UnitedHealth Group's consolidated first-quarter 2010 revenues increase 5% to $23.2 billion

UnitedHealth Group (NYSE:UNH) today reported first quarter results, including better-than-projected membership and services growth and effective cost management across its businesses. Financial metrics were in line with or better than Company expectations.

Stephen J. Hemsley, president and chief executive officer of UnitedHealth Group, said, "This quarter again reflects solid results. Each quarter we are performing more strongly, improving in consumer and care provider satisfaction, delivering a steady stream of innovation, and effectively and appropriately controlling operating and medical costs. The market is recognizing this steadily advancing fundamental execution. We can see this in better market responses and growth and in strong business retention. We expect further opportunities will emerge for companies that can effectively optimize care resources and deliver the high quality care and innovation that consumers value. Our focus on these areas, supported by our investments in organizing health resources, modern technology and health information, positions us well to meet the market's changing requirements and bring further value to those we serve."

The Company anticipates full year 2010 revenues of approximately $92 billion, net earnings in the range of $3.15 to $3.35 per share and cash flows from operations in the range of $4.4 billion to $4.8 billion.

Management views year-over-year comparisons of results to generally be more meaningful than sequential comparisons, given the seasonality of revenues, medical expenses, operating costs and earnings from operations, primarily in its health benefits product offerings.

• UnitedHealth Group's consolidated first quarter 2010 revenues of $23.2 billion increased $1.2 billion or 5 percent year-over-year. The Company's Ovations, AmeriChoice, Ingenix and Prescription Solutions business units each increased their revenues by more than 10 percent year-over-year in the quarter.
• UnitedHealth Group continues to use its resources to provide innovation and thought leadership to customers and the market.
  • UnitedHealth Group launched the Diabetes Prevention and Control Alliance, anchored by two innovative programs designed to positively impact the epidemic of diabetes, pre-diabetes and obesity in the United States. The Company is partnering with the YMCA-USA and retail pharmacies, beginning with Walgreens, and creating adjunct networks of life coaches and pharmacists who are compensated for helping people prevent diabetes or better control their condition. The alliance leverages UnitedHealth Group data, technology and clinical expertise and will be made widely available to the insurance carrier market.
  • Sesame Workshop, the nonprofit educational organization behind Sesame Street, and UnitedHealth Group are partnering to develop a bilingual outreach education program to help low-income families make food choices that are affordable, nutritional and set the foundation for lifelong healthy habits. The outreach effort, which will be branded with the UnitedHealthcare name, will help families address issues such as nutrition, wellness and preventing childhood obesity.
  • Reflecting the Company's continuing engagement in America's efforts to expand access to health care, contain costs and improve health care quality, the UnitedHealth Center for Health Reform & Modernization released the third in a series of working papers on April 15, 2010. Coverage for Consumers, Savings for States: Options for Modernizing Medicaid reviewed opportunities to improve quality and save taxpayers $366 billion in state Medicaid programs. Effective program stewardship will be increasingly vital as millions of additional Americans begin to access their care through Medicaid programs by 2014. This follows two research reports issued within the past year that discuss $332 billion in potential savings from using technology to simplify health care administration and $540 billion in savings from better containment of costs in federal health programs through techniques proven in private market programs.
• First quarter earnings from operations were $2.0 billion and net earnings were $1.2 billion.
• The first quarter 2010 net margin of 5.1 percent compares with a 4.5 percent net margin in the first quarter of 2009. The net margin increased 60 basis points year-over-year, as the health benefits businesses benefitted from membership growth and effective medical and operating cost management.
• First quarter investment income included net capital gains of $38 million in 2010 and $3 million in 2009.
• Net earnings per share of $1.03 increased $0.22 or 27 percent year-over-year in the first quarter.
• Cash flows from operations of $1.2 billion were 101 percent of first quarter earnings and increased 8 percent from $1.1 billion in the first quarter of 2009.
• There were nine days sales outstanding in accounts receivable at the end of the first quarter of both 2009 and 2010. Acceleration in the payment of Part D prescription drug plan claims and increased prior period development contributed to a two-day decrease year-over-year in days claims payable to 48 days on an adjusted basis¹ at March 31, 2010.
• The first quarter 2010 medical care ratio of 81.3 percent decreased 110 basis points year-over-year. The Company realized $490 million in favorable development in its estimates of medical costs incurred in prior years, as compared to $200 million realized in the first quarter of 2009. The year-over-year increase in favorable development was driven by lower than expected medical costs in the latter part of 2009, including from the H1N1 influenza outbreak being less costly than anticipated and strong clinical care performance.
• First quarter operating costs of 14.1 percent of revenue improved 10 basis points year-over-year due to ongoing cost management and quality improvements.
• The first quarter income tax rate of 37 percent increased from 36 percent in the first quarter of 2009, primarily due to federal statutory changes in the deductibility of employee compensation brought about by the Patient Protection and Affordable Care Act.
• UnitedHealth Group's quarter-end debt to debt-plus-equity ratio decreased to 30.2 percent from 35.4 percent at March 31, 2009, further strengthening the Company's financial flexibility. During the first quarter, the Board of Directors renewed and increased the Company's Share Repurchase Program, under which up to 120 million shares of the Company's common stock can be repurchased. UnitedHealth Group repurchased 19 million shares during the first quarter of 2010 and ended the quarter with $1.9 billion in unrestricted cash.

Through its Health Benefits businesses - UnitedHealthcare, Ovations and AmeriChoice - the Company provides network-based health care benefits and related services for a full spectrum of customers. UnitedHealthcare serves employers ranging from sole proprietorships to large, multi-site and national employers, as well as students and individuals. In the Public and Senior Markets Group, the Company delivers UnitedHealthcare-branded health and well-being services to Americans over the age of 50 and manages health care services for state Medicaid and other publicly funded programs and their beneficiaries.

• First quarter 2010 Health Benefits revenues increased $965 million or 5 percent year-over-year to $21.6 billion. The revenue advance was driven by growth of 1.0 million people served across the public and senior markets in the past year and rate increases reflecting underlying medical cost trends, offset by a decrease of 0.9 million people served in the commercial benefits market, principally reflecting the significant decline in U.S. employment over the past year.
• Health Benefits earnings from operations for the first quarter of 2010 increased year-over-year to $1.7 billion. The first quarter operating margin improved to 7.8 percent due to continued operating cost discipline and appropriate medical cost management on behalf of government and commercial customers in the latter part of 2009 and the first quarter of 2010.
• The Company is moving to concentrate its marketing and product positioning in the benefits markets around its strongest benefits brand - UnitedHealthcare. Consumer branding has become increasingly important in health care, and there are opportunities to better leverage the widely recognized UnitedHealthcare brand. These actions align with efforts to increasingly share leverageable infrastructure across the benefits businesses to further improve performance and reduce operating costs. The Public and Senior Markets businesses of AmeriChoice and Ovations will retain their distinctive market-facing strategies, supported by the UnitedHealthcare brand. The Company expects the in-market transitions to UnitedHealthcare branding to occur over the next several quarters.
• UnitedHealthcare revenues of $10 billion decreased 3 percent year-over-year due to a decrease in consumers served. First quarter 2010 results included growth of 170,000 people in fee-based programs offset by a decrease of 275,000 people in risk-based benefit plans. Absent employment attrition at continuing clients, the business would have posted sequential growth in people served in the first quarter.
• UnitedHealthcare's medical care ratio of 79.1 percent decreased from 81.5 percent in the first quarter of 2009 due to a lighter-than-expected influenza season, the impact of adverse weather on patients' use of the health system for non-urgent care, a greater mix of higher deductible products - which typically incur greater medical expense later in the calendar year, increasingly effective clinical engagement programs and prior period favorable development reflecting lower medical costs incurred in the latter part of 2009.
• First quarter Ovations revenues of $9.3 billion grew $873 million or 10 percent year-over-year. This strong growth included notable revenue advances in the Medicare Advantage, Medicare Supplement and Part D prescription drug businesses. The Company's senior health business now serves nearly 9 million individuals in total, having increased its customer base in its primary offerings by 665,000 people in the past twelve months.
  • In Medicare Advantage, the Company brought its services to 215,000 more seniors in first quarter 2010 and to 310,000 over the past twelve months, an 18 percent year-over-year increase.
  • Growth in active Medicare Supplement products continued, with the number of seniors served increasing by 115,000 or 4 percent in the past twelve months, including 35,000 people in the first quarter of 2010.
  • At March 31, 2010, 4.5 million people participated in the Company's stand-alone Part D prescription drug plans, an increase of 240,000 people in both the first quarter and over the past twelve months.
• First quarter 2010 AmeriChoice Medicaid revenues of $2.3 billion increased $425 million or 22 percent year-over-year, driven by strong membership growth. During the past twelve months, Medicaid programs grew by 350,000 people, including 145,000 in the first quarter, to a total of 3 million people. Year-over-year organic membership growth of 13 percent was driven by continued geographic expansion and an overall increase in Medicaid program participation due to the economic downturn.

Through its Health Services businesses, the Company provides consumer services, software, pharmaceutical and specialty benefit management, financial capabilities dedicated to health care, health data and analytics, consulting and other services to a broad variety of customers in the United States and international markets. Through these offerings, these businesses seek to improve health system performance for customers and their constituents.

• First quarter 2010 Health Services combined revenues increased $762 million or 14 percent to $6 billion. The revenue advance was driven by growth in consumers served, particularly through pharmaceutical benefit management programs, as well as increasing revenues from public sector specialty benefit offerings and health care technology software and services.
• Health Services combined earnings from operations of $334 million decreased $13 million or 4 percent year-over-year in the first quarter. The operating margin decreased to 5.6 percent in the first quarter, due to growth in lower margin public sector business, changes in contract terms for Medicare Part D plan sponsors in the pharmacy benefit market, and investments in areas of expected future growth.

OptumHealth is a national leader in health and wellness services. Employers, payers and public sector organizations use OptumHealth behavioral benefit solutions, clinical care management, financial services and specialty benefits such as dental and vision. OptumHealth helps consumers navigate the health care system, finance their health care needs and better achieve their health and well-being goals.

• OptumHealth revenues grew $85 million or 6 percent year-over-year to $1.4 billion in the first quarter of 2010, driven by growth from large scale public sector programs and external employer offerings.
• First quarter 2010 earnings from operations of $151 million decreased by $7 million or 4 percent year-over-year, and the operating margin declined by 120 basis points to 10.7 percent. These decreases reflect the impact of the economic downturn, including loss of higher margin UnitedHealthcare risk-based business, partially offset by earnings growth from expanding services in the public sector and external employer markets.
• OptumHealth Financial Services, the Company's dedicated health banking organization, ended the first quarter serving 2 million consumer accounts, up 10 percent year-over-year. Assets under management grew 28 percent to $1 billion at March 31, 2010. In the first quarter, OptumHealth Financial Services electronically transmitted more than $9 billion in medical payments for 46 million claims through its care provider connectivity network, an increase of 27 percent year-over-year. This health care modernization program simplifies the payment process and reduces costs.

Ingenix is a leader in the field of health care information, services and consulting, serving physicians, hospitals and other health care providers, large employers and governments, health insurers and other benefits payers and pharmaceutical companies.

• Ingenix first quarter 2010 revenues increased $120 million or 31 percent to $505 million. Ingenix reported record sales bookings, driven by demand for its information technology, payment cycle management offerings and consulting services focused on cost management, regulatory compliance and innovation.
• The Ingenix contract revenue backlog grew $509 million or 29 percent year-over-year to $2.3 billion at March 31, 2010, led by growth in the government and payer sectors.
• Ingenix first quarter earnings from operations of $53 million increased $4 million or 8 percent year-over-year. The first quarter operating margin decreased to 10.5 percent, primarily due to business mix changes, continued pressure in the pharmaceutical services business, and investments in new growth areas.

Prescription Solutions offers a comprehensive array of pharmacy benefit management and specialty pharmacy management services to employer groups, union trusts, seniors and commercial health plans.

• Prescription Solutions first quarter 2010 revenues grew $557 million or 16 percent year-over-year, driven by growth in people served and related higher prescription volumes.
• Earnings from operations of $130 million decreased by $10 million or 7 percent year-over-year and the operating margin decreased to 3.2 percent, which is generally consistent with 2008 results. Previously anticipated changes in performance-based pricing contracts with Medicare Part D plan sponsors impacted earnings and operating margin in the quarter, which were partially offset by membership growth, increased use of mail service and generics by consumers and effective operating cost management.