UnitedHealth Group Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021; comparisons are to the corresponding 2020 periods. UnitedHealth Group operates through UnitedHealthcare and Optum, comprising UnitedHealthcare, OptumHealth, OptumInsight and OptumRx. Financial statements are unaudited and prepared under U.S. GAAP.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $71.321B | $62.138B | $141.517B | $126.559B |
| Operating earnings | $5.978B | $9.241B | $12.717B | $14.237B |
| Net earnings attributable to shareholders | $4.266B | $6.637B | $9.128B | $10.019B |
| Diluted EPS | $4.46 | $6.91 | $9.55 | $10.43 |
| Operating margin | 8.4% | 14.9% | 9.0% | 11.2% |
| Medical care ratio | 82.8% | 70.2% | 81.9% | 75.7% |
| Operating cash flow | — | $11.545B | $12.946B |
Q2 revenue increased 15% year over year, while operating earnings fell 35% and diluted EPS fell 35%. For the first half, revenue rose 12%, but operating earnings declined 11% and diluted EPS declined 8%. Higher medical costs—up 34% in Q2 and 21% for the six-month period—drove much of the earnings pressure. Management attributed the higher medical care ratio to increased COVID-19 care costs, reduced deferral of care versus 2020 and repeal of the Health Insurance Tax. First-half medical costs also reflected favorable prior-year reserve development.
Segment results showed a divergence: Q2 UnitedHealthcare revenue rose 13%, but operating earnings fell 56% to $3.095B; Optum revenue rose 17% and operating earnings rose 29% to $2.883B. OptumHealth revenue grew 46%, OptumInsight 12% and OptumRx 5%. The consolidated operating-cost ratio improved to 14.5% from 16.1%; net earnings margin fell to 6.0% from 10.7%.
Balance sheet, liquidity and capital
- At June 30, 2021, cash and cash equivalents were $19.832B, total current assets $58.916B and total current liabilities $76.557B. Management reported only $1.5B of cash available for general corporate use.
- Total debt on the balance sheet was approximately $48.2B, comprising $3.9B of short-term borrowings and current maturities and $44.3B of long-term debt. The company issued $7.0B of senior unsecured notes in May and repaid $1.9B of long-term debt during the first half.
- Operating cash flow of $11.5B was below $12.9B a year earlier. Investing used $9.2B and financing provided $0.6B; cash increased $2.9B to $19.8B.
- Cash, cash equivalents, available-for-sale debt securities and equity securities totaled $64.7B. The debt securities portfolio had a 3.8-year weighted-average duration and a Double-A weighted-average credit rating.
- The debt-to-debt-plus-shareholders’ equity ratio under credit-facility definitions was approximately 39%, against a 60% covenant maximum. Share repurchases were $2.9B and dividends paid were $2.5B in the first half. The board raised the annualized dividend rate to $5.80 per share.
Outlook, commentary and risks
- The filing gives no specific full-year earnings or EPS guidance. Management said pandemic effects and their ultimate impact remain uncertain. It expected COVID-related care costs and broader economic impacts to be only partly offset by remaining care deferrals in the second half, with care demand potentially exceeding normal levels and acuity temporarily rising.
- Management cited commercial enrollment declines tied primarily to employer actions and unemployment, while Medicare Advantage and Medicaid enrollment grew. UnitedHealthcare served 1.1 million more people domestically year over year. The 2022 Medicare Advantage industry base-rate increase was approximately 4.1%, which management said was below forward medical-cost trends.
- The company has agreed to acquisitions, most notably Change Healthcare, subject to regulatory approvals and other customary conditions. Anticipated capital for these acquisitions is approximately $9B, excluding acquired debt.
- Risks include pandemic-driven utilization and cost volatility, difficulty estimating medical reserves, regulatory and Medicare risk-adjustment requirements, competition, cybersecurity and privacy events, litigation and government reviews, credit-market access, and execution or approval of strategic transactions.
- DOJ litigation alleges improper Medicare risk-adjustment submissions and False Claims Act violations. The company said it could not reasonably estimate the outcome. CMS risk-adjustment data-validation audits may also result in retrospective payment adjustments. The filing notes other legal and regulatory matters for which potential losses may be difficult to estimate.
- Unrealized losses on available-for-sale debt securities were attributed primarily to interest-rate increases; the company reported no intent to sell securities in unrealized-loss positions and considered the losses temporary. Management identified medical costs payable and goodwill as critical accounting estimates. No material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Whether care utilization, COVID-related costs and reserve development produce further changes in the medical care ratio and earnings.
- How much of reported cash and investment balances is available for general corporate use, given the stated $1.5B of generally available cash.
- Funding, regulatory approval and expected economics of the approximately $9B pending acquisitions, including Change Healthcare.
- Developments in DOJ risk-adjustment litigation, CMS audits and other legal or regulatory matters.
- Whether enrollment mix, Medicare Advantage rate increases and commercial-market trends support revenue and margin performance.