Unitedhealth announces third quarter results; reports growth in revenues and net earnings

Oct 20 2009

UnitedHealth Group (NYSE:UNH) reported third quarter results today, including growth in revenues and net earnings and a continued strong financial position. Stephen J. Hemsley, president and chief executive officer of UnitedHealth Group, said, “We combined successful overall cost containment and strong execution in our services businesses to continue to perform during a difficult economic period. This reinforces the value of our diversified business model. We continue to focus on delivering value for customers and stakeholders through responsive, high quality service and practical, innovative programs that improve health care system performance and help people live healthier lives.”

UnitedHealth Group earned $0.89 per share in the third quarter and confirmed 2009 earnings of approximately $3.15 per share and cash flows from operations of approximately $5 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 third quarter revenues of $21.7 billion increased $1.5 billion or 8 percent year-over-year.
• Third quarter earnings from operations were $1.676 billion and net earnings were $1.035 billion. The operating margin of 7.7 percent was stable year-over-year. Strong overall third quarter performance in services businesses and continued operating cost management offset employment-related membership losses at UnitedHealthcare and mix changes driven by growth in lower margin government business at AmeriChoice, Ovations and OptumHealth.
• Effective operating cost control reduced the third quarter 2009 operating cost ratio by 50 basis points to 14.5 percent from 15.0¹ percent of revenues in the third quarter of 2008.
• The consolidated medical care ratio of 82.0 percent remained within the range of management expectations, increasing 30 basis points year-over-year due to elevated medical costs related to the H1N1 influenza virus.
• During the third quarter of 2009 the Company realized $90 million in net favorable development in its estimates of medical costs incurred in the first half of 2009 and $100 million related to prior years. This compares to $130 million in total favorable development in the third quarter of 2008, including $10 million related to prior years.

• The third quarter 2009 income tax rate of 32.7 percent benefited from the favorable resolution of historical state income tax items, which added 3 cents in earnings per share to third quarter 2009 results.
• The third quarter 2009 net margin was 4.8 percent, bringing the year-to-date net margin to 4.4 percent. Third quarter 2009 net earnings were $0.89 per share.
• There were no realized net capital gains or losses in the third quarter of 2009. UnitedHealth Group’s cash and investment portfolio had an unrealized net gain position of $556 million at September 30, 2009.
• There were 8 days sales outstanding in accounts receivable at the end of the third quarter of 2009, compared to 9 days outstanding at September 30, 2008.
• Consolidated medical costs days payable were 53 days and 54 days at the end of the third quarters of 2009 and 2008, respectively.
• Third quarter cash flows from operations of $2.7 billion brought year-to-date cash flows to $4.3 billion.
• The Company reduced its debt position by $1.6 billion year-over-year to $11.2 billion at September 30, 2009 and lowered its debt to debt-plus-equity ratio to 32.8 percent from 39.2 percent at September 30, 2008. UnitedHealth Group repurchased 66.4 million shares of stock year-to-date through the third quarter of 2009, including 2.4 million shares in the third quarter, and had approximately $950 million in cash available for general corporate use at quarter end.

¹ Adjusted numbers are non-GAAP financial measures. Further explanation of these non-GAAP measures and reconciliations to the comparable GAAP measures are included in the attached financial schedules.

Business Description – UnitedHealthcare, Ovations, 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, Ovations delivers health and well-being services to Americans over the age of 50, while AmeriChoice manages health care services for state Medicaid and other publicly funded programs and their beneficiaries.

• Third quarter 2009 revenues for this group of businesses grew $1.4 billion or 7 percent year-over-year to $20.2 billion. Revenue growth was driven by rates reflecting underlying medical cost increases and year-to-date growth of 0.9 million individuals served across the public and senior markets businesses, offset by a decrease of 1.6 million consumers served through commercial benefits.
• Third quarter earnings from operations of $1.2 billion decreased $41 million year-over-year. The operating margin declined 60 basis points year-over-year to 6.2 percent in the third quarter, due to continued growth in lower margin public and senior markets businesses combined with a decrease in commercial business.

UnitedHealthcare

• UnitedHealthcare third quarter revenues of $10.1 billion decreased $347 million year-over-year. During the third quarter UnitedHealthcare had declines of 80,000 people served through fee-based programs and 195,000 people in risk-based health benefit plans. Reflecting the challenging economic climate, employment attrition at continuing clients was the most significant factor in these decreases, accounting for more than 80 percent of the total third quarter decline.
• The UnitedHealthcare medical care ratio of 84.6 percent was within the range of management expectations, increasing by a net 80 basis points year-over-year, largely due to elevated medical costs related to the H1N1 virus and a higher proportion of participants receiving care under unemployment-related benefit continuation programs.

Ovations

• Ovations revenues were $7.9 billion in the third quarter, up $1.2 billion or 19 percent year-over-year.
• For Medicare Advantage programs, Ovations reported third quarter growth of 30,000 people and year-to-date growth of 275,000 people. Market-responsive product designs and local market engagement have driven steady, balanced growth in Medicare Advantage in 2009.
• Growth in active Medicare Supplement products continued, with Ovations increasing the number of seniors served in this product family by 35,000 in the third quarter and 120,000 year-to-date.
• At September 30, 2009 approximately 4.3 million people participated in the Company’s stand-alone Part D prescription drug plans.
• Including Part D plans, Ovations has brought services to 625,000 additional seniors across its businesses thus far in 2009.
• During the third quarter, the Department of Defense awarded the Company the TRICARE Managed Care Support South Region contract to provide health care services for active duty and retired military service members and their families. Health care operations are expected to commence in late 2010.

AmeriChoice

• AmeriChoice third quarter revenues of $2.1 billion grew $475 million year-over-year, a 29 percent organic growth rate.
• The Company served 2.8 million people in the Medicaid and state program market at September 30, 2009, which included risk-based growth of 620,000 people year-over-year.
• Year-to-date 2009 results included growth of 460,000 people on a risk basis at September 30, 2009; this product category grew by 60,000 people in the third quarter of 2009. All of AmeriChoice’s membership is now served through risk-based contracts.
• Late in the second quarter, the Mississippi State & School Employees Health Insurance Management Board awarded AmeriChoice the opportunity to provide benefits and services to up to 65,000 children in Mississippi’s Children’s Health Insurance Program, beginning in first quarter 2010.

Business Description – OptumHealth

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 achieve their health and well-being goals.

• Third quarter revenues of $1.4 billion grew $121 million or 9 percent year-over-year for OptumHealth. Recent growth trends continued, with year-over-year revenue growth from large scale public sector care and behavioral health programs mitigating revenue losses associated with the UnitedHealthcare commercial membership decline. During the third quarter OptumHealth initiated services for approximately one-half million people covered by public sector behavioral health programs.
• OptumHealth’s third quarter earnings from operations of $172 million declined slightly year-over-year.
• OptumHealth Financial Services, the Company’s dedicated health banking organization, ended the third quarter serving 1.8 million consumer accounts, up 10 percent year-over-year.
• OptumHealth Financial Services’ connectivity network now represents nearly 500,000 care providers, an increase of 125,000 providers year-to-date. This business electronically transmitted $9.5 billion in medical payments to physicians and care providers in the quarter, up 40 percent year-over-year.
• OptumHealth continues to advance pioneering telehealth initiatives on behalf of employers, states and other health care partners. Applying Internet network technology, these innovative programs help connect patients to care providers and care providers to one another in ways that improve access to and effectiveness of health care. State-based programs have been launched in Colorado, Minnesota and New Mexico.

Business Description – Ingenix

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 revenues of $481 million increased $98 million or 26 percent year-over-year in the third quarter of 2009.
• The Ingenix contract revenue backlog increased 15 percent on a year-over-year basis to $2.1 billion at September 30, 2009. Continued growth in payer and governmental client business across many product categories more than offset a year-over-year decline in pharmaceutical research services backlog.
• Ingenix third quarter operating earnings increased $7 million or 12 percent year-over-year to $64 million while operating margin decreased 160 basis points year-over-year to 13.3 percent. Third quarter margins were impacted in part by investments in new product development for international markets.

Business Description – Prescription Solutions

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 third quarter revenues of $3.6 billion increased $504 million or 16 percent year-over-year, driven by strong growth in consumers served.
• Third quarter earnings from operations grew $105 million year-over-year to $196 million. First half 2009 earnings trends continued in the third quarter, with increased earnings driven by script volume growth, improved drug purchasing, steady gains in mail service drug fulfillment, and a continuing favorable mix shift to generic pharmaceuticals, which exceeded 69 percent of total volume in the quarter. These factors lifted Prescription Solutions third quarter operating margin to 5.5 percent.
• During the third quarter Prescription Solutions was recognized for service and value. J.D. Power and Associates awarded Prescription Solutions the highest rankings for customer service and cost competitiveness among mail order pharmacies in their 2009 National Pharmacy Study^SM.