United Healthcare 2007 Annual Report Download - page 28

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was 20.4% in 2007, up from 18.4% in 2006. This increase in operating margin was largely driven by business
growth and operating cost management described above.
Prescription Solutions
Prescription Solutions offers a comprehensive array of PBM and specialty pharmacy management services to
employer groups, union trusts, seniors through Medicare prescription drug plans, and commercial health plans.
Prescription Solutions revenues for 2007 of $13.2 billion increased by $9.2 billion, or 224%, over 2006. This was
primarily driven by providing prescription drug benefit services to an additional four million Ovations Medicare
Advantage and stand-alone Part D members. Intersegment revenues were eliminated in consolidation and
amounted to $12.4 billion and $3.4 billion for 2007 and 2006, respectively.
Prescription Solutions earnings from operations in 2007 of $269 million increased $130 million, or 94%, from
2006 due largely to the expansion of services to Medicare Part D members discussed above. The operating
margin was 2.0% in 2007, a decrease from 3.4% in 2006. The decrease in operating margin reflected the
comparatively lower margin earned in the high volume Ovations Medicare Part D prescription drug service
contract.
2006 Results Compared to 2005 Results
Consolidated Financial Results
Revenues
Consolidated revenues in 2006 of $71.5 billion increased by $25.1 billion, or 54%, over 2005. Excluding the
impact of businesses acquired since the beginning of 2005, consolidated revenues increased by approximately
21% in 2006 principally driven by the successful launch of the Medicare Part D program on January 1, 2006, rate
increases on premium-based and fee-based services and growth in individuals served across our business
segments. Following is a discussion of our 2006 consolidated revenue for each of our revenue components.
Premium Revenues.Consolidated premium revenues totaled $65.7 billion in 2006, an increase of $23.6 billion,
or 56%, over 2005. Excluding the impact of acquisitions since the beginning of 2005, consolidated premium
revenues increased by $8.8 billion, or 21%, over 2005. The increase was primarily driven by premium rate
increases and the successful launch of the Medicare Part D program, partially offset by a slight decrease in the
number of individuals served by our commercial risk-based products.
Commercial Markets premium revenues in 2006 totaled $35.6 billion, an increase of $7.5 billion, or 27%, over
2005. Excluding premium revenues from businesses acquired since the beginning of 2005, Commercial Markets
premium revenues were essentially flat compared to 2005. This was primarily due to average net premium rate
increases of approximately 8% or above on UnitedHealthcare’s renewing commercial risk-based products, offset
by lower premium yields from new business primarily due to a larger portion of new customer sales generated
from high-deductible lower-premium products (with correspondingly lower medical costs), and a 5% decrease in
the number of individuals served by commercial risk-based products primarily due to the Company’s internal
pricing decisions in a competitive commercial risk-based pricing environment and the conversion of certain
groups to fee-based products. Ovations premium revenues in 2006 totaled $24.4 billion, an increase of $15.2
billion, or 165%, over 2005. Excluding the impact of acquisitions since the beginning of 2005, Ovations
premium revenues increased by approximately $8.3 billion, or 92%, over 2005. The increase was primarily
driven by the successful launch of the Medicare Part D program, which had premium revenues of $5.7 billion for
2006, and an increase in the number of individuals served by Medicare Advantage and standardized Medicare
supplement products, as well as rate increases on these products. OptumHealth premium revenues increased by
approximately $1.0 billion over 2005. This was primarily due to the acquisition of PacifiCare Health Systems,
Inc. (PacifiCare) and strong growth in the number of individuals served by several OptumHealth businesses
under premium-based arrangements. The remaining premium revenue increase primarily resulted from
membership growth and premium revenue rate increases in AmeriChoice’s Medicaid programs, which
contributed premium revenue increases of approximately $278 million, or 8%, over 2005.
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