United Healthcare 2001 Annual Report Download - page 49

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PAGE 48 UnitedHealth Group
[5]AARP
In January 1998, we began providing services under a 10-year contract to provide insurance products and
services to members of AARP. Under the terms of the contract, we are compensated for claim adminis-
tration and other services as well as for assuming underwriting risk. We are also engaged in product devel-
opment activities to complement the insurance offerings under this program. Premium revenues from our
portion of the AARP insurance offerings were approximately $3.5 billion during 2001, 2000 and 1999.
The underwriting gains or losses related to the AARP business are recorded as an increase or decrease to
a rate stabilization fund (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 charged to the RSF and accrue to 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, we would have to fund the deficit. Any deficit we fund could be recovered by under-
writing gains in future periods of the contract. The RSF balance is reported in Other Policy Liabilities in the
accompanying Consolidated Balance Sheets. We believe the RSF balance is sufficient to cover potential future
underwriting or other risks associated with the contract.
When we entered the contract, we assumed the policy and other policy liabilities related to the AARP
program, and we received cash and premium receivables from the previous insurance carrier equal to the
carrying value of these liabilities as of January 1, 1998. The following AARP program-related assets and
liabilities are included in our Consolidated Balance Sheets (in millions):
Balance as of December 31,
2 0 0 1 2000
Assets Under Management $ 1,882 $1,625
Accounts Receivable $ 281 $277
Medical Costs Payable $ 867 $855
Other Policy Liabilities $ 1,180 $932
Accounts Payable and Accrued Liabilities $ 116 $115
The effects of changes in balance sheet amounts associated with the AARP program accrue to AARP
policyholders through the RSF balance. Accordingly, we do not include the effect of such changes in
our Consolidated Statements of Cash Flows.