UnitedHealth Group's consolidated third quarter revenues increase 7% to $25.3B

UnitedHealth Group (NYSE: UNH) today reported third quarter results, highlighted by strong enrollment growth in each of UnitedHealthcare's benefits businesses and strong revenue growth at all Optum business units. Third quarter 2011 net earnings were $1.17 per share, with strong performance on all key financial and operational measures.

Stephen J. Hemsley, president and chief executive officer of UnitedHealth Group, said, "We are generating consistent, strong growth by delivering increased value to health care benefits and health care services customers through practical innovation, useful technologies and responsive and compassionate service."

The Company now forecasts 2011 revenues to exceed $101 billion, net earnings in the range of $4.40 to $4.45 per share and cash flows from operations of approximately $6.2 billion. Each of these has been increased from the previous outlook.

• UnitedHealth Group's consolidated third quarter 2011 revenues of $25.3 billion increased $1.6 billion or 7 percent year-over-year.
• Third quarter earnings from operations were $2.1 billion and net earnings were $1.3 billion or $1.17 per share, an increase of 3 cents per share from third quarter 2010 results.
• Year-to-date 2011 adjusted operating cash flows increased $210 million year-over-year to $5 billion; third quarter 2011 adjusted cash flows from operations were $2.6 billion.
• Third quarter days sales outstanding in accounts receivable of eight days was stable year-over-year. Third quarter 2011 days claims payable decreased two days year-over-year to 47 days at September 30, 2011, due to continued acceleration in the timing of claims receipts.
• UnitedHealth Group's quarter-end debt to debt-plus-equity ratio of 30 percent was consistent year-over-year. Year-to-date, annualized return on equity was 19.2 percent.
• UnitedHealth Group repurchased nearly 18 million shares for $839 million in the third quarter, bringing year-to-date repurchase activity to 46 million shares for $2.1 billion. UnitedHealth Group paid $172 million in dividends in the third quarter of 2011, an increase of 24 percent year-over-year.
• During the third quarter UnitedHealth Group was honored to be selected by the Product Development and Management Association (PDMA) as co-winner of the 2011 Outstanding Corporate Innovator Award. In its 24^th year, this award is the only honor bestowed upon companies that achieve sustained (five or more years) quantifiable business results from the innovation of new products and services. Past winners have included Apple Computer, BMW Group AG and Pepsi-Cola Company.
• The third quarter 2011 medical care ratio of 80.7 percent increased 60 basis points year-over-year. Favorable reserve development of $200 million in third quarter 2011 included $90 million from prior years as compared to $230 million in the third quarter of 2010, $80 million of which related to prior years. Medical cost trends continue to be driven principally by unit cost increases.
• The third quarter operating cost ratio of 15.4 percent increased 40 basis points year-over-year due to an increased mix of Optum and UnitedHealthcare fee-based services revenues, partially offset by productivity advances across the Company. The UnitedHealthcare operating cost ratio decreased slightly year-over-year as improving efficiency and overall operating cost management more than offset a year-over-year increase in spending ahead of the accelerated annual Medicare enrollment period.
• The third quarter 2011 tax rate decreased 250 basis points year-over-year to 34.5 percent due to the favorable resolution of various historical tax matters, as expected.
• The Company's full year 2011 net earnings outlook includes an estimate of an assessment for its pro rata share of costs for the potential insolvency of an unaffiliated long-term insurance carrier. No court decision has been rendered in the matter as yet.

UnitedHealthcare provides network-based health care benefits for a full spectrum of customers in the health benefits market. UnitedHealthcare serves employers ranging from sole proprietorships to large, multi-site and national employers, as well as students and individuals, delivers health and well-being benefits to Medicare beneficiaries and retirees, and manages health care benefit programs on behalf of state Medicaid and community programs and their participants.

• Third quarter 2011 UnitedHealthcare revenues of $23.6 billion increased $1.4 billion or 6 percent year-over-year. Revenue growth was driven by an increase of 1.7 million people served with medical benefit products in the past year, including 220,000 people in the third quarter of 2011. Participation increased in every key product category in the third quarter, year-to-date and year-over-year.
• Third quarter 2011 earnings from operations for UnitedHealthcare of $1.8 billion decreased $85 million year-over-year. Third quarter's operating margin of 7.4 percent was stable with second quarter 2011 and declined 80 basis points year-over-year, as expected, due to the initiation of premium rebate obligations in 2011 and low premium rate increases in state Medicaid programs managed by UnitedHealthcare's Community & State business.

UnitedHealthcare Employer & Individual

• UnitedHealthcare Employer & Individual third quarter 2011 revenues of $11.4 billion grew $628 million or 6 percent over third quarter 2010 results. Over the past year, fee-based offerings grew to serve 885,000 more people and risk-based products served an additional 215,000, bringing total growth to 1.1 million people. The business grew to serve 100,000 more people in third quarter 2011, with growth divided equally between risk-based and fee-based benefit products.
• UnitedHealthcare's commercial medical care ratio increased 110 basis points year-over-year to 81.6 percent. The increase reflects the impact of premium rebate obligations, a modest increase in utilization trends in outpatient and physician office care settings, and a reduced level of favorable reserve development, partially offset by cost containment efforts across the business.

UnitedHealthcare Medicare & Retirement

• Third quarter Medicare & Retirement revenues of $8.8 billion grew $446 million or 5 percent year-over-year and included enrollment growth across the Medicare Advantage, Medicare Supplement and Part D prescription drug programs.
  • In Medicare Advantage, UnitedHealthcare brought services to 155,000 more people in the past year, an 8 percent increase, including growth of 30,000 seniors and other beneficiaries in the third quarter.
  • Growth in active Medicare Supplement products continued, with the number of people served increasing by 145,000 or 5 percent in the past 12 months, including 35,000 people in the third quarter of 2011.
  • At September 30, 2011, 4.8 million seniors and other beneficiaries participated in the Company's stand-alone Part D prescription drug plans, representing increases of 305,000 people over the past 12 months and 50,000 people during the third quarter of 2011.

UnitedHealthcare Community & State

• Third quarter Community & State revenues of $3.5 billion increased $286 million or 9 percent year-over-year. During the past 12 months, the Company expanded its Medicaid services to 250,000 more participants, including 55,000 people in the third quarter.
• During the third quarter Louisiana chose to include UnitedHealthcare Community & State as part of a new statewide Medicaid managed care program beginning in 2012 and Texas awarded Community & State a significant market expansion for 2012.

Optum is an information and technology-enabled health services business serving the broad health care marketplace, including payers, care providers, employers, life sciences companies and consumers. By helping connect and align health system participants and providing them actionable information at the points of decision-making, Optum helps improve overall health system performance: optimizing care quality, reducing costs and improving the consumer experience and care provider performance. Optum is organized in three segments:

• OptumHealth focuses on health management and wellness, clinical services and financial services;
• OptumInsight delivers technology, intelligence, consulting and business outsourcing solutions; and
• OptumRx specializes in pharmacy services.

The breadth of this portfolio allows Optum to impact key activities that help enable better integrated, more sustainable health care.

• Total Optum revenues for the third quarter of 2011 of $7.2 billion increased $1.3 billion or 22 percent year-over-year, driven by organic growth and contributions from recent acquisitions.
• Optum's third quarter earnings from operations of $320 million increased $10 million or 3 percent year-over-year. Growth in revenues was offset by a reduction in operating margins to 4.4 percent due to changes in business mix and internal business and service realignments.

OptumHealth

• OptumHealth third quarter 2011 revenues of $1.7 billion increased $577 million or 50 percent year-over-year. The revenue increase was driven by market expansions in services for payers and the military and clinical care services and strong organic growth in consumer and population health management offerings.
• OptumHealth third quarter 2011 earnings from operations of $115 million increased by 12 percent or $12 million year-over-year, while the operating margin decreased 230 basis points to 6.7 percent. The operating margin reduction reflects the mix effect of growth and expansion in newer businesses in population health management and clinical services, as well as the impact of internal business and service realignments.
• OptumHealth Financial Services continued to experience strong growth. At September 30, 2011, assets under management grew 28 percent year-over-year to nearly $1.4 billion, as total bank assets reached $1.8 billion. OptumHealth Financial Services grew the electronic transmission of medical payments over its connectivity network by 25 percent year-over-year to nearly $14 billion in the quarter.

OptumInsight

• OptumInsight third quarter 2011 revenues of $625 million increased $33 million or 6 percent year-over-year. The divestiture of the clinical trials services business reduced the third quarter revenue growth rate by 15 percentage points.
• Third quarter sales bookings, adjusted to reflect the divestiture of the clinical trial services business, increased 32 percent year-over-year, driven by strength in clinical, analytical and connectivity technologies and services for the health care provider market. The OptumInsight contract revenue backlog, as adjusted, increased 22 percent year-over-year to $3.3 billion.
• OptumInsight's third quarter 2011 earnings from operations of $91 million increased 30 percent year-over-year. The nearly 3 percentage point improvement in third quarter operating margin to 14.6 percent was driven by an improved mix of higher margin services.

OptumRx

• OptumRx third quarter revenues of $4.9 billion grew 17 percent or $706 million year-over-year, driven by growth in people served and increased prescription volumes, including higher revenue specialty drug prescriptions.
• OptumRx earnings from operations of $114 million decreased $23 million year-over-year. As expected, investments to support growth initiatives and the in-sourcing of UnitedHealthcare commercial pharmacy benefits offset the earnings contribution from higher revenues and greater use of generic medications. The generic usage rate reached nearly 76 percent of total volume in third quarter 2011, an increase of 3 percentage points year-over-year.
• OptumRx is preparing to transition UnitedHealthcare commercial business from an unaffiliated service provider. The transition is expected to add more than 12 million commercial members to OptumRx on a staged basis in 2013.