United Healthcare 2004 Annual Report Download - page 58

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56 UNITEDHEALTH GROUP
11 AARP
In January 1998, we entered into a 10-year contract to provide health insurance products and services
to members of AARP. These products and services are provided to supplement benefits covered under
traditional Medicare. Under the terms of the contract, we are compensated for transaction processing
and other services as well as for assuming underwriting risk. We are also engaged in product development
activities to complement the insurance offerings under this program. Premium revenues from our portion
of the AARP insurance offerings were approximately $4.5 billion in 2004, $4.1 billion in 2003 and
$3.7 billion in 2002.
The underwriting gains or losses related to the AARP business are directly 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 recorded as an increase or
decrease to the RSF and accrue to the overall benefit of the 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 underwriting gains
in future periods of the contract. To date, we have not been required to fund any underwriting deficits.
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.
The following
AARP
program-related assets and liabilities are included in our
C
onsolidated
B
alance
S
heets:
Balance as of December 31,
(in millions) 2004 2003
Accounts Receivable
$389
$352
Assets Under Management
$1,883
$1,959
Medical Costs Payable
$899
$874
Other Policy Liabilities
$1,162
$1,275
Other Current Liabilities
$211
$162
The effects of changes in balance sheet amounts associated with the AARP program accrue to the overall
benefit of the AARP policyholders through the RSF balance. Accordingly, we do not include the effect of
such changes in our Consolidated Statements of Cash Flows.