10-Q 1 unh201663010-q.htm 10-Q Document

 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________________________________ 
Form 10-Q
__________________________________________________________ 
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2016
or
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______ TO _______
Commission file number: 1-10864
__________________________________________________________ 
    
UnitedHealth Group Incorporated
(Exact name of registrant as specified in its charter)
 __________________________________________________________ 
Delaware
 
41-1321939
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
UnitedHealth Group Center
9900 Bren Road East
Minnetonka, Minnesota
 
55343
(Address of principal executive offices)
 
(Zip Code)
(952) 936-1300
(Registrant’s telephone number, including area code)
__________________________________________________________  
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer
[X]
 
Accelerated filer
[ ]
 
Non-accelerated filer
[ ]
 
Smaller reporting company
[ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes [ ] No [X]

As of July 29, 2016, there were 952,391,411 shares of the registrant’s Common Stock, $.01 par value per share, issued and outstanding.
 
 
 
 
 




UNITEDHEALTH GROUP
Table of Contents
 
 
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




PART I
ITEM 1.    FINANCIAL STATEMENTS
UnitedHealth Group
Condensed Consolidated Balance Sheets
(Unaudited)
(in millions, except per share data)
 
June 30,
2016
 
December 31,
2015
Assets
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
8,217

 
$
10,923

Short-term investments
 
2,757

 
1,988

Accounts receivable, net
 
9,346

 
6,523

Other current receivables, net
 
7,355

 
6,801

Assets under management
 
2,855

 
2,998

Prepaid expenses and other current assets
 
2,768

 
2,406

Total current assets
 
33,298

 
31,639

Long-term investments
 
22,211

 
18,792

Property, equipment and capitalized software, net
 
5,189

 
4,861

Goodwill
 
46,881

 
44,453

Other intangible assets, net
 
8,878

 
8,391

Other assets
 
3,146

 
3,118

Total assets
 
$
119,603

 
$
111,254

Liabilities, redeemable noncontrolling interests and equity
 
 
 
 
Current liabilities:
 
 
 
 
Medical costs payable
 
$
16,632

 
$
14,330

Accounts payable and accrued liabilities
 
14,366

 
11,994

Other policy liabilities
 
8,447

 
7,798

Commercial paper and current maturities of long-term debt
 
6,364

 
6,634

Unearned revenues
 
1,567

 
2,142

Total current liabilities
 
47,376

 
42,898

Long-term debt, less current maturities
 
26,834

 
25,331

Future policy benefits
 
2,507

 
2,496

Deferred income taxes
 
2,857

 
3,587

Other liabilities
 
1,998

 
1,481

Total liabilities
 
81,572

 
75,793

Commitments and contingencies (Note 9)
 


 


Redeemable noncontrolling interests
 
1,744

 
1,736

Equity:
 
 
 
 
Preferred stock, $0.001 par value - 10 shares authorized; no shares issued or outstanding
 

 

Common stock, $0.01 par value - 3,000 shares authorized; 951 and 953 issued and outstanding
 
10

 
10

Additional paid-in capital
 

 
29

Retained earnings
 
38,579

 
37,125

Accumulated other comprehensive loss
 
(2,203
)
 
(3,334
)
Nonredeemable noncontrolling interest
 
(99
)
 
(105
)
Total equity
 
36,287

 
33,725

Total liabilities, redeemable noncontrolling interests and equity
 
$
119,603

 
$
111,254


See Notes to the Condensed Consolidated Financial Statements

1


UnitedHealth Group
Condensed Consolidated Statements of Operations
(Unaudited)
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in millions, except per share data)
 
2016
 
2015
 
2016
 
2015
Revenues:
 
 
 
 
 
 
 
 
Premiums
 
$
36,413

 
$
31,961

 
$
71,224

 
$
63,635

Products
 
6,610

 
1,223

 
13,003

 
2,453

Services
 
3,269

 
2,865

 
6,409

 
5,571

Investment and other income
 
193

 
214

 
376

 
360

Total revenues
 
46,485

 
36,263

 
91,012

 
72,019

Operating costs:
 
 
 
 
 
 
 
 
Medical costs
 
29,872

 
26,127

 
58,302

 
51,917

Operating costs
 
6,793

 
5,738

 
13,551

 
11,572

Cost of products sold
 
6,106

 
1,124

 
11,983

 
2,238

Depreciation and amortization
 
511

 
379

 
1,013

 
757

Total operating costs
 
43,282

 
33,368

 
84,849

 
66,484

Earnings from operations
 
3,203

 
2,895

 
6,163

 
5,535

Interest expense
 
(271
)
 
(151
)
 
(530
)
 
(301
)
Earnings before income taxes
 
2,932

 
2,744

 
5,633

 
5,234

Provision for income taxes
 
(1,172
)
 
(1,159
)
 
(2,246
)
 
(2,236
)
Net earnings
 
1,760

 
1,585

 
3,387

 
2,998

Earnings attributable to noncontrolling interests
 
(6
)
 

 
(22
)
 

Net earnings attributable to UnitedHealth Group common shareholders
 
$
1,754

 
$
1,585

 
$
3,365

 
$
2,998

Earnings per share attributable to UnitedHealth Group common shareholders:
 
 
 
 
 
 
 
 
Basic
 
$
1.84

 
$
1.66

 
$
3.53

 
$
3.15

Diluted
 
$
1.81

 
$
1.64

 
$
3.48

 
$
3.10

Basic weighted-average number of common shares outstanding
 
951

 
952

 
952

 
953

Dilutive effect of common share equivalents
 
16

 
14

 
15

 
14

Diluted weighted-average number of common shares outstanding
 
967

 
966

 
967

 
967

Anti-dilutive shares excluded from the calculation of dilutive effect of common share equivalents
 
1

 
8

 
4

 
8

Cash dividends declared per common share
 
$
0.625

 
$
0.500

 
$
1.125

 
$
0.875


See Notes to the Condensed Consolidated Financial Statements

2



UnitedHealth Group
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)

 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in millions)
 
2016
 
2015
 
2016
 
2015
Net earnings
 
$
1,760

 
$
1,585

 
$
3,387

 
$
2,998

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
Gross unrealized gains (losses) on investment securities during the period
 
234

 
(222
)
 
494

 
(117
)
Income tax effect
 
(84
)
 
80

 
(180
)
 
43

Total unrealized gains (losses), net of tax
 
150

 
(142
)
 
314

 
(74
)
Gross reclassification adjustment for net realized gains included in net earnings
 
(36
)
 
(68
)
 
(71
)
 
(71
)
Income tax effect
 
13

 
25

 
26

 
26

Total reclassification adjustment, net of tax
 
(23
)
 
(43
)
 
(45
)
 
(45
)
Total foreign currency translation gains (losses)
 
474

 
163

 
862

 
(796
)
Other comprehensive income (loss)
 
601

 
(22
)
 
1,131

 
(915
)
Comprehensive income
 
2,361

 
1,563

 
4,518

 
2,083

Comprehensive income attributable to noncontrolling interests
 
(6
)
 

 
(22
)
 

Comprehensive income attributable to UnitedHealth Group common shareholders
 
$
2,355

 
$
1,563

 
$
4,496

 
$
2,083


See Notes to the Condensed Consolidated Financial Statements

3


UnitedHealth Group
Condensed Consolidated Statements of Changes in Equity
(Unaudited)
 
 
Common Stock
 
Additional Paid-In Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Income (Loss)
 
Nonredeemable Noncontrolling Interest
 
Total
Equity
(in millions)
 
Shares
 
Amount
 
 
 
Net Unrealized Gains (Losses) on Investments
 
Foreign Currency Translation (Losses) Gains
 
 
Balance at January 1, 2016
 
953

 
$
10

 
$
29

 
$
37,125

 
$
56

 
$
(3,390
)
 
$
(105
)
 
$
33,725

Adjustment to adopt
ASU 2016-09
 
 
 
 
 
 
 
28

 
 
 
 
 
 
 
28

Net earnings
 
 
 
 
 
 
 
3,365

 
 
 
 
 
22

 
3,387

Other comprehensive income
 
 
 
 
 
 
 
 
 
269

 
862

 
 
 
1,131

Issuances of common stock,
and related tax effects
 
6

 

 
76

 
 
 
 
 
 
 
 
 
76

Share-based compensation
 
 
 
 
 
249

 
 
 
 
 
 
 
 
 
249

Common share repurchases
 
(8
)
 

 
(112
)
 
(868
)
 
 
 
 
 
 
 
(980
)
Cash dividends paid on common shares
 
 
 
 
 
 
 
(1,071
)
 
 
 
 
 
 
 
(1,071
)
Acquisition of redeemable noncontrolling interest shares
 
 
 
 
 
(139
)
 
 
 
 
 
 
 
 
 
(139
)
 Redeemable noncontrolling interests fair value and other adjustments
 
 
 
 
 
(103
)
 
 
 
 
 
 
 
 
 
(103
)
Distribution to nonredeemable noncontrolling interest
 
 
 
 
 
 
 
 
 
 
 
 
 
(16
)
 
(16
)
Balance at June 30, 2016
 
951

 
$
10

 
$

 
$
38,579

 
$
325

 
$
(2,528
)
 
$
(99
)
 
$
36,287

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2015
 
954

 
$
10

 
$

 
$
33,836

 
$
223

 
$
(1,615
)
 
$

 
$
32,454

Net earnings
 
 
 
 
 
 
 
2,998

 
 
 
 
 
 
 
2,998

Other comprehensive loss
 
 
 
 
 
 
 
 
 
(119
)
 
(796
)
 
 
 
(915
)
Issuances of common stock,
 and related tax effects
 
7

 

 
23

 
 
 
 
 
 
 
 
 
23

Share-based compensation,
and related tax benefits
 
 
 
 
 
319

 
 
 
 
 
 
 
 
 
319

Common share repurchases
 
(9
)
 

 
(214
)
 
(739
)
 
 
 
 
 
 
 
(953
)
Cash dividends paid on common shares
 
 
 
 
 
 
 
(833
)
 
 
 
 
 
 
 
(833
)
Redeemable noncontrolling interests fair value and other adjustments
 
 
 
 
 
(73
)
 
 
 
 
 
 
 
 
 
(73
)
Balance at June 30, 2015
 
952

 
$
10

 
$
55

 
$
35,262

 
$
104

 
$
(2,411
)
 
$

 
$
33,020



See Notes to the Condensed Consolidated Financial Statements

4


UnitedHealth Group
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
 
Six Months Ended June 30,
(in millions)
 
2016
 
2015
Operating activities
 
 
 
 
Net earnings
 
$
3,387

 
$
2,998

Noncash items:
 
 
 
 
Depreciation and amortization
 
1,013

 
757

Deferred income taxes
 
(141
)
 
(30
)
Share-based compensation
 
262

 
211

Other, net
 
(20
)
 
(160
)
Net change in other operating items, net of effects from acquisitions and changes in AARP balances:
 
 
 
 
Accounts receivable
 
(2,638
)
 
(1,725
)
Other assets
 
(2,052
)
 
(2,178
)
Medical costs payable
 
2,099

 
1,988

Accounts payable and other liabilities
 
2,403

 
1,809

Other policy liabilities
 
283

 
208

Unearned revenues
 
(595
)
 
(446
)
Cash flows from operating activities
 
4,001

 
3,432

Investing activities
 
 
 
 
Purchases of investments
 
(8,975
)
 
(4,286
)
Sales of investments
 
3,421

 
2,260

Maturities of investments
 
1,973

 
1,622

Cash paid for acquisitions, net of cash assumed
 
(2,035
)
 
(1,778
)
Purchases of property, equipment and capitalized software
 
(813
)
 
(716
)
Other, net
 
16

 
48

Cash flows used for investing activities
 
(6,413
)
 
(2,850
)
Financing activities
 
 
 
 
Common share repurchases
 
(980
)
 
(953
)
Acquisition of redeemable noncontrolling interest shares
 
(257
)
 

Cash dividends paid
 
(1,071
)
 
(833
)
Proceeds from common stock issuances
 
254

 
242

Proceeds from issuance of long-term debt
 
2,485

 

Repayments of long-term debt
 
(1,601
)
 
(416
)
Proceeds from commercial paper, net
 
124

 
1,086

Customer funds administered
 
1,039

 
941

Other, net
 
(352
)
 
(188
)
Cash flows used for financing activities
 
(359
)
 
(121
)
Effect of exchange rate changes on cash and cash equivalents
 
65

 
(69
)
(Decrease) increase in cash and cash equivalents
 
(2,706
)
 
392

Cash and cash equivalents, beginning of period
 
10,923

 
7,495

Cash and cash equivalents, end of period
 
$
8,217

 
$
7,887


See Notes to the Condensed Consolidated Financial Statements

5


UnitedHealth Group
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
UnitedHealth Group Incorporated (individually and together with its subsidiaries, “UnitedHealth Group” and “the Company”) is a diversified health and well-being company dedicated to helping people live healthier lives and making the health system work better for everyone. Through its diversified family of businesses, the Company leverages core competencies in advanced, enabling technology; health care data, information and intelligence; and clinical care management and coordination to help meet the demands of the health system. The Company 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 pharmacy care services and information and technology-enabled health services.
The Company has prepared the Condensed Consolidated Financial Statements according to U.S. Generally Accepted Accounting Principles (GAAP) and has included the accounts of UnitedHealth Group and its subsidiaries. The year-end condensed consolidated balance sheet was derived from audited financial statements, but does not include all disclosures required by GAAP. In accordance with the rules and regulations of the U.S. Securities and Exchange Commission (SEC), the Company has omitted certain footnote disclosures that would substantially duplicate the disclosures contained in its annual audited Consolidated Financial Statements. Therefore, these Condensed Consolidated Financial Statements should be read together with the Consolidated Financial Statements and the Notes included in Part II, Item 8, “Financial Statements” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 as filed with the SEC (2015 10-K). The accompanying Condensed Consolidated Financial Statements include all normal recurring adjustments necessary to present the interim financial statements fairly.
Use of Estimates
These Consolidated Financial Statements include certain amounts based on the Company’s best estimates and judgments. The Company’s most significant estimates relate to estimates and judgments for medical costs payable and revenues, valuation and impairment analysis of goodwill and other intangible assets and valuations of certain investments. Certain of these estimates require the application of complex assumptions and judgments, often because they involve matters that are inherently uncertain and will likely change in subsequent periods. The impact of any change in estimates is included in earnings in the period in which the estimate is adjusted.
The accounting policies disclosed in Note 2 of Notes to the Consolidated Financial Statements in Part II, Item 8, “Financial Statements” in the 2015 10-K remain unchanged.
Reclassification
During the fourth quarter of 2015, the Company aligned its accounting policy to conform the presentation of certain pharmacy fulfillment costs related to an acquired OptumRx business. These costs are now included in medical costs and cost of products sold, whereas they were previously included in operating costs. Prior periods have been reclassified to conform to the current period presentation. The reclassification increased medical expenses by $101 million and $202 million, decreased operating costs by $114 million and $229 million and increased cost of products sold by $13 million and $27 million for the three and six months ended June 30, 2015, respectively. The reclassification had no impact on total operating costs, earnings from operations, net earnings, earnings per share or total equity.
Recently Issued Accounting Standards
In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) No. 2016-02, “Leases (Topic 842)” (ASU 2016-02). Under ASU 2016-02, an entity will be required to recognize assets and liabilities for the rights and obligations created by leases on the entity’s balance sheet for both finance and operating leases. For leases with a term of 12 months or less, an entity can elect to not recognize lease assets and lease liabilities and expense the lease over a straight-line basis for the term of the lease. ASU 2016-02 will require new disclosures that depict the amount, timing, and uncertainty of cash flows pertaining to an entity’s leases. Companies are required to adopt the new standard using a modified retrospective approach for annual and interim periods beginning after December 15, 2018. Early adoption of ASU 2016-02 is permitted. The Company is currently evaluating the effect of the new leasing guidance.
In January 2016, the FASB issued ASU 2016-01, “Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities” (ASU 2016-01). The new guidance changes the current accounting related to (i) the classification and measurement of certain equity investments, (ii) the presentation of changes in the fair value of financial liabilities measured under the fair value option that are due to instrument-specific credit risk, and (iii) certain disclosures associated with the fair value of financial instruments. Most notably, ASU 2016-01 requires that equity investments, with certain exemptions, be measured at fair value with changes in fair value recognized in net income as opposed to other

6


comprehensive income. The new guidance is effective for annual and interim reporting periods beginning after December 15, 2017. The Company is currently evaluating the effect of the new financial instruments guidance.
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (ASU 2014-09) as modified by ASU No. 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date,” ASU 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net),” ASU No. 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing,” and ASU No. 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients.” ASU 2014-09 will supersede existing revenue recognition standards with a single model unless those contracts are within the scope of other standards (e.g., an insurance entity’s insurance contracts). The revenue recognition principle in ASU 2014-09 is that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, new and enhanced disclosures will be required. Companies may adopt the new standard either using the full retrospective approach, a modified retrospective approach with practical expedients, or a cumulative effect upon adoption approach. ASU 2014-09 is effective for annual and interim reporting periods beginning after December 15, 2017. Early adoption at the original effective date, interim and annual periods beginning after December 15, 2016, will be permitted. When adopted, the Company does not expect ASU 2014-09 to have a material impact on its consolidated financial position, results of operations, equity or cash flows.
Recently Adopted Accounting Standards
In March 2016, the FASB issued ASU No. 2016-09, “Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” (ASU 2016-09). ASU 2016-09 modifies several aspects of the accounting for share-based payment awards, including income tax consequences, and classification on the statement of cash flows. The Company early adopted ASU 2016-09 in the first quarter of 2016. The provisions of ASU 2016-09 related to the timing of when excess tax benefits are recognized, minimum statutory withholding requirements and forfeitures were adopted using a modified retrospective transition method by means of a cumulative-effect adjustment to equity as of January 1, 2016. The provisions of ASU 2016-09 related to the recognition of excess tax benefits in the income statement and classification in the statement of cash flows were adopted prospectively and the prior periods were not retrospectively adjusted. The adoption of ASU 2016-09 did not materially impact the Company’s consolidated financial position, results of operations, equity or cash flows.
In November 2015, the FASB issued ASU No. 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes” (ASU 2015-17). ASU 2015-17 requires entities to present deferred tax assets and deferred tax liabilities as noncurrent on the balance sheet. Prior to the issuance of ASU 2015-17, deferred taxes were required to be presented as a net current asset or liability and a net noncurrent asset or liability. The Company adopted ASU 2015-17 on a prospective basis in the first quarter of 2016 and the prior period was not retrospectively adjusted. The adoption of ASU 2015-17 did not impact the Company’s consolidated financial position, results of operations, equity or cash flows.
In April 2015, the FASB issued ASU No. 2015-03, “Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs” (ASU 2015-03). ASU 2015-03 requires debt issuance costs to be presented as a reduction of the carrying amount of the related debt liability. Prior to the issuance of ASU 2015-03, debt issuance costs were required to be presented as an asset in the balance sheet. The Company adopted ASU 2015-03 on a retrospective basis, as required, in the first quarter of 2016. The Company reclassified $129 million in debt issuance costs that were recorded in other assets on the Consolidated Balance Sheet as of December 31, 2015 to long-term debt, less current maturities.
The Company has determined that there have been no other recently adopted or issued accounting standards that had, or will have, a material impact on its Condensed Consolidated Financial Statements.

7


2.    Investments
A summary of short-term and long-term investments by major security type is as follows:
(in millions)
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
June 30, 2016
 
 
 
 
 
 
 
 
Debt securities - available-for-sale:
 
 
 
 
 
 
 
 
U.S. government and agency obligations
 
$
2,401

 
$
24

 
$

 
$
2,425

State and municipal obligations
 
6,749

 
260

 
(1
)
 
7,008

Corporate obligations
 
9,479

 
170

 
(11
)
 
9,638

U.S. agency mortgage-backed securities
 
2,580

 
44

 
(1
)
 
2,623

Non-U.S. agency mortgage-backed securities
 
930

 
27

 
(3
)
 
954

Total debt securities - available-for-sale
 
22,139

 
525

 
(16
)
 
22,648

Equity securities - available-for-sale
 
1,804

 
52

 
(45
)
 
1,811

Debt securities - held-to-maturity:
 
 
 
 
 
 
 
 
U.S. government and agency obligations
 
175

 
3

 

 
178

State and municipal obligations
 
7

 

 

 
7

Corporate obligations
 
327

 

 

 
327

Total debt securities - held-to-maturity
 
509

 
3

 

 
512

Total investments
 
$
24,452

 
$
580

 
$
(61
)
 
$
24,971

December 31, 2015
 
 
 
 
 
 
 
 
Debt securities - available-for-sale:
 
 
 
 
 
 
 
 
U.S. government and agency obligations
 
$
1,982

 
$
1

 
$
(6
)
 
$
1,977

State and municipal obligations
 
6,022

 
149

 
(3
)
 
6,168

Corporate obligations
 
7,446

 
41

 
(81
)
 
7,406

U.S. agency mortgage-backed securities
 
2,127

 
13

 
(16
)
 
2,124

Non-U.S. agency mortgage-backed securities
 
962

 
5

 
(11
)
 
956

Total debt securities - available-for-sale
 
18,539

 
209

 
(117
)
 
18,631

Equity securities - available-for-sale
 
1,638

 
58

 
(57
)
 
1,639

Debt securities - held-to-maturity:
 
 
 
 
 
 
 
 
U.S. government and agency obligations
 
163

 
1

 

 
164

State and municipal obligations
 
8

 

 

 
8

Corporate obligations
 
339

 

 

 
339

Total debt securities - held-to-maturity
 
510

 
1

 

 
511

Total investments
 
$
20,687

 
$
268

 
$
(174
)
 
$
20,781


The amortized cost and fair value of debt securities as of June 30, 2016, by contractual maturity, were as follows:
 
 
Available-for-Sale
 
Held-to-Maturity
(in millions)
 
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
Due in one year or less
 
$
2,872

 
$
2,877

 
$
139

 
$
139

Due after one year through five years
 
8,341

 
8,461

 
175

 
177

Due after five years through ten years
 
5,234

 
5,438

 
107

 
107

Due after ten years
 
2,182

 
2,295

 
88

 
89

U.S. agency mortgage-backed securities
 
2,580

 
2,623

 

 

Non-U.S. agency mortgage-backed securities
 
930

 
954

 

 

Total debt securities
 
$
22,139

 
$
22,648

 
$
509

 
$
512


8


The fair value of available-for-sale investments with gross unrealized losses by major security type and length of time that individual securities have been in a continuous unrealized loss position were as follows:
 
 
Less Than 12 Months
 
12 Months or Greater
 
 Total
(in millions)
 
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
June 30, 2016
 
 
 
 
 
 
 
 
 
 
 
 
Debt securities - available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
 
State and municipal obligations
 
$
173

 
$
(1
)
 
$

 
$

 
$
173

 
$
(1
)
Corporate obligations
 
1,034

 
(4
)
 
481

 
(7
)
 
1,515

 
(11
)
U.S. agency mortgage-backed securities
 

 

 
114

 
(1
)
 
114

 
(1
)
Non-U.S. agency mortgage-backed securities
 

 

 
129

 
(3
)
 
129

 
(3
)
Total debt securities - available-for-sale
 
$
1,207

 
$
(5
)
 
$
724

 
$
(11
)
 
$
1,931

 
$
(16
)
Equity securities - available-for-sale
 
$
62

 
$
(4
)
 
$
105

 
$
(41
)
 
$
167

 
$
(45
)
December 31, 2015
 
 
 
 
 
 
 
 
 
 
 
 
Debt securities - available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency obligations
 
$
1,473

 
$
(6
)
 
$

 
$

 
$
1,473

 
$
(6
)
State and municipal obligations
 
650

 
(3
)
 

 

 
650

 
(3
)
Corporate obligations
 
4,629

 
(63
)
 
339

 
(18
)
 
4,968

 
(81
)
U.S. agency mortgage-backed securities
 
1,304

 
(12
)
 
116

 
(4
)
 
1,420

 
(16
)
Non-U.S. agency mortgage-backed securities
 
593

 
(7
)
 
127

 
(4
)
 
720

 
(11
)
Total debt securities - available-for-sale
 
$
8,649

 
$
(91
)
 
$
582

 
$
(26
)
 
$
9,231

 
$
(117
)
Equity securities - available-for-sale
 
$
112

 
$
(11
)
 
$
89

 
$
(46
)
 
$
201

 
$
(57
)
The Company’s unrealized losses from all securities as of June 30, 2016 were generated from approximately 3,000 positions out of a total of 26,000 positions. The Company believes that it will collect the principal and interest due on its debt securities that have an amortized cost in excess of fair value. The unrealized losses were primarily caused by interest rate increases and not by unfavorable changes in the credit quality associated with these securities. As of June 30, 2016, the Company did not have the intent to sell any of the securities in an unrealized loss position. Therefore, the Company believes these losses to be temporary.
Net realized gains reclassified out of accumulated other comprehensive income were from the following sources:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in millions)
 
2016
 
2015
 
2016
 
2015
Total other than temporary impairments recognized in earnings
 
$
(1
)
 
$
(3
)
 
$
(22
)
 
$
(4
)
Gross realized losses from sales
 
(4
)
 
(5
)
 
(35
)
 
(11
)
Gross realized gains from sales
 
41

 
76

 
128

 
86

Net realized gains (included in investment and other income on the Condensed Consolidated Statements of Operations)
 
36

 
68

 
71

 
71

Income tax effect (included in provision for income taxes on the Condensed Consolidated Statements of Operations)
 
(13
)
 
(25
)
 
(26
)
 
(26
)
Realized gains, net of taxes
 
$
23

 
$
43

 
$
45

 
$
45

3.    Fair Value
Certain assets and liabilities are measured at fair value in the Condensed Consolidated Financial Statements or have fair values disclosed in the Notes to the Condensed Consolidated Financial Statements. These assets and liabilities are classified into one of three levels of a hierarchy defined by GAAP.
For a description of the methods and assumptions that are used to estimate the fair value and determine the fair value hierarchy classification of each class of financial instrument, see Note 5 of Notes to the Consolidated Financial Statements in Part II, Item 8, “Financial Statements” in the 2015 10-K.

9


The Company elected to measure the entirety of the Supplemental Health Insurance Program (AARP Program) assets under management at fair value pursuant to the fair value option. See Note 2 of Notes to the Consolidated Financial Statements in Part II, Item 8, “Financial Statements” in the 2015 10-K for further detail on the AARP Program.
The following table presents a summary of fair value measurements by level and carrying values for items measured at fair value on a recurring basis in the Condensed Consolidated Balance Sheets, excluding assets and liabilities related to the AARP Program:
(in millions)
 
Quoted Prices
in Active
Markets
(Level 1)
 
Other
Observable
Inputs
(Level 2)
 
Unobservable
Inputs
(Level 3)
 
Total
Fair and Carrying
Value
June 30, 2016
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
8,188

 
$
29

 
$

 
$
8,217

Debt securities - available-for-sale:
 
 
 
 
 
 
 
 
U.S. government and agency obligations
 
2,219

 
206

 

 
2,425

State and municipal obligations
 

 
7,008

 

 
7,008

Corporate obligations
 

 
9,537

 
101

 
9,638

U.S. agency mortgage-backed securities
 

 
2,623

 

 
2,623

Non-U.S. agency mortgage-backed securities
 

 
954

 

 
954

Total debt securities - available-for-sale
 
2,219

 
20,328

 
101

 
22,648

Equity securities - available-for-sale
 
1,410

 
13

 
388

 
1,811

Interest rate swap assets
 

 
299

 

 
299

Total assets at fair value

$
11,817

 
$
20,669

 
$
489

 
$
32,975

Percentage of total assets at fair value
 
36
%
 
63
%
 
1
%
 
100
%
December 31, 2015
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
10,906

 
$
17

 
$

 
$
10,923

Debt securities - available-for-sale:
 
 
 
 
 
 
 
 
U.S. government and agency obligations
 
1,779

 
198

 

 
1,977

State and municipal obligations
 

 
6,168

 

 
6,168

Corporate obligations
 
5

 
7,308

 
93

 
7,406

U.S. agency mortgage-backed securities
 

 
2,124

 

 
2,124

Non-U.S. agency mortgage-backed securities
 

 
951

 
5

 
956

Total debt securities - available-for-sale
 
1,784

 
16,749

 
98

 
18,631

Equity securities - available-for-sale
 
1,223

 
14

 
402

 
1,639

Interest rate swap assets
 

 
93

 

 
93

Total assets at fair value
 
$
13,913

 
$
16,873

 
$
500

 
$
31,286

Percentage of total assets at fair value
 
44
%
 
54
%
 
2
%
 
100
%
Interest rate swap liabilities
 
$

 
$
11

 
$

 
$
11

Transfers between levels, if any, are recorded as of the beginning of the reporting period in which the transfer occurs; there were no transfers between Levels 1, 2 or 3 of any financial assets or liabilities during the six months ended June 30, 2016 or 2015.

10


The following table presents a summary of fair value measurements by level and carrying values for certain financial instruments not measured at fair value on a recurring basis in the Condensed Consolidated Balance Sheets:
(in millions)
 
Quoted Prices
in Active
Markets
(Level 1)
 
Other
Observable
Inputs
(Level 2)
 
Unobservable
Inputs
(Level 3)
 
Total
Fair
Value
 
Total Carrying Value
June 30, 2016
 
 
 
 
 
 
 
 
 
 
Debt securities - held-to-maturity:
 
 
 
 
 
 
 
 
 
 
U.S. government and agency obligations
 
$
178

 
$

 
$

 
$
178

 
$
175

State and municipal obligations
 

 

 
7

 
7

 
7

Corporate obligations
 
91

 
11

 
225

 
327

 
327

Total debt securities - held-to-maturity
 
$
269

 
$
11

 
$
232

 
$
512

 
$
509

Other assets
 
$

 
$
465

 
$

 
$
465

 
$
466

Long-term debt and other financing obligations
 
$

 
$
32,144

 
$

 
$
32,144

 
$
29,087

December 31, 2015
 
 
 
 
 
 
 
 
 
 
Debt securities - held-to-maturity:
 
 
 
 
 
 
 
 
 
 
U.S. government and agency obligations
 
$
164

 
$

 
$

 
$
164

 
$
163

State and municipal obligations
 

 

 
8

 
8

 
8

Corporate obligations
 
91

 
10

 
238

 
339

 
339

Total debt securities - held-to-maturity
 
$
255

 
$
10

 
$
246

 
$
511

 
$
510

Other assets
 
$

 
$
493

 
$

 
$
493

 
$
500

Long-term debt and other financing obligations
 
$

 
$
29,455

 
$

 
$
29,455

 
$
27,978

Nonfinancial assets and liabilities or financial assets and liabilities that are measured at fair value on a nonrecurring basis are subject to fair value adjustments only in certain circumstances, such as when the Company records an impairment. There were no significant fair value adjustments for these assets and liabilities recorded during the six months ended June 30, 2016 or 2015.
A reconciliation of the beginning and ending balances of assets measured at fair value on a recurring basis using Level 3 inputs is as follows:
 
 
Three Months Ended
 
Six Months Ended
(in millions)
 
Debt
Securities
 
Equity
Securities
 
Total
 
Debt
Securities
 
Equity
Securities
 
Total
June 30, 2016
 
 
 
 
 
 
 
 
 
 
 
 
Balance at beginning of period
 
$
98

 
$
390

 
$
488

 
$
98

 
$
402

 
$
500

Purchases
 

 
8

 
8

 
4

 
20

 
24

Sales
 

 
(2
)
 
(2
)
 
(7
)
 
(4
)
 
(11
)
Net unrealized gains (losses) in accumulated other comprehensive income
 
3

 
(8
)
 
(5
)
 
6

 
(14
)
 
(8
)
Net realized losses in investment and other income
 

 

 

 

 
(16
)
 
(16
)
Balance at end of period
 
$
101

 
$
388

 
$
489

 
$
101

 
$
388

 
$
489

 
 
 
 
 
 
 
 
 
 
 
 
 
June 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
Balance at beginning of period
 
$
79

 
$
309

 
$
388

 
$
74

 
$
310

 
$
384

Purchases
 
6

 
10

 
16

 
10

 
14

 
24

Sales
 
(2
)
 
(13
)
 
(15
)
 
(2
)
 
(14
)
 
(16
)
Net unrealized gains (losses) in accumulated other comprehensive income
 
1

 

 
1

 
2

 
(5
)
 
(3
)
Net realized gains in investment and other income
 

 
13

 
13

 

 
14

 
14

Balance at end of period
 
$
84

 
$
319

 
$
403

 
$
84

 
$
319

 
$
403


11


4.    Medicare Part D Pharmacy Benefits
The Condensed Consolidated Balance Sheets include the following amounts associated with the Medicare Part D program:
 
 
June 30, 2016
 
December 31, 2015
(in millions)
 
Subsidies
 
Drug Discount
 
Risk-Share
 
Subsidies
 
Drug Discount
 
Risk-Share
Other current receivables
 
$
1,434

 
$
297

 
$

 
$
1,703

 
$
423

 
$

Other policy liabilities
 

 
236

 
510

 

 
58

 
496

See Note 2 of Notes to the Consolidated Financial Statements in Part II, Item 8, “Financial Statements” in the 2015 10-K for further detail on Medicare Part D.
5.    Other Current Receivables
The Company’s pharmacy care services businesses contract with pharmaceutical manufacturers, some of which provide rebates based on use of the manufacturers’ products by its affiliated and non-affiliated clients. As of June 30, 2016 and December 31, 2015, total pharmaceutical manufacturer rebates receivable included in other receivables in the Condensed Consolidated Balance Sheets amounted to $2.5 billion and $2.6 billion, respectively. See Note 2 of Notes to the Consolidated Financial Statements in Part II, Item 8, “Financial Statements” in the 2015 10-K for more information on the Company’s pharmaceutical manufacturer rebates.
6.    Medical Costs Reserve Development
The following table provides details of the Company’s medical cost reserve development:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in millions)
 
2016
 
2015
 
2016
 
2015
Related to prior years
 
$
(60
)
 
$
(10
)
 
$
300

 
$
130

Related to current year
 
(40
)
 
100

 
N/A

 
N/A

For the three and six months ended June 30, 2016 and June 30, 2015, the medical cost reserve development included a number of individual items, none of which were material.

12


7.     Commercial Paper and Long-Term Debt
Commercial paper, term loan and senior unsecured long-term debt consisted of the following:
 
 
June 30, 2016
 
December 31, 2015
(in millions, except percentages)
 
Par
Value
 
Carrying
Value
 
Fair
Value
 
Par
Value
 
Carrying
Value (a)
 
Fair
Value
Commercial paper
 
$
4,111

 
$
4,111

 
$
4,111

 
$
3,987

 
$
3,987

 
$
3,987

Floating rate term loan due July 2016
 
500

 
500

 
500

 
1,500

 
1,500

 
1,500

5.375% notes due March 2016
 

 

 

 
601

 
605

 
606

1.875% notes due November 2016
 
400

 
400

 
401

 
400

 
400

 
403

5.360% notes due November 2016
 
95

 
95

 
97

 
95

 
95

 
98

Floating rate notes due January 2017
 
750

 
749

 
751

 
750

 
749

 
751

6.000% notes due June 2017
 
441

 
452

 
461

 
441

 
458

 
469

1.450% notes due July 2017
 
750

 
749

 
754

 
750

 
749

 
750

1.400% notes due October 2017
 
625

 
624

 
628

 
625

 
624

 
624

6.000% notes due November 2017
 
156

 
161

 
167

 
156

 
162

 
168

1.400% notes due December 2017
 
750

 
751

 
754

 
750

 
751

 
748

6.000% notes due February 2018
 
1,100

 
1,110

 
1,186

 
1,100

 
1,114

 
1,196

1.900% notes due July 2018
 
1,500

 
1,495

 
1,526

 
1,500

 
1,494

 
1,505

1.700% notes due February 2019
 
750

 
747

 
758

 

 

 

1.625% notes due March 2019
 
500

 
502

 
505

 
500

 
502

 
494

2.300% notes due December 2019
 
500

 
512

 
516

 
500

 
499

 
502

2.700% notes due July 2020
 
1,500

 
1,494

 
1,562

 
1,500

 
1,493

 
1,516

3.875% notes due October 2020
 
450

 
467

 
495

 
450

 
452

 
476

4.700% notes due February 2021
 
400

 
427

 
452

 
400

 
413

 
438

2.125% notes due March 2021
 
750

 
745

 
764

 

 

 

3.375% notes due November 2021
 
500

 
521

 
540

 
500

 
500

 
517

2.875% notes due December 2021
 
750

 
786

 
790

 
750

 
753

 
760

2.875% notes due March 2022
 
1,100

 
1,112

 
1,149

 
1,100

 
1,059

 
1,099

3.350% notes due July 2022
 
1,000

 
995

 
1,070

 
1,000

 
994

 
1,023

0.000% notes due November 2022
 
15

 
11

 
12

 
15

 
10

 
11

2.750% notes due February 2023
 
625

 
645

 
642

 
625

 
611

 
613

2.875% notes due March 2023
 
750

 
821

 
781

 
750

 
781

 
742

3.750% notes due July 2025
 
2,000

 
1,985

 
2,194

 
2,000

 
1,985

 
2,062

3.100% notes due March 2026
 
1,000

 
994

 
1,043

 

 

 

4.625% notes due July 2035
 
1,000

 
991

 
1,161

 
1,000

 
991

 
1,038

5.800% notes due March 2036
 
850

 
837

 
1,115

 
850

 
838

 
1,003

6.500% notes due June 2037
 
500

 
491

 
697

 
500

 
492

 
628

6.625% notes due November 2037
 
650

 
640

 
919

 
650

 
641

 
829

6.875% notes due February 2038
 
1,100

 
1,074

 
1,605

 
1,100

 
1,076

 
1,439

5.700% notes due October 2040
 
300

 
296

 
384

 
300

 
296

 
348

5.950% notes due February 2041
 
350

 
345

 
458

 
350

 
345

 
416

4.625% notes due November 2041
 
600

 
588

 
685

 
600

 
588

 
609

4.375% notes due March 2042
 
502

 
483

 
557

 
502

 
483

 
493

3.950% notes due October 2042
 
625

 
606

 
654

 
625

 
606

 
582

4.250% notes due March 2043
 
750

 
734

 
821

 
750

 
734

 
728

4.750% notes due July 2045
 
2,000

 
1,971

 
2,409

 
2,000

 
1,971

 
2,107

Total commercial paper, term loan and long-term debt
 
$
32,995

 
$
33,017

 
$
36,074

 
$
31,972

 
$
31,801

 
$
33,278

                   
(a)
In the first quarter of 2016, the Company adopted ASU 2015-03, retrospectively as required. See Note 1 of Notes to the Condensed Consolidated Financial Statements for more information on the adoption of ASU 2015-03.
The Company’s long-term debt obligations also included $181 million and $164 million of other financing obligations, of which $57 million and $47 million were current as of June 30, 2016 and December 31, 2015, respectively.

13


Commercial Paper and Bank Credit Facilities
Commercial paper consists of short-duration, senior unsecured debt privately placed on a discount basis through broker-dealers. As of June 30, 2016, the Company’s outstanding commercial paper had a weighted-average annual interest rate of 0.7%.
The Company has $3.0 billion five-year, $2.0 billion three-year and $1.0 billion 364-day revolving bank credit facilities with 23 banks, which mature in December 2020, December 2018, and December 2016, respectively. These facilities provide liquidity support for the Company’s commercial paper program and are available for general corporate purposes. As of June 30, 2016, no amounts had been drawn on any of the bank credit facilities. The annual interest rates, which are variable based on term, are calculated based on the London Interbank Offered Rate (LIBOR) plus a credit spread based on the Company’s senior unsecured credit ratings. If amounts had been drawn on the bank credit facilities as of June 30, 2016, annual interest rates would have ranged from 1.3% to 1.8%.
Debt Covenants
The Company’s bank credit facilities contain various covenants, including covenants requiring the Company to maintain a defined debt to debt-plus-shareholders’ equity ratio of not more than 55%. The Company was in compliance with its debt covenants as of June 30, 2016.
8.
Shareholders' Equity
Dividends
In June 2016, the Company’s Board of Directors increased the Company’s quarterly cash dividend to shareholders to an annual dividend rate of $2.50 per share compared to the annual dividend rate of $2.00 per share, which the Company had paid since June 2015. Declaration and payment of future quarterly dividends is at the discretion of the Board and may be adjusted as business needs or market conditions change.
The following table provides details of the Company’s 2016 dividend payments:
Payment Date
 
Amount per Share
 
Total Amount Paid
 
 
 
 
(in millions)
March 22, 2016
 
$
0.500

 
$
477

June 28, 2016
 
0.625

 
594

9.    Commitments and Contingencies
Legal Matters
Because of the nature of its businesses, the Company is frequently made party to a variety of legal actions and regulatory inquiries, including class actions and suits brought by members, care providers, consumer advocacy organizations, customers and regulators, relating to the Company’s businesses, including management and administration of health benefit plans and other services. These matters include medical malpractice, employment, intellectual property, antitrust, privacy and contract claims and claims related to health care benefits coverage and other business practices.
The Company records liabilities for its estimates of probable costs resulting from these matters where appropriate. Estimates of costs resulting from legal and regulatory matters involving the Company are inherently difficult to predict, particularly where the matters: involve indeterminate claims for monetary damages or may involve fines, penalties or punitive damages; present novel legal theories or represent a shift in regulatory policy; involve a large number of claimants or regulatory bodies; are in the early stages of the proceedings; or could result in a change in business practices. Accordingly, the Company is often unable to estimate the losses or ranges of losses for those matters where there is a reasonable possibility or it is probable that a loss may be incurred.
Litigation Matters
California Claims Processing Matter. On January 25, 2008, the California Department of Insurance (CDI) issued an Order to Show Cause to PacifiCare Life and Health Insurance Company, a subsidiary of the Company, alleging violations of certain insurance statutes and regulations related to an alleged failure to include certain language in standard claims correspondence, timeliness and accuracy of claims processing, interest payments, care provider contract implementation, care provider dispute resolution and other related matters. Although the Company believes that CDI had never before issued a fine in excess of $8 million, CDI advocated a fine of approximately $325 million in this matter. The matter was the subject of an administrative hearing before a California administrative law judge beginning in December 2009, and in August 2013, the administrative law judge issued a nonbinding proposed decision recommending a fine of $11.5 million. The California Insurance Commissioner rejected the administrative law judge’s recommendation and on June 9, 2014, issued his own decision imposing a fine of

14


approximately $174 million. On July 10, 2014, the Company filed a lawsuit in California state court challenging the Commissioner’s decision. On September 8, 2015, in the first phase of that lawsuit, the California state court issued an order invalidating certain of the regulations the Commissioner had relied upon in issuing his decision and penalty. The Company cannot reasonably estimate the range of loss, if any, that may result from this matter given the procedural status of the dispute, the wide range of possible outcomes, the legal issues presented (including the legal basis for the majority of the alleged violations), the inherent difficulty in predicting a regulatory fine in the event of a remand, and the various remedies and levels of judicial review that remain available to the Company.
Government Investigations, Audits and Reviews
The Company has been involved or is currently involved in various governmental investigations, audits and reviews. These include routine, regular and special investigations, audits and reviews by the Centers for Medicare and Medicaid Services (CMS), state insurance and health and welfare departments, the Brazilian national regulatory agency for private health insurance and plans (the Agência Nacional de Saúde Suplementar), state attorneys general, the Office of the Inspector General, the Office of Personnel Management, the Office of Civil Rights, the Government Accountability Office, the Federal Trade Commission, U.S. Congressional committees, the U.S. Department of Justice, the SEC, the Internal Revenue Service, the U.S. Drug Enforcement Administration, the Brazilian federal revenue service (the Secretaria da Receita Federal), the U.S. Department of Labor, the Federal Deposit Insurance Corporation, the Defense Contract Audit Agency and other governmental authorities. Certain of the Company’s businesses have been reviewed or are currently under review, including for, among other matters, compliance with coding and other requirements under the Medicare risk-adjustment model. The Company has produced documents, information and witnesses to the Department of Justice in cooperation with a current review of the Company’s risk-adjustment processes, including the Company’s patient chart review and related programs. CMS has selected certain of the Company’s local plans for risk adjustment data validation (RADV) audits to validate the coding practices of and supporting documentation maintained by health care providers and such audits may result in retrospective adjustments to payments made to the Company’s health plans.
The Company cannot reasonably estimate the range of loss, if any, that may result from any material government investigations, audits and reviews in which it is currently involved given the status of the reviews, the wide range of possible outcomes and inherent difficulty in predicting regulatory action, fines and penalties, if any, the Company’s legal and factual defenses and the various remedies and levels of judicial review available to the Company in the event of an adverse finding.
Guaranty Fund Assessments
Under state guaranty association laws, certain insurance companies can be assessed (up to prescribed limits) for certain obligations to the policyholders and claimants of impaired or insolvent insurance companies (including state health insurance cooperatives) that write the same line or similar lines of business. In 2009, the Pennsylvania Insurance Commissioner placed long term care insurer Penn Treaty Network America Insurance Company and its subsidiary (Penn Treaty), neither of which is affiliated with the Company, in rehabilitation and petitioned a state court for approval to liquidate Penn Treaty. In 2012, the court denied the liquidation petition and ordered the Insurance Commissioner to submit a rehabilitation plan. The court held a hearing in July 2015 to begin its consideration of the latest proposed rehabilitation plan. The hearing is scheduled to continue in 2016.
If the current proposed rehabilitation plan, which contemplates the partial liquidation of Penn Treaty, is approved by the court, the Company’s insurance entities and other insurers may be required to pay a portion of Penn Treaty’s policyholder claims through state guaranty association assessments. The Company continues to vigorously challenge the proposed rehabilitation plan. The Company is currently unable to estimate losses or ranges of losses because the Company cannot predict when or to what extent Penn Treaty will ultimately be liquidated, the amount of the insolvency, the amount and timing of any associated guaranty fund assessments or the availability and amount of any premium tax and other potential offsets.
10.    Segment Financial Information
The Company’s four reportable segments are UnitedHealthcare, OptumHealth, OptumInsight and OptumRx. For more information on the Company’s segments see Part I, Item I, “Business” and Note 14 of Notes to the Consolidated Financial Statements in Part II, Item 8, “Financial Statements” in the 2015 10-K.

15


The following table presents the reportable segment financial information:
 
 
 
 
Optum
 
 
 
 
(in millions)
 
UnitedHealthcare
 
OptumHealth
 
OptumInsight
 
OptumRx
 
Optum Eliminations
 
Optum
 
Corporate and
Eliminations
 
Consolidated
Three Months Ended June 30, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues - external customers:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Premiums
 
$
35,541

 
$
872

 
$

 
$

 
$

 
$
872

 
$

 
$
36,413

Products
 
1

 
11

 
17

 
6,581

 

 
6,609

 

 
6,610

Services
 
1,866

 
597

 
639

 
167

 

 
1,403

 

 
3,269

Total revenues - external customers
 
37,408

 
1,480

 
656

 
6,748

 

 
8,884

 

 
46,292

Total revenues - intersegment
 

 
2,541

 
1,106

 
8,324

 
(277
)
 
11,694

 
(11,694
)
 

Investment and other income
 
148

 
44

 

 
1

 

 
45

 

 
193

Total revenues
 
$
37,556

 
$
4,065

 
$
1,762

 
$
15,073

 
$
(277
)
 
$
20,623

 
$
(11,694
)
 
$
46,485

Earnings from operations
 
$
1,942

 
$
304

 
$
333

 
$
624

 
$

 
$
1,261

 
$

 
$
3,203

Interest expense
 

 

 

 

 

 

 
(271
)
 
(271
)
Earnings before income taxes
 
$
1,942

 
$
304

 
$
333

 
$
624

 
$

 
$
1,261

 
$
(271
)
 
$
2,932

Three Months Ended June 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues - external customers:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Premiums
 
$
31,186

 
$
775

 
$

 
$

 
$

 
$
775

 
$

 
$
31,961

Products
 
1

 
11

 
16

 
1,195

 

 
1,222

 

 
1,223

Services
 
1,715

 
579

 
542

 
29

 

 
1,150

 

 
2,865

Total revenues - external customers
 
32,902

 
1,365

 
558

 
1,224

 

 
3,147

 

 
36,049

Total revenues - intersegment
 

 
2,031

 
851

 
7,688

 
(172
)
 
10,398

 
(10,398
)
 

Investment and other income
 
171

 
42

 

 
1

 

 
43

 

 
214

Total revenues
 
$
33,073

 
$
3,438

 
$
1,409

 
$
8,913

 
$
(172
)
 
$
13,588

 
$
(10,398
)
 
$
36,263

Earnings from operations
 
$
2,031

 
$
253

 
$
271

 
$
340

 
$

 
$
864

 
$

 
$
2,895

Interest expense
 

 

 

 

 

 

 
(151
)
 
(151
)
Earnings before income taxes
 
$
2,031

 
$
253

 
$
271

 
$
340

 
$

 
$
864

 
$
(151
)
 
$
2,744



16


 
 
 
 
Optum
 
 
 
 
(in millions)
 
UnitedHealthcare
 
OptumHealth
 
OptumInsight
 
OptumRx
 
Optum Eliminations
 
Optum
 
Corporate and
Eliminations
 
Consolidated
Six Months Ended June 30, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues - external customers:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Premiums
 
$
69,504

 
$
1,720

 
$

 
$

 
$

 
$
1,720

 
$

 
$
71,224

Products
 
1

 
24

 
37

 
12,941

 

 
13,002

 

 
13,003

Services
 
3,662

 
1,209

 
1,245

 
293

 

 
2,747

 

 
6,409

Total revenues - external customers
 
73,167

 
2,953

 
1,282

 
13,234

 

 
17,469

 

 
90,636

Total revenues - intersegment
 

 
5,026

 
2,147

 
16,109

 
(531
)
 
22,751

 
(22,751
)
 

Investment and other income
 
289

 
84

 

 
3

 

 
87

 

 
376

Total revenues
 
$
73,456

 
$
8,063

 
$
3,429

 
$
29,346

 
$
(531
)
 
$
40,307

 
$
(22,751
)
 
$
91,012

Earnings from operations
 
$
3,796

 
$
604

 
$
579

 
$
1,184

 
$

 
$
2,367

 
$

 
$
6,163

Interest expense
 

 

 

 

 

 

 
(530
)
 
(530
)
Earnings before income taxes
 
$
3,796

 
$
604

 
$
579

 
$
1,184

 
$

 
$
2,367

 
$
(530
)
 
$
5,633

Six Months Ended June 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues - external customers:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Premiums
 
$
62,091

 
$
1,544

 
$

 
$

 
$

 
$
1,544

 
$

 
$
63,635

Products
 
1

 
16

 
36

 
2,400

 

 
2,452

 

 
2,453

Services
 
3,318

 
1,100

 
1,101

 
52

 

 
2,253

 

 
5,571

Total revenues - external customers
 
65,410

 
2,660

 
1,137

 
2,452

 

 
6,249

 

 
71,659

Total revenues - intersegment
 

 
3,994

 
1,662

 
14,755

 
(331
)
 
20,080

 
(20,080
)
 

Investment and other income
 
286

 
73

 

 
1

 

 
74

 

 
360

Total revenues
 
$
65,696

 
$
6,727

 
$
2,799

 
$
17,208

 
$
(331
)
 
$
26,403

 
$
(20,080
)
 
$
72,019

Earnings from operations
 
$
3,929

 
$
487

 
$
493

 
$
626

 
$

 
$
1,606

 
$

 
$
5,535

Interest expense
 

 

 

 

 

 

 
(301
)
 
(301
)
Earnings before income taxes
 
$
3,929

 
$
487

 
$
493

 
$
626

 
$

 
$
1,606

 
$
(301
)
 
$
5,234


ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read together with the accompanying Condensed Consolidated Financial Statements and Notes and with our 2015 10-K, including the Consolidated Financial Statements and Notes in Part II, Item 8, “Financial Statements” in that report. Unless the context indicates otherwise, references to the terms “UnitedHealth Group,” “we,” “our” or “us” used throughout this Management’s Discussion and Analysis of Financial Condition and Results of Operations refer to UnitedHealth Group Incorporated and its consolidated subsidiaries.
Readers are cautioned that the statements, estimates, projections or outlook contained in this Management's Discussion and Analysis of Financial Condition and Results of Operations, including discussions regarding financial prospects, economic conditions, trends and uncertainties contained in this Item 2, may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (PSLRA). These forward-looking statements involve risks and uncertainties that may cause our actual results to differ materially from the results discussed or implied in the forward-looking statements. A description of some of the risks and uncertainties is set forth in Part I, Item 1A, “Risk Factors” in our 2015 10-K and in the discussion below.
EXECUTIVE OVERVIEW
General
UnitedHealth Group is a diversified health and well-being company dedicated to helping people live healthier lives and making the health system work better for everyone. Through our diversified family of businesses, we leverage core competencies in advanced, enabling technology; health care data; information and intelligence; and clinical care management and coordination to help meet the demands of the health system. We offer a broad spectrum of products and services through two distinct

17


platforms: UnitedHealthcare, which provides health care coverage and benefits services; and Optum, which provides pharmacy care services and information and technology-enabled health services.
Further information on our business is included in Part I, Item 1, “Business” and Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2015 10-K and additional information on our segments can be found in this Item 2 and in Note 10 of Notes to the Condensed Consolidated Financial Statements in Part I, Item 1 of this report.
Business Trends
Our businesses participate in the United States, Brazilian and certain other international health economies. In the United States, health care spending has grown consistently for many years and comprises approximately 18% of gross domestic product. We expect overall spending on health care to continue to grow in the future due to inflation, medical technology and pharmaceutical advancement, regulatory requirements, demographic trends in the population and national interest in health and well-being. The rate of market growth may be affected by a variety of factors, including macro-economic conditions and regulatory changes, which have impacted and could further impact our results of operations.
Pricing Trends. To price our health care benefit products, we start with our view of expected future costs. We frequently evaluate and adjust our approach in each of the local markets we serve, considering all relevant factors, such as product positioning, price competitiveness and environmental, competitive, legislative and regulatory aspects. Our review of regulatory considerations involves a focus on minimum loss ratio (MLR) thresholds and the risk adjustment and reinsurance provisions that impact the small group and individual markets. We will continue seeking to balance growth and profitability across all of these dimensions.
We continue to expect broad-based competition in commercial products and pressure from government funding. The intensity of commercial pricing competition depends on local market conditions and competitive dynamics. Annual commercial premium rate increases are subject to federal and state review and approval procedures. In addition, a provision in the 2016 Federal Budget imposes a one year moratorium for payment of the 2017 Health Insurance Industry Tax. For policies that include a portion of 2017 coverage periods, our premiums will reflect the impact of the moratorium. Medicare Advantage funding continues to be pressured, as discussed below in “Regulatory Trends and Uncertainties.” We expect continued Medicaid revenue growth due to anticipated increases in the number of people we serve; we also believe that the reimbursement rate environment creates the risk of downward pressure on Medicaid net margin percentages.
Medical Cost Trends. Our medical cost trends primarily relate to changes in unit costs, health system utilization and prescription drug costs. We endeavor to mitigate those increases with medical management. Our 2016 management activities include managing costs across all health care categories, including specialty pharmacy spending, as new therapies are introduced at high costs and older drugs experience price increases.
Regulatory Trends and Uncertainties
Following is a summary of management’s view of the trends and uncertainties related to some of the key provisions of the Patient Protection and Affordable Care Act and a reconciliation measure, the Health Care and Education Reconciliation Act of 2010 (together, Health Reform Legislation) and other regulatory items. For additional information about Health Reform Legislation and regulatory trends and uncertainties, see Part I, Item 1, “Business - Government Regulation,” Item 1A, “Risk Factors,” and Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2015 10-K.
Medicare Advantage Rates and Minimum Loss Ratios. Final 2017 Medicare Advantage rates resulted in an increase in industry base rates of approximately 0.85%, well short of the industry forward medical cost trend of 3%, which creates continued pressure in the Medicare Advantage program. The impact of this funding shortfall in Medicare Advantage is partially mitigated by reductions in provider reimbursements for those care providers with rates indexed to Medicare Advantage revenues or Medicare fee-for-service reimbursement rates. These factors can affect our plan benefit designs, pricing, growth prospects and earnings expectations for our Medicare Advantage plans.
As provided in the Affordable Care Act, our Medicare Advantage rates are currently enhanced by CMS quality bonuses in certain counties based on our local plans’ star ratings. The level of star ratings from CMS, based upon specified clinical and operational performance standards, will impact future quality bonuses. In addition, star ratings affect the amount of savings a plan can use to offer supplemental benefits, which ultimately may affect the plan’s membership and revenue. For the 2016 payment year, approximately 57% of our Medicare Advantage members are in plans rated four stars or higher. We expect that at least 63% of our Medicare Advantage members will be in plans rated four stars or higher for payment year 2017. We continue to dedicate substantial resources to advance our quality scores and star ratings to strengthen our local market programs and further improve our performance.

18


Health Insurance Industry Tax and Premium Stabilization Programs. The industry-wide amount of the annual tax is $11.3 billion in 2016 and we expect to pay our proportionate share of $1.8 billion in September 2016. Health Reform Legislation also includes three programs designed to stabilize the health insurance markets. These programs encompass: a temporary reinsurance program; a temporary risk corridors program; and a permanent risk adjustment program.
For details on the Health Insurance Industry Tax and Premium Stabilization Programs, see Note 2 of Notes to the Consolidated Financial Statements included in Part 2, Item 8, “Financial Statements” in our 2015 10-K.
Individual Public Exchanges. In 2016, we are participating in individual public exchange offerings in 34 states. We have a premium deficiency reserve recorded as of June 30, 2016, for our estimated losses for the remainder of 2016. A portion of the premium deficiency reserve was recorded in our 2015 results for in-force contracts as of January 1, 2016. In 2017, we expect to participate in only a few individual public exchanges.
RESULTS SUMMARY
The following table summarizes our consolidated results of operations and other financial information:
(in millions, except percentages and per share data)
 
Three Months Ended June 30,
 
Increase/(Decrease)
 
Six Months Ended June 30,
 
Increase/(Decrease)
 
2016
 
2015
 
2016 vs. 2015
 
2016
 
2015
 
2016 vs. 2015
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Premiums
 
$
36,413

 
$
31,961

 
$
4,452

 
14
%
 
$
71,224

 
$
63,635

 
$
7,589

 
12
%
Products
 
6,610

 
1,223

 
5,387

 
440

 
13,003

 
2,453

 
10,550

 
430

Services
 
3,269

 
2,865

 
404

 
14

 
6,409

 
5,571

 
838

 
15

Investment and other income
 
193

 
214

 
(21
)
 
(10
)
 
376

 
360

 
16

 
4

Total revenues
 
46,485

 
36,263

 
10,222

 
28

 
91,012

 
72,019

 
18,993

 
26

Operating costs (a):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Medical costs
 
29,872

 
26,127

 
3,745

 
14

 
58,302

 
51,917

 
6,385

 
12

Operating costs
 
6,793

 
5,738

 
1,055

 
18

 
13,551

 
11,572

 
1,979

 
17

Cost of products sold
 
6,106

 
1,124

 
4,982

 
443

 
11,983

 
2,238

 
9,745

 
435

Depreciation and amortization
 
511

 
379

 
132

 
35

 
1,013

 
757

 
256

 
34

Total operating costs
 
43,282

 
33,368

 
9,914

 
30

 
84,849

 
66,484

 
18,365

 
28

Earnings from operations
 
3,203

 
2,895

 
308

 
11

 
6,163

 
5,535

 
628

 
11

Interest expense
 
(271
)
 
(151
)
 
120

 
79

 
(530
)
 
(301
)
 
229

 
76

Earnings before income taxes
 
2,932

 
2,744

 
188

 
7

 
5,633

 
5,234

 
399

 
8

Provision for income taxes
 
(1,172
)
 
(1,159
)
 
13

 
1

 
(2,246
)
 
(2,236
)
 
10

 

Net earnings
 
1,760

 
1,585

 
175

 
11

 
3,387

 
2,998

 
389

 
13

Earnings attributable to noncontrolling interests
 
(6
)
 

 
6

 
nm

 
(22
)
 

 
22

 
nm

Net earnings attributable to UnitedHealth Group common shareholders
 
$
1,754

 
$
1,585

 
$
169

 
11
 %
 
$
3,365

 
$
2,998

 
$
367

 
12
%
Diluted earnings per share attributable to UnitedHealth Group common shareholders
 
$
1.81

 
$
1.64

 
$
0.17

 
10
 %
 
$
3.48

 
$
3.10

 
$
0.38

 
12
%
Medical care ratio (b)
 
82.0
%
 
81.7
%
 
0.3
 %
 
 
 
81.9
%
 
81.6
%
 
0.3
 %
 
 
Operating cost ratio
 
14.6

 
15.8

 
(1.2
)
 
 
 
14.9

 
16.1

 
(1.2
)
 
 
Operating margin
 
6.9

 
8.0

 
(1.1
)
 
 
 
6.8

 
7.7

 
(0.9
)
 
 
Tax rate
 
40.0

 
42.2

 
(2.2
)
 
 
 
39.9

 
42.7

 
(2.8
)
 
 
Net earnings margin (c)
 
3.8

 
4.4

 
(0.6
)
 
 
 
3.7

 
4.2

 
(0.5
)
 
 
Return on equity (d)
 
19.6
%
 
19.5
%
 
0.1
 %
 
 
 
19.2
%
 
18.5
%
 
0.7
 %
 
 
                   
nm= not meaningful
(a)
During the fourth quarter of 2015, we changed our presentation of certain pharmacy fulfillment costs related to its OptumRx business. See Note 1 of Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this report for more information on this reclassification.
(b)
Medical care ratio is calculated as medical costs divided by premium revenue.
(c)
Net earnings margin attributable to UnitedHealth Group shareholders.
(d)
Return on equity is calculated as annualized net earnings divided by average equity. Average equity is calculated using the equity balance at the end of the preceding year and the equity balances at the end of each of the quarters in the period presented.

19


SELECTED OPERATING PERFORMANCE AND OTHER SIGNIFICANT ITEMS
The following summarizes select second quarter 2016 year-over-year operating comparisons to second quarter 2015 and other 2016 significant items.
Consolidated revenues grew 28%, UnitedHealthcare revenues grew 14% and Optum revenues grew 52%.
UnitedHealthcare grew to serve an additional 2.1 million people domestically.
Earnings from operations increased 11%, including an increase of 46% at Optum, partially offset by a slight decrease at UnitedHealthcare.
Diluted earnings per common share increased 10% to $1.81.
Cash flows from operations for the six months ended June 30, 2016 were $4.0 billion.
2016 RESULTS OF OPERATIONS COMPARED TO 2015 RESULTS
Our results of operations for the three and six months ended June 30, 2016 compared to the corresponding prior periods were affected by our acquisition of Catamaran Corporation (Catamaran) in the third quarter of 2015.
Consolidated Financial Results
Revenues
The increases in revenues were primarily driven by the effect of the Catamaran acquisition, organic growth in the number of individuals served across our benefits businesses and growth across all of Optum’s businesses.
Medical Costs
Medical costs increased due to risk-based membership growth, medical cost trends and additional ACA-compliant individual product losses. For the six months ended June 30, 2016, these losses were partially offset by higher levels of favorable reserve development.
Operating Cost Ratio
The decreases in our operating cost ratio were due to changes in business mix, including the acquisition of Catamaran.
Income Tax Rate
Our effective tax rates decreased primarily due to the adoption of ASU 2016-09, which we adopted in the first quarter of 2016. See Note 1 of Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this report for more information about the adoption of ASU 2016-09.



20


Reportable Segments
See Note 10 of Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this report for more information on our segments. The following table presents a summary of the reportable segment financial information:
 
 
Three Months Ended June 30,
 
Increase/(Decrease)
 
Six Months Ended June 30,
 
Increase/(Decrease)
(in millions, except percentages)
 
2016
 
2015
 
2016 vs. 2015
 
2016
 
2015
 
2016 vs. 2015
Revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
UnitedHealthcare
 
$
37,556

 
$
33,073

 
$
4,483

 
14
%
 
$
73,456

 
$
65,696

 
$
7,760

 
12
%
OptumHealth
 
4,065

 
3,438

 
627

 
18

 
8,063

 
6,727

 
1,336

 
20
%
OptumInsight
 
1,762

 
1,409

 
353

 
25

 
3,429

 
2,799

 
630

 
23
%
OptumRx
 
15,073

 
8,913

 
6,160

 
69

 
29,346

 
17,208

 
12,138

 
71
%
Optum eliminations
 
(277
)
 
(172
)
 
105

 
61

 
(531
)
 
(331
)
 
200

 
60
%
Optum
 
20,623

 
13,588

 
7,035

 
52

 
40,307

 
26,403

 
13,904

 
53
%
Eliminations
 
(11,694
)
 
(10,398
)
 
1,296

 
12

 
(22,751
)
 
(20,080
)
 
2,671

 
13
%
Consolidated revenues
 
$
46,485

 
$
36,263

 
$
10,222

 
28
%
 
$
91,012

 
$
72,019

 
$
18,993

 
26
%
Earnings from operations
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
UnitedHealthcare
 
$
1,942

 
$
2,031

 
$
(89
)
 
(4
)%
 
$
3,796

 
$
3,929

 
$
(133
)
 
(3
)%
OptumHealth
 
304

 
253

 
51

 
20

 
604

 
487

 
117

 
24
 %
OptumInsight
 
333

 
271

 
62

 
23

 
579

 
493

 
86

 
17
 %
OptumRx
 
624

 
340

 
284

 
84

 
1,184

 
626

 
558

 
89
 %
Optum
 
1,261

 
864

 
397

 
46

 
2,367

 
1,606

 
761

 
47
 %
Consolidated earnings from operations
 
$
3,203

 
$
2,895

 
$
308

 
11
 %
 
$
6,163

 
$
5,535

 
$
628

 
11
 %
Operating margin
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
UnitedHealthcare
 
5.2
%
 
6.1
%
 
(0.9
)%
 
 
 
5.2
%
 
6.0
%
 
(0.8
)%
 
 
OptumHealth
 
7.5

 
7.4

 
0.1

 
 
 
7.5

 
7.2

 
0.3

 
 
OptumInsight
 
18.9

 
19.2

 
(0.3
)
 
 
 
16.9

 
17.6

 
(0.7
)
 
 
OptumRx
 
4.1

 
3.8

 
0.3

 
 
 
4.0

 
3.6

 
0.4

 
 
Optum
 
6.1

 
6.4

 
(0.3
)
 
 
 
5.9

 
6.1

 
(0.2
)
 
 
Consolidated operating margin
 
6.9
%
 
8.0
%
 
(1.1
)%
 
 
 
6.8
%
 
7.7
%
 
(0.9
)%
 
 
UnitedHealthcare
The following table summarizes UnitedHealthcare revenues by business:
 
 
Three Months Ended June 30,
 
Increase/(Decrease)
 
Six Months Ended June 30,
 
Increase/(Decrease)
(in millions, except percentages)
 
2016
 
2015
 
2016 vs. 2015
 
2016
 
2015
 
2016 vs. 2015
UnitedHealthcare Employer & Individual
 
$
13,509

 
$
11,845

 
$
1,664

 
14
%
 
$
26,329

 
$
23,268

 
$
3,061

 
13
 %
UnitedHealthcare Medicare & Retirement
 
14,294

 
12,559

 
1,735

 
14

 
28,359

 
25,340

 
3,019

 
12

UnitedHealthcare Community & State
 
8,263

 
7,205

 
1,058

 
15

 
15,991

 
14,110

 
1,881

 
13

UnitedHealthcare Global
 
1,490

 
1,464

 
26

 
2

 
2,777

 
2,978

 
(201
)
 
(7
)
Total UnitedHealthcare revenues
 
$
37,556

 
$
33,073

 
$
4,483

 
14
%
 
$
73,456

 
$
65,696

 
$
7,760

 
12
 %

21


The following table summarizes the number of individuals served by our UnitedHealthcare businesses, by major market segment and funding arrangement:
 
 
June 30,
 
Increase/(Decrease)
(in thousands, except percentages)
 
2016
 
2015
 
2016 vs. 2015
Commercial risk-based
 
8,695

 
8,105

 
590

 
7
 %
Commercial fee-based, including TRICARE
 
21,790

 
21,295

 
495

 
2

Total commercial
 
30,485

 
29,400

 
1,085

 
4

Medicare Advantage
 
3,550

 
3,205

 
345

 
11

Medicaid
 
5,675

 
5,210

 
465

 
9

Medicare Supplement (Standardized)
 
4,215

 
3,965

 
250

 
6

Total public and senior
 
13,440

 
12,380

 
1,060

 
9

Total UnitedHealthcare - domestic medical
 
43,925

 
41,780

 
2,145

 
5

International
 
4,050

 
4,080

 
(30
)
 
(1
)
Total UnitedHealthcare - medical
 
47,975

 
45,860

 
2,115

 
5
 %
Supplemental Data:
 
 
 
 
 
 
 
 
Medicare Part D stand-alone
 
4,940

 
5,075

 
(135
)
 
(3
)%
Growth in services to the public sector, mid-sized employers, small groups and individuals led the overall increase in people served through risk-based benefit plans in the commercial market. Medicare Advantage increased year-over-year due to growth in people served through individual and employer-sponsored group Medicare Advantage plans. Medicaid growth was driven by the combination of new state-based awards and growth in established programs. Medicare Supplement growth reflected strong customer retention and new sales. The number of people served internationally decreased year-over-year primarily due to pricing increases in response to inflationary economic conditions in Brazil.
UnitedHealthcare’s year-over-year revenue increase was due to growth in the number of individuals served across its businesses and price increases reflecting underlying medical cost trends.
The decreases in UnitedHealthcare’s operating earnings and operating margins year-over-year were driven by ACA-compliant individual product losses. For the six months ended June 30, 2016, these decreases were partially offset by higher levels of favorable reserve development.
Optum
Total revenues and operating earnings increased as each reporting segment reported increased revenues and earnings from operations as a result of the factors discussed below. An increased mix of pharmacy care services business decreased Optum’s operating margins from the prior year.
The results by segment were as follows:
OptumHealth
Revenue and earnings from operations increased at OptumHealth primarily due to growth in its health delivery and population health management businesses, and expansion of behavioral services into new Medicaid markets.
OptumInsight
Revenue and earnings from operations at OptumInsight increased primarily due to growth in technology services, care provider revenue management services and payer service offerings.
OptumRx
Revenue and earnings from operations increased due to Catamaran and organic growth. For more information about Catamaran, see Note 3 in Notes to the Consolidated Financial Statements in Part II, Item 8, “Financial Statements” in our 2015 10-K.

22


LIQUIDITY, FINANCIAL CONDITION AND CAPITAL RESOURCES
Liquidity
Summary of our Major Sources and Uses of Cash and Cash Equivalents
 
 
Six Months Ended June 30,
 
Increase/(Decrease)
(in millions)
 
2016
 
2015
 
2016 vs. 2015
Sources of cash:
 
 
 
 
 
 
Cash provided by operating activities
 
$
4,001

 
$
3,432

 
$
569

Issuances of commercial paper and long-term debt, net of repayments
 
1,008

 
670

 
338

Proceeds from common stock issuances
 
254

 
242

 
12

Customer funds administered
 
1,039

 
941

 
98

Other
 
16

 
48

 
(32
)
Total sources of cash
 
6,318

 
5,333

 
 
Uses of cash:
 
 
 
 
 
 
Common stock repurchases
 
(980
)
 
(953
)
 
(27
)
Cash paid for acquisitions and redeemable noncontrolling interest shares, net of cash assumed
 
(2,292
)
 
(1,778
)
 
(514
)
Purchases of investments, net of sales and maturities
 
(3,581
)
 
(404
)
 
(3,177
)
Purchases of property, equipment and capitalized software, net
 
(813
)
 
(716
)
 
(97
)
Cash dividends paid
 
(1,071
)
 
(833
)
 
(238
)
Other
 
(352
)
 
(188
)
 
(164
)
Total uses of cash
 
(9,089
)
 
(4,872
)
 
 
Effect of exchange rate changes on cash and cash equivalents
 
65

 
(69
)
 
134

Net increase in cash and cash equivalents
 
$
(2,706
)
 
$
392

 
$
(3,098
)
2016 Cash Flows Compared to 2015 Cash Flows
Cash flows provided by operating activities in 2016 increased primarily due to higher net earnings.
Other significant changes in sources or uses of cash year-over-year included increased net purchases of investments and cash paid for acquisitions, partially offset by an increase in proceeds from debt issuances.
Financial Condition
As of June 30, 2016, our cash, cash equivalent and available-for-sale investment balances of $32.7 billion included $8.2 billion of cash and cash equivalents (of which $500 million was available for general corporate use), $22.6 billion of debt securities and $1.8 billion of investments in equity securities. Given the significant portion of our portfolio held in cash equivalents, we do not anticipate fluctuations in the aggregate fair value of our financial assets to have a material impact on our liquidity or capital position. Our available-for-sale debt portfolio had a weighted-average duration of 3.2 years and a weighted-average credit rating of “AA” as of June 30, 2016. When multiple credit ratings are available for an individual security, the average of the available ratings is used to determine the weighted-average credit rating.
Capital Resources and Uses of Liquidity
In addition to cash flows from operations and cash and cash equivalent balances available for general corporate use, our capital resources and uses of liquidity are as follows:
Commercial Paper and Bank Credit Facilities. Our revolving bank credit facilities provide liquidity support for our commercial paper borrowing program, which facilitates the private placement of unsecured debt through third-party broker-dealers, and are available for general corporate purposes. For more information on our commercial paper and bank credit facilities, see Note 7 of Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this report.
Our revolving bank credit facilities contain various covenants, including covenants requiring us to maintain a defined debt to debt-plus-shareholders’ equity ratio of not more than 55%. As of June 30, 2016, our debt to debt-plus-shareholders’ equity ratio, as defined and calculated under the credit facilities, was approximately 46%.

23


Long-Term Debt. Periodically, we access capital markets and issue long-term debt for general corporate purposes, for example, to meet our working capital requirements, to refinance debt, to finance acquisitions or for share repurchases. In February 2016, we issued debt to repay commercial paper borrowings, which were incurred for general corporate and working capital purposes, and to repay our 5.375% notes that were due March 15, 2016. For more information, see Note 7 of Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this report.
Credit Ratings. Our credit ratings as of June 30, 2016 were as follows:
  
Moody’s
 
Standard & Poor’s
 
Fitch
 
A.M. Best
 
Ratings
 
Outlook
 
Ratings
 
Outlook
 
Ratings
 
Outlook
 
Ratings
 
Outlook
Senior unsecured debt
A3
 
Negative
 
A+
 
Negative
 
A-
 
Negative
 
bbb+
 
Stable
Commercial paper
P-2
 
n/a
 
A-1
 
n/a
 
F1
 
n/a
 
AMB-2
 
n/a
The availability of financing in the form of debt or equity is influenced by many factors, including our profitability, operating cash flows, debt levels, credit ratings, debt covenants and other contractual restrictions, regulatory requirements and economic and market conditions. For example, a significant downgrade in our credit ratings or adverse conditions in the capital markets may increase the cost of borrowing for us or limit our access to capital.
Share Repurchase Program. During the six months ended June 30, 2016, we repurchased 8 million shares at an average price of $125.80 per share. As of June 30, 2016, we had Board authorization to purchase up to an additional 53 million shares of our common stock.
Dividends. In June 2016, our Board increased our quarterly cash dividend to shareholders to an annual dividend rate of $2.50 per share. For more information on our dividend, see Note 8 of Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this report.
For additional liquidity discussion, see Note 11 of Notes to the Consolidated Financial Statements in Part II, Item 8, “Financial Statements” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 in our 2015 10-K.
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
A summary of future obligations under our various contractual obligations and commitments as of December 31, 2015 was disclosed in our 2015 10-K. During the six months ended June 30, 2016, there were no material changes to this previously disclosed information outside the ordinary course of business. However, we continually evaluate opportunities to expand our operations, including through internal development of new products, programs and technology applications and acquisitions.
RECENTLY ISSUED ACCOUNTING STANDARDS
See Note 1 of Notes to the Condensed Consolidated Financial Statements in Part I, Item 1 of this report for a discussion of new accounting pronouncements that affect us.
CRITICAL ACCOUNTING ESTIMATES
In preparing our Condensed Consolidated Financial Statements, we are required to make judgments, assumptions and estimates, which we believe are reasonable and prudent based on the available facts and circumstances. These judgments, assumptions and estimates affect certain of our revenues and expenses and their related balance sheet accounts and disclosure of our contingent liabilities. We base our assumptions and estimates primarily on historical experience and consider known and projected trends. On an ongoing basis, we re-evaluate our selection of assumptions and the method of calculating our estimates. Actual results, however, may materially differ from our calculated estimates and this difference would be reported in our current operations.
Our critical accounting estimates include medical costs payable, revenues, goodwill and intangible assets and investments. For a detailed description of our critical accounting estimates, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our 2015 10-K. For a detailed discussion of our significant accounting policies, see Note 2 of Notes to the Consolidated Financial Statements in Part II, Item 8, “Financial Statements” in our 2015 10-K.
FORWARD-LOOKING STATEMENTS
The statements, estimates, projections, guidance or outlook contained in this document include “forward-looking” statements within the meaning of the PSLRA. These statements are intended to take advantage of the “safe harbor” provisions of the

24


PSLRA. Generally the words “believe,” “expect,” “intend,” “estimate,” “anticipate,” “forecast,” “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.
Some factors that could cause actual results to differ materially from results discussed or implied in the forward-looking statements include: our ability to effectively estimate, price for and manage our medical costs, including the impact of any new coverage requirements; new laws or regulations, or changes in existing laws or regulations, or their enforcement or application, including increases in medical, administrative, technology or other costs or decreases in enrollment resulting from U.S., Brazilian and other jurisdictions’ regulations affecting the health care industry; assessments for insolvent payers under state guaranty fund laws; our ability to achieve improvement in CMS Star ratings and other quality scores that impact revenue; reductions in revenue or delays to cash flows received under Medicare, Medicaid and TRICARE programs, including sequestration and the effects of a prolonged U.S. government shutdown or debt ceiling constraints; changes in Medicare, including changes in payment methodology, the CMS Star ratings program or the application of risk adjustment data validation audits; our participation in federal and state health insurance exchanges which entail uncertainties associated with mix and volume of business; cyber-attacks or other privacy or data security incidents; failure to comply with privacy and data security regulations; regulatory and other risks and uncertainties of the pharmacy benefits management industry; competitive pressures, which could affect our ability to maintain or increase our market share; challenges to our public sector contract awards; our ability to execute contracts on competitive terms with physicians, hospitals and other service providers; failure to achieve targeted operating cost productivity improvements, including savings resulting from technology enhancement and administrative modernization; increases in costs and other liabilities associated with increased litigation, government investigations, audits or reviews; failure to manage successfully our strategic alliances or complete or receive anticipated benefits of acquisitions and other strategic transactions, including our acquisition of Catamaran; fluctuations in foreign currency exchange rates on our reported shareholders’ equity and results of operations; downgrades in our credit ratings; adverse economic conditions, including decreases in enrollment resulting from increases in the unemployment rate and commercial attrition; the performance of our investment portfolio; impairment of the value of our goodwill and intangible assets in connection with dispositions or if estimated future results do not adequately support goodwill and intangible assets recorded for our existing businesses or the businesses that we acquire; increases in health care costs resulting from large-scale medical emergencies; failure to maintain effective and efficient information systems or if our technology products do not operate as intended; and our ability to obtain sufficient funds from our regulated subsidiaries or the debt or capital markets to fund our obligations, to maintain our debt to total capital ratio at targeted levels, to maintain our quarterly dividend payment cycle or to continue repurchasing shares of our common stock.
This list of important factors is not intended to be exhaustive. We discuss certain of these matters more fully, as well as certain risk factors that may affect our business operations, financial condition and results of operations, in our other periodic and current filings with the SEC, including 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, and can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. By their nature, forward-looking statements are not guarantees of future performance or results and are subject to risks, uncertainties and assumptions that are difficult to predict or quantify. Actual future results may vary materially from expectations expressed or implied in this document or any of our prior communications. 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, except as required by applicable securities laws.
ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our primary market risks are exposures to changes in interest rates that impact our investment income and interest expense and the fair value of certain of our fixed-rate investments and debt, as well as foreign currency exchange rate risk of the U.S. dollar, primarily to the Brazilian real.
We manage exposure to market interest rates by diversifying investments across different fixed income market sectors and debt across maturities, as well as by endeavoring to match our floating-rate assets and liabilities over time, either directly or through the use of interest rate swap contracts. Unrealized gains and losses on investments in available-for-sale securities are reported in comprehensive income.

25


The following table summarizes the impact of hypothetical changes in market interest rates across the entire yield curve by 1% point or 2% points as of June 30, 2016 on our investment income and interest expense per annum, and the fair value of our investments and debt (in millions, except percentages):
 
 
June 30, 2016
Increase (Decrease) in Market Interest Rate
 
Investment
Income Per
Annum (a)
 
Interest
Expense Per
Annum (a)
 
Fair Value of
Financial Assets (b)
 
Fair Value of
Financial Liabilities
2 %
 
$
216

 
$
254

 
$
(1,599
)
 
$
(3,821
)
1
 
108

 
127

 
(804
)
 
(2,061
)
(1)
 
(81
)
 
(59
)
 
715

 
2,422

(2)
 
nm

 
nm

 
874

 
4,906

                
nm = not meaningful
(a)
Given the low absolute level of short-term market rates on our floating-rate assets and liabilities as of June 30, 2016, the assumed hypothetical change in interest rates does not reflect the full 100 basis point reduction in interest income or interest expense as the rate cannot fall below zero and thus the 200 basis point reduction is not meaningful.
(b)
As of June 30, 2016, some of our investments had interest rates below 2% so the assumed hypothetical change in the fair value of investments does not reflect the full 200 basis point reduction.
We have an exposure to changes in the value of the Brazilian real to the U.S. dollar in translation of Amil’s operating results at the average exchange rate over the accounting period, and Amil’s assets and liabilities at the spot rate at the end of the accounting period. The gains or losses resulting from translating foreign assets and liabilities into U.S. dollars are included in equity and comprehensive income in our Condensed Consolidated Financial Statements.
An appreciation of the U.S. dollar against the Brazilian real reduces the carrying value of the net assets denominated in the Brazilian real. For example, as of June 30, 2016, a hypothetical 10% and 25% increase in the value of the U.S. dollar against the Brazilian real would have caused a reduction in net assets of approximately $360 million and $795 million, respectively. We manage exposure to foreign currency risk by conducting our international business operations primarily in their functional currencies.
ITEM 4.
CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (Exchange Act) that are designed to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms; and (ii) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
In connection with the filing of this quarterly report on Form 10-Q, management evaluated, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2016. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2016.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There have been no changes in our internal control over financial reporting during the quarter ended June 30, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS
A description of our legal proceedings is included in and incorporated by reference to Note 9 of Notes to the Condensed Consolidated Financial Statements contained in Part I, Item 1 of this report.
ITEM 1A.
RISK FACTORS
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A, “Risk Factors” of our 2015 10-K, which could materially affect our business, financial condition or future results. The risks

26


described in our 2015 10-K are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or future results.
There have been no material changes to the risk factors disclosed in our 2015 10-K.
ITEM 2.    UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities (a)
Second Quarter 2016
For the Month Ended
 
Total Number
of Shares
Purchased
 
Average Price
Paid per Share
 
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
 
Maximum Number
of Shares That May
Yet Be Purchased
Under The Plans or
Programs
 
 
(in millions)
 
 
 
(in millions)
 
(in millions)
April 30, 2016
 
4

 
$
133

 
4

 
53

May 31, 2016
 

 

 

 
53

June 30, 2016
 

 

 

 
53

Total
 
4

 
$
133

 
4

 
 
 
                       
(a)
In November 1997, our Board of Directors adopted a share repurchase program, which the Board evaluates periodically. In June 2014, the Board renewed our share repurchase program with an authorization to repurchase up to 100 million shares of our common stock in open market purchases or other types of transactions (including prepaid or structured repurchase programs). There is no established expiration date for the program.


27


ITEM 6.
EXHIBITS**

The following exhibits are filed or incorporated by reference herein in response to Item 601 of Regulation S-K. The Company files Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K pursuant to the Securities Exchange Act of 1934 under Commission File No. 1-10864.
3.1

 
Certificate of Incorporation of UnitedHealth Group Incorporated (incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form 8-A/A filed on July 1, 2015)
3.2

 
Bylaws of UnitedHealth Group Incorporated, effective February 9, 2016 (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed on February 9, 2016)
4.1

 
Senior Indenture, dated as of November 15, 1998, between United HealthCare Corporation and The Bank of New York (incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-3/A, SEC File Number 333-66013, filed on January 11, 1999)
4.2

 
Amendment, dated as of November 6, 2000, to Senior Indenture, dated as of November 15, 1998, between UnitedHealth Group Incorporated and The Bank of New York (incorporated by reference to Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2001)
4.3

 
Instrument of Resignation, Appointment and Acceptance of Trustee, dated January 8, 2007, pursuant to the Senior Indenture, dated as of November 15, 1998, amended November 6, 2000, among UnitedHealth Group Incorporated, The Bank of New York and Wilmington Trust Company (incorporated by reference to Exhibit 4.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2007)
4.4

 
Indenture, dated as of February 4, 2008, between UnitedHealth Group Incorporated and U.S. Bank National Association (incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-3, SEC File Number 333-149031, filed on February 4, 2008)
10.1*

 
Amended and Restated Employment Agreement, dated as of June 7, 2016, between United HealthCare Services, Inc. and John Rex
10.2*

 
Amendment to Agreement for Supplemental Executive Retirement Pay, dated as of June 7, 2016, between UnitedHealth Group Incorporated and Stephen J. Hemsley
  12.1

 
Computation of Ratio of Earnings to Fixed Charges
  31.1

 
Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
  32.1

 
Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  101

 
The following materials from UnitedHealth Group Incorporated’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2016 filed on August 2, 2016, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Comprehensive Income, (iv) Condensed Consolidated Statements of Changes in Equity, (v) Condensed Consolidated Statements of Cash Flows, and (vi) Notes to the Condensed Consolidated Financial Statements.
 ________________
*
 
Denotes management contracts and compensation plans in which certain directors and named executive officers participate and which are being filed pursuant to Item 601(b)(10)(iii)(A) of Regulation S-K.
**
 
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, copies of instruments defining the rights of certain holders of long-term debt are not filed. The Company will furnish copies thereof to the SEC upon request.



28


SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
UNITEDHEALTH GROUP INCORPORATED
 
/s/ STEPHEN J. HEMSLEY
 
Chief Executive Officer
(principal executive officer)
Dated:
August 2, 2016
Stephen J. Hemsley
 
  
 
 
 
 
/s/ JOHN F. REX
 
Executive Vice President and
Chief Financial Officer
(principal financial officer)
Dated:
August 2, 2016
John F. Rex
 
  
 
 
 
 
/S/ THOMAS E. ROOS
 
Senior Vice President and
Chief Accounting Officer
(principal accounting officer)
Dated:
August 2, 2016
Thomas E. Roos
 
  
 


29


EXHIBIT INDEX**
 
The following exhibits are filed or incorporated by reference herein in response to Item 601 of Regulation S-K. The Company files Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K pursuant to the Securities Exchange Act of 1934 under Commission File No. 1-10864.
3.1

 
Certificate of Incorporation of UnitedHealth Group Incorporated (incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form 8-A/A filed on July 1, 2015)
3.2

 
Bylaws of UnitedHealth Group Incorporated, effective February 9, 2016 (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed on February 9, 2016)
4.1

 
Senior Indenture, dated as of November 15, 1998, between United HealthCare Corporation and The Bank of New York (incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-3/A, SEC File Number 333-66013, filed on January 11, 1999)
4.2

 
Amendment, dated as of November 6, 2000, to Senior Indenture, dated as of November 15, 1998, between UnitedHealth Group Incorporated and The Bank of New York (incorporated by reference to Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2001)
4.3

 
Instrument of Resignation, Appointment and Acceptance of Trustee, dated January 8, 2007, pursuant to the Senior Indenture, dated as of November 15, 1998, amended November 6, 2000, among UnitedHealth Group Incorporated, The Bank of New York and Wilmington Trust Company (incorporated by reference to Exhibit 4.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2007)
4.4

 
Indenture, dated as of February 4, 2008, between UnitedHealth Group Incorporated and U.S. Bank National Association (incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-3, SEC File Number 333-149031, filed on February 4, 2008)
10.1*

 
Amended and Restated Employment Agreement, dated as of June 7, 2016, between United HealthCare Services, Inc. and John Rex
10.2*

 
Amendment to Agreement for Supplemental Executive Retirement Pay, dated as of June 7, 2016, between UnitedHealth Group Incorporated and Stephen J. Hemsley
  12.1

 
Computation of Ratio of Earnings to Fixed Charges
  31.1

 
Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
  32.1

 
Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  101

 
The following materials from UnitedHealth Group Incorporated’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2016 filed on August 2, 2016, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Comprehensive Income, (iv) Condensed Consolidated Statements of Changes in Equity, (v) Condensed Consolidated Statements of Cash Flows, and (vi) Notes to the Condensed Consolidated Financial Statements.
 ________________
*
 
Denotes management contracts and compensation plans in which certain directors and named executive officers participate and which are being filed pursuant to Item 601(b)(10)(iii)(A) of Regulation S-K.
**
 
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, copies of instruments defining the rights of certain holders of long-term debt are not filed. The Company will furnish copies thereof to the SEC upon request.



30