UnitedHealth Group — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023; filed November 6, 2023. UnitedHealth Group operates UnitedHealthcare and Optum, with reportable segments UnitedHealthcare, Optum Health, Optum Insight and Optum Rx. Amounts below are U.S. dollars; financial statement amounts are in billions unless noted.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $92.36 | $80.89 | $277.20 | $241.38 |
| Operating earnings | $8.53 | $7.46 | $24.67 | $21.54 |
| Net earnings attributable to common shareholders | $5.84 | $5.26 | $16.93 | $15.36 |
| Diluted EPS | $6.24 | $5.55 | $18.01 | $16.15 |
| Operating margin | 9.2% | 9.2% | 8.9% | 8.9% |
| Net earnings margin attributable to shareholders | 6.3% | 6.5% | 6.1% | 6.4% |
| Medical care ratio (MCR) | 82.3% | 81.6% | 82.6% | 81.7% |
Q3 revenue increased 14% year over year; operating earnings rose 14% and diluted EPS rose 12%. For the first nine months, revenue increased 15%, operating earnings 15% and diluted EPS 12%. The higher MCR reflects elevated care activity, particularly outpatient care for seniors, and business mix. The operating cost ratio also increased year over year: 15.0% versus 14.4% in Q3 and 14.9% versus 14.4% year to date.
Cash flow, liquidity and capital
- Operating cash flow was $34.26 billion for the first nine months, versus $30.74 billion in 2022. Management attributed the increase to higher earnings and receipt of the October CMS premium payment in September.
- Cash and cash equivalents were $38.92 billion at September 30, 2023, up from $23.37 billion at year-end 2022. The filing states only $1.5 billion was available for general corporate use. The company also held $5.18 billion of short-term investments.
- Balance-sheet short-term borrowings and current maturities were $5.29 billion; long-term debt was $58.08 billion. Commercial paper outstanding was $2.6 billion at a weighted-average annual rate of 5.3%. The company issued $6.5 billion of senior notes in March.
- The debt-to-debt-plus-shareholders’ equity ratio under its credit facilities was approximately 38%, compared with a covenant ceiling of 60%. Management said capital resources were sufficient for short- and long-term liquidity needs.
- Year-to-date cash uses included $8.39 billion for acquisitions, $6.50 billion for share repurchases, $5.02 billion in dividends and $2.43 billion for property, equipment and capitalized software. The quarterly dividend was raised in June to an annualized $7.52 per share.
Segments and material changes
- UnitedHealthcare: Q3 revenue was $69.85 billion, up 13%; operating earnings were $4.59 billion, up 21%. Membership increased by 1.5 million year over year, led by Medicare Advantage growth. Senior outpatient care activity partly offset earnings growth.
- Optum: Q3 revenue was $56.74 billion, up 22%; operating earnings were $3.93 billion, up 7%. Optum Health revenue rose 29%, but operating earnings were essentially flat and its operating margin fell to 6.6% from 8.5%. Optum Insight revenue rose 35%, while its operating margin declined to 22.3% from 27.3%. Optum Rx revenue rose 14%, operating earnings rose 16%, and adjusted scripts increased to 383 million from 359 million.
- Revenue growth reflected membership growth, pricing and growth across Optum; investment income also increased, primarily with higher interest rates. Interest expense increased to $834 million from $516 million in Q3 and to $2.42 billion from $1.42 billion year to date.
- Business combinations completed in the first nine months involved $8.4 billion of total consideration and added $8.1 billion of goodwill; acquired entities’ reported revenue and earnings impact was not material through September 30. Approximately $5 billion of additional acquisitions were pending, subject to approvals and customary conditions.
Outlook, risks and contingencies
- The filing provides no specific earnings or revenue guidance. Management cited continued senior outpatient care activity and Medicare Advantage funding pressure: the 2024 rate notice included an industry base-rate decrease below forward medical cost trends, and risk-adjustment model revisions could reduce funding. The company may respond through cost management, network and benefit changes, premiums, and county-level decisions on plan offerings.
- Medicaid redeterminations reduced people served through Medicaid offerings; the company reported some offset from growth in commercial offerings. Management also cited medical cost estimation, pricing, competition, regulatory changes, government-program revenue and cash timing, quality scores, cybersecurity, litigation, acquisitions and credit access among forward-looking risks.
- The company faces ongoing legal and regulatory matters, including CMS risk-adjustment data validation audits and a DOJ False Claims Act case alleging improper risk-adjustment submissions. The company said it could not reasonably estimate the outcome of that case; some legal and regulatory losses may also be difficult to estimate.
- Available-for-sale debt securities had $4.32 billion of gross unrealized losses at September 30, primarily attributed to interest-rate increases. The company said it did not intend to sell securities in loss positions and believed principal and interest would be collected; its credit-loss allowance was not material.
- Management reported no material changes to the risk factors in the 2022 Form 10-K, and concluded disclosure controls were effective as of September 30, 2023.
Investor verification priorities
- Track medical cost trends, MCR and senior outpatient utilization, and assess how these affect UnitedHealthcare and Optum Health margins.
- Verify the effects of 2024 Medicare Advantage rates and risk-adjustment changes, including membership, benefits and pricing responses.
- Review cash availability for corporate use, debt and interest costs, and funding needs after acquisitions, buybacks and dividends.
- Monitor the DOJ risk-adjustment litigation, CMS audits and other legal or regulatory matters; outcomes and potential losses are not clearly quantified in the filing.
- Assess Optum segment growth and margin trends, and the integration, valuation and goodwill risks associated with acquisitions.