UnitedHealth Group Reports Second Quarter Results

UnitedHealth Group (NYSE:UNH) reported positive second quarter results today, including growth in revenues and net earnings per share and a continued strong financial position. Stephen J. Hemsley, president and chief executive officer of UnitedHealth Group, said, "Our employees continue to deliver value to our customers in this challenging economic environment. This quarter was characterized by continued strong execution, a sharp focus on costs and quality service, elevated engagement on health care reform, continued innovation in the marketplace and further diversification of our business.”

The Company improved its 2009 earnings outlook to $3.00 to $3.15 per share from the previous outlook range of $2.90 to $3.15 per share. The Company continues to project full year 2009 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 in business lines such as Medicare Part D drug programs, high deductible insurance products and health informatics offerings.

UnitedHealth Group Highlights

• UnitedHealth Group’s consolidated second quarter revenues of $21.7 billion increased $1.4 billion or 7 percent year-over-year.
• Second quarter investment income of $153 million decreased $87 million year-over-year, which reduced net earnings by $0.05 per share. While cash and invested asset balances increased 8 percent year-over-year at June 30, 2009, capital market conditions meaningfully reduced yields on the Company’s cash and short duration, high quality investment portfolio. UnitedHealth Group results included net capital gains of $3 million and $50 million in the second quarters of 2009 and 2008, respectively.
• Second quarter earnings from operations were $1.4 billion and net earnings were $859 million. The operating margin of 6.6 percent decreased 60 basis points from the prior year operating margin of 7.2 percent, with 40 basis points of the change due to reduced investment income and the balance due to business mix changes driven by strong growth in comparatively lower margin government-sponsored business at AmeriChoice, Ovations and OptumHealth.
• Second quarter 2009 net earnings of $0.73 per share increased $0.06 or 9 percent from $0.67 per share in the second quarter of 2008.

• Second quarter 2009 premium revenues of $19.7 billion increased $1.4 billion or 8 percent year-over-year, due to strong organic growth in risk-based offerings in the public and senior markets businesses and price increases reflecting underlying medical cost increases in the health benefits businesses.
• Service revenues of $1.3 billion were stable year-over-year, while product revenues of $449 million increased $58 million or 15 percent year-over-year in the second quarter, due to volume growth at Prescription Solutions.
• The consolidated medical care ratio remained within the range of management expectations, increasing 40 basis points year-over-year to 83.6 percent. The increase includes the mix effect of an increased proportion of public and senior markets risk-based business year-over-year, as well as more than 20 basis points from elevated medical costs related to the H1N1 influenza virus.
• During the second quarter of 2009 the Company realized $30 million in net favorable development in its estimates of medical costs incurred in the first quarter of 2009. There were no changes to its estimates of prior year medical costs. There were no net changes in the second quarter of 2008 to estimates of medical costs incurred in prior periods.
• Operating costs were 14.0 percent and 14.6 percent¹ of revenues in the second quarters of 2009 and 2008, respectively.
• The second quarter 2009 income tax rate of 34.0 percent included 100 basis points of benefit from the favorable resolution of various historical federal and state income tax matters. New York state-licensed HMOs are now subject to premium taxes in lieu of state income taxes, which increased operating costs and decreased the consolidated income tax rate by 100 basis points in the quarter.
• There were 11 days sales outstanding in accounts receivable at the end of the second quarters of both 2009 and 2008. Cash collections remained solid despite the recessionary economic climate.
• Consolidated medical costs days payable were 53 days at the end of the second quarters of both 2009 and 2008.
• Second quarter cash flows from operations of $492 million were stronger than projected and brought year-to-date cash flows to $1.6 billion, an increase of 82 percent over the same period last year, reflecting strong growth in risk-based products in the public and senior markets businesses as well as the timing of income tax payments.
• At June 30, 2009 the Company reduced its debt position by $1.4 billion year-over-year, and the debt to debt plus equity ratio decreased to 35.2 percent from 40.4 percent at June 30, 2008. The Company repurchased nearly 32 million shares of stock during the second quarter of 2009.

Business Description – Health Care Services

Health Care Services provides network-based health care benefits and 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.

Key Developments for Health Care Services

• Second quarter 2009 revenues for Health Care Services increased $1.3 billion or 7 percent year-over-year to $20.3 billion. This was driven by price increases that reflect increases in underlying medical costs for risk-based business and a year-to-date increase of nearly 800,000 individuals served through actively offered benefit products across the public and senior markets businesses, partially offset by a decrease in consumers served through commercial products.
• Second quarter Health Care Services earnings from operations of $1.1 billion would have increased by $7 million year-over-year, but for the impact of a $78 million year-over-year decrease in investment income. The Health Care Services operating margin declined 70 basis points year-over-year to 5.3 percent in the second quarter, due to a 40 basis point reduction in margin contribution from investment income and continued strong growth in comparatively lower margin public and senior markets businesses.

UnitedHealthcare

• Second quarter revenues of $10.3 billion decreased $223 million year-over-year. During the second quarter UnitedHealthcare experienced declines of 150,000 people served through fee-based programs and 260,000 people in risk-based health benefit plans. Membership attrition at continuing clients driven by economic pressures on their organizations was the most significant factor in the decreases, accounting for three-fourths of the total membership decline.
• The UnitedHealthcare medical care ratio of 84.2 percent was within the range of management expectations, increasing 40 basis points year-over-year, largely due to elevated medical costs related to the H1N1 virus.

Ovations

• Ovations revenues were $8.0 billion in the second quarter, up $928 million or 13 percent year-over-year.
• For Medicare Advantage programs, Ovations reported second quarter growth of 45,000 people and year-to-date growth of 245,000 people or 16 percent. Strengthened product design, marketing and distribution and local market engagement drove strong, balanced growth in Medicare Advantage.
• Steady growth in active Medicare Supplement products has continued in the second quarter, with Ovations increasing the number of seniors served in this product family by 25,000 to more than 2.6 million people.
• At June 30, 2009 approximately 5.9 million people participated in the Company’s Part D prescription drug plans. Including Part D plans, Ovations has brought services to 550,000 additional seniors across its businesses thus far in 2009, driven exclusively by organic growth.

AmeriChoice

• AmeriChoice second quarter revenues of $2.0 billion increased $632 million or 45 percent year-over-year, driven by 30 percent year-over-year organic growth.
• The Company served 2.75 million people in the Medicaid and state program market at June 30, 2009, which included risk-based growth of 635,000 people year-over-year and 405,000 year-to-date.
• Second quarter results included growth of 130,000 people on a risk basis, partially offset by a net reduction of more than 70,000 people served in a terminated fee-based public services program. Strong second quarter 2009 risk-based growth came solely from performance in its established programs and markets.
• 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 one of the nation’s leading health and wellness companies. Employers, payers and public sector organizations use OptumHealth behavioral benefit solutions, clinical care management, financial services and specialty benefit products 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.

Key Developments for OptumHealth

• Second quarter revenues of $1.4 billion grew 3 percent year-over-year for OptumHealth. Recent top-line trends continued, with strong year-over-year revenue growth from large scale care and behavioral health programs for state clients and increased up-selling of OptumHealth benefits and services at continuing customers mitigating revenue losses associated with the UnitedHealthcare membership decline.
• OptumHealth’s second quarter earnings from operations of $142 million decreased $27 million or 16 percent year-over-year due to the impact of the membership decline at UnitedHealthcare and increased usage of dental services, as well as a reduction in investment income.
• OptumHealth Financial Services, the Company’s dedicated health banking organization, ended the second quarter with $810 million in assets under management, an increase of 32 percent year-over-year, and served 1.8 million consumer accounts, up 14 percent year-over-year.
• OptumHealth Financial Services has grown its connectivity network by 40,000 participants year-to-date and is now connected with 400,000 separate care providers. This business electronically transmitted $8.8 billion in medical payments to physicians and other care providers in the second quarter of 2009, a year-over-year increase of 42 percent.
• During the second quarter, OptumHealth advanced two significant telehealth initiatives as part of its strategy to deliver national telehealth programs to employers, states and other health care partners. By leveraging leading innovative technology, these programs will help connect patients to care providers and care providers to one another in ways that improve access to and effectiveness of health care.
• On July 1, 2009 OptumHealth initiated services for approximately one-half million people covered by the behavioral health programs for the state of New Mexico and Pierce County, Washington.

Business Description – Ingenix

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

Key Developments for Ingenix

• Ingenix revenues of $421 million increased $40 million or 10 percent year-over-year in the second quarter of 2009.
• Continued growth in consulting services and growth in governmental client business across many product categories more than offset a year-over-year decline in pharmaceutical research services backlog. The Ingenix contract revenue backlog increased 22 percent on a year-over-year basis to $2.2 billion at June 30, 2009.
• Ingenix second quarter operating earnings increased $10 million or 20 percent year-over-year to $59 million. The operating margin expanded 110 basis points year-over-year due to operating leverage from revenue growth coupled with effective cost management and operating disciplines.
• In June, Ingenix announced the acquisition of AIM Healthcare Services, a leader in payment accuracy for hospitals and payers. AIM strengthens Ingenix’s capabilities to simplify and improve administration in the health care industry. AIM personnel perform services for clients at nearly 2,000 medical center locations nationwide.

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.

Key Developments for Prescription Solutions

• Prescription Solutions second quarter revenues of $3.6 billion increased $383 million or 12 percent year-over-year, driven by strong growth in consumers served.
• Second quarter earnings from operations grew $72 million or 77 percent year-over-year to $166 million. First quarter 2009 earnings trends continued, with increased profits 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 averaged nearly 69 percent of total volume in the quarter. These factors lifted Prescription Solutions second quarter operating margin to 4.7 percent.

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, Ovations, AmeriChoice, OptumHealth, Ingenix and Prescription Solutions. Through its family of businesses, UnitedHealth Group serves more than 70 million individuals nationwide. 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 August 4 following the live call. The conference call replay can also be accessed by dialing 1-800-642-1687, conference ID #70594008. This earnings release and the Form 8-K dated July 21, 2009, which may also be accessed from the Investors page of the Company’s web site, include a reconciliation of non-GAAP financial measures.

Forward-Looking Statements

This press release may contain statements, estimates, projections, guidance or outlook that constitute "forward-looking” statements as defined under U.S. federal securities laws. Generally the words "believe,” "expect,” "intend,” "estimate,” "anticipate,” "plan,” "project,” "should” and similar expressions, identify forward-looking statements, which generally are not historical in nature. These statements may contain information about financial prospects, economic conditions, trends and uncertainties and involve risks and uncertainties. We caution that actual results could differ materially from those that management expects, depending on the outcome of certain factors. Some factors that could cause results to differ materially from the forward-looking statements include: our ability to effectively estimate, price for and manage our health care costs; our ability to respond quickly and appropriately to health care reforms; failure to comply with federal and state regulations affecting the managed care industry; the potential impact of the adverse conditions in the global economy and extreme disruption of financial markets on our revenues, sources of liquidity, investment portfolio, and our results of operations; regulatory and other risks associated with the pharmacy benefits management industry; competitive pressures, which could affect our ability to maintain or increase our market share, including as a result of new entrants into our market, and consolidation of health care companies and suppliers; uncertainties regarding changes in Medicare, including coordination of information systems and accuracy of certain assumptions; potential reductions in revenue received from Medicare and Medicaid programs, including as a result of reduced payments to private plans offering Medicare Advantage; our ability to execute contracts on competitive terms with physicians, hospitals and other service professionals; our ability to attract, retain and provide support to a network of independent third party brokers, consultants and agents; failure to comply with restrictions on patient privacy and information security; events that may negatively affect our contracts with AARP; increases in costs and other liabilities associated with increased litigation; the potential consequences of various governmental reviews and litigation matters related to our historical stock option practices and the potential consequences of each of these matters on our business, credit ratings and debt; events that may adversely affect the value of our investment portfolio; possible impairment of the value of our intangible assets if future results do not adequately support goodwill and intangible assets recorded for businesses that we acquire; increases in health care costs resulting from large-scale medical emergencies; failure to maintain effective and efficient information systems, which could result in the loss of existing customers, difficulties in attracting new customers, difficulties in determining medical costs estimates and appropriate pricing, customer and physician and health care professional disputes, regulatory violations, increases in operating costs, or other adverse consequences; misappropriation of our proprietary technology; our ability to obtain sufficient funds from our regulated subsidiaries to fund our obligations; failure to complete or receive anticipated benefits of acquisitions; and potential downgrades in our debt ratings.

This list of important factors is not intended to be exhaustive. A further list and description of some of these risks and uncertainties can be found in our reports filed with the Securities and Exchange Commission from time to time, including the cautionary statements in our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. Any or all forward-looking statements we make may turn out to be wrong. 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.

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.