UnitedHealth Group Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual filing; it does not provide a distinct fourth-quarter results summary. UnitedHealth Group operates UnitedHealthcare, a health benefits business, and Optum, a health services, technology and pharmacy platform.
Financial performance and condition
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $287.6 billion | $257.1 billion |
| Operating earnings | $24.0 billion | $22.4 billion |
| Net earnings attributable to UnitedHealth Group shareholders | $17.3 billion | $15.4 billion |
| Diluted earnings per share | $18.08 | $16.03 |
| Cash from operations | $22.3 billion | $22.2 billion |
| Medical care ratio (MCR) | 82.6% | 79.1% |
| Operating cost ratio | 14.8% | 16.2% |
| Operating margin | 8.3% | 8.7% |
| Net earnings margin | 6.0% | 6.0% |
Revenue increased 12%; shareholder net earnings rose 12% and diluted EPS increased 13%. Operating earnings grew 7%. Optum revenue rose 14% and operating earnings 19%, while UnitedHealthcare revenue increased 11% but operating earnings declined 3%.
- Segment operating earnings: UnitedHealthcare $12.0 billion (down 3%); Optum Health $4.5 billion (up 30%); Optum Insight $3.4 billion (up 25%); Optum Rx $4.1 billion (up 6%).
- Balance sheet and liquidity: Cash and cash equivalents were $21.4 billion, of which $2.8 billion was available for general corporate use. Cash, cash equivalents and investments totaled $65.1 billion. Current assets were $61.8 billion versus current liabilities of $78.3 billion.
- Debt: Balance-sheet short-term borrowings and current maturities were $3.6 billion; long-term debt was $42.4 billion. The company reported a 36% debt-to-debt-plus-equity ratio under its credit agreements, against a 60% covenant ceiling, and no credit-facility borrowings at year-end.
- Capital returns and investment: Dividends paid were $5.3 billion and share repurchases were $5.0 billion. Capital expenditures were $2.5 billion; acquisition cash outlays were $4.8 billion.
Material changes and operating trends
- Revenue growth reflected more people served in Medicare Advantage, Medicaid and commercial offerings, pricing, and Optum organic and acquisition growth, particularly in care delivery.
- UnitedHealthcare served 2.1 million more domestic medical members year over year. Medicare Advantage membership rose 14% to 6.5 million and Medicaid membership rose 16% to 7.7 million.
- The MCR increased 3.5 percentage points, reflecting COVID-related care costs and the effect of the Health Insurance Tax repeal, partly offset by deferred care. The operating cost ratio improved, primarily due to the tax repeal, prior-year COVID effects and efficiency gains.
- Medical costs included $1.7 billion of favorable prior-year reserve development, compared with $880 million in 2020. Management noted reserve estimates remain sensitive to disrupted care patterns.
- Optum Insight backlog was $22.4 billion at year-end, up from $20.2 billion; $12.1 billion was expected to be realized within 12 months. Optum Rx managed $112 billion in pharmaceutical spending and processed 1.4 billion adjusted scripts.
Outlook, commentary and risks
- The filing does not provide a specific company-wide revenue or earnings forecast. Management expects COVID-19 to continue affecting care utilization, costs, capacity and risk-adjustment data; previously deferred care and higher acuity could increase costs in future periods.
- Final 2022 Medicare Advantage industry base rates increased approximately 4.1%, which management said was below forward medical-cost trend and continued to pressure the program. The company cited medical management, administrative efficiency and plan design changes as responses.
- Management expects Medicaid revenue growth from mix and pricing, while warning that payment rates may continue to pressure margins. It also described growth opportunities in value-based care, coordinated care and Optum services.
- The Health Insurance Tax was permanently repealed effective January 1, 2021, affecting year-over-year comparability of revenue, costs, ratios, taxes and operating cash flow. Investment and other income included $840 million of unrealized gains from fair-value adjustments, primarily in the venture portfolio.
- Key risks include medical-cost estimation and pricing, COVID-19 and deferred care, government reimbursement and audits, extensive regulation, cybersecurity and privacy incidents, competition, provider relationships, acquisitions and litigation. CMS risk-adjustment audits and a False Claims Act matter concerning alleged risk-adjustment submissions remain among disclosed government matters; the company said it could not reasonably estimate the outcome of the latter. A DOJ antitrust indictment involving Surgical Care Affiliates is also being contested.
- Agreements for multiple acquisitions, including Change Healthcare, were subject to regulatory approval and other conditions. The company estimated approximately $12 billion of total capital needs for pending acquisitions, excluding acquired debt repayment.
Investor verification points
- Check how COVID-related utilization, deferred care and acuity affect 2022 medical costs, the MCR and reserve development.
- Review Medicare Advantage rate adequacy, CMS quality ratings and risk-adjustment audit exposure; verify the effect of Medicaid enrollment and state contract pricing on margins.
- Assess whether Optum growth and operating gains can continue, and track UnitedHealthcare’s margin recovery after its 2021 operating earnings decline.
- Confirm financing and regulatory status of pending acquisitions, including Change Healthcare, and their eventual capital and integration impacts.
- Review the full legal and contingency disclosures, including the risk-adjustment False Claims Act matter and Surgical Care Affiliates antitrust case; the filing does not provide a clear estimable loss for certain matters.