United Healthgroup (UNH) Earnings Report: Q1 2016 Conference … · 2016-04-19 · United Healthgroup (UNH) Earnings Report: Q1 ... Our tax rate reflected early adoption of the new

CompanyName:UnitedHealthGroupIncCompanyTicker:UNHSector:HealthCareIndustry:HealthServices

EventDescription:Q12016EarningsCallMarketCapasofEventDate:121.05BPriceasofEventDate:130.5

©2014TheStreet,Inc.Al l R ightsReserved Page1of21

UnitedHealthgroup(UNH)EarningsReport:Q12016ConferenceCallTranscriptThefollowingUnitedHealthgroupconferencecalltookplaceonApril19,2016,08:45AMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

StephenHemsley;UnitedHealthGroupInc;CEOLarryRenfro;UnitedHealthGroupInc;ViceChairman&CEOOptumDaveWichmann;UnitedHealthGroupInc;President&CFODanSchumacher;UnitedHealthGroupInc;CFO,UnitedHeathcareBillMiller;UnitedHealthGroupInc;CEOOptumInsightSteveNelson;UnitedHealthGroupInc;CEO,UnitedHealthcareCommunity&StateJohnRex;UnitedHealthGroupInc;CFOOptumJackLarsen;UnitedHealthGroupInc;OptumCareJeffAlter;UnitedHealthGroupInc;CEO,UnitedHealthcareEmployer&IndividualBusiness

OtherPart icipants

PeterCosta;WellsFargoSecurities,LLC;AnalystMatthewBorsch;GoldmanSachs;AnalystDavidWindley;Jefferies;AnalystSarahJames;Wedbush;AnalystScottFidel;CreditSuisse;AnalystChristineArnold;Cowen;AnalystBrianWright;SterneAgeeLeach;AnalystA.J.Rice;UBS;AnalystTomCarroll;StifelNicolaus;AnalystMichaelBaker;RaymondJames;AnalystJoshRaskin;BarclaysCapital;AnalystSherylSkolnick;MizuhoSecuritiesUSA;AnalystAnaGupte;LeerinkPartners;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator :

WelcometotheUnitedHealthGroupfirstquarter2016earningsconferencecall.Aquestion-and-answersessionwillfollowUnitedHealthGroup'sremarks.Asareminder,thiscallisbeingrecorded.Here'ssomeimportantintroductoryinformation.

Thiscallcontainsforward-lookingstatementsunderUSfederalsecuritieslaws.Thesestatementsaresubjecttorisksanduncertaintiesthatcouldcauseactualresultstodiffermateriallyfromhistoricalexperienceorpresentexpectations.AdescriptionofsomeoftherisksanduncertaintiescanbefoundinthereportsthatwefilewiththeSecuritiesandExchangeCommission,includethecautionarystatementsincludedinourcurrentandperiodicfilings.

Thiscallwillalsoreferencenon-GAAPamounts.Areconciliationofthenon-GAAPtoGAAPamountsis




availableontheFinancialReportsandSECfilingsectionoftheCompany'sInvestorspageatwww.UnitedHealthGroup.com.

InformationpresentedonthiscalliscontainedintheearningsreleaseweissuedthismorningandinourForm8-KdatedApril19,2016,whichmaybeaccessedfromtheInvestorspageoftheCompany'swebsite.

IwouldnowliketoturntheconferenceovertotheChiefExecutiveOfficerofUnitedHealthGroup,Mr.StephenHemsley.Pleasegoahead.

StephenHemsley(CEO):

Thankyouandgoodmorning.Thankyouforjoiningustodaytoreviewourresultsforfirstquarter2016.

UnitedHealthGroupbusinesseshavesteadilystrengthenedoverthelastseveralyears,andthistrendcontinuedinthefirstquarterof2016.

Ourmomentumisevidentinthehighestlevelsofcustomerandconsumerretentioninourhistory,combinedwithnewcustomeracquisitionsdrivingstrongrevenuegainsacrosstheenterprise;growthinthesize,scopeanddiversityofproductsandserviceswithinourclientbase,aswellasthenumberofnewcustomeropportunitieswearepursuing;steadilyimprovingmetricsforbrandandreputationandsteadilyrisingnetpromoterscoresacrossourbusinesses.

Customersbuyvalueandexpectresults,andwearesharpeningourperformancefocus,drivingthehighestqualitycustomerexperiences,helpingusbecomethegotochoice,themusthavepartnerforeveryonelookingtoimproveperformanceandsustainabilityinhealthbenefitsandhealthservices.

Whenwecombinehigherqualityfromconsistentexcellentexecutionwithpracticalinnovationsatscale,ouropportunitiestogrowandservecontinuetoexpand.OurintensifiedcommitmentstoqualityperformanceandtogrowthonthestrengthofthatqualitypositionsUnitedHealthGrouptolookforwardtowardwhatwebelievemaybecomeourbestdecadeofperformanceandgrowthyet.

Turningtotheresultswearereportingtoday.Ourfirstquarterrevenuesgrew9%priortoacquisitionsandover24%overall,to$44.5billion,withbroadstrengthacrosstheenterprise.Inhealthbenefits,medicalcostswerewellmanagedandcontrolled,asisevidentintheconsolidatedcareratioof81.7%.Prioryearreservesdevelopedfavorablyby$360millioninthequarterandmedicaldaysclaimspayableincrease4daysyear-over-yearto51days.Cashflowsof$2.3billion,or1.4timesnetincome,continuedatastrongandreliablepace.

Firstquarter'soperatingcostratiodecrease110basispointsyear-over-yearto15.2%,duetoacombinationofbusinessmix,technologydrivenoperationalefficiencies,andthecumulativeoveralleffectsofrevenuegrowth.Theseefficiencygainswerepartiallyoffsetbycontinuedinvestmentsinourbusinesses.

Ourtaxratereflectedearlyadoptionofthenewaccountingstandardforstock-basedcompensation,addingroughly$0.06pershareinthequarter.Youshouldexpectitwilladdconsiderablylessincomingquarters,duetothenaturalpatternofequity-basedcompensationactivityforourCompany.Firstquarteradjustedearnings,$1.81,persharegrew17%year-over-year;andourfull-yearrevenueandpershareearningsoutlookisstrengthening,asDaveWichmannwilldescribeshortly.

Sinceweknowexchangesareinthemindsofmanyofyou,letmetakeaquickminuteforanupdate.Asyouknow,wehavebeenevaluatingpublicexchangesonastate-by-statebasis.WehavemaintainedourregularpublicdialoguewithyousinceNovemberabouttheindividualexchangemarketandhowourownexperienceandperformancehavebeenunfavorableinthesemarkets.Thesmalleroverallmarketsizeandshorterterm,higherriskprofilewithinthismarketsegmentcontinuetosuggestwecannot




broadlyserveitonaneffectiveandsustainedbasis.

Nextyear,wewillremaininonlyahandfulofstatesandwewillnotcarryfinancialexposurefromexchangesinto2017.Wecontinuetoremainanadvocateformorestableandsustainableapproachestoservingthismarketandthosewhorelyonitforcare.

Withthat,IwillnowaskLarryRenfrotoreviewOptum'sexceptionalperformance,andthenDavetocoverUnitedHealthcareandprovideUnitedHealthGroupcomments.Larry?

LarryRenf ro (ViceChairman&CEOOptum):

Thanks,Steve.Optumisofftoastrongstartagainthisyear,consistentwiththeambitiousplanswesharedwithyouatourinvestorconferencelastDecember.Optumwillagaingrowrevenueatmorethan20%andearningsfromoperationsatabove30%thisyear.

WecontinuetoestimateOptumwillcontribute42%ormoreofenterprise-wideoperatingearningsthisyear,evenconsideringourongoinginvestmentstosupportthefuturegrowthofthisyoungbusiness.Optum'sperformancereflectsthelargescaleopportunitieswearepursuingandthetremendouseffortsour100,000employeesmaketodeliverdifferentiatedservicesandcapabilitiestothoseseekingtosolvecomplexchallengesacrossthehealthcaresystem.

Ourfirstquarterrevenuesof$19.7billiongrew54%year-over-year,or11%priortoacquisitions.OptumRxrevenuesgrew72%,to$14.3billion,whileOptumHealthandOptumInsighttogethergrewrevenuesto$5.7billion,whichisgrowthof21%overthefirstquarterof2015.Ourfirstquarteroperatingmarginof5.6%includesthecontinuingincreaseofpharmacycarerevenues,asyouhaveseeninthepasttwoquarters.Overall,Optumproduced$1.1billioninearningsfromoperations.

Asyoumayknow,weidentifiedfivedriversforOptum'sgrowthoverthenextfiveyears.Theyarepharmacycareservices,caredelivery,technology,governmentservices,andinternational.Lastquarter,wespentsometimeonamoredetailedreviewofcaredelivery.Today,wewillfocusonpharmacycareservices,thenfollowupbrieflywithdataanalytics.

Pharmacycareservicesisahighpriorityareaforus.Thisfocusgoesbacksomefiveyears,totheoriginaldecisiontoundertakethelargestandarguablymostcomplexbusinessinsourcingeverattempted.Itrequiredsignificantinvestments,preciseexecution,andflawlessdelivery.Asyouknownow,ithasbeenarealsuccess.

Lastyear,wetookanotherstep,ourcombinationwithCatamaran,ledbyMarkThierer,whonowheadsourentireOptumRxplatformandservesasaseniormemberofouroverallOptumleadershipteam.Thiscombinationwasasignificantadvanceinscale,andtodaythebusinessisrunningatover1billionscriptsannually,upfrom350millionin2012.Eightmonthsin,thegreatlyexpandedOptumRxisadvancingameaningfuldifferentiatedsolutionsforclientsinthemarketplace,withdistinctivecapabilitiesaroundpatient-centereddataanalytics,newcapabilitiesinspecialtypharmacy,suchashomeinfusion,andworkplace-relatedresources.

Sincewecametogether,ourretentionrateshavepersistedinthehigh90%sandwearebuildingourlargesteverpipelineofopportunities.WewerepleasedthisquartertoannounceaninnovativepartnershipwithWalgreens,throughwhichwearecreatinga90-dayatretailpharmacyoffering.Thisisallaboutmeetingconsumerswhereandwhentheywant,whetherthatmeanshomedeliveryorwalkingintothelocalWalgreensstore.Together,wewillprovidechoiceandcostsavingstoourclients,asweworkandbenefittogetherinameaningful,morecollaborativeway.

WeareenthusiasticaboutthepotentialoftheextensionofourrelationshipwithWalgreens,thelargest




retailpharmacyintheUS.Overall,thisyearweexpectOptumRxtogeneratemorethan$58billioninrevenuesandmanagenearly$80billioninpharmacyspendforourcustomers,including$30billioninspecialtydrugspending.

Pharmaceuticalspendingcomprises12%to15%oftheoverallcostofhealthbenefitsandhasbeenthetraditionalfocusofthepharmacybenefitsindustry.Wefindthatfocusmuchtoolimitingwhenitcomestoimprovinghealthandhealthcareoverall.TheimpactOptumRxhasonhealthcareanditscostshasthepotentialtobeprofoundlybroaderanddeeper.Hereyouhavethemostfrequentconsumertouchpointinallofhealthcare,onethatprovidesgreatvisibilityintothefullhealthcarecontinuum.

Anindividual'sengagementwithOptumRxbecomesmoreimpactfulwhenwebreakoutoftheone-dimensionalprocurementandformularyarbitragemodeloftodayandopenuptoprovidingconsumersintegratedmedicalandpharmaceuticalservices.

Intheprocess,wehelpreduceunnecessaryoverallsystemsutilization,includingERvisits,hospitaladmissionsandreadmissions,andprovidemoreeffectiveandtimelyinterventionstoimproveadherenceandhealthoutcomes.That'sthevaluepropositionofthefuturewearefocusedon.Employersusingourintegratedandtechnologyenabledapproachcansaveinexcessof$120permemberperyearacrosstheircombinedmedicalbenefits.

Insummary,ourobjectivefortheimpactofthisbusinessgoesfarbeyondtraditionalpharmaceuticalmanagement,towherethepotentialtoinfluenceboththeconsumerandthehealthsystemforthebetterismuchgreater.Thatiswhypharmacycareservicesarecoretoourgrowthandvaluestoryoverthenextdecade.

Optumalsoisdeliveringdifferentiatedvaluefromourworkinsidethehealthsystem,asecondcoretoourgrowth,ourunrivaledexistingcapabilitiesinhealthcaredatascienceandanalytics.Companiesnewtothisspaceareexcitedaboutthepotentialthatsomedaytheseforceswillevolvehealthcareintoanewage.Well,forOptum'scustomers,thatsomedayistoday.Wearemeetingtheircriticalneedsrightnow.

Wearetheleaderinusingadvancedtechnologyandpredictiveanalyticstoconnectstakeholdersacrossthecarecontinuumwiththeinsightstobettermanagethehealthofpopulationsandtheresourcestheydependon.Ourcontinuouslyupdatedintegratedandcuratedclinicalandclaimsdataassetcomprisesmorethan80millionlivesofrobustclinicaldataand170millionlivesofclaimsdatawecanseefrombothsides.

Beyondthe250millionclinicalandadministrativelives,ourdiverseandcomprehensivedatasetincludes8billionlabresults,4billiondeterminations,and3billionmedicalprocedures.Wecanprovideareal-timeclinicalandfinancialpicturethatisfullyintegratedandspansyearsoflongitudinaldetail.

Ourhealthdataresourcescontinuetogrowsecurelyandresponsiblyeveryday.Todayouranalyticsproductsarehelpingthousandsofcareprovidersandultimately,themillionsofconsumerstheyserve,translatedateintoactions,andactionintobettermedicaloutcomes.Today,notsomeday,wehelpourcustomersstepupfromreactingtochallengestodesigningandimplementingactionsthatreliablyleadtobetterhealthdeliveredatlowercosts.

Todaywearedeliveringthewealthofinformation,analysisandpositivebenefitsofbigdatawithresultsthatincludedouble-digitimprovementsincriticalperformancefactors,likeutilizationandchronicdiseasecontrol,whichinturnempowercareproviderstoadoptandsucceedinnewmodelsofcareandrelatednewrevenuestreams.Todayweleadthewayinimplementingpredictiveanalyticsinhealthcare,becausehealthcareisallthatwedo.

Healthcaretechnologyanddataanalyticshavebeenourspecializedfocusforyears.Sowhileothers




learntocrunchlargeamountsofstaticdata,Optumisfullyintegratedintotheliveflowofhealthcaretransactions,enablingustoprovideup-to-date,usefulinformationthatmakesthehealthcaresystemmoreintelligentandenablesittoactthatway.

NowletmeturnitovertoDave.

DaveWichmann (President&CFO):

Thankyou,Larry.Asweopen2016UnitedHealthcare'smomentumcontinues.StrongnewcustomergrowthandhistoricallyhighretentionlevelsreflectthecompetitivevalueUnitedHealthcareoffersinthemarketplace.

Quarterbyquarterandyearbyyear,wecontinuetogainnewcustomersandretainvaluableestablishedcustomerswhochoosethecombinationofourmoreengagingconsumerexperience,distinctiveservice,productinnovation,andintegratedclinicalandnetworkvalue.

Peopleusingourmodernconsumer-basedbenefitdesignsaresupportedbyactionableinformationavailableattheirfingertips,enabledanddeliveredbyadvancedanalyticcapabilities,asLarryjustdescribed,increasinglychanneledthroughconsumerandcareproviderfriendlymobiletechnologies.Employerscontinuetobedrawntowell-managedcompetitivecosttrends,physicianandconsumerengagement,andvalue-basedarrangementsforcaredelivery.

Wepartnerwithourlargestcustomerstobenchmarkperformanceanddesigncustomizedplansthathelpthemadvanceyear-by-yearalongthecontinuumofeverimprovingbenefitperformanceandheightenedconsumerengagement.Andweareservingindividualpatientsandoverallpopulationswithmorecomplexmedicalconditions.

Ourcoordinationofservicesandabilitytoclosegapsincaresignificantlyincreasethevaluewebringtoconsumersandcustomers.Simplyput,thegreaterthelevelofpatientneeds,themorewecanhelp.

Asaresult,wecontinuetodeliverexceptionalorganicgrowth.OurUS-basedbenefitsbusinessesgreworganicallytoserve1.3millionmorepeoplewithmedicalbenefitsinthefirstquarterandthatbroughtorganicgrowthto2millionpeopleinthepastyear.

Lookingatcommercialmarkets,weareupabout700,000peopleinthequarterand1millionpeoplesinceMarch,2015.Firstquarter2016delivereddiversifiedgrowthacrossself-fundednationalaccounts,publicsector,smallgroup,middlemarketbusinesses,andindividual.

Turningtoexchanges,asweexpectedwhenwespokewithyouinJanuary,wegrewroughly300,000livesthroughthefirstquarterandserve795,000peopleonpublicexchangesasofMarch31.Weexpectthatleveltodeclinetoaround650,000byDecember.

Throughthisfirstquarter,wehaveseennochangeinourestimatesofcostsfromthe2015exchangeperiod.Thisquarter,withthemajorityofour2016exchangemembersnewtous,wehavebeenappropriatelycautiousinourreserveestimates,reflectinganadditional$125millioninfull-year2016exchangelosses.Thesewerefullyabsorbedinthisquarterandfullyconsideredfortheyearinourguidancerange;andasStevementioned,wedonotanticipatefinancialexposuretoexchangesin2017.

InMedicare,thevalueofourMedicareAdvantageofferingscontinuetoresonate,differentiatedbythestabilityofourbenefits,networks,membershipanddistributionsystems.Weofferseniorsclearvalueandaconsistent,modernconsumerexperience,allofwhichdrivenewgrowth,aswellasstrongconsumerretention.Thisstrengthisreflectedinourfirstquartermembershipgrowthofabout300,000seniors.

Medicareisaconsumerbusiness,withseniorsreceivingavarietyofoutreachapproachesfocusedon




betterandmoreconsistentcare,suchasreceivinghomevisitsandbenefitingfromourpersonalized,compassionateandeducationfocusedconsumerservice.

In2015,wehelpedclose9milliongapsincareforseniorsweserve.Andweexpectnearly65%ofourmemberstobeinafour-starplanby2017,withfurtherimprovementinthatpercentagein2018to80%ormore.

WebelieveourMedicareprescriptiondrugbenefitbusinesswillbemuchbetterpositionedfor2017.Wepulledbackinanumberofmarketsthisyeartorepositionproductsandaddedmembershipinthenewproductpotentialviaamodesacquisitioninthefirstquarter.

OurPartDmembershipdecreased70,000peopleinthefirstquarterandshoulddeclinebyanother200,000orsobyyearend.Thissuggestswewillserve4.7millionto4.8millionpeoplebyyear-end2016,considerablybetterthanwhatweprojectedlastDecember.AndweexpecttoreturntogrowthinMedicarePartDin2017.

SwitchingtoMedicaid.Managedcareservesasthemosteffective,proventooltoensurebudgetsustainabilityforourstateMedicaidprograms.Thisfinancialpredictability,alongwiththeabilityofmanagedcaretoexpeditesystemstransformation,comprehensivelyintegratingcarewhileaddressingsocialdeterminants,hasresultedinanunprecedentedlevelofprocurementactivity.

Ofspecialnoteisthesignificantincreaseinthevolumeofopportunitiesforpopulationswithmorecomplexneeds,suchaspeopleservedbylong-termservicesandsupportprograms.TherecentawardofNebraska'sIntegratedHealthbehavioralandpharmaceuticalmodelreinforcestheseexpectedtrendsandprocurementtoincludemorepopulationswithmorecomplexneedsandtolooktointegratedsolutiontoaddressstates'needs.

OurexpectationforcontinuedexpansionofopportunitiestoserveallMedicaidpopulationswasreinforcedbyourrecentawardintwoCaliforniacounties,andacrossourcommunityandstatebusiness,theadditionof145,000peopleinthefirstquarter.

LetmenowtouchontheoutlookforUnitedHealthGroupasawhole.Buildingonthestrengthofourfirstquarter,weexpectfull-yearrevenuesofapproximately$182billion,upfromourprioroutlookof$180billionto$181billion,ledbystrengthinOptumRXandUnitedHealthcareemployerandindividual.Strongfirstquarterresults,combinedwithaslightlylowertaxrateforthebalanceoftheyearandtheimpactofrecentlycompletedacquisitions,allowsustoincreaseouroutlookforadjustednetearningsby$0.15toarangeof$7.75to$7.95pershare.Wecontinuetoforeseecashflowsapproaching$10billion.

Asyouknow,weexpectOptumtogrowfull-yearoperatingearningsbymorethan30%in2016.Wecontinuetoexpectseasonalitytobeafactorinouroverallearningsresults.Similartoyearspast,Optumexpectstogenerateintheareaof60%ofitsoperatingearningsinthesecondhalfoftheyear,whilethecurrentconsensusviewappearstobemodestlymorefirsthalfbiased.Takentogether,thissuggeststhatupdatesforfull-yearUnitedHealthGroupearningspershareestimatesafterrecognitionofourfirstquarterperformancewouldmostappropriatelybefocusedonthesecondhalfofthisyear.

Turningtocapital,weclosedthequarterwithastrongbalancesheet.Weexpectsharerepurchaseactivitytobemorepronouncedinthefirsthalfofthisyear,withthesecondhalffocusedondebtreductiontowardtargetedlevels.AndwewilladdressourdividendlevelsatourJuneBoardmeeting,aswedoeachyear.

Steve?





Thankyou,Dave.Todayweareinastrongpositionatauniquemomentintime.Wehavetheopportunitytoconsiderablyelevateourperformancearoundqualityandcustomersatisfaction,deliveringgreatervalueanddrivingunparalleledorganicgrowthacrossourentirefranchise,whileremaining,asalways,disciplinedonpricingandcostmanagement.

Wearefocusedondeliveringhigherqualityateverytouchpointwitheverycustomerandconsumer.Doingthiswellelevatescustomertrustandloyalty,loyaltythatbecomesafoundationforanextendedperiodofgrowthbenefitingconsumers,societyandshareholders.We'reintenselyfocusedonthisagendaandexpectitwillproducestrong,cleanresultsin2016andapositiveviewofopportunitiesin2017andthedecadetocome.

Sothankyouforyourinteresttoday.

Operator,couldwepleaseopenforquestions?Again,oneperanalyst,pleasethismorning.Thankyou.

QUESTIONS&ANSWERS

Operator :

(OperatorInstructions)

PeterCosta,WellsFargo.

PeterCosta(Analyst-WellsFargoSecurities,LLC):

Goodmorning.Thanksforthequestionandnicequarter.Canyouexplaintomealittlemoreaboutwhat'sgoingonwiththeindividualexchangebusiness?Yougiveusalotofinformation,butitsoundedlikeyousaid$125millionofaddedtoreserve.Sothatwouldbelike$0.08ofearningspressurethisquarter.AndIthinkyoutalkedaboutonly$0.16ofearningpressureforthewholeyear,previously.

SoI'mtryingtounderstandwhetherthatwasallearningspressurethisquarter,orwasthatcomingoutofthePDR?What'sthePDRvaluetodayonthebalancesheet,maybewouldhelp.Andfinally,howdoesthewithdrawalsatthevariousstatelevelsimpactwhatyou'redoingwithHarkenHealth?


Letmegowiththe--soI'llhaveDanrespondtothefirstpartofthis.I'lljustindicatethatHarkenisasmallandinterestinginnovationthatweareconsideringandwewillstaywithit.Again,it'sinaverymodestpilotposition.Soitreallydoesn'taffectourviewofthisintermsofthewaywe'rethinkingaboutourpositioningonexchangesonastate-by-statebasis.

Wewillbedownto,again,ahandfulofstatesthatwewillbeactivelyparticipatingintheexchange.Dan,doyouwanttotouch--whydon'tyoujustgivethemtheoverallbaselineintermsofexchangeP&Loutlook?

DanSchumacher (CFO,UnitedHeathcare):

Sure.Goodmorning,Peter.Whydon'tIrecapwhatwesharedwithyouinourpriorconversationsandthentalkspecificallyaboutwhatwe'reupdatingtoday.InJanuary,wedescribedanexpectedcombinedlossforboththe2015and2016policyyearsof$1billion.Insidethat,the2015policyyearlosswas$475million.Andthatnumber,asDavementioned,remainsunchanged.

Obviously,thebalancerelatedtothe2016policyyear,soatthatpointwasestimatedat$525million.Today,weareupdatingourfull-yearoutlookforthe2016policyyeartoalossof$650million.Sothat$125millionincreasewasfullyrecognizedinourfirstquarterfinancials.Andnotsurprisingly,ourPDR,as




youasked,didincreaseoverthecourseofthefirstquarter.

Aswelookatit,ourenrollmentisverymuchinkeepingwithourexpectationatthat795,000livesontheexchange,specifically.AndI'lltellyouthatwelloverhalfofthatenrollmentisnewtousthisyear.Soaswelookatit,theearlyindicationsonthehealthstatusofthemembersappearstobealittlebitworse,sowearebeingappropriatelycautiousinupdatingourfull-yearoutlookandrecognizingthatadditional$125millioninthefirstquarterfinancialresults.

InthemonthofJune,importantly,wewillhaveafirstindicationofhowourriskscoresactuallycomparetotheindustryandwewilllookforwardtoupdatingyoufurtheratthattimewithregardtoourindividualACAbusiness.Thankyou.

PeterCosta(Analyst-WellsFargoSecurities,LLC):

That'sreallyhelpful.AndhowmuchisthePDRvalueexactlynow?


It'sbigger.


Whatwe'retryingtoconveyisthatweadded$125milliontothequarterandaddedforthefullyear.SothePDRhasincreased,butweweren'tgoingtogetintotheexactamountofthePDRthismorning.Maybewecantakethatoff-linethroughthecourseoftheday.Nextquestion,please.

Operator :

MatthewBorsch,GoldmanSachs.

MatthewBorsch (Analyst-GoldmanSachs):

Yes.Iwashopingyoucouldhelpusunderstandtheprioryearreservedevelopmentfigure,howthatbreaksout.It'sobviouslyalotlargerthanwhatyouhadayearago.Howdowethinkaboutthatbenefitingornotbenefitingthefirstquarterearnings?Andifyoucanjustgiveusanydetailonwherethatcamefrom.


Sure,Dave.Doyouwanttohandlethat?


Sure.Thankyou,Matt,forthequestion.Theprioryearreservedevelopmentinthefirstquarterof2016hasadvancedexplicitlybyabout$220millionorso.Andthat,onacomparativequarterbasis,thatinfluencedourMLRfavorablyinthequarter,aswellasourEPSaswell.

Thedevelopment,whileIwon'tgetintothespecificsofhowthat'sbrokenoutbylineofbusiness,itwasprettybroadreachingacrossallofourlinesofbusinessandreallyisreflectiveofwhatweexperiencedinthefourthquarter,aswell,whichisthedelayedrealizationofaffordabilityeffortsandendmarketinitiativesthatwepursuedinUnitedHealthcareinthebackhalfof2015.Sowe'reverypleasedwithhowourtrendsaredevelopingconsistentwiththeforecastthatweprovidedyoubefore.Andobviously,thisisafavorabledevelopmentinthequarter.





Andlastyear'sfirstquarterwasactuallyunusuallylow.Dan,doyouhaveanythingelsetorespond?


TheonlythingI'dhighlightis,justtoaddalittlebitmorecoloronsomeofthethingsthatarecontributing,aswelookattryingtodrivegreatervalueforcustomersandconsumersthatweserve,someoftheareas,notsurprisingly,we'vetalkedtoyouaboutatlengthinthepast,ourfocusoninpatientmanagementiseverpresent.2015markedourseventhconsecutiveyearofabsolutereductionsinbothadmissionsandbeddaysonapercapitabasis,andthat'strueacrossofourlinesofbusiness.

Butwealsoextendthatworkintootherareas,withparticularfocusaroundoutpatient,becauseit'soneofthebiggerdriversofcosts,andmakingsurethatwe'redrivingcaretothemostappropriatesetting.Andlikewise,lookingatout-of-networkspend.Sothere'ssomecontext,Matt,onsomeofthethingsthatwe'relookingat.Andasyoulookatthecontributiontothequarter,Iwouldtellyouthechangeinthedevelopment,themajorityofthatwasP&Limpacting,toyourquestion.

MatthewBorsch (Analyst-GoldmanSachs):

Okay.Thankyou.


AndIthinkifyoulookoverthelastfouryears,you'dsaythisquarterwasmorenormalandthatlastyearwouldbemoreofalowoutlier.Nextquestion,please.

Operator :

DaveWindley,Jefferies.

DavidWindley(Analyst-Jefferies):

Goodmorning.Thanksfortakingmyquestion.Larry,you'reverygoodatboilingthingsdowntobulletpointlists.Iwonderedifinthisdataanalyticsconversation,youcouldtalkabouttheaudiencesthatareconsumingyourtechnologyanddataanalytics?AndI'minterestedinthebreadththereandperhapswhereyouseethemostsignificantuntappedopportunityformonetizingthedataandanalytics.


Wantmetotakeit?Dave,it'sLarryRenfro.I'mgoingtoaskBillMillertocommentonthis,andhe'lltakeyouthroughintosomeofthespecificsofareasthatwearetalkingtoandthepeoplewearetalkingto.Butingeneral,acrossthe--nationally,obviously,weareworkingwitheverybodyontheproviderside,aswellaswe'realsoworkingwithourownprogramsinternallyatUHC.Sowe'vegotagoodstartintermsofhowwe'reusingthedata,theanalytics.It'sakey,keycomponentintermsofhowwe'reheadedforthefuture.Bill?

BillMiller (CEOOptumInsight):

I'dsay,justtofollow-up--andIappreciatethequestion,Dave--ifyoulookatourhistory,we'vegotdecadesofexperiencereallyusinganalyticsasafoundationaltooltobuildalotofbusinesses.Andwhenyouaskaboutconstituenciesthatweserve,itranges,asLarrymentioned,fromproviders,payers,wherewe'reparticularlystrong,butalsogovernment,pharma,whowe'vebeenservicingforalongtime,andnow,morerecently,consumersandemployers.

Justtogiveyouaflavorforsomewaysthatthey'reconsumingtheseanalytics.Fromapayerandproviderstandpoint,peoplehavebeenusingouranalyticstoclosegapsincareonamonthlybasis.Wefireoff131




billionrule-baseddecisionseverymonthtohelpclosegapsusingourtool,likeOptumOne,whichyou'veheardalotabout.

It'sreallycrunchingandassessingbothclinicalandclaimsdatatopredictwherewe'regoingtoseepeoplethatneedinterventions,andthoseinterventionsareadditivetothetoolandhowwe'veextendeditintermsofbeingabletoactionit,wherewecanactuallygooutandprovewherewe'veshownhowourinterventionsintercedeinpeoplehavingstrokes,peoplehavingheartattacks,andwhatthatsaves,not,obviously,goodforthepatient,butobviouslygoodforthesystem.

Ourrevenuecycleanalyticsactivelyaretakingoutfrictionbetweenpayersandproviders,speedinguppayment,drivingmoreaccuracy,andimprovingthefinancialconditionsofbothpayersandproviders.SoIcouldgoonandprovidealotofexamples,buttheyrangefromstrongfinancialperformancethatouranalyticsdrivetoclinicalperformancewhichreallydrivebetteroutcomesandlowercost.


SoifIcouldsummarize,allthemarketsyouwouldexpect,payer,provider,employer,state,federal,anybodywhosponsorsabroadprogram,domestic,US,internationalandlifesciences.AndI'dsaywearekindofinthesecondorthirdgenerationintermsoftools,toolsthatcouldbeeffective.AndI'dparsethemintotwoareas,thosethatreallyaffectclinicalencountersandoutcomes,sokindofmoreintheOptumCaredomain,whereyoucanreallydriveperformance,andthenthosethatarebroadersystem-wide,whichmightbemoreontheOptum360domain.

AndthentheotherthingI'dsayisthatwe'reintheearlystages,becausetheprocessofthosewhoareinterestedintheseanalyticsarereallyjustgettinggoingandbeingabletousethemattheirfullvalue,intermsofthereal-timespeedtheyoperateat,etcetera,becausethey'reusedtothingsthataremuchslower.Agree?


Agreed,andIthinkthat'swherewe'veseenalotoftheuptake,Dave,isasreformhashit,it'stheneedforspeed,theneedforaction,theneedforhavingtoolsthatactuallyallowyoutotake,affectandmovetheneedlewithrespecttocostqualityandoutcomesiscritical,andhowtheyintegratewithothersystems.


Whetherataconsumerlevelorwhetheratasystem-widelevel.


Right.


Sothat'swhyIthinkwe'reintheearlystages,buthavesuchawellestablishedbaseinthis,soIwouldthinkthattherewillbecontinuedevolutionandgrowthtocomefromthis.Nextquestion,please.

Operator :

SarahJames,WedbushSecurities.

SarahJames (Analyst-Wedbush):

Thankyouforthequestion.Canyouspeaktosomeoftheone-timepressuresonMLR?Sohowmuchwastheleapyearimpact?WiththePDR,wouldtherebeanypressureonMLRfromexchangesthatmayfalloff




nextyear?Andhowdidthefourcostbucketsendupversusyourexpectations?


Dan,doyouwanttouchonthat?


Goodmorning,Sarah.Soasyoulookattheconsolidatedcareratio,sowereported81.7%inthequarterthisyear,andthatcomparedtolastyear,it'sabout30basispointsincreaseyear-over-year.Asyoulookinsidethat,thebiggestfactordrivingtheincreasewastheadditionalcalendarday.Andsecondwouldbethentheexchangeimpact,andthatbeingpartiallyoffsetbythechangeinreporteddevelopmentonayear-over-yearbasis.

Ithinkthelastpartofyourquestionwasoncostcategories.Isthatwhatyousaid,Sarah?


Yes.Thefourcostbuckets,inpatient,outpatient,Rx,physician.Howdidtheytrendversusexpectations?


Good.Aswelookedatourmedicalcostsinthequarter,wehadexpectedcomingintheyearamoderateincreaseinthetrend,theunderlyingutilizationtrend.AndIwilltellyou,inthefirstquarterwewereabletomanagetothatoutcome,soveryconsistentwithit.Onacategorybasis,IwouldtellyouthatIwouldn'tspikeoutanychangerelativetotheguidancethatweprovidedattheinvestorconferencebackinDecember,andwecontinuetoexpectonthefull-year,acommercialcosttrendintherangeof6%,plusorminus50basispoints.


Andyou'reseeingpressureintheusualplaces,outpatient,specialty,testing?


Yes.


Sonothingreallychanged.


No.VeryconsistentwithwhatwedescribedinDecember.


Gotit.Thankyou.


Nextquestion,please.

Operator :

ScottFidel,CreditSuisse.




Scott Fidel(Analyst-CreditSuisse):

Thanks.WonderingifyoucouldgiveussomeindicatorsonhowtheriskmixislookingonthenewMedicareAdvantagelives?ItlookslikeUnited'saddedaround65%ofthegrowthintheMAmarket.Sojustinterestedintermsofasyoutrackthat,ifyoucangiveussomedetailsonhowriskscoresarelookingonthenewMAlives,andthenintermsofthemixofthosemembersthatarecomingfromcompetitorsharegainsascomparedtoattractingthemfromfeeforservice.Thanks.


SteveNelson.

SteveNelson (CEO,UnitedHealthcareCommunity&State):

Sure.Thanks.Goodmorning,Scott.We'rereallypleasedwiththegrowththatwesawinboththeopenenrollmentperiod,butalsoinouroutlookforSEP,thespecialelectionperiod.Thisgrowthisaresultofthehardworkwe'vebeentalkingtoyouaboutoverthepasttwoorthreeyearsaroundputtingourselvesinapositiontoofferstablebenefits,buttheworkaroundimprovingourstars,engagingournetworkdifferently,andaligningincentives,reallygoodengagementwithourdistributionsystem.

Andtheninnovationsinourmemberexperiencehaveallledtonotonlystrongsales,butit'simportanttonotestrongretention,aswell.Sothevastmajorityofourmembershipisretainedmembership,membershipthatwehavegreatexperiencewith.

ButintermsofthemixacrossthedifferentcategoriesthatIwouldthinkaboutindescribingourmixisaroundgeography,whichisverybroadbased.Thegrowthcamefromprettyevenlyacrossourgeography,sothatwasverymuchinlinewithourexpectations.OurnewtoMedicarepopulation--itis--we'reseeingactuallythatpopulationchooseMedicareAdvantagemoreoftenandthepercentageisgrowingthere,andweseethatsequentially.That'sourexperience.Butthat,again,isverymuchinlinewithourexpectation.

Andthenthenewtouscategory,whichisfolksthathavedisenrolledinotherplansandenrolledinoneofourplans,again,isverymuchinlinewithourexpectations.Sowe'reseeingareallystrongperformanceinthisbusinessoverthefirstquarter,andweexpecttobuildonthat.Andouroutlookforgrowthin2017isreallystronginboth,Ishouldmention,inboththeindividualandthegroupretireesegment,aswell,aswe'reseeingareallystrongpipelinethere.


SowhatI'dsayisinthreedimensions,welldispersedgeographically,wellmixedbetweennewtoMedicareandnewtous,andthenagoodmixbetweenindividualandgroup.So,stablegroup.

Scott Fidel(Analyst-CreditSuisse):

Gotit.Sosoundslikebroadbased,prettymuchacrossallthechannelsisthebottomline.


AndIthinkthepointhemadeabouthowwelldispersedwearegeographicallyiskey.Goodquestion.Next,please.

Operator :

ChristineArnold,Cowen.




Christ ineArnold (Analyst-Cowen):

Goodmorning.Thankyou.Youmentionedtheinternationalasoneofyourfivemajorpillars.Couldyouspeaktowhereyouexpecttoseethegrowth,whereareyouseeingtheopportunitiesininternational,andhowisBrazildoing?


Sure.That'sourtwodifferentcategories.SoI'llaskLarrytotouchoninternational,becauseIthinkwhenwetalkedaboutitinthecontextofgrowth,itwasmoreontheOptumside.AndthenDavecantouchonBrazil.


Christine,it'sLarry.Ithinkwesized,backattheinvestorconferenceinDecember,wesizedthatmarketatbeingabouta$500billionbusiness.Thisisamarathon,it'snotasprint.Wearegettingestablished.We'veactuallybeenintheUKforabout10years.Butwhatwe'rereallyengagingintodayismuchbroader.It'sdownthelinesofintegratedcare.

WeareworkingwiththeTrustintheUK,theTrustwouldbethehospitals.We'reworkingwithwhat'scalledNHSimprovement.They'retheorganizationthatreallymonitorstheTrust.We'reworkingwithNHS.We'reworkingwiththePrimeMinister'soffice,DepartmentofHealth.

Sowehaveavarietyofprogramsthatwehaveunderwayandwebelievethatwe'reprettywellpositionedatthispointtobringalotoftheproductsandservicesthatweactuallyhaveintheStates.Ididn'twanttointerrupttheconversationafewminutesagoaboutthedataandtheanalytics,butthatalsoisavery,verygoodareaforustointroduceandwe'reworkingtodojustthat,aswespeaktoday.


Dave.


Hello,Christine.It'sDaveWichmann.Sojustspecifically,afewcommentsonAmilandtheactivitieswe'veundertaken.Thebusinessremainsprofitable,asitwaslastyear.Similartolastyear,it'scontinuedtobecomemoreandmorecompetitiveinthemarket.AndI'dsaythemarketsegmentsthatarethemostattractiveinBrazil.Andtheperformanceimprovementacrossthebusinesshasbeensubstantial.

Wehaveputinverystrongpricingandcostcontainmentdisciplines.We'veimprovedourservicesubstantiallydownthere,I'dsay,tomoreofakindofaUnitedHealthcarestyleserviceapproach,butinBrazil.Ournetpromoterscoresinthemarketcontinuetoadvance,andwehaveamoreextensiveandbetterperforminghealthcaredeliverycompany,broadly.I'dcharacterizethatallasastrongerfoundation.

Obviously,we'restillimpactedbythedevaluationofthereal.Thataffectsbothourrevenues,andyoucanseeitthereprobablybest,whereinlocalcurrency,wehavea16%increaseinourrevenues,butwhenyoutranslateittoUSdollars,it'sa15%decrease.Ithinkit'sobviousthattheeconomyisnotparticularlystrongthere.Companiesarestruggling.Middleclassisflattodecliningslightly.Andobviously,thepoliticalsituationisunsettled,certainlydoesn'thelpthingsawholelot.SoweareprettymeasuredintermsofourviewaboutBrazilrightatthispointintime.

Wearecompetitive,likeIsaid,incertainsegmentsandwearefocusedonourgrowthinthosesegments.Andwearegrowing.Wedohaveafairamountofingroupattritionrightnow,asemploymentlevels




declineonanemployer-by-employerbasis.Butweareseeinggrowthunderneathallofthat,whichisveryencouraging.IthinkmostimportantreallytoAmilisthatnotonlyareweastronginsurancecompany,butwe'vecreatedastronghealthcaredeliverycompanythroughoutthecourseofthetimethatwe'veownedAmil.Andweseethatasverypositivepositioninginthatmarketandameaningfulsourceofouroverallperformanceadvanceexpectationsherein2016.


Soprofitable,despitetheeconomicstress.Notaparticularlyhelpfulpoliticalenvironment,butcontinuingtoactuallyfarewellandgrowingintermsofitsdimensionasadeliverysystem,whichIthinkisdistinctiveinthatmarket.Nextquestion,please.

Operator :

BrianWright,SterneAgeeCRT.

BrianWright (Analyst-SterneAgeeLeach):

Thanks.Thanksforthequestion.Goodmorning.ThelasttimeIthinkyouallupdatedthismarketsizingopportunityforOptumwasbackin2011atover$500billion.Doyouhaveanykindofupdatedthoughtsonwhatthesizeoftheopportunityisnow?


Sure.It'sLarry.Brian,wehavesized--andI'mgoingtoturnthisovertoJohnRex.I'mprobablygoingtoanswerthequestionandthenhewon'thaveanythingtosay.(Laughter)Butthatthedomesticsidetoday,wewouldsizeitabout$680billion,andtheinternationalsideat$500billion.Soyou'relookingat$1.180trillion.Thatwouldbethemarketsize.Idon'tknow,John,ifyouhaveanything.

JohnRex(CFOOptum):

No,that'saccurate.That'swherewebeintermsofthecurrentviewofdomestic,upfromtheinitial[$0.5trillions].Andyouthinkaboutthatgrowthacross--atthatpoint,wehadtalkedabouteightmarkets.Iwouldsaythere'sbeengrowthacrossallthosemarkets.I'dhighlightareasreallysuchascaredeliveryandtechnologyasamongthoseareasthathavebeengrowingamongthefaster,sincewelastprovidedthat.Butkindofaproportionatemovementintermsoftheareasthatwespikedoutafewyearsago.


Sonextquestion,please.

Operator :

A.J.Rice,UBS.

A.J.Rice (Analyst-UBS):

Hello,everybody.MaybeI'lljustaskabouttheacquisitionpipelineandtheopportunities.Lookslikeyouspentabout$1.7billioninthequarter.I'vereadabouttheSymphonixdeal.Iwonderifyoucouldcommentonsomeoftheotheropportunitiesthatyou'veseenandtakenadvantageof.


Maybewe'lltalkalittlebitabouttheM&Aactivitywehavedone.Wetypicallydon'tcommentonwherewe'regoingintheseareas,forawholehostofobviousreasons.SoourcommentsinM&Aaremoreretrospectivethanthey'llbeprospective.





A.J.,thanksforthequestion.It'sDaveWichmann.Ouracquisitionpipelineandouracquisitionactivitiesarereallyfocusedinacoupleofareas,inparticular.Obviously,wejustgotdonetalkingaboutthesizeoftheservicesmarketglobally.AndsowecontinuetoinvestcapitaltoaccessorbroadenourcapabilitiesacrossOptumandthentoalsoestablishfoundationalmarketpositionssoitcangrowfromthere.Wealsoseeintereststillintheinternationalmarkets,althoughouractivitiestherehavedampenedjustabit,givenhowthoseglobalmarketsareperformingoverall.

Andofcourse,westillhaveinterestkindofbroadlyacrossourbusiness.Wehaven'tdonemuchinthehealthplanspaceinquitesometimebecauseofalltheworkthatwe'vedoneoverthecourseofthelasttwodecadestoestablishstrongmarketpresence,aswellasstrongpresenceineachMedicarecommercialandMedicaid.Butcertainly,wewouldcontinuetoconsiderthosethingsinthefuture.

Asitrelatestothefirstquarter,IthinkfolksknowthatwefundedtheHeliosacquisitionatthattime,whichisaworkplacehealthPBM,inthefirstquarter.Wealso,asindicatedinthepast,havestronginterestincontinuingtodevelopourOptumCarebusiness.Andsothere'sasmallacquisitioninsidethere,aswell.

A.J.Rice (Analyst-UBS):

Okay.Thankyou.


Sonorealchange.Thesamebasicagenda,lookingatcapabilities,lookingtobuildouttheplatforms.Probablyontheinternationalside,theremightbemoreopportunityinservicesandbenefitsatthetime.Goodquestion.Next,please.

Operator :

TomCarroll,Stifel.

T omCarroll(Analyst-StifelNicolaus):

Goodmorning.Questiononthetaxrateandtheintangiblescommentsyouhadinyourpreparedremarksandthepressreleasetoday.Whatshouldwethinkaboutasthetaxrategoingforwardfromherefortherestoftheyear?Andwhatdoyouthinkisthesustainabilityofthebenefitsinto2017?


Tom,it'sDaveWichmannagain.Thanksforyourquestion.ThetaxratechangeisreallybecausetherewasanewaccountingpronouncementthatcameoutinMarch,whichwethinkhasa$0.10impactonthefullyear,ofwhichwerecognized$0.06inthefirstquarter.Thepronouncementwasn'trequiredtobeadopteduntil1/1/17,butasifoftenthecase,ifwe'repreparedtoadopt,wegoaheadandadoptearly,asallowedbythepronouncement.

Thesustainabilityofthatisthisisgoingtobealittlebitofachallenge,Ithinkbroadly,forcompanies,becausewhatitdoesissubjectsyourtaxrate,oryourtaxposition,tomoreofperiod-typecostsorsomemorevolatilityoverallintheexpectedeffectivetaxrate.Andinpartbecauseithastodowiththecombinationoftheperformanceofyourstockandthenalsothetimingofoptionexercises,aswellasstock-basedplanseithervestingand/orbecomingavailabletoemployeesatgivenpointsintime.

Sotherewillbealittlebitmorevolatilityintherate.Weexpectthefull-yearratetobeintheneighborhoodofabout41%orsoforthefullyear2016.Andwe'dexpectthatatleastthisimpact,ifyouwill,ofthenewaccountingpronouncementtobeprettyconsistentyearafteryear,dependingupon,




again,howthestockpriceperformance,aswellasthevestingactivityunderlyingourequity-basedplans.


Butitisayear-by-yearproposition,andsoaslongasyouhaveequity-basedcompensationandabeliefthatyourstockisgoingtocontinuetoperform,therewillbetaxbenefitsthatcomethroughandthenthey'lljustcomethroughquarterbyquarter.


Theseusedtogothroughequityinthepast.Sothey'renowjustgoingthroughtheP&L.Andoneotherquestionyoumighthave,justtomakeitclear,whyisit$0.06inthefirstand$0.04inthebalanceoftheyear?It'sjustthetimingofthewayinwhichweissueequityinourbusiness,whichisgenerallyinthefirstquarter.

T omCarroll(Analyst-StifelNicolaus):

Great.Thankyou.


Nextquestion,please.

Operator :

MichaelBaker,RaymondJames.

MichaelBaker (Analyst-RaymondJames):

Thanksalot.Larry,Iwaswonderingifyoucouldupdateusonyourretailcare,neighborhoodcaremodelintermsofgivingusasenseofwhatnumberoflocationsyou'reuptoandifthetargetisstill25to30clinicsayear?

LarryRenfro6Sure.I'mgoingtoaskJackLarsentojoininthisconversation.Butthattarget,asyousaid,of30,I'dsaywemightbetrytobealittlebitmoreaggressiveaboutthat.Ifwekindofbackupandlookatourbusiness,andIthinkyou'reprettymuchawareofthis,isouroverallbusinessplan,we'retryingtobein75marketsandwe'rebalancinghowwedothat,throughacquisitions,throughstartupsandsoforth.

Soweareprogressingontargetandourexpectationsarethatwewillcontinuetogrow.Andthat'soneoftheareas,asDavementioned,thatwewillbelookingtohaveacquisitionsin,morealongthecaredeliveryside.Butfroma,Ithinkyou'respeakingmoreoftheurgentcareandwhatwe'redoingthere.SoletmeturnitovertoJackandlethimanswersomequestions.

JackLarsen (OptumCare):

Thanks,Larry,andgoodmorning,Michael.IwouldjustamplifywhatLarrysaid,wedohaveaspirationsforrathersmartgrowthwithourstandaloneneighborhoodcarecenters.Ithinkfromaconsumerandretailpointofview,we'reseeinggreatreceptivityfortheunits,hekindofservicesweoffer.Andlook,oneofthemoreimportantdeterminantsofoverallhealthcarecostsiswhereaconsumerentersthehealthcaresystem.

Andwethinkwhatitisthatourneighborhoodcarecentersofferwithrespecttotheportfolioofservicesandtheretailorientationofitreallyhitsthemarkinanumberofways.





Andthenjustonequickquestion.Atsomepoint,shouldweexpectarebrandingefforttocomeundertheOptumbanner,oristhatnotnecessary,giventhelocaldynamicsthatareoutthere?


We'realwaysstudyingthat.ButwhatIwouldtellyou,andIthinkyouknowthisprettywell,thatthisisallaboutlocalcaredeliveryandbeinginlocalcommunities.Sothebrandisprettystronginthedifferentareaswherewework.WedobranditaspoweredbyOptumandsoforth.Butthosethingsaresixofone,halfdozenoftheother.Sowe'regoingtohavetowatchthatforaperiodoftimebeforewemakeanydecisionaboutfullbranding.


Thanksfortheupdate.

Operator :

JoshRaskin,Barclays.

JoshRaskin (Analyst-BarclaysCapital):

Thanksforfittingmeinhere,guys.Wantedtotalkaboutthecommercialbusiness.Themembershipnumberscameinalittlebitstrongerthanwewerelookinginthefirstquarter.Socuriouswheresomeofthosegainsarecoming.AndthenI'mreallymoreinterestedinthe2017nationalaccountsellingseasonandwhatyou'reseeingthere,howcustomersarereactingtothepotentialmergersforsomeofthe--fourofthebiggercompaniesoutthere--andmaybeareyouseeingmoreaccountsputoutRFPsordoyouthinkretentionlevelsfortheindustrywillbekindofsimilarandmaybethisisa2018event?


Well,let'sdothefirstonefirstwithDan,andthenmaybeJeffcancommentonthenationalbusinessscene.


Sure.Thanks,Josh.Appreciatethequestion.Certainlyinthequarter,wehadverystronggrowthinourcommercialbusiness.Itwaswellbalancedacrossbothfundingstatus,aswellasgeography,andthenwithinthat,bylineofbusiness.Aswetalkedattheinvestorconference,youcanlookatthefullyinsuredresultsasanexample.Theresultsinsidethereareactuallymutedalittlebitbyalargecustomerandathird-partyexchangethatwentthroughafundingconversion.

Soifyouactuallyadjustedforthat,you'dseeinsidetherereallyourstronggrowthinoursmallandmiddlemarket.Andwecontinuetoseecustomersrespondingtothevaluepropositionthatwe'reofferinginthemarketandwealsosee,fromapricingstandpoint,ourcompetitionmovingmoreinlinewithus.Soastheyorientmorearoundafutureoutlookofcoststhatresemblessomethingclosertoreality,whatweseeisthatwe'rebecomingmorecompetitiveandthatmarket,frankly,favorsus.


Jeff.

Jef f Alter (CEO,UnitedHealthcareEmployer&IndividualBusiness):

Goodmorning,Josh.It'sJeffAlter.Thenationalaccountsellingseasonisprobably,justbecauseofthe




cycle,it'sdownfromthelastfewyears.Therearen'talotoflargeclientsouttobid.Ithinkpartofthatistheindustrydoesalotofproactiverenewals,thesameaswedo,tokeepsomeofthelargeclientsfromgoingouttoafullbid.It'searly.Themarketissizingupnow.

We'reintheseasonofthefinalistsmeetings.ProbablybyJune,we'llgetabettersenseofwherewe'repositionedandhowthatmarketisshapingup.Butitisasellingseasonmarkedwithalotofsmallercases,asopposedtosomeofthepastseasonsthathadsomefairlylargeclientsouttobid.


Sonorealimpactfromanyofthependingmergers.Isthatfair?

Jef f Alter (CEO,UnitedHealthcareEmployer&IndividualBusiness):

Fairnow.I'llprobablyupdateyoualittlebitbetteroncewegetthroughthefinalistseasonandsomeofthepostfinalistdiscussions.


Okay.Thankyou.


Itmaybemoreadynamictothenextyear.Probablymoreadynamicnextyear.Maybeweonlyhavetimeformaybetwomorequestions.Sonext,please.

Operator :

SherylSkolnick,MizuhoSecuritiesUSA.

SherylSkolnick(Analyst-MizuhoSecuritiesUSA):

Hello,gentlemen.Thankyouverymuch,andasalways,it'sapleasuretolookatyourearningsrelease.I'mgoingtostepbackfromsomeoftheimportantdetailswe'vebeendiscussingandfocusonthequestionofhowUnitedHealthGroup,OptumandUnitedHealthcare,areintegrating,whichisalwaysoneofmyfocusareas,butinparticular,myconcernisthatthecostout-of-pocketisverysignificantfortheconsumer.

Ifyougoontheexchangesandyoutrytopriceanindividualpolicy,itcancostyou$38,000withoutsubsidies.Similarly,ifyou'reinsuredbyanemployer,yourout-of-pocketcostsriseeveryyear.YettheOptumisclearlyinfluencing,throughtyingitsanalyticsandservicestotheactualprovisionofcareandchangingthatprocess,OptumisclearlyinfluencingUnited.It'sclearlyinfluencingthemarket.

WhenorhowcanUnitedtaketheleadershiproletorevolutionizeortakethatnextsteptorevolutionizethebenefitandcoststructuresothatweconsumerscanactuallyseeitinourpocketsandUnitedcangainshareandthenreallydominatethemarket?


Thatisquiteaquestion,andIadmirethedirectionofit.SomaybeIcouldonlyrespondtoitkindofinthebroadestcontext.

SherylSkolnick(Analyst-MizuhoSecuritiesUSA):

Thatwouldbegreat.Thankyou.





IfIweretotakesomeofthenationalaccountclientsthatwe'reprivilegedtoserveandwhohavebeenmoreprogressiveadoptersoftheentirebreadthofcapabilitiesthatwecanbringtothemandthenworkingwiththemcooperativelyandthenworkingwiththemintermsofhowtheyareengagingtheirconsumers,ifyouwill,you'dactuallyseedistinctiveperformancepatterns.Andyou'dseethemdistinctiveintermsof,I'dsay,twodimensions.

Thebetteruseofthehealthcareresourcesystem,resourcesintotal,andayear-by-yearimprovementintheconsistencyofthatpatternofusage,andimprovementintheiroverallhealthstatus,astheyembracewithandgetcomfortablewithprogramsthataremoreconsumerfriendlyandeasier,andasyousuggest,fueledwithdataanalyticsthatarenowreallypositionedthattheycanactuallyactonthemandthewholespectrumofwhatwe'vebeentalkingabout,thatsomeofthethingsthatwearedoingandcapabilitieswe'reputtinginthemarketplaceonareal-timebasis,themarketplaceisadjustingintermsofhowdoIexactlyusethese.Theyknowdirectionallyhowtheywanttousethem.Idon'tknowiftheyarenutsandboltstoquitethatpoint.

Butthesemoreprogressiveclientshavehaddistinctivelybettercostpositionsanddistinctivelybetterpatternsofconsumerdecisions,resourceutilizationandhealthstatus,wellness.Ifwecantranslatethatfromthosevenuestothemoreprogressive,makethemprogressiveinothersectorsofthemarketplace,andIthinkaboutthelargegovernmentsectors,becausetheyhavethesameattributesaslargehealthemployersponsors.Theyaresponsoringlargepopulations,theyhavemoreinfluenceinhowtheseprogramsgo,thenyoubegintogetintothewaterwithrespecttoconsumerbehaviorandyougetintothewaterwithrespectcareproviderbehavior.Andthosekindsofelements,Ithink,canactually,whenyoucanreallyestablishthesepatternedmeasures,canreallydrivechange.

Andclientsareseeingit.Statesareseeingit.Governmentsareseeingit.SomeofLarry'scommentarywithrespecttointernationalisshowingsomeofthesepatternstointernationalgovernmentsthathavearguablyadifferenthealthcaresystem,andtheirresponsetothesethings.Andthenthewholeideathatthetechnologyisnowcapableofdoingthisatsuchscaleandsuchspeedanddoingitdowntoamobileexpression,whoeverusesthatmobileexpression,whetherit'sacareprovideroraconsumer,thosethingsareplayingout.

Soweareintheearlystages.Thebestwaytoseeitisinthelargenationalaccounts.Andthen,believeitornot,youcanseeitinsomeofthethingslikeMedicaid,whereyoucanseelargestatesponsorsthatoncetheyreallygettheseprogramsinamaturestate,aredrivingdistinctiveresultsrelativetothepopulationsthey'reserving.

Thenextstageisreallygettingthisdirectlytotheconsumer.AndIthinkthere,platformslikeRallyreallyrepresentthefirstgenerationofawaytoactuallyjumpoverandreallygetintheconsumer'shead,usingtheseapplicationsandthingslikethat.AndIthinkthisjustthebeginning.Sothatwouldbemyreactiontoit.Idon'tknowifwecanreactinamoregranularway.SoIthankyouforthatquestion.Andnextquestion,please.

Operator :

AnaGupte,LeerinkPartners.

AnaGupte (Analyst-LeerinkPartners):

Thanks.Appreciateyoufittingmein.OntheMedicarerates,couldyougiveusyourthoughtsfor2017?Anyreactionstothe0.85postthefixingoftheerror,theriskcodingchangesandtheimpactonyourpartialandfulldualmixofbusiness,theemployergrouplaborplan?Andthenonthetaxholiday,doyou




seethatflowingthroughtoseniorsandacceleratingindustrygrowth,andhowdoesthatallimpactyourbookofbusinessfor2017,isitmoretoplineormarginexpansion?


Yes.Idon'tthinkwe'regoingtogetinto--typically,wedon'tgetintothenutsandboltsoftheMedicarerate.Wewould,again,kindofexpressdisappointmentthatthefundingpatternsthatMedicarehasbeenusingforMedicareAdvantageseemstounderfundaprogramthatissowellembracedbyseniorsandsoeffectiveatservingthem.Sowecontinuetoadvocateformoreconsistentandmoremarketorientedfundingforthat.SoSteve,beyondthatcomment,offeryouresponsetothatandthenhersecondquestion.


Sure.Goodmorning,Ana.It'sSteveNelson.I'lljustmakeacouplecommentstoaddtoSteve'sthere.Beyondtherates,alittlecoloraroundinsurer'sfeeandthechangestothegroupbenefits.Withrespecttoinsurer'sfee,tostepbackalittlebit,ourgoalistoprovidepredictableandstablebenefitstoseniors.

That'ssomethingthatwewereabletodothisyear,andthat's,Ithink,goingtobeimportantoverthelongrun.Soasyouknow,we'reinthemidstofbenefitplanningrightnow,andthatisgoingtobeonefactorthatweconsider,amongstseveralotherfactors,inourpursuitofthisgoaltoofferstablebenefitsinwhatSteveaccuratelydescribeditremainsanunderfundedenvironmentin2017.Soitwillbesomethingthatwewillconsiderandbeabletotalkmoreaboutafterwegetthroughourplanningseason.

Intermsofthegroup,thechangetothegroupbenefit,whilewe'redisappointedinthatchange,itremains,Iwouldjustsay,thevaluetotheretireesandemployerswhoaretryingtofindsolutionsfortheirretireepopulation.MedicareAdvantageremainsaverystrongvalueproposition.Andwe'reseeingthatactuallyplayoutinourpipelinedevelopmentaswelooktowards2017andit'soneofthestrongestinyears.Sothere'salotofworkforustodointermsofcontinuingtoadvocateforseniorsonbehalfofthisverypopularandeffectiveprogramandwe'regoingtocontinuetodothat.Thanksforthequestion.


Sothat'stheendofourquestions.Justinclosing,I'dofferthatwehaveauniqueopportunitytoservemorepeopleinmoremeaningfulwaysanddistinguishUnitedHealthGroup,OptumandUnitedHealthcarethroughthequalityofourwork.Andasweelevateourfocusonqualityservicetoconsumersandcustomers,weexpectbroadbasedgrowthtofollow.Sowethankyou,andthatconcludesourcallthismorning.Thankyouverymuchforattending.

Operator :

Thisdoesconcludetoday'sprogram.

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