UnitedHealth (UNH) 8-K 11 Feb 09 2008 FY Other Events Financial data

Statement of Financial Position

Statement of Financial Position, Classified (USD $)
In Millions, except Per Share data	Dec. 31, 2008	Dec. 31, 2007
Current Assets
Cash and Cash Equivalents	$7,426	$8,865
Short-Term Investments	783	754
Accounts Receivable, net of allowances	1,929	1,574
Allowances	148	121
Assets Under Management	2,199	2,210
Deferred Income Taxes	424	386
Other Current Receivables	1,715	1,326
Prepaid Expenses and Other Current Assets	514	429
Total Current Assets	14,990	15,544
Long-Term Investments	13,366	12,667
Property, Equipment and Capitalized Software, net of accumulated depreciation and amortization	2,181	2,121
Accumulated depreciation and amortization	2,363	1,578
Goodwill	20,088	16,854
Other Intangible Assets, net of accumulated amortization	2,329	1,737
Accumulated amortization	803	553
Other Assets	2,861	1,976
TOTAL ASSETS	55,815	50,899
Current Liabilities
Medical Costs Payable	8,664	8,331
Accounts Payable and Accrued Liabilities	5,685	3,654
Other Policy Liabilities	2,823	3,207
Commercial Paper and Current Maturities of Long-Term Debt	1,456	1,946
Unearned Premiums	1,133	1,354
Total Current Liabilities	19,761	18,492
Long-Term Debt, less current maturities	11,338	9,063
Future Policy Benefits	2,286	1,849
Deferred Income Taxes and Other Liabilities	1,650	1,432
Total Liabilities	35,035	30,836
Commitments and Contingencies (Note 15)	0	0
Shareholders' Equity
Preferred Stock	0	0
Par value	0.001	0.001
Authorized	10	10
Issued	0	0
Outstanding	0	0
Common Stock	12	13
Par value	0.01	0.01
Authorized	3,000	3,000
Issued	1,201	1,253
Outstanding	1,201	1,253
Additional Paid-In Capital	38	1,023
Retained Earnings	20,782	18,929
Accumulated Other Comprehensive (Loss) Income
Net Unrealized (Losses) Gains on Investments, net of tax effects	(30)	98
Foreign Currency Translation Loss	(22)	0
Total Shareholders' Equity	20,780	20,063
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$55,815	$50,899

Statement of Income (Including

Statement of Income (Including Gross Margin) (USD $)
In Millions, except Per Share data	12 Months Ended Dec. 31, 2008	12 Months Ended Dec. 31, 2007	12 Months Ended Dec. 31, 2006
REVENUES
Premiums	$73,608	$68,781	$65,666
Services	5,152	4,608	4,268
Products	1,655	898	737
Investment and Other Income	771	1,144	871
Total Revenues	81,186	75,431	71,542
OPERATING COSTS
Medical Costs	60,359	55,435	53,308
Operating Costs	13,103	10,583	9,981
Cost of Products Sold	1,480	768	599
Depreciation and Amortization	981	796	670
Total Operating Costs	75,923	67,582	64,558
EARNINGS FROM OPERATIONS	5,263	7,849	6,984
Interest Expense	(639)	(544)	(456)
EARNINGS BEFORE INCOME TAXES	4,624	7,305	6,528
Provision for Income Taxes	(1,647)	(2,651)	(2,369)
NET EARNINGS	$2,977	$4,654	$4,159
BASIC NET EARNINGS PER COMMON SHARE	2.45	3.55	3.09
DILUTED NET EARNINGS PER COMMON SHARE	2.4	3.42	2.97
BASIC WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING	1,214	1,312	1,344
DILUTIVE EFFECT OF COMMON STOCK EQUIVALENTS	27	49	58
DILUTED WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING	1,241	1,361	1,402
ANTI-DILUTIVE SHARES EXCLUDED FROM THE CALCULATION OF DILUTIVE EFFECT OF COMMON STOCK EQUIVALENTS	90	38	35

Statement of Shareholders' Equi

Statement of Shareholders' Equity and Other Comprehensive Income (USD $)
In Millions		Common Stock Amount	Additional Paid-In Capital	Retained Earnings	Accumulated Other Comprehensive Income (Loss)	Total
Beginning Balance at Dec. 31, 2005		$14	$7,510	$10,258	$33	$17,815
Beginning Balance at Dec. 31, 2005	1,358
Issuances of Common Stock, and related tax benefits	22
Common Stock Repurchases	(40)
Conversion of Convertible Debt	5
Net Earnings				4,159		4,159
Unrealized Holding Gains/Losses on Investment Securities During the Period, net of tax					(15)	(15)
Tax benefit/expense					7	7
Reclassification Adjustment for Net Realized Gains/Losses Included in Net Earnings, net of tax					(3)	(3)
Tax benefit/expense					(1)	(1)
Issuances of Common Stock, and related tax benefits			342			342
Common Stock Repurchases		(1)	(2,344)			(2,345)
Conversion of Convertible Debt			282			282
Share-Based Compensation, and related tax benefits			616			616
Common Stock Dividend				(41)		(41)
Ending Balance at Dec. 31, 2006	1,345
Ending Balance at Dec. 31, 2006		13	6,406	14,376	15	20,810
Issuances of Common Stock, and related tax benefits	33
Common Stock Repurchases	(125)
Net Earnings				4,654		4,654
Unrealized Holding Gains/Losses on Investment Securities During the Period, net of tax					107	107
Tax benefit/expense					(60)	(60)
Reclassification Adjustment for Net Realized Gains/Losses Included in Net Earnings, net of tax					(24)	(24)
Tax benefit/expense					(14)	(14)
Issuances of Common Stock, and related tax benefits		1	590			591
Common Stock Repurchases		(1)	(6,598)			(6,599)
Conversion of Convertible Debt			24			24
Share-Based Compensation, and related tax benefits			602			602
Adjustment to Adopt FIN 48			(1)	(61)		(62)
Common Stock Dividend				(40)		(40)
Ending Balance at Dec. 31, 2007	1,253
Ending Balance at Dec. 31, 2007		13	1,023	18,929	98	20,063
Issuances of Common Stock, and related tax benefits	20
Common Stock Repurchases	(72)
Net Earnings				2,977		2,977
Unrealized Holding Gains/Losses on Investment Securities During the Period, net of tax					(132)	(132)
Tax benefit/expense					76	76
Reclassification Adjustment for Net Realized Gains/Losses Included in Net Earnings, net of tax					4	4
Tax benefit/expense					2	2
Foreign Currency Translation Loss					(22)	(22)
Issuances of Common Stock, and related tax benefits			272			272
Common Stock Repurchases		(1)	(1,596)	(1,087)		(2,684)
Share-Based Compensation, and related tax benefits			339			339
Common Stock Dividend				(37)		(37)
Ending Balance at Dec. 31, 2008	1,201
Ending Balance at Dec. 31, 2008		$12	$38	$20,782	($52)	$20,780

Statement of Cash Flows

Statement of Cash Flows (USD $)
In Millions	12 Months Ended Dec. 31, 2008	12 Months Ended Dec. 31, 2007	12 Months Ended Dec. 31, 2006
OPERATING ACTIVITIES
Net Earnings	$2,977	$4,654	$4,159
Noncash Items:
Depreciation and Amortization	981	796	670
Deferred Income Taxes	(166)	86	(96)
Share-Based Compensation	305	505	404
Other	(122)	(213)	(171)
Net Change in Other Operating Items, net of effects from acquisitions and changes in AARP balances:
Accounts Receivable	(219)	(194)	(28)
Other Assets	(48)	(386)	(383)
Medical Costs Payable	(41)	149	597
Accounts Payable and Other Accrued Liabilities	708	269	947
Other Policy Liabilities	(170)	188	337
Unearned Premiums	33	23	90
Cash Flows From Operating Activities	4,238	5,877	6,526
INVESTING ACTIVITIES
Cash Paid for Acquisitions, net of cash assumed	(4,012)	(270)	(670)
Cash Received from Disposition	199	8	0
Purchases of Property, Equipment and Capitalized Software	(822)	(871)	(728)
Proceeds from Disposal of Property, Equipment and Capitalized Software	216	0	52
Purchases of Investments	(9,251)	(6,379)	(4,851)
Maturities and Sales of Investments	8,598	3,365	4,096
Cash Flows Used For Investing Activities	(5,072)	(4,147)	(2,101)
FINANCING ACTIVITIES
(Repayments of) Proceeds from Commercial Paper, net	(1,346)	947	(2,332)
Proceeds from Issuance of Long-Term Debt	2,981	3,582	3,000
Payments for Retirement of Long-Term Debt	(500)	(950)	0
Repayments of Convertible Subordinated Debentures	0	(10)	(91)
Common Stock Repurchases	(2,684)	(6,599)	(2,345)
Proceeds from Common Stock Issuances	299	712	397
Share-Based Compensation Excess Tax Benefits	62	303	241
Customer Funds Administered	(461)	(1,110)	1,705
Dividends Paid	(37)	(40)	(41)
Checks Outstanding	1,224	0	0
Other	(143)	(20)	(60)
Cash Flows (Used For) From Financing Activities	(605)	(3,185)	474
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS	(1,439)	(1,455)	4,899
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	8,865	10,320	5,421
CASH AND CASH EQUIVALENTS, END OF PERIOD	7,426	8,865	10,320
Supplemental Cash Flow Disclosures
Cash Paid for Interest	621	553	409
Cash Paid for Income Taxes	$1,882	$2,277	$1,729

Document Information

Document Information (USD $)
	12 Months Ended Dec. 31, 2008
Document Information [Line Items]
Document Type	10-K
Amendment Flag	false
Document Period End Date	2008-12-31
Document Fiscal Year Focus	2,008
Document Fiscal Period Focus	FY

Entity Information

Entity Information
	12 Months Ended Dec. 31, 2008
Entity Information [Line Items]
Entity Registrant Name	UNITEDHEALTH GROUP INCORPORATED
Entity Central Index Key	0000731766
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	Yes
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Listings [Line Items]
Trading Symbol	UNH

Notes to Financial Statements

Notes to Financial Statements
	12 Months Ended Dec. 31, 2008
Notes to Financial Statements [Abstract]
1. Description of Business	1.Description of Business UnitedHealth Group Incorporated (also referred to as “UnitedHealth Group” and “the Company”) is a diversified health and well-being company dedicated to making health care work better. The Company emphasizes enhancing the performance of the health system and improving the overall health and well-being of the people it serves and their communities. The Company helps people get the care they need at an affordable cost, supports the physician/patient relationship, and empowers people with the information, guidance and tools they need to make personal health choices and decisions. The Company’s primary focus is on improving the health care system by simplifying the administrative components of health care delivery, promoting evidence-based medicine as the standard for care, and providing relevant, actionable data that physicians, health care professionals, consumers, employers and other participants in health care can use to make better, more informed decisions. Through its diversified family of businesses, the Company leverages core competencies in advanced technology-based transactional capabilities; health care data, knowledge and information; and health care resource organization and care facilitation to improve access to health and well-being services, simplify the health care experience, promote quality and make health care more affordable.
2. Basis of Presentation and Summary of Significant Accounting Policies	2.Basis of Presentation and Summary of Significant Accounting Policies Basis of Presentation The Company has prepared the Consolidated Financial Statements according to U.S. Generally Accepted Accounting Principles (GAAP) and has included the accounts of UnitedHealth Group and its subsidiaries. Certain prior year amounts have been reclassified to conform to current year presentation. The Company has eliminated intercompany balances and transactions. Use of Estimates These Consolidated Financial Statements include certain amounts that are based on the Company’s best estimates and judgments. These estimates require the application of complex assumptions and judgments, often because they involve matters that are inherently uncertain and will likely change in subsequent periods. The Company’s most significant estimates relate to medical costs, medical costs payable, revenues, goodwill, other intangible assets, investments and contingent liabilities. The Company adjusts these estimates each period, as more current information becomes available. The impact of any changes in estimates is included in the determination of earnings in the period in which the estimate is adjusted. Revenues Premium revenues are primarily derived from risk-based health insurance arrangements in which the premium is fixed, typically for a one-year period, and the Company assumes the economic risk of funding its customers’ health care services and related administrative costs. The Company recognizes premium revenues in the period in which eligible individuals are entitled to receive health care services. The Company records health care premium payments received from its customers in advance of the service period as unearned premiums. Service revenues consist primarily of fees derived from services performed for customers that self-insure the medical costs of their employees and their dependents. Under service fee contracts, the Company recognizes revenue in the period the related services are performed based upon the fee charged to the customer. The customers retain the risk of financing medical benefits for their employees and employees’ dependents, and the Company administers the payment of customer funds to physicians and other health care professionals from customer-funded bank accounts. Because the Company neither has the obligation for funding the medical expenses, nor the responsibility for providing the medical care, the Company does not recognize premium revenue and medical costs for these contracts in its Consolidated Financial Statements. For both premium risk-based and fee-based customer arrangements, the Company provides coordination and facilitation of medical services; transaction processing; customer, consumer and care professional services; and access to contracted networks of physicians, hospitals and other health care professionals. Through the Company’s Prescription Solutions pharmacy benefits management (PBM) business, revenues are derived from products sold through a contracted network of retail pharmacies, and from administrative services, including claims processing and formulary design and management. Product revenues in
3. Acquisitions	3.Acquisitions On May30, 2008, the Company acquired all the outstanding shares of Unison Health Plans (Unison) for approximately $930 million in cash. Unison provides government-sponsored health plan coverage to people in Pennsylvania, Ohio, Tennessee, Delaware, South Carolina and Washington, D.C. through a network of independent health care professionals. On a preliminary basis, the total consideration paid exceeded the estimated fair value of the net tangible assets acquired by $806 million, of which $89 million has been allocated to finite-lived intangible assets and $717 million to goodwill. The allocation is pending completion of a valuation analysis. The acquired goodwill is not deductible for income tax purposes. The results of operations and financial condition of Unison have been included in the Company’s consolidated results and the results of the Health Care Services reporting segment since the acquisition date. The pro forma effects of this acquisition on the Company’s Consolidated Financial Statements were not material. On February25, 2008, the Company acquired all of the outstanding shares of Sierra Health Services, Inc. (Sierra), a diversified health care services company based in Las Vegas, Nevada, for approximately $2.6 billion in cash, representing a price of $43.50 per share of Sierra common stock. The total consideration paid exceeded the estimated fair value of the net tangible assets acquired by $2.5 billion. Based on management’s consideration of fair value, which included completion of a valuation analysis, $500 million has been allocated to finite-lived intangible assets and $2.0 billion to goodwill. The acquired goodwill is not deductible for income tax purposes. The U.S. Department of Justice approved the acquisition conditioned upon the divestiture of the Company’s individual SecureHorizons Medicare Advantage HMO plans in Clark and Nye Counties, Nevada, which represented approximately 30,000 members. The divestiture was completed on April30, 2008. The Company received proceeds of $185 million for this transaction which were recorded as a reduction to Operating Costs. Group SecureHorizons Medicare Advantage plans offered through commercial contracts were excluded from thedivestiture. Also, the Company retained Sierra’s Medicare Advantage HMO plans in Nevada. The results of operations and financial condition of Sierra have been included in the Company’s consolidated results and the results of the Health Care Services, OptumHealth and Prescription Solutions reporting segments since the acquisition date. The pro forma effects of this acquisition on the Company’s Consolidated Financial Statements were not material. On January10, 2008, the Company acquired all of the outstanding shares of Fiserv Health, Inc. (Fiserv Health), a subsidiary of Fiserv, Inc., for approximately $740 million in cash. Fiserv Health is a leading administrator of medical benefits and also provides care facilitation services, specialty health solutions and PBM services. On a preliminary basis, the total consideration paid exceeded the estimated fair value of the net tangible assets acquired by $752 million, of which $253 million has been
4. Cash, Cash Equivalents and Investments	4.Cash, Cash Equivalents and Investments As of December31, the amortized cost, gross unrealized gains and losses, and fair value of cash, cash equivalents and investments, by type, were as follows: (in millions) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value 2008 Cash and Cash Equivalents $ 7,426 $ — $ — $ 7,426 Debt Securities — Available-for-Sale: U.S. Government and Direct Agency obligations 1,276 65 (2 ) 1,339 State and Municipal obligations 6,440 134 (90 ) 6,484 Corporate obligations 2,802 33 (132 ) 2,703 Mortgage-backed securities (a) 2,989 62 (105 ) 2,946 Total Debt Securities — Available-for-Sale 13,507 294 (329 ) 13,472 — Equity Securities — Available-for-Sale 489 8 (20 ) 477 Debt Securities — Held-to-Maturity: U.S. Government and Direct Agency obligations 157 10 — 167 State and Municipal obligations 19 — — 19 Corporate obligations 24 — — 24 Total Debt Securities—Held-to-Maturity 200 10 — 210 Total Cash, Cash Equivalents and Investments $ 21,622 $ 312 $ (349 ) $ 21,585 2007 Cash and Cash Equivalents $ 8,865 $ — $ — $ 8,865 Debt Securities — Available-for-Sale: U.S. Government and Direct Agency obligations 1,901 48 — 1,949 State and Municipal obligations 5,503 62 (7 ) 5,558 Corporate obligations 2,593 22 (15 ) 2,600 Mortgage-backed securities (a) 2,712 30 (4 ) 2,738 Total Debt Securities — Available-for-Sale 12,709 162 (26 ) 12,845 — Equity Securities — Available-for-Sale 364 20 (1 ) 383 Debt Securities — Held-to-Maturity: U.S. Government and Direct Agency obligations 118 — — 118 State and Municipal obligations 1 — — 1 Corporate obligations 74 — — 74 Total Debt Securities — Held-to-Maturity 193 — — 193 Total Cash, Cash Equivalents and Investments $ 22,131 $ 182 $ (27 ) $ 22,286 (a) Includes Agency-backed mortgage pass-through securities. The amortized cost and fair value of debt securities available-for-sale as of December31, 2008, by contractual maturity, are as follows: (in millions) Amortized Cost Fair Value Due in one year or less $ 857 $ 860 Due after one year through five years 4,575 4,603 Due after five years through ten years 2,966 2,986 Due after 10 years 2,120 2,077 Mortgage-backed securities (a) 2,989 2,946 Total Debt Secur
5. Fair Value Measurements	5.Fair Value Measurements The Company adopted FAS 157, subject to the deferral provisions of FSP 157-2 as discussed in Note 2 of Notes to the Consolidated Financial Statements, as of January1, 2008. This standard defines fair value, establishes aframework for measuring fair value and expands disclosures about fair value measurements. The fair value hierarchy is as follows: Level 1 — Quoted (unadjusted) prices for identical assets in active markets. Level 2 — Other observable inputs, either directly or indirectly, including: • Quoted prices for similar assets in active markets; • Quoted prices for identical or similar assets in non-active markets (few transactions, limited information, non-current prices, high variability over time, etc.); • Inputs other than quoted prices that are observable for the asset (interest rates, yield curves, volatilities, default rates, etc.); and • Inputs that are derived principally from or corroborated by other observable market data. Level 3 — Unobservable inputs that cannot be corroborated by observable market data. Fair values of available-for-sale debt and equity securities are based on quoted market prices, where available. The Company obtains one price for each security primarily from a third party pricing service (pricing service), which generally uses Level 1 or Level 2 inputs for the determination of fair value in accordance with FAS 157. The pricing service normally derives the security prices through recently reported trades for identical or similar securities, making adjustments through the reporting date based upon available observable market information. For securities not actively traded, the pricing service may use quoted market prices of comparable instruments or discounted cash flow analyses, incorporating inputs that are currently observable in the markets for similar securities. Inputs that are often used in the valuation methodologies include, but are not limited to, non-binding broker quotes, benchmark yields, credit spreads, default rates and prepayment speeds. As the Company is responsible for the determination of fair value, it performs quarterly analyses on the prices received from the pricing service to determine whether the prices are reasonable estimates of fair value. As a result of these reviews, the Company has not historically adjusted the prices obtained from the pricing service. In instances in which the inputs used to measure fair value fall into different levels of the fair value hierarchy, the fair value measurement has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular item to the fair value measurement in its entirety requires judgment, including the consideration of inputs specific to the asset. The following table presents information as of December31, 2008 about the Company’s financial assets, excluding AARP, that are measured at fair value on a recurring basis, according to the valuation techniques the Company used to determine their fair values. See Note 13 of Notes to the Consolidated
6. Property, Equipment and Capitalized Software	6. Property, Equipment and Capitalized Software A summary of property, equipment and capitalized software is as follows: (in millions) December31, 2008 December31, 2007 Land $ 32 $ 37 Buildings and Improvements 595 511 Computer Equipment 1,488 1,064 Furniture and Fixtures 250 205 Less Accumulated Depreciation (1,353 ) (757 ) Property and Equipment, net 1,012 1,060 Capitalized Software 2,179 1,882 Less Accumulated Amortization (1,010 ) (821 ) Capitalized Software, net 1,169 1,061 Total Property, Equipment and Capitalized Software, net $ 2,181 $ 2,121 Depreciation expense for property and equipment for 2008, 2007 and 2006 was $439 million, $359 million and $282 million, respectively. Amortization expense for capitalized software for 2008, 2007 and 2006 was $290 million, $245 million and $207 million, respectively.
7. Goodwill and Other Intangible Assets	7.Goodwill and Other Intangible Assets Changes in the carrying amount of goodwill, by reporting segment, during the years ended December31, 2008 and 2007, were as follows: (in millions) HealthCare Services OptumHealth Ingenix Prescription Solutions Consolidated Balance at December31, 2006 $ 14,266 $ 1,073 $ 807 $ 676 $ 16,822 Acquisitions 9 15 90 — 114 Subsequent Payments and Adjustments, net (136 ) (8 ) 61 1 (82 ) Balance at December31, 2007 14,139 1,080 958 677 16,854 Acquisitions 2,986 54 74 148 3,262 Subsequent Payments and Adjustments, net (81 ) 18 20 15 (28 ) Balance at December31, 2008 $ 17,044 $ 1,152 $ 1,052 $ 840 $ 20,088 The gross carrying value, accumulated amortization and net carrying value of other intangible assets were as follows: December31, 2008 December31, 2007 (in millions) Gross Carrying Value Accumulated Amortization Net Carrying Value Gross Carrying Value Accumulated Amortization Net Carrying Value Customer Contracts and Membership Lists $ 2,620 $ (585 ) $ 2,035 $ 1,879 $ (394 ) $ 1,485 Patents, Trademarks and Technology 392 (169 ) 223 302 (121 ) 181 Other 120 (49 ) 71 109 (38 ) 71 Total $ 3,132 $ (803 ) $ 2,329 $ 2,290 $ (553 ) $ 1,737 Amortization expense relating to intangible assets was $252 million in 2008, $192 million in 2007 and $181 million in 2006. Estimated full year amortization expense relating to intangible assets for each of the next five years is as follows: (in millions) Estimated Amortization Expense 2009 $ 236 2010 226 2011 221 2012 219 2013 212
8. Medical Costs and Medical Costs Payable	8.Medical Costs and Medical Costs Payable Medical costs and medical costs payable include estimates of the Company’s obligations for medical care services that have been rendered on behalf of insured consumers, but for which claims have either not yet been received or processed, and for liabilities for physician, hospital and other medical cost disputes. The Company develops estimates for medical costs incurred but not reported using an actuarial process that is consistently applied, centrally controlled and automated. The actuarial models consider factors such as time from date of service to claim receipt, claim backlogs, care provider contract rate changes, medical care consumption and other medical cost trends. The Company estimates liabilities for physician, hospital and other medical cost disputes based upon an analysis of potential outcomes, assuming a combination of litigation and settlement strategies. Each period, the Company re-examines previously established medical costs payable estimates based on actual claim submissions and other changes in facts and circumstances. As the medical costs payable estimates recorded in prior periods develop, the Company adjusts the amount of the estimates and includes the changes in estimates in medical costs in the period in which the change is identified. The following table shows the components of the change in medical costs payable for the years ended December31: (in millions) 2008 2007 2006 Medical Costs Payable, Beginning of Period $ 8,331 $ 8,076 $ 7,262 Acquisitions 331 — 224 Reported Medical Costs Current Year 60,589 55,855 53,738 Prior Years (230 ) (420 ) (430 ) Total Reported Medical Costs 60,359 55,435 53,308 Claim Payments Payments for Current Year (52,872 ) (48,240 ) (46,566 ) Payments for Prior Year (7,485 ) (6,940 ) (6,152 ) Total Claim Payments (60,357 ) (55,180 ) (52,718 ) Medical Costs Payable, End of Period $ 8,664 $ 8,331 $ 8,076
9. Commercial Paper and Long-Term Debt	9.Commercial Paper and Long-Term Debt Commercial paper and long-term debt consisted of the following: December31, 2008 December31, 2007 (in millions) Carrying Value (a) Fair Value (b) Carrying Value (a) Fair Value (b) Commercial Paper $ 101 $ 101 $ 1,445 $ 1,445 $500 million par, 3.3% Senior Unsecured Notes due January 2008 — — 499 500 $250 million par, 3.8% Senior Unsecured Notes due February 2009 250 250 250 251 $650 million par, Senior Unsecured Floating-Rate Notes due March 2009 650 644 654 652 $450 million par, 4.1% Senior Unsecured Notes due August 2009 455 442 453 447 $500 million par, Senior Unsecured Floating-Rate Notes due June 2010 500 450 500 497 $250 million par, 5.1% Senior Unsecured Notes due November 2010 263 245 253 252 $250 million par, Senior Unsecured Floating-Rate Notes due February 2011 250 219 — — $750 million par, 5.3% Senior Unsecured Notes due March 2011 806 705 775 764 $450 million par, 5.5% Senior Unsecured Notes due November 2012 493 410 456 457 $550 million par, 4.9% Senior Unsecured Notes due February 2013 549 513 — — $450 million par, 4.9% Senior Unsecured Notes due April 2013 473 419 454 447 $250 million par, 4.8% Senior Unsecured Notes due February 2014 280 221 253 241 $500 million par, 5.0% Senior Unsecured Notes due August 2014 567 460 511 487 $500 million par, 4.9% Senior Unsecured Notes due March 2015 567 429 511 478 $750 million par, 5.4% Senior Unsecured Notes due March 2016 883 661 774 732 $95 million par, 5.4% Senior Unsecured Notes due November 2016 95 84 95 90 $500 million par, 6.0% Senior Unsecured Notes due June 2017 620 450 536 502 $250 million par, 6.0% Senior Unsecured Notes due November 2017 297 223 254 252 $1,100 million par, 6.0% Senior Unsecured Notes due February 2018 1,098 1,015 — — $1,095 million par, zero coupon Senior Unsecured Notes due November 2022 530 522 503 426 $850 million par, 5.8% Senior Unsecured Notes due March 2036 844 648 844 767 $500 million par, 6.5% Senior Unsecured Notes due June 2037 495 420 495 496 $650 million par, 6.6% Senior Unsecured Notes due November 2037 645 548 645 652 $1,100 million par, 6.9% Senior Unsecured Notes due February 2038 1,083 963 — — Interest Rate Swaps (c ) (c ) (151 ) (151 ) Total Commercial Paper and Long-Term Debt 12,794 11,042 11,009 10,684 Less Commercial Paper and Current Maturities of Long-Term Debt (1,456 ) (1,437 ) (1,946 ) (1,947 ) Long-Term Debt, less current maturities $ 11,338 $
10. Income Taxes	10.Income Taxes The components of the provision for income taxes for the years ended December31 are as follows: (in millions) 2008 2007 2006 Current Provision Federal $ 1,564 $ 2,284 $ 2,236 State and Local 145 166 158 Total Current Provision 1,709 2,450 2,394 Deferred Provision (62 ) 201 (25 ) Total Provision for Income Taxes $ 1,647 $ 2,651 $ 2,369 The reconciliation of the tax provision at the U.S. Federal Statutory Rate to the provision for income taxes for the years ended December31 is as follows: (in millions) 2008 2007 2006 Tax Provision at the U.S. Federal Statutory Rate $ 1,618 $ 2,557 $ 2,285 State Income Taxes, net of federal benefit 94 120 116 Tax-Exempt Investment Income (69 ) (52 ) (50 ) Other, net 4 26 18 Provision for Income Taxes $ 1,647 $ 2,651 $ 2,369 The components of deferred income tax assets and liabilities as of December31 are as follows: (in millions) 2008 2007 Deferred Income Tax Assets Accrued Expenses and Allowances $ 93 $ 83 Unearned Premiums 56 54 Medical Costs Payable and Other Policy Liabilities 223 168 Long Term Liabilities 124 132 Net Operating Loss Carryforwards 213 110 Share-Based Compensation 413 346 Unrecognized Tax Benefits 100 105 Net Unrealized Losses on Investments 15 — Other 181 116 Subtotal 1,418 1,114 Less: Valuation Allowances (193 ) (73 ) Total Deferred Income Tax Assets $ 1,225 $ 1,041 Deferred Income Tax Liabilities Capitalized Software Development (439 ) (391 ) Net Unrealized Gains on Investments — (55 ) Intangible Assets (885 ) (707 ) Property and Equipment (5 ) (2 ) Total Deferred Income Tax Liabilities (1,329 ) (1,155 ) Net Deferred Income Tax Liabilities $ (104 ) $ (114 ) Valuation allowances are provided when it is considered more likely than not that deferred tax assets will not be realized. The valuation allowances primarily relate to future tax benefits on certain state net operating loss carryforwards. Federal net operating loss carryforwards of $29 million expire beginning in 2012 through 2028, and state net operating loss carryforwards expire beginning in 2009 through 2028. The Company adopted the provisions of FIN 48 on January1, 2007. The cumulative effect of adopting FIN 48 for the first quarter of 2007 resulted in an increase to its liability for unrecognized tax benefits of $88 million, which included a reduction of $61 million in retained earnings and an increase of $26 million in goodwill. The total amount of unrecognized tax benefits as of the date of
11. Shareholders’ Equity	11.Shareholders’ Equity Regulatory Capital and Dividend Restrictions The Company conducts a significant portion of its operations through subsidiaries that are subject to regulations and standards established by their respective states of domicile. Most of these regulations and standards conformto those established by the National Association of Insurance Commissioners. These standards, among other things, require these subsidiaries to maintain specified levels of statutory capital, as defined by each state, and restrict the timing and amount of dividends and other distributions that may be paid to their parent companies. Generally, the amount of dividend distributions that may be paid by a regulated subsidiary, without prior approval by state regulatory authorities, is limited based on the entity’s level of statutory net income and statutory capital and surplus. In 2008, based on the 2007 statutory net income and statutory capital and surplus levels, the maximum amount of dividends which could be paid without prior regulatory approval was $3.0 billion. As of December31, 2008, the Company’s regulated subsidiaries have paid their parent companies dividends of $4.2 billion, including $1.2 billion of extraordinary dividends approved by state insurance regulators. In 2007, the maximum amount of dividends which could be paid without prior regulatory approval was $2.5 billion. $2.9 billion was paid to their parent companies, including $400 million of extraordinary dividends approved by state insurance regulators. At December31, 2008, approximately $865 million of the Company’s $21.6 billion of cash and investments was held by non-regulated subsidiaries and was available for general corporate use, including acquisitions and share repurchases. The Company’s regulated subsidiaries had aggregate statutory capital and surplus of approximately $10 billion as of December31, 2008, which is significantly more than the aggregate minimum regulatory requirements. Share Repurchase Program Under its Board of Directors’ authorization, the Company maintains a share repurchase program (the Repurchase Program). The objectives of the Repurchase Program are to optimize the Company’s capital structure and cost of capital thereby improving returns to shareholders, as well as to offset the dilutive impact of share-based awards. Repurchases may be made from time to time at prevailing prices. During 2008, the Company repurchased 72million shares at an average price of approximately $37 per share and an aggregate cost of approximately $2.7 billion. At December31, 2008, the Company had Board of Directors’ authorization to purchase up to an additional 103million shares of its common stock.
12. Share-Based Compensation and Other Employee Benefit Plans	12.Share-Based Compensation and Other Employee Benefit Plans The Company’s 2002 Stock Incentive Plan (Plan), as amended and restated May15, 2002, is intended to attract and retain employees and non-employee directors, offer them incentives to put forth maximum efforts for the success of the Company’s business and afford them an opportunity to acquire a proprietary interest in the Company. The Plan allows the Company to grant stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards or other stock-based awards to eligible employees and non-employee directors. The Plan incorporates the following prior plans: 1991 Stock and Incentive Plan, 1998 Broad-Based Stock Incentive Plan and Non-employee Director Stock Option Plan. All outstanding stock options, restricted stock and other awards issued under the prior plans shall remain subject to the terms and conditions of these plans under which they were issued. As of December31, 2008, the Company had approximately 58.7million shares available for future grants of share-based awards under its share-based compensation plan, including, but not limited to, incentive or non-qualified stock options, stock-settled stock appreciation rights (SARs), and up to 20.8million of awards in restricted stock and restricted stock units (collectively, restricted shares). The Company’s existing share-based awards consist mainly of non-qualified stock options, SARs and restricted shares. Stock Options and SARs Stock options and SARs generally vest ratably over four to six years and may be exercised up to 10 years from the date of grant. Stock option and SAR activity for the year ended December31, 2008 is summarized in the table below: Shares Weighted- AverageExercise Price Weighted-Average Remaining Contractual Life Aggregate IntrinsicValue (inthousands) (in years) (in millions) Outstanding at Beginning of Period 160,653 $ 34 Granted 15,055 34 Exercised (16,335 ) 13 Forfeited (8,621 ) 49 Outstanding at End of Period 150,752 $ 36 5.1 $ 547 Exercisable at End of Period 109,568 $ 32 4.0 $ 545 To determine compensation expense related to the Company’s stock options and SARs, the fair value of each award is estimated on the date of grant using an option-pricing model. For purposes of estimating the fair value of the Company’s employee stock option and SAR grants, the Company uses a binomial model. The principal assumptions the Company used in applying the option-pricing models were as follows: 2008 2007 2006 Risk Free Interest Rate 2.2%-3.4% 3.8%-5.2% 4.1%-5.2% Expected Volatility 29.5% 24.2% 26.0% Expected Dividend Yield 0.1% 0.1% 0.1% Forfeiture Rate 5.0% 5.0% 5.0% Expected Life in Years 4.3 4.1 4.1 The risk-free interest rate is based on U.S. Treasury yields in effect at the time of grant. Expected volatilities are based on the implied volatilities from traded options on the Company’s common stock and the historical vo
13. AARP	13.AARP The Company provides health insurance products and services to members of AARP under a Supplemental Health Insurance Program (the Program), and separate Medicare Advantage and Medicare Part D arrangements. The products and services under the Program include supplemental Medicare benefits (AARP Medicare Supplement Insurance), hospital indemnity insurance, including insurance for individuals between 50 to 64 years of age, and other related products. On October3, 2007, the Company entered into four agreements with AARP, effective January1, 2008, that amended its existing AARP arrangements. These agreements extended the Company’s arrangements with AARP on the Program to December31, 2017, extended the Company’s arrangement with AARP on the Medicare Part D business to December31, 2014, and gave the Company an exclusive right to use the AARP brand on the Company’s Medicare Advantage offerings until December31, 2014, subject to certain limited exclusions. Under the Program, the Company is compensated for transaction processing and other services, as well as for assuming underwriting risk. The Company is also engaged in product development activities to complement the insurance offerings. Premium revenues from the Company’s portion of the Program were approximately $5.7 billion in 2008, $5.3 billion in 2007 and $5.0 billion in 2006. The Company’s agreement with AARP on the Program provides for the maintenance of the Rate Stabilization Fund (RSF) that is held by the Company on behalf of policyholders. Underwriting gains or losses related to the AARP Medicare Supplement Insurance business are directly recorded as an increase or decrease to theRSF. The primary components of the underwriting results are premium revenue, medical costs, investment income, administrative expenses, member service expenses, marketing expenses and premium taxes. Underwriting gains and losses are recorded as an increase or decrease to the RSF and accrue to the overall benefit of the AARP policyholders, unless cumulative net losses were to exceed the balance in the RSF. To the extent underwriting losses exceed the balance in the RSF, losses would be borne by the Company. Deficits may be recovered by underwriting gains in future periods of the contract. To date, the Company has not been required to fund any underwriting deficits. The RSF balance is reported in Other Policy Liabilities in the Consolidated Balance Sheets and changes in the RSF are reported in Medical Costs in the Consolidated Statement of Operations. In January 2008, $127 million in cash was transferred out of the RSF to an external insurance entity that offers an AARP branded age 50 to 64 comprehensive insurance product. The Company believes the RSF balance at December31, 2008 is sufficient to cover potential future underwriting and other risks and liabilities associated with the contract. The effects of changes in balance sheet amounts associated with the Program accrue to the overall benefit of the AARP policyholders through the RSF balance. Accordingly, the Company does not include the effect of such changes in its Consolidated Statements of Cash Flows. Under the Company’s agreement w
14. Fair Value of Financial Instruments	14.Fair Value of Financial Instruments In the normal course of business, the Company invests in various financial assets, incur various financial liabilities and enter into agreements involving derivative securities. Fair values are disclosed for all financial instruments for which it is practicable to estimate fair value, whether or not such values are recognized in the Consolidated Balance Sheets. Management obtains quoted market prices for these disclosures. The carrying amounts reported in the Consolidated Balance Sheets for cash and cash equivalents, premium and other current receivables, unearned premiums, accounts payable and accrued expenses, income taxes payable, and certain other current liabilities approximate fair value because of their short-term nature. For a discussion of the methods and assumptions that were used to estimate the fair value of each class of financial instrument see Note 5 to the Notes to Consolidated Financial Statements for information on Debt and Equity Securities, Note 13 to the Notes to Consolidated Financial Statements for information on AARP and Note 9 to the Notes to Consolidated Financial Statements for information related to Interest Rate Swaps and Senior Unsecured Notes. The carrying values and fair values of the Company’s financial instruments at December31 are as follows: 2008 2007 (in millions) Carrying Value Fair Value Carrying Value Fair Value Assets Debt Securities — Available-for-Sale $ 13,472 $ 13,472 $ 12,845 $ 12,845 Equity Securities — Available-for-Sale 477 477 383 383 Debt Securities — Held-to-Maturity 200 210 193 193 AARP Program-related Investments 1,941 1,941 1,735 1,735 Interest rate swaps 622 622 — — Liabilities Senior Unsecured Notes 12,693 10,941 9,564 9,239
15. Commitments and Contingencies	15.Commitments and Contingencies The Company leases facilities, computer hardware and other equipment under long-term operating leases that are noncancelable and expire on various dates through 2025. Rent expense under all operating leases for 2008, 2007 and 2006 was $264 million, $223 million and $209 million, respectively. At December31, 2008, future minimum annual lease payments, net of sublease income, under all noncancelable operating leases were as follows: (in millions) FutureMinimum Lease Payments 2009 $ 258 2010 230 2011 195 2012 174 2013 129 Thereafter 688 In conjunction with the PacifiCare acquisition the Company committed to make $50 million in charitable contributions for the benefit of California health care consumers, which has been accrued in its Consolidated Balance Sheets. The Company has committed to specific projects totaling approximately $30 million of the $50 million charitable commitment at December31, 2008, of which $21 million was paid. Additionally, the Company agreed to invest $200 million in California’s health care infrastructure to further health care services to the underserved populations of the California marketplace, of which $87 million was invested at December31, 2008. The timing and amount of individual contributions and investments are at the Company’s discretion subject to the advice and oversight of the local regulatory authorities; however, the Company’s goal is to have the investment commitment fully funded by the end of 2010. The investment commitment remains in place for 20 years after funding. At December31, 2008, the Company has outstanding, undrawn letters of credit with financial institutions of approximately $60 million and surety bonds outstanding with insurance companies of approximately $300 million, primarily to bond contractual performance. Legal Matters Legal Matters Relating to Historical Stock Option Practices Regulatory Inquiries. In March 2006, the Company received an informal inquiry from the SEC relating to its historical stock option practices. On December19, 2006, the Company received from the SEC staff a formal order of investigation into the Company’s historical stock option practices. On December22, 2008, the Company announced it had reached an agreement to settle the SEC’s investigation. Without admitting or denying the SEC’s allegations, the Company agreed to a permanent injunction against any future violations of certain reporting, books and records and internal accounting control provisions of the federal securities laws. This settlement is subject to approval by the U.S. District Court for the District of Minnesota. On May17, 2006, the Company received a subpoena from the U.S. Attorney for the Southern District of New York requesting documents from 1999 to the date of the subpoena relating to its historical stock option practices. On May17, 2006, the Company received a document request from the Internal Revenue Service (IRS) seeking documents relating to its historical stock option grants and other compensation for the persons who from 2003 to May 2006 were the named executive officers in the C
16. Segment Financial Information	16.Segment Financial Information Factors used in determining the Company’s reporting segments include the nature of operating activities, economic characteristics, existence of separate senior management teams and the type of information presented to the Company’s chief operating decision-maker to evaluate its results of operations. The Company’s accounting policies for reporting segment operations are the same as those described in the Summary of Significant Accounting Policies (see Note 2 of Notes to the Consolidated Financial Statements). Transactions between reporting segments principally consist of sales of pharmacy benefit products and services to Health Care Services by Prescription Solutions, certain product offerings sold to Health Care Services customers by OptumHealth and sales of medical benefits cost, quality and utilization data and predictive modeling to Health Care Services by Ingenix. These transactions are recorded at management’s estimate of fair value. Intersegment transactions are eliminated in consolidation. Assets and liabilities that are jointly used are assigned to each reporting segment using estimates of pro-rata usage. Cash and investments are assigned such that each reporting segment has at least minimum specified levels of regulatory capital or working capital for non-regulated businesses. Substantially all of the Company’s assets are held and operations are conducted in the United States. In accordance with accounting principles generally accepted in the United States, reporting segments with similar economic characteristics may be combined. The financial results of UnitedHealthcare, Ovations and AmeriChoice have been aggregated in the Health Care Services segment column in the following tables because these businesses have similar economic characteristics and have similar products and services, types of customers, distribution methods and operational processes, and operate in a similar regulatory environment. These businesses also share significant common assets, including the Company’s contracted networks of physicians, health care professionals, hospitals and other facilities, information technology infrastructure and other resources. Premium revenues from CMS were 25% of the Company’s total consolidated revenues for the twelve months ended December31, 2008, 2007 and 2006, respectively. The following table presents reporting segment financial information as of and for the years ended December31: (in millions) HealthCare Services OptumHealth Ingenix Prescription Solutions Corporateand Intersegment Eliminations Consolidated 2008 Revenues — External Customers Premiums $ 71,298 $ 2,310 $ — $ — $ — $ 73,608 Services 3,871 311 925 45 — 5,152 Products — — 95 1,560 — 1,655 Total Revenues — External Customers 75,169 2,621 1,020 1,605 — 80,415 Total Revenues — Intersegment — 2,529 532 10,960 (14,021 )
17. Quarterly Financial Data (Unaudited)	17.Quarterly Financial Data (Unaudited) The following tables present selected quarterly financial information for all quarters of 2008 and 2007. For the Quarter Ended (in millions, except per share data) March31 June30 September30 December31 2008 Revenues $ 20,304 $ 20,272 $ 20,156 $ 20,454 Operating Costs $ 18,591 $ 19,599 $ 18,558 $ 19,175 Earnings From Operations $ 1,713 $ 673 $ 1,598 $ 1,279 Net Earnings $ 994 $ 337 $ 920 $ 726 Basic Net Earnings per Common Share $ 0.80 $ 0.28 $ 0.76 $ 0.61 Diluted Net Earnings per Common Share $ 0.78 $ 0.27 $ 0.75 $ 0.60 2007 Revenues $ 19,047 $ 19,000 $ 18,679 $ 18,705 Operating Costs $ 17,465 $ 16,926 $ 16,524 $ 16,667 Earnings From Operations $ 1,582 $ 2,074 $ 2,155 $ 2,038 Net Earnings $ 927 $ 1,228 $ 1,283 $ 1,216 Basic Net Earnings per Common Share $ 0.69 $ 0.93 $ 0.98 $ 0.95 Diluted Net Earnings per Common Share $ 0.66 $ 0.89 $ 0.95 $ 0.92