United Healthcare 2012 Annual Report Download - page 77

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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 which are investment grade quality. Securities downgraded below policy
minimums after purchase will be disposed of in accordance with the investment policy.
Assets Under Management
The Company provides health insurance products and services to members of AARP under a Supplemental
Health Insurance Program (the AARP Program), and to AARP members and non-members under separate
Medicare Advantage and Medicare Part D arrangements. The products and services under the AARP Program
include supplemental Medicare benefits (AARP Medicare Supplement Insurance), hospital indemnity insurance,
including insurance for individuals between 50 to 64 years of age, and other related products.
The Company’s arrangements with AARP extend to December 31, 2017 for the AARP Program and give the
Company an exclusive right to use the AARP brand on the Company’s Medicare Advantage and Medicare Part D
offerings until December 31, 2014, subject to certain limited exclusions.
Pursuant to the Company’s agreement, AARP Program 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 Program 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 this 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. Interest income and realized gains and losses
related to assets under management are recorded as an increase to the RSF and were $109 million, $99 million
and $107 million in 2012, 2011 and 2010, respectively.
The effects of changes in balance sheet amounts associated with the AARP Program also accrue to the overall
benefit of the AARP policyholders through the RSF balance. Accordingly, the Company excludes the effect of
such changes in its Consolidated Statements of Cash Flows. For more detail on the RSF, see “Other Policy
Liabilities” below.
Other Current Receivables
Other current receivables include amounts due from pharmaceutical manufacturers for rebates and Medicare Part
D drug discounts, reinsurance and other miscellaneous amounts due to the Company.
The Company’s PBM businesses contract with pharmaceutical manufacturers, some of whom provide rebates
based on use of the manufacturers’ products by its PBM businesses’ affiliated and non-affiliated clients. The
Company accrues rebates as they are earned by its clients on a monthly basis based on the terms of the applicable
contracts, historical data and current estimates. The PBM businesses bill these rebates to the manufacturers on a
monthly or quarterly basis depending on the contractual terms. The PBM businesses record rebates attributable to
affiliated clients as a reduction to medical costs. Rebates attributable to non-affiliated clients are accrued as
rebates receivable and a reduction of cost of products sold with a corresponding payable for the amounts of the
rebates to be remitted to non-affiliated clients in accordance with their contracts and recorded in the Consolidated
Statements of Operations as a reduction of Product Revenue. The Company generally receives rebates from two
to five months after billing.
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