United Healthcare 2013 Annual Report Download - page 58

Forecasts and long-term growth rates used for our reporting units are consistent with, and use inputs from, our
internal long-term business plan and strategies. Key assumptions used in these forecasts include:
•Revenue trends. Key revenue drivers for each reporting unit are determined and assessed. Significant factors
include: membership growth, medical trends, and the impact and expectations of regulatory environments.
Additional macro-economic assumptions relating to unemployment, GDP growth, interest rates, and
inflation are also evaluated and incorporated, as appropriate.
•Medical cost trends. For further discussion of medical cost trends, see the “Medical Cost Trend” section of
Executive Overview-Business Trends above and the discussion in the “Medical Costs Payable” critical
accounting estimate above. Similar factors, including historical and expected medical cost trend levels, are
considered in estimating our long-term medical trends at the reporting unit level.
•Operating productivity. We forecast expected operating cost levels based on historical levels and
expectations of future operating cost levels.
•Capital levels. The operating and long-term capital requirements for each business are considered.
Although we believe that the financial projections used are reasonable and appropriate for all of our reporting
units, due to the long-term nature of the forecasts there is significant uncertainty inherent in those projections.
That uncertainty is increased by the impact of health care reforms as discussed in Item 1, “Business—
Government Regulation.” For additional discussions regarding how the enactment or implementation of health
care reforms and other factors could affect our business and the related long-term forecasts, see Item 1A, “Risk
Factors” in Part I and “Regulatory Trends and Uncertainties” above.
Discount rates are determined for each reporting unit and include consideration of the implied risk inherent in
their forecasts. This risk is evaluated using comparisons to market information such as peer company weighted
average costs of capital and peer company stock prices in the form of revenue and earnings multiples. Beyond
our selection of the most appropriate risk-free rates and equity risk premiums, our most significant estimates in
the discount rate determinations involve our adjustments to the peer company weighted average costs of capital
that reflect reporting unit-specific factors. Such adjustments include the addition of size premiums and company-
specific risk premiums intended to compensate for apparent forecast risk. We have not made any adjustments to
decrease a discount rate below the calculated peer company weighted average cost of capital for any reporting
unit. Company-specific adjustments to discount rates are subjective and thus are difficult to measure with
certainty.
The passage of time and the availability of additional information regarding areas of uncertainty with respect to
the reporting units’ operations could cause these assumptions to change in the future.
We elected to bypass the optional qualitative reporting unit fair value assessment and completed our annual
quantitative tests for goodwill impairment as of January 1, 2014. All of our reporting units had fair values
substantially in excess of their carrying values.
Intangible assets. Our recorded separately-identifiable intangible assets were acquired in business combinations
and represent future expected benefits but they lack physical substance (e.g., membership lists, customer
contracts, trademarks and technology). These intangible assets are initially recorded at their fair values. Finite-
lived intangible assets are amortized over their expected useful lives, while indefinite-lived intangible assets are
evaluated for impairment on at least an annual basis. Both finite-lived and indefinite-lived intangible assets are
evaluated for impairment between annual periods if an event occurs or circumstances change that may indicate
impairment. Our most significant intangible assets are customer-related intangibles, which represent 73% of our
total intangible asset balance of $3.8 billion as of December 31, 2013.
Customer-related intangible assets acquired in business combinations are typically valued using an income
approach based on discounted future cash flows attributable to customers that exist as of the date of acquisition.
The most significant assumptions used in the valuation of customer-related assets include: projected revenue and
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