UnitedHealth Group Incorporated — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual filing; the supplied filing text does not provide standalone fourth-quarter results. UnitedHealth Group operates two platforms—UnitedHealthcare and Optum—with four reportable segments: UnitedHealthcare, Optum Health, Optum Insight and Optum Rx.
Financial performance
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Total revenue | $324.2B | $287.6B | +13% |
| Earnings from operations | $28.4B | $24.0B | +19% |
| Net earnings attributable to common shareholders | $20.1B | $17.3B | +16% |
| Diluted EPS | $21.18 | $18.08 | +17% |
| Operating margin | 8.8% | 8.3% | +0.5 percentage points |
| Medical care ratio (medical costs / premiums) | 82.0% | 82.6% | −0.6 percentage points |
| Operating cash flow | $26.2B | $22.3B | +$3.9B |
| Return on equity | 27.2% | 25.2% | +2.0 percentage points |
Revenue growth reflected increased membership in Medicare Advantage and Medicaid, pricing trends and growth across Optum. Medical costs rose 13%, largely with growth in people served; management attributed the lower medical care ratio partly to COVID-19 effects, offset in part by lower favorable prior-year reserve development and business mix. Favorable prior-year medical cost development was $410 million in 2022, versus $1.7 billion in 2021. The effective tax rate was 21.7%, compared with 20.5%.
Segment performance
- UnitedHealthcare: Revenue $249.7B (+12%); operating earnings $14.4B (+20%); operating margin 5.8%. Membership grew by 1.1 million to 51.7 million medical beneficiaries, led by Medicare Advantage and Medicaid.
- Optum Health: Revenue $71.2B (+32%); operating earnings $6.0B (+35%); margin 8.5%. People served increased to approximately 102 million.
- Optum Insight: Revenue $14.6B (+20%); operating earnings $3.6B (+6%); margin 24.6%, down from 27.9%. Backlog was approximately $30.0B, including $16.8B expected within 12 months; $10.7B related to affiliated agreements.
- Optum Rx: Revenue $99.8B (+9%); operating earnings $4.4B (+7%); margin 4.4%. Adjusted scripts rose to 1.438 billion from 1.368 billion.
Segment revenues include intercompany activity and eliminations; they should not be added together as consolidated revenue.
Liquidity, debt and capital allocation
- Cash and cash equivalents were $23.4B at year-end; total current assets were $69.1B and current liabilities were $89.2B. The company identified only $1.3B of cash and cash equivalents as available for general corporate use.
- Long-term debt was $54.5B and short-term borrowings and current maturities were $3.1B, versus $42.4B and $3.6B, respectively, in 2021. The company’s debt-to-debt-plus-equity ratio under its credit facilities was 38%, below the 60% covenant limit.
- Operating cash flow was $26.2B. Investing cash outflow was $28.5B, including $21.5B for acquisitions. Financing cash flow was $4.2B.
- Cash dividends paid were $6.0B and share repurchases were $7.0B. The annualized dividend rate increased to $6.60 per share in June 2022. Year-end authorization remaining was 31 million shares.
- Cash, cash equivalents, available-for-sale debt securities and equity securities totaled $69.4B as described by the company. The available-for-sale debt portfolio had a weighted-average duration of 4.0 years and a weighted-average credit rating of Double A.
Material changes, outlook and risks
- Acquisitions: The company acquired Change Healthcare on October 3, 2022, for $13.9B in cash, then sold Change’s claims-editing business for $2.2B. It spent $21.5B on acquisitions overall in 2022. The LHC Group acquisition, anticipated to require approximately $9B excluding acquired debt, closed on February 22, 2023, after year-end.
- Membership and policy: Medicaid redeterminations were expected to resume beginning in April 2023, with potential declines in Medicaid membership and efforts to retain or add people through commercial and exchange coverage. Management also highlighted pressure on Medicaid margins and Medicare Advantage funding.
- Medicare Advantage rates: The February 2023 Advance Notice for 2024 was described as implying an industry base-rate decrease below expected medical-cost trends, alongside proposed risk-adjustment changes. Management said it could respond through cost management, network and benefit changes, premiums and decisions about where to offer plans. These are management assessments, not company earnings guidance.
- Risks and contingencies: Key risks include medical-cost estimation and pricing, government reimbursement and audits, regulation, cybersecurity and privacy, provider and competitive pressures, and acquisition integration. The company disclosed ongoing governmental investigations and audits, including Medicare risk-adjustment reviews and a False Claims Act matter for which it could not reasonably estimate the outcome. It is also defending an antitrust case against Surgical Care Affiliates; adverse outcomes could involve fines or reputational harm. The filing does not provide a clear estimate of potential losses for these matters.
- Unusual accounting and market items: Goodwill and other intangible assets totaled approximately $107.8B at year-end; no goodwill impairment was recorded. Unrealized losses on available-for-sale debt securities were primarily attributed to higher interest rates. Medical-cost reserves are a significant estimate: year-end IBNR was $20.0B, and the auditor identified IBNR claim liability as a critical audit matter.
- Guidance and audit: The filing does not provide a clear numerical earnings or revenue guidance figure. Deloitte issued an unqualified opinion on the financial statements and internal controls; management also concluded disclosure controls were effective.
Investor facts to verify
- How much of 2022 earnings growth depended on COVID-19 effects and favorable medical-cost reserve development, and how those effects compare with expected future utilization.
- Whether medical-cost payable and IBNR estimates remain adequate as claims develop; the filing estimates a hypothetical 1% reserve difference could change 2022 net earnings by approximately $215 million.
- The realized financial contribution, integration costs and regulatory developments related to Change Healthcare and the post-year-end LHC Group acquisition.
- Actual effects of Medicaid redeterminations and Medicare Advantage rate and risk-adjustment changes on membership, benefits, pricing and margins.
- Developments and potential financial exposure from the disclosed government investigations, audits and legal proceedings, for which certain outcomes cannot be estimated from the filing.