UnitedHealth Group Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; balance-sheet comparisons are against December 31, 2020. Filed May 5, 2021. UnitedHealth Group operates UnitedHealthcare and Optum, with four reportable segments: UnitedHealthcare, OptumHealth, OptumInsight and OptumRx.
Financial performance
- Revenue: $70.2 billion, up 9% year over year. Premium revenue rose 10% to $55.5 billion; service revenue rose 19% to $5.9 billion; product revenue declined 1% to $8.3 billion.
- Earnings: Operating earnings were $6.7 billion, up 35%; net earnings attributable to UnitedHealth Group shareholders were $4.9 billion, up 44%. Diluted EPS was $5.08, versus $3.52.
- Margins and ratios: Operating margin was 9.6%, versus 7.8%; net earnings margin was 6.9%, versus 5.2%. Medical care ratio was 80.9%, compared with 81.0%; operating cost ratio was 14.6%, compared with 15.5%. Effective tax rate was 21.5%, versus 24.0%.
- Cash flow: Operating cash flow was $6.0 billion, versus $2.9 billion. Investing activities used $3.7 billion; financing activities provided $0.8 billion. Cash and equivalents ended the quarter at $20.0 billion, up $3.0 billion from year-end.
- Liquidity and debt: Current assets were $59.5 billion and current liabilities $80.6 billion. Balance-sheet short-term borrowings and current debt maturities were $8.8 billion, versus $4.8 billion at year-end; long-term debt was $37.4 billion, versus $38.6 billion. The company reported $40.9 billion of available-for-sale debt securities and $2.6 billion of equity securities. Its defined debt-to-debt-plus-equity ratio was approximately 39%, within the 60% covenant limit.
- Capital returns: The company repurchased approximately 5 million shares for $1.65 billion and paid $1.18 billion in dividends. The quarterly dividend reflected an annual rate of $5.00 per share.
Material changes and drivers
- UnitedHealthcare revenue increased 8% to $55.1 billion and operating earnings increased 42% to $4.1 billion. Domestic medical enrollment grew by 1.1 million, with Medicare Advantage and Medicaid growth offsetting a decline in commercial membership.
- Optum revenue increased 11% to $36.4 billion and operating earnings rose 25% to $2.6 billion. OptumHealth revenue grew 35%, with growth in care delivery, including acquisitions; OptumInsight revenue grew 14%; OptumRx revenue was approximately flat.
- Management attributed consolidated growth to enrollment in Medicare Advantage and Medicaid, pricing, and organic and acquired Optum growth. Operating cost ratio and tax rate benefited in part from the permanent repeal of the Health Insurance Tax effective January 1, 2021.
- Prior-year favorable medical reserve development was $1.0 billion in Q1 2021, versus $580 million in Q1 2020, primarily reflecting lower-than-expected health system utilization. The company also cited calendar-day effects.
Outlook, risks and contingencies
- COVID-19: Care activity was near seasonal baselines during the quarter. Temporary deferrals were more than offset by COVID-19 care and testing costs, rebate requirements and broader economic effects. Management expects increased consumer demand and potentially higher-acuity care, along with COVID-related costs, to increase future medical costs; it cautioned that impacts remain uncertain and may vary by business.
- Guidance: The filing discusses expectations and risks but does not provide a clear numeric earnings or revenue forecast in the supplied text.
- Acquisitions: The pending acquisition of Change Healthcare was expected to close in the second half of 2021, subject to regulatory approval and other conditions. Anticipated capital required for pending acquisitions was approximately $12 billion, excluding acquired debt payoff.
- Legal and regulatory exposure: The company described ongoing government audits and reviews, including Medicare risk-adjustment data validation audits, and a DOJ False Claims Act matter concerning risk-adjustment submissions. It said it could not reasonably estimate the outcome of that lawsuit. Potential losses for certain legal and regulatory matters may be difficult to estimate.
- Other risks: Medical-cost estimation, pandemic-related disruption, regulation and government-program payments, cybersecurity and privacy, competition, litigation, credit ratings, investment performance, and completion or benefits of strategic transactions. Management reported no material change to the risk factors in its 2020 10-K.
Important facts for investors to verify
- Whether post-quarter medical utilization and COVID-19 costs, including deferred-care rebound, materially change medical cost trends and reserve development.
- How Medicare Advantage and Medicaid enrollment growth compares with commercial membership trends, and the effect of the 2022 Medicare Advantage rate increase cited by management at approximately 4.1% industrywide.
- Regulatory approvals, financing and expected economics of the Change Healthcare acquisition.
- Developments in the DOJ risk-adjustment litigation, CMS audits and other government reviews, including any financial or operational effects.
- Debt maturities, commercial-paper usage and cash available for general corporate purposes; the filing said approximately $2.1 billion of cash was available for general corporate use.