UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form 10-K
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| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the fiscal year ended December 31, 2019
2021
| 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
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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) | ||||||||||
(Registrant’s telephone number, including area code)
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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 | ||||||||||||
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
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 and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post 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”company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one)
| Large | ☒ | 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of voting stock held by non-affiliates of the registrant as of June 28, 201930, 2021 was $229,868,010,278$376,162,785,060 (based on the last reported sale price of $244.01$400.44 per share on June 28, 2019,30, 2021 as reported on the on the New York Stock Exchange), excluding only shares of voting stock held beneficially by directors, executive officers and subsidiaries of the registrant.
As of January 31, 2020,2022, there were 948,573,372940,899,146 shares of the registrant’s Common Stock, $.01 par value per share, issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III of this report, to the extent not set forth herein, is incorporated by reference from the registrant’s definitive proxy statement relating to its 20202022 Annual Meeting of Shareholders. Such proxy statement will be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year to which this report relates.
UNITEDHEALTH GROUP
Table of Contents
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| Item 1. | ||||||||||
| Item 1A. | ||||||||||
| Item 1B. | ||||||||||
| Item 2. | ||||||||||
| Item 3. | ||||||||||
| Item 4. | ||||||||||
| Part II | ||||||||||
| Item 5. | ||||||||||
| Item 6. | ||||||||||
| Item 7. | ||||||||||
| Item 7A. | ||||||||||
| Item 8. | ||||||||||
| Item 9. | ||||||||||
| Item 9A. | ||||||||||
| Item 9B. | ||||||||||
| Part III | ||||||||||
| Item 10. | ||||||||||
| Item 11. | ||||||||||
| Item 12. | ||||||||||
| Item 13. | ||||||||||
| Item 14. | ||||||||||
| Part IV | ||||||||||
| Item 15. | ||||||||||
| Item 16. | ||||||||||
PART I
ITEM 1. BUSINESS |
Overview
Our two distinct, yet complementary business platforms — Optum and UnitedHealthcare — are working to help build a modern, high-performing health system through improved access, affordability, outcomes and experiences for the individuals and organizations we are privileged to serve.
The ability to analyze complex data and apply deep health care expertise and insights allows us to serve people, care providers, businesses, communities and governments with more innovative products and complete, end-to-end offerings for many of the biggest challenges facing health care today.
Optum combines clinical expertise, technology and data to empower people, partners and providers with the guidance and tools they need to achieve better health. Optum serves the broad health care marketplace, including payers, care providers, employers, governments, life sciences companies and consumers, through its Optum Health, Optum Insight and Optum Rx businesses. These businesses we leverage core competenciesimprove overall health system performance by optimizing care quality and delivery, reducing costs and improving consumer and provider experience, leveraging distinctive capabilities in data and health information, advanced technology, and clinical expertise, focused on improving health outcomes, loweringanalytics, pharmacy care services, health care costsoperations, population health and creatinghealth care delivery.
UnitedHealthcare offers a better experience for patients, their caregivers and physicians. These core competencies are deployed within our two distinct, but strategically aligned, business platforms:full range of health benefits, operating under UnitedHealthcare and health services operating under Optum.
•Optum Health;
•Optum Insight;
•Optum Rx; and
•UnitedHealthcare, which includes UnitedHealthcare Employer & Individual, UnitedHealthcare Medicare & Retirement, UnitedHealthcare Community & State and UnitedHealthcare Global;Global.
•Those who provide care: pharmacies, hospitals, physicians and other health care facilities seeking to improve the health system and reduce the administrative burden allowing for providers to focus time on patients leading to the best possible patient care and experiences while achieving better health outcomes at lower costs. Improved health outcomes are achieved by leveraging our clinical expertise, data and analytics to better predict, prevent and intercept consumers’ health conditions and ensure they receive the best evidence-based care.
•Those who pay for care: employers; health plans; and state, federal and municipal agencies devoted to ensuring the populations they sponsor receive high-quality care, administered and delivered efficiently and effectively, all while driving health equity so that every individual, family and community has access to the care they need.
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•Those who innovate for care: global life sciences organizations dedicated to developing more effective approaches to care, enabling technologies and medicines to improve care delivery and health outcomes.
Optum operates three business segments leveraging distinctive capabilities in health care delivery, population health, health care operations, data and analytics and pharmacy care services:
•Optum Health delivers care, care management, wellness and consumer engagement, and health financial services;
•Optum Insight offers data, analytics, research, consulting, technology and managed services solutions; and
•Optum Rx provides a diversified array of pharmacy care services.
Optum Health
Optum Health provides health and wellness care, addressing the physical, emotional and health-related financial needs of 100 million consumers, through a national health care delivery platform which engages people in the most appropriate care settings, including clinical sites, in-home and virtual. Optum Health delivers local primary, in-home, specialty, surgical and urgent care; helps patients and providers navigate and address complex, chronic and behavioral health needs; offers post-acute care planning services; and serves consumers and care providers through advanced, on-demand digital health technologies, such as telehealth and remote patient monitoring, and innovative health care financial services. Optum Health works directly with consumers, care delivery systems, providers, employers, payers, and government entities to provide high quality accessible and equitable care with improved outcomes and reduced total cost of care.
Optum Health enables care providers to transition from traditional fee-for-service payment models to performance-based delivery and payment models designed to improve patient health outcomes and experience through value-based care. Through strategic partnerships, alliances and ownership arrangements, Optum Health helps care providers adopt new approaches and technologies improving the coordination of care across providers to serve patients more comprehensively.
Optum Health offers its products on a risk basis, assuming responsibility for health care costs in exchange for a monthly premium, on an administrative fee basis, managing or administering products and services in exchange for a monthly fee, and on a fee-for-service basis, delivering medical services to patients in exchange for a contracted fee.
Optum Financial, including Optum Bank, serves consumers through 8 million health savings and other accounts and has more than $19 billion in assets under management as of December 31, 2021. During 2021, Optum Financial processed $264 billion in digital medical payments to physicians and other health care providers. Organizations across the health system rely on Optum Financial to manage and improve payment flows through its highly automated, scalable, digital payment systems. For financial services offerings, Optum Health charges fees and earns investment income on managed funds.
Optum Health sells its products primarily through its direct sales force, strategic collaborations and external producers in three key areas: employers, including large, mid-sized and small employers; payers including health plans, third-party administrators (TPAs), underwriter/stop-loss carriers and individual product intermediaries; and government entities including the U.S. Departments of Health and Human Services (HHS), Veterans Affairs, Defense, and other federal, state and local health care agencies.
Optum Insight
Optum Insight connects the health care system with services, analytics and platforms that make clinical, administrative and financial processes easier for all participants in the health care system. Hospital systems, physicians, health plans, state governments, life sciences companies and other organizations comprising the health care industry depend on Optum Insight to help them improve performance, reduce costs, advance quality, meet compliance mandates and modernize their core operating systems to meet the changing needs of the health system. Optum Insight serves the needs of health systems (such as physicians and hospital systems), health plans, state governments and life sciences companies.
Health Systems. Serves hospitals, physicians and other care providers to improve revenue and growth, better coordinate care and reduce administrative costs through technology and services to improve population health management, patient engagement, revenue cycle management and strategic growth plans.
Health Plans. Serves health plansby improving financial performance and enhancing outcomes through proactive analytics, a comprehensive payment integrity portfolio and technology-enabled and staff-supported risk and quality services. Optum Insight helps health plans navigate a dynamic environment defined by shifts in employer vs. government-sponsored coverage, the demand for affordable benefit plans and the need to leverage new technology to reduce complexity.
State Governments. Provides advanced technology and analytics services to modernize the administration of critical safety net programs, such as Medicaid, while improving cost predictability.
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Life Sciences Companies. Combines data and analytics expertise with comprehensive technologies and health care knowledge to help life sciences companies, including those in pharmaceuticals and medical technology, adopt a more comprehensive approach to advancing therapeutic discoveries and improving clinical outcomes.
Many of Optum Insight’s software and information products and professional services are delivered over extended periods, often several years. Optum Insight maintains an order backlog to track unearned revenues under these long-term arrangements. The backlog consists of estimated revenue from signed contracts, other legally binding agreements and anticipated contract renewals based on historical experience with Optum Insight’s customers. Optum Insight’s aggregate backlog as of December 31, 2021 was approximately $22.4 billion, of which $12.1 billion is expected to be realized within the next 12 months. The aggregate backlog includes $8.9 billion related to affiliated agreements. Optum Insight’s aggregate backlog as of December 31, 2020, was $20.2 billion.
Optum Insight’s products and services are sold primarily through a direct sales force. Optum Insight’s products are also supported and distributed through an array of alliances and business partnerships with other technology vendors, who integrate and interface Optum Insight’s products with their applications.
Optum Rx
Optum Rx provides a full spectrum of pharmacy care services through its network of more than 67,000 retail pharmacies, through home delivery, specialty and community health pharmacies and through the provision of in-home and community-based infusion services. It also offers a direct-to-consumer business.
Optum Rx manages a broad range of prescription drug spend, including widely available retail drugs as well as limited and ultra-limited distribution drugs in oncology, HIV, pain management and ophthalmology. Optum Rx serves the growing pharmacy needs of people with behavioral health and substance use disorders. In 2021, Optum Rx managed $112 billion in pharmaceutical spending, including $45 billion in specialty pharmaceutical spending.
Optum Rx serves health benefits providers, large national employer plans, unions and trusts, purchasing coalitions and government entities. Optum Rx’s sales distribution system consists primarily of health insurance brokers and other health care consultants and direct sales.
Optum Rx offers multiple clinical programs, digital tools and services to help clients manage overall pharmacy and health care costs in a clinically appropriate manner which are designed to promote better health outcomes, and to help target inappropriate utilization and non-adherence to medication. Optum Rx provides various utilization management, medication management, quality assurance, adherence and counseling programs to complement each client’s plan design and clinical strategies. Optum Rx offers a distinctive approach to integrating the management of medical and pharmaceutical care by using data and advanced analytics to help improve comprehensive decision-making, elevate quality, close gaps in care and reduce costs for customers and people served.
UnitedHealthcare
Through its health benefits offerings, UnitedHealthcare is enabling better health, helping to control rising health care costs and creating a better health care experience for its customers.customers and helping to control rising health care costs. UnitedHealthcare’s market position is built on:
•strong local-market relationships;
•the breadth of product offerings, based upon extensive expertise in distinct market segments in health care;
•service and advanced technology, including digital consumer engagement;
•competitive medical and operating cost positions;
•effective clinical engagement; and
•innovation for customers and consumers.
UnitedHealthcare utilizesuses Optum’s capabilities to help coordinate and provide patient care, improve affordability of medical care, analyze cost trends, manage pharmacy benefits,care services, work with care providers more effectively and create a simpler and more satisfying consumer experience.and physician experience.
In the United States, UnitedHealthcare arranges for discounted access to care through networks thatwhich, as of December 31, 2021, include 1.41.5 million physicians and other health care professionals and more than 6,5007,000 hospitals and other facilities.
UnitedHealthcare is subject to extensive government regulation. See further discussion of our regulatory environment below under “Government Regulation” and in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
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UnitedHealthcare Employer & Individual
UnitedHealthcare Employer & Individual offers a comprehensive array of consumer-oriented health benefit plans and services nationwide for large national employers, public sector employers, mid-sized employers, small businesses, and individual consumers. As of December 31, 2021, UnitedHealthcare Employer & Individual provides access to medical services for 27.826.6 million people on behalf of our customers and alliance partners, including employer customers, serving people across all 50 states, the District of Columbia and most U.S. territories. Products are offered through affiliates that are licensed as insurance companies, health maintenance organizations (HMOs), or third-party administrators (TPAs).TPAs. Large employer groups typically use self-funded arrangements where UnitedHealthcare Employer & Individual earns a service fee. Smaller employer groups and individuals are more likely to purchase risk-based products because they are less willing or unable to bear a greater potential liability for health care expenditures.
Through its risk-based product offerings, UnitedHealthcare Employer & Individual assumes the risk of both medical and administrative costs for its customers in return for a monthly premium which is typically a fixed rate per individual served for a one-year period. When providing administrative and other management services to customers thatwho elect to self-fund the health care costs of their employees and employees’ dependents, UnitedHealthcare Employer & Individual receives a fixed monthly service fee per individual served. These customers retain the risk of financing medical benefits for their employees and employees’ dependents, while UnitedHealthcare Employer & Individual provides services such as coordination and facilitation of medical and related services to customers, consumers and health care professionals, administration of transaction processing and access to a contracted network of physicians, hospitals and other health care professionals, including dental and vision.vision professionals.
The consolidated purchasing capacity represented by the individuals served by UnitedHealth Group makes it possible for UnitedHealthcare Employer & Individual to contract for cost-effective access to a large number of conveniently located care professionals and facilities. UnitedHealthcare Employer & Individual has relationships with network care providers thatwho integrate data and analytics, implement value-based paymentspayment arrangements and care management programs andthat enable us to jointly better manage health care and improve quality across populations. UnitedHealthcare Employer & Individual’s comprehensive and integrated pharmacy care services promote lower costs by using formulary programs to produce better unit costs, encouraging consumers to use drugs offering improved value and outcomes, helping consumers take actions to improve their health and supporting the appropriate use of drugs based on clinical evidence through physician and consumer education programs.
UnitedHealthcare Employer & Individual typically distributes its products through a variety of channels, dependent upon the specific product, including: through consultants or direct sales, in the larger employer and public sector segments. In the smaller group segment of the commercial marketplace, UnitedHealthcare Employer & Individual’s distribution system consists primarily of direct sales and sales through collaboration with brokers and agents. UnitedHealthcare Employer & Individual also distributes productsagents, through wholesale agents or agencies thatwho contract with health insurance carriers to distribute individual or group benefits, and provide other related services to their customers. In addition, UnitedHealthcare Employer & Individual distributes its products throughprofessional employer organizations and associations and through both multi-carrier and its own proprietary private exchange marketplaces.
UnitedHealthcare Employer & Individual’s diverse product portfolio offers employers a continuum of benefit designs, price points and approaches to consumer engagement which provides the flexibility to meet a full spectrum of their coverage needs.
UnitedHealthcare Employer & Individual’s major product families include:
Each medical plan has a core set of clinical programs embedded in the offering, with additional services available depending on offering type (risk-based or self-funded), line of business (e.g.,(such as small business, key accounts, public sector, national accounts or individual consumers) and clinical need. UnitedHealthcare Employer & Individual’s clinical programs include:
wellness programs;
programs, decision support;
support, utilization management;
management, case and disease management;
management, complex condition management;
management, on-site programs, including biometrics and flu shots;
incentives to reinforce positive behavior change;
change, mental health/substance use disorder management;management and
employee assistance programs.
UnitedHealthcare Medicare & Retirement
UnitedHealthcare Medicare & Retirement provides health and well-being services to individuals age 50 and older, addressing their unique needs for preventive and acute health care services, as well as services dealing with chronic disease and other specialized issues common among older people. UnitedHealthcare Medicare & Retirement is fully dedicated to serving this growing senior market segment, providing products and services in all 50 states, the District of Columbia and most U.S. territories. UnitedHealthcare Medicare & Retirement has distinct benefit designs, pricing, underwriting, clinical program management and marketing capabilities dedicated to health products and services in this market.
UnitedHealthcare Medicare & Retirement offers a selection of products that allowallowing people choice in obtaining the health coverage and services they need as their circumstances change. UnitedHealthcare Medicare & Retirement is positioned to serve seniors who find that affordable, network-based care provided through Medicare Advantage plans meetsto meet their unique health care needs. For those who prefer traditional fee-for-service Medicare, UnitedHealthcare Medicare & Retirement offers both Medicare
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Supplement and Medicare Prescription Drug Benefit (Medicare Part D) programs that supplementto expand their government-sponsored Medicare by providing additional benefits and coverage options. UnitedHealthcare Medicare & Retirement servicesofferings include care management and health system navigator services, clinical management programs, nurse health line services, 24-hour access to health care information, access to discounted health services from a network of care providers and administrative services.
UnitedHealthcare Medicare & Retirement has extensive distribution capabilities and experience, including direct marketing to consumers on behalf of its key clients, including AARP, the nation’s largest membership organization dedicated to the needs of people age 50 and over, and state and U.S. government agencies. Products are also offered through agents, employer groups and digital channels.
UnitedHealthcare Medicare & Retirement’s major product categories include:
Medicare Advantage. UnitedHealthcare Medicare & Retirement provides health care coverage for seniors and other eligible Medicare beneficiaries primarily through the Medicare Advantage program administered by the Centers for Medicare & Medicaid Services (CMS), including Medicare Advantage HMO plans, preferred provider organizationPreferred Provider Organization (PPO) plans, Point-of-Service plans, Private-Fee-for-Service plans and Special Needs Plans (SNPs). Under the Medicare Advantage program, UnitedHealthcare Medicare & Retirement provides health insurance coverage in exchange for a fixed monthly premium per member from CMS plus, in some cases, monthly consumer premiums. Premium amounts received from CMS vary based on the geographic areas in which individuals reside; demographic factors such as age, gender and institutionalized status; and the health status of the individual. Medicare Advantage plans are designed to compete at the local level, taking into account consumer and care provider preferences, competitor offerings, our quality and cost initiatives, our historical financial results and the long-term payment rate outlook for each geographic area. UnitedHealthcare Medicare & Retirement served 5.36.5 million people through its Medicare Advantage products as of December 31, 2019.2021.
opportunities and close gaps in care. Our Navigate4Me program provides a single point of contact and a direct line of support for individuals as they go through their health care experiences. For high-risk patients in certain care settings and programs, UnitedHealthcare Medicare & Retirement uses proprietary, automated medical record software and digital therapeutics for remote monitoring that enablesenabling clinical care teams to capture and track patient data and clinical encounters, creating a comprehensive set of care information that bridgesbridging capabilities across home, hospital and nursing home care settings. Proprietary predictive modeling tools help identify people at high risk and enable care managers to create individualized care plans thatto help them obtain the right care, in the right place, at the right time.
Medicare Part D. UnitedHealthcare Medicare & Retirement provides Medicare Part D benefits to beneficiaries throughout the United States and its territories through its Medicare Advantage and stand-alone Medicare Part D plans. The stand-alone Medicare Part D plans address a large spectrum of people’s needs and preferences for their prescription drug coverage, including low-cost prescription options. Each of the plans includes the majority of the drugs covered by Medicare and provides varying levels of coverage to meet the diverse needs of Medicare beneficiaries. As of December 31, 2019,2021, UnitedHealthcare enrolled 9.09.5 million people in the Medicare Part D programs, including 4.43.7 million individuals in the stand-alone Medicare Part D plans, with the remainder in Medicare Advantage plans incorporating Medicare Part D coverage.
Medicare Supplement. UnitedHealthcare Medicare & Retirement is currently serving 4.84.4 million seniors nationwide through various Medicare Supplement products in association with AARP. UnitedHealthcare Medicare & Retirement offers a full range of supplemental products at a diversity ofdiverse price points. These products cover various levels of coinsurance and deductible gaps thatto which seniors are exposed to in the traditional Medicare program.
Premium revenues from CMS represented 33%36% of UnitedHealth Group’s total consolidated revenues for the year ended December 31, 2019,2021, most of which were generated by UnitedHealthcare Medicare & Retirement.
UnitedHealthcare Community & State
UnitedHealthcare Community & State is dedicated to serving state programs that carecaring for the economically disadvantaged, the medically underserved and those without the benefit of employer-funded health care coverage, typically in exchange for a monthly premium per member from the state program. UnitedHealthcare Community & State’s primary customers oversee Medicaid plans, including Temporary Assistance to Needy Families (TANF),; Children’s Health Insurance Programs (CHIP),; Dual SNPs (DSNPs),; Long-Term Services and Supports (LTSS),; Aged, Blind and DisabledDisabled; and other federal, state and community health care programs. As of December 31, 2019,2021, UnitedHealthcare Community & State participated in programs in 3132 states and the District of Columbia, and served 5.97.7 million people; including nearly 11.4 million people through Medicaid expansion programs in 1518 states under the Patient Protection and Affordable Care Act (ACA).
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States using managed care services for Medicaid beneficiaries select health plans by using a formal bid process or by awarding individual contracts. A number of factors are considered by UnitedHealthcare Community & State when choosing programs for participation, including the state’s commitment and consistency of support for its Medicaid managed care program in terms of service, innovation and funding; the eligible population base, both immediate and long term; and the structure of the projected program. UnitedHealthcare Community & State works with its state customers to advocate for actuarially sound rates, commensurate with medical cost trends.
These health plans and care programs are designed to address the complex needs of the populations they serve, including the chronically ill, people with disabilities and people with a higher risk of medical, behavioral and social conditions. UnitedHealthcare Community & State administers benefits for the unique needs of children, pregnant women, adults, seniors and those who are institutionalized or are nursing home eligible. These individuals often live in areas that are medically underserved areas and are less likely to have a consistent relationship with the medical community or a care provider. They also often face significant social and economic challenges.
UnitedHealthcare Community & State leverages the national capabilities of UnitedHealth Group locally, supporting effective care management, strong regulatory partnerships, greater administrative efficiency, improved clinical outcomes and the ability to adapt to a changing national and local market environment. UnitedHealthcare Community & State coordinates resources among family, physicians, other health care providers, and government and community-based agencies and organizations to facilitate continuous and effective care and often addresses other social determinants that can affectaffecting people’s health status and health system usage.
UnitedHealthcare Community & State continues to evolve its clinical model to enhance quality and the clinical experience for the people it serves. The model enables UnitedHealthcare Community & State to quickly identify the people who could benefit most from more highly coordinated care; typically, the 5% who are most at risk drive over 50% of states’ medical costs.care.
UnitedHealthcare Global
UnitedHealthcare Global serves nearly 87.8 million people with medical and dental benefits, typically in exchange for a monthly premium per member, residing principally in Brazil, Chile, Colombia and Peru, but also in more than 140150 other countries. UnitedHealthcare Global serves multinational and local businesses, governments, insurers and individuals and their families through health insurance plans for local populations, care delivery services, benefit plans and risk and assistance solutions. UnitedHealthcare Global offers health care delivery in theseour principal markets through over 50 hospitals, and more than 300 hospitals,200 outpatient and ambulatory clinics and surgery centers to UnitedHealthcare Global members and consumers served by the external payer market.
In Brazil, Amil provides health benefits to 3.63.4 million people and dental benefits to 2.2nearly 2.3 million people. Empresas Banmédica provides health benefits and health care services to approximately 2.1 million people in Chile, Colombia and Peru. Lusíadas Saúde provides clinical services to people in Portugal through an owned network of hospitals and outpatient clinics.
GOVERNMENT REGULATION
Our businesses are subject to comprehensive U.S. federal and state and international laws and regulations. We are regulated by federal, state and international regulatory agencies thatwhich generally have discretion to issue regulations and interpret and enforce laws and rules. The regulations can vary significantly from jurisdiction to jurisdictionamong jurisdictions and the interpretation of existing laws and rules also may change periodically.them are subject to frequent change. Domestic U.S. and international governments continue to enactconsider and considerenact various legislative and regulatory proposals thatwhich could materially impact certain aspects of the health care system. New laws, regulations and rules, or changes in the interpretation of existing laws, regulations and rules, including as a result of changes in the political climate, could adversely affect our business.businesses.
If we fail to comply with, are alleged to have failed to comply with, or fail to respond quickly and appropriately to changes in, applicable laws, regulations and rules, our business, results of operations, financial position and cash flows could be materially and adversely affected. See Part I, Item 1A, “Risk Factors” for a discussion of the risks related to our compliance with federal, state and international laws and regulations.
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U.S. Federal Laws and Regulation
We are subject to various levels of U.S. federal regulation. For example, when we contract with the federal government, we are subject to federal laws and regulations relating to the award, administration and performance of U.S. government contracts.
CMS regulates our UnitedHealthcare businesses and certain aspects of our Optum businesses. Payments by CMS to our businesses are subject to regulations, including those governing fee-for-service and the submission of information relating to the health status of enrollees for purposes of determining the amounts of certain payments to us. CMS also has the right to audit our performance to determine our compliance with CMS contracts and regulations and the quality of care we provide to Medicare beneficiaries. Our commercial business is further subject to CMS audits related to medical loss ratios (MLRs) and risk adjustment data.
UnitedHealthcare Community & State has Medicaid and CHIP contracts that are subject to federal regulations regarding services to be provided to Medicaid enrollees, payment for those services and other aspects of these programs. There are many regulations affecting Medicare and Medicaid compliance, and the regulatory environment with respect to these programs is complex. In addition, our business isbusinesses are subject to laws and regulations relating to consumer protection, anti-fraud and abuse, anti-kickbacks, false claims, prohibited referrals, inappropriately reducinginappropriate reduction or limitinglimitation of health care services, anti-money laundering, securities and antitrust compliance.
Privacy, Security and Data Standards Regulation.The Certain of our operations are subject to regulation under the administrative simplification provisions of the Health Insurance Portability and Accountability Act of 1996, as amended (HIPAA), which apply to both the group and individual health insurance markets, including self-funded employee benefit plans. Federal regulations related to HIPAA contain minimum standards for electronic transactions and code sets and for the privacy and security of protected health information.
The use and disclosure of individually identifiable health data by our businesses isare also regulated in some instances by other federal laws, including the Gramm-Leach-Bliley Act (GLBA) or state statutes implementing GLBA. These federal laws and state statutes generally require insurers to provide customers with notice regarding how their non-public personal health and financial information is used and the opportunity to “opt out” of certain disclosures before the insurer shares such information with a third party, and generally prescribe safeguards for the protection of personal information. Neither the GLBA nor HIPAA privacy regulations preempt more stringent state laws and regulations, thatwhich may apply to us, as discussed below. Federal consumer protection laws may also apply in some instances to privacy and security practices related to personally identifiable information.
ERISA. The Employee Retirement Income Security Act of 1974, as amended (ERISA), regulates how our services are provided to or through certain types of employer-sponsored health benefit plans. ERISA is a set of laws and regulations that is subject to periodic interpretation by the U.S. Department of Labor (DOL) as well as the federal courts. ERISA sets forth standards on how our business units may do business with employers who sponsor employee health benefit plans, particularly those thatwho maintain self-funded plans. Regulations established by the DOL subject us to additional requirements for administration of benefits, claims payment and member appeals under health care plans governed by ERISA.
State Laws and Regulation
Health Care Regulation. Our insurance and HMO subsidiaries must be licensed by the jurisdictions in which they conduct business. All of the states in which our subsidiaries offer insurance and HMO products regulate those products and operations. The states require periodic financial reports and establish minimum capital or restricted cash reserve requirements. The National Association of Insurance Commissioners (NAIC) has adopted model regulations, that, where adopted by states,which require expanded governance practices and risk and solvency assessment reporting. Most states have adopted these or similar measures to expand the scope of regulations relating to corporate governance and internal control activities of HMOs and insurance companies. We are required to maintain a risk management framework and file a confidential self-assessment report with state insurance regulators. We file reports annually with Connecticut, our lead regulator, and with New York, as required by thatthe state’s regulation. Certain states have also adopted their own regulations for minimum MLRs with which health plans must comply. In addition, a number of state legislatures have enacted or are contemplating significant reforms of their health insurance markets, either independent of or to comply with or be eligible for grants or other incentives in connection with the ACA, which may affect our operations and our financial results.
structure, ownership, financial condition, certain affiliated transactions and general business operations. Most state insurance
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holding company laws and regulations require prior regulatory approval of acquisitions and material affiliated transfers of assets, as well as transactions between the regulated companies and their parent holding companies or affiliates. These laws may restrict the ability of our regulated subsidiaries to pay dividends to our holding companies.
Some of our business activity is subject to other health care-related regulations and requirements, including PPO, Managed Care Organization (MCO), utilization review (UR), TPA, pharmacy care services, durable medical equipment or care provider-related regulations and licensure requirements. These regulations differ from state to state and may contain network, contracting, product and rate, licensing and financial and reporting requirements. There are laws and regulations thatwhich set specific standards for delivery of services, appeals, grievances and payment of claims, adequacy of health care professional networks, fraud prevention, protection of consumer health information, pricing and underwriting practices and covered benefits and services. State health care anti-fraud and abuse prohibitions encompass a wide range of activities, including kickbacks for referral of members, billing for unnecessary medical services and improper marketing. Certain of our businesses are subject to state general agent, broker and sales distribution laws and regulations. UnitedHealthcare Community & State and certain of our Optum businesses are subject to regulation by state Medicaid agencies thatwhich oversee the provision of benefits to our Medicaid and CHIP beneficiaries and to our beneficiaries dually eligible (forfor Medicare and Medicaid) beneficiaries.Medicaid. We also contract with state governmental entities and are subject to state laws and regulations relating to the award, administration and performance of state government contracts.
State Privacy and Security Regulations. A number of states have adopted laws and regulations thatwhich may affect our privacy and security practices, such as state laws that governgoverning the use, disclosure and protection of social security numbers and protected health information or thatwhich are designed to implement GLBA or protect credit card account data. State and local authorities increasingly focus on the importance of protecting individuals from identity theft, with a significant number of states enacting laws requiring businesses to meet minimum cyber-security standards and notify individuals of security breaches involving personal information. State consumer protection laws may also apply to privacy and security practices related to personally identifiable information, including information related to consumers and care providers. Different approaches to state privacy and insurance regulation and varying enforcement philosophies in the different states may materially and adversely affect our ability to standardize our products and services across state lines. See Part I, Item 1A, “Risk Factors” for a discussion of the risks related to compliance with state privacy and security regulations.
Corporate Practice of Medicine and Fee-Splitting Laws.Certain of our businesses function as direct medical service providers and, as such, are subject to additional laws and regulations. Some states have corporate practice of medicine laws that prohibitprohibiting specific types of entities from practicing medicine or employing physicians to practice medicine. Moreover, some states prohibit certain entities from engaging in fee-splitting practices, thatwhich involve sharing in the fees or revenues of a professional practice. These prohibitions may be statutory or regulatory, or may be imposed through judicial or regulatory interpretation. The laws, regulations and interpretations in certain states have been subject to limited judicial and regulatory interpretation and are subject to change.
Pharmacy and Pharmacy Benefits Management (PBM) Regulations
Federal and state legislation of PBM activities affectaffects both our ability to limit access to a pharmacy provider network or remove network providers. Additionally, many states limit our ability to manage and establish maximum allowable costs for generic prescription drugs. With respect to formulary services, a number of government entities, including CMS, HHS and state departments of insurance, regulate the administration of prescription drug benefits offered through federal or state exchanges. Many states also regulate the scope of prescription drug coverage, as well as the delivery channels to receive such
prescriptions, for insurers, MCOs and Medicaid managed care plans. These regulations could limit or preclude (i) certain plan designs, (ii) limited networks, (iii) requirements to use particular care providers or distribution channel, (iv) copayment differentials among providers and (v) formulary tiering practices.
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Legislation seeking to regulate PBM activities introduced or enacted at the federal or state level could impact our business practices with others in the pharmacy supply chain, including pharmaceutical manufacturers and network providers. Additionally, organizations like the NAIC periodically issue model regulations andwhile credentialing organizations, like the National Committee for Quality Assurance (NCQA) and the Utilization Review Accreditation Commission (URAC), may establish standards that impactimpacting PBM pharmacy activities. WhileAlthough these model regulations and standards do not have the force of law, they may influence states to adopt their recommendations and impact the services we deliver to our clients.
Consumer Protection Laws
Certain of our businesses participate in direct-to-consumer activities and are subject to regulations applicable to on-lineonline communications and other general consumer protection laws and regulations such as the Federal Tort Claims Act, the Federal Postal Service Act and the FTC’s Telemarketing Sales Rule. Most states also have similar consumer protection laws.
Certain laws, such as the Telephone Consumer Protection Act, give the FTC, the Federal Communications Commission (“FCC”)(FCC) and state attorneys general the ability to regulate, and bring enforcement actions relating to, telemarketing practices and certain automated outbound contacts such as phone calls, texts or emails. Under certain circumstances, these laws may provide consumers with a private right of action. Violations of these laws could result in substantial statutory penalties and other sanctions.
Banking Regulation
Optum Bank is subject to regulation by federal banking regulators, including the Federal Deposit Insurance Corporation, which performs annual examinations to ensure that the bank is operating in accordance with federal safety and soundness requirements, and the Consumer Financial Protection Bureau, which may perform periodic examinations to ensure that the bank is in compliance with applicable consumer protection statutes, regulations and agency guidelines. Optum Bank is also subject to supervision and regulation by the Utah State Department of Financial Institutions, which carries out annual examinations to ensure that the bank is operating in accordance with state safety and soundness requirements and performs periodic examinations of the bank’s compliance with applicable state banking statutes, regulations and agency guidelines. In the event of unfavorable examination results from any of these agencies, the bank could become subject to increased operational expenses and capital requirements, enhanced governmental oversight and monetary penalties.
Certain of our businesses operate internationally and are subject to regulation in the jurisdictions in which they are organized or conduct business. These regulatory regimes vary from jurisdiction to jurisdiction. In addition, our non-U.S. businesses and operations are subject to U.S. laws that regulateregulating the conduct and activities of U.S.-based businesses operating abroad, such as the Foreign Corrupt Practices Act (FCPA), which prohibits offering, promising, providing or authorizing others to give anything of value to a foreign government official to obtain or retain business or otherwise secure a business advantage.
COMPETITION
As a diversified health care company, we operate in highly competitive markets across the full expanse of health care benefits and services, including organizations ranging from startups to highly sophisticated Fortune 50 global enterprises, for-profit and non-profit companies, and private and government-sponsored entities. New entrants and business combinations also contribute to a dynamic and competitive environment. We compete fundamentally on the quality and value we provide to those we serve which can include elements such as product and service innovation; use of technology; consumer and provider engagement and satisfaction; and sales, marketing and pricing. See Part I, Item 1A, “Risk Factors” for additional discussion of our risks related to competition.
INTELLECTUAL PROPERTY RIGHTS
We have obtained trademark registration for the UnitedHealth Group, UnitedHealthcareOptum and OptumUnitedHealthcare names and logos. We own registrations for certain of our other trademarks in the United States and abroad. We hold a portfolio of patents and have patent applications pending from time to time. We are not substantially dependent on any single patent or group of related patents.
Unless otherwise noted, trademarks appearing in this report are trademarks owned by us. We disclaim any proprietary interest in the marks and names of others.
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HUMAN CAPITAL RESOURCES
Our 350,000 employees, as of December 31, 2019,2021, including nearly 135,000 clinical professionals, are guided by our mission to help people live healthier lives and help make the health system work better for everyone. Our mission and cultural values of integrity, compassion, relationships, innovation and performance align with our long-term business strategy to increase access to care, make care more affordable, enhance the care experience and improve health outcomes. Our mission and values attract individuals who are determined to make a difference – individuals whose talent, innovation, engagement and empowerment are critical in our ability to achieve our mission. Similar to other businesses, in 2021 we employed 325,000 individuals.have experienced moderately higher levels of employment attrition and COVID-19 continues to drive unplanned absences, but due to increased recruiting capacity and upgraded digital capabilities our workforce continues to be able to meet the needs of those we serve.
We are committed to developing our people and culture by creating an inclusive environment where people of diverse backgrounds, experiences and perspectives make us better. Our approach is data-driven and leader led, including enterprise and business scorecards ensuring our leaders are accountable for a consistent focus on hiring, developing, advancing and retaining diverse talent. We have embedded inclusion and diversity throughout our culture, including in our talent acquisition and talent management practices; leadership development; careers; learning and skills; and systems and processes. We strive to maintain a sustainable and diverse talent pipeline by building strong strategic partnerships and outreach through early career programs, internships and apprenticeships. We support career coaching, mentorship and accelerated leadership development programs to ensure mobility and advancement for our diverse talent. To foster an engaged workforce and an inclusive culture, we invest in a broad array of learning and culture developmentprograms. We rely on a shared leadership framework, which clearly and objectively defines our expectations, enables an environment where everyone has the opportunity to learn and grow, and helps us identify, develop and deploy talent to help achieve our mission.
We prioritize pay equity by regularly evaluating and reviewing our compensation practices by gender, ethnicity and race. Receiving on-going feedback from our team members is another way to strengthen and reinforce a culture of inclusion. Our Employee Experience Index measures an employee’s sense of commitment and belonging to the Company and is a metric in the Stewardship section of our annual incentive plan. Our Sustainability Report, which can be accessed on our website at www.unitedheatlhgroup.com, provides further details on our people and culture.
INFORMATION ABOUT OUR EXECUTIVE OFFICERS
The following sets forth certain information regarding our executive officers as of February 14, 2020,10, 2022, including the business experience of each executive officer during the past five years:
| Name | Age | Position | ||||||||||||
| 57 | Chief Executive Officer | |||||||||||||
| Dirk C. McMahon | President and Chief Operating Officer | |||||||||||||
| John F. Rex | 60 | Executive Vice President and Chief Financial Officer | ||||||||||||
| Patricia L. Lewis | 60 | Executive Vice President and Chief Human Resources Officer | ||||||||||||
| Thomas E. Roos | 49 | Senior Vice President and Chief Accounting Officer | ||||||||||||
| Marianne D. Short | 70 | Executive Vice President and Chief Legal Officer | ||||||||||||
| Brian R. Thompson | 47 | Chief Executive Officer of UnitedHealthcare | ||||||||||||
Our Board of Directors elects executive officers annually. Our executive officers serve until their successors are duly elected and qualified, or until their earlier death, resignation, removal or disqualification.
Mr. WichmannWitty ishas served as Chief Executive Officer of UnitedHealth Group and a member of the Board of Directors and has served in that capacity since September 2017. Mr. Wichmann previously served as President of UnitedHealth Group from November 2014 to August 2017.since February 2021. Previously, Mr. Wichmann also served as Chief Financial Officer of UnitedHealth Group from January 2011 to June 2016. From April 2008 to November 2014, Mr. Wichmann served as Executive Vice President of UnitedHealth Group and President of UnitedHealth Group Operations.
Mr. McMahon ishas served as President and Chief Operating Officer of UnitedHealth Group since February 2021. In addition, Mr. McMahon previously served as Chief Executive Officer of UnitedHealthcare and has served in that capacity since June 2019. Mr. McMahon previously served as2019 to April 2021, President and Chief Operating Officer of Optum from April 2017 to June 2019 and as Executive Vice President, Operations at UnitedHealth Group from November 2014 to April 2017. Mr. McMahon also served as Chief Executive Officer of OptumRxOptum Rx from November 2011 to November 2014. Prior to 2011, he held various positions in UnitedHealthcare in operations, technology and finance.
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Mr. Rex ishas served as Executive Vice President and Chief Financial Officer of UnitedHealth Group and has served in that capacity since June 2016. From March 2012 to June 2016, Mr. Rex served as Executive Vice President and Chief Financial Officer of Optum. Prior to joining Optum in 2012, Mr. Rex was a Managing Director at JP Morgan, a global financial services firm.
Ms. Lewis has served as Executive Vice President and Chief Human Resources Officer of UnitedHealth Group since October 2019. Prior to joining UnitedHealth Group, Ms. Lewis served at Lockheed Martin Corporation, a global security and aerospace company, where she was Senior Vice President and Chief Human Resources Officer from December 2014 to October 2019. Prior to joining Lockheed Martin Corporation in 2011, Ms. Lewis held various positions in Human Resources at International Business Machines Corporation, a global technology company, and DuPont De Nemours, Inc, a global diversified chemicals company. Ms. Lewis currently serves as a director of Lear, Inc.
Mr. Roos ishas served as Senior Vice President and Chief Accounting Officer of UnitedHealth Group and has served in that capacity since August 2015. Prior to joining UnitedHealth Group, Mr. Roos was a Partner at Deloitte & Touche LLP, an independent registered public accounting firm, from September 2007 to August 2015.
Ms. Short ishas served as Executive Vice President and Chief Legal Officer of UnitedHealth Group from January 2013 to January 2021 and has served in that capacity since January 2013.from June 2021 to present. Prior to joining UnitedHealth Group, Ms. Short served as the Managing Partner at Dorsey & Whitney LLP, an international law firm, from January 2007 to December 2012.
Additional Information
You can access our website at www.unitedhealthgroup.com to learn more about our company. From the site you can download and print copies of our annual reports to shareholders, annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, along with amendments to those reports. You can also download from our website our certificate of incorporation bylaws and bylaws; corporate governance policies, including our Principles of Governance,Governance; Board of Directors Committee Charters andCharters; Code of Conduct.Conduct; and annual sustainability report. We make periodic reports and amendments available, free of charge, on our website, as soon as reasonably practicable after we file or furnish these reports to the Securities and Exchange Commission (SEC). We will also provide a copy of any of our corporate governance policies published on our website free of charge, upon request. To request a copy of any of these documents, please submit your request to: UnitedHealth Group Incorporated, 9900 Bren Road East, Minnetonka, MN 55343, Attn: Corporate Secretary. Information on or linked to our website is neither part of nor incorporated by reference into this Annual Report on Form 10-K or any other SEC filings.
Our transfer agent, Equiniti (EQ), can help you with a variety of shareholder-related services, including change of address, lost stock certificates, transfer of stock to another person and other administrative services. You can write to our transfer agent at: EQ Shareowner Services, P.O. Box 64854, St. Paul, Minnesota 55164-0854, or telephone (800) 401-1957 or (651) 450-4064.
ITEM 1A. RISK FACTORS
CAUTIONARY STATEMENTS
The statements, estimates, projections or outlook contained in this Annual Report on Form 10-K include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (PSLRA). When used in this Annual Report on Form 10-K and in future filings by us with the SEC, in our news releases, presentations to securities analysts or investors, and in oral statements made by or with the approval of one of our executive officers, the words “believe,” “expect,” “intend,” “estimate,” “anticipate,” “forecast,” “outlook,” “plan,” “project,” “should” or similar words or phrases are intended to identify such forward-looking statements. These statements are intended to take advantage of the “safe harbor” provisions of the PSLRA. These forward-looking statements involve risks and uncertainties thatwhich may cause our actual results to differ materially from the expectations expressed or implied in the forward-looking statements. Any forward-looking statement in this report speaks only as of the date of this report and, except as required by law;law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances, including unanticipated events, after the date of this report.
The following discussion contains cautionary statements regarding our business, thatwhich investors and others should consider. We do not undertake to address in future filings or communications regarding our business or results of operations how any of these factors may have caused our results to differ from discussions or information contained in previous filings or
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communications. In addition, any of the matters discussed below may have affected past, as well as current, forward-looking statements about future results. Any or all forward-looking statements in this Annual Report on Form 10-K and in any other public filings or statements we make may turn out to be wrong. Our forward-looking statements can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. Many factors discussed below will be important in determining our future results. By their nature, forward-looking statements are not guarantees of future performance or results and are subject to risks, uncertainties and assumptions thatwhich are difficult to predict or quantify.
Risks Related to Our Business and Our Industry
We are subject to risks associated with public health crises, large-scale medical emergencies and pandemics, such as the COVID-19 pandemic, which could continue to have a material adverse effect on our business, results of operations, financial condition and financial performance.
The ongoing COVID-19 pandemic continues to impact health systems, businesses, governments and customer and consumer activities. The future impact to our business is primarily dependent upon the ultimate pacing, intensity and duration of the crisis, the severity of new variants of the COVID-19 virus, and the effectiveness and extent of administration of vaccinations and treatments, factors which remain uncertain at this time. These factors continue to affect the related treatment, testing, coverage and other services we provide for the people we serve. We may experience an increase in medical care costs as people seek care which was deferred during the pandemic and individuals with chronic conditions may require additional care needs resulting from missed treatments. The premiums and fees we charge, including premiums dependent upon documented health conditions, may not be sufficient to cover the medical and administrative costs associated with COVID-19 and other care services. Similarly, state and federal mandates for coverage may result in additional incurred expenses that are not associated with increases in government reimbursement (such as requirements for insurers to cover at-home COVID-19 testing).We have experienced and may continue to experience reduced demand for certain services Optum provides to care providers, health plans and employers as a result of reduced clinical and claims activity and changes in business priorities resulting from COVID-19. In addition, our care delivery business may continue to be adversely impacted by COVID-19 infections and exposures affecting providers we employ, resulting in reduced capacity to handle demand for care and related partial or full closures of our facilities. Our non-clinical workforce may also be adversely impacted by COVID-19 infections and exposures impacting our business operations.
The COVID-19 pandemic has resulted in some of our customers having to temporarily or permanently close or severely curtail their operations, and unfavorable economic conditions resulting from the pandemic may continue to impact our clients, customers, health care providers, third party vendors and federal and state entities and programs. Among other impacts, we have experienced and may continue to experience loss of commercial and pharmacy care services members due to customer reductions in workforce and an adverse impact on the timing and collectability of premium payments. In addition, governments have modified, and may continue to modify, regulatory standards around various aspects of health care in response to COVID-19, which may adversely affect our ability to ensure timely compliance and meet various contractual obligations.
Further disruptions in public and private infrastructure, including supply chains providing medical supplies and pharmaceutical products, could disrupt our business operations or increase our operating costs. Additionally, the enactment of emergency powers by governments could disrupt our business operations, including by restricting pharmaceuticals or other supplies, and could increase the risk of shortages of necessary items.
Although we cannot predict the pacing, intensity and duration of COVID-19, the pandemic’s disruption to business activities, employment and economic effects, and near and long-term impacts on the patterns of care and services across the healthcare system could continue to have material and adverse effects on our business, results of operations, financial position or cash flows.
If we fail to estimate, price for and manage our medical costs or set benefit designs in an effective manner, the profitability of our risk-based products and services could decline and could materially and adversely affect our results of operations, financial position and cash flows.
Through our risk-based benefit products, we assume the risk of both medical and administrative costs for our customers in return for monthly premiums. We generally use approximately 80% to 85% of our premium revenues to pay the costs of health care services delivered to these customers. The profitability of our products depends in large part on our ability to predict, price for and effectively manage medical costs. Our OptumHealthOptum Health business negotiates capitationvalue-based arrangements with commercial third-party payers which are also included in premium revenues. Under thea typical capitation arrangement, the health care providerOptum Health receives a fixed percentage of a third-party payer’s premiums to cover all or a defined portion of the medical costs
provided to the capitated member.members. Premium revenues from risk-based products comprise nearly 80% of our total consolidated revenues. If we fail to predict accurately, or effectively price for or manage, the costs of providing care to our capitated members,under risk-based arrangements, our results of operations could be materially and adversely affected.
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We manage medical costs through underwriting criteria, product design, negotiation of favorablecompetitive provider contracts and care management programs. Total medical costs are affected by the number of individual services rendered, the cost of each service and the type of service rendered. Our premium revenue on commercial policies and Medicaid contracts areis typically based on a fixed monthly rate per individual served for a 12-month period and is generally priced one to six months before the contract commences. Our revenue on certain Medicare policies is based on bids submitted to CMS in June the year before the contract year. Although we base the commercial and Medicaid premiums we charge and our Medicare bids on our estimates of future medical costs over the fixed contract period, many factors may cause actual costs to exceed those estimated and reflected in premiums or bids. These factors may include medical cost inflation, increased use of services, increased cost of individual services, large-scale medical emergencies, the potential effects of climate change, pandemics, such as COVID-19, the introduction of new or costly drugs, treatments and technology, new treatment guidelines, newnewly mandated benefits (such as the expansion of essential benefits coverage) or other regulatory changes and insured population characteristics. Relatively small differences between predicted and actual medical costs or utilization rates as a percentage of revenues can result in significant changes in our financial results. For example, if our 20192021 medical costs for commercial insured products had been 1% higher than our actual medical costs, without proportionally higher revenues from such products, our annual net earnings for 20192021 would have been reduced by approximately $320$330 million, excluding any offsetting impact from risk adjustment or from reduced premium rebates due to minimum MLRs.
In addition, the financial results we report for any particular period include estimates of costs that have been incurred for which claims are still outstanding. These estimates involve an extensive degree of judgment. If these estimates prove inaccurate, our results of operations could be materially and adversely affected.
If we fail to maintain properly the integrity or availability of our data or successfully consolidate, integrate, upgrade or expand our existing information systems, or if our technology products do not operate as intended, our business could be materially and adversely affected.
Our business is highly dependentdepends on the integrity and timeliness of the data we use to serve our members, customers and health care professionals and to operate our business. The volume of health care data generated, and the uses of data, including electronic health records, are rapidly expanding. Our ability to implement new and innovative services, price adequately our products and services, provide effective service to our customers in an efficient and uninterrupted fashion, and report accurately our results of operations depends on the integrity of the data in our information systems. In addition, connectivity among technologies is becoming increasingly important and recent trends toward greater consumer engagement in health care require new and enhanced technologies, including more sophisticated applications for mobile devices. Our information systems require an ongoing commitment of significant resources to maintain, protect and enhance existing systems and develop new systems to keep pace with continuing changes in information processing technology, evolving systems and regulatory standards and changing customer preferences. If the data we rely upon to run our businesses is found to be inaccurate or unreliable or if we fail to maintain or protect our information systems and data integrity effectively, we could experience failures in our health, wellness and information technology products; lose existing customers; have difficulty attracting new customers; experience
problems in determining medical cost estimates and establishing appropriate pricing; have difficulty preventing, detecting and controlling fraud; have disputes with customers, physicians and other health care professionals; become subject to regulatory sanctions or penalties; incur increases in operating expensesexpenses; or suffer other adverse consequences.
We periodically consolidate, integrate, upgrade and expand our information systems’ capabilities as a result of technology initiatives and recently enacted regulations, changes in our system platforms and integration of new business acquisitions. Our process of consolidating the number of systems we operate, upgrading and expanding our information systems’ capabilities, enhancing our systems and developing new systems to keep pace with continuing changes in information processing technology may not be successful. Failure to protect, consolidate and integrate our systems successfully could result in higher than expected costs and diversion of management’s time and energy, which could materially and adversely affect our results of operations, financial position and cash flows.
Certain of our businesses sell and install software products thatwhich may contain unexpected design defects or may encounter unexpected complications during installation or when used with other technologies utilized by the customer. A failure of our technology products to operate as intended and in a seamless fashion with other products could materially and adversely affect our results of operations, financial position and cash flows.
Uncertain and rapidly evolving U.S. federal and state, non-U.S. and international laws and regulations related to health data and the health information technology market may alter the competitive landscape or present compliance challenges and could materially and adversely affect the configuration of our information systems and platforms, and our ability to compete in this market.
If we sustain cyber-attacks or other privacy or data security incidents that resultresulting in security breaches that disruptdisrupting our operations or resultresulting in the unintended dissemination of protected personal information or proprietary or confidential
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information, we could suffer a loss of revenue and increased costs, exposure to significant liability, reputational harm and other serious negative consequences.
We routinely process, store and transmit large amounts of data in our operations, including protected personal information subject to privacy, security or data breach notification laws, as well as proprietary or confidential information relating to our business or third parties. Some of the data we process, store and transmit may be outside of the United States due to our information technology systems and international business operations. We are regularly the target of attempted cyber-attacks and other security threats and may be subject to breaches of the information technology systems we use. We have programs in place thatwhich are intended to detect, contain and respond to data security incidents and that provide employee awareness training regarding phishing, malware and other cyber risks to protect against cyber risks and security breaches. However, because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and may be difficult to detect for long periods of time,are increasing in sophistication, we may be unable to anticipate these techniques, detect breaches for long periods of time or implement adequate preventive measures. Experienced computer programmers and hackers may be able to penetrate our security controls and access, misappropriate or otherwise compromise protected personal information or proprietary or confidential information or that of third-parties,third parties, create system disruptions or cause system shutdowns, that could negatively affectaffecting our operations. They also may be able to develop and deploy viruses, worms and other malicious software programs that attackattacking our systems or otherwise exploit any security vulnerabilities. Hardware, software, or applications we develop or procure from third parties may contain defects in design or manufacture or other problems thatwhich could unexpectedly compromise information security. In addition, we are subject to heightened vulnerability to cybersecurity attacks associated with increased numbers of employees working from home. Our facilities and services may also be vulnerable to security incidents or security attacks; acts of vandalism or theft; coordinated attacks by activist entities; financial fraud schemes; misplaced or lost data; human error; malicious social engineering; or other events thatwhich could negatively affect our systems, our customers’ data, proprietary or confidential information relating to our business or third parties, or our operations. In certain circumstances we may rely on third partythird-party vendors to process, store and transmit large amounts of data for our business whose operations are subject to similar risks.
The costs to eliminate or address the foregoing security threats and vulnerabilities before or after a cyber-incident could be material. Our remediation efforts may not be successful and could result in interruptions, delays, or cessation of service and loss of existing or potential customers. In addition, breaches of our security measures and the unauthorized dissemination ofsensitive personal information, proprietary information or confidential information about us or our customers or other third-parties,third parties, could expose our customers’ private information and our customers to the risk of financial or medical identity theft, or expose us or other third-partiesthird parties to a risk of loss or misuse of this information, result in litigation and potential liability, including regulatory penalties, for us, damage our brand and reputation, or otherwise harm our business.
If we fail to compete effectively to maintain or increase our market share, including maintaining or increasing enrollments in businesses providing health benefits, our results of operations, financial position and cash flows could be materially and adversely affected.
Our businesses compete throughout the United States, South America and other foreign markets and face significant competition in all of the geographic markets in which we operate. In particular markets,geographies or segments, our competitors, compared to us, may have greater capabilities, resources or market share; a more established reputation; superior supplier or health care professional arrangements; better existing business relationships; lower profit margin or financial return expectations; or other factors thatwhich give such competitors a competitive advantage. Our competitive position may also be adversely affected by significant merger and acquisition activity that has occurred in the industries in which we operate, both among our competitors and suppliers (including hospitals, physician groups and other health care professionals).suppliers. Consolidation may make it more difficult for us to retain or increase our customer base, improve the terms on which we do business with our suppliers, or maintain or increase profitability.
In addition, our success in the health care marketplace will depend on our ability to develop and deliver innovative and potentially disruptive products and services to satisfy evolving market demands. If we do not continue to innovate and provide products and services, thatwhich are useful and relevant to health care payers, consumers and our customers, we may not remain competitive, and we risk losing market share to existing competitors and disruptive new market entrants. For example, new direct-to-consumer business models from competing businesses may make it more difficult for us to directly engage consumers in the selection and management of their health care benefits and health care usage, and weusage. We may face challenges from new technologies and market entrants thatwhich could affect our existing relationship with health plan enrollees in these areas. Any failure by us to continue to develop innovative care models, including accelerating the transition of care to value-based models and expanding access to virtual care, could result in competitive disadvantages and loss of market share. Additionally, our competitive position could be adversely affected by a failure to develop satisfactory data and analytics capabilities or provide services focused on these capabilities to our clients. Our business, results of operations, financial position and cash flows could be materially and adversely affected if we do not compete effectively in our markets, if we set rates too high or too low in highly competitive markets, if we do not design and price our products properly and competitively, if we fail to realize competitive advantages resulting from collaboration between our businesses, if we are unable to innovate and deliver products and services that demonstratedemonstrating value to our customers, if we do not provide a satisfactory level of services, if membership or
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demand for other services does not increase as we expect or declines, or if we lose accounts with more profitable products while retaining or increasing membership in accounts with less profitable products.
If we fail to develop and maintain satisfactory relationships with health care payers, physicians, hospitals and other service providers, our business could be materially and adversely affected.
In any particular market, physicians and health care providers could refuse to contract with us, demand higher payments, or take other actions thatwhich could result in higher medical costs, less desirable products for customers or difficulty meeting regulatory or accreditation requirements. In some markets, certain health care providers, particularly hospitals, physician and hospital organizations or multi-specialty physician groups, may have significant market positions or near monopolies thatwhich could result in diminished bargaining power on our part. In addition, ACOs; practice management companies (which aggregate physician practices for administrative efficiency); and other organizational structures adopted by physicians, hospitals and other care providers may change the way in which these providers do business with us and may change the competitive landscape. Such organizations or groups of physicians may compete directly with us, which could adversely affect our business, and our results of operations, financial position and cash flows by impacting our relationships with these providers or affecting the way that we price our products and estimate our costs, which might require us to incur costs to change our operations. In addition, if these providers refuse to contract with us, use their market position to negotiate favorable contracts or place us at a competitive disadvantage, our ability to market products or to be profitable in those areas could be materially and adversely affected.
Our health care benefits businesses have capitationrisk-based arrangements with some physicians, hospitals and other health care providers. CapitationThese arrangements limit our exposure to the risk of increasing medical costs, but expose us to risk related to the adequacy of the financial and medical care resources of the health care provider. To the extent that a capitatedrisk-based health care provider organization faces financial difficulties or otherwise is unable to perform its obligations under the capitation arrangement, we may be held responsible for unpaid health care claims thatwhich should have been the responsibility of the capitated health care provider and for which we have already paid the provider. Further, payment or other disputes between a primary care provider and specialists with whom the primary care provider contracts could result in a disruption in the provision of services to our members or a reduction in the services available to our members. Health care providers with which we contract may not properly manage the costs of services, maintain financial solvency or avoid disputes with other providers. Any of these events could have a material adverse effect on the provision of services to our members and our operations.
Some providers that render services to our members who do not have contracts with us. In those cases, we do not have a pre-established understanding about the amount of compensation that is due to the provider for services rendered to our members.
In some states, the amount of compensation due to these out-of-network providers is defined by law or regulation, but in most instancesother cases the amount is either not defined or is established by a standard thatwhich does not clearly specify dollar terms. In some instances, providers may believe that they are underpaid for their services and may either litigate or arbitrate their dispute with us or try to recover from our members the difference between what we have paid them and the amount they charged us.
The success of some of our businesses, including OptumHealthOptum Health and UnitedHealthcare Global, depend on maintaining satisfactory relationships with physicians as our employees, independent contractors or joint venture partners. The physicians thatwho practice medicine or contract with our affiliated physician organizations could terminate their provider contracts or otherwise become unable or unwilling to continue practicing medicine or contracting with us. We face and will likely continue to face heightened competition in the markets where we operate to acquire or manage physician practices or to employ or contract with individual physicians. If we are unable to maintain or grow satisfactory relationships with physicians, or to acquire, recruit or, in some instances, employ physicians, or to retain enrollees following the departure of a physician, our revenues could be materially and adversely affected. In addition, our affiliated physician organizations contract with competitors of UnitedHealthcare. Our businesses could suffer if our affiliated physician organizations fail to maintain relationships with these companies, or fail to adequately price their contracts with these third-party payers.
In addition, physicians, hospitals, pharmaceutical benefit service providers, pharmaceutical manufacturers and certain health care providers are customers of our Optum businesses. Physicians also provide medical services at facilities owned by our Optum businesses. Given the importance of health care providers and other constituents to our businesses, failure to maintain satisfactory relationships with them could materially and adversely affect our results of operations, financial position and cash flows.
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We are routinely subject to various legal actions, due to the nature of our business, which could damage our reputation and, if resolved unfavorably, could result in substantial penalties or monetary damages and materially and adversely affect our results of operations, financial position and cash flows.
We are routinely made party to a variety of legal actions related to, among other matters, the design, management and delivery of our product and service offerings. These matters have included or could in the future include matters related to health care benefits coverage and payment claims (including disputes with enrollees, customers and contracted and non-contracted physicians, hospitals and other health care professionals), tort claims (including claims related to the delivery of health care services, such as medical malpractice by staff at our affiliates’ facilities, or by health care practitioners who are employed by us, have contractual relationships with us, or serve as providers to our managed care networks)networks, including as a result of a failure to adhere to applicable clinical, quality and/or patient safety standards), antitrust claims (including as a result of changes in the enforcement of antitrust laws), whistleblower claims (including claims under the False Claims Act or similar statutes), contract and labor disputes, tax claims and claims related to disclosure of certain business practices. In addition, certain of our pharmacy services operations are subject to the clinical quality, patient safety and other risks inherent in the dispensing, packaging and distribution of drugs, including claims related to purported dispensing and other operational errors. We may also be party to certain class action lawsuits brought by health care professional groups and consumers. In addition, weWe operate in jurisdictions outside of the United States where contractual rights, tax positions and applicable regulations may be subject to interpretation or uncertainty to a greater degree than in the United States, and therefore subject to dispute by customers, government authorities or others. Any failure by us to adhere to the laws and regulations applicable to our businesses could subject us to civil and criminal penalties.
We are largely self-insured with regard to litigation risks. While we maintain excess liability insurance with outside insurance carriers forrisks, including claims in excess of medical malpractice against our self-insurance, certain types of damages, such as punitive damages in some circumstances, are not covered by insurance.affiliated physicians and us. Although we record liabilities for our estimates of the probable costs resulting from self-insured matters, it is possible that the level of actual losses will significantly exceed the liabilities recorded. Additionally, physicians and other healthcare providers have become subject to an increasing number of legal actions alleging medical malpractice and general professional liabilities. Even in states that have imposed caps on damages for such actions, litigants are seeking recoveries under new theories of liability that might not be subject to the caps on damages. Many of these actions involve large claims and significant defense costs and, if these actions are asserted against us, could result in substantial monetary damages or damage to our reputation.
We cannot predict the outcome of significant legal actions in which we are involved and are incurring expenses in resolving these matters. The legal actions we face or may face in the future could further increase our cost of doing business and materially and adversely affect our results of operations, financial position and cash flows. In addition, certain legal actions could result in adverse publicity which could damage our reputation and materially and adversely affect our ability to retain our current business or grow our market share in some markets and businesses.
Any failure by us to manage successfully our strategic alliances or complete, manage or integrate acquisitions and other significant strategic transactions or relationships domestically or outside the United States could materially and adversely affect our business, prospects, results of operations, financial position and cash flows.
As part of our business strategy, we frequently engage in discussions with third parties regarding possible investments, acquisitions, divestitures, strategic alliances, joint ventures and outsourcing transactions and often enter into agreements relating to such transactions. For example, we have a strategic alliance with AARP under which we provide AARP-branded Medicare Supplement insurance to AARP members and other AARP-branded products and services to Medicare beneficiaries. If we fail to meet the needs of our alliance or joint venture partners, including by developing additional products and services, providing high levels of service, pricing our products and services competitively or responding effectively to applicable federal and state regulatory changes, our alliances and joint ventures could be damaged or terminated which in turn could adversely impact our reputation, business and results of operations. Further, if we fail to identify and successfully complete transactions, thatwhich further our strategic objectives, we may be required to expend resources to develop products and
technology internally, we may be placed at a competitive disadvantage or we may be adversely affected by negative market perceptions, any of which may have a material adverse effect on our results of operations, financial position or cash flows.
Success in completing acquisitions is also dependent on efficientlyeffectively integrating the acquired business into our existing operations, including our internal control environment and culture, or otherwise leveraging its operations which may present challenges that are different from those presented by organic growth and that may be difficult for us to manage. In addition, even with appropriate diligence, pre-acquisition practices of an acquired business may expose us to legal challenges and investigations. For example, in January 2021, an indictment for alleged violations of antitrust laws was issued by the DOJ against our subsidiary, Surgical Care Affiliates (SCA), based on conduct alleged to have begun more than five years prior to our acquisition. We are vigorously defending this lawsuit, but if SCA is found liable, we may be subject to criminal fines or reputational harm. If we cannot successfully integrate these acquisitions and realize contemplated revenue growth opportunities
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and cost savings, our business, prospects, results of operations, financial position and cash flows could be materially and adversely affected.
As we expand and operate our business outside of the United States, we are presented with challenges that differdiffering from those presented by acquisitions of domestic businesses, including challenges in adapting to new markets, languages, business, labor and cultural practices and regulatory environments. Adapting to these challenges could require us to devote significant senior management attention and other resources to the acquired businesses before we realize anticipated synergies or other benefits from the acquired businesses. These challenges vary widely by country and, outside of the United States, may include political instability, government intervention, discriminatory regulation and currency exchange controls or other restrictions, thatwhich could prevent us from transferring funds from these operations out of the countries in which our acquired businesses operate, or converting local currencies that we hold into U.S. dollars or other currencies. If we are unable to manage successfully our non-U.S. acquisitions, our business, prospects, results of operations and financial position could be materially and adversely affected.
Foreign currency exchange rates and fluctuations may have an impact on our shareholders’ equity from period to period, which could adversely affect our debt to debt-plus-equity ratio, and our future revenues, costs and cash flows from international operations. Any measures we may implement to reduce the effect of volatile currencies may be costly or ineffective.
Our sales performance will suffer if we do not adequately attract, retain and provide support to a network of independent producers and consultants.
Our products and services are sold in part through nonexclusive producers and consultants for whose services and allegiance we must compete. Our sales would be materially and adversely affected if we are unable to attract, retain and support such independent producers and consultants or if our sales strategy is not appropriately aligned across distribution channels. Our relationships with producers could be materially and adversely impacted by changes in our business practices and the nature of our relationships to address these pressures, including potential reductions in commission levels.
Unfavorable economic conditions could materially and adversely affect our revenues and our results of operations.
Unfavorable economic conditions may impact demand for certain of our products and services. For example, high unemployment can causeduring the early stages of the COVID-19 pandemic has caused lower enrollment or lower rates of renewal in our employer group benefits and pharmacy services plans. Unfavorable economic conditions also have caused and could continue to cause employers to stop offering certain health care coverage as an employee benefit or elect to offer this coverage on a voluntary, employee-funded basis as a means to reduce their operating costs. In addition, unfavorable economic conditions could adversely impact our ability to increase premiums or result in the cancellation by certain customers of our products and services. These conditions could lead to a decrease in our membership levels and premium and fee revenues and could materially and adversely affect our results of operations, financial position and cash flows.
During a prolonged unfavorable economic environment, state and federal budgets could be materially and adversely affected, resulting in reduced reimbursements or payments in our federal and state government health care coverage programs, including Medicare, Medicaid and CHIP. A reduction in state Medicaid reimbursement rates could be implemented retrospectivelyretroactively to apply to payments already negotiated or received from the government and could materially and adversely affect our results of operations, financial position and cash flows. In addition, state and federal budgetary pressures could cause the affected governments to impose new or a higher level of taxes or assessments for our commercial programs, such as premium taxes on health insurance and surcharges or fees on select fee-for-service and capitated medical claims. Any of these developments or actions could materially and adversely affect our results of operations, financial position and cash flows.
A prolonged unfavorable economic environment also could adversely impact the financial position of hospitals and other care providers which could materially and adversely affect our contracted rates with these parties and increase our medical costs or materially and adversely affect their ability to purchase our service offerings. Further, unfavorable economic conditions could adversely impact the customers of our Optum businesses, including health plans, hospitals, care providers, employers and others which could, in turn, materially and adversely affect Optum’s financial results.
We are dependent on our ability to attract, develop and retain qualified employees and executives, including those with diverse backgrounds, experiences and skill sets, to operate and expand our business. Experienced and highly skilled employees and executives in the health care and technology industries are in high demand and the market for their services is extremely competitive. We may have difficulty in replacing key executives because of the limited number of qualified individuals in these industries with the breadth of skills and experience required to operate and successfully expand our business. Adverse changes to our corporate culture, which seeks to foster integrity, compassion, relationships, innovation and performance, could harm our business operations and our ability to retain key employees and executives. While we have development and succession plans in place for our key employees and executives, these plans do not guarantee the services of our key employees and executives
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Our investment portfolio may suffer losses which could adversely affect our results of operations, financial position and cash flows.
Market fluctuations could impair our profitability and capital position. Volatility in interest rates affects our interest income and the market value of our investments in debt securities of varying maturities which constitute the vast majority of the fair value of our investments as of December 31, 2019.2021. Relatively low interest rates on investments, such as those experienced during recent years, have adversely impacted our investment income. In addition, a delay in payment of principal or interest by issuers, or defaults by issuers (primarily issuers of our investments in corporate and municipal bonds), could reduce our investment income and require us to write down the value of our investments which could adversely affect our profitability and equity.
If the value of our intangible assets is materially impaired, our results of operations, equity and credit ratings could be materially and adversely affected.
As of December 31, 2019,2021, our goodwill and other intangible assets had a carrying value of $76$86 billion, representing 44%40% of our total consolidated assets. We periodically evaluate our goodwill and other intangible assets to determine whether all or a portion of their carrying values may be impaired, in which case a charge to earnings may be necessary. The value of our goodwill may be materially and adversely impacted if businesses that we acquire perform in a manner that is inconsistent with our assumptions. In addition, from time to time we divest businesses, and any such divestiture could result in significant asset impairment and disposition charges, including those related to goodwill and other intangible assets. Any future evaluations requiring an impairment of our goodwill and other intangible assets could materially and adversely affect our results of operations and equity in the period in which the impairment occurs. A material decrease in equity could, in turn, adversely affect our credit ratings and potentially impact our compliance with the financial covenants in our bank credit facilities.ratings.
If we are not able to protect our proprietary rights to our databases, software and related products, our ability to market our knowledge and information-related businesses could be hindered and our results of operations, financial position and cash flows could be materially and adversely affected.
We rely on our agreements with customers, confidentiality agreements with employees and third parties, and our trademarks, trade secrets, copyrights and patents to protect our proprietary rights. These legal protections and precautions may not prevent misappropriation of our proprietary information. In addition, substantial litigation regarding intellectual property rights exists in the software industry, and we expect software products to be increasingly subject to third-party infringement claims as the number of products and competitors in this industry segment grows. Such litigation and misappropriation of our proprietary information could hinder our ability to market and sell products and services and our results of operations, financial position and cash flows could be materially and adversely affected.
Any downgrades in our credit ratings could adversely affect our business, financial condition and results of operations.
Claims paying ability, financial strength and debt ratings by Nationally Recognized Statistical Rating Organizations are important factors in establishing the competitive position of insurance companies. Ratings information is broadly disseminated and generally used by customers and creditors. We believe our claims paying ability and financial strength ratings are important factors in marketing our products to certain of our customers. Our credit ratings impact both the cost and availability of future borrowings. Each of the credit rating agencies reviews its ratings periodically. Our ratings reflect each credit rating agency’s opinion of our financial strength, operating performance and ability to meet our debt obligations or obligations to
policyholders. There canWe may not be no assurance thatable to maintain our current credit ratings will be maintained in the future. Any downgrades in our credit ratings could materially increase our costs of or ability to access funds in the debt capital markets and otherwise materially increase our operating costs.
Risks Related to the Regulation of Our Business
Our business activities are highly regulated and new laws or regulations or changes in existing laws or regulations or their enforcement or application could materially and adversely affect our business.
We are regulated by federal, state and local governments in the United States and other countries where we do business. Our insurance and HMO subsidiaries must be licensed by and are subject to regulation in the jurisdictions in which they conduct
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business. For example, states require periodic financial reports and enforce minimum capital or restricted cash reserve requirements. Health plans and insurance companies are also regulated under state insurance holding company regulations and some of our activities may be subject to other health care-related regulations and requirements, including those relating to PPOs, MCOs, UR and TPA-related regulations and licensure requirements. Under state guaranty association laws, certain insurance companies can be assessed (up to prescribed limits) for certain obligations to the policyholders and claimants of impaired or insolvent insurance companies which write the same line or similar lines of business. Any such assessment could expose our insurance entities and other insurers to the risk they would be required to pay a portion of an impaired or insolvent insurance company’s claims through state guaranty associations.
Certain of our businesses provide products or services to government agencies. For example, some of our Optum and UnitedHealthcare businesses hold government contracts or provide services related to government contracts and are subject to U.S. federal and state and non U.S. self-referral, anti-kickback, medical necessity, risk adjustment, false claims and other laws and regulations governing government contractors and the use of government funds. Our relationships with these government agencies are subject to the terms of contracts we hold with the agencies and to laws and regulations regarding government contracts. Among others, certain laws and regulations restrict or prohibit companies from performing work for government agencies which might be viewed as an actual or potential conflict of interest. These laws may limit our ability to pursue and perform certain types of work, thereby materially and adversely affecting our results of operations, financial position and cash flows.
Certain of our Optum businesses are also subject to regulations distinct from those faced by our insurance and HMO subsidiaries, some of which could impact our relationships with physicians, hospitals and customers. These regulations include state telemedicine regulations; debt collection laws; banking regulations; distributor and producer licensing requirements; state corporate practice of medicine doctrines; fee-splitting rules; and health care facility licensure and certificate of need requirements. These risks and uncertainties may materially and adversely affect our ability to market or provide our products and services, or to do so at targeted operating margins, or may increase the regulatory burdens under which we operate.
The laws and rules governing our businesses and interpretations of those laws and rules are subject to frequent change. For example, legislative, administrative and public policy changes to the ACA have been and likely will continue to be considered, and we cannot predict if the ACA will be further modified. Litigation challenges have been brought seeking to invalidate the ACA in whole or in part and future litigation challenges are possible. Further, the integration into our businesses of entities we acquire may affect the way in which existing laws and rules apply to us, including by subjecting us to laws and rules which did not previously apply to us. The broad latitude given to the agencies administering, interpreting and enforcing current and future regulations governing our businesses could force us to change how we do business, restrict revenue and enrollment growth, increase our health care and administrative costs and capital requirements, or expose us to increased liability in courts for coverage determinations, contract interpretation and other actions.
We also must obtain and maintain regulatory approvals to market many of our products and services, increase prices for certain regulated products and services and complete certain acquisitions and dispositions or integrate certain acquisitions. For example, premium rates for our health insurance and managed care products are subject to regulatory review or approval in many states and by the federal government. Additionally, we must submit data on all proposed rate increases on many of our products to HHS for monitoring purposes. Geographic and product expansions of our businesses may be subject to state and federal regulatory approvals. Delays in obtaining necessary approvals or our failure to obtain or maintain adequate approvals could materially and adversely affect our results of operations, financial position and cash flows.
Certain of our businesses operate internationally and are subject to regulation in the jurisdictions in which they are organized or conduct business. These regulatory regimes encompass, among other matters, local and cross-border taxation, licensing, tariffs, intellectual property, investment, capital (including minimum solvency margin and reserve requirements), management control, labor, anti-fraud, anti-corruption and privacy and data protection regulations (including requirements for cross-border data transfers) which vary by jurisdiction. We currently operate outside of the United States and in the future may acquire or commence additional businesses based outside of the United States, increasing our exposure to non-U.S. regulatory regimes. For example, our UnitedHealthcare Global business subjects us to Brazilian laws and regulations affecting hospitals, managed care and insurance industries and to regulation by Brazilian regulators, including the national regulatory agency for private health insurance and plans, the Agência Nacional de Saúde Suplementar, while our Banmédica business is subject to Chilean, Colombian and Peruvian laws, regulations and regulators applicable to hospitals and private insurance. Any international regulator may take an approach to the interpretation, implementation and enforcement of industry regulations which could differ from the approach taken by U.S. regulators. In addition, our non-U.S. businesses and operations are subject to U.S. laws regulating the conduct and activities of U.S.-based businesses operating abroad, such as the FCPA, which prohibits offering, promising, providing or authorizing others to give anything of value to a foreign government official to obtain or retain business or otherwise secure a business advantage. Our failure to comply with U.S. or non-U.S. laws and regulations governing our conduct outside the United States or to establish constructive relations with non-U.S. regulators could adversely
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affect our ability to market our products and services, or to do so at targeted operating margins which may have a material adverse effect on our business, financial condition and results of operations.
The health care industry is regularly subject to negative publicity, including as a result of governmental investigations, adverse media coverage and political debate surrounding industry regulation. Negative publicity may adversely affect our stock price and damage our reputation in various markets.
As a result of our participation in various government health care programs, both as a payer and as a service provider to payers, we are exposed to additional risks associated with program funding, enrollments, payment adjustments, audits and government investigations which could materially and adversely affect our business, results of operations, financial position and cash flows.
We participate in various federal, state and local government health care benefit programs, including as a payer in Medicare Advantage, Medicare Part D, various Medicaid programs and CHIP, and receive substantial revenues from these programs. Certain of our Optum businesses also provide services to payers participating in government health care programs. A reduction or less than expected increase, or a protracted delay, in government funding for these programs or change in allocation methodologies, or termination of the contract at the option of the government, may materially and adversely affect our results of operations, financial position and cash flows.
The government health care programs in which we participate generally are subject to frequent changes, including changes which may reduce the number of persons enrolled or eligible for coverage, reduce the amount of reimbursement or payment levels, reduce our participation in certain service areas or markets, or increase our administrative or medical costs under such programs. Revenues for these programs depend on periodic funding from the federal government or applicable state governments and allocation of the funding through various payment mechanisms. Funding for these government programs depends on many factors outside of our control, including general economic conditions and budgetary constraints at the federal or applicable state level. For example, CMS has in the past reduced or frozen Medicare Advantage benchmarks, and additional cuts to Medicare Advantage benchmarks are possible. In addition, from time to time, CMS makes changes to the way it calculates Medicare Advantage risk adjustment payments. Although we have adjusted members’ benefits and premiums on a selective basis, ceased to offer benefit plans in certain counties, and intensified both our medical and operating cost management in response to the benchmark reductions and other funding pressures, these or other strategies may not fully address the funding pressures in the Medicare Advantage program. In addition, payers in the Medicare Advantage program may be subject to reductions in payments from CMS as a result of decreased funding or recoupment pursuant to government audit. States have also made changes in rates and reimbursements for Medicaid members and audits can result in unexpected recoupments.
Under the Medicaid managed care program, state Medicaid agencies seek bids from eligible health plans to continue their participation in the acute care Medicaid health programs. If we are not successful in obtaining renewals of state Medicaid managed care contracts, we risk losing the members who were enrolled in those Medicaid plans. Under the Medicare Part D program, to qualify for automatic enrollment of low income members, our bids must result in an enrollee premium below a regional benchmark, which is calculated by the government after all regional bids are submitted. If the enrollee premium is not below the government benchmark, we risk losing the members who were auto-assigned to us and will not have additional members auto-assigned to us. In general, our bids are based upon certain assumptions regarding enrollment, utilization, medical costs and other factors. If any of these assumptions is materially incorrect, either as a result of unforeseen changes to the programs on which we bid, implementation of material program or policy changes after our bid submission, or submission by our competitors at lower rates than our bids, our results of operations, financial position and cash flows could be materially and adversely affected.
Many of the government health care coverage programs in which we participate are subject to the prior satisfaction of certain conditions or performance standards or benchmarks. For example, as part of the ACA, CMS has a system providing various quality bonus payments to Medicare Advantage plans meeting certain quality star ratings at the individual plan or local contract level. The star rating system considers various measures adopted by CMS, including, among others, quality of care, preventive services, chronic illness management, handling of appeals and customer satisfaction. Plans must have a rating of four stars or higher to qualify for bonus payments. If we do not maintain or continue to improve our star ratings, our plans may not be eligible for quality bonuses and we may experience a negative impact on our revenues and the benefits our plans can offer, which could materially and adversely affect the marketability of our plans, our membership levels, results of operations, financial position and cash flows. Any changes in standards or care delivery models applying to government health care programs, including Medicare and Medicaid, or our inability to improve our quality scores and star ratings to meet government performance requirements or to match the performance of our competitors could result in limitations to our participation in or exclusion from these or other government programs, which in turn could materially and adversely affect our results of operations, financial position and cash flows.
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CMS uses various payment mechanisms to allocate funding for Medicare programs, including adjustment of monthly capitation payments to Medicare Advantage plans and Medicare Part D plans according to the predicted health status of each beneficiary as supported by data from health care providers for Medicare Advantage plans, as well as, for Medicare Part D plans, risk-sharing provisions based on a comparison of costs forecasted in our annual bids to actual prescription drug costs. Some state Medicaid programs utilize a similar process. For example, our UnitedHealthcare Medicare & Retirement and UnitedHealthcare Community & State businesses submit information relating to the health status of enrollees to CMS or state agencies for purposes of determining the amount of certain payments to us. CMS and the Office of Inspector General for HHS periodically perform risk adjustment data validation (RADV) audits of selected Medicare health plans to validate the coding practices of and supporting documentation maintained by health care providers. Certain of our local plans have been selected for such audits, which in the past have resulted and in the future could result in retrospective adjustments to payments made to our health plans, fines, corrective action plans or other adverse action by CMS.
We have been and in the future may become involved in routine, regular and special governmental investigations, audits, reviews and assessments. Such investigations, audits, reviews or assessments sometimes arise out of, or prompt claims by private litigants or whistleblowers who, among other allegations, may claim we failed to disclose certain business practices or, as a government contractor, submitted false or erroneous claims to the government. Governmental investigations, audits, reviews and assessments could lead to government actions, which have resulted in, and in the future could result in, adverse publicity, the assessment of damages, civil or criminal fines or penalties, or other sanctions, including restrictions or changes in the way we conduct business, loss of licensure or exclusion from participation in government programs, any of which could have a material adverse effect on our business, results of operations, financial position and cash flows.
Our businesses providing pharmacy care services face regulatory and operational risks and uncertainties which may differ from the risks of our other businesses.
We provide pharmacy care services through our Optum Rx and UnitedHealthcare businesses. Each business is subject to federal and state anti-kickback, beneficiary inducement and other laws governing the relationships of the business with pharmaceutical manufacturers, physicians, pharmacies, customers and consumers. In addition, federal and state legislatures regularly consider new regulations for the industry which could materially affect current industry practices, including potential new legislation and regulations regarding the receipt or disclosure of rebates and other fees from pharmaceutical companies, the development and use of formularies and other utilization management tools, the use of average wholesale prices or other pricing benchmarks, pricing for specialty pharmaceuticals, limited access to networks and pharmacy network reimbursement methodologies. Additionally, various governmental agencies have conducted investigations into certain PBM practices, which have resulted in other PBMs agreeing to civil penalties, including the payment of money and entry into corporate integrity agreements. As a provider of pharmacy benefit management services, Optum Rx is also subject to an increasing number of licensure, registration and other laws and accreditation standards. Optum Rx also conducts business through home delivery, specialty and compounding pharmacies, pharmacies located in community mental health centers and home infusion, which subjects it to extensive federal, state and local laws and regulations, including those of the DEA and individual state controlled substance authorities, the Food and Drug Administration (FDA) and Boards of Pharmacy.
We could face potential claims in connection with purported errors by our home delivery, specialty or compounding or clinic-based pharmacies or the provision of home infusion services, including as a result of the risks inherent in the packaging and distribution of pharmaceuticals and other health care products. Disruptions from any of our home delivery, specialty pharmacy or home infusion services could materially and adversely affect our results of operations, financial position and cash flows.
In addition, our pharmacy care services businesses provide services to sponsors of health benefit plans subject to ERISA. A private party or the DOL, which is the agency that enforces ERISA, could assert the fiduciary obligations imposed by the statute apply to some or all of the services provided by our pharmacy care services businesses even where those businesses are not contractually obligated to assume fiduciary obligations. If a court were to determine fiduciary obligations apply, we could be subject to claims for breaches of fiduciary obligations or claims we entered into certain prohibited transactions.
If we fail to comply with applicable privacy, security and data laws, regulations and standards, including with respect to third-party service providers utilizing protected personal information on our behalf, our business, reputation, results of operations, financial position and cash flows could be materially and adversely affected.
The collection, maintenance, protection, use, transmission, disclosure and disposal of protected personal information are regulated at the federal, state, international and industry levels and addressed in requirements imposed on us by contracts with customers. These laws, rules and requirements are subject to change. Compliance with new privacy and security laws, regulations and requirements may result in increased operating costs, and may constrain or require us to alter our business model or operations.
Internationally, many of the jurisdictions in which we operate have established their own data security and privacy legal framework with which we or our customers must comply. We expect there will continue to be new proposed laws, regulations
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and industry standards concerning privacy, data protection and information security in the European Union, Brazil, Chile, India and other jurisdictions, and we cannot yet determine the impacts such future laws, regulations and standards may have on our businesses or the businesses of our customers. For example, effective May 2018, the European Union’s General Data Protection Regulation (GDPR) overhauled data protection laws in the European Union. GDPR has imposed more stringent European Union data protection requirements on us or our customers, and prescribed greater penalties for noncompliance. Brazilian privacy legislation, similar in certain respects to GDPR, took effect in September 2020.
Many of our businesses are also subject to the Payment Card Industry Data Security Standard, which is a multifaceted security standard designed to protect payment card account data.
HIPAA requires business associates as well as covered entities to comply with certain privacy and security requirements. While we provide for appropriate protections through our contracts with our third-party service providers and in certain cases assess their security controls, we have limited oversight or control over their actions and practices. Several of our businesses act as business associates to their covered entity customers and, as a result, collect, use, disclose and maintain protected personal information in order to provide services to these customers. HHS administers its audit program to assess HIPAA compliance efforts by covered entities and business associates. An audit resulting in findings or allegations of noncompliance could have a material adverse effect on our results of operations, financial position and cash flows.
Through our Optum businesses, we maintain a database of administrative and clinical data statistically de-identified in accordance with HIPAA standards. Noncompliance or findings of noncompliance with applicable laws, regulations or requirements, or the occurrence of any privacy or security breach involving the misappropriation, loss or other unauthorized disclosure of protected personal information, whether by us or by one of our third-party service providers, could have a material adverse effect on our reputation and business and, among other consequences, could subject us to mandatory disclosure to the media, loss of existing or new customers, significant increases in the cost of managing and remediating privacy or security incidents, and material fines, penalties and litigation awards. Any of these consequences could have a material and adverse effect on our results of operations, financial position and cash flows.
Restrictions on our ability to obtain funds from our regulated subsidiaries could materially and adversely affect our results of operations, financial position and cash flows.
Because we operate as a holding company, we are dependent on dividends and administrative expense reimbursements from our subsidiaries to fund our obligations. Many of these subsidiaries are regulated by state departments of insurance or similar regulatory authorities. We are also required by law or regulation to maintain specific prescribed minimum amounts of capital in these subsidiaries. The levels of capitalization required depend primarily on the volume of premium revenues generated by the applicable subsidiary. In most states, we are required to seek approval by state regulatory authorities before we transfer money or pay dividends from our regulated subsidiaries exceeding specified amounts. An inability of our regulated subsidiaries to pay dividends to their parent companies in the desired amounts or at the time of our choosing could adversely affect our ability to reinvest in our business through capital expenditures or business acquisitions, as well as our ability to maintain our corporate quarterly dividend payment, repurchase shares of our common stock and repay our debt. If we are unable to obtain sufficient funds from our subsidiaries to fund our obligations, our results of operations, financial position and cash flows could be materially and adversely affected.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2.PROPERTIES
To support our business operations in the United States and other countries we own and lease real properties. Our various reportable segments use these facilities for their respective business purposes, and we believe these current facilities are suitable for their respective uses and are adequate for our anticipated future needs.
ITEM 3. LEGAL PROCEEDINGS
The information required by this Item 3 is incorporated herein by reference to the information set forth under the captions “Legal Matters” and “Governmental Investigations, Audits and Reviews” in Note 12 of the Notes to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and Supplementary Data. Data”
ITEM 4.MINE SAFETY DISCLOSURES
Not Applicable.
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PART II
ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
MARKET AND HOLDERS
Our common stock is traded on the New York Stock Exchange (NYSE) under the symbol UNH. On January 31, 2020,2022, there were 11,51710,644 registered holders of record of our common stock.
DIVIDEND POLICY
In June 2019,2021, the Company’s Board of Directors increased the Company’s quarterly cash divideddividend to shareholders to an annual rate of $4.32$5.80 compared to $3.60$5.00 per share, which the Company had paid since June 2018.2020. Declaration and payment of future quarterly dividends is at the discretion of the Board and may be adjusted as business needs or market conditions change.
ISSUER PURCHASES OF EQUITY SECURITIES
In November 1997, our Board of Directors adopted a share repurchase program, which the Board evaluates periodically. There is no established expiration date for the program. During the fourth quarter of 2019,2021, we repurchased 1.62.3 million shares at an average price of $256.55$447.99 per share. As of December 31, 2019,2021, we had Board authorization to purchase up to 7245 million shares of our common stock.
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PERFORMANCE GRAPH
The following performance graph compares the cumulative five-year total return to shareholders on our common stock relative to the cumulative total returns of the S&P 500 index, the S&P Health Care Index, and the Dow Jones US Industrial Average Index and the S&P 500 index for the five-year period ended December 31, 2019.2021. The comparisons assume the investment of $100 on December 31, 20142016 in our common stock and in each index, and that dividends were reinvested when paid.
| 12/14 | 12/15 | 12/16 | 12/17 | 12/18 | 12/19 | 12/16 | 12/17 | 12/18 | 12/19 | 12/20 | 12/21 | |||||||||||||||||||||||||||||||||||||||||||||||
| UnitedHealth Group | $ | 100.00 | $ | 118.26 | $ | 163.68 | $ | 228.86 | $ | 262.09 | $ | 314.47 | UnitedHealth Group | $ | 100.00 | $ | 139.82 | $ | 160.13 | $ | 192.13 | $ | 232.87 | $ | 338.16 | |||||||||||||||||||||||||||||||||
| S&P Health Care Index | 100.00 | 106.89 | 104.01 | 126.98 | 135.19 | 163.34 | S&P Health Care Index | 100.00 | 122.08 | 129.97 | 157.04 | 178.15 | 224.70 | |||||||||||||||||||||||||||||||||||||||||||||
| Dow Jones US Industrial Average | 100.00 | 100.21 | 116.74 | 149.56 | 144.35 | 180.94 | Dow Jones US Industrial Average | 100.00 | 128.11 | 123.65 | 154.99 | 170.06 | 205.68 | |||||||||||||||||||||||||||||||||||||||||||||
| S&P 500 Index | 100.00 | 101.38 | 113.51 | 138.29 | 132.23 | 173.86 | S&P 500 Index | 100.00 | 121.83 | 116.49 | 153.17 | 181.35 | 233.41 | |||||||||||||||||||||||||||||||||||||||||||||
The stock price performance included in this graph is not necessarily indicative of future stock price performance.
ITEM 6. [Reserved]
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| For the Years Ended December 31, | ||||||||||||||||||||
| (in millions, except percentages and per share data) | 2019 | 2018 | 2017 (a) | 2016 | 2015 (b) | |||||||||||||||
| Consolidated operating results | ||||||||||||||||||||
| Revenues | $ | 242,155 | $ | 226,247 | $ | 201,159 | $ | 184,840 | $ | 157,107 | ||||||||||
| Earnings from operations | 19,685 | 17,344 | 15,209 | 12,930 | 11,021 | |||||||||||||||
| Net earnings attributable to UnitedHealth Group common shareholders | 13,839 | 11,986 | 10,558 | 7,017 | 5,813 | |||||||||||||||
| Return on equity (c) | 25.7 | % | 24.4 | % | 24.4 | % | 19.4 | % | 17.7 | % | ||||||||||
| Basic earnings per share attributable to UnitedHealth Group common shareholders | $ | 14.55 | $ | 12.45 | $ | 10.95 | $ | 7.37 | $ | 6.10 | ||||||||||
| Diluted earnings per share attributable to UnitedHealth Group common shareholders | 14.33 | 12.19 | 10.72 | 7.25 | 6.01 | |||||||||||||||
| Cash dividends declared per common share | 4.14 | 3.45 | 2.875 | 2.375 | 1.875 | |||||||||||||||
| Consolidated cash flows from (used for) | ||||||||||||||||||||
| Operating activities | $ | 18,463 | $ | 15,713 | $ | 13,596 | $ | 9,795 | $ | 9,740 | ||||||||||
| Investing activities | (12,699 | ) | (12,385 | ) | (8,599 | ) | (9,355 | ) | (18,395 | ) | ||||||||||
| Financing activities | (5,625 | ) | (4,365 | ) | (3,441 | ) | (1,011 | ) | 12,239 | |||||||||||
| Consolidated financial condition | ||||||||||||||||||||
| (as of December 31) | ||||||||||||||||||||
| Cash and investments | $ | 51,454 | $ | 46,834 | $ | 43,831 | $ | 37,143 | $ | 31,703 | ||||||||||
| Total assets | 173,889 | 152,221 | 139,058 | 122,810 | 111,254 | |||||||||||||||
| Total commercial paper and long-term debt | 40,678 | 36,554 | 31,692 | 32,970 | 31,965 | |||||||||||||||
| Redeemable noncontrolling interests | 1,726 | 1,908 | 2,189 | 2,012 | 1,736 | |||||||||||||||
| Total equity | 60,436 | 54,319 | 49,833 | 38,177 | 33,725 | |||||||||||||||
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read together with the accompanying Consolidated Financial Statements and Notes to the Consolidated Financial Statements thereto included in Part II Item 8, “Financial Statementsand Supplementary Data.Data.” Readers are cautioned that the statements, estimates, projections or outlook contained in this report, including discussions regarding financial prospects, economic conditions, trends and uncertainties contained in this Item 7, may constitute forward-looking statements within the meaning of the PSLRA. These forward-looking statements involve risks and uncertainties thatwhich may cause our actual results to differ materially from the expectations expressed or implied in the forward-looking statements. A description of some of the risks and uncertainties can be found further below in this Item 7 and in Part I, Item 1A, “Risk Factors.”
Discussions of year-over-year comparisons between 20182020 and 2017 that2019 are not included in this Form 10-K and can be found in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Company’s Form 10-K for the fiscal year ended December 31, 2018.2020.
EXECUTIVE OVERVIEW
General
UnitedHealth Group is a diversified health care company dedicatedwith a mission to helpinghelp people live healthier lives and helpinghelp make the health system work better for everyone. Through our diversifiedOur two complementary businesses — Optum and UnitedHealthcare — are driven by this unified mission and vision to improve health care access, affordability, experiences and outcomes for the individuals and organizations we leverage core competencies in data analytics 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.privileged to serve.
We have four reportable segments across our two business platforms, UnitedHealthcareOptum and Optum:UnitedHealthcare:
•Optum Health;
•Optum Insight;
•Optum Rx; and
•UnitedHealthcare, which includes UnitedHealthcare Employer & Individual, UnitedHealthcare Medicare & Retirement, UnitedHealthcare Community & State and UnitedHealthcare Global;
Further information on our business and reportable segments is presented in Part I, Item 1, “Business” and in Note 1413 of the Notes to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statementsand Supplementary Data.Data.”
Business Trends
Our businesses participate in the United States, South America and certain other international health markets. In the United States, health care spending has grown consistently for many years and comprises 18% of gross domestic product (GDP). We expect overall spending on health care to continue to grow in the future, due to inflation, medical technology and pharmaceutical advancement, regulatory requirements, demographic trends in the population and national interest in health and well-being. The rate of market growth may be affected by a variety of factors, including macro-economicmacroeconomic conditions, such as the economic impact of COVID-19, and regulatory changes, which could impact our results of operations, including our continued efforts to control health care costs.
Pricing TrendsTrends.. To price our health care benefit products, we start with our view of expected future costs.costs, including any potential impacts from COVID-19. We frequently evaluate and adjust our approach in each of the local markets we serve, considering relevant factors, such as product positioning, price competitiveness and environmental, competitive, legislative and regulatory considerations, including minimum MLR thresholds. We will continue seeking to balance growth and profitability across all of these dimensions.
The commercial risk market remains highly competitive in both the small group, and large group and individual segments. We expect broad-based competition to continue as the industry adapts to individual and employer needs. The ACA, which includes three distinct taxes (ACA Tax), has 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 2018 federal budget imposed a one year moratorium for 2019 on the collection of the Health Insurance Industry Tax. Pricing for contracts that cover some portion of calendar year 2020 reflect the return of the Health Insurance Industry Tax. The ACA Tax was permanently repealed by Congress, effective January 1, 2021.
Medicare Advantage funding continues to be pressured, as discussed below in “Regulatory Trends and Uncertainties.”
We expect Medicaid revenue growth due to anticipated changes in mix and increases in the number of people we serve;pricing trends; we also believe that the payment rate environment creates the risk of continued downward pressure on Medicaid margin percentages. We continue to take a prudent, market-sustainable posture for both new business and maintenance of existing relationships. We continue to advocate for actuarially sound rates that are commensurate with our medical cost trends and we remain dedicated to partnering with those states that are committed to the long-term viability of their programs.
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Medical Cost Trends. Our medical cost trends primarily relate to changes in unit costs, health system utilization and prescription drug costs. COVID-19 related care costs as well as the deferral of care have impacted medical cost trends in 2021 and may continue to do so in 2022 and subsequent years. Future medical cost trends may be impacted by increased consumer demand for care, potentially even higher acuity care, due to the temporary deferral of care since the onset of the pandemic. We endeavor to mitigate those increases by engaging physicians and consumers with information and helping them make clinically sound choices, with the objective of helping them achieve high-quality, affordable care. The continued uncertain impact of COVID-19 may impact our ability to estimate medical costs payable, which has resulted in, and could continue to result in, increased variability to medical cost reserve development.
Delivery System and Payment Modernization. The health care market continues to change based on demographic shifts, new regulations, political forces and both payer and patient expectations. Health plans and care providers are being called upon to work together to close gaps in care and improve overall care quality, improve the health of populations and reduce costs. We continue to see a greater number of people enrolled in plans with underlying incentive-basedperformance-based care provider payment models that rewardrewarding high-quality, affordable care and foster collaboration. We work together with clinicians to leverage our data and analytics to provide the necessary information to close gaps in care and improve overall health outcomes for patients.
This trend is creating needs for health management services thatwhich can coordinate care around the primary care physician, including new primary care channels, and for investments in new clinical and administrative information and management systems, which we believe provide growth opportunities for our Optum business platform.
Regulatory Trends and Uncertainties
Following is a summary of management’s view of the trends and uncertainties related to some of the key provisions of the ACA and other regulatory matters. For additional information regarding the ACA and regulatory trends and uncertainties, see Part I, Item 1 “Business - Government Regulation” and Item 1A, “Risk Factors.”
Medicare Advantage Rates. Final 20202022 Medicare Advantage rates resulted in an increase in industry base rates of approximately 2.5%4.1%, short of the industry forward medical cost trend. This combined with the return of the Health Insurance Industry Tax createstrend, creating continued pressure in the Medicare Advantage program.
The ongoing Medicare Advantage funding pressure places continued importance on effective medical management and ongoing improvements in administrative efficiency. There are a number of adjustments we have made to partially offset these rate pressures and reductions. In some years, these adjustments impact the majority of the seniors we serve through Medicare Advantage. For example, we seek to intensify our medical and operating cost management, make changes to the size and composition of our care provider networks, adjust members' benefits and implement or increase the member premiums that supplementsupplementing the monthly payments we receive from the government. Additionally, we decide annually on a county-by-county basis where we will offer Medicare Advantage plans.
Our Medicare Advantage rates are currently enhanced by CMS quality bonuses in certain counties based on our local plans’ Star ratings. The level of Star ratings from CMS, based upon specified clinical and operational performance standards, will impact future quality bonuses.
ACA Tax.Tax (Health Insurance Tax). A provision in the 2019 Federal Budget imposed a one year moratorium for 2019 on the collection of theThe Health Insurance Industry Tax. In 2020, the industry-wide amount of the Health Insurance Industry Tax, which is primarily borne by customers, will be $15.5 billion and we expect our portion to be approximately $3.0 billion. The ACA Tax was permanently repealed by Congress, effective January 1, 2021. The permanent repeal of the tax impacts year-over-year comparability of our financial statements, including revenues, operating costs, medical care ratio (MCR), operating cost ratio, effective tax rate and cash flows from operations.
COVID-19 Trends and Uncertainties
The COVID-19 pandemic continues to evolve and the ultimate impact on our business, results of operations, financial condition and cash flows remains uncertain. In 2021, overall care activity continued to increase, including a mix of temporary deferral of care activity and COVID-19 related care costs. The temporary deferral of care was more than offset by COVID-19 related care and testing costs, rebate requirements and other revenue impacts and general economic impacts. In future periods, care patterns may moderately exceed normal baselines as previously deferred care is obtained and acuity temporarily rises due to missed regular care. From time to time, health system capacity may be subject to possible increased volatility due to the pandemic. Specific trends and uncertainties related to our two business platforms are as follows:
Optum. COVID-19 related care costs continued to impact our Optum Health value-based care delivery businesses, which were partially offset by the continued temporary deferral of care. The temporary deferral of care reduced fee-for-service care delivery volume, as well as Optum Insight and Optum Rx volume-based business activity, although we expect the impact to continue decreasing as care returns to, and potentially exceeds, normal levels. We believe COVID-19 will continue to influence customer and consumer behavior, both during and after the pandemic, which could impact how and where care is delivered and the manner in which consumers wish to receive their prescription drugs or infusion services. As a result of the dynamic situation and broad-reaching impact to the health system, the ultimate impact of COVID-19 on our Optum businesses is uncertain.
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UnitedHealthcare. In 2021, we continued expanded benefit coverage in areas such as COVID-19 related care and testing, telemedicine, and pharmacy; we also continued to assist our customers, care providers, members and communities in addressing the COVID-19 crisis. UnitedHealthcare’s 2021 results of operations were negatively impacted by COVID-19 related care and testing, rebate requirements and other revenue impacts, as well as broader economic impacts, partially offset by the continued deferral of care. The increase in people served through Medicaid was attributable in part to continuing action by states to ease eligibility redetermination requirements due to the COVID-19 public health emergency.
Disrupted care patterns, as a result of the pandemic, have affected and may continue to temporarily affect the ability to obtain complete member health status information, impacting revenue in businesses utilizing risk adjustment methodologies. The ultimate overall impact is uncertain and dependent on the future pacing, intensity and duration of the pandemic, the severity of new variants of the COVID-19 virus, the effectiveness and extent of administration of vaccination and treatments and general economic uncertainty.
SELECTED OPERATING PERFORMANCE ITEMS
The following represents a summary of select 20192021 year-over-year operating comparisons to 2018.2020.
•Consolidated revenues increased by 7%12%, UnitedHealthcare revenues increased 6%11% and Optum revenues grew 12%14%.
•UnitedHealthcare served 575,000 additional2.1 million more people domestically, as a result ofprimarily driven by growth in commercial businesscommunity and services to seniors, partially offset by the proactive withdrawal from the Iowa medicaid market.senior programs.
•Earnings from operations increased by 13%7%, including increasesan increase of 13%19% at UnitedHealthcare and 14%Optum, partially offset by a decrease of 3% at Optum.UnitedHealthcare.
•Diluted earnings per common share increased 18%13% to $14.33.$18.08.
•Cash flows from operations were $18.5 billion, an increase of 18%.$22.3 billion.
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RESULTS SUMMARY
The following table summarizes our consolidated results of operations and other financial information:
| (in millions, except percentages and per share data) | For the Years Ended December 31, | Change | ||||||||||||||||||||||||||||||
| 2021 | 2020 | 2019 | 2021 vs. 2020 | |||||||||||||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||||||||||
| Premiums | $ | 226,233 | $ | 201,478 | $ | 189,699 | $ | 24,755 | 12 | % | ||||||||||||||||||||||
| Products | 34,437 | 34,145 | 31,597 | 292 | 1 | |||||||||||||||||||||||||||
| Services | 24,603 | 20,016 | 18,973 | 4,587 | 23 | |||||||||||||||||||||||||||
| Investment and other income | 2,324 | 1,502 | 1,886 | 822 | 55 | |||||||||||||||||||||||||||
| Total revenues | 287,597 | 257,141 | 242,155 | 30,456 | 12 | |||||||||||||||||||||||||||
| Operating costs: | ||||||||||||||||||||||||||||||||
| Medical costs | 186,911 | 159,396 | 156,440 | 27,515 | 17 | |||||||||||||||||||||||||||
| Operating costs | 42,579 | 41,704 | 35,193 | 875 | 2 | |||||||||||||||||||||||||||
| Cost of products sold | 31,034 | 30,745 | 28,117 | 289 | 1 | |||||||||||||||||||||||||||
| Depreciation and amortization | 3,103 | 2,891 | 2,720 | 212 | 7 | |||||||||||||||||||||||||||
| Total operating costs | 263,627 | 234,736 | 222,470 | 28,891 | 12 | |||||||||||||||||||||||||||
| Earnings from operations | 23,970 | 22,405 | 19,685 | 1,565 | 7 | |||||||||||||||||||||||||||
| Interest expense | (1,660) | (1,663) | (1,704) | 3 | — | |||||||||||||||||||||||||||
| Earnings before income taxes | 22,310 | 20,742 | 17,981 | 1,568 | 8 | |||||||||||||||||||||||||||
| Provision for income taxes | (4,578) | (4,973) | (3,742) | 395 | (8) | |||||||||||||||||||||||||||
| Net earnings | 17,732 | 15,769 | 14,239 | 1,963 | 12 | |||||||||||||||||||||||||||
| Earnings attributable to noncontrolling interests | (447) | (366) | (400) | (81) | 22 | |||||||||||||||||||||||||||
| Net earnings attributable to UnitedHealth Group common shareholders | $ | 17,285 | $ | 15,403 | $ | 13,839 | $ | 1,882 | 12 | % | ||||||||||||||||||||||
| Diluted earnings per share attributable to UnitedHealth Group common shareholders | $ | 18.08 | $ | 16.03 | $ | 14.33 | $ | 2.05 | 13 | % | ||||||||||||||||||||||
| Medical care ratio (a) | 82.6 | % | 79.1 | % | 82.5 | % | 3.5 | % | ||||||||||||||||||||||||
| Operating cost ratio | 14.8 | 16.2 | 14.5 | (1.4) | ||||||||||||||||||||||||||||
| Operating margin | 8.3 | 8.7 | 8.1 | (0.4) | ||||||||||||||||||||||||||||
| Tax rate | 20.5 | 24.0 | 20.8 | (3.5) | ||||||||||||||||||||||||||||
| Net earnings margin (b) | 6.0 | 6.0 | 5.7 | — | ||||||||||||||||||||||||||||
| Return on equity (c) | 25.2 | % | 24.9 | % | 25.7 | % | 0.3 | % | ||||||||||||||||||||||||
________
(a)
| (in millions, except percentages and per share data) | For the Years Ended December 31, | Change | |||||||||||||||||
| 2019 | 2018 | 2017 | 2019 vs. 2018 | ||||||||||||||||
| Revenues: | |||||||||||||||||||
| Premiums | $ | 189,699 | $ | 178,087 | $ | 158,453 | $ | 11,612 | 7 | % | |||||||||
| Products | 31,597 | 29,601 | 26,366 | 1,996 | 7 | ||||||||||||||
| Services | 18,973 | 17,183 | 15,317 | 1,790 | 10 | ||||||||||||||
| Investment and other income | 1,886 | 1,376 | 1,023 | 510 | 37 | ||||||||||||||
| Total revenues | 242,155 | 226,247 | 201,159 | 15,908 | 7 | ||||||||||||||
| Operating costs: | |||||||||||||||||||
| Medical costs | 156,440 | 145,403 | 130,036 | 11,037 | 8 | ||||||||||||||
| Operating costs | 35,193 | 34,074 | 29,557 | 1,119 | 3 | ||||||||||||||
| Cost of products sold | 28,117 | 26,998 | 24,112 | 1,119 | 4 | ||||||||||||||
| Depreciation and amortization | 2,720 | 2,428 | 2,245 | 292 | 12 | ||||||||||||||
| Total operating costs | 222,470 | 208,903 | 185,950 | 13,567 | 6 | ||||||||||||||
| Earnings from operations | 19,685 | 17,344 | 15,209 | 2,341 | 13 | ||||||||||||||
| Interest expense | (1,704 | ) | (1,400 | ) | (1,186 | ) | (304 | ) | 22 | ||||||||||
| Earnings before income taxes | 17,981 | 15,944 | 14,023 | 2,037 | 13 | ||||||||||||||
| Provision for income taxes | (3,742 | ) | (3,562 | ) | (3,200 | ) | (180 | ) | 5 | ||||||||||
| Net earnings | 14,239 | 12,382 | 10,823 | 1,857 | 15 | ||||||||||||||
| Earnings attributable to noncontrolling interests | (400 | ) | (396 | ) | (265 | ) | (4 | ) | 1 | ||||||||||
| Net earnings attributable to UnitedHealth Group common shareholders | $ | 13,839 | $ | 11,986 | $ | 10,558 | $ | 1,853 | 15 | % | |||||||||
| Diluted earnings per share attributable to UnitedHealth Group common shareholders | $ | 14.33 | $ | 12.19 | $ | 10.72 | $ | 2.14 | 18 | % | |||||||||
| Medical care ratio (a) | 82.5 | % | 81.6 | % | 82.1 | % | 0.9 | % | |||||||||||
| Operating cost ratio | 14.5 | 15.1 | 14.7 | (0.6 | ) | ||||||||||||||
| Operating margin | 8.1 | 7.7 | 7.6 | 0.4 | |||||||||||||||
| Tax rate | 20.8 | 22.3 | 22.8 | (1.5 | ) | ||||||||||||||
| Net earnings margin (b) | 5.7 | 5.3 | 5.2 | 0.4 | |||||||||||||||
| Return on equity (c) | 25.7 | % | 24.4 | % | 24.4 | % | 1.3 | % | |||||||||||
(b)Net earnings margin attributable to UnitedHealth Group shareholders.
2021 RESULTS OF OPERATIONS COMPARED TO 20182020 RESULTS
Consolidated Financial Results
The increaseincreases in revenue wasrevenues were primarily driven by the increase in the number of individuals served through Medicare Advantage;Advantage, Medicaid and commercial offerings; pricing trends; and organic and acquisition growth across the Optum business, primarily due to expansion in pharmacy care services and care delivery, partially offset by the moratorium of the Health Insurance Industry Tax in 2019.delivery.
Medical Costs and MCR
Medical costs increased due toas a result of growth in people served through Medicare Advantage, Medicaid and commercial offerings, as well as increased COVID-19 related care costs and medical cost trends, partially offset by increased prior year favorable medical development.higher temporary care deferrals. The MCR increased due to increased COVID-19 related care costs and the revenue effectspermanent repeal of the Health Insurance Industry Tax, moratorium.
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The operating cost ratio decreased primarily due to the permanent repeal of the Health Insurance Tax, COVID-19 impacts on revenue and operating costs in the prior year and operating efficiency gains, partially offset by business mix.
Income Tax Rate
Our effective tax rate decreased primarily due to the permanent repeal of the nondeductible Health Insurance Tax.
Reportable Segments
See Note 1413 of Notes to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and Supplementary Data”Supplementary Data” for more information on our segments. We utilize various metrics to evaluate and manage our reportable segments, including individuals served by UnitedHealthcare by major market segment and funding arrangement, people served by Optum Health and adjusted scripts for Optum Rx. These metrics are the main drivers of revenue, earnings and cash flows at each business. The metrics also allow management and investors to evaluate and understand business mix, including the mix of care delivered through accountable care models at Optum Health, customer penetration and pricing trends when comparing the metrics to revenue by segment.
The following table presents a summary of the reportable segment financial information:
| For the Years Ended December 31, | Change | For the Years Ended December 31, | Change | ||||||||||||||||||||||||||||||||||||||||||||||||
| (in millions, except percentages) | 2019 | 2018 | 2017 | 2019 vs. 2018 | (in millions, except percentages) | 2021 | 2020 | 2019 | 2021 vs. 2020 | ||||||||||||||||||||||||||||||||||||||||||
| Revenues | Revenues | ||||||||||||||||||||||||||||||||||||||||||||||||||
| UnitedHealthcare | $ | 193,842 | $ | 183,476 | $ | 163,257 | $ | 10,366 | 6 | % | UnitedHealthcare | $ | 222,899 | $ | 200,875 | $ | 193,842 | $ | 22,024 | 11 | % | ||||||||||||||||||||||||||||||
| OptumHealth | 30,317 | 24,145 | 20,570 | 6,172 | 26 | ||||||||||||||||||||||||||||||||||||||||||||||
| OptumInsight | 10,006 | 9,008 | 8,087 | 998 | 11 | ||||||||||||||||||||||||||||||||||||||||||||||
| OptumRx | 74,288 | 69,536 | 63,755 | 4,752 | 7 | ||||||||||||||||||||||||||||||||||||||||||||||
| Optum Health | Optum Health | 54,065 | 39,808 | 30,317 | 14,257 | 36 | |||||||||||||||||||||||||||||||||||||||||||||
| Optum Insight | Optum Insight | 12,199 | 10,802 | 10,006 | 1,397 | 13 | |||||||||||||||||||||||||||||||||||||||||||||
| Optum Rx | Optum Rx | 91,314 | 87,498 | 74,288 | 3,816 | 4 | |||||||||||||||||||||||||||||||||||||||||||||
| Optum eliminations | (1,661 | ) | (1,409 | ) | (1,227 | ) | (252 | ) | 18 | Optum eliminations | (2,013) | (1,800) | (1,661) | (213) | 12 | ||||||||||||||||||||||||||||||||||||
| Optum | 112,950 | 101,280 | 91,185 | 11,670 | 12 | Optum | 155,565 | 136,308 | 112,950 | 19,257 | 14 | ||||||||||||||||||||||||||||||||||||||||
| Eliminations | (64,637 | ) | (58,509 | ) | (53,283 | ) | (6,128 | ) | 10 | Eliminations | (90,867) | (80,042) | (64,637) | (10,825) | 14 | ||||||||||||||||||||||||||||||||||||
| Consolidated revenues | $ | 242,155 | $ | 226,247 | $ | 201,159 | $ | 15,908 | 7 | % | Consolidated revenues | $ | 287,597 | $ | 257,141 | $ | 242,155 | $ | 30,456 | 12 | % | ||||||||||||||||||||||||||||||
| Earnings from operations | Earnings from operations | ||||||||||||||||||||||||||||||||||||||||||||||||||
| UnitedHealthcare | $ | 10,326 | $ | 9,113 | $ | 8,498 | $ | 1,213 | 13 | % | UnitedHealthcare | $ | 11,975 | $ | 12,359 | $ | 10,326 | $ | (384) | (3) | % | ||||||||||||||||||||||||||||||
| OptumHealth | 2,963 | 2,430 | 1,823 | 533 | 22 | ||||||||||||||||||||||||||||||||||||||||||||||
| OptumInsight | 2,494 | 2,243 | 1,770 | 251 | 11 | ||||||||||||||||||||||||||||||||||||||||||||||
| OptumRx | 3,902 | 3,558 | 3,118 | 344 | 10 | ||||||||||||||||||||||||||||||||||||||||||||||
| Optum Health | Optum Health | 4,462 | 3,434 | 2,963 | 1,028 | 30 | |||||||||||||||||||||||||||||||||||||||||||||
| Optum Insight | Optum Insight | 3,398 | 2,725 | 2,494 | 673 | 25 | |||||||||||||||||||||||||||||||||||||||||||||
| Optum Rx | Optum Rx | 4,135 | 3,887 | 3,902 | 248 | 6 | |||||||||||||||||||||||||||||||||||||||||||||
| Optum | 9,359 | 8,231 | 6,711 | 1,128 | 14 | Optum | 11,995 | 10,046 | 9,359 | 1,949 | 19 | ||||||||||||||||||||||||||||||||||||||||
| Consolidated earnings from operations | $ | 19,685 | $ | 17,344 | $ | 15,209 | $ | 2,341 | 13 | % | Consolidated earnings from operations | $ | 23,970 | $ | 22,405 | $ | 19,685 | $ | 1,565 | 7 | % | ||||||||||||||||||||||||||||||
| Operating margin | Operating margin | ||||||||||||||||||||||||||||||||||||||||||||||||||
| UnitedHealthcare | 5.3 | % | 5.0 | % | 5.2 | % | 0.3 | % | UnitedHealthcare | 5.4 | % | 6.2 | % | 5.3 | % | (0.8) | % | ||||||||||||||||||||||||||||||||||
| OptumHealth | 9.8 | 10.1 | 8.9 | (0.3 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| OptumInsight | 24.9 | 24.9 | 21.9 | — | |||||||||||||||||||||||||||||||||||||||||||||||
| OptumRx | 5.3 | 5.1 | 4.9 | 0.2 | |||||||||||||||||||||||||||||||||||||||||||||||
| Optum Health | Optum Health | 8.3 | 8.6 | 9.8 | (0.3) | ||||||||||||||||||||||||||||||||||||||||||||||
| Optum Insight | Optum Insight | 27.9 | 25.2 | 24.9 | 2.7 | ||||||||||||||||||||||||||||||||||||||||||||||
| Optum Rx | Optum Rx | 4.5 | 4.4 | 5.3 | 0.1 | ||||||||||||||||||||||||||||||||||||||||||||||
| Optum | 8.3 | 8.1 | 7.4 | 0.2 | Optum | 7.7 | 7.4 | 8.3 | 0.3 | ||||||||||||||||||||||||||||||||||||||||||
| Consolidated operating margin | 8.1 | % | 7.7 | % | 7.6 | % | 0.4 | % | Consolidated operating margin | 8.3 | % | 8.7 | % | 8.1 | % | (0.4) | % | ||||||||||||||||||||||||||||||||||
UnitedHealthcare
The following table summarizes UnitedHealthcare revenues by business:
| For the Years Ended December 31, | Change | ||||||||||||||||||
| (in millions, except percentages) | 2019 | 2018 | 2017 | 2019 vs. 2018 | |||||||||||||||
| UnitedHealthcare Employer & Individual | $ | 56,945 | $ | 54,761 | $ | 52,066 | $ | 2,184 | 4 | % | |||||||||
| UnitedHealthcare Medicare & Retirement | 83,252 | 75,473 | 65,995 | 7,779 | 10 | ||||||||||||||
| UnitedHealthcare Community & State | 43,790 | 43,426 | 37,443 | 364 | 1 | ||||||||||||||
| UnitedHealthcare Global | 9,855 | 9,816 | 7,753 | 39 | — | ||||||||||||||
| Total UnitedHealthcare revenues | $ | 193,842 | $ | 183,476 | $ | 163,257 | $ | 10,366 | 6 | % | |||||||||
| For the Years Ended December 31, | Change | |||||||||||||||||||||||||||||||
| (in millions, except percentages) | 2021 | 2020 | 2019 | 2021 vs. 2020 | ||||||||||||||||||||||||||||
| UnitedHealthcare Employer & Individual | $ | 60,023 | $ | 55,872 | $ | 56,945 | $ | 4,151 | 7 | % | ||||||||||||||||||||||
| UnitedHealthcare Medicare & Retirement | 100,552 | 90,764 | 83,252 | 9,788 | 11 | |||||||||||||||||||||||||||
| UnitedHealthcare Community & State | 53,979 | 46,487 | 43,790 | 7,492 | 16 | |||||||||||||||||||||||||||
| UnitedHealthcare Global | 8,345 | 7,752 | 9,855 | 593 | 8 | |||||||||||||||||||||||||||
| Total UnitedHealthcare revenues | $ | 222,899 | $ | 200,875 | $ | 193,842 | $ | 22,024 | 11 | % | ||||||||||||||||||||||
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The following table summarizes the number of individuals served by our UnitedHealthcare businesses, by major market segment and funding arrangement:
| December 31, | Change | December 31, | Change | ||||||||||||||||||||||||||||||||||||||||||||
| (in thousands, except percentages) | 2019 | 2018 | 2017 | 2019 vs. 2018 | (in thousands, except percentages) | 2021 | 2020 | 2019 | 2021 vs. 2020 | ||||||||||||||||||||||||||||||||||||||
| Commercial: | Commercial: | ||||||||||||||||||||||||||||||||||||||||||||||
| Risk-based | 8,575 | 8,495 | 8,420 | 80 | 1 | % | Risk-based | 7,985 | 7,910 | 8,575 | 75 | 1 | % | ||||||||||||||||||||||||||||||||||
| Fee-based | 19,185 | 18,420 | 18,595 | 765 | 4 | Fee-based | 18,595 | 18,310 | 19,185 | 285 | 2 | ||||||||||||||||||||||||||||||||||||
| Fee-based TRICARE | — | — | 2,850 | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Total commercial | 27,760 | 26,915 | 29,865 | 845 | 3 | Total commercial | 26,580 | 26,220 | 27,760 | 360 | 1 | ||||||||||||||||||||||||||||||||||||
| Medicare Advantage | 5,270 | 4,945 | 4,430 | 325 | 7 | Medicare Advantage | 6,490 | 5,710 | 5,270 | 780 | 14 | ||||||||||||||||||||||||||||||||||||
| Medicaid | 5,900 | 6,450 | 6,705 | (550 | ) | (9 | ) | Medicaid | 7,655 | 6,620 | 5,900 | 1,035 | 16 | ||||||||||||||||||||||||||||||||||
| Medicare Supplement (Standardized) | 4,500 | 4,545 | 4,445 | (45 | ) | (1 | ) | Medicare Supplement (Standardized) | 4,395 | 4,460 | 4,500 | (65) | (1) | ||||||||||||||||||||||||||||||||||
| Total public and senior | 15,670 | 15,940 | 15,580 | (270 | ) | (2 | ) | ||||||||||||||||||||||||||||||||||||||||
| Total community and senior | Total community and senior | 18,540 | 16,790 | 15,670 | 1,750 | 10 | |||||||||||||||||||||||||||||||||||||||||
| Total UnitedHealthcare - domestic medical | 43,430 | 42,855 | 45,445 | 575 | 1 | Total UnitedHealthcare - domestic medical | 45,120 | 43,010 | 43,430 | 2,110 | 5 | ||||||||||||||||||||||||||||||||||||
| International | 5,720 | 6,220 | 4,080 | (500 | ) | (8 | ) | ||||||||||||||||||||||||||||||||||||||||
| Global | Global | 5,510 | 5,425 | 5,720 | 85 | 2 | |||||||||||||||||||||||||||||||||||||||||
| Total UnitedHealthcare - medical | 49,150 | 49,075 | 49,525 | 75 | — | % | Total UnitedHealthcare - medical | 50,630 | 48,435 | 49,150 | 2,195 | 5 | % | ||||||||||||||||||||||||||||||||||
| Supplemental Data: | Supplemental Data: | ||||||||||||||||||||||||||||||||||||||||||||||
| Medicare Part D stand-alone | 4,405 | 4,710 | 4,940 | (305 | ) | (6 | )% | Medicare Part D stand-alone | 3,700 | 4,045 | 4,405 | (345) | (9) | % | |||||||||||||||||||||||||||||||||
UnitedHealthcare’s revenue and earnings from operationsrevenues increased due to growth in the number of individuals served through CommercialMedicare Advantage and Medicare Advantage,Medicaid, including a greater mix of people with a higher acuity needs. Revenue increases wereneeds, and an increase in the number of individuals served through commercial benefits, partially offset by the moratorium onpermanent repeal of the Health Insurance Industry Tax in 2019.and the impacts of COVID-19 on risk adjusted business. Earnings from operations were also favorably impacteddecreased due to increased COVID-19 related care costs and the impacts of COVID-19 on risk adjusted business, partially offset by operating cost management.higher temporary deferral of care and growth in people served across our domestic businesses.
Optum
Total revenues and earnings from operations increased due to growth across the Optum businesses. The results by segment were as each segment reportedfollows:
Optum Health
Revenues at Optum Health increased primarily due to organic growth in value-based arrangements, acquisitions in care delivery and the impact of COVID-19 at our fee-based businesses as consumers resumed elective care. Earnings from operations increased due to the factors impacting revenues as well as cost management initiatives and increased investment income. COVID-19 related care costs and temporary care deferrals affected earnings from operations at our value-based and fee-based businesses in offsetting manners. Optum Health served approximately 100 million people as of December 31, 2021 compared to 98 million people as of December 31, 2020.
Optum Insight
Revenues and earnings from operations as a result of the factors discussed below.at Optum Insight increased due to growth in technology and managed services, including expanding relationships serving health systems. Earnings from operations also increased due to productivity gains and overall cost management initiatives.
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LIQUIDITY, FINANCIAL CONDITION AND CAPITAL RESOURCES
Liquidity
Introduction
We manage our liquidity and financial position in the context of our overall business strategy. We continually forecast and manage our cash, investments, working capital balances and capital structure to meet the short-term and long-term obligations of our businesses while seeking to maintain liquidity and financial flexibility. Cash flows generated from operating activities are principally from earnings before noncash expenses.
Our regulated subsidiaries generate significant cash flows from operations and are subject to, among other things, minimalminimum levels of statutory capital, as defined by their respective jurisdiction,jurisdictions, and restrictions on the timing and amount of dividends paid to their parent companies.
Our U.S. regulated subsidiaries paid their parent companies dividends of $5.6$8.0 billion and $3.7$8.3 billion in 20192021 and 2018,2020, respectively. See Note 10 of the Notes to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statementsand Supplementary Data”Data” for further detail concerning our regulated subsidiary dividends.
Our nonregulated businesses also generate significant cash flows from operations that are available for general corporate use. Cash flows generated by these entities, combined with dividends from our regulated entities and financing through the issuance of long-term debt as well as issuance of commercial paper or the ability to draw under our committed credit facilities, further strengthen our operating and financial flexibility. We use these cash flows to expand our businesses through acquisitions, reinvest in our businesses through capital expenditures, repay debt and return capital to our shareholders through dividends and repurchases of our common stock.
Summary of our Major Sources and Uses of Cash and Cash Equivalents
| For the Years Ended December 31, | Change | |||||||||||||||||||||||||
| (in millions) | 2021 | 2020 | 2019 | 2021 vs. 2020 | ||||||||||||||||||||||
| Sources of cash: | ||||||||||||||||||||||||||
| Cash provided by operating activities | $ | 22,343 | $ | 22,174 | $ | 18,463 | $ | 169 | ||||||||||||||||||
| Issuances of long-term debt and short-term borrowings, net of repayments | 2,481 | 2,586 | 3,994 | (105) | ||||||||||||||||||||||
| Proceeds from common share issuances | 1,355 | 1,440 | 1,037 | (85) | ||||||||||||||||||||||
| Customer funds administered | 622 | 1,677 | 13 | (1,055) | ||||||||||||||||||||||
| Other | — | — | 219 | — | ||||||||||||||||||||||
| Total sources of cash | 26,801 | 27,877 | 23,726 | |||||||||||||||||||||||
| Uses of cash: | ||||||||||||||||||||||||||
| Cash paid for acquisitions, net of cash assumed | (4,821) | (7,139) | (8,343) | 2,318 | ||||||||||||||||||||||
| Cash dividends paid | (5,280) | (4,584) | (3,932) | (696) | ||||||||||||||||||||||
| Common share repurchases | (5,000) | (4,250) | (5,500) | (750) | ||||||||||||||||||||||
| Purchases of property, equipment and capitalized software | (2,454) | (2,051) | (2,071) | (403) | ||||||||||||||||||||||
| Purchases of investments, net of sales and maturities | (1,843) | (2,836) | (2,504) | 993 | ||||||||||||||||||||||
| Purchases of redeemable noncontrolling interests | (1,338) | — | (618) | (1,338) | ||||||||||||||||||||||
| Other | (1,549) | (965) | (619) | (584) | ||||||||||||||||||||||
| Total uses of cash | (22,285) | (21,825) | (23,587) | |||||||||||||||||||||||
| Effect of exchange rate changes on cash and cash equivalents | (62) | (116) | (20) | 54 | ||||||||||||||||||||||
| Net increase in cash and cash equivalents | $ | 4,454 | $ | 5,936 | $ | 119 | $ | (1,482) | ||||||||||||||||||
| For the Years Ended December 31, | Change | |||||||||||||||
| (in millions) | 2019 | 2018 | 2017 | 2019 vs. 2018 | ||||||||||||
| Sources of cash: | ||||||||||||||||
| Cash provided by operating activities | $ | 18,463 | $ | 15,713 | $ | 13,596 | $ | 2,750 | ||||||||
| Issuances of long-term debt and commercial paper, net of repayments | 3,994 | 4,134 | — | (140 | ) | |||||||||||
| Proceeds from common share issuances | 1,037 | 838 | 688 | 199 | ||||||||||||
| Customer funds administered | 13 | — | 3,172 | 13 | ||||||||||||
| Other | 219 | — | — | 219 | ||||||||||||
| Total sources of cash | 23,726 | 20,685 | 17,456 | |||||||||||||
| Uses of cash: | ||||||||||||||||
| Cash paid for acquisitions, net of cash assumed | (8,343 | ) | (5,997 | ) | (2,131 | ) | (2,346 | ) | ||||||||
| Cash dividends paid | (3,932 | ) | (3,320 | ) | (2,773 | ) | (612 | ) | ||||||||
| Common share repurchases | (5,500 | ) | (4,500 | ) | (1,500 | ) | (1,000 | ) | ||||||||
| Repayments of long-term debt and commercial paper, net of issuances | — | — | (2,615 | ) | — | |||||||||||
| Purchases of property, equipment and capitalized software | (2,071 | ) | (2,063 | ) | (2,023 | ) | (8 | ) | ||||||||
| Purchases of investments, net of sales and maturities | (2,504 | ) | (4,099 | ) | (4,319 | ) | 1,595 | |||||||||
| Other | (1,237 | ) | (1,743 | ) | (539 | ) | 506 | |||||||||
| Total uses of cash | (23,587 | ) | (21,722 | ) | (15,900 | ) | ||||||||||
| Effect of exchange rate changes on cash and cash equivalents | (20 | ) | (78 | ) | (5 | ) | 58 | |||||||||
| Net increase (decrease) in cash and cash equivalents | $ | 119 | $ | (1,115 | ) | $ | 1,551 | $ | 1,234 | |||||||
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Financial Condition
As of December 31, 2019,2021, our cash, cash equivalent, available-for-sale debt securities and equity securities balances of $49.1$65.1 billion included $11.0$21.4 billion of cash and cash equivalents (of which $584 million$2.8 billion was available for general corporate use), $36.1$40.2 billion of debt securities and $2.0$3.5 billion of investments in equity securities. Given the significant portion of our portfolio held in cash equivalents, we do not anticipate fluctuations in the aggregate fair value of our financial assets to have a material impact on our liquidity or capital position. Other sources of liquidity, primarily from operating cash flows and our commercial paper program, which is fully supported by our bank credit facilities, reduce the need to sell investments during adverse market conditions. See Note 4 of the Notes to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statementsand Supplementary Data”Data” for further detail concerning our fair value measurements.
Our available-for-sale debt portfolio had a weighted-average duration of 3.43.9 years and a weighted-average credit rating of “Double A” as of December 31, 2019.2021. When multiple credit ratings are available for an individual security, the average of the available ratings is used to determine the weighted-average credit rating.
Capital Resources and Uses of Liquidity
Our long-term cash requirements under our various contractual obligations and commitments include:
•Debt Obligations. See Note 8 of the Notes to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statementsand Supplementary Data” for further detail of our long-term debt and the timing of expected future payments. Interest coupon payments are typically paid semi-annually.
•Operating leases. See Note 12 of the Notes to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statementsand Supplementary Data” for further detail of our obligations and the timing of expected future payments.
•Purchase and other obligations. These include $4.7 billion, $2.7 billion of which is expected to be paid within the next twelve months, of fixed or minimum commitments under existing purchase obligations for goods and services, including agreements cancelable with the payment of an early termination penalty, and remaining capital commitments for venture capital funds and other funding commitments. These amounts exclude agreements cancelable without penalty and liabilities to the extent recorded in our Consolidated Balance Sheets as of December 31, 2021.
•Other Liabilities. These include other long-term liabilities reflected in our Consolidated Balance Sheets as of December 31, 2021, including obligations associated with certain employee benefit programs, unrecognized tax benefits and various long-term liabilities, which have some inherent uncertainty in the timing of these payments.
•Redeemable noncontrolling interests.See Note 2 of the Notes to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statementsand Supplementary Data” for further detail. We do not have any material required redemptions in the next twelve months.
We expect the cash required to meet our long-term obligations to be primarily generated through future cash flows from operations. However, we also have the ability to generate cash to satisfy both our current and long-term requirements through the issuance of commercial paper, issuance of long-term debt, or drawing under our committed credit facilities or the ability to sell investments. We believe our capital resources are sufficient to meet future, short-term and uses oflong-term, liquidity are as follows:needs.
Our revolving bank credit facilities contain various covenants, including covenants requiring us to maintain a defined debt to debt-plus-shareholders’ equity ratio of not more than 60%, subject to increase in certain circumstances set forth in the applicable credit agreement. As of December 31, 2019,2021, our debt to debt-plus-shareholders’ equity ratio, as defined and calculated under the credit facilities, was 39%36%.
Long-Term Debt. Periodically, we access capital markets to issue long-term debt for general corporate purposes, such as, to meet our working capital requirements, to refinance debt, to finance acquisitions or for share repurchases. For more information on our debt, see Note 8 of the Notes to the Consolidated Financial Statements included in Part II, Item 8 “Financial Statementsand Supplementary Data.Data.”
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Credit Ratings. Our credit ratings as of December 31, 20192021 were as follows:
| Moody’s | S&P Global | Fitch | A.M. Best | ||||||||||||||||||||||||||||||||||||||||||||
| Ratings | Outlook | Ratings | Outlook | Ratings | Outlook | Ratings | Outlook | ||||||||||||||||||||||||||||||||||||||||
| Senior unsecured debt | A3 | Stable | A+ | Stable | Stable | ||||||||||||||||||||||||||||||||||||||||||
| Commercial paper | P-2 | n/a | A-1 | n/a | F1 | n/a | n/a | ||||||||||||||||||||||||||||||||||||||||
The availability of financing in the form of debt or equity is influenced by many factors, including our profitability, operating cash flows, debt levels, credit ratings, debt covenants and other contractual restrictions, regulatory requirements and economic and market conditions. A significant downgrade in our credit ratings or adverse conditions in the capital markets may increase the cost of borrowing for us or limit our access to capital.
Share Repurchase Program. As of December 31, 2019,2021, we had Board authorization to purchase up to 7245 million shares of our common stock. For more information on our share repurchase program, see Note 10 of the Notes to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statements Statements.and Supplementary Data.Data.”
Dividends. In June 2019,2021, the Company’s Board of Directors increased the Company’s quarterly cash dividend to shareholders to an annual rate of $4.32$5.80 compared to $3.60$5.00 per share.share, which the Company had paid since June 2020. For more information on our dividend, see Note 10 of the Notes to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statements Statements.and Supplementary Data.Data.”
| (in millions) | 2020 | 2021 to 2022 | 2023 to 2024 | Thereafter | Total | |||||||||||||||
| Debt (a) | $ | 5,532 | $ | 9,118 | $ | 6,122 | $ | 44,302 | $ | 65,074 | ||||||||||
| Operating leases | 804 | 1,327 | 901 | 1,671 | 4,703 | |||||||||||||||
| Purchase and other obligations (b) | 1,617 | 2,483 | 768 | 248 | 5,116 | |||||||||||||||
| Other liabilities (c) | 914 | 344 | 285 | 7,767 | 9,310 | |||||||||||||||
| Redeemable noncontrolling interests (d) | 852 | 542 | — | 332 | 1,726 | |||||||||||||||
| Total contractual obligations | $ | 9,719 | $ | 13,814 | $ | 8,076 | $ | 54,320 | $ | 85,929 | ||||||||||
We do not have other significant contractual obligations or commitments that requirerequiring cash resources. However, we continually evaluate opportunities to expand our operations, which include internal development of new products, programs and technology applications and may include acquisitions.
CRITICAL ACCOUNTING ESTIMATES
Critical accounting estimates are those estimates that requirerequiring management to make challenging, subjective or complex judgments, often because they must estimate the effects of matters that are inherently uncertain and may change in subsequent periods. Critical accounting estimates involve judgments and uncertainties thatwhich are sufficiently sensitive and may result in materially different results under different assumptions and conditions.
Medical Costs Payable
Medical costs and medical costs payable include estimates of our obligations for medical care services that have been rendered on behalf of insured consumers, but for which claims have either not yet been received or processed. Depending on the health care professional and type of service, the typical billing lag for services can be up to 90 days from the date of service. Approximately 90% of claims related to medical care services are known and settled within 90 days from the date of service and substantially all within twelve months. As of December 31, 2019,2021, our days outstanding in medical payables was 5147 days, calculated as total medical payables divided by total medical costs times the number of days in the period.
In each reporting period, our operating results include the effects of more completely developed medical costs payable estimates associated with previously reported periods. If the revised estimate of prior period medical costs is less than the previous estimate, we will decrease reported medical costs in the current period (favorable development). If the revised estimate of prior period medical costs is more than the previous estimate, we will increase reported medical costs in the current
period (unfavorable development). Medical costs in 2019, 20182021, 2020 and 20172019 included favorable medical cost development related to prior years of $580 million, $320$1.7 billion, $880 million and $690$580 million, respectively.
In developing our medical costs payable estimates, we apply different estimation methods depending on the month for which incurred claims are being estimated. For example, for the most recent two months, we estimate claim costs incurred by applying observed medical cost trend factors to the average per member per month (PMPM) medical costs incurred in prior months for which more complete claim data is available, supplemented by a review of near-term completion factors.
Completion Factors. A completion factor is an actuarial estimate, based upon historical experience and analysis of current trends, of the percentage of incurred claims during a given period that have been adjudicated by us at the date of estimation. Completion factors are the most significant factors we use in developing our medical costs payable estimates for periods prior to the most recent two months. Completion factors include judgments in relation to claim submissions such as the time from date of service
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to claim receipt, claim levels and processing cycles, as well as other factors. Our judgments also consider the impacts of COVID-19 on these factors. If actual claims submission rates from providers (which can be influenced by a number of factors, including provider mix and electronic versus manual submissions) or our claim processing patterns are different than estimated, our reserve estimates may be significantly impacted.
The following table illustrates the sensitivity of these factors and the estimated potential impact on our medical costs payable estimates for those periods as of December 31, 2019: 2021:
Completion Factors (Decrease) Increase in Factors | Increase (Decrease) In Medical Costs Payable | Completion Factors (Decrease) Increase in Factors | Increase (Decrease) In Medical Costs Payable | |||||||||
| (in millions) | (in millions) | |||||||||||
| (0.75)% | $ | 584 | (0.75)% | $ | 686 | |||||||
| (0.50) | 388 | (0.50) | 456 | |||||||||
| (0.25) | 194 | (0.25) | 228 | |||||||||
| 0.25 | (193 | ) | 0.25 | (226) | ||||||||
| 0.50 | (384 | ) | 0.50 | (452) | ||||||||
| 0.75 | (575 | ) | 0.75 | (676) | ||||||||
Medical Cost Per Member Per Month Trend Factors. Medical cost PMPM trend factors are significant factors we use in developing our medical costs payable estimates for the most recent two months. Medical cost trend factors are developed through a comprehensive analysis of claims incurred in prior months, provider contracting and expected unit costs, benefit design and a review of a broad set of health care utilization indicators, includingwhich included consideration of COVID-19. These factors include but are not limited to pharmacy utilization trends, inpatient hospital authorization data and influenza incidence data from the National Centers for Disease Control. We also consider macroeconomic variables such as GDP growth, employment and disposable income. A large number of factors can cause the medical cost trend to vary from our estimates, including: our ability and practices to manage medical and pharmaceutical costs, changes in level and mix of services utilized,utilized; mix of benefits offered, including the impact of co-pays and deductibles,deductibles; changes in medical practices,practices; and catastrophes, epidemics and epidemics.pandemics, such as COVID-19.
The following table illustrates the sensitivity of these factors and the estimated potential impact on our medical costs payable estimates for the most recent two months as of December 31, 2019:2021:
Medical Cost PMPM Quarterly Trend Increase (Decrease) in Factors | Increase (Decrease) In Medical Costs Payable | Medical Cost PMPM Quarterly Trend Increase (Decrease) in Factors | Increase (Decrease) In Medical Costs Payable | |||||||||
| (in millions) | (in millions) | |||||||||||
| 3% | $ | 754 | 3% | $ | 895 | |||||||
| 2 | 502 | 2 | 597 | |||||||||
| 1 | 251 | 1 | 298 | |||||||||
| (1) | (1) | (298) | ||||||||||
| (251 | ) | (597) | ||||||||||
| (502 | ) | (895) | ||||||||||
| (3) | (754 | ) | ||||||||||
The completion factors and medical costs PMPM trend factors analyses above include outcomes that are considered reasonably likely based on our historical experience estimating liabilities for incurred but not reported benefit claims.
Management believes the amount of medical costs payable is reasonable and adequate to cover our liability for unpaid claims as of December 31, 2019;2021; however, actual claim payments may differ from established estimates as discussed above. Assuming a hypothetical 1% difference between our December 31, 20192021 estimates of medical costs payable and actual medical costs
payable, excluding AARP Medicare Supplement Insurance and any potential offsetting impact from premium rebates, 20192021 net earnings would have increased or decreased by approximately $160$184 million.
For more detail related to our medical cost estimates, see Note 2 of the Notes to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statementsand Supplementary Data.Data.”
Goodwill
We evaluate goodwill for impairment annually or more frequently when an event occurs or circumstances change that indicateindicating the carrying value may not be recoverable. When testing goodwill for impairment, we may first assess qualitative factors to determine if it is more likely than not that the carrying value of a reporting unit exceeds its estimated fair value. During a qualitative analysis, we consider the impact of changes, if any, to the following factors: macroeconomic, industry and market factors,factors; cost factors,
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factors; changes in overall financial performance,performance; and any other relevant events and uncertainties impacting a reporting unit. If our qualitative assessment indicates thata goodwill impairment is more likely than not, we perform additional quantitative analyses. We may also elect to skip the qualitative testing and proceed directly to the quantitative testing. For reporting units where a quantitative analysis is performed, we perform a multi-step test measuring the fair values of the reporting units and comparing them to their aggregate carrying values, including goodwill. If the fair value is less than the carrying value of the reporting unit, thenan impairment is recognized for the implied value of goodwill would be calculated and compareddifference, up to the carrying amount of goodwill to determine whether goodwill is impaired.goodwill.
We estimate the fair values of our reporting units using a discounted cash flow method or a weighted combination of discounted cash flows which includeand a market-based method. The discounted cash flow method includes assumptions about a wide variety of internal and external factors. Significant assumptions used in the impairment analysisdiscounted cash flow method include financial projections of free cash flow, (including significant assumptions about operations,including revenue trends, medical costs trends, operating productivity, income taxes and capital requirements and income taxes),levels; long-term growth rates for determining terminal value beyond the discretely forecasted periodsperiods; and discount rates. For each reporting unit, comparative market multiples are used to corroborate the results of our discounted cash flow test.
Discount rates are determined for each reporting unit and include consideration of the implied risk inherent in their forecasts. Our most significant estimate in the discount rate determinations involves our adjustments to the peer company weighted average costs of capital that reflectreflecting reporting unit-specific factors. We have not made any adjustments to decrease a discount rate below the calculated peer company weighted average cost of capital for any reporting unit. Company-specific adjustments to discount rates are subjective and thus are difficult to measure with certainty. The passage of time and the availability of additional information regarding areas of uncertainty with respect to the reporting units’ operations could cause these assumptions to change in the future. Additionally, as part of our quantitative impairment testing, we perform various sensitivity analyses on certain key assumptions, such as discount rates, cash flow projections and peer company multiples to analyze the potential for a material impact. The market-based method requires determination of an appropriate peer group whose securities are traded on an active market. The peer group is used to derive market multiples to estimate fair value. As of October 1, 2019,2021, we completed our annual impairment tests for goodwill with all of our reporting units having fair values substantially in excess of their carrying values.
LEGAL MATTERS
A description of our legal proceedings is presented in Note 12 of Notes to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statementsand Supplementary Data.Data.”
CONCENTRATIONS OF CREDIT RISK
Investments in financial instruments such as marketable securities and accounts receivable may subject us to concentrations of credit risk. Our investments in marketable securities are managed under an investment policy authorized by our Board of Directors. This policy limits the amounts thatwhich may be invested in any one issuer and generally limits our investments to U.S. government and agency securities, state and municipal securities and corporate debt obligations that areof investment grade.
Concentrations of credit risk with respect to accounts receivable are limited due to the large number of employer groups and other customers that constituteconstituting our client base. As of December 31, 2019,2021, there were no significant concentrations of credit risk.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our primary market risks are exposures to changes in interest rates that impactimpacting our investment income and interest expense and the fair value of certain of our fixed-rate investments and debt, as well as foreign currency exchange rate risk of the U.S. dollar primarily to the Brazilian real and Chilean peso.
As of December 31, 2019,2021, we had $14$25 billion of financial assets on which the interest rates received vary with market interest rates, which may significantly impact our investment income. Also as of December 31, 2019, $92021, $7 billion of our financial liabilities, which include commercial paper, debt and deposit liabilities, were at interest rates thatwhich vary with market rates, either directly or through the use of related interest rate swap contracts.
The fair value of our fixed-rate investments and debt also varies with market interest rates. As of December 31, 2019, $332021, $37 billion of our investments were fixed-rate debt securities and $39$45 billion of our debt was non-swapped fixed-rate term debt. An increase in market interest rates decreases the market value of fixed-rate investments and fixed-rate debt. Conversely, a decrease in market interest rates increases the market value of fixed-rate investments and fixed-rate debt.
We manage exposure to market interest rates by diversifying investments across different fixed-income market sectors and debt across maturities, as well as by endeavoring to matchmatching a portion of our floating-rate assets and liabilities, over time, either directly or through the use of interest rate swap contracts. Unrealized gains and losses on investments in available-for-sale debt securities are reported in comprehensive income.
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The following tables summarize the impact of hypothetical changes in market interest rates across the entire yield curve by 1% point or 2% points as of December 31, 20192021 and 20182020 on our investment income and interest expense per annum and the fair value of our investments and debt (in millions, except percentages):
| December 31, 2019 | December 31, 2021 | |||||||||||||||||||||||||||||||||||||||||
| Increase (Decrease) in Market Interest Rate | Investment Income Per Annum | Interest Expense Per Annum | Fair Value of Financial Assets (a) | Fair Value of Financial Liabilities | Increase (Decrease) in Market Interest Rate | Investment Income Per Annum | Interest Expense Per Annum | Fair Value of Financial Assets | Fair Value of Financial Liabilities | |||||||||||||||||||||||||||||||||
| 2 % | $ | 282 | $ | 185 | $ | (2,668 | ) | $ | (6,813 | ) | 2 % | $ | 499 | $ | 133 | $ | (3,080) | $ | (8,664) | |||||||||||||||||||||||
| 1 | 141 | 93 | (1,331 | ) | (3,704 | ) | 1 | 250 | 67 | (1,564) | (4,723) | |||||||||||||||||||||||||||||||
| (1) | (141 | ) | (93 | ) | 1,246 | 4,433 | (1) | (85) | (7) | 1,398 | 5,655 | |||||||||||||||||||||||||||||||
| (2) | (282 | ) | (185 | ) | 2,071 | 9,613 | (2) | (85) | (7) | 1,857 | 10,892 | |||||||||||||||||||||||||||||||
| December 31, 2018 | December 31, 2020 | |||||||||||||||||||||||||||||||||||||||||
| Increase (Decrease) in Market Interest Rate | Investment Income Per Annum | Interest Expense Per Annum | Fair Value of Financial Assets (a) | Fair Value of Financial Liabilities | Increase (Decrease) in Market Interest Rate | Investment Income Per Annum | Interest Expense Per Annum | Fair Value of Financial Assets | Fair Value of Financial Liabilities | |||||||||||||||||||||||||||||||||
| 2% | $ | 276 | $ | 189 | $ | (2,242 | ) | $ | (5,017 | ) | 2% | $ | 401 | $ | 163 | $ | (3,020) | $ | (8,700) | |||||||||||||||||||||||
| 1 | 138 | 94 | (1,140 | ) | (2,724 | ) | 1 | 201 | 82 | (1,499) | (4,744) | |||||||||||||||||||||||||||||||
| (1) | (138 | ) | (94 | ) | 1,118 | 3,155 | (1) | (75) | (12) | 820 | 5,266 | |||||||||||||||||||||||||||||||
| (2) | (276 | ) | (189 | ) | 2,196 | 6,953 | (2) | (75) | (12) | 886 | 8,101 | |||||||||||||||||||||||||||||||