10-Q 1 unh930201710-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 SEPTEMBER 30, 2017
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
__________________________________________________________ 
    uhglogo1a01a01a11.jpg
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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer
[X]
 
Accelerated filer
[ ]
 
Non-accelerated filer
[ ]
 
Smaller reporting company
[ ]
 
Emerging growth company
[ ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
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 October 31, 2017, there were 969,067,449 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)
 
September 30,
2017
 
December 31,
2016
Assets
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
16,269

 
$
10,430

Short-term investments
 
3,525

 
2,845

Accounts receivable, net
 
8,638

 
8,152

Other current receivables, net
 
6,826

 
7,499

Assets under management
 
3,082

 
3,105

Prepaid expenses and other current assets
 
2,581

 
1,848

Total current assets
 
40,921

 
33,879

Long-term investments
 
27,703

 
23,868

Property, equipment and capitalized software, net
 
6,562

 
5,901

Goodwill
 
53,402

 
47,584

Other intangible assets, net
 
8,457

 
8,541

Other assets
 
3,387

 
3,037

Total assets
 
$
140,432

 
$
122,810

Liabilities, redeemable noncontrolling interests and equity
 
 
 
 
Current liabilities:
 
 
 
 
Medical costs payable
 
$
17,963

 
$
16,391

Accounts payable and accrued liabilities
 
15,878

 
13,361

Commercial paper and current maturities of long-term debt
 
4,539

 
7,193

Unearned revenues
 
6,635

 
1,968

Other current liabilities
 
13,073

 
10,339

Total current liabilities
 
58,088

 
49,252

Long-term debt, less current maturities
 
24,723

 
25,777

Future policy benefits
 
2,535

 
2,524

Deferred income taxes
 
2,697

 
2,761

Other liabilities
 
2,909

 
2,307

Total liabilities
 
90,952

 
82,621

Commitments and contingencies (Note 8)
 


 


Redeemable noncontrolling interests
 
2,170

 
2,012

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; 969 and 952 issued and outstanding
 
10

 
10

Additional paid-in capital
 
1,801

 

Retained earnings
 
45,840

 
40,945

Accumulated other comprehensive loss
 
(2,353
)
 
(2,681
)
Nonredeemable noncontrolling interest
 
2,012

 
(97
)
Total equity
 
47,310

 
38,177

Total liabilities, redeemable noncontrolling interests and equity
 
$
140,432

 
$
122,810



1


UnitedHealth Group
Condensed Consolidated Statements of Operations
(Unaudited)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(in millions, except per share data)
 
2017
 
2016
 
2017
 
2016
Revenues:
 
 
 
 
 
 
 
 
Premiums
 
$
39,552

 
$
36,142

 
$
118,075

 
$
107,366

Products
 
6,665

 
6,696

 
19,209

 
19,699

Services
 
3,858

 
3,264

 
11,089

 
9,673

Investment and other income
 
247

 
191

 
725

 
567

Total revenues
 
50,322

 
46,293

 
149,098

 
137,305

Operating costs:
 
 
 
 
 
 
 
 
Medical costs
 
32,201

 
29,040

 
96,829

 
87,342

Operating costs
 
7,387

 
7,033

 
21,737

 
20,584

Cost of products sold
 
6,068

 
6,125

 
17,633

 
18,108

Depreciation and amortization
 
578

 
515

 
1,667

 
1,528

Total operating costs
 
46,234

 
42,713

 
137,866

 
127,562

Earnings from operations
 
4,088

 
3,580

 
11,232

 
9,743

Interest expense
 
(294
)
 
(269
)
 
(878
)
 
(799
)
Earnings before income taxes
 
3,794

 
3,311

 
10,354

 
8,944

Provision for income taxes
 
(1,233
)
 
(1,333
)
 
(3,252
)
 
(3,579
)
Net earnings
 
2,561

 
1,978

 
7,102

 
5,365

Earnings attributable to noncontrolling interests
 
(76
)
 
(10
)
 
(161
)
 
(32
)
Net earnings attributable to UnitedHealth Group common shareholders
 
$
2,485

 
$
1,968

 
$
6,941

 
$
5,333

Earnings per share attributable to UnitedHealth Group common shareholders:
 
 
 
 
 
 
 
 
Basic
 
$
2.57

 
$
2.07

 
$
7.22

 
$
5.60

Diluted
 
$
2.51

 
$
2.03

 
$
7.06

 
$
5.51

Basic weighted-average number of common shares outstanding
 
968

 
952

 
962

 
952

Dilutive effect of common share equivalents
 
21

 
17

 
21

 
16

Diluted weighted-average number of common shares outstanding
 
989

 
969

 
983

 
968

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

 
1

 
6

 
3

Cash dividends declared per common share
 
$
0.750

 
$
0.625

 
$
2.125

 
$
1.750



2



UnitedHealth Group
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)

 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(in millions)
 
2017
 
2016
 
2017
 
2016
Net earnings
 
$
2,561

 
$
1,978

 
$
7,102

 
$
5,365

Other comprehensive income (loss) :
 
 
 
 
 
 
 
 
Gross unrealized gains (losses) on investment securities during the period
 
44

 
(21
)
 
313

 
473

Income tax effect
 
(17
)
 
7

 
(111
)
 
(173
)
Total unrealized gains (losses), net of tax
 
27

 
(14
)
 
202

 
300

Gross reclassification adjustment for net realized gains included in net earnings
 
(10
)
 
(26
)
 
(51
)
 
(97
)
Income tax effect
 
4

 
9

 
19

 
35

Total reclassification adjustment, net of tax
 
(6
)
 
(17
)
 
(32
)
 
(62
)
Total foreign currency translation gains (losses)
 
217

 
(69
)
 
158

 
793

Other comprehensive income (loss)
 
238

 
(100
)
 
328

 
1,031

Comprehensive income
 
2,799

 
1,878

 
7,430

 
6,396

Comprehensive income attributable to noncontrolling interests
 
(76
)
 
(10
)
 
(161
)
 
(32
)
Comprehensive income attributable to UnitedHealth Group common shareholders
 
$
2,723

 
$
1,868

 
$
7,269

 
$
6,364



3


UnitedHealth Group
Condensed Consolidated Statements of Changes in Equity
(Unaudited)
 
 
Common Stock
 
Additional Paid-In Capital
 
Retained Earnings
 
Accumulated Other Comprehensive (Loss)
Income
 
Nonredeemable Noncontrolling Interest
 
Total
Equity
(in millions)
 
Shares
 
Amount
 
 
 
Net Unrealized (Losses) Gains on Investments
 
Foreign Currency Translation (Losses) Gains
 
 
Balance at January 1, 2017
 
952

 
$
10

 
$

 
$
40,945

 
$
(97
)
 
$
(2,584
)
 
$
(97
)
 
$
38,177

Net earnings
 
 
 
 
 
 
 
6,941

 
 
 
 
 
120

 
7,061

Other comprehensive income
 
 
 
 
 
 
 
 
 
170

 
158

 
 
 
328

Issuances of common stock,
and related tax effects
 
24

 

 
2,156

 
 
 
 
 
 
 
 
 
2,156

Share-based compensation
 
 
 
 
 
447

 
 
 
 
 
 
 
 
 
447

Common share repurchases
 
(7
)
 

 
(1,173
)
 


 
 
 
 
 
 
 
(1,173
)
Cash dividends paid on common shares
 
 
 
 
 
 
 
(2,046
)
 
 
 
 
 
 
 
(2,046
)
 Redeemable noncontrolling interests fair value and other adjustments
 
 
 
 
 
371

 
 
 
 
 
 
 
 
 
371

Acquisition of nonredeemable noncontrolling interest
 
 
 
 
 
 
 
 
 
 
 
 
 
2,111

 
2,111

Distribution to nonredeemable noncontrolling interest
 
 
 
 
 
 
 
 
 
 
 
 
 
(122
)
 
(122
)
Balance at September 30, 2017
 
969

 
$
10

 
$
1,801

 
$
45,840

 
$
73

 
$
(2,426
)
 
$
2,012

 
$
47,310

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
 
 
 
 
 
 
 
5,333

 
 
 
 
 
31

 
5,364

Other comprehensive income
 
 
 
 
 
 
 
 
 
238

 
793

 
 
 
1,031

Issuances of common stock,
 and related tax effects
 
8

 

 
187

 
 
 
 
 
 
 
 
 
187

Share-based compensation
 
 
 
 
 
350

 
 
 
 
 
 
 
 
 
350

Common share repurchases
 
(9
)
 

 
(242
)
 
(875
)
 
 
 
 
 
 
 
(1,117
)
Cash dividends paid on common shares
 
 
 
 
 
 
 
(1,666
)
 
 
 
 
 
 
 
(1,666
)
Acquisition of redeemable noncontrolling interest shares
 
 
 
 
 
(143
)
 
 
 
 
 
 
 
 
 
(143
)
Redeemable noncontrolling interests fair value and other adjustments
 
 
 
 
 
(181
)
 
 
 
 
 
 
 
 
 
(181
)
Distribution to nonredeemable noncontrolling interest
 
 
 
 
 
 
 
 
 
 
 
 
 
(24
)
 
(24
)
Balance at September 30, 2016
 
952

 
$
10

 
$

 
$
39,945

 
$
294

 
$
(2,597
)
 
$
(98
)
 
$
37,554




4


UnitedHealth Group
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
 
Nine Months Ended September 30,
(in millions)
 
2017
 
2016
Operating activities
 
 
 
 
Net earnings
 
$
7,102

 
$
5,365

Noncash items:
 
 
 
 
Depreciation and amortization
 
1,667

 
1,528

Deferred income taxes
 
(459
)
 
(405
)
Share-based compensation
 
456

 
369

Other, net
 
168

 
(68
)
Net change in other operating items, net of effects from acquisitions and changes in AARP balances:
 
 
 
 
Accounts receivable
 
(244
)
 
(580
)
Other assets
 
(763
)
 
(1,835
)
Medical costs payable
 
1,305

 
1,984

Accounts payable and other liabilities
 
2,283

 
1,280

Unearned revenues
 
4,658

 
3,566

Cash flows from operating activities
 
16,173

 
11,204

Investing activities
 
 
 
 
Purchases of investments
 
(10,626
)
 
(12,231
)
Sales of investments
 
2,809

 
4,422

Maturities of investments
 
4,251

 
3,040

Cash paid for acquisitions, net of cash assumed
 
(908
)
 
(2,727
)
Purchases of property, equipment and capitalized software
 
(1,391
)
 
(1,220
)
Other, net
 
(30
)
 
(25
)
Cash flows used for investing activities
 
(5,895
)
 
(8,741
)
Financing activities
 
 
 
 
Common share repurchases
 
(1,173
)
 
(1,117
)
Cash dividends paid
 
(2,046
)
 
(1,666
)
Proceeds from common stock issuances
 
604

 
387

Proceeds from issuance of long-term debt
 
1,342

 
2,485

Repayments of long-term debt
 
(2,867
)
 
(2,101
)
(Repayments of) proceeds from commercial paper, net
 
(3,352
)
 
693

Customer funds administered
 
3,659

 
1,249

Other, net
 
(624
)
 
(590
)
Cash flows used for financing activities
 
(4,457
)
 
(660
)
Effect of exchange rate changes on cash and cash equivalents
 
18

 
70

Increase in cash and cash equivalents
 
5,839

 
1,873

Cash and cash equivalents, beginning of period
 
10,430

 
10,923

Cash and cash equivalents, end of period
 
$
16,269

 
$
12,796

 
 
 
 
 
Supplemental Schedule of Noncash Investing Activities
 
 
 
 
Common stock issued for acquisition
 
$
2,164

 
$



5


UnitedHealth Group
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation and Significant Accounting Policies
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 helping make 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. These core competencies are deployed within the Company’s two distinct, but strategically aligned, business platforms: health benefits operating under UnitedHealthcare and health services operating under Optum.
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” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 as filed with the SEC (2016 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 Condensed 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.
Revenues
The Company’s revenues include premium, product, and service revenues. Service revenues include net patient service revenues that are recorded based upon established billing rates, less allowances for contractual adjustments, and are recognized as services are provided. For more information about the Company’s revenues, see Notes 2 and 13 of Notes to the Consolidated Financial Statements in Part II, Item 8, “Financial Statements” in the 2016 10-K. See Note 9 for disaggregation of revenue by segment and type.
As of September 30, 2017, accounts receivables related to products and services were $3.5 billion. For the three and nine months ended September 30, 2017, the Company had no material bad-debt expense and there were no material contract assets, contract liabilities or deferred contract costs recorded on the Condensed Consolidated Balance Sheet as of September 30, 2017.
For the three and nine months ended September 30, 2017, revenue recognized from performance obligations related to prior periods (for example, due to changes in transaction price), was not material.
Revenue expected to be recognized in any future year related to remaining performance obligations, excluding revenue pertaining to contracts that have an original expected duration of one year or less, contracts where revenue is recognized as invoiced and contracts with variable consideration related to undelivered performance obligations, is not material.
Health Insurance Industry Tax
The Patient Protection and Affordable Care Act (ACA) included an annual, nondeductible insurance industry tax (Health Insurance Industry Tax) to be levied proportionally across the insurance industry for risk-based health insurance products. A provision in the 2016 Federal Budget imposed a one year moratorium for 2017 on the collection of the Health Insurance Industry Tax. The Company has experienced a lower effective income tax rate in 2017 as compared to 2016 primarily due to the moratorium.
The remainder of the accounting policies disclosed in Note 2 of Notes to the Consolidated Financial Statements in Part II, Item 8, “Financial Statements” in the 2016 10-K remain unchanged.

6


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. When adopted, the Company does not expect ASU 2016-02 to have a material impact on its results of operations, equity or cash flows. The impact of ASU 2016-02 on the Company’s consolidated financial position will be based on leases outstanding at the time of adoption.
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 comprehensive income. The new guidance is effective for annual and interim reporting periods beginning after December 15, 2017. As of September 30, 2017, based on equity securities held, the Company does not expect ASU 2016-01 to have a material impact on its consolidated financial position, results of operations, equity or cash flows. The Company will continue to evaluate any changes in its mix of investments or market conditions and the related impact of ASU 2016-01.
Recently Adopted Accounting Standards
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” as modified by subsequently issued ASUs 2015-14, 2016-08, 2016-10, 2016-12 and 2016-20 (collectively ASU 2014-09). ASU 2014-09 superseded 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. The Company early adopted the new standard effective January 1, 2017, as allowed, using the modified retrospective approach. A significant majority of the Company’s revenues are not subject to the new guidance. The adoption of ASU 2014-09 did not have a material impact on the Company’s consolidated financial position, results of operations, equity or cash flows as of the adoption date or for the nine months ended September 30, 2017. The Company has included the disclosures required by ASU 2014-09 above.
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
September 30, 2017
 
 
 
 
 
 
 
 
Debt securities - available-for-sale:
 
 
 
 
 
 
 
 
U.S. government and agency obligations
 
$
2,708

 
$
3

 
$
(24
)
 
$
2,687

State and municipal obligations
 
6,997

 
117

 
(20
)
 
7,094

Corporate obligations
 
13,092

 
88

 
(26
)
 
13,154

U.S. agency mortgage-backed securities
 
3,946

 
13

 
(28
)
 
3,931

Non-U.S. agency mortgage-backed securities
 
1,018

 
5

 
(4
)
 
1,019

Total debt securities - available-for-sale
 
27,761

 
226

 
(102
)
 
27,885

Equity securities
 
1,949

 
30

 
(38
)
 
1,941

Debt securities - held-to-maturity:
 
 
 
 
 
 
 
 
U.S. government and agency obligations
 
259

 

 

 
259

State and municipal obligations
 
4

 

 

 
4

Corporate obligations
 
285

 

 

 
285

Total debt securities - held-to-maturity
 
548

 

 

 
548

Total investments
 
$
30,258

 
$
256

 
$
(140
)
 
$
30,374

December 31, 2016
 
 
 
 
 
 
 
 
Debt securities - available-for-sale:
 
 
 
 
 
 
 
 
U.S. government and agency obligations
 
$
2,294

 
$
1

 
$
(31
)
 
$
2,264

State and municipal obligations
 
7,120

 
40

 
(101
)
 
7,059

Corporate obligations
 
10,944

 
41

 
(58
)
 
10,927

U.S. agency mortgage-backed securities
 
2,963

 
7

 
(43
)
 
2,927

Non-U.S. agency mortgage-backed securities
 
1,009

 
3

 
(10
)
 
1,002

Total debt securities - available-for-sale
 
24,330

 
92

 
(243
)
 
24,179

Equity securities
 
2,036

 
52

 
(47
)
 
2,041

Debt securities - held-to-maturity:
 
 
 
 
 
 
 
 
U.S. government and agency obligations
 
250

 
1

 

 
251

State and municipal obligations
 
5

 

 

 
5

Corporate obligations
 
238

 

 

 
238

Total debt securities - held-to-maturity
 
493

 
1

 

 
494

Total investments
 
$
26,859

 
$
145

 
$
(290
)
 
$
26,714

The amortized cost and fair value of debt securities as of September 30, 2017, 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
 
$
3,650

 
$
3,651

 
$
165

 
$
165

Due after one year through five years
 
10,607

 
10,645

 
125

 
125

Due after five years through ten years
 
6,476

 
6,540

 
113

 
113

Due after ten years
 
2,064

 
2,099

 
145

 
145

U.S. agency mortgage-backed securities
 
3,946

 
3,931

 

 

Non-U.S. agency mortgage-backed securities
 
1,018

 
1,019

 

 

Total debt securities
 
$
27,761

 
$
27,885

 
$
548

 
$
548


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
September 30, 2017
 
 
 
 
 
 
 
 
 
 
 
 
Debt securities - available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency obligations
 
$
1,635

 
$
(11
)
 
$
532

 
$
(13
)
 
$
2,167

 
$
(24
)
State and municipal obligations
 
1,910

 
(15
)
 
429

 
(5
)
 
2,339

 
(20
)
Corporate obligations
 
3,958

 
(17
)
 
496

 
(9
)
 
4,454

 
(26
)
U.S. agency mortgage-backed securities
 
2,233

 
(24
)
 
146

 
(4
)
 
2,379

 
(28
)
Non-U.S. agency mortgage-backed securities
 
351

 
(3
)
 
49

 
(1
)
 
400

 
(4
)
Total debt securities - available-for-sale
 
$
10,087

 
$
(70
)
 
$
1,652

 
$
(32
)
 
$
11,739

 
$
(102
)
Equity securities
 
$
59

 
$
(4
)
 
$
97

 
$
(34
)
 
$
156

 
$
(38
)
December 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
Debt securities - available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency obligations
 
$
1,794

 
$
(31
)
 
$

 
$

 
$
1,794

 
$
(31
)
State and municipal obligations
 
4,376

 
(101
)
 

 

 
4,376

 
(101
)
Corporate obligations
 
5,128

 
(56
)
 
137

 
(2
)
 
5,265

 
(58
)
U.S. agency mortgage-backed securities
 
2,247

 
(40
)
 
79

 
(3
)
 
2,326

 
(43
)
Non-U.S. agency mortgage-backed securities
 
544

 
(7
)
 
97

 
(3
)
 
641

 
(10
)
Total debt securities - available-for-sale
 
$
14,089

 
$
(235
)
 
$
313

 
$
(8
)
 
$
14,402

 
$
(243
)
Equity securities
 
$
93

 
$
(5
)
 
$
91

 
$
(42
)
 
$
184

 
$
(47
)
The Company’s unrealized losses from all securities as of September 30, 2017 were generated from 9,000 positions out of a total of 29,000 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. At each reporting period, the Company evaluates securities for impairment when the fair value of the investment is less than its amortized cost. The Company evaluated the underlying credit quality and credit ratings of the issuers, noting no significant deterioration since purchase. As of September 30, 2017, 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.
The Company’s investments in equity securities consist of investments in Brazilian real denominated fixed-income funds, employee savings plan related investments, venture capital funds, and dividend paying stocks. The Company evaluated its investments in equity securities for severity and duration of unrealized loss, overall market volatility and other market factors. Additionally, as of September 30, 2017, the Company’s investments included $854 million of equity method investments in operating businesses in the health care sector.
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 4 of Notes to the Consolidated Financial Statements in Part II, Item 8, “Financial Statements” in the 2016 10-K.

9


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:
(in millions)
 
Quoted Prices
in Active
Markets
(Level 1)
 
Other
Observable
Inputs
(Level 2)
 
Unobservable
Inputs
(Level 3)
 
Total
Fair and Carrying
Value
September 30, 2017
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
13,462

 
$
2,807

 
$

 
$
16,269

Debt securities - available-for-sale:
 
 
 
 
 
 
 
 
U.S. government and agency obligations
 
2,405

 
282

 

 
2,687

State and municipal obligations
 

 
7,094

 

 
7,094

Corporate obligations
 
73

 
12,947

 
134

 
13,154

U.S. agency mortgage-backed securities
 

 
3,931

 

 
3,931

Non-U.S. agency mortgage-backed securities
 

 
1,019

 

 
1,019

Total debt securities - available-for-sale
 
2,478

 
25,273

 
134

 
27,885

Equity securities
 
1,804

 
14

 
123

 
1,941

Assets under management
 
763

 
2,319

 

 
3,082

Interest rate swap assets
 

 
50

 

 
50

Total assets at fair value

$
18,507

 
$
30,463

 
$
257

 
$
49,227

Percentage of total assets at fair value
 
37
%
 
62
%
 
1
%
 
100
%
Interest rate swap liabilities
 
$

 
$
12

 
$

 
$
12

December 31, 2016
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
10,386

 
$
44

 
$

 
$
10,430

Debt securities - available-for-sale:
 
 
 
 
 
 
 
 
U.S. government and agency obligations
 
2,017

 
247

 

 
2,264

State and municipal obligations
 

 
7,059

 

 
7,059

Corporate obligations
 
21

 
10,804

 
102

 
10,927

U.S. agency mortgage-backed securities
 

 
2,927

 

 
2,927

Non-U.S. agency mortgage-backed securities
 

 
1,002

 

 
1,002

Total debt securities - available-for-sale
 
2,038

 
22,039

 
102

 
24,179

Equity securities
 
1,591

 
13

 
437

 
2,041

Assets under management
 
1,064

 
2,041

 

 
3,105

Interest rate swap assets
 

 
55

 

 
55

Total assets at fair value
 
$
15,079

 
$
24,192

 
$
539

 
$
39,810

Percentage of total assets at fair value
 
38
%
 
61
%
 
1
%
 
100
%
Interest rate swap liabilities
 
$

 
$
14

 
$

 
$
14

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 nine months ended September 30, 2017 or 2016.

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
September 30, 2017
 
 
 
 
 
 
 
 
 
 
Debt securities - held-to-maturity:
 
 
 
 
 
 
 
 
 
 
U.S. government and agency obligations
 
$
256

 
$
3

 
$

 
$
259

 
$
259

State and municipal obligations
 

 

 
4

 
4

 
4

Corporate obligations
 
17

 
1

 
267

 
285

 
285

Total debt securities - held-to-maturity
 
$
273

 
$
4

 
$
271

 
$
548

 
$
548

Other assets
 
$

 
$
477

 
$

 
$
477

 
$
475

Long-term debt and other financing obligations
 
$

 
$
31,686

 
$

 
$
31,686

 
$
28,959

December 31, 2016
 
 
 
 
 
 
 
 
 
 
Debt securities - held-to-maturity:
 
 
 
 
 
 
 
 
 
 
U.S. government and agency obligations
 
$
251

 
$

 
$

 
$
251

 
$
250

State and municipal obligations
 

 

 
5

 
5

 
5

Corporate obligations
 
20

 
8

 
210

 
238

 
238

Total debt securities - held-to-maturity
 
$
271

 
$
8

 
$
215

 
$
494

 
$
493

Other assets
 
$

 
$
476

 
$

 
$
476

 
$
471

Long-term debt and other financing obligations
 
$

 
$
31,295

 
$

 
$
31,295

 
$
29,337

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 nine months ended September 30, 2017 or 2016.
4.    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 the Company’s clients. As of September 30, 2017 and December 31, 2016, total pharmaceutical manufacturer rebates receivable included in other receivables in the Condensed Consolidated Balance Sheets amounted to $4.0 billion and $3.3 billion, respectively. See Note 2 of Notes to the Consolidated Financial Statements in Part II, Item 8, “Financial Statements” in the 2016 10-K for more information on the Company’s pharmaceutical manufacturer rebates.

11


5.    Medical Costs Payable
The following table shows the components of the change in medical costs payable for the nine months ended September 30:
(in millions)
 
2017
 
2016
Medical costs payable, beginning of period
 
$
16,391

 
$
14,330

Acquisitions
 
76

 

Reported medical costs:
 
 
 
 
Current year
 
97,519

 
87,532

Prior years
 
(690
)
 
(190
)
Total reported medical costs
 
96,829

 
87,342

Medical payments:
 
 
 
 
Payments for current year
 
(81,237
)
 
(72,092
)
Payments for prior years
 
(14,096
)
 
(13,080
)
Total medical payments
 
(95,333
)
 
(85,172
)
Medical costs payable, end of period
 
$
17,963

 
$
16,500

For the nine months ended September 30, 2017, the medical cost reserve development was primarily driven by lower than expected health system utilization levels. For the nine months ended September 30, 2016, no individual factors were significant. Medical costs payable included reserves for claims incurred by insured customers but not yet reported to the Company of $12.4 billion and $11.6 billion at September 30, 2017 and December 31, 2016, respectively.

12


6.     Commercial Paper and Long-Term Debt
Commercial paper and senior unsecured long-term debt consisted of the following:
 
 
September 30, 2017
 
December 31, 2016
(in millions, except percentages)
 
Par
Value
 
Carrying
Value
 
Fair
Value
 
Par
Value
 
Carrying
Value
 
Fair
Value
Commercial paper
 
$
304

 
$
303

 
$
303

 
$
3,633

 
$
3,633

 
$
3,633

Floating rate notes due January 2017
 

 

 

 
750

 
750

 
750

6.000% notes due June 2017
 

 

 

 
441

 
446

 
450

1.450% notes due July 2017
 

 

 

 
750

 
750

 
751

1.400% notes due October 2017
 
625

 
625

 
625

 
625

 
624

 
626

6.000% notes due November 2017
 
156

 
157

 
157

 
156

 
159

 
163

1.400% notes due December 2017
 
750

 
750

 
750

 
750

 
751

 
750

6.000% notes due February 2018
 
1,100

 
1,102

 
1,118

 
1,100

 
1,107

 
1,153

1.900% notes due July 2018
 
1,500

 
1,498

 
1,504

 
1,500

 
1,496

 
1,507

1.700% notes due February 2019
 
750

 
749

 
750

 
750

 
748

 
748

1.625% notes due March 2019
 
500

 
501

 
499

 
500

 
501

 
498

2.300% notes due December 2019
 
500

 
497

 
504

 
500

 
498

 
504

2.700% notes due July 2020
 
1,500

 
1,496

 
1,530

 
1,500

 
1,495

 
1,523

3.875% notes due October 2020
 
450

 
449

 
473

 
450

 
450

 
474

4.700% notes due February 2021
 
400

 
407

 
431

 
400

 
409

 
433

2.125% notes due March 2021
 
750

 
746

 
750

 
750

 
745

 
741

3.375% notes due November 2021
 
500

 
497

 
520

 
500

 
497

 
519

2.875% notes due December 2021
 
750

 
748

 
769

 
750

 
748

 
760

2.875% notes due March 2022
 
1,100

 
1,063

 
1,125

 
1,100

 
1,057

 
1,114

3.350% notes due July 2022
 
1,000

 
996

 
1,044

 
1,000

 
995

 
1,030

0.000% notes due November 2022
 
15

 
11

 
12

 
15

 
11

 
12

2.750% notes due February 2023
 
625

 
612

 
632

 
625

 
609

 
622

2.875% notes due March 2023
 
750

 
771

 
765

 
750

 
771

 
753

3.750% notes due July 2025
 
2,000

 
1,987

 
2,122

 
2,000

 
1,986

 
2,070

3.100% notes due March 2026
 
1,000

 
995

 
1,012

 
1,000

 
994

 
986

3.450% notes due January 2027
 
750

 
745

 
776

 
750

 
745

 
762

3.375% notes due April 2027
 
625

 
618

 
643

 

 

 

4.625% notes due July 2035
 
1,000

 
991

 
1,146

 
1,000

 
991

 
1,090

5.800% notes due March 2036
 
850

 
837

 
1,071

 
850

 
837

 
1,034

6.500% notes due June 2037
 
500

 
491

 
683

 
500

 
491

 
643

6.625% notes due November 2037
 
650

 
641

 
903

 
650

 
640

 
850

6.875% notes due February 2038
 
1,100

 
1,075

 
1,561

 
1,100

 
1,075

 
1,497

5.700% notes due October 2040
 
300

 
296

 
383

 
300

 
296

 
366

5.950% notes due February 2041
 
350

 
345

 
460

 
350

 
345

 
437

4.625% notes due November 2041
 
600

 
588

 
673

 
600

 
588

 
634

4.375% notes due March 2042
 
502

 
483

 
543

 
502

 
483

 
509

3.950% notes due October 2042
 
625

 
607

 
641

 
625

 
606

 
609

4.250% notes due March 2043
 
750

 
734

 
801

 
750

 
734

 
765

4.750% notes due July 2045
 
2,000

 
1,972

 
2,310

 
2,000

 
1,972

 
2,203

4.200% notes due January 2047
 
750

 
738

 
799

 
750

 
737

 
759

4.250% notes due April 2047
 
725

 
717

 
777