United Healthcare 2001 Annual Report Download

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2 00 1 Annual Report
UnitedHealth Group
MAKING
HEALTH CARE
MORE
CHOICE
SIMPLICITY
FACILITATION
TECHNOLOGY
INFORMATION

Table of contents

  • Page 1
    Un ited H ealth Gr o u p 2 0 01 An n u a l R e p or t CH OI CE S I M P L I CI T Y F ACI L I T AT I ON T E CH N OL OGY I N F OR M AT I ON M AK I N G H E ALT H CAR E M OR E

  • Page 2
    M ORE ACCE S S I B L E

  • Page 3
    M ORE AF F OR D AB L E

  • Page 4
    M ORE E F F I CI E N T

  • Page 5
    M ORE R E S P ON S I VE

  • Page 6
    M ORE S U P P OR T I VE

  • Page 7
    M ORE I N F OR M E D

  • Page 8
    ...crease from 2000. > Cash flows from operation s in creased to more th an $1.8 billion , a 21 percen t in crease. > Return on equity rose to more th an 24 percen t for th e year. > We provided services to over 1.4 million more American s th an in 2000 an d n ow directly serve more th an 38 million...

  • Page 9
    ... as the chairman and chief executive of one of our nation's leading health care companies, but as a former practicing physician, medical researcher, a shareholder and, most importantly, a deeply concerned fellow citizen. OUR N AT I ON A L H EA LT H CA R E SY ST EM : CH A L L EN GES A N D H OPE Th...

  • Page 10
    ...we must avoid weigh in g down th e process with too man y agen das an d avoid th e n arrow rh etoric of self-in terest. I do n ot advocate a broader role for govern men t in operatin g our h ealth services or addin g furth er coverage man dates for th e private sector. I am also opposed to a sin gle...

  • Page 11
    ... regulation, which in turn adds incremental costs and process complexity. But done properly, the rewards can be meaningful and rapid. This has been well demonstrated with UnitedHealth Group's deployment of free Internet portals that establish links with physicians, employers and individual consumers...

  • Page 12
    ... in to medical practice, an d provide ph ysician s with feedback on th eir actual clin ical practices compared again st eviden ce-based stan dards. O n a related poin t, we sh ould as a n ation wh oleh eartedly support our federally operated research en terprises such as th e Nation al In stitutes...

  • Page 13
    ... ow. Un itedH ealth Group remain s committed to bein g a leader in resolvin g th e problems an d issues n ow ch ron ic to our h ealth care system. An d we will pursue solution s on all fron ts. We will con tin ue to en gage our n ation al leaders to address fun damen tal issues rath er th an n arrow...

  • Page 14
    M ORE E F F E CT I VE William W. McGuire, M.D.

  • Page 15
    ... Group UnitedHealth Group provides a comprehensive and diversified array of health and well-being services through five operating business segments. Across all of its businesses, UnitedHealth Group advances its lon g-stan din g an d fun damen tal commitmen t to broad an d diverse access to care, ch...

  • Page 16
    > > > > > Uniprise Ingenix UnitedHealthcare Ovations Specialized Care Services Our diversified business segments use advanced technologies and intense market focus to design and deliver MORE I N N O V A T I V E health and well-being services. PAGE 15 Un itedH ealth Grou p

  • Page 17
    ... to review and adjust bills online and remit payments electronically. This service, which is surpassing planned adoption targets, reduces costs and simplifies administrative processes for customers. B R OAD CAR E ACCE S S AN D E XCE P T I ON AL VAL U E Un iprise delivers exception al value th...

  • Page 18
    Ingenix Ingenix is an international leader in the field of health care data analysis and application. The company serves pharmaceutical companies, health insurers and payers, health care providers, large employers and government entities on a business-to-business basis with a broad portfolio of ...

  • Page 19
    ...h ealth an d well-bein g topics. > > Internet services for physicians enable them to check benefit eligibility for their patients, submit claims, and review claim and payment status. As of year-end, office practices representing more than 100,000 physicians were using the Web site. By year-end 2002...

  • Page 20
    .... Ovations operates the largest pharmacy discount drug program in America for AARP members, with annual revenues of more than $300 million. As part of this business, Ovations also provides older Americans with a broad range of non-prescription health and well-being products. E VE R CAR E Evercare...

  • Page 21
    ... Benefits provided th rough Specialized Care Ser vices give small an d medium-sized employer groups a con ven ien t an d simple way to deliver a total ben efits package to th eir employees. [ F I N AN CI AL P E R F OR M AN CE ] 2001 2000 1999 ( in millions) Revenues Earnings From Operations...

  • Page 22
    FIN A N CIA L R EVIEW Focused business execution and sustained business management disciplines promote MORE products and services P R O D U C T I V E and help drive superior per formance. PAGE 21 Un itedH ealth Grou p

  • Page 23
    ...-year summar y of selected fin an cial data: For the Y ear Ended December 31, (in millions, except per share data) CON SOLI DATED OPERATI N G RESU LTS 2001 2000 1999 1998 1997 Revenues Earnings ( Loss) From Operations Net Earnings ( Loss) Net Earnings ( Loss) Applicable to Common Shareholders Basic...

  • Page 24
    ... ealth care's commercial busin esses in th e Pacific Coast region , th e with drawal of its Medicare+Ch oice product offerin g from targeted coun ties an d th e closure of Un iprise's Medicare fiscal in termediary operation s. Adjusted for the effects of these business and market exits and excluding...

  • Page 25
    .... Changes in productivity and revenue mix affect the operating cost ratio. For our fastestgrowing businesses ( Uniprise, Specialized Care Services, Ingenix and Ovations Pharmacy Services), most direct costs of revenue are included in operating costs, not medical costs. Using a revenue mix comparable...

  • Page 26
    ... s th at may result in furth er with drawals of Medicare product offerings or reductions in membership, when and as permitted by its contracts with the Centers for Medicare and Medicaid Services ( CMS) , formerly known as the Health Care Financing Administration. PAGE 25 Un itedH ealth Grou p

  • Page 27
    ..., its mental health benefit business, and an increase in specialized services purchased by customers ser viced by Un iprise an d Un itedH ealth care. Earn in gs from operation s reach ed $214 million in 2001, an in crease of 23% over 2000. Specialized Care Ser vices' operatin g margin decreased from...

  • Page 28
    ... growth in Un iprise's multi-site customer base, growth in Un itedH ealth care's fee-based busin ess, modest price in creases, an d acquisition s an d growth in th e Specialized Care Ser vices an d In gen ix busin esses. Investment and Other Income In vestmen t an d oth er in come in 2000 totaled...

  • Page 29
    ...The following summarizes the operating results of our business segments for the years ended December 31 ( in million s) : REVEN U ES 2000 1999 Percent Change Health Care Services Uniprise Specialized Care Services Ingenix Corporate and Eliminations Consolidated Revenues EARN I N GS FROM OPERATI...

  • Page 30
    ... tin ued growth in Un iprise's large multi-site customer base, wh ich h ad an 11% in crease in in dividuals ser ved, as well as ch an ges in fun din g arran gemen ts selected by certain customers and price increases on fee-based business. Uniprise served 6.7 million and 6.0 million individuals as of...

  • Page 31
    ...of or discontinuing business units, product lines and contracts; and consolidating and eliminating certain claim processing and customer service operations and associated real estate obligations. We completed our operational realignment plan in 2001. Actual costs incurred executing the Plan exceeded...

  • Page 32
    ... requiremen ts an d market con dition s. We believe th at our strategies an d action s toward main tain in g fin an cial flexibility mitigate much of th is risk. CA S H A N D I N VES T M EN T S During 2001, we generated cash from operations of more than $1.8 billion, an increase of $323 million...

  • Page 33
    ... price of approximately $58 per share. During 2001 and 2000, we invested $425 million and $245 million, respectively, in property, equipment and capitalized software. These investments were made to support business growth, operational efficiency, service improvements and technology enhancements...

  • Page 34
    ...and services to members of AARP. Under the terms of the contract, we are compensated for claim administration and other services as well as for assuming underwriting risk. We are also engaged in product development activities to complement the insurance offerings under this program. Premium revenues...

  • Page 35
    ... upon h istorical claim submission an d paymen t data, cost tren ds, customer an d product mix, season ality, utilization of h ealth care ser vices, con tracted ser vice rates an d oth er relevan t factors. Th e estimates may ch an ge as actuarial meth ods ch an ge or as un derlyin g facts upon wh...

  • Page 36
    ...h ealth care services. Customers are typically billed mon th ly at a con tracted rate per en rolled member multiplied by th e n umber of members eligible to receive services, as recorded in our records. Because employer groups gen erally provide us with ch an ges to th eir eligible member population...

  • Page 37
    ...ess practices; an d claims relatin g to customer audits an d con tract per forman ce. In 1999, a number of class action lawsuits were filed against us and virtually all major entities in the health benefits business. The suits are purported class actions on behalf of certain customers and physicians...

  • Page 38
    ... to the Patients' Bill of Rights, e-commerce activities and consumer privacy issues; ( c) heightened competition as a result of new entrants into our market, mergers and acquisitions of health care companies and suppliers, and expansion of physician or practice management companies; ( d) events that...

  • Page 39
    ...except per share data) REVEN U ES 2001 2000 1999 Premiums Fees In vestmen t an d Oth er In come Total Reven ues M EDI CAL AN D OPERATI N G COSTS $ 20,683 2,490 281 23,454 $ 18,926 1,964 232 21,122 $ 17,550 1,793 219 19,562 Medical Costs Operating...of UnitedHealth Capital Investments ... STOCK OPTI...

  • Page 40
    ...' Equity Common Stock, $0.01 par value - 1,500,000,000 shares authorized; 308,626,000 and 317,235,000 shares outstanding Additional Paid-In Capital Retain ed Earn in gs Accumulated Oth er Compreh en sive In come: Net Unrealized Gains on Investments, net of tax effects TOTAL SH AREH OLDERS...

  • Page 41
    ...AT EM EN T S O F CH A N GES I N S H A R EH O L DER S ' EQ UI T Y (in millions) BALAN CE AT DECEM BER 3 1 , 1 9 9 8 Common Stock Shares Amount Additional Paid-In Capital Retained Earnings Net Unrealized Gains on Total Investments Shareholders' Available for Sale Equity Comprehensive Income 368...

  • Page 42
    ... 2001 2000 1999 Net Earn in gs Non cash Items Depreciation an d Amortization Deferred In come Taxes an d Oth er Net Change in Other Operating Items, net of effects from acquisitions, sales of subsidiaries and changes in AARP balan ces Accoun ts Receivable an d Oth er Curren t Assets Medical Costs...

  • Page 43
    ... using actuarial methods based upon historical claim submission and payment data, cost trends, customer and product mix, seasonality, utilization of health care services, contracted service rates and other relevant factors. The estimates may change as actuarial methods change or as underlying facts...

  • Page 44
    ...our agreement, AARP assets are managed separately from our general investment portfolio and are used to pay costs associated with the AARP program. These assets are invested at our discretion, within investment guidelines approved by AARP. At December 31, 2001, the assets were invested in marketable...

  • Page 45
    ... for th e fin al settlemen t. O T H ER PO L I CY L I A B I L I T I ES O th er policy liabilities in clude th e rate stabilization fun d associated with th e AARP program ( see Note 5) an d customer balan ces related to experien ce-rated in suran ce products. Customer balan ces represen t premium...

  • Page 46
    ...No. 142 as of th e begin n in g of th e respective periods: For th e Y ear En ded December 31, ( in millions, except per share data) 2001 2000 1999 N ET EARN I N GS Reported Net Earn in gs Goodwill Amortization, net of tax effects Adjusted Net Earnings BASI C N ET EARN I N GS PER COM M ON SH ARE...

  • Page 47
    ... our Specialized Care Services business segment acquired Dental Benefit Providers, Inc. ( DBP) , one of the largest dental benefit management companies in the United States. We paid $105 million in cash, and we accounted for the acquisition using the purchase method of accounting. The purchase price...

  • Page 48
    ...; employee terminations; disposing of or discontinuing business units, product lines and contracts; and consolidating and eliminating certain claim processing and customer service operations and associated real estate obligations. We completed our operation al realign men t plan in 2001. Actual...

  • Page 49
    ... losses related to the AARP business are recorded as an increase or decrease to a rate stabilization fund (RSF). The primary components of the underwriting results are premium revenue, medical costs, investment income, administrative expenses, member service expenses, marketing expenses and premium...

  • Page 50
    ... maturities of more th an five years. During 2001, 2000 and 1999, respectively, we contributed UnitedHealth Capital investments valued at ap p roxim ately $22... O th er In come in th e accompan yin g Con solidated Statemen ts of O peration s. In a sep arate d isp osition of Un ited H ealth Cap ital in...

  • Page 51
    ... in November 2001. In Jan uary 2002, we issued $400 million of 5.2% fixed-rate n otes due Jan uary 2007. Proceeds from th is borrowin g will be used to repay commercial paper an d for gen eral corporate purposes in cludin g workin g capital, capital expen ditures, busin ess acquisition s an d sh...

  • Page 52
    ... AN S The company maintains various stock and incentive plans for the benefit of eligible employees and directors. As of December 31, 2001, employee stock and incentive plans allowed for the future granting of up to 29.6 million shares as incentive or non-qualified stock options, stock appreciation...

  • Page 53
    ... exercise price not less than the fair market value of the common stock at the date of grant. They generally vest over four years and may be exercised up to 10 years from the date of grant. Activity under our various stock plans is summarized in the table below ( shares in thousands) : 2001 Shares...

  • Page 54
    ... we received upon the exercise of non-qualified stock options. The company, together with its wholly-owned subsidiaries, files a consolidated federal income tax return. Tax returns for fiscal years 1998 and 1999 are currently being examined by the Internal Revenue Service. We do not believe any...

  • Page 55
    ... for certain data center operations and support, and network and voice communication services, each with an approximate term of 10 years. Expenses incurred in connection with these agreements were $196 million in 2001, $182 million in 2000 and $172 million in 1999. L EGA L M AT T ER S Becau se...

  • Page 56
    ...service and claim processing services Uniprise provides to UnitedHealthcare, certain product offerings sold to Uniprise and UnitedHealthcare customers by Specialized Care Services, and sales of medical benefits cost, quality and utilization data and predictive modeling to UnitedHealthcare by Ingenix...

  • Page 57
    ... CI AL D ATA ( U N AU D I T E D ) For the Quarter Ended (in millions, except per share data) March 31 June 30 September 30 December 31 2001 Revenues Medical and Operating Expenses Earnings From Operations Net Earnings Basic Net Earnings per Common Share Diluted Net Earnings per Common Share 2000...

  • Page 58
    ... an d privately with th e compan y's in depen den t public accoun tan ts an d man agemen t to review accoun tin g, auditin g, in tern al con trol, fin an cial reportin g an d oth er matters. William W. M cGuire, M D To th e Sh areh olders an d Directors of Un itedH ealth Group In corporated: We...

  • Page 59
    ... Human Capital John S. Penshorn Former Chairman and Chief Executive Officer The St. Paul Companies, Inc. Insurance and related services Complian ce an d Govern men t Affairs Committee Richard T. Burke Walter F. M ondale Gail R. Wilensky Director of Capital Markets Communications and Strategy...

  • Page 60
    ... ( in million s, except per sh are data) 2001 2000 1999 1999 Cash Flows From Operating Activities Capital Expenditures Consideration Paid or Issued for Acquisitions Debt to Total Capital Return on Shareholders' Equity Y ear-End Market Capitalization Y ear-End Common Share Price $ 1,844 $ $ 425...

  • Page 61
    ... each fiscal year an d decide wh eth er it is advisable to declare a dividen d on th e outstan din g sh ares of common stock. Shareholders of record on April 2, 2001, received an annual dividend for 2001 of $0.03 per share. On February 12, 2002, the board of directors approved an annual dividend for...

  • Page 62
    U nitedH ealth Group U nitedH ealth Group Center 9 9 0 0 Bren Road East M innetonka, M innesota 5 5 3 4 3 100-3795