United Healthcare 2003 Annual Report Download - page 53

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UnitedHealth Group 51
4 AARP
In January 1998, we initiated a 10-year contract to provide health insurance products and services to
members of AARP. Under the terms of the contract, we are compensated for transaction processing 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 from our
portion of the AARP insurance offerings were approximately $4.1 billion in 2003, $3.7 billion in 2002
and $3.6 billion in 2001.
The underwriting gains or losses related to the AARP business are directly 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 taxes. Underwriting gains and losses are recorded as an
increase or decrease to the RSF and accrue to AARP policyholders, unless cumulative net losses were
to exceed the balance in the RSF. To the extent underwriting losses exceed the balance in the RSF, we
would have to fund the deficit. Any deficit we fund could be recovered by underwriting gains in future
periods of the contract. To date, we have not been required to fund any underwriting deficits. The
RSF balance is reported in Other Policy Liabilities in the accompanying Consolidated Balance Sheets.
We believe the RSF balance is sufficient to cover potential future underwriting or other risks associated
with the contract.
The following AARP program-related assets and liabilities are included in our Consolidated Balance
Sheets:
Balance as of December 31,
(in millions) 2003 2002
Accounts Receivable $352 $294
Assets Under Management $1,959 $2,045
Medical Costs Payable $874 $893
Other Policy Liabilities $1,275 $1,299
Other Current Liabilities $162 $147
The effects of changes in balance sheet amounts associated with the AARP program accrue to AARP
policyholders through the RSF balance. Accordingly, we do not include the effect of such changes in
our Consolidated Statements of Cash Flows.