UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

__________________________________________________________ 

Form 10-Q

__________________________________________________________ 

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2020

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		55343
9900 Bren Road East
Minnetonka,	Minnesota
(Address of principal executive offices)		(Zip Code)

(952) 936-1300

(Registrant’s telephone number, including area code)

_________________________________________________________  

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	NYSE

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 ☒ 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 ☒ 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	☒	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 ☒

As of April 30, 2020, there were 948,379,502 shares of the registrant’s Common Stock, $.01 par value per share, issued and outstanding.

UNITEDHEALTH GROUP

Table of Contents

			Page
Part I. Financial Information
Item 1.	Financial Statements (unaudited)		1
	Condensed Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019		1
	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2020 and 2019		2
	Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2020 and 2019		3
	Condensed Consolidated Statements of Changes in Equity for the Three Months Ended March 31, 2020 and 2019		4
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019		5
	Notes to the Condensed Consolidated Financial Statements		6
	1.	Basis of Presentation	6
	2.	Investments	7
	3.	Fair Value	9
	4.	Medical Costs Payable	10
	5.	Short-Term Borrowings and Long-Term Debt	11
	6.	Commitments and Contingencies	12
	7.	Segment Financial Information	13
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		14
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		21
Item 4.	Controls and Procedures		22
Part II. Other Information
Item 1.	Legal Proceedings		22
Item 1A.	Risk Factors		22
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		23
Item 6.	Exhibits		24
Signatures			25

PART I

ITEM 1.    FINANCIAL STATEMENTS

UnitedHealth Group

Condensed Consolidated Balance Sheets

(Unaudited)

(in millions, except per share data)	March 31, 2020			December 31, 2019
Assets
Current assets:
Cash and cash equivalents	$	21,569		$	10,985
Short-term investments	2,876			3,260
Accounts receivable, net	14,613			11,822
Other current receivables, net	10,275			9,640
Assets under management	2,866			3,076
Prepaid expenses and other current assets	6,608			3,851
Total current assets	58,807			42,634
Long-term investments	36,578			37,209
Property, equipment and capitalized software, net	8,173			8,704
Goodwill	65,302			65,659
Other intangible assets, net	10,199			10,349
Other assets	10,008			9,334
Total assets	$	189,067		$	173,889
Liabilities, redeemable noncontrolling interests and equity
Current liabilities:
Medical costs payable	$	22,772		$	21,690
Accounts payable and accrued liabilities	22,845			19,005
Short-term borrowings and current maturities of long-term debt	15,828			3,870
Unearned revenues	2,509			2,622
Other current liabilities	14,652			14,595
Total current liabilities	78,606			61,782
Long-term debt, less current maturities	35,779			36,808
Deferred income taxes	3,030			2,993
Other liabilities	10,048			10,144
Total liabilities	127,463			111,727
Commitments and contingencies (Note 6)
Redeemable noncontrolling interests	1,741			1,726
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; 947 and 948 issued and outstanding	10			9
Additional paid-in capital	—			7
Retained earnings	62,327			61,178
Accumulated other comprehensive loss	(5,360		)	(3,578		)
Nonredeemable noncontrolling interests	2,886			2,820
Total equity	59,863			60,436
Total liabilities, redeemable noncontrolling interests and equity	$	189,067		$	173,889

See Notes to the Condensed Consolidated Financial Statements

1

UnitedHealth Group

Condensed Consolidated Statements of Operations

(Unaudited)

	Three Months Ended March 31,
(in millions, except per share data)	2020			2019
Revenues:
Premiums	$	50,640		$	47,513
Products	8,431			8,072
Services	4,985			4,318
Investment and other income	365			405
Total revenues	64,421			60,308
Operating costs:
Medical costs	41,000			38,939
Operating costs	10,015			8,517
Cost of products sold	7,687			7,381
Depreciation and amortization	723			639
Total operating costs	59,425			55,476
Earnings from operations	4,996			4,832
Interest expense	(437		)	(400		)
Earnings before income taxes	4,559			4,432
Provision for income taxes	(1,094		)	(875		)
Net earnings	3,465			3,557
Earnings attributable to noncontrolling interests	(83		)	(90		)
Net earnings attributable to UnitedHealth Group common shareholders	$	3,382		$	3,467
Earnings per share attributable to UnitedHealth Group common shareholders:
Basic	$	3.56		$	3.62
Diluted	$	3.52		$	3.56
Basic weighted-average number of common shares outstanding	949			958
Dilutive effect of common share equivalents	13			17
Diluted weighted-average number of common shares outstanding	962			975
Anti-dilutive shares excluded from the calculation of dilutive effect of common share equivalents	10			8

See Notes to the Condensed Consolidated Financial Statements

2

UnitedHealth Group

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

	Three Months Ended March 31,
(in millions)	2020			2019
Net earnings	$	3,465		$	3,557
Other comprehensive (loss) income:
Gross unrealized (losses) gains on investment securities during the period	(349		)	520
Income tax effect	80			(119		)
Total unrealized (losses) gains, net of tax	(269		)	401
Gross reclassification adjustment for net realized (gains) losses included in net earnings	(18		)	4
Income tax effect	4			(1		)
Total reclassification adjustment, net of tax	(14		)	3
Total foreign currency translation losses	(1,499		)	(2		)
Other comprehensive (loss) income	(1,782		)	402
Comprehensive income	1,683			3,959
Comprehensive income attributable to noncontrolling interests	(83		)	(90		)
Comprehensive income attributable to UnitedHealth Group common shareholders	$	1,600		$	3,869

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 Interests			Total Equity
	Shares		Amount								Net Unrealized Gains (Losses) on Investments			Foreign Currency Translation Losses
Balance at January 1, 2020	948		$	9	$	7		$	61,178		$	589		$	(4,167	)	$	2,820		$	60,436
Adjustment to adopt ASU 2016-13								(28		)										(28		)
Net earnings								3,382									59			3,441
Other comprehensive (loss) income											(283		)	(1,499		)				(1,782		)
Issuances of common stock, and related tax effects	5		1		320															321
Share-based compensation					234															234
Common share repurchases	(6	)	—		(510		)	(1,181		)										(1,691		)
Cash dividends paid on common shares ($1.08 per share)								(1,024		)										(1,024		)
Redeemable noncontrolling interests fair value and other adjustments					(51		)													(51		)
Acquisition and other adjustments of nonredeemable noncontrolling interests																	50			50
Distribution to nonredeemable noncontrolling interests																	(43		)	(43		)
Balance at March 31, 2020	947		$	10	$	—		$	62,327		$	306		$	(5,666	)	$	2,886		$	59,863
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

See Notes to the Condensed Consolidated Financial Statements

4

UnitedHealth Group

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Three Months Ended March 31,
(in millions)	2020			2019
Operating activities
Net earnings	$	3,465		$	3,557
Noncash items:
Depreciation and amortization	723			639
Deferred income taxes	202			134
Share-based compensation	231			243
Other, net	45			42
Net change in other operating items, net of effects from acquisitions and changes in AARP balances:
Accounts receivable	(2,652		)	(1,421		)
Other assets	(4,249		)	(1,495		)
Medical costs payable	1,120			1,125
Accounts payable and other liabilities	4,137			318
Unearned revenues	(79		)	92
Cash flows from operating activities	2,943			3,234
Investing activities
Purchases of investments	(3,866		)	(3,540		)
Sales of investments	2,170			1,510
Maturities of investments	1,726			1,711
Cash paid for acquisitions, net of cash assumed	(929		)	(689		)
Purchases of property, equipment and capitalized software	(469		)	(562		)
Other, net	(165		)	154
Cash flows used for investing activities	(1,533		)	(1,416		)
Financing activities
Common share repurchases	(1,691		)	(3,002		)
Cash dividends paid	(1,024		)	(860		)
Proceeds from common stock issuances	557			323
Repayments of long-term debt	—			(1,250		)
Proceeds from short-term borrowings, net	10,797			3,101
Customer funds administered	1,062			1,784
Other, net	(398		)	(368		)
Cash flows from (used for) financing activities	9,303			(272		)
Effect of exchange rate changes on cash and cash equivalents	(129		)	(5		)
Increase in cash and cash equivalents	10,584			1,541
Cash and cash equivalents, beginning of period	10,985			10,866
Cash and cash equivalents, end of period	$	21,569		$	12,407

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 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, 2019 as filed with the SEC (2019 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.

Revenue from Products

For the quarter ended March 31, 2020, the Company recognized revenue and cost of products sold for retail pharmacy co-payments related to its OptumRx business. Revenue recognized in prior periods related to retail pharmacy transactions excludes the member’s applicable co-payment. There was no impact on earnings from operations, net earnings, earnings per share or total equity.

Recently Adopted Accounting Standards

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) No. 2016-13, “Financial Instruments - Credit Losses (Topic 326)” (ASU 2016-13). ASU 2016-13 requires the use of the current expected credit loss impairment model to develop an estimate of expected credit losses for certain financial assets. ASU 2016-13 also requires expected credit losses on available-for-sale debt securities to be recognized through an allowance for credit losses and revises certain disclosure requirements. The Company adopted ASU 2016-13 on January 1, 2020 using a cumulative effect upon adoption approach. The adoption of ASU 2016-13 was immaterial to the Company’s consolidated balance sheet, results of operations, equity and cash flows.

Under the current expected credit loss impairment model, the Company evaluates an available-for-sale debt security for credit-related impairment by considering the present value of expected cash flows relative to a security’s amortized cost, the extent to which fair value is less than amortized cost, the financial condition and near-term prospects of the issuer and specific events or circumstances that may influence the operations of the issuer. Credit-related impairments are recorded as an allowance, with an offset to investment and other income. Non-credit related impairments are recorded through other comprehensive income. If the Company intends to sell an impaired security, or will likely be required to sell a security before recovery of the entire amortized cost, the entire impairment is included in net earnings.

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, 2020
Debt securities - available-for-sale:
U.S. government and agency obligations	$	3,146	$	183	$	(1	)	$	3,328
State and municipal obligations	5,724		214		(20		)	5,918
Corporate obligations	17,923		182		(411		)	17,694
U.S. agency mortgage-backed securities	6,508		260		—			6,768
Non-U.S. agency mortgage-backed securities	1,932		28		(36		)	1,924
Total debt securities - available-for-sale	35,233		867		(468		)	35,632
Debt securities - held-to-maturity:
U.S. government and agency obligations	410		9		—			419
State and municipal obligations	31		2		—			33
Corporate obligations	284		—		(1		)	283
Total debt securities - held-to-maturity	725		11		(1		)	735
Total debt securities	$	35,958	$	878	$	(469	)	$	36,367
December 31, 2019
Debt securities - available-for-sale:
U.S. government and agency obligations	$	3,502	$	55	$	(4	)	$	3,553
State and municipal obligations	5,680		251		(5		)	5,926
Corporate obligations	17,910		343		(11		)	18,242
U.S. agency mortgage-backed securities	6,425		109		(6		)	6,528
Non-U.S. agency mortgage-backed securities	1,811		37		(3		)	1,845
Total debt securities - available-for-sale	35,328		795		(29		)	36,094
Debt securities - held-to-maturity:
U.S. government and agency obligations	402		2		—			404
State and municipal obligations	32		2		—			34
Corporate obligations	538		—		(1		)	537
Total debt securities - held-to-maturity	972		4		(1		)	975
Total debt securities	$	36,300	$	799	$	(30	)	$	37,069

The Company held $1.7 billion and $2.0 billion of equity securities as of March 31, 2020 and December 31, 2019, respectively. The Company’s investments in equity securities primarily consist of employee savings plan related investments and shares of Brazilian real denominated fixed-income funds with readily determinable fair values. Additionally, the Company’s investments included $1.4 billion of equity method investments in operating businesses in the health care sector as of March 31, 2020 and December 31, 2019. The allowance for credit losses on held-to-maturity securities at March 31, 2020 was not material.

7

The amortized cost and fair value of debt securities as of March 31, 2020, 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	$	3,010	$	3,011	$	319	$	320
Due after one year through five years	11,565		11,604		352		359
Due after five years through ten years	8,563		8,669		28		28
Due after ten years	3,655		3,656		26		28
U.S. agency mortgage-backed securities	6,508		6,768		—		—
Non-U.S. agency mortgage-backed securities	1,932		1,924		—		—
Total debt securities	$	35,233	$	35,632	$	725	$	735

The fair value of available-for-sale debt securities 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
March 31, 2020
Debt securities - available-for-sale:
U.S. government and agency obligations	$	56	$	(1	)	$	—	$	—		$	56	$	(1	)
State and municipal obligations	810		(20		)	—		—			810		(20		)
Corporate obligations	9,294		(382		)	391		(29		)	9,685		(411		)
Non-U.S. agency mortgage-backed securities	841		(33		)	30		(3		)	871		(36		)
Total debt securities - available-for-sale	$	11,001	$	(436	)	$	421	$	(32	)	$	11,422	$	(468	)
December 31, 2019
Debt securities - available-for-sale:
U.S. government and agency obligations	$	616	$	(4	)	$	—	$	—		$	616	$	(4	)
State and municipal obligations	440		(5		)	—		—			440		(5		)
Corporate obligations	1,903		(7		)	740		(4		)	2,643		(11		)
U.S. agency mortgage-backed securities	657		(3		)	333		(3		)	990		(6		)
Non-U.S. agency mortgage-backed securities	406		(3		)	—		—			406		(3		)
Total debt securities - available-for-sale	$	4,022	$	(22	)	$	1,073	$	(7	)	$	5,095	$	(29	)

The Company’s unrealized losses from debt securities as of March 31, 2020 were generated from approximately 10,000 positions out of a total of 32,000 positions. The Company believes that it will collect the timely 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 that impacted our assessment on collectability of principal and interest. At each reporting period, the Company evaluates available-for-sale debt securities for any credit-related impairment when the fair value of the investment is less than its amortized cost. The Company evaluated the expected cash flows, the underlying credit quality and credit ratings of the issuers, and the potential economic impacts of COVID-19 on the issuers, noting no significant credit deterioration since purchase. As of March 31, 2020, the Company did not have the intent to sell any of the available-for-sale debt securities in an unrealized loss position. Therefore, the Company believes these losses to be temporary. The allowance for credit losses on available-for-sale debt securities at March 31, 2020 was not material.

8

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 and Supplementary Data” in the 2019 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, 2020
Cash and cash equivalents	$	21,450		$	119		$	—		$	21,569
Debt securities - available-for-sale:
U.S. government and agency obligations	3,143			185			—			3,328
State and municipal obligations	—			5,918			—			5,918
Corporate obligations	59			17,385			250			17,694
U.S. agency mortgage-backed securities	—			6,768			—			6,768
Non-U.S. agency mortgage-backed securities	—			1,924			—			1,924
Total debt securities - available-for-sale	3,202			32,180			250			35,632
Equity securities	1,394			19			—			1,413
Assets under management	937			1,890			39			2,866
Total assets at fair value	$	26,983		$	34,208		$	289		$	61,480
Percentage of total assets at fair value	44		%	56		%	—		%	100		%
December 31, 2019
Cash and cash equivalents	$	10,837		$	148		$	—		$	10,985
Debt securities - available-for-sale:
U.S. government and agency obligations	3,369			184			—			3,553
State and municipal obligations	—			5,926			—			5,926
Corporate obligations	70			17,923			249			18,242
U.S. agency mortgage-backed securities	—			6,528			—			6,528
Non-U.S. agency mortgage-backed securities	—			1,845			—			1,845
Total debt securities - available-for-sale	3,439			32,406			249			36,094
Equity securities	1,734			22			—			1,756
Assets under management	1,123			1,918			35			3,076
Total assets at fair value	$	17,133		$	34,494		$	284		$	51,911
Percentage of total assets at fair value	33		%	66		%	1		%	100		%

There were no transfers in or out of Level 3 financial assets or liabilities during the three months ended March 31, 2020 or 2019.

9

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, 2020