United Healthcare 2004 Annual Report Download

Download and view the complete annual report

Please find the complete 2004 United Healthcare annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 72

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72

2004
Annual
Report
The
Measure
of a
Company
UNITEDHEALTH GROUP

Table of contents

  • Page 1
    U N I T E D H E A LT H G R O U P 2004 Annual Report The Measure of a Company

  • Page 2
    Quality Affordability Accessibility Usability

  • Page 3
    ... in its accessibility - work better. Over these years, we have held fast to our key beliefs in offering choice and access, simplifying the health care experience, promoting safe and evidence-based medicine, facilitating care for people and, ultimately, improving affordability. These core principles...

  • Page 4
    ... us to provide meaningful advances for our shareholders as well: > > Strong revenue growth has been driven by an expanding customer base, which Health care cost trends have been contained through an array of services and has accessed both new and established services. programs designed to reduce...

  • Page 5
    ... aspirations and actions are too modest, and our pace lacks appropriate urgency given the costs in both human suffering and the national economic resources we currently expend. We believe the efforts of UnitedHealth Group and others are important to meeting the broad challenges related to health and...

  • Page 6
    ... and access - for all Americans. 18 years How long UnitedHealth Group has championed a Centers of Excellence approach to developing specialized networks with proven expertise in meeting complex care needs. 125,000 clinical quality reports The number of evidence-based guideline reports sent...

  • Page 7
    46,000,000 Individuals The number of people who, through UnitedHealth Group, have access to nationally recognized Centers of Excellence in the areas of transplantation, congenital heart disease, kidney dialysis, reproductive services and complex cancer care.

  • Page 8
    ... care buying decisions as users of new consumer-driven, account-based health benefit products offered by UnitedHealth Group businesses. 10% to 50% discounts The range of savings a typical consumer with traditional health benefits can realize by using UnitedHealth Group's discount buying program...

  • Page 9
    2,500,000 Seniors The number of seniors who significantly lower their pharmaceutical costs through leading prescription drug discount card programs provided by Ovations.

  • Page 10
    ... quality care services. 175,000 ancillary care providers The number of dentists, behavioral health professionals, vision specialists, chiropractors, physical therapists and complementary care providers organized into accessible programs for customers through various UnitedHealth Group businesses. 17...

  • Page 11
    The number of uninsured people eligible for a first-of-its-kind ï¬,exible and affordable health benefits program through the partnership between UnitedHealth Group and 60 major companies in the HR Policy Association. 3,000,000 Workers and early retirees

  • Page 12
    ... in the customer experience while lowering costs. 18 million cards The number of electronic ID cards in circulation that enable real-time verification of benefits eligibility for UnitedHealth Group customers. Stored-value cards also were introduced that let consumers pay for qualified health care...

  • Page 13
    300,000,000 Annualized transactions - Internet and electronic channels 2005 projected Dedicated Internet service portals give consumers, physicians, employers and brokers convenient access to information and service capabilities, while lowering administrative costs. 218,100,000 128,800,000 38,100...

  • Page 14
    Business Overview 12

  • Page 15
    ... UnitedHealth Group actions can be measured: making health care work better. The measure of UnitedHealth Group > Providing broad and convenient access to the most comprehensive spectrum of health and well-being services available today. > Offering ï¬,exible, modular product designs that customers...

  • Page 16
    ... of physical medicine services through ACN Group, including chiropractic and physical therapy services, by using an evidence-based approach to enhance the consistency and quality of care delivered. ACN Group provides access to consumer-direct health and fitness solutions and discounted products...

  • Page 17
    ... retirees; and an employee discount program for many out-of-pocket health-related expenses. > Advancing proprietary state-of-the-art banking and financial service processes and technologies to improve the way health care works for all participants. These capabilities enable account-based products...

  • Page 18
    ... disease management programs, reminder programs, and consumer information services about health conditions and treatment options. > Promoting evidence-based medicine by sharing Clinical Profiles and conducting peer-to-peer reviews with physicians, hospitals and other care providers. > Simplifying...

  • Page 19
    ... of government-sponsored health care programs in 13 states. The measure of AmeriChoice > Coordinating resources among family, physicians, other health care providers and government and community-based resources to ensure timely, effective care. > Providing direct outreach assistance to individuals...

  • Page 20
    ... consumers can make informed decisions about how to design and manage benefit offerings, direct health care spending and allocate resources, thus making the health care system more efficient, accessible and affordable for all. > Providing information tools and services to assess treatment options...

  • Page 21
    ...Statements of Operations 40 Consolidated Balance Sheets 41 Consolidated Statements of Changes in Shareholders' Equity 42 Consolidated Statements of Cash Flows 43 Notes to Consolidated Financial Statements 44 Report of Management 63 Reports of Independent Registered Public Accounting Firm...

  • Page 22
    ... per share data) CONSOLIDATED OPERATING RESULTS 2004 1 2003 For the Year Ended December 31, 2002 2001 2000 Revenues Earnings From Operations Net Earnings Return on Shareholders' Equity Basic Net Earnings per Common Share Diluted Net Earnings per Common Share Common Stock Dividends per Share...

  • Page 23
    ...-based products, revenue mix changes and operational and productivity improvements. > Return on shareholders' equity of 31.4%. UnitedHealth Group acquired Oxford Health Plans, Inc. (Oxford) in July 2004 for total consideration of approximately $5.0 billion and acquired Mid Atlantic Medical Services...

  • Page 24
    ... Advantage products and changes in product mix related to Medicare supplement products, as well as rate increases on all of these products. Premium revenues from AmeriChoice's Medicaid programs and Specialized Care Services' businesses also increased due to advances in the number of individuals...

  • Page 25
    ... was driven by a more than 3% increase in the total number of individuals served by Health Care Services and Uniprise in 2004, excluding the impact of acquisitions, and general operating cost inï¬,ation, partially offset by productivity gains from technology deployment and other cost management...

  • Page 26
    ... was driven mainly by favorable settlements of prior year income tax returns. BUSINESS SEGMENTS The following summarizes the operating results of our business segments for the years ended December 31 (in millions): REVENUES 2004 2003 Percent Change Health Care Services Uniprise Specialized Care...

  • Page 27
    ... commercial medical care ratio and changes in business and customer mix. The following table summarizes the number of individuals served by Health Care Services, by major market segment and funding arrangement, as of December 311: (in thousands) 2004 2003 Commercial Risk-Based Fee-Based Total...

  • Page 28
    ... companies, each serving a specialized market need with a unique offering of benefits, networks, services and resources. Specialized Care Services revenues during 2004 of $2.3 billion increased by $417 million, or 22%, over 2003. This increase was principally driven by an increase in the number...

  • Page 29
    ...programs since the acquisition date. The remaining premium revenue growth in 2003 was primarily driven by growth in the number of individuals served by Ovations' Medicare supplement products provided to AARP members and its Evercare business, along with growth in several of Specialized Care Services...

  • Page 30
    ... following summarizes the operating results of our business segments for the years ended December 31 (in millions): REVENUES 2003 2002 Percent Change Health Care Services Uniprise Specialized Care Services Ingenix Corporate and Eliminations Consolidated Revenues EARNINGS FROM OPERATIONS $ 24,807...

  • Page 31
    ... programs since the acquisition date. Ovations revenues increased by $319 million, or 5%, primarily due to increases in the number of individuals served by both its Medicare supplement products provided to AARP members and by its Evercare business. Health Care Services earnings from operations...

  • Page 32
    ... Specialized Care Services revenues during 2003 of $1.9 billion increased by $369 million, or 24%, over 2002. This increase was principally driven by an increase in the number of individuals served by United Behavioral Health, its behavioral health benefits business; Dental Benefit Providers...

  • Page 33
    ... pricing processes, which seek to match premium rate increases with future health care costs. In 2004, a hypothetical unexpected 1% increase in commercial insured medical costs would have reduced net earnings by approximately $105 million. The availability of financing in the form of debt or equity...

  • Page 34
    ... $240 million issued in exchange for Oxford's outstanding vested common stock options. On February 10, 2004, our Health Care Services business segment acquired MAMSI. Under the terms of the purchase agreement, MAMSI shareholders received 0.82 shares of UnitedHealth Group common stock and $18 in cash...

  • Page 35
    ...material contractual obligations, off-balance sheet arrangements or commitments that require cash resources; however, we continually evaluate opportunities to expand our operations. This includes internal development of new products, programs and technology applications, and may include acquisitions...

  • Page 36
    ... their parent companies. Generally, the amount of dividend distributions that may be paid by a regulated subsidiary, without prior approval by state regulatory authorities, is limited based on the entity's level of statutory net income and statutory capital and surplus. The agencies that assess our...

  • Page 37
    ...fit plan changes, and business mix changes related to products, customers and geography. Depending on the health care provider and type of service, the typical billing lag for services can range from two to 90 days from the date of service. Substantially all claims related to medical care services...

  • Page 38
    ... revenues in the period eligible individuals are entitled to receive health care services. Customers are typically billed monthly at a contracted rate per eligible person multiplied by the total number of people eligible to receive services, as recorded in our records. Employer groups generally...

  • Page 39
    ... actions related to the design, management and offerings of our services. We record liabilities for our estimates of probable costs resulting from these matters. These matters include, but are not limited to, claims relating to health care benefits coverage, medical malpractice actions, contract...

  • Page 40
    ... of equity investments, primarily held by our UnitedHealth Capital business in various public and non-public companies concentrated in the areas of health care delivery and related information technologies. Market conditions that affect the value of health care or technology stocks will likewise...

  • Page 41
    ... such as marketable securities and accounts receivable may subject UnitedHealth Group 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 that may be invested in any...

  • Page 42
    ...D AT E D S TAT E M E N T S O F O P E R AT I O N S (in millions, except per share data) REVENUES 2004 For the Year Ended December 31, 2003 2002 Premiums Services Investment and Other Income Total Revenues MEDICAL AND OPERATING COSTS $ 33,495 3,335 388 37,218 $ 25,448 3,118 257 28,823 $ 21,906...

  • Page 43
    ...per share data) ASSETS 2004 2003 Current Assets Cash and Cash Equivalents $ Short-Term Investments Accounts Receivable, net of allowances of $101 and $88 Assets Under Management Deferred Income Taxes Other Current Assets Total Current Assets Long-Term Investments Property, Equipment and Capitalized...

  • Page 44
    CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (in millions) BALANCE AT DECEMBER 31, 2001 Common Stock Shares Amount Additional Paid-In Capital Retained Earnings Net Unrealized Total Gains on Shareholders' Comprehensive Investments Equity Income 617 26 (44) - $ 6 - - - $ 36 905...

  • Page 45
    ... Net Change in Other Operating Items, net of effects from acquisitions, and changes in AARP balances Accounts Receivable and Other Current Assets Medical Costs Payable Accounts Payable and Accrued Liabilities Other Policy Liabilities Unearned Premiums CASH FLOWS FROM OPERATING ACTIVITIES INVESTING...

  • Page 46
    ...UnitedHealth Group," "the company," "we," "us," and "our") is a diversified health and well-being company dedicated to making health care work better. Through strategically aligned, market-defined businesses, we design products, provide services and apply technologies that improve access to health...

  • Page 47
    ... 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 consumption...

  • Page 48
    ...RSF associated with the AARP program (see Note 11), customer balances related to experience-rated insurance products and the current portion of future policy benefits for life insurance and annuity contracts. Customer balances represent excess customer payments and deposit accounts under experience...

  • Page 49
    .... 123, "Accounting for Stock-Based Compensation," to stock-based employee compensation. (in millions, except per share data) NET EARNINGS 2004 For the Year Ended December 31, 2003 2002 As Reported Compensation Expense, net of tax effect Pro Forma BASIC NET EARNINGS PER COMMON SHARE 2,587 (132...

  • Page 50
    ... evaluate the impact of this new accounting standard on our process for determining other-than-temporary impairments of applicable debt and equity securities upon final issuance. 3 Acquisitions On July 29, 2004, our Health Care Services business segment acquired Oxford Health Plans, Inc. (Oxford...

  • Page 51
    ... business segment acquired Mid Atlantic Medical Services, Inc. (MAMSI). MAMSI offers a broad range of health care coverage and related administrative services for individuals and employers in the mid-Atlantic region of the United States. This merger strengthened UnitedHealthcare's market position...

  • Page 52
    ...national market leader in consumer-driven health benefit programs. This acquisition strengthened our position in the emerging consumer-driven health benefits marketplace. We paid $305 million in cash in exchange for all of the outstanding stock of Definity. The purchase price and costs associated...

  • Page 53
    ... Statements of Operations. 5 Goodwill and Other Intangible Assets Changes in the carrying amount of goodwill, by segment, during the years ended December 31, 2004 and 2003, were as follows: (in millions) Health Care Services Uniprise Specialized Care Services Ingenix Consolidated Balance at...

  • Page 54
    ...(229) $ 1,750 79 150 438 427 - 499 - - 454 - - 2,047 (229) $ 1,818 $ 1 Estimated based on third-party quoted market prices for the same or similar issues. As of December 31, 2004, our outstanding commercial paper had interest rates ranging from 2.3% to 2.4%. We have interest rate swap agreements...

  • Page 55
    ... may be paid to their parent companies. Generally, the amount of dividend distributions that may be paid by a regulated subsidiary, without prior approval by state regulatory authorities, is limited based on the entity's level of statutory net income and statutory capital and surplus. At December 31...

  • Page 56
    ...the option pricing models were as follows: 2004 2003 2002 Risk-Free Interest Rate Expected Volatility Expected Dividend Yield Expected Life in Years 3.3% 28.5% 0.1% 4.2 2.6% 30.9% 0.1% 4.1 2.5% 40.2% 0.1% 4.5 Information regarding the effect on net earnings and net earnings per common share had...

  • Page 57
    ... Unearned Premiums Medical Costs Payable and Other Policy Liabilities Long-Term Liabilities Net Operating Loss Carryforwards Other Subtotal Less: Valuation Allowances Total Deferred Income Tax Assets Deferred Income Tax Liabilities Capitalized Software Development Net Unrealized Gains on Investments...

  • Page 58
    ... millions) 2004 2003 Accounts Receivable Assets Under Management Medical Costs Payable Other Policy Liabilities Other Current Liabilities $ $ $ $ $ 389 1,883 899 1,162 211 $ $ $ $ $ 352 1,959 874 1,275 162 The effects of changes in balance sheet amounts associated with the AARP program accrue...

  • Page 59
    ... equivalents and investments associated with the AARP insurance program, included in Assets Under Management, were as follows (in millions): 2004 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Cash and Cash Equivalents Debt Securities - Available for Sale Total Cash and...

  • Page 60
    ... actions related to the design, management and offerings of our services. We record liabilities for our estimates of probable costs resulting from these matters. These matters include, but are not limited to, claims relating to health care benefits coverage, medical malpractice actions, contract...

  • Page 61
    ...2000, the American Medical Association filed a lawsuit against the company in the Supreme Court of the State of New York, County of New York. On April 13, 2000, we removed this case to the United States District Court for the Southern District of New York. The suit alleges causes of action based on...

  • Page 62
    ...reportable business segments include the nature of operating activities, existence of separate senior management teams, and the type of information presented to the company's chief operating decision-maker to evaluate our results of operations. Our accounting policies for business segment operations...

  • Page 63
    ... presents segment financial information as of and for the years ended December 31, 2004, 2003 and 2002 (in millions): 2004 Revenues - External Customers Revenues - Intersegment Investment and Other Income Total Revenues Health Care Services Uniprise Specialized Care Services Ingenix Corporate and...

  • Page 64
    ...Operations Net Earnings Basic Net Earnings per Common Share Diluted Net Earnings per Common Share $ 6,975 $ 6,322 $ 653 $ 403 $ 0.68 $ 0.65 $ 7,087 $ 6,378 $ 709 $ 439 $ 0.74 $ 0.71 $ 7,238 $ 6,475 $ 763 $ 476 $ 0.81 $ 0.77 $ 7,523 $ 6,713 $ 810 $ 507 $ 0.87 $ 0.83 1 UnitedHealth Group acquired...

  • Page 65
    ... T The management of UnitedHealth Group is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. The company's internal control system is designed to provide reasonable...

  • Page 66
    ... principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company's internal control over financial reporting as of December 31, 2004, based on...

  • Page 67
    ...changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, management's assessment that the Company maintained effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based...

  • Page 68
    ... Professor in Health Policy, and Associate Dean, Faculty of Medicine Columbia University Robert L. Ryan James A. Johnson Mary O. Mundinger William G. Spears COMPLIANCE AND GOVERNMENT AFFAIRS COMMITTEE President and Chief Operating Officer UnitedHealth Group James A. Johnson Senior Vice President...

  • Page 69
    ... - CONSOLIDATED (in millions, except per share data) 2004 2003 2002 Revenues Earnings From Operations Operating Margin Return on Net Assets Net Earnings Net Margin Diluted Net Earnings per Common Share GROWTH & PROFITS - BY SEGMENT (in millions) HEALTH CARE SERVICES $ 37,218 $ 4,101 11.0% 35...

  • Page 70
    ... for the company's stock as reported on the New York Stock Exchange for the calendar periods shown through February 15, 2005. These prices do not include commissions or fees associated with purchasing or selling this security. High Low 2005 You can contact UnitedHealth Group Investor Relations to...

  • Page 71

  • Page 72
    UnitedHealth Group UnitedHealth Group Center 9900 Bren Road East Minnetonka, Minnesota 55343 www.unitedhealthgroup.com 100-6172