United Healthcare 2011 Annual Report Download - page 40

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OptumRx
The increase in OptumRx revenues for the year ended December 31, 2011 was due to increased prescription volumes, primarily
due to growth in customers served through Medicare Part D prescription drug plans by our UnitedHealthcare Medicare &
Retirement business, and a favorable mix of higher revenue specialty drug prescriptions. Intersegment revenues eliminated in
consolidation were $16.7 billion and $14.4 billion for the years ended December 31, 2011 and 2010, respectively.
OptumRx earnings from operations and operating margins for 2011 decreased as the mix of lower margin specialty
pharmaceuticals and Medicaid business and investments to support growth initiatives including the in-sourcing of our
commercial pharmacy benefit programs more than offset the earnings contribution from higher revenues and greater use of
generic medications.
We will consolidate and manage the majority of our commercial pharmacy benefit programs internally when our contract with
Medco Health Solutions, Inc. expires at the end of 2012. The investments in our infrastructure and to expand our capacity will
likely cause a decrease in earnings from operations and operating margin as in 2012, OptumRx expects to absorb
approximately $115 million of the $150 million consolidated in-sourcing related operating costs. As a result of this transition,
OptumRx expects to add 12 million members on a staged basis in 2013. See Item 1A, “Risk Factors” for a discussion of certain
risks associated with the transition of our commercial pharmacy benefit programs to OptumRx.
2010 RESULTS OF OPERATIONS COMPARED TO 2009 RESULTS
Consolidated Financial Results
Revenues
The increases in revenues for 2010 were primarily due to strong organic growth in risk-based benefit offerings in our public
and senior markets businesses and commercial premium rate increases reflecting underlying medical cost trends. Growth in
customers served by our health services businesses, particularly through pharmaceutical benefit management programs,
increased revenues from public sector behavioral health programs and increased sales of health care technology software and
services also contributed to our revenue growth.
Medical Costs and Medical Care Ratio
Medical costs for 2010 increased primarily due to growth in our public and senior markets risk-based businesses and medical
cost inflation, which were partially offset by net favorable development of prior period medical costs.
For 2010 and 2009, there was $800 million and $310 million, respectively, of net favorable medical cost development related to
prior fiscal years.
The medical care ratio decreased due to a moderation in overall demand for medical services, successful clinical engagement
and management and the increase in prior period favorable development discussed previously.
Operating Costs
Operating costs for 2010 increased due to acquired and organic growth in health services businesses, which are generally more
operating cost intensive than our benefits businesses, goodwill impairment and charges for a business line disposition at
OptumInsight, which is discussed in more detail below, an increase in staffing and selling expenses primarily due to the change
in the Medicare Advantage annual enrollment period, costs related to increased employee headcount and compensation,
increased advertising costs, and the absorption of new business development and start-up costs.
Income Tax Rate
The increase in our effective income tax rate for 2010 as compared to 2009 resulted from a benefit in the 2009 tax rate from the
resolution of various historical state income tax matters and an increase in the 2010 rate related to limitations on the future
deductibility of certain compensation due to the Health Reform Legislation.
Reportable Segments
UnitedHealthcare
The revenue growth in UnitedHealthcare for 2010 was primarily due to growth in the number of individuals served by our
public and senior markets businesses and commercial premium rate increases reflecting underlying medical cost trends,
partially offset by Medicare Advantage premium rate decreases.
UnitedHealthcare earnings from operations and operating margins for 2010 increased over the prior year due to factors that
increased revenues described above, continued cost management disciplines on behalf of our commercial and governmental