operations increased due to organic growth in value-based care arrangements, COVID-19 effects and cost management initiatives.Optum Health served approximately 100 million people as ofMarch 31, 2022 compared to 99 million people as ofMarch 31, 2021 . Optum Insight
Revenues and earnings from operations at Optum Insight increased due to growth in managed services and technology, with managed services growth driven by higher payer volumes and new health system partnerships.
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, including community-behavioral, specialty pharmacy
and e-commerce services. Earnings from operations also increased as a result of
continued supply chain management initiatives. Optum Rx fulfilled 352 million
and 329 million adjusted scripts in the first quarters of 2022 and 2021,
respectively.
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LIQUIDITY, FINANCIAL CONDITION AND CAPITAL RESOURCES
Liquidity
Summary of our Major Sources and Uses of Cash and Cash Equivalents
Three Months Ended March 31, Increase/(Decrease)
(in millions) 2022 2021 2022 vs. 2021
Sources of cash:
Cash provided by operating activities $ 5,319 $ 6,005 $ (686)
Issuances of short-term borrowings and long-term debt, net of repayments
2,048 2,907 (859)
Proceeds from common stock issuances 551 436 115
Customer funds administered 5,120 2,131 2,989
Total sources of cash 13,038 11,479
Uses of cash:
Common stock repurchases (2,500) (1,650) (850)
Cash paid for acquisitions, net of cash assumed (1,231) (1,193) (38)
Purchases of investments, net of sales and maturities (1,632) (1,714) 82
Purchases of property, equipment and capitalized software (555) (568) 13
Cash dividends paid (1,363) (1,181) (182)
Other (1,807) (2,088) 281
Total uses of cash (9,088) (8,394)
Effect of exchange rate changes on cash and cash equivalents 157 (51) 208
Net increase in cash and cash equivalents $ 4,107 $ 3,034 $ 1,073
2022 Cash Flows Compared to 2021 Cash Flows
Decreased cash flows provided by operating activities were primarily driven by changes in working capital accounts. Other significant changes in sources or uses of cash year-over-year included increased customer funds administered, partially offset by increased share repurchases and decreased net issuances of short-term borrowings and long-term debt.
Financial Condition
As ofMarch 31, 2022 , our cash, cash equivalent, available-for-sale debt securities and equity securities balances of$68.8 billion included approximately$25.5 billion of cash and cash equivalents (of which$2.5 billion was available for general corporate use),$39.8 billion of debt securities and$3.5 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 securities portfolio had a weighted-average duration of 4.1 years and a weighted-average credit rating of "Double A" as ofMarch 31, 2022 . 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: Cash Requirements. A summary of our cash requirements as ofDecember 31, 2021 was disclosed in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2021 10-K. During the three months endedMarch 31, 2022 , there were no material changes to this previously disclosed information outside the ordinary course of business. We believe our capital resources are sufficient to meet future, short-term and long-term, liquidity needs. We continually evaluate opportunities to expand our operations, including through internal development of new products, programs and technology applications and acquisitions. Short-Term Borrowings. 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 8 of Notes to the Consolidated Financial Statements in Part II, Item 8, "Financial Statements and Supplementary Data" in our 2021 10-K. 18
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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 ofMarch 31, 2022 , our debt to debt-plus-shareholders' equity ratio, as defined and calculated under the credit facilities, was approximately 37%. 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 8 of Notes to the Consolidated Financial Statements in Part II, Item 8, "Financial Statements and Supplementary Data" in our 2021 10-K.
Credit Ratings. Our credit ratings as of
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. During the three months ended March 31, 2022 , we
repurchased approximately 5 million shares at an average price of $485.12 per
share. As of March 31, 2022 , we had Board authorization to purchase up to 40
million shares of our common stock.
Dividends. Our quarterly cash dividend to shareholders reflects an annual
dividend rate of
Pending Acquisitions. As ofMarch 31, 2022 , we have entered into agreements to acquire companies in the health care sector, most notably Change Healthcare (NASDAQ: CHNG) and LHC Group, Inc. (NASDAQ: LHCG), subject to regulatory approval and other customary closing conditions. The total anticipated capital required for these acquisitions, excluding associated disposition proceeds and the payoff of acquired indebtedness, is approximately$15 billion . 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 2021 10-K.
RECENTLY ISSUED ACCOUNTING STANDARDS
There are no recently issued accounting standards that are expected to have a material impact on our Condensed Consolidated Financial Statements.
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 2021 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 2021 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
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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; cyberattacks, other privacy/data security incidents, or our failure to comply with related regulations; failure to protect proprietary rights to our databases, software and related products; risks and uncertainties associated with our businesses providing pharmacy care services; competitive pressures, including our ability to develop and deliver innovative products to health care payers and expand access to virtual care; changes in or challenges to our public sector contract awards; failure to develop and maintain satisfactory relationships with health care payers, physicians, hospitals and other service providers; failure to attract, develop, retain, and manage the succession of key employees and executives; the impact of potential changes in tax laws and regulations (including any increase in theU.S. income tax rate applicable to corporations); 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.
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