Unitedhealth Group (UNH) Earnings Report: Q3 2015 ... · strengthen our reimbursement rates in 2016, 2017, and 2018, enrich our Medicare Advantage programs benefit offerings, and

CompanyName:UnitedHealthGroupIncCompanyTicker:UNHSector:HealthCareIndustry:HealthServices

EventDescription:Q32015EarningsCallMarketCapasofEventDate:118.23BPriceasofEventDate:120.17

©2014TheStreet,Inc.Al l R ightsReserved Page1of24

UnitedhealthGroup(UNH)EarningsReport:Q32015ConferenceCallTranscriptThefollowingUnitedhealthGroupconferencecalltookplaceonOctober15,2015,08:45AMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

StephenHemsley;UnitedhealthGroup;CEOLarryRenfro;UnitedHealthGroup;ViceChairmanofUnitedHealthGroup,CEO-OptumDaveWichmann;UnitedHealthGroup;President,CFOSteveNelson;UnitedHealthGroup;CEO-UnitedHealthcareMedicare&RetirementMarkThierer;UnitedHealthGroup;CEO-OptumRxBillMiller;UnitedHealthGroup;CEO-OptumInsightDirkMcMahon;UnitedHealthGroup;EVP-EnterpriseOperationsJeffAlter;UnitedHealthGroup;CEO-UnitedHealthcareEmployer&IndividualDanRosenthal;UnitedHealthGroup;President-UnitedHealthcareNetworks

OtherPart icipants

PeterCosta;WellsFargoSecurities;AnalystMatthewBorsch;GoldmanSachs;AnalystJoshRaskin;BarclaysCapital;AnalystSarahJames;WedbushSecurities;AnalystSherylSkolnick;MizuhoSecuritiesUS;AnalystMichaelBaker;RaymondJames&Associates;AnalystDavidWindley;JefferiesLLC;AnalystAndySchenker;MorganStanley;AnalystChrisRigg;SusquehannaFinancialGroup/SIG;AnalystA.J.Rice;UBS;AnalystKevinFischbeck;BofAMerrillLynch;AnalystSeanWieland;PiperJaffray;AnalystGaryTaylor;JPMorgan;AnalystRalphGiacobbe;Citigroup;AnalystAnaGupte;LeerinkPartners;AnalystChristineArnold;CowenandCompany;AnalystTomCarroll;StifelNicolaus;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator :

WelcometotheUnitedHealthGroupthirdquarter2015earningsconferencecall.

(OperatorInstructions)

Hereissomeimportantintroductoryinformation.Thiscallcontainsforward-lookingstatementsunderUSfederalsecuritieslaws.

Thesestatementsaresubjecttorisksanduncertaintiesthatcouldcauseactualresultstodiffermaterially




fromhistoricalexperienceorpresentexpectations.AdescriptionofsomeoftherisksanduncertaintiescanbefoundinthereportsthatwefiledwiththeSecuritiesandExchangeCommission,includingthecautionarystatementsincludedinourcurrentandperiodicfilings.

Informationpresentedonthiscalliscontainedintheearningsreleaseweissuedthismorningandinourform8-KdatedOctober15,2015,whichmaybeaccessedfromtheinvestorspageoftheCompany'swebsite.IwouldnowliketoturntheconferenceovertotheChiefExecutiveOfficerofUnitedHealthGroup,StephenHemsley.Pleasegoahead.

StephenHemsley(CEO):

Goodmorning.ThankyouforjoiningustoreviewUnitedHealthGroup'sthirdquarterresults.

Ourbusinesscontinuestogrowaswedevelopandrespondtolargeandemergingmarketopportunitiesacrossboththehealthcarebenefitsandservicessectors.

Healthcaremarketsworldwidecontinuetoevolvewithnationsandmarketparticipantsofalltypesseekingtobuildbetterhealthcaresystemsthataremoreconformedandmodern,lowercost,simpler,andmoreresponsivetoconsumers.

Organizationsthroughouthealthcarearesearchingforwaystoimprovebyleveragingdataandinformationtomoreeffectivelydeliverqualitycarethatismeasurable,anddeliverwithgreaterprecisionandconsistencyinresponsetoeverincreasingpressuresaroundcost,access,andtransparency.

WehaveconsciouslypositionedUnitedHealthcare,Optum,andUnitedHealthGrouptodeliverpracticalinnovationandsignificantvalueinthisenvironment.UnitedHealthGroup'sthirdquarterrevenuesgrew26.6%yearoveryearto$41.5billion,includingstrong10%organicrevenuegrowthacrossourbusinesses.

Consolidatednetearningsof$1.65persharewereinlinewithourexpectationsaswasthenetearningsmarginwhichdecreasedbyjustover1%yearoveryearreflectingthegreatermixofpharmacycareservicesaswellasearly-stagelowermarginindividualexchangebusiness,lowerlevelsofreservedevelopment,andacceleratedinvestmentinimprovingMedicareStar'squalityprincipallyclosinggapsincarefortheseniorsweserve.

Yeartodatewehavegrownnetearningspershareby14%onrevenuegrowthof17%.Ourreturnonequityof19%reflectsabalanceduseofcapitalandorganicinitiativestobuildourbusiness.

Quarterenddaysclaimspayableincreasedtwodayssequentiallyandonedayyearoveryear,andcashflowsfromoperationscontinuedtobestrongatmorethan170%ofnetincomethisquarter.Year-to-datecashflowsof$6.2billionhavegrownby11%andrepresentastrong135%ofnetincomeforthenine-monthperiod.

IwillaskLarryRenfrotoprovideareviewofOptum,andthenDaveWichmannwillcoverUnitedHealthcareandsomeUnitedHealthGroupenterprisecomments.Larry,youwanttotakeit?

LarryRenf ro (ViceChairmanofUnitedHealthGroup,CEO-Optum):

Thanks,Steve.Optumcontinuestoinnovatetoaddressrisingmarketneeds,particularlythoseoflargermoresophisticatedorganizationswhichhavecomplexhealthcareservice,delivery,andmanagementchallenges.Ourbusinessesareproducingstrongsustainablegrowthacrosstheboard.

Optum'srevenuesof$19.3billiongrew61%yearoveryearthisquarter.OurresultsincludeCatamaranwithinOptumRxresultsforthefirsttime,andreflectexceptionaloverallorganicrevenuegrowthof15%.




OptumHealthandOptumInsighttogethergrewrevenuesbymorethan$1billion,or25%yearoveryear,tomorethan$5billionthisquarter.Thirdquarteroperatingmarginof5.9%reflectstheincreasedmixofpharmacycareservicesrevenuesaswellasintegrationandintangibleamortizationcostsrelatedtoCatamaran.

BothOptumHealthandOptumInsightdelivereddouble-digitpercentageoperatingmarginsinthequarter.Wecontinuetofocusontheopportunitiestodramaticallyelevatevalueforcustomersinfivelargegrowthmarkets-clinicalcare,pharmacycareservices,informationandtechnologysolutions,governmentservices,andinternational.

OurOneOptumapproachmeanswebuildstrongstrategicandseniorenterprise-levelrelationshipsthattranscendindividualproductcategoriesandpointsolutions.Westartbylisteningcloselytoourclientssoweunderstandtheissuesfromtheirperspective.

Wethenbringdeepexperience,creativity,strategicpartnerships,andourowndifferentiatedcapabilitiesinhealthcarecombinedwithresponsesandpracticaloperationalsolutions.Thiscanleadtoworkingsessionswhichoftenleadtopipeline,backlog,andrevenuesandearnings.

Optum360isagoodcaseinpoint.Ithasgrownto7,500employeesserving1,600hospitalsandishelpingmanagemorethan$50billionoftheirbillings.

JustlastweekcustomerssurveyedbytheBlackBook,aleadingresearchorganization,rankedOptum360offeringsasthebestinthethreekeyproductcategoriesforthesector.Andwearestillintheearlystagesashospitalsandhealthsystemsshifttoprofessionallymanagedrevenueapproaches.

Domesticallyandinothernationsweareindiscussionswithhigh-profilehealthcareorganizationsregardingourwiderangeoftechnologyandinformationenabledservices.WeareexploringsignificantopportunitiestoservethehealthcareneedsofUSfederalgovernmentprogramsandtalkingwithprominenthealthcareorganizationsaboutinnovativetechnologyinfrastructureandapplicationsservicesandacomprehensivesuiteoftechnology-enabledpayerservices.

Anyoneormoreofthesehaspotentialtodevelopintoamulti-year,multi-billiondollarstrategicrelationship.AcrossOptumthistypeofproactiveapproachisdrivingpositiveresults.

ThirdquarterbacklogforOptumInsightexceeds$10billioninvalueandgrew34%yearoveryearonanexternalbasis.Ourpipelineiscontinuingtogrowatanexceptionalrateaswell.

ThemediandealsizeforOptumHealthhasdoubledoverthepastthreeyears.WearedeliveringmorecaretomorepeoplethroughmorepayersatOptumCare.

WenowdelivercaretomorethansevenmillionpeopleannuallythroughourOptumCarebusinesses.MarketinterestinOptumRxcontinuestogrowinresponsetothevaluewecandrivethroughmoreintegrateddownstreamdrugbenefitandcaremanagementefforts,especiallyaroundthegrowingspecialtypharmaceuticalsegment.

TheUSDepartmentofHealthandHumanServiceshasauthorizedagenciesunderitspurviewtoconductinnovativehealthcareresearchwithOptumLabsusingOptumLabsbigdataresources.Theseindicatorsshouldhelpgiveyouasenseofbothourcontinuingprogressandthemeaningfulopportunitieswearedeveloping.

Wewillcontinuetoexecuteonthedetailsforourclientswithafocusonqualityandservice,andfurtherbuildourgrowingreputationforbeingthetrustedpartnerthatgetsthejobdone.WeareoptimisticabouttheprospectsforOptumin2016,2017,andbeyond.NowletmeturnitovertoDave.




DaveWichmann (President,CFO):

Thankyou,Larry.UnitedHealthcarecontinuestodifferentiateitsproductsonthefoundationsofdistinctivequality,service,innovation,andvalue.AsaresultUnitedHealthcarehasgrowndomesticallytoservenearly300,000morepeopleinthethirdquarter,1.5millionmorepeoplethisyear,andnearly1.7millionmorepeopleoverthepast12months.

Weenter2016withevenmoredistinctiveproducts,capabilities,andrelationshipsandweexpecttocontinuetodeliverimpressivelevelsofgrowthnextyearaswell.UnitedHealthcare'sthirdquarterrevenuesof$32.8billiongrewyearoveryearby$2.8billionor9.2%,allorganic.

TheUnitedHealthcareoperatingmarginof5.7%decreasedasexpected,decliningjustover1%yearoveryearduetolowerlevelsofreservedevelopment,solidgrowth,inearly-stagelowermarginpublicinsuranceexchangeproducts,andincreasedinvestmentinMedicareStar'squality.Wecontinuetoexpectafullyearconsolidatedcareratioof80.8%plusorminus50basispoints,likelyabovethemidpointofthatrangebasedonouryear-to-dateexperience.

Theannualcareratioisbeingmodestlyaffectedbytheperformanceofournewpublicexchangebenefitprogramswhichnowservenearly550,000people.Likeothersweobservedmarket-widedatathispastspringthatsuggestedtheriskpoolservedbypublicexchangeswouldrequiremoremedicalservicesthanoriginalexpectations.

Ratherthanwaitforourownexperiencewithournewmemberstofullydevelop,weincreasedratesandrepositionedcertainproductsmarketbymarketfor2016,andweexpectimprovedperformancenextyear.Wewillexpandto11newmarketsin2016,andwecontinuetoexpectexchangestodevelopandmatureovertimeintoastrong,viablegrowthmarketforus.

WehaveacceleratedtheuptakeofourmedicalcarequalityprogramstoachievestarratingsbeyondthestronglyimprovedlevelsthatCMSrecentlypublishedforpaymentyear2017.OurMedicareStarsimprovementdoescomewitharelatedincreaseinmedicalcosts.

Weareconfidentwehaveimplementedthenecessarystepstoachieveourgoalof80%ormoreofourmembersinfourstarorgreaterprogramsbypaymentyear2018.Starqualityimprovementswillstrengthenourreimbursementratesin2016,2017,and2018,enrichourMedicareAdvantageprogramsbenefitofferings,andfurtherourgrowthandfinancialposition.

Our2015commercialmedicalcosttrendoutlookcontinuestobebiasedtowardsthelowerportionofour5.5%to6.5%full-yearforecast.IntotalUnitedHealthcarehasmaintainedanearly6%operatingmarginyeartodatein2015,identicaltotheyear-to-datemarginatthispointin2014.

Drivenbyyear-to-dateorganicrevenuegrowthofmorethan$9billion,UnitedHealthcarehasadvancedearningsfromoperationsby$540million,whichisagrowthrateofmorethan10%.Allthreeofourbenefitsbusinessesareproducingstrongresults.

Let'sturntoareviewofacoupleexamplesthatillustratehowweworklocallyandusetechnologytoservethetwomostimportantparticipantsinhealthcare,thedoctorandthepatient.Weareincreasinglyalignedwithphysiciansandhospitalsandwecontinueonourcoursetodeliver$65billionormoreincareannuallyby2018throughvalue-basedcarecontracts.

Todaytheseprogramstouchasmanyas13millionofourconsumersdeliveredinpartthroughmorethan650accountablecarearrangements.Thisincludesgrowthofmorethan160newaccountablecarearrangementssofarthisyearalone.

InmanyinstancesthesecareprovidersandUnitedHealthcarebringinOptumtohelpthemmanage




populationriskandimproveoperationalperformanceonamoresystematicorganization-widebasis.LarryhasgivenyouafeelforhowthistrendpositivelyaffectsdemandforOptum'sservices.Letmegiveyouafewmoreexamples.

TogetherwithOptumwearealsosupportingphysicians'operationalneedswithLink,whichwehavediscussedbefore.Linkisacloud-baseddigitalplatformthatprovidessecureworkspaceandconnectivitybetweenphysicianofficesandhealthplansenablingthemtoefficientlycommunicateandtransactbusiness.

Byyearend2015Linkwillbeservingmorethan600,000physiciansnationwide.Weofferthemconnectivityto75distinctdedicatedapplicationsrelevanttotheiroperations.Wecontinuetogrowboththeinstalledcustomerbaseandtheportfolioofapplicationsandcapabilities.

Ourgoalistofullyservephysicians'practiceswithcoretransactionsandinformationexchangeaswellasscheduling,referralprocesses,transparency,andotherservices.OnthepatientsidewithOptumweincreasinglyfocusonthelocalcommunityanddelivercareandservicesinpeople'shomes.

YouhaveheardaboutourhousecallprograminMedicare,andwehavebegunusingitintargetedcommercialandMedicaidpatientsituationsaswell.Themorethanonemillionhousecallsourphysiciansandnursepractitionerswillexecutethisyearincreasesourmedicalspendupfront.

Theyencouragepeopletogetannualcarevisitswiththeirphysicians,appropriatevaccinations,andsoon.Thebenefitsaresubstantial.

Wehavemoresatisfiedconsumerswithbetterhealthcarequality,andweprotectthemfrompotentiallyhighermedicalcostsdowntheroad.Consumersatisfactionandretentionaresignificantlystrengthenedbythehousecallsexperience.

AtthecommunitylevelwehavehundredsofcommunityhealthworkersonthegroundhelpingaddresstherootcausesofhealthcareissuesforMedicaidmemberswithcomplexmedicalconditions.Wemeetwiththemintheirhomesandhelpthemaccessthehealthandsocialservicestheyneedtobettermanagetheirhealth.

Thisincludesaddressinghousing,employment,accesstohealthyfoodandnutrition,aswellastransportationandotherpublicsupportservices.Again,UnitedHealthcareisimprovingthequalityandconsumersatisfactionwhilehelpingtoreduceexposuretopotentiallyhighercostsfromuntreatedorundertreatedconditions.

Ourpeoplearealsoonsiteinhospitalshelpingwithdischargeandfollow-upcareplanning.Theyareinphysicians'officeshelpingaddressgapsincareanddocumentingMedicarequalitycompliance.

Andtheyareonthephoneandonthewebtreatingeveryinteractionasanopportunitytoaddvaluefortheconsumerbyhelpingthemunderstandtheactionstheyneedtotaketoimprovetheirhealth.Youcanseethebenefitprogramsandapproachesliketheseinourresults,growthinlocalcommercialmarketswhereoureffortstobemorelocalarehavingpositiveeffects;distinguishedandongoinggrowthinservicetolargeself-fundedemployerswhoareamongthemostinformedanddiscriminatinginassessingservice,quality,innovation,andtotalvalue;consistentMedicaidawardsfromstateswhichfocusonelementsofquality,service,andtotalvalueintheirevaluationprocess.

InjustthepastfewweekswehavebeenhonoredtobeselectedbythestateofMichiganandthestateofTexasforprogramexpansions,andwerecentlyfinalizedourcommitmentstoservethestateofIowaasaculminationoftheirawardprocess.AndourMedicareStarsqualityissharplyhigherfor2016and2017thankstoouremployeesandthestrongperformanceofthecareproviderswhohaveworked




collaborativelywithustobetterserveseniors.

WebelieveUnitedHealthcarewillcontinuetogrowatastrongpace,profitablyimprovingitsmarketshareasadirectresultofthequality,consumersatisfaction,andtotalvaluewedeliver.BeforeStevesumsupletmetouchontheoutlookforUnitedHealthGroupasawhole.

Consideringtogetherboththepositivesandpressuresofthefirstninemonthsofthisyear,wecontinuetoexpectourfull-year2015resultswillfallwithintherangeof$6.25to$6.35pershare.Andwewouldremindyouthatthatrangeabsorbs$0.10pershareforCatamaranandcomparesfavorablywithouroriginaloutlookof$6to$6.25pershare.

Wecontinuetoexpectafurtherliftintherateofearnings-per-sharegrowthin2016.Therangeofstreetestimatesforthenextyearisquitewide,andweexpecttobewithinthatrange,butnotsurprisinglywewouldbegininamoreconservativepostureorrangeaswehaveinprioryears.

Wewilldeferspecificquestionson2016financialperformancetoDecember1whenwehostourannualinvestorconferenceinNewYork.LetmeturnitbacktoSteve.


Thankyou,Dave.SoLarryandDavehavegivenyousomesenseforwhywecontinuetobeoptimisticaboutourpotentialtodelivervaluethroughoutthebroadhealthcaresystemandtogrow.Youheardsomeofourtouchstonesintheircomments-relationshipsbuiltaroundtrust,collaboration,andmutualrespectforthechallengesindeliveringhealthcare,improvingit,andmakingitsimplerforthepeopleinvolved.

Innovation-developingproductsandprocessesthattrulyhelppeoplesolverealproblemsandthenembeddinganddrivingtheseideastoscalequicklytoimprovetheoverallsystem.Quality-measuredbyhowconsumers,physicians,andothercustomersdefineitandfeelit.

Responsiveandcompassionateservice,whichgoeshandinhandwithqualityanddefinespeople'shealthcareexperience.Ouraspirationistoserveothersontheirterms,notours.

Satisfactionandvalue,whichtogethercapturehowwellyoubringalltheseelementstogethertohelppeopleindifferentiatedways.Webelieveexecutingwellontheseelementsatscalewithnearly200,000dedicatedpeoplepullinginthesamedirectionwillmakeadifferenceforthoseweserveanddrivedistinctivesustaininggrowthacrossourenterprise.

Thankyouforyourinterestthismorning.Andnowoperator,canwenowtakesomequestions?

QUESTIONS&ANSWERS

Operator :

(OperatorInstructions)

PeterCosta,WellsFargo.

PeterCosta(Analyst-WellsFargoSecurities):

Canyouclarifyacouplethingsyousaidaboutthecosttrend?Yousaidcosttrendwouldbeatthelowerendoftheguidancerangeof5%to6%,andyousaidMLRwouldbeabovethemidpointoftheguidancerange.IassumethedifferencethereisthespendonMedicareStarscores.Canyoutalkabouthowmuchyou'respendingonMedicareStarscoresintheMLRcomponentandwhatexactlytheimpactthereistoyouguys?





WellIdon'tthinkwe'regoingtogetquitethatgranular,butIthinkwecanrespondtothatinthemesandmaybebetweenDaveandDan.


Sure.Peter,Ithinkyouhavemostofitright.Thecosttrendcommentaryaroundthecommercialcosttrendistobeonthelowerhalf--lowerendofthe5.5%to6.5%range.TheMLRisexpectedtobeabovethemidpointandyou'reright,it'sbecauseoftheimpactofspendingmoreonMedicareStarswhichissubstantiveinthequarteraswellasforthefullyear.

Ithinkyousawtheresultsofsomeofourearliereffortsinour2017fundingyear,andwhatwe'rereallyfocusedonrightnowismakingsurethatwecontinuetoimproveuponthatsothatthe2018fundingyearisatthat80%four-starorhigherlevelacrosstheboard,ifnothigher.

Wealsohave--asyouknowwehavegrownourgovernmentservicesmixquiteabitinourbusiness,andthatisacrossMedicaidandMedicareaswellaswekindofgroupintheinsuranceexchangeintothataswell.ThosethingshaveatendencybaseduponmixtobiasthatMLRupjustabitaswell.


Howshouldwethinkaboutthatgoingforwardinto2016.


Goingforwardin2016,wecontinuetoexpectstronggrowthacrossallcomponentsoftheUnitedHealthcarebusinessaswellasOptum.InfluencingtheMLRIthinkwe'llseestrikinglybetterperformanceontheinsuranceexchangebusiness,notonlybecauseofexpansion,butalsobecauseimprovementsintheoverallMLRandoperatingcoststructureofthatprogram.Soboth.Ithinkyou'llcontinuetoseestronggrowthinbothMedicareandMedicaidwhichwillputsomepressureonthataswell,butIwouldexpectthistocontinuetogrownicelyinthosetwocategoriesaswell.


Bookgrowthinthosecategories.Sogrowthingovernmentprograms,exchangesandsoforth,evenmiddlemarkettendtocomeatslightlylowermargins.Soyou'reseeingthatblendeffectintheseresults.


Andwe'llspendmoretimewiththat--withyouonthatattheinvestorconference,Peter.


Great.Andjustdidtheriskquartersimpacttothe--theunderpaymentoftheriskquartersimpactthisquarteratall?


Notheydonot.


Thankyou.





Nextquestionplease.

Operator :

MatthewBorschGoldmanSachs.

MatthewBorsch (Analyst-GoldmanSachs):

Yes,maybeifIcouldjustcontinuethediscussionontheACAexchanges.Canyouhelpusunderstandtheelementsthatmakeyouconfidentyou'regoingtogetstrikinglybetterIthinkyousaidperformanceontheACAexchangesnextyear?

Imean--andmaybethisisgood,maybethisisbad,Idon'tknow,butyouhavetheseco-opsfailingthelargestintheNewYorkmarketIassumethatyoumaypickupalotoryoumaywanttopickupalotofmembershipfromthatandyouhavepriceincreases.Butit'sunclearwhatthemixofmembershipisgoingtobenextyearwithregardtohealthstatus.Socanyoujusttalktothat?


Sure.We'llletDanandJeffcommentonthat.Dan?

DanRosenthal(President-UnitedHealthcareNetworks):

SureMatt,goodmorning.WithregardtotheexchangesandsomeofDave'searliercomments,inthefirsthalfoftheyearthisyearwegotindustrydatathatsuggestedthattheunderlyinguseofmedicalservicesinthatpopulationwashighandhigherthanwethought.

Andthegoodnewsisweusedthatinformationasthefoundationforour2016pricing.Soweputinstrongpriceincreases;averageincreasesacrossthecountryareinthedouble-digits.Andwealsotookstepstoeliminatesomeproductsandrepositionotherproducts.

Aslookatourexchangebusinessfor2016thatreallyspeakstowhy--toDave'scommentsaboutwhyweexpecttoseeveryniceimprovementyearoveryear.Asitrelatestoour2015experienceandourownblockofbusinessandwhatwe'reseeing,inthefirsthalfofthisyearwedidnotseemuchinthewayofmedicaluse.Sowehadmuchlessuseasmembersrolledonforthefirstfourmonthsoftheyear,andtheystartedtogetconnectedtocoverageandcareandsoforth.Andwe'veseenanincreaseinthat.

Andsowhywe'recallingitout,wecalleditoutinthecontextofmixinthesecondquarter,inthethirdquarterwe'recallingitoutmorespecificallybecauseontheyearweexpecttheindividualexchangebusinesstoputpressureontheconsolidatedcareratio.HoweverasDavementionedwefullyexpecttoperformwithintherangeoftheguidanceweprovidedlastDecemberattheinvestorconference.

MatthewBorsch (Analyst-GoldmanSachs):

Dan,thankyou.Thatwasgreat.I'llgetoffnow,Iknowyouhavealotofpeople.


Thankyou.Nextquestionplease.

Operator :

JoshRaskin,Barclays.

JoshRaskin (Analyst-BarclaysCapital):




Thanks.Justafollow-upontheMAStarinvestments.TalkingaboutanoverallMLRthisyearwhetheritbeabovethemidpoint,every10basispointsisthat$130million,$140millionofinvestmentonthefullyear.Idon'tknowwhatthatimplies,butthatseemslikeaprettybiginvestment.

Sothetwoquestionsareone,arethesetemporaryinnatureoraretheyjustimpacting2015?Orarewegoingtoseethiscontinueinto2016?Couldthisbeapossibletailwindfornextyear?AndthenhowdoyouthinkabouttheROI?Whatareyoumeasuring?Areyoujustmeasuringsimplythebonus--thereimbursementimprovements?Andhowdowethinkaboutthecostversustheinvestmentversustheupsidefromtheseinvestments?


IguesssomewhatgloballyI'dofferthatinvestmentsaresignificant,andwehavemadethatclearinthepastandourgoaltoreallyget80%orbetterofouroverallMedicareatfourstarsandabove.Therearealsobenefitsassociatedwiththatbecausewhenyouareachievingthatlevelyouhaveflexibilitywithbenefitsandthereimbursementsarebetter.

Sothereisa--andwe'reprobablyfront-endingmoreoftheinvestmentsandwearegettingthebenefitsatthispointintimegiventhefactthatweweresomewhatcomingfrombehindifyouwillintermsofoverallstarperformance.DanorSteve,doyouwanttocommentfurther?


Yes.Josh,toyourquestionarounddoweexpectlevelstomaintain?Yeswedo.Weexpecttomakecomparableinvestmentsforwardinourstarsandqualityperformance.Andasyousawinthe2017paymentdatawesawniceprogress.Andinyearourperformancefor2015isimprovingwhichwillcarryforwardtoimprovementinour2018performance.

Butbeyondthestarsoutcomewealsohaveoutcomesintermsofqualityperformanceunderneaththatasyoulookatmedicalcostsandsoforththatcontribute.Sothosearesomeofthethingsthatplayintohowwelookatthebalancebetweencostandthereturn.


Andgiventhelookbacknatureofthisthemarkethasn'tevenreallyseenourbestperformanceintermsofstars.Sowereallyhaven'tgottenthebenefitpartofthatyet.

SteveNelson (CEO-UnitedHealthcareMedicare&Retirement):

Josh,thisisSteveNelson,goodmorning.Justalittlemorecolorontheinvestments.Sowhenpeopletalkaboutmedicalcostsyoucanthinkaboutthingslikeproviderincentives,annualcarevisits,impactofveryspecificprogramslikediabeticnavigatorsintermsofdiabeticprogramsforthatpopulation.

Intermsofadministrativeinvestmentit'saroundthingslikeembeddedpracticesupport.Wehave2,000cliniciansthatarefocusedonclosinggapsofcarelocallyandthenreorientingourorganizationlikecallcenterstofacilitateclosureofgapsandgettingpeopletotherightcare.

Sotheseareallpayinggreatdividendsforourmembers.Wehave1.7millionmembersthatareinimprovedplans.Soit'sgreatprogress.ButasSteveandDavehavebothnotedwe'renotdonemid-progress.We'renotsatisfiedandlooktoimproveonthatfor2018paymentyeartoatleast80%ofourmembersinfour-starplansorhigher.


Justafollowup.DoesthattranslateintoabovemarketlevelMAgrowthratesforyouguys?You'vebeen




growingwhat'scalledinlinewithmarketthisyear.Shouldwethink2016andmaybemoresoin2017and2018thatyoustartgrowingfasterthantheoverallMAmarket?

SteveNelson (CEO-UnitedHealthcareMedicare&Retirement):

Ithinkitwouldbeourhope.Ifyoustepbackandsetareturnontheinvestmentthisisavitalprogram,wethinkithasgreatgrowthpotentialintermsofthedemographicsaswellastheorientationofMedicareitselftobemoretowardsMedicareAdvantage.Thisgivesusopportunitieswithrespecttobenefits,andIthinkitshouldtranslatetogreatergrowthandthat'swhywe'remakingthoseinvestments.Yes.


Allright.Thanks.


Nextquestion.

Operator :

SarahJames,Wedbush.

SarahJames (Analyst-WedbushSecurities):

Thankyou.SG&Awasabrightpointinthequarter;cameinbetterthanconsensusexpectation.SonowthatCatamaranisclosedhowdoyouthinkaboutrunrateofSG&A.


Excuseme.Wedidn'thearthebeginningofthis.Couldyoustartagain?


Sure.SG&Awasabrightpointinthequarter;itcameinbetterthanconsensusexpectations.AndnowthatCatamaranisclosedhowshouldwethinkaboutrunrateSG&A?Ithinkguidancewassetpre-Catamaranat17%plusorminus30basispoints.


WhilewearealwaysmanagingourSG&Aastightlyandappropriatelyaspossible,butwe'realsomakinginvestmentsthatareoftenembeddedinSG&A.InvestmentsintermsofsomeintegrationofbusinessesaswellasthingsthatDavementionedsuchasLinkandelementssuchasthat.Doyouwanttostart?


Sure.Sarah,you'reright.TheCatamaranwasprobablythemostsignificantinfluenceonthecareratiointhequarter.Wealsohadtoincreaseproductivityimpactsonthataswell.Andthenit'soffsetsomewhatbythebusinessmixasyoucanseefromthegrowthfromOptumaswellasinourfee-basedprograms.Andthenthere'salittlebitofaninsurerfeeoffsetaswell.

Wedoexpect--Catamaranoverallhadapulldownthedebtratiobysomewherearound180basispointsorsointhequarter.SowewouldexpectthatthekindofatrendtocontinueasitrelatestoCatamaran.Wewouldcontinuetoexpectsomeoffsetofthatrelatedtocontinuedhighgrowthinourservicesbusinessovertime.





Thankyou.


Nextquestionplease.

Operator :

SherylSkolnick,MizuhoSecuritiesUS.

SherylSkolnick(Analyst-MizuhoSecuritiesUS):

Thankyouverymuch,andonceagainaverynicejobnavigatingthroughthevariousandsundrychallenges.Oneofthethingsthatintriguedmewasacomment,Terry,abouttheopportunitybeingbothdomesticandinternational.

AndifIreadyourpressreleasecorrectlyitlookslikeUnitedHealthcareGlobal,whichwedon'tfocusonallthatmuch,hadactuallyaniceyear-over-yeargrowthrate.

InthecontextofgreatchangeoccurringnotonlyUSintermsofpaymentmethodsandindustrystructurebutalsooverseasinEuropeforexample,I'mwonderingifwe'relikelytoseesomerenewedinterestinthatgiventhatyourAmilexperimenthasnowgotsometimeunderit.AndyourthoughtsonthepotentialforinternationaltobeanewgrowthareaorexpandedgrowthareaoftheUnited?


That'sagreatquestion.Weclearlyarefocusedoninternationalandtheopportunitiestoreallybringprincipallyservicestobearthere.Larry,doyouwanttotakethat?


Letmestartbysayingifyoulookedatthewaythatwe'repositioningourselves,andIthinkImentionedthisearlier,thefivewhatI'llcallfuturegrowthareas,youwouldfindinternational.Andyouwouldalsofindthatinternationalprettymuchwouldwraparoundmostoftheproductsthatweofferinthisstate.WeobviouslyareworkinginBraziltosupportAmilandwehavepeopleonthegroundandwe'rebuildingtheOptumpresencethere.Andthat'sgoingextremelywell.

We'restartingtoreallytakealook,andIthinkIcantalkaboutitsomewhat,attheUK.We'vebeenthereforawhile.Butatthispointintimewe'retryingtolookatsomeofthethingsthatwe'vedonewithOptum360andhowthatisworkinginthestates.AndalotofthechallengesthatarebeingexperiencedintheUKweseemtobesittinginaprettygoodspottoatleastassessandhaveconversationsandtrytodetermineifwefit.

It'searlyinningsintermsofthesediscussionsandwhatwe'retryingtodo.Butwedoseeafuturethere.Andwethinkthatsomeoftheexperiencewehadinhealthcare.govwillactuallyapply.Andsowe'rekindofoffandrunningatthispointintime.


Ithinkit'sfairtosaythateventhebesthealthcaresystemsareinterestedinusinginformation,developingbettermeasurestoimprovequalityandperformance,andthosereallyareasweetspotforus.Nextquestionplease.

Operator :




MichaelBaker,RaymondJames.

MichaelBaker (Analyst-RaymondJames&Associates):

Thanksalot.Giventhatwe'reinanunprecedentedtimeontheM&AfrontIwaswonderingifyoucouldpointtoanytangiblebenefitsthatyouhaveseensofarorwhatyouwouldexpecttoseeastheprocessofreviewcontinues?


Asweintimatedinourlastteleconferencewithyouwereallyarenotgoingtocommentonthetransactionsofothers.Iwouldsaythey'regoingthroughI'mpresumingaregulatoryreviewprocessandsowehaven'treallyseenanyrealactivityinthemarketplacethatwecouldofferanycommentaryon.

MichaelBaker (Analyst-RaymondJames&Associates):

Allright.Thanks.


Thankyou,nextquestion.

Operator :

DavidWindley,Jefferies.

DavidWindley(Analyst-JefferiesLLC):

Wonderedifyouwouldbewillingtocommentontheclientreactionthatyou'veobservedorexperiencedsincetheCatamaranclosureorinandaroundtheCatamaranclosure?Whathasbeenyourretentionrateorkindofsenseofretentionthere?

AndthensecondlyalsowithCatamaranareyoucommentingorwillingtocommentontheresettoyourlong-termmargingoalswiththechangeinmixthatCatamaranbringsintoOptum?Thanks.


Sure.Ithinkit'saprettypositivestory.Doyouwanttostart,Larry?


Sure.I'llstartandthenI'mgoingtoaskMarkThierertojoinin.


Ican'thearLarry.


Canyouhearmenow?Sorryaboutthat.


Yes,that'sbetter.Thankyou.





WhatIthoughtI'lldoisI'llstartandthenI'mgoingtohanditofftoMarkThiererbecausehe'sdealingwiththisonadaytoday.WhatIwouldsayisthatwebelievethatourmessageisresonatingwithourclients.

Nowwedohaveverysophisticated,knowledgeable,andsuccessfulclientsandthat'sactuallyapositive.Andaswehavereallygoneoutanddiscussedourvalueproposition,reallytalkingaboutenhancedservices,talkingaboutoperationalefficiency,purchasingscaleaswellassynchronizationIthinkacrosstheboard,wearereallyfeelingprettygoodandthinkwehavestartedoffwithasolidstart.SoMark,maybesomecomments.

MarkT hierer (CEO-OptumRx):

Thanks,Larry.David,goodmorning.Wespentthelast90daysonanairplaneandLarryandIhavevisitedreallyallourlargestclientsasyou'dexpect.Andthatincludeshealthplans,employers.Wevisitedtheconsultantmarketplace.

Ihavetotellyouthereactionhasbeenuniversallypositive.Ourclientslikethescaleofthiscombination.Theylikethefactthatwe'vehada10-yearrelationshipandthatthatwillbasicallyrepresentnoconversionriskintermsofplatformconversion.

Theyespeciallylikethefactthatwe'vegotaveryexpandedserviceofferingwiththefullsuiteofOptumservices,andmanyofthemhavebeenlookingatandinfactbuyingthoseservicesalongthewayanyway.Theylikethefactthatwe'vegotagoodteamandthesameteamisinplaceandwecontinuetotakecareofthem.Obviouslytheyarelikingourvalueproposition.

Sowearefeelingprettygoodabouttheclientreactions,andI'dsayoverallmyearlyreadisthingsarelookinggood.I'lljustgoontosaythattheintegrationworkisoffandrunningandthefirst90dayshavebeenverycrisp.We'reofftoagoodstartinboltingthesebusinessestogether.


Verygood.Thankyou.Anddoesthischangeyourmargin,Larry,yourmargingoallongterm?


MaybeIcouldofferaperspectiveonthat.We'reaportfolioofmarginsacrosstheexpanseofourtotalbusiness.Andsodifferentproductsandserviceswillactuallydrivedifferentmarginsandappropriatelyso.

Wehavesomebusinessesthatarestrongdoubledigitsandwehavebusinessesthatarelowsingledigits.Andwe'relookingtodriveandexpandmargin,butdoitinappropriateways.Appropriatewaysmeaningwe'redrivingvalueandconsistency,we'redrivingproductivitythatdoesn'treallycompromiseserviceandsoforth.

AstheseelementscomeintoourtotalportfolioacrossUnitedHealthGroupthey'recertainlygoingtochangethemixofthatmargin.Butintotalwe'redrivingtowardsappropriatelyexpandingmargins.Andsoastheseelementscomeintheyarejustgoingtochangethemix.They'renotreallygoingtoinfluencetheperformanceofthebusiness.


Okay.Thankyou.


Nextplease.




Operator :

AndySchenker,MorganStanley.

AndySchenker (Analyst-MorganStanley):

Thanks.Iappreciateyouwanttodeferspecificson2016financialperformancetotheanalystday,butyou'vealreadymentionedseveralsoundsliketometailwindsincludingMedicareandexchangesfornextyear.Somaybeifyoucouldjustdiscussandsummarizethesebroadheadwindsandanytailwindsfor2016.Thatwouldbehelpful.Thankyou.


Sure.Kindofwelookatsomethingsthatwesitbackandwhenyoureallydotheplusesandminusesofitsomeofthethingsthatareheadwindsnowturntobetailwindsandnewversionsofthemappearasheadwinds.SoforexampleIthinkthatouryear-onemarketsfor--ouryear-onemarketsforexchangeswillactuallybeapositiveforusnextyear,butwearemovinginto11newmarketsandsowewillhavetoseehowthosemarketswillplayout.

Ithinkouradvancesinstarsisapositive,butwe,asSteveindicated,wehaveclearaspirationsandambitionstoimproveourstarsperformancesothatwewillcontinuetobeworkingonthatlevelaswell.IthinkOptumRxwillhaveintegrationbenefitsbutthey'llalsohaveintegrationcosts.SoIthinkthosekindsofthingsstarttoplayout.IthinkourBrazilperformanceisstrengthening,butthatmarket'sstabilityissomethingwe'rewatchingclosely.

Ithinktherewillbesome--wearegettingnicegrowthandliftinMedicaidandwehavesomenewsuccessesthere,butwearegoingtohavetoimplementthem.Andjustgiventhetotalperformancewe'reseeingratepressuresacrossMedicaid.

Sowetrytotakesomewhatmeasuredlookaswekindofsetouroutlookfornextyearthatwehaveaportfoliooftheseplusesandminuses,butintotalweverymuchlikewhereourbusinessisandthegrowingcapabilities.Thedeploymentacrosstheexpanseofthemarketstendtoevenouttheseplusesandminuses.Sowe'reprettyoptimisticaboutnextyear.AndasDaveindicatedwe'relookingtoaccelerateourearningsgrowthrate.

AndySchenker (Analyst-MorganStanley):

Thankyou.


Next.

Operator :

ChrisRigg,SusquehannaFinancialGroup.

ChrisRigg (Analyst-SusquehannaFinancialGroup/SIG):

Goodmorning.JustwonderingcanyougiveusasenseforhowCatamaranimpactedthequarter,whetheritwasdilutive,accretive,neutral?Andthenjustsomespecificsaroundtheintegrationcostsandwhattheintangibleamortizationrelatedtothedealwasinthequarter?Thanks.


Dave?





Catamarancontributednicelytothequarter.Itachievedwhatexpectationswehadforit,andsimilarlythecostsassociatedwithinitialintegrationactivitieswereconsistentwithwhatourexpectationswereaswell.

I'mnotgoingtogetintothespecificsabouthowitcontributed.Theonethingwediddoiswesuspendedoursharerepurchase,sothathadanegativeeffect.Andforthefullyear,asweindicatedearlier,weexpectthatitwouldcostusabout$0.10ashareallin,butwewereabletomanagetoovercomethatandretainandcontinuetoadvanceourguidanceaswell.

Intermsoftheincreasedlevelsofamortization,itisaboutsomewherearound$0.20ayear.Ithinkaboutitinthatcontext.Andwe'reonabaseofaboutarunrateinUnitedHealthGroupsomewherearound$0.34ayear.Socombinedmaybethinkingoutto2016ourrunratebaseisaround$0.54ofamortizationperyear.

ChrisRigg (Analyst-SusquehannaFinancialGroup/SIG):

Okay.Thanksalot.


Nextquestion.

Operator :

A.J.Rice,UBS.

A.J.Rice (Analyst-UBS):

Yes,thanks.Helloeverybody.Maybefollowingupalittlebitonthatlastquestion.Twothings.Onthebuybackoffrontobviouslyyou'dlaidoutaplanwithCatamaran.Isthereanyupdateonthatplanparticularlyasitrelatestonextyear?

Anddoesthevolatilityofthemarketswaythatinanyway?Willitmakeyouthinkthere'sbetteropportunities,thatmaybeitwouldbequickertocomebackandbuystockmoreaggressively?Andthenjustwiththecommentontheamortization,therewillbeabiggerdisparityoncethesependingdealscompleteanewreportingGAAPEPSandeveryoneelsereportingcashEPS.Anythoughtsaboutthatandmaybechangingthat?


SomaybedowanttotakethefirstoneandI'lltakethesecond?


Sure.Onthebuybackfrontwhatwehadindicatedisthatwewouldreducethelevelofbuybacksforabout18monthsorso.Weexpecttocontinuetomaintainthatreducedlevelthroughtheendofnextyear.Thinkaboutit.Andourtargetistogetsomewherearounda40%liquidityratio.Thatisnothardandfast.

Ofcoursewe'regoingtocontinuetopursueM&Aopportunities,andofcourseifweneededtostepupoursharerepurchaseactivitiesbecauseofsomekindofmarketeventorotherwiseIthinkwehavetheflexibilitytodoso.There'snothingkindofhardandfastaboutthewayinwhichweoperatethat.We




manageourcapitalstructureeffectivelyovertime.


Butwe'regenerallyonacoursetowards40%totaldebttototalcapital.Andthenintermsofthekindofsupplementalpershareearnings,Ithinkwe'llkindofaddressthatattheinvestorconferencecomingupandwe'lllikelybegintoprovidethesupplementalinformationwithrespecttohowwewouldperformonbothbases.

A.J.Rice (Analyst-UBS):

Okay.Great.Thanks.


Thankyou.Nextquestionplease.

Operator :

KevinFischbeck,BankofAmerica.

KevinFischbeck(Analyst-BofAMerrillLynch):

Okaygreat,thanks.Idon'tknowwhetherI'mjustspoiledorwhat,butyouguysmentionedhowyou'vebeatennumbersandraisedofguidanceafewtimesalreadythisyear,soIwasalittlebitsurprisedthattherewasn'tmoreupsideinthequarteroraroundtheguidance.

AndIunderstandthedynamicsaroundhighexchangeMLRandstarsinvestments,butthesearethingsthatyoulargelywouldhaveanticipatedprobablyatthebeginningoftheyearandattheveryleastwouldhavereportedQ2resultsandprovidedguidancebackthen.

Sojusttrytofigureoutifthereissomethingthatyouwouldpointtothatdidn'tquiteworkoutthewaythatyouwerethinkingheadingintoQ3orsomethingthatyou'reworriedaboutintoQ4.BecauseIpersonallykeepcomingbacktotrend,becauseyoustartedoutwith--wheneveryouguysprovideguidanceyouprovideguidanceassumingtrendwillrisebacktonormal.

Soyoustartoffprovidingguidance,thenyou'reatthelowendoftherange,andnowyou'rereiteratingatthelowendoftherange.Sodoesthatimplythattrendisinfactrisingaswe'vegonethroughtheyear?Becausethatcombinedwithalackof[intrayear]developmentmakesmewonderiftherewassomethingunderneaththere.SoIguessanswerthatspecificallyandifIambarkingupthewrongtree,ifthere'sanythingelseyoumighthighlightasaheadwind.


Againmightresponsethematically.FirstofallIthinkifyoutakealookatouryear-to-dateperformanceitactuallyisaprettysolidperformance,goodtoplinegrowthandstrongtranslationofthattobottom-lineperformance.Ithinkthatwemaintainahealthyrespectformedicalcosttrends,andIthinkthatwe'veindicatedbeforemedicalcostsarewellwithinourexpectation.Outpatientcontinuestobestrongandrobustandgrowing.Specialtypharmacontinuestobestrong.Wehaven'treallytalkedmuchaboutthatthismorning,butnoneofthosethingshavegoneaway.

Soweremainrespectfulofmedicalcostsandalsothefactthattheyhavebeenmoderateforquitesometime.AndIdon'tknowifyoucanassume,wedonotassumeforpricingthattheywillstaythatway.IthinkasDanindicatedaswegotintotheexchangeswewerethoughtfulaboutmakingsurethataswepricefornextyearthatweusedkindofthebroaderindustryexperienceasopposedtoourownbecausewe




reallyhadaprettyfavorableexperienceinthefirsthalfoftheyearintermsofexchangesandtheyhavematuredmoreinlinewithindustry.Isthatright,Dan?


Yes.Ithinkthat'sfair.


Soyoumightpointtothatandcontinuetobewatchfulofthat.Wecontinuetomakeinvestmentsin--soMedicareStarsisalookbackprocess.Soreallytheresultsthatyou'reseeingarereallytheresultsofpriorperiods.Andwehaveintensifiedoureffortstomakesurethatwearereallygoingtobeamarketleaderwithrespecttostars.That'swhatwehadindicatedbefore,sowecontinuetomakeinvestmentsthere.Thingslikethat,andwe'regoingtocontinuethat.Thingslikethat,wementionedMedicaidandMedicaidexpansions,continuedratepressuresthere.

SoIthinkwehavetoberespectfulofallthoseelementsandthestrongperformanceweareachieving,andIthinkthat'swhywe'remeasuredwithrespecttokeepingouroutlookthesameandbeingseriousaboutarangewhenwedo.Butalsobeingveryoptimisticaboutwhereweseeourbusinessandthefactthatweexpecttogrowevenmorestronglythanwedidthisyear.SoIjustthinkit'sbeingmeasuredandtryingtoberesponsibleaboutalltheelementsthatplayintoourbusiness.


Okay.Sothatmakessensethatyou'rebeingconservative.You'restilloptimistic.

Iguessoneclarification,becauseIthinklastquarteryoutalkedabouthowyouthoughtthatUnited'searningsmightaccelerateonacorebasis.Isthatstillthemessagethatyouaregivingnow?Youmentionedalotofputsandtakesearlieron,Ijustwasn'tsureiftheyallsumuptothecorebusinessesasacceleratingorwhetherthat'schangedatall?


Yeswedidandwebasicallyverymuchsaidthatandsaidthatintermsofweareexpectingourearningspershareandsoforthtogrowatafasterratenextyearthanthisyear.


Okay.Great.Thanks.


Nextquestionplease.

Operator :

SeanWieland,PiperJaffray.

SeanWieland (Analyst-PiperJaffray):

Thankyouverymuch.MyquestionisonICD-10.WasitaheadwindoratailwindinthequarterforOptum?Andoverthepastcoupleofweekshaveyouseenanychangesindenialrates?Andthenonago-forwardbasiswhatdoesICD-10dotoyourbusinessinOptum?





SoBill,doyouwanttocomment?BillMiller?

BillMiller (CEO-OptumInsight):

Yes.I'lltalkonthebehalfofOptum.Particularlywherealotofthoseservicesfitintermsofhelpinghealthsystems,payersgothroughthechangeswithrespecttoICD-10,particularlyon--andunderstandwe'reinthisforafewweekshere.

Butalreadywe'reseeingacertainuptakeinalotofourservicesandalotofourproductsandalotofourcontentasthemarketispreparingandnowactinginresponsetothechanges.Andsothereissomeseasonalityinthebackhalfofourbusinessandit'sbeingenhancedIthink.Wecanseethatinthenumbersintermsoftheuptakeofourcontentinthebackhalfoftheyear.SooverallfromaservicesperspectivedeliveringvaluetotheclientICD-10hasbeenaliftforOptumacrosstheboard.


Dirk,doyouwanttocommentontheUnitedHealthcareside?

DirkMcMahon (EVP-EnterpriseOperations):

Sure.Fromanoperationalstandpointoveralltheimplementationisgoingprettysmoothly.WhatIcautionisthatwe'reonly15daysintothat.Havingsaidthatwe'vespentyearsgettingoursystemsready,workingwiththeprovidercommunitytoensuresuccess.

TheoverwhelmingmajorityofprovidersinthemarketplacearesubmittingclaimsconsistentwiththeICD-10requirements.Ourclaimsubmissionratessofarareconsistentwithexpectations.Andforthoselimitednumberofproviderswhoarehavingdifficulty,we'reabletoidentifythemandgetafterthemquicklysothattheysubmitconsistentwithrequirements.Sofarsogood.


Thankyou.Nextquestion,please.

Operator :

GaryTaylor,JPMorgan.

GaryT aylor (Analyst-JPMorgan):

Hello,goodmorning.Thankyou.Actuallyjusttwoquickones.Firstwouldyouguysquantifywhereyourhealthexchangeenrollmentistoday?


Sure.Dan?


550,000lives.


Okay.Andthe11newmarketsfornextyear,Iguesswedon'tknowwhatmarketsthoseare,thesize.Canyougiveusasenseofmagnitudeofwillyougetthesamesortofshareorwhattypeofgrowththatmighthaveonthe550,000?





Wearenotreallygivingguidanceoutfornextyearuntilourinvestorconference.SoIreallywouldn'twanttoshootfromthehiponthis.Wedoexpectwewillgrowandwe'vetakensomeofthelearningsfromthisyearaswehavekindofenteredthosemarkets.ButIthinkwearegoingtosaveguidancewithrespecttospecificsonnextyearforourinvestorconference.


Okay.Great.OnemorequickoneifIcould.Whenwelookatyourstatutoryfilingsthroughthefirsthalfandunderstandingallthevagariesandnuances,wedoseeaverycompellingtrendinthecommercialbusinessthatIthinktieswithyourcommentsaroundthecommercialcosttrend,expectingittobethelowerendofthattrend.

ButitdidlooklikeMedicareandMedicaidMLRsdeterioratedsomewhatinthe2Q.SoIdon'tknowifyou'dbewillingtoofferanyspecificcommentaryonaproductbasis?


Dan,Idon'tknowifyoucancommentonthis.


IwouldtellyouthattherearemeaningfuldifferencesbetweenourGAAPfinancialsandourstatutoryfinancialsandhowthosegetreportedandhowtheyflowthroughovertime.FrommyperspectiveIwouldn'treadthroughanythingonthestatutorystatementsspecifically.


Thankyou.Nextquestion.

Operator :

[RalphGiacobbe],Citi.

RalphGiacobbe (Analyst-Citigroup):

Thanks,goodmorning.Ididwanttogobacktothestarspending.Iguesswhendidthatspendingstart?WasitdisproportionatetothethirdquarterandyourcommentaryaboutitsustainingIguessintonextyear?Isitgoingtolevelofforcoulditbelowerwheretheinitialspendishigherinthisquarterhavingamoremagnifiedimpact?

AndthenIguesswhynotquantifythespendinthatareatohelponunderstandingmoreofquote/unquotethecore?Andthensimilartoyourlastanswertoaquestion,maybeevendirectionallycanyouhelpusthinkaboutMLRtrendsbyendmarket?Thanks.


Dan,doyouwanttocommentonthat?


Sure,Ralph.OnthestarspendIwouldtellyouthatwehavebeenmakinginvestments.Wehavereallystartedinearnestinthe2014timeframeinthemiddleofthatyear.Andthenwehaveincreasedthatin2015.AndItellyouintherelationshipbetweenthesecondandthethirdquarterasanexample,soweputprogramsinplaceandwhatwehadmentionedisthatwe'veseenanaccelerationinthetakeup.




Sowehadtheprogramsinplace,wehadanexpectedoutcomeforitandfranklywe'rehavingmorepeoplethatareacceptinghousecalls,thataregettingannualcarevisitsasSteveNelsonmentioned.Andpartofthatisduetoourservicemodel.We'vebeentakingthatinteractionpointandreallytryingtoleverageitandhelpfacilitateconnectingpeopletocare.

Andthat'sshowingup.Andalsowehavememberandproviderincentives,andasthoseburnintothemarketwe'reseeingthetake-upratesonthoseincrease.Sowehadspendingin2014,weincreaseditin2015,andwehaveseenanaccelerationinthetake-uprateaswemovedfromthefirsthalfintothesecondhalfoftheyear.

Intermsofthesizing,maybeonewaytohelporientyourthinkingaroundit,asyou'velookedatourconsolidatedmedicalcareratioonayear-over-yearbasisthere'sacoupleofthingsthatcontributedtothat.Wecanobviouslyseethechangeindevelopmentasoneelement.Starsandqualityinvestmentsisanotherelementandmixasathirdiskindofthethreeprincipaldrivers.

Intermsoftheshareandcontributiontoit'swithinareasonablerangeoneachofthose.Sothatgivesyousomesenseforthekindofsizingonit.Andweexpecttheinvestmentstocarryinto2016,andwe'reseeingniceprogressonourperformancein2015whichwilllenditselftobetterstaroutcomesfor2018paymentyear.

RalphGiacobbe (Analyst-Citigroup):

Andexchangestepsbecauseit'spartofyourplancommentary?Right?


Yes.


Thankyou.Nextquestion.

Operator :

AnaGupte,Leerink.

AnaGupte (Analyst-LeerinkPartners):

Goodmorning.Waswonderingwhatthedirectionaltrendswereforthecommerciallossratiothisquarter?Iknowyousayutilizationisweak,whichisgreat,butwhenyoucombineitwiththeoverallpricingenvironmentandthenthebalancingoutwithmixshiftingandsmallgroupexchangesandthelike?


Dan?Jeff?


Asyoulookatthecareratios,Ana,inthequarterwesawanincreaseinourcareratiosinourprincipalhealthbenefitsbusinesses,soMedicare,Medicaid,andcommercial.Andthenoffsettingthataswetalkedaboutthefull-yearthemeintheinvestorconferencewe'reseeingimprovementininternationaloffsettingthatsome.Sodirectionallyup.


Andthengoinginto2016asyousaysomeoftheheadwindsgetintobecometailwinds.Whatdoesthis




looklikefromapricingperspectivespecificallyoverallandthenintheNewYorkmarket?Thesmallgroupdefinitionhasnowbeenchangedtoonly50andbelow.Howdoesthatimpactit?Andalsofinallywithrisk[orders]notbeingfullyreimbursedmightyouseeabetterpricingenvironmentwithplansthatcouldhavelostmoneyliketheBluesnotforprofit?


Wellitwilltakeusacoupleminutestosortoutthatfourdimensionalquestion.ButJeff,doyouwantto--

Jef f Alter (CEO-UnitedHealthcareEmployer&Individual):

HiAna,it'sJeffAlter.Goodmorning.I'lltrytoansweritinageneralterm.Wesaidlastquarter,andIthinkweseeitcontinuing,themarketisfirmingalittlebitonpricing.Forourpricingin2016,asStevesaid,wearerespectfulofthislowtrendenvironmentperhapschanging.

Ithinkwetookveryprudentactionsinthepricingthatwehaveforourindividualexchangesfor2016asDanmentioned.Wehavenotchangedourforwardpricingphilosophy.Weareverydisciplinedaboutthat,butalsorespectfuloftrendinoutpatient,specialtydrugs,newdrugscomingtomarket.OurpricingIthinkisstrongfor2016.

AndonNewYorkmarket,kindofyourquestionaround2to50to2to99,NewYorkwillbea2to99marketaswillacoupleofotherstates.Wehadassumedourthoughtsforourenrollmentgrowthfortherestofthisyearandfornextyearthattherewouldbesometransitionalreliefsothatthechangelastweekreallyisn'tmuchofasurprisetous,becausewewerealreadypreparingforlargepartsofthatmarkettogothroughsometransitionalrelief.Soourpricingin2016isinalignmentwiththechangeinthelawlastweek.


Thankssomuch.


Nextquestion,please.Wewilltakemaybetwomore.

Operator :

ChristineArnold,Cowen.

Christ ineArnold (Analyst-CowenandCompany):

IwouldliketoswitchthefocusalittlebittoOptum.Yousaidthatyouwereseeingsomeinterestininnovativeservicesbythefederalgovernment,andthatthisseemslikeaprettybigopportunityaswellasinsomeinternationalmarkets.

It'salwaysstruckmethatthefeeforserviceMedicareprogramdoesn'thavealotinthewayofcarecoordinationandtheotherthingsthatOptumprovides.MighttherebeaninterestinthatintermsoftheOptumcapabilitiesforthefeeforserviceMedicarepopulation?Andifnot,ifI'mthinkingaboutthatincorrectlyhowshouldIbethinkingaboutthat?


Larry,youwanttocomment?





Sure.IthinkthatChristine,Ithinkyou'respotonintermsofwhatwe'retryingtodowiththefederalgovernment.Andasyouknowwe'vehadsomeinvolvementwithCMSandpreviousprogramsandsoforthwithwhereOptum'sbeeninvolvedonhealthcare.gov.Andasweareputtingourprogramstogetherweareconstantlyworkingwiththemandtalkingaboutthedifferentservices,thedifferentdataanalytics,andreallyprettymucheverythingthatOptumhastooffer.Soyoursuggestionisagoodone,oneweknowaboutandonethatwe'reactuallyworkingon.

ThesearelargeRFPs,asyoucanimagine.We'reprettymuchawareofhowtheyworkandwhentheyaregoingtobecomingdowntheroad.SoIthinkwe'refullyengagedandunderstandwhatweneedtodo,andwe'rebetterpositionedtodaythanwemighthavebeeninthepastbecauseofthesituationthatwehadwithhealthcare.gov.We'vesteppedoutofthatnow,andthatwasoneofthereasonsthatwediditsowewouldplayinmoreoftheRFPs.


ButMedicare,theVA,DepartmentofDefense,federalemployeebenefitplan,stateprograms,andLarrycommentedonkindoftheinternationalversionsofalloftheabove.Ithinkallthosearegoingtobeareasthatwe'regoingtotrytoimproveperformanceandthatOptumisperfectlypositionedforthat.


Withrespecttotimingshouldwebethinkingaboutthatassomethingwe'dseeinthenextyear,oristhissomethingthattakesfiveyears?Ijustdon'thaveagoodsenseforinnerworkingsofthegovernment.


IthinkthatsomeoftheareasthatStevejusttalkedaboutthereisdifferenttiming.Therearesomethatit'srealwithinthenextIwouldsaysixmonths,butsomeofthemcouldgoouttwoyears.Soit'sjustavarietyofsituationsorwhentheRFPsaredue.

ButasIwouldcommentonit,IthinkIkindofsaidthis,wehavealotofpeople,wenowhaveanorganizationthatisdedicatedtothegovernmentbusinessjustasStevesaid,whetheritbestateorfederal.AnditcouldalsoincludetheVAandwhatwe'redoingwiththeDoD.Sothere's--it'snotjustlikeasettimethatIcouldgiveyou,butIwouldsaythatifwelookedatourqualifiedpipelineintermsofhowwe'relookingatthebusiness,thatit'ssomewhere,Christine,around$20billion.Andasubstantialpieceofthatwouldfallundergovernmentbusiness.


Great.Thanks.


Onelastquestion,please.

Operator :

TomCarroll,Stifel.

T omCarroll(Analyst-StifelNicolaus):

Goodmorning.Doyoubelievethatthemarket,andparticularlylargeself-insuredemployers,perhapswillgiveUnitedastrongerlookthanusualifthereissuchathingin2016asyourlargecompetitorsareinvolvedinsomeprettysizableM&A?





Iwouldhopetheywouldgiveusalookbecauseofthevaluesthatwedeliverandthequalityandconsistencyofourservicesandthebreadthofthethingsthatwebring.Iwouldsayalsotheinnovativedynamic;wearewellknownforbeingintheforefrontofinnovation.Wehavereallycompellingcoststructuresandprobablydeeperintoandmorediverseincaremanagementtothecommentarythismorning.

SoIwouldhopethattheywouldbelookingatusforthoseelements,andthenifthey'reconcernedaboutotherdynamicsinthemarketplaceIcan'tcommentonthat,butIwouldhopethatitisfortheformer.I'llleaveitatthat.Idothinkthemarketplacewillbestrongandrobustinthenextcoupleofyears.Jeff,youagree?


Yes,Steve.Justareminderwealreadyserveanoverwhelmingmajorityofthatmarketplace.SoIthinkthevaluethatStevedescribedisseenbythoseclientstoday,andwehopethatthatreputationcontinuestohelpusgrowintothemarketplacethatwedon'tcurrentlyhave.


Ithinkwe'relookingatastrongnationaloutlookfornextyear.


Aswementionedlastcallour2016nationalaccountseasonhasprogressedverynicelytowardstheendrightnow,andweseeabetter2016seasonthan2015whichwasbetterthan2014.Sothemomentumandtrajectoryissomethingthatweareverypleasedwith.

T omCarroll(Analyst-StifelNicolaus):

Great.Thankyou.


Thankyou.Wearepleasedtohavedeliveredgoodperformanceyeartodate.Wewillcontinuetoimprovethequalityofourproductsandservicessothatourlastcommentary,andweremainoptimisticabout2016andlookforwardtosharingmoreinformationwithyouaboutthefutureofUnitedHealthGroup,Optum,andUnitedHealthcareatourinvestorconferenceonDecember1.Thankyouforyourattentiontoday.

Operator :

Thisdoesconcludetoday'sprogram.

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Documents

Unitedhealth Group (UNH) Earnings Report: Q3 2015 ... · strengthen our reimbursement rates in 2016, 2017, and 2018, enrich our Medicare Advantage programs benefit offerings, and