UnitedHealth Group Reports 2012 Results, Highlighted By Strong And Consistent Growth

UnitedHealth Group (NYSE: UNH) today reported 2012 results, highlighted by strong and diversified growth in revenues and earnings. Full year 2012 net earnings were $5.28 per share and cash flows from operations were $7.2 billion.

Stephen J. Hemsley, president and chief executive officer of UnitedHealth Group, said, “In 2012 we continued to gain market share and broadened our revenue and earnings growth sources for the future by continuing to focus on ever-stronger execution on the fundamentals of serving our customers.”

The Company continues to estimate 2013 revenues of $123 billion to $124 billion and net earnings in the range of $5.25 to $5.50 per share.

Quarterly and Annual Financial Performance

Three Months Ended

Year Ended

December 31,

December 31,

September 30,

December 31,

December 31,

2012

2011

2012

2012

2011

Revenues

$28.8 billion

$25.9 billion

$27.3 billion

$110.6 billion

$101.9 billion

Earnings From Operations

$2.1 billion

$2.1 billion

$2.6 billion

$9.3 billion

$8.5 billion

Net Margin

4.3%

4.9%

5.7%

5.0%

5.0%

• UnitedHealth Group’s full year 2012 revenues of $110.6 billion grew $8.8 billion or 9 percent year-over-year. Revenue growth accelerated to 11 percent year-over-year in the fourth quarter, as a result of strong advances from UnitedHealthcare Medicare & Retirement, OptumHealth, OptumInsight and the continuing development of UnitedHealthcare International’s business. Fourth quarter 2012 revenues grew $2.9 billion to $28.8 billion.
• Full year 2012 earnings from operations were $9.3 billion and net earnings were $5.5 billion or $5.28 per share. Fourth quarter earnings from operations were $2.1 billion and net earnings were $1.2 billion or $1.20 per share. UnitedHealthcare and Optum exceeded the 2012 revenue and earnings outlooks provided in November 2012.
• Cash flows from operations were $7.2 billion for the full year, including $1.7 billion in the fourth quarter. Cash flows from operations represented a multiple of 1.3 times 2012 net earnings.
• Fourth quarter 2012 days sales outstanding in accounts receivable of 9 days and days claims payable of 49 days both increased by one day year-over-year.
• UnitedHealth Group repurchased 57 million shares for $3.1 billion in 2012 and paid $820 million in shareholder dividends in 2012, a growth of 26 percent year-over-year. The full year 2012 return on equity was 18.7 percent.

• The full year 2012 commercial medical cost trend was less than 5.5 percent and was favorable to management’s forecast. The full year 2012 medical care ratio of 80.4 percent decreased 40 basis points year-over-year. The fourth quarter 2012 medical care ratio increased 80 basis points year-over-year to 80.5 percent. The higher fourth quarter ratio was due to a lower level of favorable reserve development: $140 million in fourth quarter 2012 compared to $310 million in the fourth quarter of 2011. The figures for both periods include $70 million in reserve development from prior years.
• The full year 2012 operating cost ratio of 15.6 percent and the fourth quarter ratio of 16.9 percent both increased 30 basis points year-over-year, as expected. The increases were driven by changes in business mix and investments to transition commercial pharmacy benefit management programs to OptumRx and to implement the TRICARE West Region contract award in April 2013, partially offset by advances in productivity and overall operational efficiency. Spending on reform readiness and compliance remained at elevated levels in 2012.
• The full year 2012 tax rate of 35.9 percent increased 50 basis points, as the 2011 rate benefitted from the resolution of various historical tax matters.
• During the fourth quarter the Company purchased approximately 65 percent of the outstanding shares of Amil Participacoes S.A. (Amil), the largest health care company in Brazil, for $3.5 billion. UnitedHealth Group expects to acquire an additional 25 percent interest during the first half of 2013 through a tender offer for Amil’s publicly traded shares. The remaining 10 percent interest will be retained by Amil’s existing management for at least five years.

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 and international employers, as well as students and individuals; delivers health and well-being benefits to Medicare beneficiaries and retirees; manages health care benefit programs on behalf of state Medicaid and community programs and their participants and is preparing to serve the nation’s active and retired military through a recently awarded TRICARE contract.

Quarterly and Annual Financial Performance

Three Months Ended

Year Ended

December 31,

December 31,

September 30,

December 31,

December 31,

2012

2011

2012

2012

2011

Revenues

$26.9 billion

$24.2 billion

$25.5 billion

$103.4 billion

$95.3 billion

Earnings From Operations

$1.6 billion

$1.8 billion

$2.2 billion

$7.8 billion

$7.2 billion

Operating Margin

6.1%

7.4%

8.6%

7.6%

7.6%

• Full year 2012 UnitedHealthcare revenues of $103.4 billion grew $8.1 billion or 8 percent year-over-year. UnitedHealthcare provided medical benefits to 41 million people at year end, having grown by 6.4 million people in the past year. Broad-based gains included more than 1 million people served in U.S. commercial markets, nearly 1 million people served in U.S. public and senior markets and more than 4.4 million people served in Brazil via the Amil acquisition. UnitedHealthcare is well positioned to continue to grow in 2013 based on initial January 2013 enrollment results.
• UnitedHealthcare earnings from operations for full year 2012 of $7.8 billion grew $612 million or 8 percent year-over-year, with fourth quarter earnings from operations decreasing $153 million year-over-year to $1.6 billion due to comparatively lower levels of reserve development in the quarter. The full year 2012 operating margin remained consistent at 7.6 percent for the third consecutive year.

UnitedHealthcare Employer & Individual

• Full year 2012 UnitedHealthcare Employer & Individual revenues of $46.6 billion grew $1.2 billion or 3 percent year-over-year. Fourth quarter revenues were $11.8 billion.
• Over the past year, UnitedHealthcare grew its commercial business by 1,055,000 people. The 2012 full year results included growth of 1,265,000 people in fee-based offerings, partially offset by a decrease of 210,000 in risk-based products reflecting funding conversions and UnitedHealthcare’s continuing underwriting discipline. Year-end commercial enrollment remained unchanged from September 30, 2012.
• Year-over-year, UnitedHealthcare’s full year 2012 commercial medical care ratio of 80.6 percent decreased 30 basis points, while the fourth quarter care ratio of 82.8 percent was consistent year-over-year.

UnitedHealthcare Medicare & Retirement

• UnitedHealthcare Medicare & Retirement revenues of $39.3 billion grew $4.3 billion or 12 percent year-over-year and $1.3 billion or 15 percent year-over-year to $9.8 billion in the fourth quarter. UnitedHealthcare continues to rapidly expand the number of senior customers served.
  • In Medicare Advantage, UnitedHealthcare grew to serve 400,000 more seniors and other beneficiaries in 2012, an 18 percent year-over-year increase, including growth of 25,000 people in the fourth quarter.
  • Growth in active Medicare Supplement products continued, with the number of seniors and other beneficiaries served increasing by 245,000 in 2012, including 45,000 people in the fourth quarter.
  • At December 31, 2012, 4.2 million seniors and other beneficiaries participated in the Company’s stand-alone Part D prescription drug plans, a decline of 630,000 people year-over-year due to the Company pricing higher than the benchmarks for the low income subsidy markets in most regions.

UnitedHealthcare Community & State

• In 2012, Community & State revenues of $16.4 billion grew $1.5 billion or 10 percent year-over-year, due to strong growth in people served through state sponsored benefit programs. Fourth quarter revenues grew $245 million year-over-year to $4.2 billion.
• UnitedHealthcare expanded its Medicaid services to 405,000 more people in 2012, including 60,000 in the fourth quarter. The fourth quarter net decrease of 115,000 people included the planned fourth quarter market withdrawal from one product in a portion of Wisconsin, affecting 175,000 beneficiaries. Full year net membership, including this market exit, grew by 230,000 people or more than 6 percent in 2012, driven by continued local market growth and geographic and product expansion.

UnitedHealthcare International

• UnitedHealthcare International fourth quarter 2012 revenues of $1.0 billion represented the initial results from Amil during the quarter as well as a small amount of revenues from international businesses already owned by UnitedHealthcare. Amil ended the year serving more than 4.4 million people with medical benefits.

Optum is a health services business serving the broad health care marketplace, including payers, care providers, employers, government, life sciences companies and consumers. Using advanced data, analytics and technology, Optum helps improve overall health system performance: optimizing care quality, reducing costs and improving the consumer experience and care provider performance.

Quarterly and Annual Financial Performance

Three Months Ended

Year Ended

December 31,

December 31,

September 30,

December 31,

December 31,

2012

2011

2012

2012

2011

Total Revenues

$7.5 billion

$7.6 billion

$7.2 billion

$29.4 billion

$28.7 billion

Earnings From Operations

$459 million

$279 million

$408 million

$1.44 billion

$1.26 billion

Operating Margin

6.1%

3.7%

5.6%

4.9%

4.4%

• In 2012, Optum revenues grew by $735 million or 3 percent to $29.4 billion, with fourth quarter revenues of $7.5 billion relatively stable year-over-year, as expected. Significant growth and business expansions in key technology and service categories over the past year were offset by a reduction in pharmacy service revenues due to reduced levels of Part D prescription drug membership and related prescription volumes.
  • OptumHealth revenues of $8.1 billion grew $1.4 billion or 22 percent year-over-year in 2012, including growth of $325 million or 18 percent year-over-year to $2.1 billion in fourth quarter of 2012.
  • OptumInsight revenues grew to $2.9 billion in 2012, advancing $211 million or 8 percent year-over-year. Fourth quarter 2012 revenues of $822 million accelerated to 15 percent growth year-over-year. OptumInsight’s revenue backlog grew 14 percent year-over-year to $4.6 billion at December 31, 2012, reflecting strong demand for clinical systems and compliance and payment integrity services.
  • OptumRx full year 2012 revenues of $18.4 billion decreased 5 percent year-over-year due to the reduction in UnitedHealthcare Part D plan participants. Fourth quarter 2012 revenues of $4.6 billion decreased 10 percent year-over-year but grew $125 million or 3 percent from third quarter 2012 due to a higher volume of traditional and specialty pharmaceutical prescriptions in the fourth quarter.

• Optum’s 2012 earnings from operations of $1.4 billion grew $178 million or 14 percent year-over-year and operating margins expanded 50 basis points year-over-year. Fourth quarter earnings from operations of $459 million grew $180 million or 65 percent year-over-year and operating margin expanded 240 basis points to 6.1 percent. Earnings growth and margin expansion were driven by revenue growth in higher margin products and by improvements in business simplification, integration and efficiency efforts that benefitted operating earnings in the second half of 2012.
  • Full year 2012 OptumHealth earnings from operations of $561 million grew $138 million year-over-year, and the operating margin improved 60 basis points to 6.9 percent. Fourth quarter operating earnings of $178 million grew $114 million and operating margins expanded nearly 5 percentage points. Gains in operating efficiency and cost management and increased earnings from integrated care delivery were principal contributors to the strong margin expansion and earnings growth.
  • OptumInsight’s full year 2012 earnings from operations of $485 million grew $104 million or 27 percent year-over-year and the full year operating margin expanded from 14.3 percent to 16.8 percent. Fourth quarter operating earnings of $175 million grew $55 million and operating margin expanded 460 basis points year-over-year to 21.3 percent. Growth, favorable business mix and operating and cost efficiencies drove full year and fourth quarter 2012 margin expansion and overall earnings performance.
  • OptumRx full year 2012 earnings from operations of $393 million decreased $64 million year-over-year, as the business absorbed $115 million in investments to support the transition of UnitedHealthcare commercial pharmacy benefits and position OptumRx for broader market growth. Fourth quarter 2012 earnings from operations of $106 million improved 12 percent year-over-year and the fourth quarter operating margin improved 40 basis points to 2.3 percent driven by increasing specialty pharmaceutical volume and a 5 percentage point year-over-year advance in the use of generic medications, to 81 percent of total prescription volume in fourth quarter 2012.

About UnitedHealth Group

UnitedHealth Group (NYSE: UNH) is a diversified health and well-being company dedicated to helping people live healthier lives and making health care work better. With headquarters in Minnetonka, Minn., UnitedHealth Group offers a broad spectrum of products and services through two distinct platforms: UnitedHealthcare, which provides health care coverage and benefits services; and Optum, which provides information and technology-enabled health services. Through its businesses, UnitedHealth Group serves more than 80 million people worldwide. For more information, visit UnitedHealth Group at www.unitedhealthgroup.com.

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 website ( www.unitedhealthgroup.com). The webcast replay of the call will be available on the same site through January 31, 2013, following the live call. The conference call replay can also be accessed by dialing 1-800-283-8520. This earnings release and the Form 8-K dated January 17, 2013 may also be accessed from the Investors page of the Company’s website.

Forward-Looking Statements

The statements, estimates, projections, guidance or outlook contained in this press release include “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995 (PSLRA). These statements are intended to take advantage of the “safe harbor” provisions of the PSLRA. 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 and trends 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.

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