MINNEAPOLIS (October 19, 2010) - UnitedHealth Group (NYSE: UNH) today reported third quarter results, including strong revenue growth in both its Health Benefits and Health Services business groups. Third quarter 2010 net earnings were $1.14 per share. Key performance metrics and costs were in line with or better than Company expectations.
Stephen J. Hemsley, president and chief executive officer of UnitedHealth Group, said, "Fundamental execution, increasing business diversity, and on-going product and service innovation continue to be key elements anchoring the Company's sustained growth. Third quarter revenues increased by $2 billion year-over-year, driven by a growing number of customers in a wide array of market segments selecting more offerings from our Health Benefits and Health Services business platforms. We are committed to meeting changing customer needs as these markets evolve."
The Company's full year financial outlook anticipates 2010 revenues approaching $94 billion, net earnings in the range of $3.85 to $3.95 per share and cash flows from operations of more than $5 billion.
UnitedHealth Group's consolidated third quarter 2010 revenues of $23.7 billion increased $2 billion or 9 percent year-over-year. Four business units - UnitedHealthcare Medicare & Retirement, UnitedHealthcare Community & State, Ingenix and Prescription Solutions - increased revenues by more than 10 percent year-over-year in the quarter. On a sequential quarter basis, revenue growth for Health Benefits was driven by increases in consumers served in UnitedHealthcare commercial risk-based products and in Medicaid membership, while the sequential revenue advance for Health Services businesses was led by Ingenix and OptumHealth.
Third quarter earnings from operations were $2.1 billion and net earnings were $1.3 billion or $1.14 per share.
The third quarter net margin of 5.4 percent compares with a 4.8 percent net margin in both the second quarter of 2010 and the third quarter of 2009. The increase to 5.4 percent was driven by both strong revenue growth and continued cost management discipline.
Cash flows from operations for the first nine months of 2010 of $4.8 billion increased 11 percent from $4.3 billion in the first nine months of 2009. Third quarter 2010 cash flows from operations of $2.9 billion increased 6 percent from $2.7 billion in the third quarter of 2009.
There were eight days sales outstanding in accounts receivable at the end of the third quarters of 2010 and 2009 and 11 days at June 30, 2010. Days claims payable of 49 days compared to 50 days at June 30, 2010.
The third quarter 2010 medical care ratio of 80.1 percent improved 190 basis points year-over-year due to moderation in overall health system utilization, successful clinical engagement and management and increased prior period reserve development. In the third quarter the Company realized $230 million in favorable prior period reserve development, including $80 million from prior years, as compared to $190 million in the third quarter of 2009, $100 million of which related to prior years.
Third quarter operating costs of 15.0 percent of revenue increased 50 basis points year-over-year. This comparison included the effect of increased expenditures on reputational advertising, a higher overall mix of more operating-cost-intensive Health Service revenues, costs related to an increase in employee headcount and compensation, including the addition of employees working at newly acquired businesses and an increase in staffing in anticipation of fourth quarter and 2011 sales and service requirements, and the absorption of new business development and startup costs. These increases were partially offset by savings from productivity advances in operations due to continued improvements in automation and enterprise integration.
The third quarter income tax rate of 37.0 percent increased as expected from 32.7 percent in the third quarter of 2009, due to federal statutory changes in the Patient Protection and Affordable Care Act limiting the deductibility of employee compensation, as well as a benefit in the 2009 tax rate from the resolution of various historical state income tax matters.
During the third quarter the Company used $1.9 billion in cash to fund acquisitions in the Health Services market, principally in the areas of clinical workflow and compliance and health system connectivity.
UnitedHealth Group's quarter-end debt to debt-plus-equity ratio decreased to 30.1 percent from 32.8 percent at September 30, 2009. The Company's 2010 year-to-date annualized return on equity of 19.5 percent increased from 17.7 percent through the first nine months of 2009.
UnitedHealth Group spent $1.9 billion to repurchase 59 million shares through the first nine months of 2010, including 20 million shares during the third quarter, and ended the quarter with approximately $1 billion in cash available for general corporate use.
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 2010 Health Benefits revenues of $22 billion increased $1.8 billion or 9 percent year-over-year. The revenue advance was driven by an increase of 1 million people served in the past year, composed of a year-over-year gain of 1.055 million people served across the public and senior markets, partially offset by a year-over-year net decrease of 55,000 people served in the commercial benefits market, due to the significant decline in U.S. employment.
Health Benefits earnings from operations for the third quarter of 2010 increased year-over-year to $1.8 billion. The third quarter operating margin improved due to revenue growth and continued cost management disciplines on behalf of commercial and governmental customers.
The UnitedHealthcare Employer & Individual business grew in the third quarter, increasing by 110,000 people served since June 30, 2010. Third quarter growth was led by a gain of 95,000 people in risk-based products, while the number of people served through fee-based offerings expanded by 15,000 over second quarter 2010. Third quarter 2010 commercial revenues of $10.4 billion grew $277 million or 3 percent over third quarter 2009 results.
UnitedHealthcare's commercial medical care ratio of 80.9 percent improved 3.7 percentage points year-over-year due to moderated levels of overall health system utilization and related medical expenses, successful clinical management in the quarter and prior period favorable reserve development, reflecting effective historical performance on medical costs.
UnitedHealthcare Medicare & Retirement (formerly Ovations)
Third quarter Medicare & Retirement revenues of $8.8 billion grew $886 million or 11 percent year-over-year. This strong growth included revenue advances in the Medicare Advantage, Medicare Supplement and Part D prescription drug businesses. The Medicare & Retirement business has increased its customer base in primary offerings by 615,000 people in the past 12 months.
In Medicare Advantage, the Company brought its services to 290,000 more seniors in the past year, a 16 percent year-over-year increase, including net growth of 20,000 seniors served in the third quarter.
Growth in active Medicare Supplement products continued, with the number of seniors served increasing by 90,000 or 3 percent in the past 12 months, including 25,000 people in the third quarter of 2010.
At September 30, 2010, 4.5 million people participated in the Company's stand-alone Part D prescription drug plans, an increase of 235,000 people over the past 12 months.
UnitedHealthcare Community & State (formerly AmeriChoice)
Third quarter Community & State revenues of $2.7 billion increased $610 million or 29 percent year-over-year, led by strong organic growth. During the past 12 months, the Company expanded its Medicaid services to 440,000 more participants, including 50,000 in the third quarter. Membership grew 14 percent organically year-over-year, driven by continued strong market share growth, geographic expansion and an overall increase in local Medicaid program participation from the economic downturn.
Through its Health Services businesses, the Company provides care management, prevention and wellness services, financial services dedicated to health care, pharmaceutical benefit management, software, health data and analytics, consulting and other services to a broad variety of customers in the United States and international markets. Through these offerings, the Health Services businesses seek to improve overall health system performance.
Combined Health Services revenues for the third quarter of 2010 increased $771 million or 14 percent to $6.2 billion. The revenue advance was driven by growth in consumers served through pharmaceutical benefit management programs and public sector behavioral health programs and increased health care technology software and service revenues.
Consistent with the first half of 2010, third quarter operating margin was impacted year-over-year by changes in performance-based pharmaceutical benefit management contracts with Medicare Part D plan sponsors in response to regulatory changes in that market, as well as higher levels of investment in areas of business expansion and growth. Accordingly, the third quarter Health Services combined operating margin decreased and combined earnings from operations of $352 million decreased $80 million or 19 percent year-over-year.
OptumHealth is a national leader in health and wellness services. Employers, payers and public sector organizations use OptumHealth behavioral health solutions, clinical care management, financial services and specialty offerings 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 $54 million or 4 percent year-over-year to $1.47 billion in the third quarter of 2010.
Third quarter 2010 earnings from operations of $143 million decreased by $29 million or 17 percent year-over-year, and the operating margin decreased by 2.5 percentage points to 9.7 percent. The year-over-year decreases in earnings from operations and operating margin reflect growth in lower margin public sector business, new market development and startup costs, costs related to the implementation of Mental Health Parity legislation and the year-over-year decline in the volume of higher margin business serving customers in the commercial risk market segment. Both earnings from operations and operating margin were ahead of management's original 2010 outlook, due to stronger-than-expected revenue growth and cost management.
At September 30, 2010, OptumHealth Financial Services assets under management grew 28 percent year-over-year to $1.07 billion, and the business grew to 2 million consumer accounts, up 10 percent year-over-year, as growth in dedicated health banking activities continues. OptumHealth Financial Services increased the electronic transmission of medical payments over its connectivity network by 18 percent year-over-year to $11.2 billion in the quarter.
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 benefits payers and pharmaceutical companies.
Ingenix third quarter 2010 revenues increased $111 million or 23 percent year-over-year to $592 million. Third quarter sales bookings increased 31 percent year-over-year, driven by strength in consulting services for care providers and payers and in business process outsourcing services.
The Ingenix contract revenue backlog of $3.2 billion at September 30, 2010, up 48 percent year-over-year and 36 percent sequentially, reflected both acquisition-related backlog expansion and organic growth.
Ingenix third quarter earnings from operations of $70 million increased 9 percent year-over-year. The third quarter operating margin of 11.8 percent reflects lower margin business mix, continued margin pressure in the pharmaceutical services business, and continued 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 third quarter revenues of $4.2 billion grew 17 percent or $606 million year-over-year, driven by growth in people served and related higher prescription volumes.
As in the first half of 2010, program changes in performance-based contracts with Medicare Part D plan sponsors that responded to regulatory changes in that market impacted third quarter earnings from operations and operating margin. This pressure was partially offset by membership growth, increased use of mail service and generic drugs by consumers and effective operating cost management. Earnings from operations of $139 million decreased by $57 million year-over-year as the operating margin normalized at 3.3 percent. Page 9 of 11
About UnitedHealth Group
UnitedHealth Group is a diversified health and well-being company dedicated to making health care work better. Headquartered in Minneapolis, Minn., UnitedHealth Group offers a broad spectrum of products and services through six operating businesses: UnitedHealthcare Employer & Individual, UnitedHealthcare Medicare & Retirement, UnitedHealthcare Community & State, OptumHealth, Ingenix and Prescription Solutions. Through its family of businesses, UnitedHealth Group serves more than 75 million individuals worldwide. Visit www.unitedhealthgroup.com for more information.
Earnings Conference Call
As previously announced, UnitedHealth Group will discuss the Company's results, strategy and future outlook on a conference call with investors at 8:45 a.m. Eastern time today. UnitedHealth Group will host a live webcast of this conference call from the Investors page of the Company's Web site (www.unitedhealthgroup.com). The webcast replay of the call will be available on the same site through November 2, 2010, following the live call. The conference call replay can also be accessed by dialing 1-800-642-1687, conference ID # 21770126. This earnings release and the Form 8-K dated October 19, 2010 may also be accessed from the Investors page of the Company's Web site.