United Healthcare 2007 Annual Report Download - page 23

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Consolidated revenues in 2007 of $75.4 billion increased by $3.9 billion, or 5%, over 2006 driven primarily by
rate increases on premium-based and fee-based services and growth in the total number of individuals served by
Health Care Services.
Premium Revenues. Consolidated premium revenues totaled $68.8 billion in 2007, an increase of $3.1 billion, or
5%, over 2006. This increase was primarily driven by premium rate increases, partially offset by a decrease in
the number of individuals served by our commercial risk-based products.
Premium revenues for Commercial Markets (UnitedHealthcare and Uniprise) in 2007 totaled $36.2 billion, an
increase of $623 million, or 2%, over 2006. This increase was primarily due to average net premium rate
increases of 7% to 8% on UnitedHealthcare’s renewing commercial risk-based products and due to premiums
from businesses acquired since the beginning of 2006. This was partially offset by a 4% decrease in the number
of individuals served by commercial risk-based products in 2007 primarily due to the Company’s internal pricing
decisions in a competitive commercial risk-based pricing environment and the conversion of certain groups to
commercial fee-based products. Ovations premium revenues in 2007 totaled $26.0 billion, an increase of $1.7
billion, or 7%, over 2006. The increase was driven primarily by an increase in individuals served by standardized
Medicare supplement and Evercare products, and rate increases on Medicare Advantage products as well as
continued growth in our Medicare Part D program. AmeriChoice premium revenues increased by $732 million,
or 20%, over 2006 primarily due to an increase in the number of individuals served by Medicaid products as well
as rate increases. The remaining premium revenue increase resulted primarily from membership growth and rate
increases at OptumHealth, which contributed a premium revenue increase of 11% over 2006.
Service Revenues. Consolidated service revenues in 2007 totaled $4.6 billion, an increase of $340 million, or
8%, over 2006. This was driven primarily by a 38% increase in Ingenix service revenues due to new business
growth in the health information and contract research businesses and from businesses acquired since the
beginning of 2006. In addition, Commercial Markets service revenues increased due to a 3% increase in the
number of individuals served under commercial fee-based arrangements during 2007, as well as annual rate
increases.
Product Revenues. Consolidated product revenues in 2007 totaled $898 million, an increase of $161 million, or
22%, over 2006. The increase was driven by pharmacy sales growth at Prescription Solutions primarily due to
providing prescription drug benefit services to an additional four million Ovations Medicare Advantage and Part
D members.
Investment and Other Income. Investment and other income during 2007 totaled $1.1 billion, representing an
increase of $273 million, or 31%, over 2006. Interest income increased by $239 million in 2007, driven by
increased levels of cash and fixed-income investments, due in part to deposits held for certain government-
sponsored programs during 2007 and the lack of share repurchase activity in the first two and a half months of
2007. Net realized gains on sales of investments were $38 million in 2007 and $4 million in 2006. We expect a
slight decline in investment income in 2008 due to the declining interest rate environment in early 2008, as well
as a comparatively lower level of invested asset balances expected in 2008.
Medical Costs
The combination of pricing, benefit designs, consumer health care utilization and comprehensive care facilitation
efforts is reflected in the medical care ratio (medical costs as a percentage of premium revenues). The
consolidated medical care ratio decreased from 81.2% in 2006 to 80.6% in 2007. This was primarily due to a
decrease in the medical care ratio relating to Ovations which was partially offset by an increase in the
commercial medical care ratio resulting from the Company’s internal pricing decisions in a competitive
commercial risk-based pricing environment, as well as a shift from favorable medical cost development for
UnitedHealthcare during 2006 to unfavorable medical cost development during 2007.
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