United Healthcare 2007 Annual Report Download - page 26

Health Care Services
The Health Care Services segment is composed of the Commercial Markets, Ovations and AmeriChoice
businesses. Commercial Markets is comprised of UnitedHealthcare, which offers a comprehensive array of
consumer-oriented health benefit plans and services for local, small and mid-sized employers and individuals
nationwide, and Uniprise, which provides these services on a dedicated basis to large, multi-site employers.
Ovations provides health and well-being services to individuals age 50 and older and AmeriChoice provides
network-based health and well-being services to state Medicaid programs and the beneficiaries of those
programs. The financial results of Commercial Markets, Ovations and AmeriChoice have been aggregated in the
Health Care Services segment due to the similar economic characteristics, products and services, types of
customers, distribution methods and operational processes, and regulatory environment. These businesses also
share significant common assets, including our contracted networks of physicians, health care professionals,
hospitals and other facilities, information technology infrastructure and other resources.
Health Care Services had revenues of $71.2 billion in 2007, representing an increase of $3.4 billion, or 5%, over
2006. Commercial Markets revenues of $40.3 billion in 2007 increased by $821 million, or 2%, over 2006. This
increase was driven mainly by average net premium rate increases of 7% to 8% on UnitedHealthcare’s renewing
commercial risk-based products, an increase in the number of individuals served by commercial fee-based
products and 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 revenues of $26.5 billion in 2007 increased by
approximately $1.8 billion, or 7%, over 2006. The increase was primarily driven 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. The remaining Health Care Services
revenue increase resulted from an increase in AmeriChoice revenues of $750 million, or 20%, over 2006
primarily due to an increase in the number of individuals served by Medicaid products as well as rate increases.
Health Care Services earnings from operations in 2007 were $6.6 billion, representing an increase of $735
million, or 13%, over 2006. This increase was principally driven by a decrease in the medical care ratio for
Ovations primarily due to favorable medical cost trends and an increase in the number of individuals served by
certain Medicare products and related rate increases discussed above, partially offset by a decrease in individuals
served by commercial risk-based products and an increase in the related medical care ratio. The Commercial
Markets medical care ratio increased to 82.6% in 2007 from 80.5% in 2006 and the UnitedHealthcare medical
care ratio increased to 82.1% in 2007 from 79.8% in 2006. These increases were mainly due to 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, which was partially driven by costs from higher benefit utilization in December 2006 primarily
relating to high-deductible risk-based products. The Health Care Services operating margin for 2007 was 9.3%,
an increase from 8.6% in 2006, which reflected productivity gains from technology deployment and disciplined
operating cost management as well as the factors discussed above.
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