UnitedHealth Group — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2020; comparisons are to the corresponding 2019 periods. UnitedHealth Group operates health benefits through UnitedHealthcare and health services through Optum, which includes OptumHealth, OptumInsight and OptumRx. Amounts below are in U.S. dollars.
Financial performance
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $65.1B | $60.4B | $191.7B | $181.3B |
| Operating earnings | $4.7B | $5.0B | $18.9B | $14.6B |
| Net earnings attributable to common shareholders | $3.2B | $3.5B | $13.2B | $10.3B |
| Diluted EPS | $3.30 | $3.67 | $13.73 | $10.65 |
| Medical care ratio | 81.9% | 82.4% | 77.7% | 82.5% |
| Operating margin | 7.1% | 8.3% | 9.9% | 8.0% |
For the nine months, operating cash flow was $16.1B, versus $12.3B in 2019. Cash and cash equivalents were $17.6B at September 30; management said $2.9B was available for general corporate use. Total investments were approximately $44.5B, including $38.3B of available-for-sale debt securities. Debt and other financing obligations had a carrying value of $43.8B, up from $40.3B at year-end 2019. The company reported a 38% debt-to-debt-plus-shareholders’ equity ratio under its credit-facility definition and compliance with its debt covenants. Current assets were $54.8B and current liabilities $66.6B.
UnitedHealthcare served 48.2 million medical members, down 1.2 million year over year; domestic medical membership fell by 635,000. The company repurchased $2.5B of shares and paid $3.4B in dividends during the nine-month period. The annualized quarterly dividend was raised to $5.00 per share.
Material changes and segment performance
- Q3 revenue rose 8%, but operating earnings fell 7%, net earnings attributable to shareholders fell 10%, and diluted EPS fell 10%. UnitedHealthcare operating earnings declined 22%, while Optum operating earnings increased 9%.
- Nine-month revenue increased 6% and operating earnings increased 29%. Net earnings attributable to shareholders rose 28%. The lower nine-month medical care ratio and stronger earnings largely reflected deferred care during the pandemic.
- Q3 UnitedHealthcare revenue grew 5%; its operating margin fell to 4.1% from 5.5%. COVID-19 care and testing, customer assistance and broader economic impacts weighed on results.
- Q3 Optum revenue grew 21%. OptumHealth and OptumInsight operating earnings rose 12% and 24%, respectively; OptumRx earnings declined 2%. OptumRx revenue growth included retail pharmacy copayments and growth in specialty pharmacy, while script volumes were affected by deferred care and a large client transition.
- Nine-month operating cash flow increased by $3.8B. The filing attributes the increase primarily to higher earnings associated with deferred care, partially offset by payment of the Health Insurance Tax.
Outlook, commentary and risks
- Management said care access and demand recovered toward normal seasonal levels in Q3 after significant deferrals from mid-March through April. It expects deferred care may cause utilization to moderately exceed normal baselines in future periods, alongside continued COVID-19 care and testing costs; timing and magnitude remain uncertain.
- Commercial enrollment declined amid unemployment and expected attrition. Medicaid membership grew in part because states eased redetermination requirements. Management noted disrupted care patterns could affect risk-adjustment information and future revenue.
- The 2021 Medicare Advantage industry base-rate increase was approximately 1.7%, which management said was below industry forward medical cost trends. The Health Insurance Tax applied in 2020, with UnitedHealth Group’s portion approximately $3.0B; it was permanently repealed effective January 1, 2021.
- Medical costs payable included $14.7B of incurred-but-not-reported claims. Prior-year reserve development reduced reported medical costs by $800M for the nine months, primarily due to lower-than-expected utilization. Management cautioned that pandemic-related uncertainty may increase reserve-estimate variability.
- The company faces ongoing legal and governmental reviews. A DOJ risk-adjustment/False Claims Act matter remains pending; the company said it cannot reasonably estimate the outcome. Potential outcomes of other legal and regulatory matters may also be difficult to estimate.
- The filing provides no specific full-year earnings or EPS guidance. Management’s outlook is subject to COVID-19, medical-cost estimation, regulatory and competitive pressures, litigation, cybersecurity, credit-market and other risks described in the filing.
Important facts for investors to verify
- Whether care utilization, COVID-19 costs and customer assistance materially alter medical care ratios and earnings in subsequent quarters.
- How the $800M favorable prior-year medical reserve development and the $14.7B incurred-but-not-reported claims estimate develop.
- Whether commercial membership trends, Medicare Advantage rates and Medicaid enrollment affect UnitedHealthcare growth and margins.
- The effects of the 2020 Health Insurance Tax and its 2021 repeal on year-over-year revenue, margins, taxes and cash flow.
- Updates on the DOJ risk-adjustment case, CMS risk-adjustment audits and other governmental reviews, including any potential financial or operational consequences.
- Debt levels, corporate-use cash availability, planned capital returns and the company’s ability to sustain dividends and share repurchases.