UNH 2014.9.30 10-Q

 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________________________________ 
Form 10-Q
__________________________________________________________ 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2014
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______ TO _______
Commission file number: 1-10864
__________________________________________________________ 
    
UnitedHealth Group Incorporated
(Exact name of registrant as specified in its charter)
 __________________________________________________________ 
Minnesota
 
41-1321939
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
UnitedHealth Group Center
9900 Bren Road East
Minnetonka, Minnesota
 
55343
(Address of principal executive offices)
 
(Zip Code)
(952) 936-1300
(Registrant’s telephone number, including area code)
__________________________________________________________  
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer
x
 
Accelerated filer
o
 
Non-accelerated filer
o
 
Smaller reporting company
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes o No x
As of October 31, 2014, there were 959,791,117 shares of the registrant’s Common Stock, $.01 par value per share, issued and outstanding.
 
 
 
 
 



UNITEDHEALTH GROUP
Table of Contents
 
 
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 






Table of Contents

PART I
ITEM 1.    FINANCIAL STATEMENTS

UnitedHealth Group
Condensed Consolidated Balance Sheets
(Unaudited)
(in millions, except per share data)
 
September 30,
2014
 
December 31,
2013
Assets
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
7,233

 
$
7,276

Short-term investments
 
1,979

 
1,937

Accounts receivable, net
 
3,826

 
3,052

Other current receivables, net
 
5,189

 
3,998

Assets under management
 
2,855

 
2,757

Deferred income taxes
 
520

 
430

Prepaid expenses and other current assets
 
1,361

 
930

Total current assets
 
22,963

 
20,380

Long-term investments
 
19,346

 
19,605

Property, equipment and capitalized software, net
 
4,309

 
4,010

Goodwill
 
32,357

 
31,604

Other intangible assets, net
 
3,579

 
3,844

Other assets
 
2,872

 
2,439

Total assets
 
$
85,426

 
$
81,882

Liabilities and shareholders’ equity
 
 
 
 
Current liabilities:
 
 
 
 
Medical costs payable
 
$
12,328

 
$
11,575

Accounts payable and accrued liabilities
 
8,394

 
7,458

Other policy liabilities
 
5,792

 
5,279

Commercial paper and current maturities of long-term debt
 
2,925

 
1,969

Unearned revenues
 
1,691

 
1,600

Total current liabilities
 
31,130

 
27,881

Long-term debt, less current maturities
 
14,592

 
14,891

Future policy benefits
 
2,487

 
2,465

Deferred income taxes
 
1,901

 
1,796

Other liabilities
 
1,326

 
1,525

Total liabilities
 
51,436

 
48,558

Commitments and contingencies (Note 9)
 
 
 


Redeemable noncontrolling interests
 
1,386

 
1,175

Shareholders’ equity:
 
 
 
 
Preferred stock, $0.001 par value - 10 shares authorized; no shares issued or outstanding
 

 

Common stock, $0.01 par value - 3,000 shares authorized;
962 and 988 issued and outstanding
 
10

 
10

Retained earnings
 
33,578

 
33,047

Accumulated other comprehensive loss
 
(984
)
 
(908
)
Total shareholders’ equity
 
32,604

 
32,149

Total liabilities and shareholders’ equity
 
$
85,426

 
$
81,882

See Notes to the Condensed Consolidated Financial Statements

1

Table of Contents


UnitedHealth Group
Condensed Consolidated Statements of Operations
(Unaudited)
 
 
Three Months Ended September 30,
 
Nine Months Ended
September 30,
(in millions, except per share data)
 
2014
 
2013
 
2014
 
2013
Revenues:
 
 
 
 
 
 
 
 
Premiums
 
$
28,972

 
$
27,356

 
$
85,927

 
$
81,850

Services
 
2,535

 
2,280

 
7,386

 
6,636

Products
 
1,080

 
825

 
3,115

 
2,325

Investment and other income
 
172

 
163

 
613

 
561

Total revenues
 
32,759

 
30,624

 
97,041

 
91,372

Operating costs:
 
 
 
 
 
 
 
 
Medical costs
 
23,092

 
22,044

 
69,823

 
66,786

Operating costs
 
5,436

 
4,869

 
15,836

 
14,308

Cost of products sold
 
955

 
731

 
2,776

 
2,082

Depreciation and amortization
 
373

 
349

 
1,097

 
1,025

Total operating costs
 
29,856

 
27,993

 
89,532

 
84,201

Earnings from operations
 
2,903

 
2,631

 
7,509

 
7,171

Interest expense
 
(152
)
 
(178
)
 
(467
)
 
(532
)
Earnings before income taxes
 
2,751

 
2,453

 
7,042

 
6,639

Provision for income taxes
 
(1,149
)
 
(883
)
 
(2,933
)
 
(2,393
)
Net earnings
 
1,602

 
1,570

 
4,109

 
4,246

Earnings attributable to noncontrolling interests
 

 

 

 
(48
)
Net earnings attributable to UnitedHealth Group common shareholders
 
$
1,602

 
$
1,570

 
$
4,109

 
$
4,198

Earnings per share attributable to UnitedHealth Group common shareholders:
 
 
 
 
 
 
 
 
Basic
 
$
1.65

 
$
1.56

 
$
4.21

 
$
4.16

Diluted
 
$
1.63

 
$
1.53

 
$
4.15

 
$
4.09

Basic weighted-average number of common shares outstanding
 
969

 
1,004

 
977

 
1,009

Dilutive effect of common share equivalents
 
13

 
20

 
13

 
17

Diluted weighted-average number of common shares outstanding
 
982

 
1,024

 
990

 
1,026

Anti-dilutive shares excluded from the calculation of dilutive effect of common share equivalents
 
7

 
7

 
8

 
11

Cash dividends declared per common share
 
$
0.3750

 
$
0.2800

 
$
1.0300

 
$
0.7725


See Notes to the Condensed Consolidated Financial Statements

2

Table of Contents



UnitedHealth Group
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)

 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(in millions)
 
2014
 
2013
 
2014
 
2013
Net earnings
 
$
1,602

 
$
1,570

 
$
4,109

 
$
4,246

Other comprehensive loss:
 
 
 
 
 
 
 
 
Gross unrealized (losses) gains on investment securities during the period
 
(53
)
 
26

 
427

 
(475
)
Income tax effect
 
20

 
(9
)
 
(155
)
 
172

Total unrealized (losses) gains, net of tax
 
(33
)
 
17

 
272

 
(303
)
Gross reclassification adjustment for net realized gains included in net earnings
 
(30
)
 
(31
)
 
(183
)
 
(137
)
Income tax effect
 
11

 
11

 
67

 
50

Total reclassification adjustment, net of tax
 
(19
)
 
(20
)
 
(116
)
 
(87
)
Total foreign currency translation losses
 
(642
)
 
(49
)
 
(232
)
 
(635
)
Other comprehensive loss
 
(694
)
 
(52
)
 
(76
)
 
(1,025
)
Comprehensive income
 
908

 
1,518

 
4,033

 
3,221

Comprehensive income attributable to noncontrolling interests
 

 

 

 
(48
)
Comprehensive income attributable to UnitedHealth Group common shareholders
 
$
908

 
$
1,518

 
$
4,033

 
$
3,173


See Notes to the Condensed Consolidated Financial Statements

3

Table of Contents


UnitedHealth Group
Condensed Consolidated Statements of Changes in Shareholders’ Equity
(Unaudited)
 
 
Common Stock
 
Additional Paid-In Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Income (Loss)
 
Total Shareholders’
Equity
(in millions)
 
Shares
 
Amount
 
 
 
Net Unrealized Gains (Losses) on Investments
 
Foreign Currency Translation Losses
 
Balance at January 1, 2014
 
988

 
$
10

 
$

 
$
33,047

 
$
54

 
$
(962
)
 
$
32,149

Net earnings attributable to UnitedHealth Group common shareholders
 
 
 
 
 
 
 
4,109

 
 
 
 
 
4,109

Other comprehensive income (loss)
 
 
 
 
 
 
 
 
 
156

 
(232
)
 
(76
)
Issuances of common shares, and related tax effects
 
12

 

 
130

 
 
 
 
 
 
 
130

Share-based compensation, and related tax benefits
 
 
 
 
 
320

 
 
 
 
 
 
 
320

Common share repurchases
 
(38
)
 

 
(450
)
 
(2,574
)
 
 
 
 
 
(3,024
)
Cash dividends paid on common shares
 
 
 
 
 
 
 
(1,004
)
 
 
 
 
 
(1,004
)
Balance at September 30, 2014
 
962

 
$
10

 
$

 
$
33,578

 
$
210

 
$
(1,194
)
 
$
32,604

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2013
 
1,019

 
$
10

 
$
66

 
$
30,664

 
$
516

 
$
(78
)
 
$
31,178

Net earnings attributable to UnitedHealth Group common shareholders
 
 
 
 
 
 
 
4,198

 
 
 
 
 
4,198

Other comprehensive loss
 
 
 
 
 
 
 
 
 
(390
)
 
(635
)
 
(1,025
)
Issuances of common shares, and related tax effects
 
16

 

 
397

 
 
 
 
 
 
 
397

Share-based compensation, and related tax benefits
 
 
 
 
 
312

 
 
 
 
 
 
 
312

Common share repurchases
 
(37
)
 

 
(856
)
 
(1,492
)
 
 
 
 
 
(2,348
)
Acquisition of noncontrolling interests and related tax effects
 
 
 
 
 
81

 
 
 
 
 
 
 
81

Cash dividends paid on common shares
 
 
 
 
 
 
 
(777
)
 
 
 
 
 
(777
)
Balance at September 30, 2013
 
998

 
$
10

 
$

 
$
32,593

 
$
126

 
$
(713
)
 
$
32,016



See Notes to the Condensed Consolidated Financial Statements

4

Table of Contents


UnitedHealth Group
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
 
Nine Months Ended September 30,
(in millions)
 
2014
 
2013
Operating activities
 
 
 
 
Net earnings
 
$
4,109

 
$
4,246

Noncash items:
 
 
 
 
Depreciation and amortization
 
1,097

 
1,025

Deferred income taxes
 
(107
)
 
93

Share-based compensation
 
269

 
255

Other, net
 
(253
)
 
(118
)
Net change in other operating items, net of effects from acquisitions and changes in AARP balances:
 
 
 
 
Accounts receivable
 
(545
)
 
(120
)
Other assets
 
(819
)
 
(590
)
Medical costs payable
 
654

 
788

Accounts payable and other liabilities
 
1,126

 
392

Other policy liabilities
 

 
(68
)
Unearned revenues
 
91

 
20

Cash flows from operating activities
 
5,622

 
5,923

Investing activities
 
 
 
 
Purchases of investments
 
(7,823
)
 
(8,798
)
Sales of investments
 
5,810

 
3,779

Maturities of investments
 
2,266

 
3,871

Cash paid for acquisitions, net of cash assumed
 
(851
)
 
(330
)
Purchases of property, equipment and capitalized software
 
(1,121
)
 
(986
)
Proceeds from disposal of property, equipment and capitalized software
 

 
146

Other, net
 
(139
)
 
45

Cash flows used for investing activities
 
(1,858
)
 
(2,273
)
Financing activities
 
 
 
 
Acquisition of noncontrolling interest shares
 

 
(1,474
)
Common stock repurchases
 
(3,024
)
 
(2,348
)
Cash dividends paid
 
(1,004
)
 
(777
)
Proceeds from common stock issuances
 
400

 
538

Repayments of long-term debt
 
(812
)
 
(1,560
)
Proceeds from (repayments of) commercial paper, net
 
1,355

 
(529
)
Proceeds from issuance of long-term debt
 

 
2,235

Customer funds administered
 
(440
)
 
308

Other, net
 
(285
)
 
(76
)
Cash flows used for financing activities
 
(3,810
)
 
(3,683
)
Effect of exchange rate changes on cash and cash equivalents
 
3

 
(87
)
Decrease in cash and cash equivalents
 
(43
)
 
(120
)
Cash and cash equivalents, beginning of period
 
7,276

 
8,406

Cash and cash equivalents, end of period
 
$
7,233

 
$
8,286


See Notes to the Condensed Consolidated Financial Statements

5

Table of Contents


UnitedHealth Group
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
1.Basis of Presentation
Basis of Presentation
UnitedHealth Group Incorporated (individually and together with its subsidiaries, “UnitedHealth Group” and “the Company”) is a diversified health and well-being company dedicated to helping people live healthier lives and making health care work better. The Company offers a broad spectrum of products and services through two distinct platforms: UnitedHealthcare, which provides health care coverage and benefits services; and Optum, which provides information and technology-enabled health services.
The Company has prepared the Condensed Consolidated Financial Statements according to U.S. Generally Accepted Accounting Principles (GAAP) and has included the accounts of UnitedHealth Group and its subsidiaries. The year-end condensed consolidated balance sheet was derived from audited financial statements, but does not include all disclosures required by GAAP. In accordance with the rules and regulations of the U.S. Securities and Exchange Commission (SEC), the Company has omitted certain footnote disclosures that would substantially duplicate the disclosures contained in its annual audited Consolidated Financial Statements. Therefore, these Condensed Consolidated Financial Statements should be read together with the Consolidated Financial Statements and the Notes included in Part II, Item 8, “Financial Statements” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 as filed with the SEC (2013 10-K). The accompanying Condensed Consolidated Financial Statements include all normal recurring adjustments necessary to present the interim financial statements fairly.
On January 1, 2014, the Company realigned certain of its businesses to respond to changes in the markets it serves and the opportunities that are emerging as the health system evolves. The Company’s Optum business platform took responsibility for certain technology operations and business processing activities with the intention of pursuing additional third-party commercial opportunities in addition to continuing to serve UnitedHealthcare. These activities, which were historically a corporate function, are now included in OptumInsight’s results of operations. The Company’s reportable segments remain the same and prior period segment financial information has been recast to conform to the 2014 presentation. See Note 10 for segment financial information.
Use of Estimates
These Condensed Consolidated Financial Statements include certain amounts based on the Company’s best estimates and judgments. The Company’s most significant estimates relate to estimates and judgments for medical costs payable and revenues, valuation and impairment analysis of goodwill and other intangible assets, estimates of other policy liabilities and other current receivables, valuations of certain investments, and estimates and judgments related to income taxes and contingent liabilities. Certain of 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 impact of any change in estimates is included in earnings in the period in which the estimate is adjusted.
Accounting Policies
Industry Tax. The Patient Protection and Affordable Care Act and a reconciliation measure, the Health Care and Education Reconciliation Act of 2010 (together, Health Reform Legislation or ACA) include an annual, nondeductible insurance industry tax (Industry Tax) to be levied proportionally across the insurance industry for risk-based health insurance products that began on January 1, 2014.
The Company estimates its liability for the Industry Tax based on a ratio of the Company’s applicable net premiums written compared to the U.S. health insurance industry total applicable net premiums, both for the previous calendar year. The Company records in full the estimated liability for the Industry Tax at the beginning of the calendar year with a corresponding deferred cost that is amortized to operating costs on the Condensed Consolidated Statements of Operations using a straight-line method of allocation over the calendar year. The liability is recorded in accounts payable and accrued liabilities and the corresponding deferred cost is recorded in prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets. In September 2014, the Company paid its 2014 Industry Tax liability of $1.3 billion. As of September 30, 2014 the unamortized asset related to the Industry Tax was $335 million. The Company has experienced a higher effective income tax rate in 2014 as compared to 2013 due to the nondeductible nature of the Industry Tax.
Premium Stabilization Programs. Since the beginning of 2014, Health Reform Legislation has included three programs designed to stabilize health insurance markets (Premium Stabilization Programs): a permanent risk adjustment program; a temporary risk corridors program; and a transitional reinsurance program (Reinsurance Program).


6

Table of Contents


The risk-adjustment provisions of Health Reform Legislation are permanent regulations and apply to market reform compliant individual and small group plans in the commercial markets. Under the program, each covered member is assigned a risk score based upon demographic information and applicable diagnostic codes from the current year paid claims, in order to determine an average risk score for each plan in a particular state and market risk pool. Generally, a plan with an average risk score that is less than the state’s average risk score will pay into a pool, while a plan with an average risk score that is greater than the state’s average risk score will receive money from the pool.
The risk corridors provisions of Health Reform Legislation will be in place for three years and are intended to limit the gains and losses of individual and small group qualified health plans. Plans are required to calculate the U.S. Department of Health and Human Services (HHS) risk corridor ratio of allowable costs (defined as medical claims plus quality improvement costs adjusted for the impact of reinsurance recoveries and the risk adjustment program) to the defined target amount (defined as actual premiums less defined allowable administrative costs inclusive of taxes and profits). Qualified health plans with ratios below 97% are required to make payments to HHS, while plans with ratios greater than 103% will receive funds from HHS.
The Reinsurance Program is a temporary three year program that is funded on a per capita basis from all commercial lines of business including insured and self-funded arrangements. Only issuers of market reform compliant individual plans are eligible for reinsurance recoveries from the risk pools.
None of the Premium Stabilization Programs have had a material impact on the Condensed Consolidated Financial Statements.
All other accounting policies disclosed in Note 2 of Notes to the Consolidated Financial Statements in Part II, Item 8, “Financial Statements” in the 2013 10-K remain unchanged.
Recently Issued Accounting Standards
In May 2014, the Financial Accounting Standards Board issued Accounting Standard Update (ASU) No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (ASU 2014-09). ASU 2014-09 will supersede existing revenue recognition standards with a single model unless those contracts are within the scope of other standards (e.g., an insurance entity’s insurance contracts). The revenue recognition principle in ASU 2014-09 is that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, new and enhanced disclosures will be required. Companies can adopt the new standard either using the full retrospective approach, a modified retrospective approach with practical expedients, or a cumulative effect upon adoption approach. ASU 2014-09 will become effective for annual and interim reporting periods beginning after December 15, 2016. Early adoption is not permitted. The Company is currently evaluating the effect of the new revenue recognition guidance.
The Company has determined that there have been no other recently adopted or issued accounting standards that had, or will have, a material impact on its Condensed Consolidated Financial Statements.

7

Table of Contents


2.Investments
A summary of short-term and long-term investments by major security type is as follows:
(in millions)
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
September 30, 2014
 
 
 
 
 
 
 
 
Debt securities - available-for-sale:
 
 
 
 
 
 
 
 
U.S. government and agency obligations
 
$
1,839

 
$
3

 
$
(3
)
 
$
1,839

State and municipal obligations
 
6,609

 
221

 
(4
)
 
6,826

Corporate obligations
 
7,459

 
113

 
(22
)
 
7,550

U.S. agency mortgage-backed securities
 
2,053

 
27

 
(13
)
 
2,067

Non-U.S. agency mortgage-backed securities
 
884

 
10

 
(4
)
 
890

Total debt securities - available-for-sale
 
18,844

 
374

 
(46
)
 
19,172

Equity securities - available-for-sale
 
1,628

 
24

 
(16
)
 
1,636

Debt securities - held-to-maturity:
 
 
 
 
 
 
 
 
U.S. government and agency obligations
 
178

 
3

 

 
181

State and municipal obligations
 
28

 

 

 
28

Corporate obligations
 
311

 

 

 
311

Total debt securities - held-to-maturity
 
517

 
3

 

 
520

Total investments
 
$
20,989

 
$
401

 
$
(62
)
 
$
21,328

December 31, 2013
 
 
 
 
 
 
 
 
Debt securities - available-for-sale:
 
 
 
 
 
 
 
 
U.S. government and agency obligations
 
$
2,211

 
$
5

 
$
(21
)
 
$
2,195

State and municipal obligations
 
6,902

 
147

 
(72
)
 
6,977

Corporate obligations
 
7,265

 
130

 
(60
)
 
7,335

U.S. agency mortgage-backed securities
 
2,256

 
23

 
(61
)
 
2,218

Non-U.S. agency mortgage-backed securities
 
697

 
12

 
(7
)
 
702

Total debt securities - available-for-sale
 
19,331

 
317

 
(221
)
 
19,427

Equity securities - available-for-sale
 
1,576

 
9

 
(13
)
 
1,572

Debt securities - held-to-maturity:
 
 
 
 
 
 
 
 
U.S. government and agency obligations
 
181

 
1

 

 
182

State and municipal obligations
 
28

 

 

 
28

Corporate obligations
 
334

 

 

 
334

Total debt securities - held-to-maturity
 
543

 
1

 

 
544

Total investments
 
$
21,450

 
$
327

 
$
(234
)
 
$
21,543


8

Table of Contents



The fair values of the Company’s mortgage-backed securities by credit rating (when multiple credit ratings are available for an individual security, the average of the available ratings is used) and origination date as of September 30, 2014 were as follows:
(in millions)
 
AAA
 
AA
 
Non-Investment
Grade
 
Total Fair
Value
2014
 
$
212

 
$

 
$

 
$
212

2013
 
164

 

 

 
164

2012
 
84

 

 

 
84

2011
 
17

 

 

 
17

2010
 
23

 

 

 
23

2009
 
6

 

 

 
6

Pre - 2009
 
370

 
2

 
12

 
384

U.S. agency mortgage-backed securities
 
2,065

 
2

 

 
2,067

Total
 
$
2,941

 
$
4

 
$
12

 
$
2,957

The Company includes any securities backed by Alt-A or subprime mortgages and any commercial mortgage loans in default in the non-investment grade column in the table above.
The amortized cost and fair value of available-for-sale debt securities as of September 30, 2014, by contractual maturity, were as follows:
(in millions)
 
Amortized
Cost
 
Fair
Value
Due in one year or less
 
$
2,068

 
$
2,077

Due after one year through five years
 
7,055

 
7,152

Due after five years through ten years
 
4,955

 
5,068

Due after ten years
 
1,829

 
1,918

U.S. agency mortgage-backed securities
 
2,053

 
2,067

Non-U.S. agency mortgage-backed securities
 
884

 
890

Total debt securities - available-for-sale
 
$
18,844

 
$
19,172

The amortized cost and fair value of held-to-maturity debt securities as of September 30, 2014, by contractual maturity, were as follows:
(in millions)
 
Amortized
Cost
 
Fair
Value
Due in one year or less
 
$
84

 
$
85

Due after one year through five years
 
218

 
218

Due after five years through ten years
 
119

 
120

Due after ten years
 
96

 
97

Total debt securities - held-to-maturity
 
$
517

 
$
520


9

Table of Contents


The fair value of available-for-sale investments with gross unrealized losses by major security type and length of time that individual securities have been in a continuous unrealized loss position were as follows:
 
 
Less Than 12 Months
 
12 Months or Greater
 
 Total
(in millions)
 
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
September 30, 2014
 
 
 
 
 
 
 
 
 
 
 
 
Debt securities - available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency obligations
 
$
747

 
$
(2
)
 
$
61

 
$
(1
)
 
$
808

 
$
(3
)
State and municipal obligations
 
254

 
(2
)
 
138

 
(2
)
 
392

 
(4
)
Corporate obligations
 
2,331

 
(12
)
 
452

 
(10
)
 
2,783

 
(22
)
U.S. agency mortgage-backed securities
 
213

 
(1
)
 
378

 
(12
)
 
591

 
(13
)
Non-U.S. agency mortgage-backed securities
 
279

 
(1
)
 
120

 
(3
)
 
399

 
(4
)
Total debt securities - available-for-sale
 
$
3,824

 
$
(18
)
 
$
1,149

 
$
(28
)
 
$
4,973

 
$
(46
)
Equity securities - available-for-sale
 
$
99

 
$
(4
)
 
$
95

 
$
(12
)
 
$
194

 
$
(16
)
December 31, 2013
 
 
 
 
 
 
 
 
 
 
 
 
Debt securities - available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency obligations
 
$
1,055

 
$
(19
)
 
$
17

 
$
(2
)
 
$
1,072

 
$
(21
)
State and municipal obligations
 
2,491

 
(62
)
 
128

 
(10
)
 
2,619

 
(72
)
Corporate obligations
 
2,573

 
(51
)
 
103

 
(9
)
 
2,676

 
(60
)
U.S. agency mortgage-backed securities
 
1,393

 
(51
)
 
105

 
(10
)
 
1,498

 
(61
)
Non-U.S. agency mortgage-backed securities
 
289

 
(6
)
 
26

 
(1
)
 
315

 
(7
)
Total debt securities - available-for-sale
 
$
7,801

 
$
(189
)
 
$
379

 
$
(32
)
 
$
8,180

 
$
(221
)
Equity securities - available-for-sale
 
$
180

 
$
(13
)
 
$

 
$

 
$
180

 
$
(13
)
The Company’s unrealized losses from all securities as of September 30, 2014 were generated from approximately 5,100 positions out of a total of 22,000 positions. The Company believes that it will collect the principal and interest due on its debt securities that have an amortized cost in excess of fair value. The unrealized losses were primarily caused by interest rate increases and not by unfavorable changes in the credit quality associated with these securities. At each reporting period, the Company evaluates securities for impairment when the fair value of the investment is less than its amortized cost. The Company evaluated the underlying credit quality and credit ratings of the issuers, noting neither a significant deterioration since purchase nor other factors leading to an other-than-temporary impairment (OTTI). As of September 30, 2014, the Company did not have the intent to sell any of the securities in an unrealized loss position. Therefore, the Company believes these losses to be temporary.
The Company’s investments in equity securities consist of investments in Brazilian real denominated fixed-income funds, employee savings plan related investments, venture capital funds, and dividend paying stocks. The Company evaluated its investments in equity securities for severity and duration of unrealized loss, overall market volatility and other market factors.

10

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Net realized gains reclassified out of accumulated other comprehensive income were from the following sources:
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(in millions)
 
2014
 
2013
 
2014
 
2013
Total OTTI
 
$
(18
)
 
$
(3
)
 
$
(25
)
 
$
(7
)
Portion of loss recognized in other comprehensive income
 

 

 

 

Net OTTI recognized in earnings
 
(18
)
 
(3
)
 
(25
)
 
(7
)
Gross realized losses from sales
 
(3
)
 

 
(42
)
 
(3
)
Gross realized gains from sales
 
51

 
34

 
250

 
147

Net realized gains (included in investment and other income on the Condensed Consolidated Statements of Operations)
 
30

 
31

 
183

 
137

Income tax effect (included in provision for income taxes on the Condensed Consolidated Statements of Operations)
 
(11
)
 
(11
)
 
(67
)
 
(50
)
Realized gains, net of taxes
 
$
19

 
$
20

 
$
116

 
$
87

3.
Fair Value
Certain assets and liabilities are measured at fair value in the Condensed Consolidated Financial Statements or have fair values disclosed in the Notes to the Condensed Consolidated Financial Statements. These assets and liabilities are classified into one of three levels of a hierarchy defined by GAAP. In instances in which the inputs used to measure fair value fall into different levels of the fair value hierarchy, the fair value measurement is categorized in its entirety 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 or liability.
The fair value hierarchy is summarized as follows:
Level 1 — Quoted prices (unadjusted) for identical assets/liabilities in active markets.
Level 2 — Other observable inputs, either directly or indirectly, including:
Quoted prices for similar assets/liabilities in active markets;
Quoted prices for identical or similar assets/liabilities in nonactive markets (e.g., few transactions, limited information, noncurrent prices, high variability over time);
Inputs other than quoted prices that are observable for the asset/liability (e.g., interest rates, yield curves, implied volatilities, credit spreads); and
Inputs that are corroborated by other observable market data.
Level 3 — Unobservable inputs that cannot be corroborated by observable market data.
Transfers between levels, if any, are recorded as of the beginning of the reporting period in which the transfer occurs; there were no transfers between Levels 1, 2 or 3 of any financial assets or liabilities during 2014 or 2013.
Nonfinancial assets and liabilities or financial assets and liabilities that are measured at fair value on a nonrecurring basis are subject to fair value adjustments only in certain circumstances, such as when the Company records an impairment. There were no significant fair value adjustments for these assets and liabilities recorded during the nine months ended September 30, 2014 or 2013.
The following methods and assumptions were used to estimate the fair value and determine the fair value hierarchy classification of each class of financial instrument included in the tables below:
Cash and Cash Equivalents. The carrying value of cash and cash equivalents approximates fair value as maturities are less than three months. Fair values of cash equivalent instruments that do not trade on a regular basis in active markets are classified as Level 2.
Debt and Equity Securities. Fair values of 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 quoted or other observable inputs for the determination of fair value. The pricing service normally derives the security prices through recently reported trades for identical or similar securities, and, if necessary, makes 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,

11

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benchmark yields, credit spreads, default rates, prepayment speeds and nonbinding broker quotes. 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. Specifically, the Company compares the prices received from the pricing service to prices reported by a secondary pricing source, such as its custodian, its investment consultant and third-party investment advisors. Additionally, the Company compares changes in the reported market values and returns to relevant market indices to test the reasonableness of the reported prices. The Company’s internal price verification procedures and reviews of fair value methodology documentation provided by independent pricing services have not historically resulted in adjustment in the prices obtained from the pricing service.
Fair values of debt securities that do not trade on a regular basis in active markets but are priced using other observable inputs are classified as Level 2.
Fair value estimates for Level 1 and Level 2 equity securities are based on quoted market prices for actively traded equity securities and/or other market data for the same or comparable instruments and transactions in establishing the prices.
The fair values of Level 3 investments in venture capital portfolios are estimated using a market valuation technique that relies heavily on management assumptions and qualitative observations. Under the market approach, the fair values of the Company’s various venture capital investments are computed using limited quantitative and qualitative observations of activity for similar companies in the current market. The Company’s market modeling utilizes, as applicable, transactions for comparable companies in similar industries that also have similar revenue and growth characteristics and preferences in their capital structure. Key significant unobservable inputs in the market technique include implied earnings before interest, taxes, depreciation and amortization (EBITDA) multiples and revenue multiples. Additionally, the fair values of certain of the Company’s venture capital securities are based off of recent transactions in inactive markets for identical or similar securities. Significant changes in any of these inputs could result in significantly lower or higher fair value measurements.
Throughout the procedures discussed above in relation to the Company’s processes for validating third-party pricing information, the Company validates the understanding of assumptions and inputs used in security pricing and determines the proper classification in the hierarchy based on that understanding.
AARP Program-related Investments. The Company provides health insurance products and services to members of AARP under a Supplemental Health Insurance Program (AARP Program). AARP Program-related investments consist of debt securities and other investments held to fund costs associated with the AARP Program and are priced and classified using the same methodologies as the Company’s investments in debt and equity securities.
Interest Rate Swaps. Fair values of the Company’s swaps are estimated using the terms of the swaps and publicly available information including market yield curves. Because the swaps are unique and not actively traded but are valued using other observable inputs, the fair values are classified as Level 2.
Long-term Debt. The fair values of the Company’s long-term debt are estimated and classified using the same methodologies as the Company’s investments in debt securities.
AARP Program-related Other Liabilities. AARP Program-related other liabilities consist of liabilities that represent the amount of net investment gains and losses related to AARP Program-related investments that accrue to the benefit of the AARP policyholders.

12

Table of Contents


The following table presents a summary of fair value measurements by level and carrying values for items measured at fair value on a recurring basis in the Condensed Consolidated Balance Sheets excluding AARP Program-related assets and liabilities, which are presented in a separate table below:
(in millions)
 
Quoted Prices
in Active
Markets
(Level 1)
 
Other
Observable
Inputs
(Level 2)
 
Unobservable
Inputs
(Level 3)
 
Total
Fair and Carrying
Value
September 30, 2014
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
7,221

 
$
12

 
$

 
$
7,233

Debt securities - available-for-sale:
 
 
 
 
 
 
 
 
U.S. government and agency obligations
 
1,612

 
227

 

 
1,839

State and municipal obligations
 

 
6,826

 

 
6,826

Corporate obligations
 

 
7,490

 
60

 
7,550

U.S. agency mortgage-backed securities
 

 
2,067

 

 
2,067

Non-U.S. agency mortgage-backed securities
 

 
884

 
6

 
890

Total debt securities - available-for-sale
 
1,612

 
17,494

 
66

 
19,172

Equity securities - available-for-sale
 
1,323

 
12

 
301

 
1,636

Interest rate swap assets
 

 
21

 

 
21

Total assets at fair value

$
10,156

 
$
17,539

 
$
367

 
$
28,062

Percentage of total assets at fair value
 
36
%
 
63
%
 
1
%
 
100
%
Interest rate swap liabilities
 
$

 
$
62

 
$

 
$
62

December 31, 2013
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
7,005

 
$
271

 
$

 
$
7,276

Debt securities - available-for-sale:
 
 
 
 
 
 
 
 
U.S. government and agency obligations
 
1,750

 
445

 

 
2,195

State and municipal obligations
 

 
6,977

 

 
6,977

Corporate obligations
 
25

 
7,274

 
36

 
7,335

U.S. agency mortgage-backed securities
 

 
2,218

 

 
2,218

Non-U.S. agency mortgage-backed securities
 

 
696

 
6

 
702

Total debt securities - available-for-sale
 
1,775

 
17,610

 
42

 
19,427

Equity securities - available-for-sale
 
1,291

 
12

 
269

 
1,572

Total assets at fair value
 
$
10,071

 
$
17,893

 
$
311

 
$
28,275

Percentage of total assets at fair value
 
36
%
 
63
%
 
1
%
 
100
%
Interest rate swap liabilities
 
$

 
$
163

 
$

 
$
163


13

Table of Contents


The following table presents a summary of fair value measurements by level and carrying values for certain financial instruments not measured at fair value on a recurring basis in the Condensed Consolidated Balance Sheets:
(in millions)
 
Quoted Prices
in Active
Markets
(Level 1)
 
Other
Observable
Inputs
(Level 2)
 
Unobservable
Inputs
(Level 3)
 
Total
Fair
Value
 
Total Carrying Value
September 30, 2014
 
 
 
 
 
 
 
 
 
 
Debt securities - held-to-maturity:
 
 
 
 
 
 
 
 
 
 
U.S. government and agency obligations
 
$
181

 
$

 
$

 
$
181

 
$
178

State and municipal obligations
 

 

 
28

 
28

 
28

Corporate obligations
 
48

 
9

 
254

 
311

 
311

Total debt securities - held-to-maturity
 
$
229

 
$
9

 
$
282

 
$
520

 
$
517

Long-term debt and other financing obligations
 
$

 
$
16,557

 
$

 
$
16,557

 
$
15,047

December 31, 2013
 
 
 
 
 
 
 
 
 
 
Debt securities - held-to-maturity:
 
 
 
 
 
 
 
 
 
 
U.S. government and agency obligations
 
$
182

 
$

 
$

 
$
182

 
$
181

State and municipal obligations
 

 

 
28

 
28

 
28

Corporate obligations
 
47

 
9

 
278

 
334

 
334

Total debt securities - held-to-maturity
 
$
229

 
$
9

 
$
306

 
$
544

 
$
543

Long-term debt and other financing obligations
 
$

 
$
16,602

 
$

 
$
16,602

 
$
15,745

The carrying amounts reported on the Condensed Consolidated Balance Sheets for other financial assets and liabilities approximate fair value because of their short-term nature. These assets and liabilities are not listed in the table above.
A reconciliation of the beginning and ending balances of assets measured at fair value on a recurring basis using Level 3 inputs is as follows:
 
 
Three Months Ended
 
Nine Months Ended
(in millions)
 
Debt
Securities
 
Equity
Securities
 
Total
 
Debt
Securities
 
Equity
Securities
 
Total
September 30, 2014
 
 
 
 
 
 
 
 
 
 
 
 
Balance at beginning of period
 
$
57

 
$
302

 
$
359

 
$
42

 
$
269

 
$
311

Purchases
 
11

 
36

 
47

 
24

 
86

 
110

Sales
 

 
(18
)
 
(18
)
 

 
(169
)
 
(169
)
Net unrealized (losses) gains in other comprehensive income
 
(2
)
 
(4
)
 
(6
)
 

 
6

 
6

Net realized (losses) gains in investment and other income
 

 
(15
)
 
(15
)
 

 
109

 
109

Balance at end of period
 
$
66

 
$
301

 
$
367

 
$
66

 
$
301

 
$
367

September 30, 2013
 
 
 
 
 
 
 
 
 
 
 
 
Balance at beginning of period
 
$
38

 
$
245

 
$
283

 
$
17

 
$
224

 
$
241

Purchases
 
3

 
9

 
12

 
25

 
51

 
76

Sales
 
(7
)
 

 
(7
)
 
(7
)
 
(21
)
 
(28
)
Net unrealized losses in other comprehensive income
 

 
(7
)
 
(7
)
 
(1
)
 
(13
)
 
(14
)
Net realized (losses) gains in investment and other income
 
(1
)
 
(1
)
 
(2
)
 
(1
)
 
5

 
4

Balance at end of period
 
$
33

 
$
246

 
$
279

 
$
33

 
$
246

 
$
279


14

Table of Contents


The following table presents quantitative information regarding unobservable inputs that were significant to the valuation of assets measured at fair value on a recurring basis using Level 3 inputs:
 
 
 
 
 
 
 
 
Range
(in millions)
 
Fair Value
 
Valuation Technique
 
Unobservable Input
 
Low
 
High
September 30, 2014
 
 
 
 
 
 
 
 
 
 
Equity securities - available-for-sale
 
 
 
 
 
 
 
 
 
 
Venture capital portfolios
 
$
245

 
Market approach - comparable companies
 
Revenue multiple
 
1.0
 
5.0
 
 
 
 
 
 
EBITDA multiple
 
8.0
 
10.0
 
 
56

 
Market approach - recent transactions
 
Inactive market transactions
 
N/A
 
N/A
Total equity securities
     available-for-sale
 
$
301

 
 
 
 
 
 
 
 
Also included in the Company’s assets measured at fair value on a recurring basis using Level 3 inputs were $66 million of available-for-sale debt securities as of September 30, 2014, which were not significant.
The Company elected to measure the entirety of the AARP Program assets under management at fair value pursuant to the fair value option. See Note 2 of Notes to the Consolidated Financial Statements in Item II, Part 8, “Financial Statements” in the Company’s 2013 10-K for further detail on the AARP Program. The following table presents fair value information about the AARP Program-related financial assets and liabilities:
(in millions)
 
Quoted Prices
in Active
Markets
(Level 1)
 
Other
Observable
Inputs
(Level 2)
 
Total
Fair and Carrying
Value
September 30, 2014
 
 
 
 
 
 
Cash and cash equivalents
 
$
330

 
$

 
$
330

Debt securities:
 
 
 
 
 
 
U.S. government and agency obligations
 
409

 
245

 
654

State and municipal obligations
 

 
81

 
81

Corporate obligations
 

 
1,180

 
1,180

U.S. agency mortgage-backed securities
 

 
365

 
365

Non-U.S. agency mortgage-backed securities
 

 
166

 
166

Total debt securities
 
409

 
2,037

 
2,446

Other investments
 

 
79

 
79

Total assets at fair value
 
$
739

 
$
2,116

 
$
2,855

Other liabilities
 
$
4

 
$
12

 
$
16

December 31, 2013
 
 
 
 
 
 
Cash and cash equivalents
 
$
265

 
$

 
$
265

Debt securities:
 
 
 
 
 
 
U.S. government and agency obligations
 
426

 
301

 
727

State and municipal obligations
 

 
63

 
63

Corporate obligations
 

 
1,145

 
1,145

U.S. agency mortgage-backed securities
 

 
414

 
414

Non-U.S. agency mortgage-backed securities
 

 
139

 
139

Total debt securities
 
426

 
2,062

 
2,488

Equity securities - available-for-sale
 

 
4

 
4

Total assets at fair value
 
$
691

 
$
2,066

 
$
2,757

Other liabilities
 
$
3

 
$
11

 
$
14


15

Table of Contents


4.
Medicare Part D Pharmacy Benefits
The Condensed Consolidated Balance Sheets include the following amounts associated with the Medicare Part D program:
 
 
September 30, 2014
 
December 31, 2013
(in millions)
 
Subsidies
 
Drug Discount
 
Risk-Share
 
Subsidies
 
Drug Discount
 
Risk-Share
Other current receivables
 
$
1,626

 
$
592

 
$

 
$
881

 
$
425

 
$

Other policy liabilities
 

 
313

 
165

 

 
152

 
214

The Catastrophic Reinsurance and Low-Income Member Cost Sharing Subsidies (Subsidies) and drug discounts represent cost reimbursements under the Medicare Part D program. The Company is fully reimbursed by the Centers for Medicare & Medicaid Services (CMS) for costs incurred for these contract elements and, accordingly, there is no insurance risk to the Company. Amounts received for these contract elements are not reflected as premium revenues, but rather are accounted for as a reduction of receivables and/or increase in deposit liabilities. CMS provides prospective payments for the drug discounts, which the Company records as liabilities when received. The drug discounts are ultimately funded by the pharmaceutical manufacturers. The Company bills manufacturers for claims under the program and records those bills as receivables. Related cash flows for all of these cost reimbursements are presented as customer funds administered within financing activities on the Condensed Consolidated Statements of Cash Flows.
Premiums from CMS are subject to risk-sharing provisions based on a comparison of the Company’s annual bid estimates of prescription drug costs and the actual costs incurred. Variances may result in CMS making additional payments to the Company or require the Company to remit funds to CMS subsequent to the end of the year. The Company records risk-share adjustments to premium revenue and to other current receivables or other policy liabilities on the Condensed Consolidated Balance Sheets. See Note 2 of Notes to the Consolidated Financial Statements in Item II, Part 8, “Financial Statements” in the Company’s 2013 10-K for further detail on Medicare Part D.
5.
Medical Cost Reserve Development
The following table provides details of the Company's favorable medical cost reserve development:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(in millions)
 
2014
 
2013
 
2014
 
2013
Related to prior years
 
$
120

 
$
180

 
$
380

 
$
580

Related to current year
 
150

 
110

 
N/A

 
N/A

In both the three and nine months ended September 30, 2014, the favorable medical cost reserve development was driven by a number of individual factors that were not material. Lower than expected health system utilization levels were a significant driver in both the three and nine months ended September 30, 2013.

16

Table of Contents


6.     Commercial Paper and Long-Term Debt
Commercial paper and senior unsecured long-term debt consisted of the following:
 
 
September 30, 2014
 
December 31, 2013
(in millions, except percentages)
 
Par
Value
 
Carrying
Value
 
Fair
Value
 
Par
Value
 
Carrying
Value
 
Fair
Value
Commercial paper
 
$
2,470

 
$
2,470

 
$
2,470

 
$
1,115

 
$
1,115

 
$
1,115

4.750% notes due February 2014
 

 

 

 
172

 
173

 
173

5.000% notes due August 2014
 

 

 

 
389

 
397

 
400

Floating-rate notes due August 2014
 

 

 

 
250

 
250

 
250

4.875% notes due March 2015 (a)
 
416

 
422

 
424

 
416

 
431

 
436

0.850% notes due October 2015 (a)
 
625

 
625

 
627

 
625

 
624

 
628

5.375% notes due March 2016 (a)
 
601

 
627

 
641

 
601

 
641

 
657

1.875% notes due November 2016
 
400

 
398

 
407

 
400

 
398

 
408

5.360% notes due November 2016
 
95

 
95

 
104

 
95

 
95

 
107

6.000% notes due June 2017
 
441

 
471

 
494

 
441

 
479

 
506

1.400% notes due October 2017 (a)
 
625

 
614

 
624

 
625

 
613

 
617

6.000% notes due November 2017
 
156

 
166

 
176

 
156

 
168

 
178

6.000% notes due February 2018
 
1,100

 
1,114

 
1,250

 
1,100

 
1,116

 
1,271

1.625% notes due March 2019 (a)
 
500

 
493

 
489

 
500

 
489

 
481

3.875% notes due October 2020 (a)
 
450

 
445

 
482

 
450

 
435

 
474

4.700% notes due February 2021
 
400

 
414

 
446

 
400

 
416

 
436

3.375% notes due November 2021 (a)
 
500

 
487

 
516

 
500

 
472

 
494

2.875% notes due March 2022 (a)
 
1,100

 
1,020

 
1,094

 
1,100

 
981

 
1,046

0.000% notes due November 2022
 
15

 
10

 
11

 
15

 
9

 
10

2.750% notes due February 2023 (a)
 
625

 
590

 
604

 
625

 
563

 
572

2.875% notes due March 2023 (a)
 
750

 
760

 
732

 
750

 
729

 
698

5.800% notes due March 2036
 
850

 
845

 
1,040

 
850

 
845

 
935

6.500% notes due June 2037
 
500

 
495

 
656

 
500

 
495

 
593

6.625% notes due November 2037
 
650

 
646

 
852

 
650

 
645

 
786

6.875% notes due February 2038
 
1,100

 
1,085

 
1,506

 
1,100

 
1,084

 
1,370

5.700% notes due October 2040
 
300

 
298

 
362

 
300

 
298

 
329

5.950% notes due February 2041
 
350

 
348

 
440

 
350

 
348

 
397

4.625% notes due November 2041
 
600

 
593

 
620

 
600

 
593

 
567

4.375% notes due March 2042
 
502

 
486

 
497

 
502

 
486

 
459

3.950% notes due October 2042
 
625

 
611

 
581

 
625

 
611

 
530

4.250% notes due March 2043
 
750

 
740

 
733

 
750

 
740

 
673

Total commercial paper and long-term debt
 
$
17,496

 
$
17,368

 
$
18,878

 
$
16,952

 
$
16,739

 
$
17,596

(a)
Fixed-rate debt instruments hedged with interest rate swap contracts. See below for more information on the Company’s interest rate swaps.
The Company’s long-term debt obligations also included $149 million and $121 million of other financing obligations, of which $33 million and $34 million were current as of September 30, 2014 and December 31, 2013, respectively.
Commercial Paper and Bank Credit Facilities
Commercial paper consists of short-duration, senior unsecured debt privately placed on a discount basis through broker-dealers. As of September 30, 2014, the Company’s outstanding commercial paper had a weighted-average annual interest rate of 0.2%.
The Company has $3.0 billion five-year and $1.0 billion 364-day revolving bank credit facilities with 23 banks, which mature in November 2018 and November 2014, respectively. These facilities provide liquidity support for the Company’s $4.0 billion commercial paper program and are available for general corporate purposes. There were no amounts outstanding under these facilities as of September 30, 2014. The interest rates on borrowings are variable based on term and are calculated based on the London Interbank Offered Rate (LIBOR) plus a credit spread based on the Company’s senior unsecured credit ratings. As of September 30, 2014, the annual interest rates on the bank credit facilities, had they been drawn, would have ranged from 1.0% to 1.2%.

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Debt Covenants
The Company’s bank credit facilities contain various covenants including requiring the Company to maintain a debt to debt-plus-equity ratio of not more than 50%. The Company was in compliance with its debt covenants as of September 30, 2014.
Interest Rate Swap Contracts
The Company uses interest rate swap contracts to convert a portion of its interest rate exposure from fixed rates to floating rates to more closely align interest expense with interest income received on its cash equivalent and variable rate investment balances. The floating rates are benchmarked to LIBOR. The swaps are designated as fair value hedges on the Company’s fixed-rate debt. Since the critical terms of the swaps match those of the debt being hedged, they are considered to be highly effective hedges and all changes in the fair values of the swaps are recorded as adjustments to the carrying value of the related debt with no net impact recorded on the Condensed Consolidated Statements of Operations. Both the hedge fair value changes and the offsetting debt adjustments are recorded in interest expense on the Condensed Consolidated Statements of Operations. As of September 30, 2014 and December 31, 2013, the Company had interest rate swap contracts with notional amounts of $6.2 billion. As of September 30, 2014, the fair value of these swap assets totaling $21 million was recorded in other assets on the Condensed Consolidated Balance Sheets. The fair values of these swap liabilities were $62 million and $163 million, as of September 30, 2014 and December 31, 2013, respectively, which were recorded in other liabilities on the Condensed Consolidated Balance Sheets.
7.
Shareholders' Equity
Share Repurchase Program
Under its Board of Directors’ authorization, the Company maintains a share repurchase program. The objectives of the share 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 in open market purchases or other types of transactions (including prepaid or structured share repurchase programs), subject to certain Board restrictions. In June 2014, the Board renewed the Company’s share repurchase program with an authorization to repurchase up to 100 million shares of its common stock. During the nine months ended September 30, 2014, the Company repurchased 38 million shares at an average price of $79.35 per share and an aggregate cost of $3.0 billion.
Dividends
In June 2014, the Company’s Board of Directors increased the Company’s quarterly cash dividend to shareholders to equal an annual dividend rate of $1.50 per share compared to the annual dividend rate of $1.12 per share, which the Company had paid since June 2013. Declaration and payment of future quarterly dividends is at the discretion of the Board and may be adjusted as business needs or market conditions change.
The following table provides details of the Company’s 2014 dividend payments:
Payment Date
 
Amount per Share
 
Total Amount Paid
 
 
 
 
(in millions)
March 25, 2014
 
$
0.2800

 
$
276

June 25, 2014
 
0.3750

 
366

September 23, 2014
 
0.3750

 
362

 

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8.
Share-Based Compensation
The Company’s outstanding share-based awards consist mainly of nonqualified stock options, stock-settled stock appreciation rights (SARs) and restricted stock and restricted stock units (collectively, restricted shares).
Stock Options and SARs
Stock option and SAR activity for the nine months ended September 30, 2014 is summarized in the table below:
 
Shares
 
Weighted-
Average
Exercise
Price
 
Weighted-
Average
Remaining
Contractual Life
 
Aggregate
Intrinsic Value
 
(in millions)
 
 
 
(in years)
 
(in millions)
Outstanding at beginning of period
41

 
$
48

 
 
 
 
Granted
8

 
71

 
 
 
 
Exercised
(12
)
 
46

 
 
 
 
Forfeited
(1
)
 
61

 
 
 
 
Outstanding at end of period
36

 
53

 
5.3

 
$
1,207

Exercisable at end of period
22

 
46

 
3.1

 
904

Vested and expected to vest, end of period
35

 
53

 
5.2

 
1,189

Restricted Shares
Restricted share activity for the nine months ended September 30, 2014 is summarized in the table below:
(shares in millions)
 
Shares
 
Weighted-Average
Grant Date
Fair Value
per Share
Nonvested at beginning of period
 
11

 
$
50

Granted
 
4

 
71

Vested
 
(6
)
 
46

Nonvested at end of period
 
9

 
61

Other Share-Based Compensation Data
(in millions, except per share amounts)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2014
 
2013
 
2014
 
2013
Stock Options and SARs
 
 
 
 
 
 
 
 
Weighted-average grant date fair value of shares granted, per share
 
$
17

 
$
23

 
$
22

 
$
19

Total intrinsic value of stock options and SARs exercised
 
89

 
182

 
375

 
507

Restricted Shares
 
 
 
 
 
 
 
 
Weighted-average grant date fair value of shares granted, per share
 
80

 
72

 
71

 
58

Total fair value of restricted shares vested
 
5

 

 
428

 

Share-Based Compensation Items
 
 
 
 
 
 
 
 
Share-based compensation expense, before tax
 
81

 
79

 
269

 
255

Share-based compensation expense, net of tax effects
 
73

 
67

 
230

 
174

Income tax benefit realized from share-based award exercises
 
39

 
62

 
182

 
178

(in millions, except years)
 
September 30, 2014
Unrecognized compensation expense related to share awards
 
$
438

Weighted-average years to recognize compensation expense
 
1.3


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Share-Based Compensation Recognition and Estimates
The principal assumptions the Company used in calculating grant-date fair value for stock options and SARs were as follows:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2014
 
2013
 
2014
 
2013
Risk-free interest rate
 
1.7%
 
1.6%
 
1.7% - 1.8%
 
1.0% - 1.6%
Expected volatility
 
27.2%
 
41.8%
 
27.2% - 39.6%
 
41.8% - 43.0%
Expected dividend yield
 
1.9%
 
1.5%
 
1.6% - 1.9%
 
1.4% - 1.5%
Forfeiture rate
 
5.0%
 
5.0%
 
5.0%
 
5.0%
Expected life in years
 
5.4
 
5.3
 
5.4
 
5.3
9.
Commitments and Contingencies
Legal Matters
Because of the nature of its businesses, the Company is frequently made party to a variety of legal actions and regulatory inquiries, including class actions and suits brought by members, care providers, consumer advocacy organizations, customers and regulators, relating to the Company’s businesses, including management and administration of health benefit plans and other services. These matters include medical malpractice, employment, intellectual property, antitrust, privacy and contract claims, and claims related to health care benefits coverage and other business practices.
The Company records liabilities for its estimates of probable costs resulting from these matters where appropriate. Estimates of costs resulting from legal and regulatory matters involving the Company are inherently difficult to predict, particularly where the matters: involve indeterminate claims for monetary damages or may involve fines, penalties or punitive damages; present novel legal theories or represent a shift in regulatory policy; involve a large number of claimants or regulatory bodies; are in the early stages of the proceedings; or could result in a change in business practices. Accordingly, the Company is often unable to estimate the losses or ranges of losses for those matters where there is a reasonable possibility or it is probable that a loss may be incurred.
Litigation Matters
California Claims Processing Matter. On January 25, 2008, the California Department of Insurance (CDI) issued an Order to Show Cause to PacifiCare Life and Health Insurance Company, a subsidiary of the Company, alleging violations of certain insurance statutes and regulations related to an alleged failure to include certain language in standard claims correspondence, timeliness and accuracy of claims processing, interest payments, care provider contract implementation, care provider dispute resolution and other related matters. Although the Company believes that CDI had never before issued a fine in excess of $8 million, CDI advocated a fine of approximately $325 million in this matter. The matter was the subject of an administrative hearing before a California administrative law judge beginning in December 2009, and in August 2013, the administrative law judge issued a nonbinding proposed decision recommending a fine of $11.5 million. The California Insurance Commissioner rejected the administrative law judge’s recommendation and on June 9, 2014, issued his own decision imposing a fine of approximately $174 million. On July 10, 2014, the Company filed a lawsuit in California state court challenging the Commissioner’s decision. The Company cannot reasonably estimate the range of loss, if any, that may result from this matter given the procedural status of the dispute, the wide range of possible outcomes, the legal issues presented (including the legal basis for the majority of the alleged violations), the inherent difficulty in predicting a regulatory fine in the event of a remand, and the various remedies and levels of judicial review that remain available to the Company.
Endoscopy Center of Southern Nevada Litigation. In April 2013, a Las Vegas jury awarded $24 million in compensatory damages and $500 million in punitive damages against a Company health plan and its parent corporation on the theory that they were negligent in their credentialing and monitoring of an in-network endoscopy center owned and operated by independent physicians who were subsequently linked by regulators to an outbreak of hepatitis C. The trial court reduced the overall award to $366 million. The Company is appealing the case. Company plans are party to 18 additional individual lawsuits and two class actions, at various procedural stages, relating to the outbreak. In July 2014, the Nevada Supreme Court held that claims brought by Medicare Advantage plan members are preempted by the Medicare Act, which the Company anticipates will result in the dismissal of seven of the individual lawsuits. The Company cannot reasonably estimate the range of loss, if any, that may result from these matters given the likelihood of reversal on appeal, the availability of statutory and other limits on damages, the novel legal theories being advanced by the plaintiffs, the various postures of the remaining cases, the availability in many cases of federal defenses under Medicare law and the Employee Retirement Income Security Act of 1974, and the pendency of certain relevant legal questions before the Nevada Supreme Court. The Company is vigorously defending these lawsuits.

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Government Investigations, Audits and Reviews
The Company has been involved or is currently involved in various governmental investigations, audits and reviews. These include routine, regular and special investigations, audits and reviews by CMS, state insurance and health and welfare departments, the Brazilian national regulatory agency for private health insurance and plans (the Agência Nacional de Saúde Suplementar), state attorneys general, the Office of the Inspector General, the Office of Personnel Management, the Office of Civil Rights, the Government Accountability Office, the Federal Trade Commission, U.S. Congressional committees, the U.S. Department of Justice, the SEC, the Internal Revenue Service, the Brazilian federal revenue service (the Secretaria da Receita Federal), the U.S. Department of Labor, the Federal Deposit Insurance Corporation, the Defense Contract Audit Agency and other governmental authorities. Certain of the Company’s businesses have been reviewed or are currently under review, including for, among other things, compliance with coding and other requirements under the Medicare risk-adjustment model.
In February 2012, CMS announced a final Risk Adjustment Data Validation (RADV) audit and payment adjustment methodology and that it will conduct RADV audits beginning with the 2011 payment year. These audits involve a review of medical records maintained by care providers and may result in retrospective adjustments to payments made to health plans. CMS has not communicated how the final payment adjustment under its methodology will be implemented.
The Company cannot reasonably estimate the range of loss, if any, that may result from any material government investigations, audits and reviews in which it is currently involved given the inherent difficulty in predicting regulatory action, fines and penalties, if any, and the various remedies and levels of judicial review available to the Company in the event of an adverse finding.
10.
Segment Financial Information
Factors used to determine the Company’s reportable 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. Reportable segments with similar economic characteristics are combined. The Company’s four reportable segments are UnitedHealthcare, OptumHealth, OptumInsight and OptumRx.
Transactions between reportable segments principally consist of sales of pharmacy benefit products and services to UnitedHealthcare customers by OptumRx, certain product offerings and care management and integrated care delivery services sold to UnitedHealthcare by OptumHealth, and health information and technology solutions, consulting and other services sold to UnitedHealthcare by OptumInsight. These transactions are recorded at management’s estimate of fair value. Intersegment transactions are eliminated in consolidation. Corporate and intersegment elimination amounts are presented to reconcile the reportable segment results to the consolidated results. For more information on the Company’s segments see Part I, Item I, “Business” and Note 13 of Notes to the Consolidated Financial Statements in Item II, Part 8, “Financial Statements” in the Company's 2013 10-K.

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Prior period reportable segment financial information has been recast to conform to the 2014 presentation as discussed in Note 1. The following table presents the reportable segment financial information:
 
 
 
 
Optum
 
 
 
 
(in millions)
 
UnitedHealthcare
 
OptumHealth
 
OptumInsight
 
OptumRx
 
Optum Eliminations
 
Optum
 
Corporate and
Eliminations
 
Consolidated
Three Months Ended September 30, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues - external customers:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Premiums
 
$
28,287

 
$
685

 
$

 
$

 
$

 
$
685

 
$

 
$
28,972

Services
 
1,617

 
373

 
521

 
24

 

 
918

 

 
2,535

Products
 

 
6

 
23

 
1,051

 

 
1,080

 

 
1,080

Total revenues - external customers
 
29,904

 
1,064

 
544

 
1,075

 

 
2,683

 

 
32,587

Total revenues - intersegment
 

 
1,749

 
705

 
6,936

 
(124
)
 
9,266

 
(9,266
)
 

Investment and other income
 
135

 
36

 
1

 

 

 
37

 

 
172

Total revenues
 
$
30,039

 
$
2,849

 
$
1,250

 
$
8,011

 
$
(124
)
 
$
11,986

 
$
(9,266
)
 
$
32,759

Earnings from operations
 
$
2,038

 
$
314

 
$
225

 
$
326

 
$

 
$
865

 
$

 
$
2,903

Interest expense
 

 

 

 

 

 

 
(152
)
 
(152
)
Earnings before income taxes
 
$
2,038

 
$
314

 
$
225

 
$
326

 
$

 
$
865

 
$
(152
)
 
$
2,751

Three Months Ended September 30, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues - external customers:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Premiums
 
$
26,698

 
$
658

 
$

 
$

 
$

 
$
658

 
$

 
$
27,356

Services
 
1,554

 
193

 
509

 
24

 

 
726

 

 
2,280

Products
 
2

 
4

 
22

 
797

 

 
823

 

 
825

Total revenues - external customers
 
28,254

 
855

 
531

 
821

 

 
2,207

 

 
30,461

Total revenues - intersegment
 

 
1,607

 
670

 
5,474

 
(118
)
 
7,633

 
(7,633
)
 

Investment and other income
 
130

 
32

 
1

 

 

 
33

 

 
163

Total revenues
 
$
28,384

 
$
2,494

 
$
1,202

 
$
6,295

 
$
(118
)
 
$
9,873

 
$
(7,633
)
 
$
30,624

Earnings from operations
 
$
1,950

 
$
271

 
$
212

 
$
198

 
$

 
$
681

 
$

 
$
2,631

Interest expense
 

 

 

 

 

 

 
(178
)
 
(178
)
Earnings before income taxes
 
$
1,950

 
$
271

 
$
212

 
$
198

 
$

 
$
681

 
$
(178
)
 
$
2,453


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Optum
 
 
 
 
(in millions)
 
UnitedHealthcare
 
OptumHealth
 
OptumInsight
 
OptumRx
 
Optum Eliminations
 
Optum
 
Corporate and
Eliminations
 
Consolidated
Nine Months Ended
September 30, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues - external customers:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Premiums
 
$
84,011

 
$
1,916

 
$

 
$

 
$

 
$
1,916

 
$

 
$
85,927

Services
 
4,849

 
878

 
1,578

 
81

 

 
2,537

 

 
7,386

Products
 
2

 
17

 
63

 
3,033

 

 
3,113

 

 
3,115

Total revenues - external customers
 
88,862

 
2,811

 
1,641

 
3,114

 

 
7,566

 

 
96,428

Total revenues - intersegment
 

 
5,094

 
2,098

 
20,355

 
(354
)
 
27,193

 
(27,193
)
 

Investment and other income
 
502

 
110

 
1

 

 

 
111

 

 
613

Total revenues
 
$
89,364

 
$
8,015

 
$
3,740

 
$
23,469

 
$
(354
)
 
$
34,870

 
$
(27,193
)
 
$
97,041

Earnings from operations
 
$
5,266

 
$
749

 
$
635

 
$
859

 
$

 
$
2,243

 
$

 
$
7,509

Interest expense
 

 

 

 

 

 

 
(467
)
 
(467
)
Earnings before income taxes
 
$
5,266

 
$
749

 
$
635

 
$
859

 
$

 
$
2,243

 
$
(467
)
 
$
7,042

Nine Months Ended
September 30, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues - external customers:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Premiums
 
$
79,982

 
$
1,868

 
$

 
$

 
$

 
$
1,868

 
$

 
$
81,850

Services
 
4,485

 
576

 
1,504

 
71

 

 
2,151

 

 
6,636

Products
 
6

 
14

 
55

 
2,250

 

 
2,319

 

 
2,325

Total revenues - external customers
 
84,473

 
2,458

 
1,559

 
2,321

 

 
6,338

 

 
90,811

Total revenues - intersegment
 

 
4,795

 
1,976

 
14,817

 
(341
)
 
21,247

 
(21,247
)
 

Investment and other income
 
466

 
94

 
1

 

 

 
95

 

 
561

Total revenues
 
$
84,939

 
$
7,347

 
$
3,536

 
$
17,138

 
$
(341
)
 
$
27,680

 
$
(21,247
)
 
$
91,372

Earnings from operations
 
$
5,357

 
$
707

 
$
650

 
$
457

 
$

 
$
1,814

 
$

 
$
7,171

Interest expense
 

 

 

 

 

 

 
(532
)
 
(532
)
Earnings before income taxes
 
$
5,357

 
$
707

 
$
650

 
$
457

 
$

 
$
1,814

 
$
(532
)
 
$
6,639





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ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read together with the accompanying Condensed Consolidated Financial Statements and Notes and with our 2013 10-K, including the Consolidated Financial Statements and Notes in Item II, Part 8, “Financial Statements” in that report. References to the terms “UnitedHealth Group,” “we,” “our” or “us” used throughout this Management’s Discussion and Analysis of Financial Condition and Results of Operations refer to UnitedHealth Group Incorporated and its consolidated subsidiaries.
Readers are cautioned that the statements, estimates, projections or outlook contained in this Management's Discussion and Analysis of Financial Condition and Results of Operations, including discussions regarding financial prospects, economic conditions, trends and uncertainties contained in this Item 2, may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (PSLRA). These forward-looking statements involve risks and uncertainties that may cause our actual results to differ materially from the results discussed or implied in the forward-looking statements. A description of some of the risks and uncertainties is set forth in Part I, Item 1A, “Risk Factors” in our 2013 10-K and in the discussion below.
EXECUTIVE OVERVIEW
General
UnitedHealth Group is a diversified health and well-being company dedicated to helping people live healthier lives and making health care work better. We offer a broad spectrum of products and services through two distinct platforms: UnitedHealthcare, which provides health care coverage and benefits services; and Optum, which provides information and technology-enabled health services.
Further information on our business is included in Part I, Item 1, “Business” in our 2013 10-K and additional information on our segments can be found in this Item 2 and in Note 10 of Notes to the Condensed Consolidated Financial Statements in Part I, Item 1 of this report.
Business Trends
Our businesses participate in the U.S., Brazilian and certain other international health economies. In the United States, health care spending comprises approximately 18% of gross domestic product and has grown consistently for many years. We expect overall spending on health care to continue to grow in the future, due to inflation, medical technology and pharmaceutical advancement, regulatory requirements, demographic trends in the population and national interest in health and well-being. The rate of market growth may be affected by a variety of factors, including macro-economic conditions and regulatory changes, including enacted health care reforms in the United States, which have impacted and could further impact our results of operations.
Pricing Trends. We seek to price our health care benefit products consistent with anticipated underlying medical trends, while balancing growth, margins, and competitive dynamics (such as product positioning and price competitiveness) and legislative and regulatory changes (such as cost increases for the Industry Tax provisions of Health Reform Legislation). Overall, we continue to be under pressure from ongoing market competition in commercial products and from government payment rates.
The intensity of commercial pricing competition depends on local market conditions and competitive dynamics. Health plans have generally reflected the 2014 Industry Tax and Reinsurance Programs (together, ACA Fees) in their pricing. Conversely, the industry has experienced lower medical cost trends due to moderated utilization, which has impacted pricing trends. We have seen intensified competitive pricing in several local markets recently, including for small group customers in a large market for us. If these trends continue, we could see further declines in commercial, off exchange risk-based membership.
Annual commercial premium rate increases are subject to federal and state review and approval procedures. While our rates and rate filings are developed using methods consistent with the standards of actuarial practice, we have experienced regulatory challenges to proposed premium rate increases in certain states, including California and New York.
The Medicare Advantage rate structure is changing and funding has been cut in recent years, including in 2014, with additional reductions to take effect in 2015, as discussed below in “Regulatory Trends and Uncertainties.” We are taking actions to respond to these funding reductions, but the reductions have adversely affected after-tax earnings for our Medicare
business during the first three quarters of 2014, an impact that we expect will continue during the balance of 2014 and
into 2015.
Although we expect continued Medicaid revenue increases due to anticipated growth in our offerings, we also believe that the reimbursement rate environment creates the risk of downward pressure on Medicaid net margin percentages. We continue to work with our state customers to advocate for actuarially sound rates that are commensurate with our medical cost trends,

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including fees and related taxes, and to take a prudent, market-sustainable posture for both new bids and maintenance of existing Medicaid contracts.
Medical Cost Trends. Our medical cost trends are primarily related to unit costs, utilization and prescription drug costs. Consistent with our experience in recent years, our 2014 cost trends are largely driven by continued unit cost pressure from health care providers. Although the weak economic environment combined with our medical cost management strategies has had a favorable impact on utilization trends in recent years, the impact of Health Reform Legislation and mandates in 2014 is exerting upward pressure on medical cost trends. Driving the increases are mandated essential health benefits and limits on out-of-pocket maximums. The primary drivers of prescription drug trends continue to be unit cost pressure on brand name drugs and a shift towards expensive new specialty medications, including new hepatitis C therapies.
Delivery System and Payment Modernization. The health care market is changing based on demographic shifts, new regulations, political forces and both payer and patient expectations. Health plans and care providers are being called upon to work together to close gaps in care and enhance overall care for people, improve the health of populations and reduce costs. Delivery system modernization and payment reform are critical and the alignment of incentives between key constituents remains an important theme.
We are increasingly rewarding care providers for delivering improvements in quality and cost-efficiency. As of September 30, 2014, we served nearly 3 million people through the most progressive of these arrangements, including full-risk, shared-risk and bundled episode-of-care payment approaches. As of September 30, 2014, our contracts with value based spending total nearly $35 billion annually, up significantly from recent years.
This trend is creating needs for health management services that can coordinate care around the primary care physician, including new primary care channels, and for investments in new clinical and administrative information and management systems, which we believe will provide growth opportunities for our Optum business platform.
Regulatory Trends and Uncertainties
Following is a summary of management’s view of the trends and uncertainties related to some of the key provisions of Health Reform Legislation and other regulatory items. For additional information regarding Health Reform Legislation and regulatory trends and uncertainties, see Part I, Item 1 “Business - Government Regulation” and Item 1A, “Risk Factors” in our 2013 10-K.
Medicare Advantage Rates and Minimum Loss Ratios. Medicare Advantage rates have been cut over the last several years, including in 2014, with additional funding reductions to be phased-in through 2017 as a result of (a) changes to CMS Medicare Advantage benchmark rates; (b) Health Reform Legislation; and (c) the Budget Control Act of 2011, as amended by the American Taxpayer Relief Act of 2012, which reduced Medicare Advantage and Medicare Part D payments, beginning April 1, 2013 (Sequestration). The CMS final notice of 2015 Medicare Advantage benchmark rates and payment policies includes additional significant reductions for 2015. These industry level reductions, including the impact of the Industry Tax described below, are expected to result in revenue reductions and incremental assessments totaling more than 6% of revenue in 2014 and more than an additional 3% in 2015, against a typical industry forward medical cost trend of 3%. The impact of these cuts to our Medicare Advantage revenues is partially mitigated by reductions in provider reimbursements for those care providers with rates indexed to Medicare Advantage revenues or Medicare fee-for-service reimbursement rates. Compared to 2013, and prior to any efforts to mitigate these funding reductions, we estimate that the net impact of these reductions and the Industry Tax on our full-year 2014 consolidated net earnings will be more than $1.3 billion. These factors affected our plan benefit designs, market participation, growth prospects and earnings for our Medicare Advantage plans in 2014. Although, since the beginning of 2014, Medicare Advantage and Medicare Part D plans have been required to have minimum medical loss ratios (MLRs) of 85%, the minimum MLR standard has not had a material impact on our consolidated financial results.
Health Reform Legislation directed HHS to establish a program to reward high-quality Medicare Advantage plans beginning in 2012. Our Medicare Advantage rates are currently enhanced by CMS quality bonuses in certain counties based on our local plans’ star ratings. The level of star ratings from CMS, based upon specified clinical and operational performance standards, will impact future quality bonuses. In addition, star ratings affect the amount of savings a plan has to generate to offer supplemental benefits, which ultimately may affect the plan’s membership and revenue. The current expanded star bonus program that pays bonuses to qualifying plans rated 3 stars or higher expires after 2014. In 2015, quality bonus payments will be paid only to 4 and 5 star plans. For the 2015 payment year, we expect more than 37% of our Medicare Advantage members to be enrolled in plans that will be rated 4 stars or higher. We currently expect a similar percentage of members to be enrolled in such plans for the 2016 payment year. We are dedicating substantial resources to advance our quality scores and star ratings to strengthen our local market programs and further improve our performance for the 2017 and 2018 payment years.
The ongoing reductions to Medicare Advantage funding place continued importance on effective medical management and ongoing improvements in administrative efficiency. There are a number of adjustments we have made to partially offset these

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rate reductions. These adjustments will impact the majority of the seniors we serve through Medicare Advantage. For example, we seek to intensify our medical and operating cost management, make changes to the size and composition of our care provider networks, adjust members' benefits, implement or increase member premiums over and above the monthly payments we receive from the government, and decide on a county-by-county basis where we will offer Medicare Advantage plans. The depth of the underfunding of these benefits caused us to exit certain plans and market areas for 2014. In other markets, we may experience a reduction in membership in the plans with the greatest changes to premiums and benefits, but we expect stable or growing membership in our strongest markets.
In the longer term, we also may be able to mitigate some of the effects of reduced funding by increasing enrollment due, in part, to the increasing number of people eligible for Medicare in coming years. As Medicare Advantage reimbursement changes, other products may become relatively more attractive to Medicare beneficiaries increasing the demand for other senior health benefits products such as our market-leading Medicare Supplement and stand-alone Medicare Part D insurance offerings.
Industry Tax and Premium Stabilization Programs. Health Reform Legislation includes an Industry Tax levied proportionally across the health insurance industry for risk-based products, which began January 1, 2014. The industry-wide amount of the annual tax is $8 billion in 2014, $11.3 billion in 2015 and 2016, $13.9 billion in 2017 and $14.3 billion in 2018. For 2019 and beyond, the amount will equal the annual tax for the preceding year increased by the rate of premium growth for the preceding year.
With the introduction of state health insurance exchanges and other significant market reforms in the individual and small group markets in 2014, Health Reform Legislation includes three programs designed to stabilize the health insurance markets. These programs encompass: a Reinsurance Program; a temporary risk corridors program; and a permanent risk adjustment program. The Reinsurance Program is a temporary program that will be funded on a per capita basis from all commercial lines of business including insured and self-funded arrangements. The total three year amount of $25 billion for the Reinsurance Program will be allocated as follows: $20 billion, subject to increases based on state decisions, to fund the reinsurance pool and $5 billion to fund the U.S. Treasury. While funding for the Reinsurance Program will come from all commercial lines of business, only market reform compliant individual business will be eligible for reinsurance recoveries.
In September 2014, we paid $1.3 billion for our share of the Industry Tax, which we began expensing ratably throughout the year on January 1, 2014. Because this tax is not deductible, we estimate a significant increase of approximately 500 basis points (bps) in our 2014 effective income tax rate. We estimate that the full-year 2014 expense from tax deductible contributions to the Reinsurance Program will be approximately $0.5 billion in 2014, payable in 2015. We do not expect material payments or receipts related to the temporary risk corridors program, permanent risk adjustment program or reinsurance recoveries in 2014. To the extent possible, we include the reform fees and related tax impacts in our pricing, which is expected to result in approximately $1.5 billion of additional annual premiums in 2014. Since the ACA Fees are included in operating costs, we expect our medical care ratio to decrease in 2014 compared to historical results; the cost of these fees is factored in, however, when calculating minimum MLR rebates. For detail on the Industry Tax and Premium Stabilization Programs, see Note 1 of Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this report.
Exchanges and Coverage Expansion. Across markets, we and our competitors are adapting product, network and marketing strategies to anticipate new or expanding distribution channels including public exchanges, private exchanges and off exchange purchasing. Effective in 2014, states have either created their own public exchange, entered a partnership exchange or relied on the federally facilitated exchange for individuals and small employers. The exchanges have created new market dynamics that have impacted and could further impact our existing businesses, depending on the ultimate member migration patterns for each market, the pace of migration in the market and the impact of the migration on our established membership. For example, over time certain employers may no longer offer health benefits to their employees and some employers purchasing full-risk products could convert to self-funded programs. Conversely, in private exchanges, some employers may convert from self-funded programs to full-risk products. Our level of participation in public exchanges is determined on a state-by-state basis. Each state is evaluated based on factors such as growth opportunities, our current local presence, our competitive positioning, our ability to honor our commitments to our local customers and consumers, and the regulatory environment. In 2014, we are participating in 13 exchanges, including four individual and nine small group exchanges. In 2015, we plan to participate in nearly two dozen individual exchanges and in 12 small group exchanges.
Health Reform Legislation, as interpreted by the U.S. Supreme Court, also provides for optional expanded Medicaid coverage that became effective in January 2014. We participate in programs in 24 states and the District of Columbia, and of these, 12 states opted to expand Medicaid for 2014. The Congressional Budget Office forecasts that 12 million people will obtain coverage through Medicaid by the end of 2016, and we endeavor to build market share serving the needs of these beneficiaries and their state sponsors.

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Individual and Small Group Market Reforms. Health Reform Legislation includes several provisions, for most individual and small group plans with plan years that began on January 1, 2014, that have altered the individual and small group marketplace, including, among other matters: (a) adjusted community rating requirements, which change how individual and small group plans are priced in many states; (b) essential health benefit requirements that result in benefit changes for many individual and small group policyholders; (c) actuarial value requirements, which significantly impact benefit designs in the individual market, such as member cost sharing requirements; and (d) guaranteed issue requirements that obligate carriers to provide coverage to any qualified group or individual. These changes resulted in significant benefit design and pricing changes for a substantial portion of the fully insured individual and small group markets and a reduction in the number of states in which we offer policies to new individual customers. Additionally, states were granted the authority to allow eligible individuals and small businesses to renew non-ACA compliant plans, in some cases through October 2017.
RESULTS SUMMARY
The following table summarizes our consolidated results of operations and other financial information:
(in millions, except percentages and per share data)
 
Three Months Ended September 30,
 
Increase/(Decrease)
 
Nine Months Ended
September 30,
 
Increase/(Decrease)
 
2014
 
2013
 
2014 vs. 2013
 
2014
 
2013
 
2014 vs. 2013
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Premiums
 
$
28,972

 
$
27,356

 
$
1,616

 
6
%
 
$
85,927

 
$
81,850

 
$
4,077

 
5
%
Services
 
2,535

 
2,280

 
255

 
11

 
7,386

 
6,636

 
750

 
11

Products
 
1,080

 
825

 
255

 
31

 
3,115

 
2,325

 
790

 
34

Investment and other income
 
172

 
163

 
9

 
6

 
613

 
561

 
52

 
9

Total revenues
 
32,759

 
30,624

 
2,135

 
7

 
97,041

 
91,372

 
5,669

 
6

Operating costs:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Medical costs
 
23,092

 
22,044

 
1,048

 
5

 
69,823

 
66,786

 
3,037

 
5

Operating costs
 
5,436

 
4,869

 
567

 
12

 
15,836

 
14,308

 
1,528

 
11

Cost of products sold
 
955

 
731

 
224

 
31

 
2,776

 
2,082

 
694

 
33

Depreciation and amortization
 
373

 
349

 
24

 
7

 
1,097

 
1,025

 
72

 
7

Total operating costs
 
29,856

 
27,993

 
1,863

 
7

 
89,532

 
84,201

 
5,331

 
6

Earnings from operations
 
2,903

 
2,631

 
272

 
10

 
7,509

 
7,171

 
338

 
5

Interest expense
 
(152
)
 
(178
)
 
(26
)
 
(15
)
 
(467
)
 
(532
)
 
(65
)
 
(12
)
Earnings before income taxes
 
2,751

 
2,453

 
298

 
12

 
7,042

 
6,639

 
403

 
6

Provision for income taxes
 
(1,149
)
 
(883
)
 
266

 
30

 
(2,933
)
 
(2,393
)
 
540

 
23

Net earnings
 
1,602

 
1,570

 
32

 
2

 
4,109

 
4,246

 
(137
)
 
(3
)
Earnings attributable to noncontrolling interests
 

 

 

 
nm
 

 
(48
)
 
(48
)
 
nm
Net earnings attributable to UnitedHealth Group common shareholders
 
$
1,602

 
$
1,570

 
$
32

 
2
 %
 
$
4,109

 
$
4,198

 
$
(89
)
 
(2
)%
Diluted earnings per share attributable to UnitedHealth Group common shareholders
 
$
1.63

 
$
1.53

 
$
0.10

 
7
 %
 
$
4.15

 
$
4.09

 
$
0.06

 
1
 %
Medical care ratio (a)
 
79.7
%
 
80.6
%
 
(0.9
)%
 
 
 
81.3
%
 
81.6
%
 
(0.3
)%
 
 
Operating cost ratio
 
16.6

 
15.9

 
0.7

 
 
 
16.3

 
15.7

 
0.6

 
 
Operating margin
 
8.9

 
8.6

 
0.3

 
 
 
7.7

 
7.8

 
(0.1
)
 
 
Tax rate
 
41.8

 
36.0

 
5.8

 
 
 
41.7

 
36.0

 
5.7

 
 
Net earnings margin
 
4.9

 
5.1

 
(0.2
)
 
 
 
4.2

 
4.6

 
(0.4
)
 
 
Return on equity (b)
 
19.6
%
 
19.8
%
 
(0.2
)%
 
 
 
16.8
%
 
17.7
%
 
(0.9
)%
 
 
nm= not meaningful
(a)
Medical care ratio is calculated as medical costs divided by premium revenue.
(b)
Return on equity is calculated as annualized net earnings divided by average equity. Average equity is calculated using the equity balance at the end of the preceding year and the equity balances at the end of each of the quarters in the periods presented.

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SELECTED OPERATING PERFORMANCE AND OTHER SIGNIFICANT ITEMS
The following represents a summary of select third quarter 2014 year-over-year operating comparisons to 2013 and other 2014 significant items.
Consolidated revenues increased by 7%, Optum revenues grew 21% and UnitedHealthcare revenues increased 6%.
ACA Fees have favorably affected our 2014 medical care ratio (110 bps), and unfavorably impacted our operating cost ratio (120 bps) and effective income tax rate (5%).
Earnings from operations increased by 10%, including an increase of 27% at Optum and 5% at UnitedHealthcare.
Earnings per share to UnitedHealth Group shareholders increased 7% to $1.63 and included the negative year-over-year per share impact of $0.25 in ACA Fees, ACA Medicare rate cuts and other ACA impacts.
As of September 30, 2014, there was $1.0 billion of cash available for general corporate use and year-to-date 2014 cash flows from operations were $5.6 billion.
2014 RESULTS OF OPERATIONS COMPARED TO 2013 RESULTS
Consolidated Financial Results
Revenues
The increases in revenues during the three and nine months ended September 30, 2014 were primarily driven by growth in the number of individuals served in our public and senior markets businesses and pharmacy services growth at Optum.
Medical Costs and Medical Care Ratio
Medical costs during the three and nine months ended September 30, 2014 increased due to risk-based membership growth in our public and senior markets businesses. The impact of billing the ACA Fees decreased the medical care ratio for the three and nine months ended September 30, 2014 compared to 2013. The nine month medical care ratio decrease was partially offset by the impact of lower levels of favorable medical cost reserve development.
Operating Cost Ratio
The increase in our operating cost ratio during the three and nine months ended September 30, 2014 was due to the introduction of ACA Fees and specific investments in Optum growth platforms, partially offset by productivity and operating performance gains.
Income Tax Rate
The increase in our income tax rate resulted primarily from the nondeductible Industry Tax.
See Note 1 of Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1, and “Industry Tax and Premium Stabilization Programs” in the “Executive Overview” above for more information on ACA Fees.



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Reportable Segments
Prior period segment financial information has been recast to conform to the 2014 presentation. See Notes 1 and 10 of Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this report for more information on our segments. The following table presents a summary of the reportable segment financial information:
 
 
Three Months Ended September 30,
 
Increase/(Decrease)
 
Nine Months Ended September 30,
 
Increase/(Decrease)
(in millions, except percentages)
 
2014
 
2013
 
2014 vs. 2013
 
2014
 
2013
 
2014 vs. 2013
Revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
UnitedHealthcare
 
$
30,039

 
$
28,384

 
$
1,655

 
6
%
 
$
89,364

 
$
84,939

 
$
4,425

 
5
%
OptumHealth
 
2,849

 
2,494

 
355

 
14

 
8,015

 
7,347

 
668

 
9

OptumInsight
 
1,250

 
1,202

 
48

 
4

 
3,740

 
3,536

 
204

 
6

OptumRx
 
8,011

 
6,295

 
1,716

 
27

 
23,469

 
17,138

 
6,331

 
37

Optum eliminations
 
(124
)
 
(118
)
 
6

 
5

 
(354
)
 
(341
)
 
13

 
4

Optum
 
11,986

 
9,873

 
2,113

 
21

 
34,870

 
27,680

 
7,190

 
26

Eliminations
 
(9,266
)
 
(7,633
)
 
1,633

 
21

 
(27,193
)
 
(21,247
)
 
5,946

 
28

Consolidated revenues
 
$
32,759

 
$
30,624

 
$
2,135

 
7
%
 
$
97,041

 
$
91,372

 
$
5,669

 
6
%
Earnings from operations
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
UnitedHealthcare
 
$
2,038

 
$
1,950

 
$
88

 
5
%
 
$
5,266

 
$
5,357

 
$
(91
)
 
(2
)%
OptumHealth
 
314

 
271

 
43

 
16

 
749

 
707

 
42

 
6

OptumInsight
 
225

 
212

 
13

 
6

 
635

 
650

 
(15
)
 
(2
)
OptumRx
 
326

 
198

 
128

 
65

 
859

 
457

 
402

 
88

Optum
 
865

 
681

 
184

 
27

 
2,243

 
1,814

 
429

 
24

Consolidated earnings from operations
 
$
2,903

 
$
2,631

 
$
272

 
10
%
 
$
7,509

 
$
7,171

 
$
338

 
5
 %
Operating margin
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
UnitedHealthcare
 
6.8
%
 
6.9
%
 
(0.1
)%
 
 
 
5.9
%
 
6.3
%
 
(0.4
)%
 
 
OptumHealth
 
11.0

 
10.9

 
0.1

 
 
 
9.3

 
9.6

 
(0.3
)
 
 
OptumInsight
 
18.0

 
17.6

 
0.4

 
 
 
17.0

 
18.4

 
(1.4
)
 
 
OptumRx
 
4.1

 
3.1

 
1.0

 
 
 
3.7

 
2.7

 
1.0

 
 
Optum
 
7.2

 
6.9

 
0.3

 
 
 
6.4

 
6.6

 
(0.2
)
 
 
Consolidated operating margin
 
8.9
%
 
8.6
%
 
0.3
 %
 
 
 
7.7
%
 
7.8
%
 
(0.1
)%
 
 
UnitedHealthcare
The following table summarizes UnitedHealthcare revenue by business:
 
 
Three Months Ended September 30,
 
Increase/(Decrease)
 
Nine Months Ended September 30,
 
Increase/(Decrease)
(in millions, except percentages)
 
2014
 
2013
 
2014 vs. 2013
 
2014
 
2013
 
2014 vs. 2013
UnitedHealthcare Employer & Individual
 
$
10,610

 
$
11,230

 
$
(620
)
 
(6
)%
 
$
32,296

 
$
33,424

 
$
(1,128
)
 
(3
)%
UnitedHealthcare Medicare & Retirement
 
11,477

 
11,042

 
435

 
4

 
34,764

 
33,275

 
1,489

 
4

UnitedHealthcare Community & State
 
6,131

 
4,581

 
1,550

 
34

 
17,069

 
13,501

 
3,568

 
26

UnitedHealthcare International
 
1,821

 
1,531

 
290

 
19

 
5,235

 
4,739

 
496

 
10

Total UnitedHealthcare revenue
 
$
30,039

 
$
28,384

 
$
1,655

 
6
 %
 
$
89,364

 
$
84,939

 
$
4,425

 
5
 %

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The following table summarizes the number of individuals served by our UnitedHealthcare businesses, by major market segment and funding arrangement:
 
 
September 30,
 
Increase/(Decrease)
(in thousands, except percentages)
 
2014
 
2013
 
2014 vs. 2013
Commercial risk-based
 
7,545

 
8,130

 
(585
)
 
(7
)%
Commercial fee-based
 
18,300

 
19,060

 
(760
)
 
(4
)
Commercial fee-based TRICARE
 
2,910

 
2,930

 
(20
)
 
(1
)
Total commercial
 
28,755

 
30,120

 
(1,365
)
 
(5
)
Medicare Advantage
 
2,995

 
2,970

 
25

 
1

Medicaid
 
4,920

 
3,955

 
965

 
24

Medicare Supplement (Standardized)
 
3,715

 
3,415

 
300

 
9

Total public and senior
 
11,630

 
10,340

 
1,290

 
12

International
 
4,550

 
4,815

 
(265
)
 
(6
)
Total UnitedHealthcare - medical
 
44,935

 
45,275

 
(340
)
 
(1
)%
Supplemental Data:
 
 
 
 
 
 
 
 
Medicare Part D stand-alone
 
5,155

 
4,895

 
260

 
5
 %
The decrease in commercial risk-based enrollment was a result of disciplined pricing in a continued competitive environment and a decrease in individual policy customers due in part to customers moving to public exchanges. The decrease in number of people served under commercial fee-based arrangements was primarily due to the loss of a large state employer account. Medicare Advantage participation increased year-over-year despite the significant funding reductions, which caused us to exit certain markets in January 2014, reduce product offerings, adjust networks and reduce benefits for 2014. Nearly 60% of the Medicaid growth was driven by Medicaid expansion under the ACA with the remaining growth from the combination of states launching new programs to complement established programs and market approaches and growth in those traditional programs. Medicare Supplement growth reflected strong customer retention and new sales. The number of people served internationally decreased year-over-year primarily due to price increases in Brazil in response to the increasing costs of mandated health care benefits. In our Medicare Part D stand-alone business, the number of people served increased primarily as a result of new product introductions and strong customer retention in the market.
UnitedHealthcare’s revenue growth during the three and nine months ended September 30, 2014 was due to growth in the number of individuals served in our public and senior markets businesses, revenues to recover ACA Fees and commercial price increases reflecting underlying medical cost trends, partially offset by decreased commercial risk-based enrollment and a reduced level of Medicare Advantage funding.
UnitedHealthcare’s operating earnings for the three and nine months ended September 30, 2014 were pressured year-over-year by ACA Fees, Medicare Advantage funding reductions and increased spending on specialty medications to treat hepatitis C. Offsetting these factors were public and senior growth, reduced levels of per-member inpatient hospital utilization and revenue true-ups. For the nine month period, operating earnings were also impacted by reduced levels of favorable medical cost reserve development compared to 2013.
Optum
Total revenues increased for the three and nine months ended September 30, 2014 primarily due to pharmacy growth at OptumRx and growth at OptumHealth.
The increases in Optum’s earnings from operations for the three and nine months ended September 30, 2014 were driven by earnings growth at OptumRx and OptumHealth. Optum’s operating margin improved for the three months ended September 30, 2014 primarily as a result of enhanced margin performance at OptumRx. The operating margin declined for the nine months ended September 30, 2014 due to the increased mix of comparatively lower margin pharmacy services in Optum’s overall business and investments to develop future growth opportunities, particularly at OptumHealth and OptumInsight.
The results by segment were as follows:
OptumHealth
Revenue increased at OptumHealth for the three and nine months ended September 30, 2014 primarily due to expansion and growth in integrated care delivery services.

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Earnings from operations for the three and nine months ended September 30, 2014 increased primarily due to revenue growth and cost efficiencies, offset in part by investments to develop future growth opportunities.
The operating margin for the nine months ended September 30, 2014 decreased slightly due to investments for future growth.
OptumInsight
Revenue at OptumInsight for the three and nine months ended September 30, 2014 increased primarily due to the growth in Optum360 revenue management and government exchange services, partially offset by a reduction in hospital compliance services.
Earnings from operations and operating margins for the three and nine months ended September 30, 2014 reflected changes in product mix and investments for future growth.
OptumRx
Increased OptumRx revenue for the three and nine months ended September 30, 2014 was due to growth in people served in UnitedHealthcare’s public and senior markets, the insourcing of UnitedHealthcare’s commercial pharmacy benefit programs, growth from external clients as well as an increase in specialty pharmaceutical revenues.
Earnings from operations and operating margins for the three and nine months ended September 30, 2014 increased primarily due to growth in scale that resulted in greater productivity and better absorption of our fixed costs, and improved performance in both drug purchasing and mail fulfillment.
LIQUIDITY, FINANCIAL CONDITION AND CAPITAL RESOURCES
Liquidity
Introduction
We manage our liquidity and financial position in the context of our overall business strategy. We continually forecast and manage our cash, investments, working capital balances and capital structure to meet the short-term and long-term obligations of our businesses while seeking to maintain liquidity and financial flexibility. Cash flows generated from operating activities are principally from earnings before noncash expenses.
Our regulated subsidiaries generate significant cash flows from operations and are subject to financial regulations and standards in their respective jurisdictions. These standards, among other things, require these subsidiaries to maintain specified levels of statutory capital, as defined by each jurisdiction, and restrict the timing and amount of dividends and other distributions that may be paid to their parent companies. In the United States, most of these regulations and standards are generally consistent with model regulations established by the National Association of Insurance Commissioners. Except in the case of extraordinary dividends, these standards generally permit dividends to be paid from statutory unassigned surplus of the regulated subsidiary and are limited based on the regulated subsidiary’s level of statutory net income and statutory capital and surplus. These dividends are referred to as “ordinary dividends” and generally may be paid without prior regulatory approval. If the dividend, together with other dividends paid within the preceding twelve months, exceeds a specified statutory limit or is paid from sources other than earned surplus, the entire dividend is generally considered an “extraordinary dividend” and must receive prior regulatory approval.
For the nine months ended September 30, 2014, our U.S. regulated subsidiaries paid their parent companies dividends of $3.8 billion, and we had approximately $1.3 billion in ordinary dividend capacity remaining. For the twelve months ended December 31, 2013, our regulated subsidiaries paid their parent companies dividends of $3.2 billion.
Our nonregulated businesses also generate cash flows from operations that are available for general corporate use. Cash flows generated by these entities, combined with dividends from our regulated entities and financing through the issuance of long-term debt as well as issuance of commercial paper or the ability to draw under our committed credit facilities, further strengthen our operating and financial flexibility. We use these cash flows to expand our businesses through acquisitions, reinvest in our businesses through capital expenditures, repay debt, and return capital to our shareholders through shareholder dividends and/or repurchases of our common stock, depending on market conditions.

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Summary of our Major Sources and Uses of Cash and Cash Equivalents
 
 
Nine Months Ended
September 30,
 
Increase/(Decrease)
(in millions)
 
2014
 
2013
 
2014 vs. 2013
Sources of cash:
 
 
 
 
 
 
Cash provided by operating activities
 
$
5,622

 
$
5,923

 
$
(301
)
Sales and maturities of investments, net of purchases
 
253

 

 
253

Customer funds administered
 

 
308

 
(308
)
Proceeds from common stock issuances
 
400

 
538

 
(138
)
Issuances of long-term debt and commercial paper, net of repayments
 
543

 
146

 
397

Other
 

 
45

 
(45
)
Total sources of cash
 
6,818

 
6,960

 
 
Uses of cash:
 
 
 
 
 
 
Common stock repurchases
 
(3,024
)
 
(2,348
)
 
(676
)
Purchases of property, equipment and capitalized software, net
 
(1,121
)
 
(840
)
 
(281
)
Cash dividends paid
 
(1,004
)
 
(777
)
 
(227
)
Cash paid for acquisitions and noncontrolling interest shares, net of cash assumed
 
(851
)
 
(1,804
)
 
953

Purchases of investments, net of sales and maturities
 

 
(1,148
)
 
1,148

Customer funds administered
 
(440
)
 

 
(440
)
Other
 
(424
)
 
(76
)
 
(348
)
Total uses of cash
 
(6,864
)
 
(6,993
)
 
 
Effect of exchange rate changes on cash and cash equivalents
 
3

 
(87
)
 
90

Net decrease in cash and cash equivalents
 
$
(43
)
 
$
(120
)
 
$
77

2014 Cash Flows Compared to 2013 Cash Flows
Cash flows provided by operating activities in 2014 decreased primarily due to the September payment of the $1.3 billion Industry Tax ahead of related fourth quarter customer collections and an increase in government receivables. These decreases were partially offset by an increased level of accounts payable and other liabilities from the collection of Reinsurance Program fees in advance of remittance in 2015, and an increase in accrued income taxes.
Other significant changes in sources or uses of cash year-over-year included: (a) a change in investment activity from net purchases in 2013 to net sales in 2014; (b) decreased spending on acquisitions and noncontrolling interest shares; (c) an increase in Part D subsidy receivables causing a change in customer funds administered; and (d) increased repurchases of common stock.
Financial Condition
As of September 30, 2014, our cash, cash equivalent and available-for-sale investment balances of $28.0 billion included $7.2 billion of cash and cash equivalents (of which $1.0 billion was available for general corporate use), $19.2 billion of debt securities and $1.6 billion of investments in equity securities consisting of investments in non-U.S. dollar fixed-income funds; employee savings plan related investments; venture capital funds; and dividend paying stocks. Given the significant portion of our portfolio held in cash equivalents, we do not anticipate fluctuations in the aggregate fair value of our financial assets to have a material impact on our liquidity or capital position. The use of different market assumptions or valuation methodologies, especially those used in valuing our $367 million of available-for-sale Level 3 securities (those securities priced using significant unobservable inputs), may have an effect on the estimated fair values of our investments. Due to the subjective nature of these assumptions, the estimates may not be indicative of the actual exit price if we had sold the investment at the measurement date. Other sources of liquidity, primarily from operating cash flows and our commercial paper program, which is supported by our bank credit facilities, reduce the need to sell investments during adverse market conditions. See Note 3 of Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this report for further detail concerning our fair value measurements.
Our available-for-sale debt portfolio had a weighted-average duration of 3.4 years and a weighted-average credit rating of “AA” as of September 30, 2014. When multiple credit ratings are available for an individual security, the average of the available ratings is used to determine the weighted-average credit rating.

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Capital Resources and Uses of Liquidity
In addition to cash flows from operations and cash and cash equivalent balances available for general corporate use, our capital resources and uses of liquidity are as follows:
Commercial Paper and Bank Credit Facilities. Our bank credit facilities provide liquidity support for our commercial paper borrowing program, which facilitates the private placement of unsecured debt through third-party broker-dealers, and are available for general corporate purposes. For more information on our commercial paper and bank credit facilities, see Note 6 of Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this report.
Our bank credit facilities contain various covenants, including covenants requiring us to maintain a debt to debt-plus-equity ratio of not more than 50%. Our debt to debt-plus-equity ratio, calculated as the sum of debt divided by the sum of debt and shareholders’ equity, which reasonably approximates the actual covenant ratio, was 34.9% as of September 30, 2014.
Long-term Debt. Periodically, we access capital markets and issue long-term debt for general corporate purposes, for example, to meet our working capital requirements, to refinance debt, to finance acquisitions or for share repurchases.
Credit Ratings. Our credit ratings as of September 30, 2014 were as follows:
  
Moody’s
 
Standard & Poor’s
 
Fitch
 
A.M. Best
 
Ratings
 
Outlook
 
Ratings
 
Outlook
 
Ratings
 
Outlook
 
Ratings
 
Outlook
Senior unsecured debt
A3
 
Stable
 
A
 
Positive
 
A-
 
Stable
 
bbb+
 
Stable
Commercial paper
P-2
 
n/a
 
A-1
 
n/a
 
F1
 
n/a
 
AMB-2
 
n/a
The availability of financing in the form of debt or equity is influenced by many factors, including our profitability, operating cash flows, debt levels, credit ratings, debt covenants and other contractual restrictions, regulatory requirements and economic and market conditions. For example, a significant downgrade in our credit ratings or adverse conditions in the capital markets may increase the cost of borrowing for us or limit our access to capital.
Share Repurchase Program. In June 2014, our Board renewed our share repurchase program with an authorization to repurchase up to 100 million shares of our common stock. As of September 30, 2014, we had Board authorization to purchase up to an additional 82 million shares of our common stock. For more information on our share repurchase program, see Note 7 of Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this report.
Dividends. In June 2014, our Board of Directors increased our quarterly cash dividend to shareholders to an annual dividend rate of $1.50 per share. For more information on our dividend, see Note 7 of Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this report.
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
A summary of future obligations under our various contractual obligations and commitments as of December 31, 2013 was disclosed in our 2013 10-K. During the nine months ended September 30, 2014, there were no material changes to this previously disclosed information outside the ordinary course of business. However, we continually evaluate opportunities to expand our operations, including through internal development of new products, programs and technology applications and acquisitions.
RECENTLY ISSUED ACCOUNTING STANDARDS
In May 2014, the Financial Accounting Standards Board issued ASU No. 2014-09 “Revenue from Contracts with Customers (Topic 606).” ASU 2014-09 will supersede existing revenue recognition standards with a single model unless those contracts are within the scope of other standards (e.g., an insurance entity’s insurance contracts). The revenue recognition principle in ASU 2014-09 is that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, new and enhanced disclosures will be required. Companies can adopt the new standard using either the full retrospective approach, a modified retrospective approach with practical expedients, or a cumulative effect upon adoption approach. ASU 2014-09 will become effective for annual and interim reporting periods beginning after December 15, 2016. Early adoption is not permitted. We are currently evaluating the effect of the new revenue recognition guidance.
We have determined that there have been no other recently issued, but not yet adopted, accounting standards that will have a material impact on our Condensed Consolidated Financial Statements.

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CRITICAL ACCOUNTING ESTIMATES
In preparing these Condensed Consolidated Financial Statements, we are required to make judgments, assumptions and estimates, which we believe are reasonable and prudent based on the available facts and circumstances. These judgments, assumptions and estimates affect certain of our revenues and expenses and their related balance sheet accounts and disclosure of our contingent liabilities. We base our assumptions and estimates primarily on historical experience and factor in known and projected trends. On an ongoing basis, we re-evaluate our selection of assumptions and the method of calculating our estimates. Actual results, however, may materially differ from our calculated estimates and this difference would be reported in our current operations.
Our critical accounting estimates include medical costs payable, revenues, goodwill and intangible assets, investments, income taxes and contingent liabilities. For a detailed description of our critical accounting estimates, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our 2013 10-K. For a detailed discussion of our significant accounting policies, see Note 2 of Notes to the Consolidated Financial Statements in Item II, Part 8, “Financial Statements” in our 2013 10-K and Note 1 of Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this report.
FORWARD-LOOKING STATEMENTS
The statements, estimates, projections, guidance or outlook contained in this report include “forward-looking” statements within the meaning of the PSLRA. These statements are intended to take advantage of the “safe harbor” provisions of the PSLRA. Generally, the words “believe,” “expect,” “intend,” “estimate,” “anticipate,” “forecast,” “plan,” “project,” “should” and similar expressions identify forward-looking statements, which generally are not historical in nature. These statements may contain information about financial prospects, economic conditions and trends and involve risks and uncertainties. We caution that actual results could differ materially from those that management expects, depending on the outcome of certain factors.
Some factors that could cause results to differ materially from results discussed or implied in the forward-looking statements include: our ability to effectively estimate, price for and manage our medical costs, including the impact of any new coverage requirements; the potential impact that new laws or regulations, or changes in existing laws or regulations, or their enforcement or application could have on our results of operations, financial position and cash flows, including as a result of increases in medical, administrative, technology or other costs or decreases in enrollment resulting from U.S., Brazilian and other jurisdictions' regulations affecting the health care industry; the impact of any potential assessments for insolvent payers under state guaranty fund laws; the impact of the Patient Protection and Affordable Care Act, which could materially and adversely affect our results of operations, financial position and cash flows through reduced revenues, increased costs, new taxes and expanded liability, or require changes to the ways in which we conduct business or put us at risk for loss of business; potential reductions in revenue or delays to cash flows received under Medicare, Medicaid and TRICARE programs, including sequestration and potential effects of a prolonged U.S. government shutdown or debt ceiling constraints; uncertainties regarding changes in Medicare, including potential changes in risk adjustment data validation audit and payment adjustment methodology; failure to comply with privacy and data security regulations; regulatory and other risks and uncertainties associated with the pharmacy benefits management industry; competitive pressures, which could affect our ability to maintain or increase our market share; the impact of challenges to our public sector contract awards; our ability to execute contracts on competitive terms with physicians, hospitals and other service professionals; increases in costs and other liabilities associated with increased litigation, government investigations, audits or reviews; failure to manage successfully our strategic alliances or complete or receive anticipated benefits of acquisitions and other strategic transactions, including the Amil acquisition; the impact of fluctuations in foreign currency exchange rates on our reported shareholders’ equity and results of operations; potential downgrades in our credit ratings; our ability to attract, retain and provide support to a network of independent producers (i.e., brokers and agents) and consultants; the potential impact of adverse economic conditions on our revenues (including decreases in enrollment resulting from increases in the unemployment rate and commercial attrition) and results of operations; the performance of our investment portfolio; possible impairment of the value of our goodwill and intangible assets in connection with dispositions or if estimated future results do not adequately support goodwill and intangible assets recorded for our existing businesses or the businesses that we acquire; increases in health care costs resulting from large-scale medical emergencies; failure to maintain effective and efficient information systems or if our technology products otherwise do not operate as intended; misappropriation of our proprietary technology; failure to protect against cyber-attacks or other privacy or data security incidents; our ability to obtain sufficient funds from our regulated subsidiaries or the debt or capital markets to fund our obligations, to maintain our debt to total capital ratio at targeted levels, to maintain our quarterly dividend payment cycle or to continue repurchasing shares of our common stock; and failure to achieve targeted operating cost productivity improvements, including savings resulting from technology enhancement and administrative modernization.
This list of important factors is not intended to be exhaustive. We discuss certain of these matters more fully, as well as certain risk factors that may affect our business operations, financial condition and results of operations, in our other periodic and

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current filings with the SEC, including our 2013 10-K. Any or all forward-looking statements we make may turn out to be wrong, and can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. By their nature, forward-looking statements are not guarantees of future performance or results and are subject to risks, uncertainties and assumptions that are difficult to predict or quantify. Actual future results may vary materially from expectations expressed or implied in this report or any of our prior communications. You should not place undue reliance on forward-looking statements, which speak only as of the date they are made. We do not undertake to update or revise any forward-looking statements, except as required by applicable securities laws.
ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our primary market risks are exposures to (a) changes in interest rates that impact our investment income and interest expense and the fair value of certain of our fixed-rate investments and debt, (b) foreign currency exchange rate risk of the U.S. dollar primarily to the Brazilian real and (c) changes in equity prices that impact the value of our equity investments.
As of September 30, 2014, we had $8.7 billion of cash, cash equivalents and investments on which the interest rates received vary with market interest rates, which may materially impact our investment income. Also, $9.9 billion of our commercial paper, debt and deposit liabilities as of September 30, 2014 were at interest rates that vary with market rates, either directly or through the use of related interest rate swap contracts.
The fair value of certain of our fixed-rate investments and debt also varies with market interest rates. As of September 30, 2014, $18.3 billion of our investments were fixed-rate debt securities and $10.2 billion of our debt was non-swapped fixed-rate term debt. An increase in market interest rates decreases the market value of fixed-rate investments and fixed-rate debt. Conversely, a decrease in market interest rates increases the market value of fixed-rate investments and fixed-rate debt.
We manage exposure to market interest rates by diversifying investments across different fixed income market sectors and debt across maturities, as well as by endeavoring to match our floating-rate assets and liabilities over time, either directly or through the use of interest rate swap contracts.
The following table summarizes the impact of hypothetical changes in market interest rates across the entire yield curve by 1% point or 2% points as of September 30, 2014 on our investment income and interest expense per annum, and the fair value of our investments and debt (in millions, except percentages):
 
 
September 30, 2014
Increase (Decrease) in Market Interest Rate
 
Investment
Income Per
Annum (a)
 
Interest
Expense Per
Annum (a)
 
Fair Value of
Investments (b)
 
Fair Value of
Debt
2 %
 
$
173

 
$
195

 
$
(1,417
)
 
$
(1,510
)
1
 
87

 
98

 
(720
)
 
(551
)
(1)
 
(36
)
 
(15
)
 
689

 
1,983

(2)
 
nm

 
nm

 
1,252

 
2,747

nm = not meaningful
(a)
Given the low absolute level of short-term market rates on our floating-rate assets and liabilities as of September 30, 2014, the assumed hypothetical change in interest rates does not reflect the full 100 basis point reduction in interest income or interest expense as the rate cannot fall below zero and thus the 200 basis point reduction is not meaningful.
(b)
As of September 30, 2014, some of our investments had interest rates below 2% so the assumed hypothetical change in the fair value of investments does not reflect the full 200 basis point reduction.
We have an exposure to changes in the value of the Brazilian real to the U.S. dollar in translation of Amil’s operating results at the average exchange rate over the accounting period, and Amil’s assets and liabilities at the spot rate at the end of the accounting period. The gains or losses resulting from translating foreign currency assets and liabilities into U.S. dollars are included in shareholders’ equity and comprehensive income.
An appreciation of the U.S. dollar against the Brazilian real reduces the carrying value of the net assets denominated in Brazilian real. For example, as of September 30, 2014, a hypothetical 10% and 20% increase in the value of the U.S. dollar against the Brazilian real would have caused a reduction in net assets of approximately $445 million and $815 million, respectively. We manage exposure to foreign currency risk by conducting our international business operations primarily in their functional currencies.
As of September 30, 2014, we had $1.6 billion of investments in equity securities, consisting of investments in non-U.S. dollar fixed-income funds; employee savings plan related investments; venture capital funds; and dividend paying stocks. Valuations in non-U.S. dollar funds are subject to foreign exchange rates. Valuations in venture capital funds are subject to conditions affecting health care and technology stocks, and dividend paying equities are subject to more general market conditions.

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ITEM 4.
CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (Exchange Act) that are designed to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms; and (ii) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
In connection with the filing of this Form 10-Q, management evaluated, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2014. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of September 30, 2014.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There have been no changes in our internal control over financial reporting during the quarter ended September 30, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFROMATION
ITEM 1.
LEGAL PROCEEDINGS
A description of our legal proceedings is included in and incorporated by reference to Note 9 of Notes to the Condensed Consolidated Financial Statements contained in Part I, Item 1 of this report.
ITEM 1A.
RISK FACTORS
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A, “Risk Factors” of our 2013 10-K, which could materially affect our business, financial condition or future results. The risks described in our 2013 10-K are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or future results.
There have been no material changes to the risk factors disclosed in our 2013 10-K.
ITEM 2.    UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities (a)
Third Quarter 2014
For the Month Ended
 
Total Number
of Shares
Purchased
 
Average Price
Paid per Share
 
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
 
Maximum Number
of Shares That May
Yet Be Purchased
Under The Plans or
Programs
 
 
(in millions)
 
 
 
(in millions)
 
(in millions)
July 31, 2014
 
3

 
$
84

 
3

 
92

August 31, 2014
 
6

 
82

 
6

 
86

September 30, 2014
 
4

 
87

 
4

 
82

Total
 
13

 
$
84

 
13

 
 
 
(a)
In November 1997, our Board of Directors adopted a share repurchase program, which the Board evaluates periodically. In June 2014, the Board renewed our share repurchase program with an authorization to repurchase up to 100 million shares of our common stock in open market purchases or other types of transactions (including prepaid or structured repurchase programs). There is no established expiration date for the program.


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ITEM 6. EXHIBITS *
The following exhibits are filed in response to Item 601 of Regulation S-K.
3.1

 
Third Restated Articles of Incorporation of UnitedHealth Group Incorporated (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K dated May 29, 2007)
3.2

 
Fourth Amended and Restated Bylaws of UnitedHealth Group Incorporated (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K dated October 23, 2009)
4.1

 
Senior Indenture, dated as of November 15, 1998, between United HealthCare Corporation and The Bank of New York (incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-3/A, SEC File Number 333-66013, filed on January 11, 1999)
4.2

 
Amendment, dated as of November 6, 2000, to Senior Indenture, dated as of November 15, 1998, between UnitedHealth Group Incorporated and The Bank of New York (incorporated by reference to Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2001)
4.3

 
Instrument of Resignation, Appointment and Acceptance of Trustee, dated January 8, 2007, pursuant to the Senior Indenture, dated as of November 15, 1998, amended November 6, 2000, among UnitedHealth Group Incorporated, The Bank of New York and Wilmington Trust Company (incorporated by reference to Exhibit 4.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2007)
4.4

 
Indenture, dated as of February 4, 2008, between UnitedHealth Group Incorporated and U.S. Bank National Association (incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-3, SEC File Number 333-149031, filed on February 4, 2008)
10.1

 
Summary of Non-Management Director Compensation
10.2

 
Fifth Amendment to UnitedHealth Group Executive Savings Plan (2004 Statement)
  12.1

 
Computation of Ratio of Earnings to Fixed Charges
  31.1

 
Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
  32.1

 
Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  101

 
The following materials from UnitedHealth Group Incorporated’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014 filed on November 10, 2014, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Comprehensive Income, (iv) Condensed Consolidated Statements of Changes in Shareholders' Equity, (v) Condensed Consolidated Statements of Cash Flows, and (vi) Notes to the Condensed Consolidated Financial Statements.
 ________________
*
 
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, copies of instruments defining the rights of certain holders of long-term debt are not filed. The Company will furnish copies thereof to the SEC upon request.


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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
UNITEDHEALTH GROUP INCORPORATED
 
/s/    STEPHEN J. HEMSLEY
 
President and Chief Executive Officer
(principal executive officer)
Dated:
November 10, 2014
Stephen J. Hemsley
 
  
 
 
 
 
/s/    DAVID S. WICHMANN
 
Executive Vice President and
Chief Financial Officer of UnitedHealth Group and President of UnitedHealth Group Operations
(principal financial officer)
Dated:
November 10, 2014
David S. Wichmann
 
  
 
 
 
 
/S/    ERIC S. RANGEN
 
Senior Vice President and
Chief Accounting Officer
(principal accounting officer)
Dated:
November 10, 2014
Eric S. Rangen
 
  
 


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EXHIBIT INDEX*
 
The following exhibits are filed in response to Item 601 of Regulation S-K.
3.1

 
Third Restated Articles of Incorporation of UnitedHealth Group Incorporated (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K dated May 29, 2007)
3.2

 
Fourth Amended and Restated Bylaws of UnitedHealth Group Incorporated (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K dated October 23, 2009)
4.1

 
Senior Indenture, dated as of November 15, 1998, between United HealthCare Corporation and The Bank of New York (incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-3/A, SEC File Number 333-66013, filed on January 11, 1999)
4.2

 
Amendment, dated as of November 6, 2000, to Senior Indenture, dated as of November 15, 1998, between UnitedHealth Group Incorporated and The Bank of New York (incorporated by reference to Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2001)
4.3

 
Instrument of Resignation, Appointment and Acceptance of Trustee, dated January 8, 2007, pursuant to the Senior Indenture, dated as of November 15, 1998, amended November 6, 2000, among UnitedHealth Group Incorporated, The Bank of New York and Wilmington Trust Company (incorporated by reference to Exhibit 4.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2007)
4.4

 
Indenture, dated as of February 4, 2008, between UnitedHealth Group Incorporated and U.S. Bank National Association (incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-3, SEC File Number 333-149031, filed on February 4, 2008)
10.1

 
Summary of Non-Management Director Compensation
10.2

 
Fifth Amendment to UnitedHealth Group Executive Savings Plan (2004 Statement)
  12.1

 
Computation of Ratio of Earnings to Fixed Charges
  31.1

 
Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
  32.1

 
Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  101

 
The following materials from UnitedHealth Group Incorporated’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014 filed on November 10, 2014, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Comprehensive Income, (iv) Condensed Consolidated Statements of Changes in Shareholders' Equity, (v) Condensed Consolidated Statements of Cash Flows, and (vi) Notes to the Condensed Consolidated Financial Statements.
 ________________
*
 
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, copies of instruments defining the rights of certain holders of long-term debt are not filed. The Company will furnish copies thereof to the SEC upon request.


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