United Healthcare 2010 Annual Report Download - page 67

Cash, Cash Equivalents and Investments
Cash and cash equivalents are highly liquid investments that have an original maturity of three months or less.
The fair value of cash and cash equivalents approximates their carrying value because of the short maturity of the
instruments.
The Company had checks outstanding in excess of bank deposits of $1.3 billion as of December 31, 2010 and
$1.2 billion as of December 31, 2009, which were classified as Accounts Payable and Accrued Liabilities in the
Consolidated Balance Sheets and the changes have been reflected as Checks Outstanding within financing
activities in the Consolidated Statements of Cash Flows.
Investments with maturities of less than one year are classified as short-term. Because of regulatory
requirements, certain investments are included in long-term investments regardless of their maturity date. The
Company classifies these investments as held-to-maturity and reports them at amortized cost. Substantially all
other investments are classified as available-for-sale and reported at fair value based on quoted market prices,
where available.
The Company excludes unrealized gains and losses on investments in available-for-sale securities from earnings
and reports them, net of income tax effects, as a separate component of shareholders’ equity. The Company
evaluates investments for impairment by considering the length of time and extent to which market value has
been less than cost, the financial condition and near-term prospects of the issuer as well as specific events or
circumstances that may influence the operations of the issuer and the Company’s intent to sell the security or the
likelihood that it will be required to sell the security before recovery of the entire amortized cost. For debt
securities, if the Company intends to either sell or determines that it will be more likely than not be required to
sell a security before recovery of the entire amortized cost basis or maturity of the security, the Company
recognizes the entire impairment in earnings. If the Company does not intend to sell the debt security and it
determines that it will not be more likely than not be required to sell the security but it does not expect to recover
the entire amortized cost basis, the impairment is bifurcated into the amount attributed to the credit loss, which is
recognized in earnings, and all other causes, which are recognized in other comprehensive income. For equity
securities, the Company recognizes impairments in other comprehensive income if it expects to hold the security
until fair value increases to at least the security’s cost basis and it expects that increase in fair value to occur in a
reasonably forecasted period. If the Company intends to sell the equity security or if it believes that recovery of
fair value to cost will not occur in a reasonably forecasted period, the Company recognizes the impairment in net
earnings. New information and the passage of time can change these judgments. The Company manages its
investment portfolio to limit its exposure to any one issuer or market sector, and largely limits its investments to
U.S. government and agency securities; state and municipal securities; mortgage-backed securities; and corporate
debt obligations, substantially all of investment grade quality. Securities downgraded below policy minimums
after purchase will be disposed of in accordance with the investment policy. To calculate realized gains and
losses on the sale of investments, the Company uses the specific cost or amortized cost of each investment sold.
Assets Under Management
The Company administers certain aspects of AARP’s insurance program (see Note 12 of Notes to the
Consolidated Financial Statements). Pursuant to the Company’s agreement, AARP assets are managed separately
from its general investment portfolio and are used to pay costs associated with the AARP program. These assets
are invested at the Company’s discretion, within investment guidelines approved by AARP. The Company does
not guarantee any rates of return on these investments and, upon transfer of the AARP contract to another entity,
the Company would transfer cash equal in amount to the fair value of these investments at the date of transfer to
that entity. Because the purpose of these assets is to fund the medical costs payable, the rate stabilization fund
(RSF) liabilities and other related liabilities associated with the AARP contract, assets under management are
classified as current assets, consistent with the classification of these liabilities. Interest earnings and realized
investment gains and losses on these assets accrue to the overall benefit of the AARP policyholders through the
RSF. Accordingly, they are not included in the Company’s earnings.
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