United Healthcare 2003 Annual Report Download - page 46

44 UnitedHealth Group
1 DESCRIPTION OF BUSINESS
UnitedHealth Group Incorporated (also referred to as “UnitedHealth Group,” “the company,” “we,”
“us,” and “our”) is a national leader in forming and operating orderly, efficient markets for the
exchange of high quality health and well-being services. Through strategically aligned, market-defined
businesses, we offer health care access, benefits and related administrative, technology and information
services designed to enable, facilitate and advance optimal health care.
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
We have prepared the consolidated financial statements according to accounting principles generally
accepted in the United States of America and have included the accounts of UnitedHealth Group and
its subsidiaries. We have eliminated all significant intercompany balances and transactions.
Use of Estimates
These consolidated financial statements include certain amounts that are based on our best estimates
and judgments. These estimates require us to apply complex assumptions and judgments, often because
we must make estimates about the effects of matters that are inherently uncertain and will change in
subsequent periods. The most significant estimates relate to medical costs, medical costs payable,
revenues, contingent liabilities and asset valuations, allowances and impairments. We adjust these
estimates each period, as more current information becomes available. The impact of any changes in
estimates is included in the determination of earnings in the period in which the estimate is adjusted.
Revenues
Premium revenues are primarily derived from risk-based health insurance arrangements in which the
premium is fixed, typically for a one-year period, and we assume the economic risk of funding our
customers’ health care services and related administrative costs. We recognize premium revenues in the
period in which eligible individuals are entitled to receive health care services. We record health care
premium payments we receive from our customers in advance of the service period as unearned
premiums.
Service revenues consist primarily of fees derived from services performed for customers that self-
insure the medical costs of their employees and their dependents. Under service fee contracts, we
recognize revenue in the period the related services are performed based upon the fee charged to the
customer. The customers retain the risk of financing medical benefits for their employees and their
employees’ dependents, and we administer the payment of customer funds to physicians and other
health care providers from customer-funded bank accounts. Because we do not have the obligation for
funding the medical expenses, nor do we have responsibility for delivering the medical care, we do not
recognize gross revenue and medical costs for these contracts in our consolidated financial statements.
For both premium risk-based and fee-based customer arrangements, we provide coordination and
facilitation of medical services, transaction processing, customer, consumer and care provider services,
and access to contracted networks of physicians, hospitals and other health care professionals.
Medical Costs and 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, and for liabilities for physician, hospital and other medical cost disputes. We
develop estimates for medical costs incurred but not reported using an actuarial process that is
consistently applied, centrally controlled and automated. The actuarial models consider factors such as
time from date of service to claim receipt, claim backlogs, provider contract rate changes, medical care
Notes to Consolidated Financial Statements