United Healthcare 2008 Annual Report Download - page 93

UNITEDHEALTH GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Under the Program, the Company is compensated for transaction processing and other services, as well as for
assuming underwriting risk. The Company is also engaged in product development activities to complement the
insurance offerings. Premium revenues from the Company’s portion of the Program were approximately $5.7
billion in 2008, $5.3 billion in 2007 and $5.0 billion in 2006.
The Company’s agreement with AARP on the Program provides for the maintenance of the Rate Stabilization
Fund (RSF) that is held by the Company on behalf of policyholders. Underwriting gains or losses related to the
AARP Medicare Supplement Insurance business are directly recorded as an increase or decrease to the 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 the overall benefit of the 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, losses would be borne by the Company. Deficits may be recovered by
underwriting gains in future periods of the contract. To date, the Company has not been required to fund any
underwriting deficits. The RSF balance is reported in Other Policy Liabilities in the Consolidated Balance Sheets
and changes in the RSF are reported in Medical Costs in the Consolidated Statement of Operations. In January
2008, $127 million in cash was transferred out of the RSF to an external insurance entity that offers an AARP
branded age 50 to 64 comprehensive insurance product. The Company believes the RSF balance at December 31,
2008 is sufficient to cover potential future underwriting and other risks and liabilities associated with the
contract.
The effects of changes in balance sheet amounts associated with the Program accrue to the overall benefit of the
AARP policyholders through the RSF balance. Accordingly, the Company does not include the effect of such
changes in its Consolidated Statements of Cash Flows.
Under the Company’s agreement with AARP, the Company separately manages the assets that support the
Program. These assets are held at fair value in the Consolidated Balance Sheets as Assets Under Management.
These assets are invested at the Company’s discretion, within investment guidelines approved by the Program
and are used to pay costs associated with the Program. The Company does not guarantee any rates of investment
return on these investments and upon any transfer of the Program to another entity, the Company would transfer
cash in an amount equal to the fair value of these investments at the date of transfer. Interest earnings and
realized investment gains and losses on these assets accrue to the overall benefit of the AARP policyholders
through the RSF and, thus, are not included in the Company’s earnings. Interest income and realized gains and
losses related to assets under management are recorded as an increase to the AARP RSF and were $82 million,
$108 million and $94 million in 2008, 2007 and 2006, respectively.
Upon adoption of FAS 159 on January 1, 2008, the Company elected to measure the entirety of the AARP Assets
Under Management on a fair value basis. The adoption impact was not material to the Company.
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