10-Q 1 unh201933110-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 MARCH 31, 2019
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
__________________________________________________________ 
    uhglogo1a01a01a19.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 every Interactive Data File required to be submitted 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 such files).    Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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]
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock, $.01 par value
 
UNH
 
New York Stock Exchange, Inc.
As of April 30, 2019, there were 950,343,113 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)
 
March 31,
2019
 
December 31,
2018
Assets
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
12,407

 
$
10,866

Short-term investments
 
3,303

 
3,458

Accounts receivable, net
 
12,826

 
11,388

Other current receivables, net
 
7,631

 
6,862

Assets under management
 
2,951

 
3,032

Prepaid expenses and other current assets
 
3,697

 
3,086

Total current assets
 
42,815

 
38,692

Long-term investments
 
33,553

 
32,510

Property, equipment and capitalized software, net
 
8,230

 
8,458

Goodwill
 
59,379

 
58,910

Other intangible assets, net
 
9,245

 
9,325

Other assets
 
7,975

 
4,326

Total assets
 
$
161,197

 
$
152,221

Liabilities, redeemable noncontrolling interests and equity
 
 
 
 
Current liabilities:
 
 
 
 
Medical costs payable
 
$
21,139

 
$
19,891

Accounts payable and accrued liabilities
 
16,900

 
16,705

Commercial paper and current maturities of long-term debt
 
3,919

 
1,973

Unearned revenues
 
2,530

 
2,396

Other current liabilities
 
14,445

 
12,244

Total current liabilities
 
58,933

 
53,209

Long-term debt, less current maturities
 
34,419

 
34,581

Deferred income taxes
 
2,786

 
2,474

Other liabilities
 
8,554

 
5,730

Total liabilities
 
104,692

 
95,994

Commitments and contingencies (Note 6)
 


 


Redeemable noncontrolling interests
 
2,054

 
1,908

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; 953 and 960 issued and outstanding
 
10

 
10

Retained earnings
 
55,472

 
55,846

Accumulated other comprehensive loss
 
(3,758
)
 
(4,160
)
Nonredeemable noncontrolling interests
 
2,727

 
2,623

Total equity
 
54,451

 
54,319

Total liabilities, redeemable noncontrolling interests and equity
 
$
161,197

 
$
152,221



1


UnitedHealth Group
Condensed Consolidated Statements of Operations
(Unaudited)
 
 
Three Months Ended March 31,
(in millions, except per share data)
 
2019
 
2018
Revenues:
 
 
 
 
Premiums
 
$
47,513

 
$
44,084

Products
 
8,072

 
6,702

Services
 
4,318

 
4,104

Investment and other income
 
405

 
298

Total revenues
 
60,308

 
55,188

Operating costs:
 
 
 
 
Medical costs
 
38,939

 
35,863

Operating costs
 
8,517

 
8,506

Cost of products sold
 
7,381

 
6,184

Depreciation and amortization
 
639

 
582

Total operating costs
 
55,476

 
51,135

Earnings from operations
 
4,832

 
4,053

Interest expense
 
(400
)
 
(329
)
Earnings before income taxes
 
4,432

 
3,724

Provision for income taxes
 
(875
)
 
(800
)
Net earnings
 
3,557

 
2,924

Earnings attributable to noncontrolling interests
 
(90
)
 
(88
)
Net earnings attributable to UnitedHealth Group common shareholders
 
$
3,467

 
$
2,836

Earnings per share attributable to UnitedHealth Group common shareholders:
 
 
 
 
Basic
 
$
3.62

 
$
2.94

Diluted
 
$
3.56

 
$
2.87

Basic weighted-average number of common shares outstanding
 
958

 
966

Dilutive effect of common share equivalents
 
17

 
21

Diluted weighted-average number of common shares outstanding
 
975

 
987

Anti-dilutive shares excluded from the calculation of dilutive effect of common share equivalents
 
8

 
7



2


 
UnitedHealth Group
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)

 
 
Three Months Ended March 31,
(in millions)
 
2019
 
2018
Net earnings
 
$
3,557

 
$
2,924

Other comprehensive income (loss):
 
 
 
 
Gross unrealized gains (losses) on investment securities during the period
 
520

 
(378
)
Income tax effect
 
(119
)
 
86

Total unrealized gains (losses), net of tax
 
401

 
(292
)
Gross reclassification adjustment for net realized losses (gains) included in net earnings
 
4

 
(19
)
Income tax effect
 
(1
)
 
4

Total reclassification adjustment, net of tax
 
3

 
(15
)
Total foreign currency translation losses
 
(2
)
 
(1
)
Other comprehensive income (loss)
 
402

 
(308
)
Comprehensive income
 
3,959

 
2,616

Comprehensive income attributable to noncontrolling interests
 
(90
)
 
(88
)
Comprehensive income attributable to UnitedHealth Group common shareholders
 
$
3,869

 
$
2,528



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 Interests
 
Total
Equity
(in millions)
 
Shares
 
Amount
 
 
 
Net Unrealized (Losses) Gains on Investments
 
Foreign Currency Translation Losses
 
 
Balance at January 1, 2019
 
960

 
$
10

 
$

 
$
55,846

 
$
(264
)
 
$
(3,896
)
 
$
2,623

 
$
54,319

Adjustment to adopt ASU 2016-02
 
 
 
 
 
 
 
(13
)
 
 
 
 
 
(5
)
 
(18
)
Net earnings
 
 
 
 
 
 
 
3,467

 
 
 
 
 
60

 
3,527

Other comprehensive income (loss)
 
 
 
 
 
 
 
 
 
404

 
(2
)
 
 
 
402

Issuances of common stock,
and related tax effects
 
5

 

 
56

 
 
 
 
 
 
 
 
 
56

Share-based compensation
 
 
 
 
 
239

 
 
 
 
 
 
 
 
 
239

Common share repurchases
 
(12
)
 

 
(34
)
 
(2,968
)
 
 
 
 
 
 
 
(3,002
)
Cash dividends paid on common shares ($0.90 per share)
 
 
 
 
 
 
 
(860
)
 
 
 
 
 
 
 
(860
)
Redeemable noncontrolling interests fair value and other adjustments
 
 
 
 
 
(152
)
 
 
 
 
 
 
 
 
 
(152
)
Acquisition and other adjustments of nonredeemable noncontrolling interests
 
 
 
 
 
(109
)
 
 
 
 
 
 
 
132

 
23

Distribution to nonredeemable noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
 
 
(83
)
 
(83
)
Balance at March 31, 2019
 
953

 
$
10

 
$

 
$
55,472

 
$
140

 
$
(3,898
)
 
$
2,727

 
$
54,451

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2018
 
969

 
$
10

 
$
1,703

 
$
48,730

 
$
(13
)
 
$
(2,654
)
 
$
2,057

 
$
49,833

Adjustment to adopt ASU 2016-01
 
 
 
 
 
 
 
(24
)
 
24

 
 
 
 
 

Net earnings
 
 
 
 
 
 
 
2,836

 
 
 
 
 
53

 
2,889

Other comprehensive loss
 
 
 
 
 
 
 
 
 
(307
)
 
(1
)
 
 
 
(308
)
Issuances of common stock, and related tax effects
 
5

 

 
415

 
 
 
 
 
 
 
 
 
415

Share-based compensation
 
 
 
 
 
206

 
 
 
 
 
 
 
 
 
206

Common share repurchases
 
(12
)
 

 
(2,324
)
 
(326
)
 
 
 
 
 
 
 
(2,650
)
Cash dividends paid on common shares ($0.75 per share)
 
 
 
 
 
 
 
(722
)
 
 
 
 
 
 
 
(722
)
Acquisition of nonredeemable noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
 
 
423

 
423

Distribution to nonredeemable noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
 
 
(50
)
 
(50
)
Balance at March 31, 2018
 
962

 
$
10

 
$

 
$
50,494

 
$
(296
)
 
$
(2,655
)
 
$
2,483

 
$
50,036




4


UnitedHealth Group
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
 
Three Months Ended March 31,
(in millions)
 
2019
 
2018
Operating activities
 
 
 
 
Net earnings
 
$
3,557

 
$
2,924

Noncash items:
 
 
 
 
Depreciation and amortization
 
639

 
582

Deferred income taxes
 
134

 
(74
)
Share-based compensation
 
243

 
208

Other, net
 
42

 
27

Net change in other operating items, net of effects from acquisitions and changes in AARP balances:
 
 
 
 
Accounts receivable
 
(1,421
)
 
(1,579
)
Other assets
 
(1,495
)
 
(3,232
)
Medical costs payable
 
1,125

 
1,313

Accounts payable and other liabilities
 
318

 
2,821

Unearned revenues
 
92

 
5,379

Cash flows from operating activities
 
3,234

 
8,369

Investing activities
 
 
 
 
Purchases of investments
 
(3,540
)
 
(3,891
)
Sales of investments
 
1,510

 
1,002

Maturities of investments
 
1,711

 
1,504

Cash paid for acquisitions, net of cash assumed
 
(689
)
 
(2,583
)
Purchases of property, equipment and capitalized software
 
(562
)
 
(477
)
Other, net
 
154

 
(72
)
Cash flows used for investing activities
 
(1,416
)
 
(4,517
)
Financing activities
 
 
 
 
Common share repurchases
 
(3,002
)
 
(2,650
)
Cash dividends paid
 
(860
)
 
(722
)
Proceeds from common stock issuances
 
323

 
295

Repayments of long-term debt
 
(1,250
)
 
(1,100
)
Proceeds from commercial paper, net
 
3,101

 
4,259

Customer funds administered
 
1,784

 
2,962

Other, net
 
(368
)
 
(622
)
Cash flows (used for) from financing activities
 
(272
)
 
2,422

Effect of exchange rate changes on cash and cash equivalents
 
(5
)
 
(12
)
Increase in cash and cash equivalents
 
1,541

 
6,262

Cash and cash equivalents, beginning of period
 
10,866

 
11,981

Cash and cash equivalents, end of period
 
$
12,407

 
$
18,243

 
 
 
 
 


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 care 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 data and health information; advanced technology; and clinical expertise. These core competencies are deployed within 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 and Supplementary Data” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 as filed with the SEC (2018 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 include medical costs payable and goodwill. 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.
Recently Adopted Accounting Standards
In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) No. 2016-02, “Leases (Topic 842)” as modified by ASUs 2018-01, 2018-10, 2018-11, 2018-20 and 2019-01 (collectively, ASU 2016-02). Under ASU 2016-02, an entity is 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. The Company adopted ASU 2016-02 using a cumulative-effect upon adoption approach as of January 1, 2019. Upon adoption, the Company recognized $3.3 billion of lease right-of-use (ROU) assets and liabilities for operating leases on its Condensed Consolidated Balance Sheet, of which, $668 million were classified as current liabilities. The adoption of ASU 2016-02 was immaterial to the Company’s consolidated results of operations, equity and cash flows. The Company has included the disclosures required by ASU 2016-02 below and in Note 6, “Commitments and Contingencies”.
The Company leases facilities and equipment under long-term operating leases that are non-cancelable and expire on various dates. At the lease commencement date, lease ROU assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term, which includes all fixed obligations arising from the lease contract. If an interest rate is not implicit in a lease, the Company utilizes its incremental borrowing rate for a period that closely matches the lease term.
The Company’s ROU assets are included in other assets, and lease liabilities are included in other current liabilities and other liabilities in the Company’s Condensed Consolidated Balance Sheet.
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.

6


2.    Investments
A summary of debt securities by major security type is as follows:
(in millions)
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
March 31, 2019
 
 
 
 
 
 
 
 
Debt securities - available-for-sale:
 
 
 
 
 
 
 
 
U.S. government and agency obligations
 
$
3,610

 
$
30

 
$
(19
)
 
$
3,621

State and municipal obligations
 
6,566

 
150

 
(9
)
 
6,707

Corporate obligations
 
15,589

 
95

 
(58
)
 
15,626

U.S. agency mortgage-backed securities
 
5,212

 
37

 
(51
)
 
5,198

Non-U.S. agency mortgage-backed securities
 
1,471

 
13

 
(6
)
 
1,478

Total debt securities - available-for-sale
 
32,448

 
325

 
(143
)
 
32,630

Debt securities - held-to-maturity:
 
 
 
 
 
 
 
 
U.S. government and agency obligations
 
265

 

 
(1
)
 
264

State and municipal obligations
 
31

 
1

 

 
32

Corporate obligations
 
428

 
1

 

 
429

Total debt securities - held-to-maturity
 
724

 
2

 
(1
)
 
725

Total debt securities
 
$
33,172

 
$
327

 
$
(144
)
 
$
33,355

December 31, 2018
 
 
 
 
 
 
 
 
Debt securities - available-for-sale:
 
 
 
 
 
 
 
 
U.S. government and agency obligations
 
$
3,434

 
$
13

 
$
(42
)
 
$
3,405

State and municipal obligations
 
7,117

 
61

 
(57
)
 
7,121

Corporate obligations
 
15,366

 
14

 
(218
)
 
15,162

U.S. agency mortgage-backed securities
 
4,947

 
11

 
(106
)
 
4,852

Non-U.S. agency mortgage-backed securities
 
1,376

 
2

 
(20
)
 
1,358

Total debt securities - available-for-sale
 
32,240

 
101

 
(443
)
 
31,898

Debt securities - held-to-maturity:
 
 
 
 
 
 
 
 
U.S. government and agency obligations
 
255

 
1

 
(2
)
 
254

State and municipal obligations
 
11

 

 

 
11

Corporate obligations
 
355

 

 

 
355

Total debt securities - held-to-maturity
 
621

 
1

 
(2
)
 
620

Total debt securities
 
$
32,861

 
$
102

 
$
(445
)
 
$
32,518

The Company held $2.0 billion of equity securities as of March 31, 2019 and December 31, 2018. The Company’s investments in equity securities primarily consist of employee savings plan related investments, shares of Brazilian real denominated fixed-income funds and dividend paying stocks with readily determinable fair values. Additionally, the Company’s investments included $1.5 billion of equity method investments in operating businesses in the health care sector as of March 31, 2019 and December 31, 2018.

7


The amortized cost and fair value of debt securities as of March 31, 2019, 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
 
$
3,457

 
$
3,455

 
$
132

 
$
132

Due after one year through five years
 
12,283

 
12,304

 
318

 
318

Due after five years through ten years
 
7,314

 
7,430

 
131

 
131

Due after ten years
 
2,711

 
2,765

 
143

 
144

U.S. agency mortgage-backed securities
 
5,212

 
5,198

 

 

Non-U.S. agency mortgage-backed securities
 
1,471

 
1,478

 

 

Total debt securities
 
$
32,448

 
$
32,630

 
$
724

 
$
725

The fair value of available-for-sale debt securities with gross unrealized losses by 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
March 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
Debt securities - available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency obligations
 
$

 
$

 
$
1,329

 
$
(19
)
 
$
1,329

 
$
(19
)
State and municipal obligations
 

 

 
1,274

 
(9
)
 
1,274

 
(9
)
Corporate obligations
 
1,461

 
(7
)
 
5,479

 
(51
)
 
6,940

 
(58
)
U.S. agency mortgage-backed securities
 

 

 
2,979

 
(51
)
 
2,979

 
(51
)
Non-U.S. agency mortgage-backed securities
 

 

 
546

 
(6
)
 
546

 
(6
)
Total debt securities - available-for-sale
 
$
1,461

 
$
(7
)
 
$
11,607

 
$
(136
)
 
$
13,068

 
$
(143
)
December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
Debt securities - available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency obligations
 
$
998

 
$
(7
)
 
$
1,425

 
$
(35
)
 
$
2,423

 
$
(42
)
State and municipal obligations
 
1,334

 
(11
)
 
2,491

 
(46
)
 
3,825

 
(57
)
Corporate obligations
 
8,105

 
(109
)
 
4,239

 
(109
)
 
12,344

 
(218
)
U.S. agency mortgage-backed securities
 
1,296

 
(22
)
 
2,388

 
(84
)
 
3,684

 
(106
)
Non-U.S. agency mortgage-backed securities
 
622

 
(7
)
 
459

 
(13
)
 
1,081

 
(20
)
Total debt securities - available-for-sale
 
$
12,355

 
$
(156
)
 
$
11,002

 
$
(287
)
 
$
23,357

 
$
(443
)
The Company’s unrealized losses from debt securities as of March 31, 2019 were generated from 11,000 positions out of a total of 30,000 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 March 31, 2019, 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.
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.

8


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 and Supplementary Data” in the 2018 10-K.
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
March 31, 2019
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
12,283

 
$
124

 
$

 
$
12,407

Debt securities - available-for-sale:
 
 
 
 
 
 
 
 
U.S. government and agency obligations
 
3,319

 
302

 

 
3,621

State and municipal obligations
 

 
6,707

 

 
6,707

Corporate obligations
 
17

 
15,424

 
185

 
15,626

U.S. agency mortgage-backed securities
 

 
5,198

 

 
5,198

Non-U.S. agency mortgage-backed securities
 

 
1,478

 

 
1,478

Total debt securities - available-for-sale
 
3,336

 
29,109

 
185

 
32,630

Equity securities
 
1,827

 
12

 

 
1,839

Assets under management
 
896

 
2,043

 
12

 
2,951

Total assets at fair value

$
18,342

 
$
31,288

 
$
197

 
$
49,827

Percentage of total assets at fair value
 
37
%
 
63
%
 
%
 
100
%
December 31, 2018
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
10,757

 
$
109

 
$

 
$
10,866

Debt securities - available-for-sale:
 
 
 
 
 
 
 
 
U.S. government and agency obligations
 
3,060

 
345

 

 
3,405

State and municipal obligations
 

 
7,121

 

 
7,121

Corporate obligations
 
39

 
14,950

 
173

 
15,162

U.S. agency mortgage-backed securities
 

 
4,852

 

 
4,852

Non-U.S. agency mortgage-backed securities
 

 
1,358

 

 
1,358

Total debt securities - available-for-sale
 
3,099

 
28,626

 
173

 
31,898

Equity securities
 
1,832

 
13

 

 
1,845

Assets under management
 
1,086

 
1,938

 
8

 
3,032

Total assets at fair value
 
$
16,774

 
$
30,686

 
$
181

 
$
47,641

Percentage of total assets at fair value
 
35
%
 
65
%
 
%
 
100
%
There were no transfers in or out of Level 3 financial assets or liabilities during the three months ended March 31, 2019 or 2018.
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
March 31, 2019
 
 
 
 
 
 
 
 
 
 
Debt securities - held-to-maturity
 
$
273

 
$
172

 
$
280

 
$
725

 
$
724

Long-term debt and other financing obligations
 

 
37,790

 

 
37,790

 
35,221

December 31, 2018
 
 
 
 
 
 
 
 
 
 
Debt securities - held-to-maturity
 
$
260

 
$
65

 
$
295

 
$
620

 
$
621

Long-term debt and other financing obligations
 
$

 
$
37,944

 
$

 
$
37,944

 
$
36,554


9


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 three months ended March 31, 2019 or 2018.
4.    Medical Costs Payable
The following table shows the components of the change in medical costs payable for the three months ended March 31:
(in millions)
 
2019
 
2018
Medical costs payable, beginning of period
 
$
19,891

 
$
17,871

Acquisitions
 
35

 
211

Reported medical costs:
 
 
 
 
Current year
 
39,239

 
36,153

Prior years
 
(300
)
 
(290
)
Total reported medical costs
 
38,939

 
35,863

Medical payments:
 
 
 
 
Payments for current year
 
(22,973
)
 
(21,237
)
Payments for prior years
 
(14,753
)
 
(13,119
)
Total medical payments
 
(37,726
)
 
(34,356
)
Medical costs payable, end of period
 
$
21,139

 
$
19,589

For the three months ended March 31, 2019 and 2018, the medical cost reserve development included no individual factors that were significant. Medical costs payable included reserves for claims incurred by insured customers but not yet reported to the Company of $14.3 billion and $13.2 billion at March 31, 2019 and December 31, 2018, respectively.

10


5.    Commercial Paper and Long-Term Debt
Commercial paper and senior unsecured long-term debt consisted of the following:
 
 
March 31, 2019
 
December 31, 2018
(in millions, except percentages)
 
Par
Value
 
Carrying
Value
 
Fair
Value
 
Par
Value
 
Carrying
Value
 
Fair
Value
Commercial paper
 
$
3,134

 
$
3,117

 
$
3,117

 
$

 
$

 
$

1.700% notes due February 2019
 

 

 

 
750

 
750

 
749

1.625% notes due March 2019
 

 

 

 
500

 
500

 
499

2.300% notes due December 2019
 
500

 
496

 
499

 
500

 
494

 
497

2.700% notes due July 2020
 
1,500

 
1,498

 
1,503

 
1,500

 
1,498

 
1,494

Floating rate notes due October 2020
 
300

 
299

 
300

 
300

 
299

 
298

3.875% notes due October 2020
 
450

 
445

 
457

 
450

 
443

 
456

1.950% notes due October 2020
 
900

 
897

 
890

 
900

 
897

 
884

4.700% notes due February 2021
 
400

 
400

 
413

 
400

 
398

 
412

2.125% notes due March 2021
 
750

 
748

 
744

 
750

 
747

 
734

Floating rate notes due June 2021
 
350

 
349

 
350

 
350

 
349

 
347

3.150% notes due June 2021
 
400

 
399

 
404

 
400

 
399

 
400

3.375% notes due November 2021
 
500

 
493

 
508

 
500

 
489

 
503

2.875% notes due December 2021
 
750

 
742

 
754

 
750

 
735

 
748

2.875% notes due March 2022
 
1,100

 
1,063

 
1,107

 
1,100

 
1,051

 
1,091

3.350% notes due July 2022
 
1,000

 
997

 
1,022

 
1,000

 
997

 
1,005

2.375% notes due October 2022
 
900

 
895

 
891

 
900

 
894

 
872

0.000% notes due November 2022
 
15

 
12

 
13

 
15

 
12

 
13

2.750% notes due February 2023
 
625

 
610

 
625

 
625

 
602

 
611

2.875% notes due March 2023
 
750

 
758

 
754

 
750

 
750

 
739

3.500% notes due June 2023
 
750

 
747

 
773

 
750

 
746

 
756

3.500% notes due February 2024
 
750

 
745

 
772

 
750

 
745

 
755

3.750% notes due July 2025
 
2,000

 
1,989

 
2,088

 
2,000

 
1,989

 
2,025

3.700% notes due December 2025
 
300

 
298

 
312

 
300

 
298

 
303

3.100% notes due March 2026
 
1,000

 
996

 
999

 
1,000

 
995

 
965

3.450% notes due January 2027
 
750

 
746

 
763

 
750

 
746

 
742

3.375% notes due April 2027
 
625

 
619

 
633

 
625

 
619

 
611

2.950% notes due October 2027
 
950

 
938

 
933

 
950

 
938

 
898

3.850% notes due June 2028
 
1,150

 
1,142

 
1,204

 
1,150

 
1,142

 
1,163

3.875% notes due December 2028
 
850

 
842

 
890

 
850

 
842

 
861

4.625% notes due July 2035
 
1,000

 
992

 
1,121

 
1,000

 
992

 
1,060

5.800% notes due March 2036
 
850

 
838

 
1,045

 
850

 
838

 
1,003

6.500% notes due June 2037
 
500

 
492

 
661

 
500

 
492

 
638

6.625% notes due November 2037
 
650

 
641

 
874

 
650

 
641

 
841

6.875% notes due February 2038
 
1,100

 
1,076

 
1,514

 
1,100

 
1,076

 
1,437

5.700% notes due October 2040
 
300

 
296

 
370

 
300

 
296

 
355

5.950% notes due February 2041
 
350

 
345

 
446

 
350

 
345

 
426

4.625% notes due November 2041
 
600

 
588

 
657

 
600

 
588

 
627

4.375% notes due March 2042
 
502

 
484

 
534

 
502

 
484

 
503

3.950% notes due October 2042
 
625

 
607

 
631

 
625

 
607

 
596

4.250% notes due March 2043
 
750

 
735

 
787

 
750

 
734

 
744

4.750% notes due July 2045
 
2,000

 
1,973

 
2,260

 
2,000

 
1,973

 
2,116

4.200% notes due January 2047
 
750

 
738

 
777

 
750

 
738

 
745

4.250% notes due April 2047
 
725

 
717

 
759

 
725

 
717

 
719

3.750% notes due October 2047
 
950

 
933

 
923

 
950

 
933

 
869

4.250% notes due June 2048
 
1,350

 
1,329

 
1,420

 
1,350

 
1,329

 
1,349

4.450% notes due December 2048
 
1,100

 
1,087

 
1,191

 
1,100

 
1,087

 
1,132

Total commercial paper and long-term debt
 
$
37,551

 
$
37,151

 
$
39,688

 
$
35,667

 
$
35,234

 
$
36,591


11


The Company’s long-term debt obligations included $1.2 billion and $1.3 billion of other financing obligations, of which $306 million and $229 million were classified as current as of March 31, 2019 and December 31, 2018, respectively.
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 March 31, 2019, the Company’s outstanding commercial paper had a weighted average annual interest rate of 2.7%.
The Company has $3.5 billion five-year, $3.5 billion three-year and $3.0 billion 364-day revolving bank credit facilities with 26 banks, which mature in December 2023, December 2021 and December 2019, respectively. These facilities provide liquidity support for the Company’s commercial paper program and are available for general corporate purposes. As of March 31, 2019, 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 March 31, 2019, annual interest rates would have ranged from 3.2% to 3.4%.
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 60%. The Company was in compliance with its debt covenants as of March 31, 2019.
6.    Commitments and Contingencies
Leases
Operating lease costs were $238 million for the three months ended March 31, 2019 and included immaterial variable and short-term lease costs. Cash payments made on the Company’s operating lease liabilities were $181 million for the three months ended March 31, 2019, which were classified within operating activities in the Condensed Consolidated Statements of Cash Flows. As of March 31, 2019, the Company’s weighted-average remaining lease term and weighted-average discount rate for its operating leases were 8.5 years and 4.2%, respectively.
As of March 31, 2019, future minimum annual lease payments under all non-cancelable operating leases were as follows:
(in millions)
 
Future Operating Lease Payments
2019
 
480

2020
 
667

2021
 
578

2022
 
481

2023
 
393

Thereafter
 
1,553

Total future minimum lease payments
 
4,152

Less imputed interest
 
(731
)
Total
 
3,421

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

12


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.
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. 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.
On February 14, 2017, the Department of Justice (DOJ) announced its decision to pursue certain claims within a lawsuit initially asserted against the Company and filed under seal by a whistleblower in 2011. The whistleblower’s complaint, which was unsealed on February 15, 2017, alleges that the Company made improper risk adjustment submissions and violated the False Claims Act. On February 12, 2018, the court granted in part and denied in part the Company’s motion to dismiss. In May 2018, DOJ moved to dismiss the Company’s counterclaims, which were filed in March 2018, and moved for partial summary judgment. In March 2019, the court denied the government’s motion for partial summary judgment and dismissed the Company’s counterclaims without prejudice. The Company cannot reasonably estimate the outcome that may result from this matter given its procedural status.
7.    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 13 of Notes to the Consolidated Financial Statements in Part II, Item 8, “Financial Statements and Supplementary Data” in the 2018 10-K.

13


The following tables present reportable segment financial information:
 
 
 
 
Optum
 
 
 
 
(in millions)
 
UnitedHealthcare
 
OptumHealth
 
OptumInsight
 
OptumRx
 
Optum Eliminations
 
Optum
 
Corporate and
Eliminations
 
Consolidated
Three Months Ended March 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues - unaffiliated customers:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Premiums
 
$
46,501

 
$
1,012

 
$

 
$

 
$

 
$
1,012

 
$

 
$
47,513

Products
 

 
8

 
23

 
8,041

 

 
8,072

 

 
8,072

Services
 
2,141

 
1,274

 
754

 
149

 

 
2,177

 

 
4,318

Total revenues - unaffiliated customers
 
48,642

 
2,294

 
777

 
8,190

 

 
11,261

 

 
59,903

Total revenues - affiliated customers
 

 
4,287

 
1,407

 
9,613

 
(359
)
 
14,948

 
(14,948
)
 

Investment and other income
 
254

 
132

 
5

 
14

 

 
151

 

 
405

Total revenues
 
$
48,896

 
$
6,713

 
$
2,189

 
$
17,817

 
$
(359
)
 
$
26,360

 
$
(14,948
)
 
$
60,308

Earnings from operations
 
$
2,954

 
$
626

 
$
432

 
$
820

 
$

 
$
1,878

 
$

 
$
4,832

Interest expense
 

 

 

 

 

 

 
(400
)
 
(400
)
Earnings before income taxes
 
$
2,954

 
$
626

 
$
432

 
$
820

 
$

 
$
1,878

 
$
(400
)
 
$
4,432

Three Months Ended March 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues - unaffiliated customers:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Premiums
 
$
43,237

 
$
847

 
$

 
$

 
$

 
$
847

 
$

 
$
44,084