United Healthcare 2007 Annual Report Download - page 31

products and a 5% decrease in the number of individuals served by commercial risk-based products in 2006
primarily due to the Company’s internal pricing decisions in a competitive commercial risk-based pricing
environment and the conversion of certain groups to fee-based products. Ovations revenues of $24.6 billion in
2006 increased by approximately $15.2 billion, or 162%, over 2005. Excluding the impact of acquisitions since
the beginning of 2005, Ovations revenues increased by $7.8 billion, or 85%, over 2005. The increase was
primarily driven by the successful launch of the Medicare Part D program, which had premium revenues of $5.7
billion for 2006, and an increase in the number of individuals served by Medicare Advantage and standardized
Medicare supplement products, as well as rate increases on these products. The remaining increase in Health
Care Services revenues is attributable to a 8% increase in AmeriChoice revenues, excluding the impact of
businesses acquired since the beginning of 2005, primarily driven by membership growth and premium revenue
rate increases on Medicaid products.
Health Care Services earnings from operations in 2006 were $5.9 billion, representing an increase of $1.5 billion,
or 34%, over 2005. This increase was principally driven by acquisitions and increases in the number of
individuals served by Ovations’ Medicare and Part D products and Commercial Markets’ fee-based products.
The segment also benefited by productivity gains from technology deployment and other cost management
initiatives, including cost savings associated with the PacifiCare acquisition integration. These initiatives also
reduced labor and occupancy costs in the transaction processing and customer service, billing and enrollment
functions. The Commercial Markets medical care ratio increased to 80.5% in 2006 from 79.6% in 2005 and the
UnitedHealthcare medical care ratio increased to 79.8% in 2006 from 78.6% in 2005, mainly due to the impact of
the PacifiCare acquisition and changes in product, business and customer mix. Health Care Services’ operating
margin for 2006 was 8.6%, a decrease from 9.9% in 2005. This decrease was driven mainly by the acquisition of
PacifiCare and the new Medicare Part D program, which have lower operating margins than historic
UnitedHealth Group businesses.
The following table summarizes the number of individuals served by Health Care Services, by major market
segment and funding arrangement, as of December 31:
(in thousands) 2006 2005
Commercial Risk-based ............................................ 11,285 11,350
Commercial Fee-based ............................................. 14,415 13,240
Total Commercial ............................................. 25,700 24,590
Medicare Advantage ............................................... 1,445 1,185
Medicaid ........................................................ 1,465 1,290
Standardized Medicare Supplement ................................... 2,275 2,150
Total Public and Senior ......................................... 5,185 4,625
Total Health Care Services Medical Benefits ........................ 30,885 29,215
The number of individuals served by commercial products as of December 31, 2006 increased by approximately
1.1 million, or 5%, over the prior year. Excluding the impact of businesses acquired since the beginning of 2005,
commercial business individuals served increased by 565,000, or 3%, over the prior year. This included an
increase of approximately 1.0 million in the number of individuals served with commercial fee-based products,
driven by new customer relationships and customers converting from risk-based products to fee-based products,
offset by a decrease of approximately 475,000 in the number of individuals served with commercial risk-based
products primarily due to the Company’s internal pricing decisions in a competitive commercial risk-based
pricing environment and the conversion of certain groups to fee-based products.
Excluding businesses acquired since the beginning of 2005, the number of individuals served by Medicare
Advantage products increased by 230,000 from 2005 primarily due to new customer relationships, while
individuals served by standardized Medicare supplement products increased by 125,000, or 6%, due to new
29