United Healthcare 2001 Annual Report Download - page 26

PAGE 25 UnitedHealth Group
Health Care Services
The Health Care Services segment consists of the UnitedHealthcare and Ovations businesses.
UnitedHealthcare provides health and well-being services on behalf of local employers and consumers
nationwide. Ovations offers health and well-being services for Americans age 50 and older.
The Health Care Services segment posted record revenues of $20.5 billion in 2001, an increase of
$1.8 billion, or 10%, over 2000. This increase resulted from average net premium yield increases in
excess of 13% on UnitedHealthcare’s renewing commercial insured business, partially offset by the
impact of UnitedHealthcare’s targeted exits in 2000 from its commercial businesses in the Pacific Coast
region and the withdrawal of its Medicare+Choice product offering from certain counties. Adjusted for
the effects of these actions and excluding revenues from acquired businesses, Health Care Services’
revenues increased by 13% on a year-over-year basis.
The Health Care Services segment had earnings from operations of $944 million in 2001, an
increase of $205 million, or 28%, over 2000. This increase resulted from revenue growth and stable
gross margins on UnitedHealthcare’s commercial business and improved operating cost efficiencies
from process improvement, technology deployment and cost management initiatives. Health Care
Services’ operating margin increased to 4.6% in 2001 from 4.0% in 2000, driven by the productivity
improvements described above and a positive shift in product mix from risk-based products to higher-
margin, fee-based products.
UnitedHealthcare’s commercial medical care ratio remained flat compared with 2000 at 84.1%, as
net premium yield increases were generally well matched with increases in overall medical benefit costs.
UnitedHealthcare sets commercial health plan premium rates based on anticipated benefit costs,
including the effects of medical cost inflation, consumption patterns, benefit changes, product mix and
market conditions.
UnitedHealthcare’s commercial individuals served increased by 135,000, or 2%, from December 31,
2000 to December 31, 2001, consisting of an increase of 380,000 in the number of individuals served with
fee-based products, partially offset by a 245,000 decrease in individuals served by risk-based products. The
decrease in individuals served by risk-based products was driven by a combination of customers converting
to self-funded, fee-based arrangements and UnitedHealthcare’s targeted withdrawal of its risk-based
product offerings from unprofitable arrangements with customers using multiple health benefit carriers.
The increase in fee-based customers was driven by customers converting from risk-based products and new
customer relationships established in 2001.
UnitedHealthcare’s year-over-year Medicare enrollment decreased 15% because of actions taken to
better position this program for long-term success. Effective January 1, 2001, UnitedHealthcare withdrew
its Medicare+Choice product from targeted counties affecting 56,000 individuals. Annual revenues in
2000 from the Medicare markets exited as of January 1, 2001, were approximately $320 million.
Effective January 1, 2002, UnitedHealthcare withdrew its Medicare+Choice product from targeted
counties affecting 57,000 individuals. Annual revenues in 2001 from the Medicare markets exited as of
January 1, 2002, were approximately $370 million. These withdrawals are primarily in response to insufficient
Medicare program reimbursement rates in specific counties. These actions will further reduce Medicare
enrollment, but will preserve profit margins in the long term. UnitedHealthcare will continue to evaluate
Medicare markets and, where necessary, take actions that may result in further withdrawals of Medicare
product offerings or reductions in membership, when and as permitted by its contracts with the Centers for
Medicare and Medicaid Services (CMS), formerly known as the Health Care Financing Administration.