United Healthcare 2006 Annual Report Download - page 48

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(3) Includes fixed or minimum commitments under existing purchase obligations for goods and services,
including agreements which are cancelable with the payment of an early termination penalty. Excludes
agreements that are cancelable without penalty and also excludes liabilities to the extent recorded on the
Consolidated Balance Sheets at December 31, 2006.
(4) Estimated payments required under life and annuity contracts held by a divested entity. Under our
reinsurance arrangement with OneAmerica Financial Partners, Inc. (OneAmerica) these amounts are
payable by OneAmerica, but we remain primarily liable to the policyholders if they are unable to pay (See
Note 5 of the Notes to Consolidated Financial Statements). The payable is offset by a corresponding
reinsurance receivable from OneAmerica.
(5) Includes obligations associated with certain employee benefit programs and minority interest purchase
commitments.
The table above includes a facility lease agreement that we signed in 2006. Lease payments are expected to
commence under this agreement in March 2009, at the time we occupy the facility, and extend over a 20 year
period with total estimated lease payments of $229 million.
In conjunction with the PacifiCare acquisition we committed to make $50 million in charitable contributions to
the benefit of California health care consumers, which has been accrued on our Consolidated Balance Sheets.
Additionally, we agreed to invest $200 million in California’s health care infrastructure to further health care
services to the underserved populations of the California marketplace. The timing and amount of individual
contributions and investments are at our discretion, subject to the advice and oversight of local regulatory
authorities; however, our goal is to have the investment commitment fully funded by the end of 2010. The
investment commitment remains in place for 20 years after full funding. We have committed to specific projects
totaling $12 million of the $50 million charitable commitment at this time.
Due to the financial restatements previously discussed, the Company has determined that certain options
exercised by nonexecutive officer employees in 2006 were discount options subject to Section 409A of the
Internal Revenue Code. The Company notified the Internal Revenue Service (IRS) on February 28, 2007 that it
would participate in the IRS’s resolution program which allows the Company to pay its employees’ additional
tax costs under Section 409A. As such, the Company will take a charge, net of tax benefit, of approximately $55
million in the first quarter of 2007.
Currently, we do not have any other 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.
Medicare Part D Pharmacy Benefits Contract
Beginning January 1, 2006, the Company began serving as a plan sponsor offering Medicare Part D prescription
drug insurance coverage under a contract with CMS. The Company contracts with CMS on an annual basis.
Under Medicare Part D, members have access to a standard drug benefit that features a monthly premium,
typically with an initial annual deductible, coinsurance of 25% for the member and 75% for the Company up to
an initial coverage limit of $2,250 of annual drug costs, no insurance coverage between $2,250 and $5,100
(except the member gets the benefit of the Company’s significant drug discounts), and catastrophic coverage for
annual drug costs in excess of $5,100 covered approximately 80% by CMS, 15% by the Company and 5% by the
member up to an annual out-of-pocket maximum of $3,600.
The Company’s contract with CMS includes risk-sharing provisions, wherein CMS retains approximately 75% to
80% of the losses or profits outside a pre-defined risk corridor. The risk-sharing provisions take effect if actual
pharmacy benefit costs are more than 2.5% above or below expected cost levels as submitted by the Company in
its initial contract application.
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