United Healthcare 2003 Annual Report Download - page 25

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UnitedHealth Group 23
Operating Costs
The operating cost ratio (operating costs as a percentage of total revenues) for 2003 was 16.9%, down
from 17.5% in 2002. This decrease was driven primarily by revenue mix changes, with greater growth
from premium revenues than from service revenues, and productivity gains from technology
deployment and other cost management initiatives. Our premium-based products have lower operating
cost ratios than our fee-based products. The impact of operating cost efficiencies in 2003 was partially
offset by the continued incremental costs associated with the development, deployment, adoption and
maintenance of new technology releases.
On an absolute dollar basis, operating costs for 2003 increased $488 million, or 11%, over 2002.
This increase was driven by a 6% increase in total individuals served by Health Care Services and
Uniprise during 2003, increases in broker commissions and premium taxes due to increased revenues,
general operating cost inflation and additional operating costs associated with change initiatives and
acquired businesses.
Depreciation and Amortization
Depreciation and amortization in 2003 was $299 million, an increase of $44 million over 2002.
This increase was due to additional depreciation and amortization from higher levels of computer
equipment and capitalized software as a result of technology enhancements, business growth and
businesses acquired since the beginning of 2002.
Income Taxes
Our effective income tax rate was 35.7% in 2003, compared to 35.5% in 2002. The change from 2002
was due to changes in business and income mix between states with differing income tax rates.
Business Segments
The following summarizes the operating results of our business segments for the years ended December 31
(in millions):
REVENUES
Percent
2003 2002 Change
Health Care Services
$24,807
$21,552 15%
Uniprise
3,107
2,725 14%
Specialized Care Services
1,878
1,509 24%
Ingenix
574
491 17%
Corporate and Eliminations
(1,543)
(1,257) nm
Consolidated Revenues
$28,823
$25,020 15%
EARNINGS FROM OPERATIONS
Percent
2003 2002 Change
Health Care Services
$1,865
$1,328 40%
Uniprise
610
517 18%
Specialized Care Services
385
286 35%
Ingenix
75
55 36%
Consolidated Earnings From Operations
$2,935
$2,186 34%
nm — not meaningful