United Healthcare 2005 Annual Report Download - page 48

Notes to the Consolidated Financial Statements
1. Description of Business
UnitedHealth Group Incorporated (also referred to as “UnitedHealth Group,” “the company,” “we,” “us,” and
“our”) is a diversified health and well-being company dedicated to making health care work better. Through
strategically aligned, market-defined businesses, we design products, provide services and apply technologies
that improve access to health and well-being services, simplify the health care experience, promote quality and
make health care more affordable.
2. Summary of Significant Accounting Policies
Basis of Presentation
We have prepared the consolidated financial statements according to accounting principles generally accepted in
the United States of America and have included the accounts of UnitedHealth Group and its subsidiaries. We
have eliminated all significant intercompany balances and transactions.
Use of Estimates
These consolidated financial statements include certain amounts that are based on our best estimates and
judgments. These estimates require us to apply complex assumptions and judgments, often because we must
make estimates about the effects of matters that are inherently uncertain and will change in subsequent periods.
The most significant estimates relate to medical costs, medical costs payable, contingent liabilities, intangible
asset valuations, asset impairments and revenues. We adjust these estimates each period, as more current
information becomes available. The impact of any changes in estimates is included in the determination of
earnings in the period in which the estimate is adjusted.
Revenues
Premium revenues are primarily derived from risk-based health insurance arrangements in which the premium is
fixed, typically for a one-year period, and we assume the economic risk of funding our customers’ health care
services and related administrative costs. We recognize premium revenues in the period in which eligible
individuals are entitled to receive health care services. We record health care premium payments we receive from
our customers in advance of the service period as unearned premiums.
Service revenues consist primarily of fees derived from services performed for customers that self-insure the
medical costs of their employees and their dependents. Under service fee contracts, we recognize revenue in the
period the related services are performed based upon the fee charged to the customer. The customers retain the
risk of financing medical benefits for their employees and their employees’ dependents, and we administer the
payment of customer funds to physicians and other health care providers from customer-funded bank accounts.
Because we do not have the obligation for funding the medical expenses, nor do we have responsibility for
delivering the medical care, we do not recognize gross revenue and medical costs for these contracts in our
consolidated financial statements.
For both premium risk-based and fee-based customer arrangements, we provide coordination and facilitation of
medical services; transaction processing; customer, consumer and care provider services; and access to
contracted networks of physicians, hospitals and other health care professionals.
Medical Costs and Medical Costs Payable
Medical costs and medical costs payable include estimates of our obligations for medical care services that have
been rendered on behalf of insured consumers but for which we have either not yet received or processed claims,
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