United Healthcare 2008 Annual Report Download - page 71

UNITEDHEALTH GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
coverage limit. The uneven timing of Medicare Part D pharmacy benefit claims results in losses in the first half
of the year that, if they continued at that pace for the rest of the year, would entitle the Company to risk-share
adjustment payments from CMS. Accordingly, during the interim periods within the contract year, the Company
records a net risk-share receivable from CMS in Other Current Receivables in the Consolidated Balance Sheets
and a corresponding retrospective premium adjustment in Premium Revenues in the Consolidated Statements of
Operations. This represents the estimated amount payable by CMS to the Company under the risk-share contract
provisions if the program were terminated based on estimated costs incurred through that interim period.
Typically, those losses are expected to reverse in the second half of the year.
The final 2008 risk-share amount is expected to be settled during the second half of 2009, and is subject to the
reconciliation process with CMS. The net risk-share receivable from CMS of $19 million was recorded in Other
Current Receivables in the Consolidated Balance Sheets as of December 31, 2008. As of December 31, 2007,
there was a net risk-share payable of approximately $280 million recorded in Other Policy Liabilities in the
Consolidated Balance Sheets.
As of January 1, 2009, certain changes were made to the Medicare Part D coverage by CMS, including:
• The initial coverage limit increased to $2,700.
• The catastrophic coverage begins at $6,154.
• The annual out-of-pocket maximum increased to $4,350.
Property, Equipment and Capitalized Software
Property, equipment and capitalized software are stated at cost, net of accumulated depreciation and
amortization. Capitalized software consists of certain costs incurred in the development of internal-use software,
including external direct costs of materials and services and payroll costs of employees devoted to specific
software development. The Company reviews property, equipment and capitalized software for events or changes
in circumstances that would indicate that we might not recover their carrying value. If the Company determines
that an asset may not be recoverable, an impairment charge is recorded.
The Company calculates depreciation and amortization using the straight-line method over the estimated useful
lives of the assets. The useful lives for property, equipment and capitalized software are:
Furniture, fixtures and equipment 3 to 7 years
Buildings 35 to 40 years
Leasehold improvements Shorter of useful life or remaining lease term
Capitalized software 3 to 9 years
Goodwill
Goodwill represents the amount by which the purchase price of businesses the Company has acquired exceeds
the estimated fair value of the net tangible assets and separately identifiable intangible assets of these businesses.
In accordance with FAS 142, “Goodwill and Other Intangible Assets,” the Company tests goodwill for
impairment at the reporting unit level (operating segment or one level below an operating segment) on
January 1st of each year or more frequently if it believes indicators of impairment exist. The Company has
eleven reporting units at December 31, 2008. The performance of the test involves a two-step process. The first
step of the impairment test involves comparing the fair values of the applicable reporting units with their
aggregate carrying values,
61