UnitedHealth Group (UNH)

Second quarter 2009 revenues for Health Care Services increased $1.3 billion or 7 percent year-over-year to $20.3 billion. This was driven by price increases that reflect increases in underlying medical costs for risk-based business and a year-to-date increase of nearly 800,000 individuals served through actively offered benefit products across the public and senior markets businesses, partially offset by a decrease in consumers served through commercial products.

Second quarter Health Care Services earnings from operations of $1.1 billion would have increased by $7 million year-over-year, but for the impact of a $78 million year-over-year decrease in investment income. The Health Care Services operating margin declined 70 basis points year-over-year to 5.3 percent in the second quarter, due to a 40 basis point reduction in margin contribution from investment income and continued strong growth in comparatively lower margin public and senior markets businesses.

First quarter 2009 revenues for Health Care Services increased $1.7 billion or 9 percent year-over-year to $20.7 billion. The revenue increase was principally driven by pricing increases and an increase in customers served in the public and senior markets businesses, which were partially offset by the decline in consumers served through commercial products.

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First quarter Health Care Services earnings from operations of $1.3 billion increased $62 million¹ year-over-year, prior to the impact of a $112 million year-over-year decrease in investment income. Reported earnings from operations decreased $50 million or 4 percent year-over-year. The Health Care Services operating margin declined 80 basis points year-over-year to 6.4 percent in the first quarter, as improvements in profitability in the commercial business were offset by a 50 basis point reduction in margin contribution from investment income, as well as the impact of strong growth in comparatively lower margin public and senior markets businesses.

Full year Health Care Services revenues increased $4.7 billion or 7 percent to $75.9 billion, with growth in revenues balanced across the commercial, senior and public sector businesses. Fourth quarter 2008 revenues increased $1.5 billion or 9 percent year-over-year to $19.1 billion. The revenue increases were driven by premium increases, targeted acquisitions and an increase in customers served in the Public and Senior Markets Group, partially offset by a decline in consumers served through commercial risk-based products.

Full year Health Care Services earnings from operations decreased $1.5 billion year-over-year to $5.1 billion; fourth quarter Health Care Services earnings from operations were $1.3 billion. Reductions in commercial product margins and risk-based enrollment, and margin pressures on certain senior market offerings negatively impacted profitability year-over-year in the fourth quarter and for full year 2008.

Full year UnitedHealthcare revenues of $41.8 billion increased by $1.6 billion or 4 percent year-over-year. Fourth quarter revenues of $10.5 billion for UnitedHealthcare increased $423 million or 4 percent year-over-year.

At year end UnitedHealthcare served 26 million people, an increase of 0.8 million consumers during 2008. UnitedHealthcare fourth quarter membership decreased, as expected, with growth of 10,000 people using fee-based products offset by a decline of 135,000 risk-based consumers in the quarter.

UnitedHealthcare’s 2008 medical care ratio of 83.5 percent increased 90 basis points from 82.6 percent in 2007, due principally to premium yield increases advancing more slowly than medical cost trends. The fourth quarter 2008 medical care ratio was 83.9 percent, slightly ahead of Company expectations.

UnitedHealthcare continued to advance its leadership position in consumer-directed health benefit products in 2008, ending the year with a total of 2.7 million people in consumer-directed offerings, an increase of 420,000 people or 18 percent year-over-year. More than 24,000 employer groups now offer a UnitedHealthcare consumer-directed health benefit plan.

Full year Ovations revenues of $28.1 billion increased $1.6 billion or 6 percent year-over-year, with revenue advances in its AARP Medicare Supplement, SecureHorizons Medicare Advantage and Evercare businesses, offset by a decrease in Part D prescription drug plan revenues. Ovations revenues were $6.8 billion in the fourth quarter, up $570 million or 9 percent year-over-year.

For Medicare Advantage programs, Ovations reported fourth quarter growth of 15,000 people and a full year increase of 125,000 people or 9 percent. 2009 Medicare Advantage new sales results have also been very solid to date.

Strong growth in Medicare Supplement products also continued, with Ovations increasing the number of seniors served in this product family by 30,000 in the fourth quarter, and 140,000 or 6 percent on a year-over-year basis.

As expected, the medical care ratio for the Ovations businesses in total increased year-over-year in the fourth quarter and for full year 2008 due to margin pressures affecting Special Needs Plans, Medicare Part D prescription drug plans and Medicare Advantage products, where risk-adjusted revenue yields have been lower than originally anticipated.

AmeriChoice full year revenues of $6.0 billion increased $1.5 billion or 34 percent in 2008, driven by increased membership from organic growth and geographic expansion via acquisition. Fourth quarter revenues increased $515 million or 43 percent year-over-year to $1.7 billion.

The Company serves 2.5 million people in state-based public market programs, an increase of 805,000 people in 2008. Medicaid membership grew organically by 425,000 people or 25 percent year-over-year, including growth of 175,000 people in the fourth quarter. Growth highlights in 2008 include the states of Florida, Tennessee, Arizona, and Connecticut, and the District of Columbia, awarding or renewing significant multi-year contracts with AmeriChoice for services commencing in 2008 and 2009.

Third quarter 2008 revenues for Health Care Services increased $1.2 billion or 7 percent year-over-year to $18.8 billion. The revenue increase was driven by premium increases, strategic acquisitions and an increase in customers served in the public and senior market sectors, partially offset by a decline in consumers served through commercial risk-based products.

Third quarter Health Care Services earnings from operations were $1.3 billion. Year-over-year reductions in commercial margins and risk-based enrollment, and margin pressures on certain senior market offerings negatively impacted current year profitability.

Third quarter revenues of $10.5 billion for UnitedHealthcare increased $389 million or 4 percent year-over-year.

UnitedHealthcare third quarter membership was broadly stable with second quarter 2008. As of September 30, 2008, UnitedHealthcare served 5,000 more consumers through risk-based offerings and 25,000 fewer consumers through fee-based products than at the end of the second quarter. UnitedHealthcare membership has increased by a net total of 945,000 people in 2008.

The traditional UnitedHealthcare medical care ratio was 83.0 percent in the third quarter of 2008 and in line with Company expectations. This ratio increased 140 basis points from 81.6 percent in third quarter 2007, due principally to premium yield increases advancing more slowly than medical cost trends.

Ovations revenues were $6.7 billion in the third quarter, up $328 million or 5 percent year-over-year.

In Medicare Advantage programs, Ovations reported third quarter growth of 25,000 people and a year-to-date increase of 110,000 people. The number of seniors in the Company’s Medicare Advantage products increased by 8 percent year-over-year as of September 30, 2008.

Strong growth in Medicare supplement products has continued, with Ovations increasing the number of seniors served in this product family by 35,000 in the third quarter, 110,000 year-to-date, and 140,000 or 6 percent on a year-over-year basis.

The medical care ratio for the Ovations businesses in total increased year-over-year in the third quarter due to margin pressures affecting Special Needs Plans, Medicare Part D prescription drug plans and Medicare Advantage products, where risk-adjusted revenue yields have been lower than originally anticipated.

AmeriChoice third quarter revenues of $1.65 billion increased $495 million or 43 percent year-over-year.

The Company serves 2.3 million people across 22 state Medicaid markets, an increase of 630,000 people year-to-date. On a same-market basis, membership increased 85,000 people in the third quarter, 250,000 people year-to-date, and 260,000 people or 15 percent year-over-year.

As previously disclosed, during the second and third quarters of 2008 the states of Florida, Tennessee, Arizona, and Connecticut, and the District of Columbia, awarded or renewed significant multi-year contracts with AmeriChoice for services commencing in 2008 or 2009.

Revenues for Health Care Services grew $977 million or 5 percent year-over-year in the second quarter of 2008. The increase was driven by premium increases and an increase in customers served in the public and senior market sectors, partially offset by a decline in consumers served through commercial risk-based products.

Second quarter Health Care Services earnings from operations of $1.14 billion decreased $604 million or 35 percent year-over-year. Pressure on commercial risk-based enrollment and margins, and on margins in certain senior market offerings, significantly impacted profitability in the second quarter of 2008.

Second quarter revenues of $10.5 billion for UnitedHealthcare, including national accounts business, increased $427 million or 4 percent year-over-year.

UnitedHealthcare added 965,000 commercial health benefit consumers in the first half of 2008, with increases from acquisitions partially offset by an organic decrease of 660,000 people served, principally in risk-based programs. Second quarter membership decreased less than 0.5 percent, primarily due to a decrease of 95,000 people in risk-based products.

UnitedHealthcare continued its leadership position in consumer-driven products, adding nearly 0.5 million people year-over-year at June 30, 2008.

The traditional UnitedHealthcare second quarter 2008 medical care ratio, which excludes large national accounts, increased to 82.9 percent from 82.0 percent in second quarter 2007, due principally to lower than expected premium yields. Management continues to estimate the full year 2008 UnitedHealthcare medical care ratio, excluding national accounts, to be in the range of 83.3 percent, plus or minus 50 basis points, compared to a full year ratio of 82.1 percent in 2007.

Ovations revenues were $7.1 billion in the second quarter, up $270 million or 4 percent year-over-year.

The Ovations Medicare Advantage programs reported a year-to-date increase of 85,000 people, through organic growth of approximately 55,000 people and the acquisition of Sierra Health Services, Inc.’s (Sierra) seniors business, partially offset by a regional divestiture. As of June 30, 2008, the number of seniors in the Company’s Medicare Advantage products increased by a total of 105,000 people or 8 percent year-over-year.

Participation in Ovations standardized Medicare supplement products increased by 145,000 people year-over-year and 25,000 people sequentially in the second quarter of 2008.

The medical care ratio for the Ovations businesses in total increased year-over-year in the second quarter. This increase was due to margin pressures affecting Special Needs Plans and Medicare Part D prescription drug plans, particularly in the lower income, government-subsidized population, and SecureHorizons Medicare Advantage products, where risk-adjusted revenue yields have been lower than anticipated. The Company established an approximate $50 million premium deficiency reserve in the second quarter of 2008 to address anticipated operating losses on chronic care Special Needs Plans for the balance of 2008.

AmeriChoice second quarter revenues of $1.4 billion increased $280 million or 25 percent year-over-year.

The Company brought services to an additional 375,000 people in the second quarter of 2008 and 555,000 people year-over-year in the state Medicaid market, including the acquisitions of Unison in the second quarter and Sierra in the first quarter of 2008, respectively. On an organic basis, second quarter 2008 membership increased 10 percent year-over-year.

During and subsequent to the second quarter, the states of Florida, Tennessee, Arizona, and Connecticut, and the District of Columbia, awarded or renewed significant multi-year contracts with AmeriChoice for services commencing in 2008 or 2009.

Revenues for Health Care Services grew $961 million or 5 percent year-over-year and $1.4 billion or 8 percent sequentially to $19.0 billion in the first quarter of 2008. Revenue increases were driven by growth in customers served in the Public and Senior Markets Group and premium increases to cover medical cost inflation, partially offset by an organic decline in consumers served through commercial risk-based products.

First quarter Health Care Services earnings from operations of $1.4 billion decreased $87 million or 6 percent year-over-year. Influenza costs that were $80 million above normal levels and a decline in commercial risk-based business impacted year-over-year profitability.

Ovations revenues were $7.5 billion in the first quarter, up $424 million or 6 percent year-over-year and $1.2 billion or 19 percent from the fourth quarter of 2007.

Participation in Ovations standardized Medicare supplement products increased by 50,000 people in the first quarter of 2008.

The Ovations Medicare Advantage programs reported a year-to-date increase through April 1, 2008 of 110,000 people, through organic growth of 50,000 people and the acquisition of Sierra’s seniors business. As of March 31, 2008, the number of customers served with these products increased by 115,000 or 9 percent year-over-year. The 2008 enrollment period gross sales of Medicare Advantage HMO, Private-Fee-For-Service and Special Needs Plans were up 52 percent year-over-year, with net growth in total slightly lower than projected. There was strong net growth in Special Needs Plans, which serve seniors with chronic health conditions. The Company expects to continue to grow Special Needs Plans over the balance of the year within a slightly lowered overall 2008 Medicare Advantage organic growth outlook of 100,000 to 125,000 seniors in total.

New Special Needs Plans members often have not received coordinated medical care services in the past, and generally require 12 to 18 months of engagement with the Company’s clinical management programs before Evercare reaches a typical margin level. While the Ovations medical care ratio for its core SecureHorizons HMO and Private-Fee-For-Service Medicare Advantage business improved slightly in the first quarter and is projected to remain broadly stable in 2008, compared to 2007, the growth in Special Needs Plans, together with cost pressures in low income Part D membership, is projected to impact the consolidated Ovations medical care ratio over the course of 2008.

The Ovations Evercare business added 70,000 people under a Texas fee-based Medicaid benefit program during the first quarter of 2008, and was awarded a three-year contract to provide risk-based care coordination services for an estimated 15,000 people in the state of Hawaii’s QUEST Expanded Access Program for the Aged, Blind and Disabled. This contract is expected to commence in late 2008.

The Ovations Part D business served 5.5 million seniors as of March 31, 2008, a decrease of 390,000 people or 7 percent year-over-year. This decrease reflects the previously announced re-assignment of approximately 650,000 dual-eligible low income beneficiaries from Ovations to other plans by CMS, based solely on annual price bids, offset by organic growth in Part D and Medicare Advantage products, and the acquisition of Sierra.

AmeriChoice first quarter revenues of $1.2 billion increased $226 million or 23 percent year-over-year.

AmeriChoice membership grew by 100,000 people or 6 percent in the first quarter of 2008, and 310,000 people or 21 percent year-over-year, including 60,000 from Sierra for both periods.

First quarter revenues of $10.4 billion for the Commercial Markets Group (UnitedHealthcare and Uniprise) increased $311 million or 3 percent year-over-year and $259 million or 3 percent sequentially.

UnitedHealthcare, together with Uniprise, added 1,065,000 commercial health benefit consumers served in the first quarter, with increases from acquisitions partially offset by organic decreases of 30,000 people in fee-based arrangements and 530,000 in risk-based programs. The decline in risk-based business included a loss of 250,000 people from the PacifiCare businesses and conversion of approximately 70,000 people from risk-based to fee-based benefit plans.

The Commercial Markets Group continued to expand its leadership position in consumer-driven products, adding 545,000 people year-over-year and surpassing 2.7 million. In the first quarter these offerings experienced record quarterly growth of more than 400,000 consumers.

The Company believes the stronger than anticipated decline in commercial risk business is in response to stronger net premium yields than the Company achieved in 2007 and 2006. Despite the premium yields achieved in 2008, the Company’s premium yield is 30 to 40 basis points below expected medical cost trends. The greater than anticipated first quarter market response to premium pricing actions has caused the Company to lower its commercial risk growth outlook for the balance of the year.

UnitedHealthcare’s first quarter 2008 medical care ratio of 81.5 percent compares to 81.2 percent and 83.7 percent in the first quarter and fourth quarter of 2007, respectively. Medical costs related to the unusually high incidence of influenza contributed approximately 40 basis points to this ratio in first quarter 2008. Management estimates the full year 2008 UnitedHealthcare commercial medical care ratio to be in the range of 82.3 percent, plus or minus 50 basis points, compared to a full year ratio of 82.1 percent in 2007.

Full year Health Care Services revenues increased $3.4 billion or 5 percent to $71.2 billion, led by the $1.8 billion advance in Ovations revenues. Revenues grew $442 million or 3 percent year-over-year and decreased $31 million sequentially to $17.6 billion in the fourth quarter of 2007. The decrease was primarily due to the timing of Part D revenue recognition and routine product and membership reconciliations with the Centers for Medicare and Medicaid Services, offset by business growth at AmeriChoice.

Full year Health Care Services earnings from operations grew $735 million or 13 percent over 2006 results due largely to the strong performance of public and senior markets businesses. Fourth quarter Health Care Services earnings from operations of $1.6 billion decreased $50 million or 3 percent year-over-year and $187 million or 10 percent from third quarter of 2007. These decreases reflect a seasonally higher fourth quarter medical care ratio at UnitedHealthcare and increased market launch, advertising and enrollment costs for Ovations.

Health Care Services full year operating margin of 9.3 percent expanded 70 basis points year-over-year and decreased 50 basis points year-over-year and 110 basis points sequentially to 9.1 percent in the fourth quarter of 2007.

Full year Ovations revenues of $26.5 billion increased more than $1.8 billion or 7 percent over 2006 results, with revenue advances in its AARP Medicare supplement, SecureHorizons Medicare Advantage, Evercare chronic and elderly, and Part D businesses. Ovations reported revenues of $6.3 billion in the fourth quarter, up $109 million or 2 percent year-over-year. Revenues decreased $87 million or 1 percent from the third quarter of 2007 due to the timing of Part D revenue recognition and routine product and membership reconciliations with the Centers for Medicare and Medicaid Services

Ovations saw strong membership growth in its active Medicare supplement products in 2007, with its membership growing by 125,000 seniors or 5 percent for the full year, including 30,000 seniors or 1 percent growth in the fourth quarter. Participation in Medicare Advantage offerings was stable in the fourth quarter and decreased by 75,000 people or 5 percent in 2007, principally in Private Fee-for-Service products.

On October 1, 2007, Ovations launched nationwide marketing for its Medicare products for 2008. New developments include a significant expansion of chronic care Special Needs Plan offerings from seven states to 34 states; new Part D drug benefits, including zero copay generic prescriptions filled by mail order; and targeted geographic expansions for Medicare Advantage programs. Importantly, Ovations network-based SecureHorizons Medicare Advantage programs are now exclusively offered on a co-branded basis with AARP for the first time. Ovations estimates it will add 125,000 to 175,000 seniors in its Medicare Advantage product lines in 2008.

Full year AmeriChoice revenues of $4.5 billion increased $750 million or 20 percent year-over-year, driven by strong organic growth in people served and moderate increases in premium yields on a same-state basis. AmeriChoice fourth quarter revenues of $1.2 billion increased $227 million or 24 percent year-over-year and $35 million or 3 percent from the third quarter of 2007.

AmeriChoice expanded its services to an additional 245,000 people in 2007, representing a 17 percent increase year-over-year, including 10,000 people in the fourth quarter. Growth highlights include the successful initiation of services to residents of central Tennessee covered by the TennCare program, expansion in Texas, and new services in Indiana that became available on January 1, 2008.

UnitedHealthcare and Uniprise combined full year revenues of $40.3 billion increased by $821 million or 2 percent year-over-year as yield increases more than offset a modest reduction in people served. Fourth quarter revenues increased $106 million or 1 percent year-over-year and grew $21 million sequentially.

UnitedHealthcare and Uniprise had a combined decrease of 175,000 people served, or about 0.7 percent, across all products in 2007, including more than 300,000 people related to the continued repositioning of the PacifiCare acquisition, which will continue through the first half of 2008. The full year results include a decrease of 50,000 people in the fourth quarter, as growth of 25,000 consumers in fee-based products was offset by a reduction in risk-based membership of 75,000 people.

In 2007 Uniprise and UnitedHealthcare advanced their leadership position in the consumer-directed health benefit product market. These businesses served a total of 2.3 million people through their consumer-directed offerings at December 31, 2007, representing organic growth of 425,000 consumers or 22 percent year-over-year. More than 9 percent of commercial membership is in one of these plans, with penetration reaching 12 percent for both Uniprise large group and UnitedHealthcare small business customers. This strong growth has been spurred by UnitedHealth Group’s investment in tools and resources that engage and support consumers in information gathering and decision-making, as well as the ability to offer seamless linkages to health financial services through OptumHealth.

The full year UnitedHealthcare medical care ratio of 82.1 percent increased 230 basis points in 2007. As previously disclosed, this ratio reflects an unfavorable variance in reserve development between years and a shortfall in realized premium yield. The Company anticipates this medical care ratio will be stable in 2008.

UnitedHealthcare’s fourth quarter 2007 medical care ratio of 83.7 percent compares to a ratio of 81.6 percent in the third quarter of 2007. The sequential increase reflects higher seasonal utilization of health care services in the fourth quarter, as anticipated, as well as an accrual that reduced premium revenues in the quarter, due to one state’s recently issued regulatory determinations on prior year underwriting performance.

Revenues for Health Care Services grew $570 million or 4 percent year-over-year and decreased $359 million or 2 percent sequentially to $16.7 billion in the third quarter of 2007. The decrease was due to an approximately $600 million sequential reduction related to the timing of Part D prescription drug plan revenue and Medicare risk adjustment factor revenue for Ovations, partially offset by organic business growth in health care services.

Third quarter Health Care Services earnings from operations of more than $1.6 billion grew $268 million or 19 percent year-over-year, led by advances in operating earnings in the Ovations and AmeriChoice businesses, and increased $30 million or 2 percent sequentially.

Health Care Services’ operating margin improved 140 basis points year-over-year and 40 basis points sequentially to 9.9 percent in the third quarter of 2007.

Ovations reported revenues of $6.6 billion in the third quarter, up $196 million or 3 percent year-over-year. Revenues decreased $409 million or 6 percent from the second quarter of 2007 due to an approximately $600 million sequential reduction related to the timing of Part D and Medicare risk adjustment revenue.

Ovations saw strong membership growth across its active Medicare products, with its Medicare membership growing by 95,000 seniors in the third quarter, including an increase of 20,000 seniors in its Medicare Advantage plans.

On October 1, 2007, Ovations launched marketing efforts nationwide for its Medicare products for 2008. New developments include zero copay generic prescriptions filled by mail order, a significant expansion of chronic care special needs plan offerings from seven states to 34 states, and targeted geographic expansions for Medicare Advantage programs. Importantly, Ovations network-based SecureHorizons Medicare Advantage programs are now exclusively offered on a co-branded basis with AARP for the first time.

AmeriChoice third quarter revenues of $1.2 billion increased $205 million or 22 percent year-over-year and $27 million or 2 percent from the second quarter of 2007.

AmeriChoice membership, which was stable in the third quarter of 2007, expanded by 245,000 people or 17 percent year-over-year.

Third quarter revenues of $9 billion for UnitedHealthcare increased $169 million or 2 percent year-over-year and were up $23 million sequentially.

The number of people served by UnitedHealthcare decreased by 60,000 in the third quarter of 2007, as growth of 80,000 consumers in fee-based products was offset by a reduction in risk-based membership of 140,000 consumers.

The state of Georgia has expanded UnitedHealthcare’s pharmacy benefit management offering for state health benefit plan participants to include approximately 300,000 fee-based preferred provider organization (PPO) members, effective January 1, 2008.

In the third quarter, UnitedHealthcare began the introduction of its Edge product line, which informs and motivates consumers to use physicians and hospitals with strong demonstrated quality and efficiency performance. This innovative family of product offerings will improve affordability for customers and enable UnitedHealthcare to address a broader spectrum of price points in the full-benefit, employer-sponsored segment of the market.

UnitedHealthcare also launched its Vital Measures product line, which uses benefit design to reward healthy behaviors among consumers.

UnitedHealthcare’s third quarter 2007 medical care ratio of 81.6 percent compares to a ratio of 82.0 percent in the second quarter of 2007. The sequential reduction reflects lower seasonal utilization of health care services in the third quarter, as anticipated.

Revenues for Health Care Services grew $920 million or 6 percent year-over-year and decreased $113 million or 1 percent sequentially to $17 billion in the second quarter of 2007. The sequential decrease in revenue related exclusively to the timing of Part D Medicare prescription drug plan revenue recognition under GAAP. Total Part D consumer participation increased by 25,000 people in the quarter.

Second quarter Health Care Services earnings from operations of $1.6 billion increased $340 million or 28 percent year-over-year, led by a strong advance in operating earnings in the Ovations business. A number of factors contributed to this advance, including a balanced approach to benefit designs in Medicare Advantage and Part D prescription drug plans, resolution of certain matters pertaining to Medicare population risk status and eligibility, enhanced care facilitation and resultant favorable medical cost trends across Ovations risk-based businesses, and the continued disciplined management of marketing, distribution and operating costs.

Health Care Services’ operating margin improved 160 basis points year-over-year and sequentially to 9.2 percent in the second quarter of 2007.

Ovations reported revenues of $6.9 billion in the second quarter, up $533 million or 8 percent year-over-year and down $312 million or 4 percent from the first quarter of 2007.

Senior membership in Ovations SecureHorizons Medicare Advantage offerings increased by 10,000 people in the second quarter, and stood at 1.3 million people at June 30, 2007.

AmeriChoice second quarter revenues of $1.1 billion increased $230 million or 26 percent year-over-year and $150 million or 15 percent from the first quarter of 2007.

AmeriChoice membership grew by 205,000 people in the second quarter of 2007, and expanded by 290,000 members year-over-year, including the successful launch of services to approximately 175,000 new members in central Tennessee in April 2007.

Second quarter revenues of $8.9 billion for UnitedHealthcare increased $157 million or 2 percent year-over-year and were up $49 million sequentially.

The number of people served by UnitedHealthcare decreased by 10,000 people in the second quarter of 2007, as fee-based growth of 25,000 people was offset by a reduction in risk-based membership of 35,000 people.

UnitedHealthcare’s second quarter 2007 medical care ratio of 81.8 percent compares to a ratio of 81.2 percent in the first quarter of 2007.

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With a medical care ratio of 81.5 percent for the first six months of 2007, UnitedHealthcare has increased its outlook for the 2007 full year medical care ratio to a range of 81.5 percent to 82 percent. UnitedHealthcare does not believe this increase reflects a change in underlying year-to-date cost trends and affirms its estimated medical cost trend for 2007 in the range of 7 ¹/2 percent plus or minus 50 basis points.

Factors affecting the projected increase in the medical care ratio for the commercial risk business include:

The UnitedHealthcare business had very modest positive prior year development in the second quarter of 2007, but reserve development remains negative on a year-to-date basis this year. In contrast, prior year reserve development was strongly positive in full year 2006.

Projected annual net premium yields are expected to come in at slightly lower levels than anticipated for the year, reflecting comparatively higher levels of new business, higher benefit buydowns and continuing pressure on renewal business yields.

A greater proportion of business is in comparatively larger group sizes, which typically have relatively higher medical care ratios and lower administrative costs than smaller groups.

Revenues for Health Care Services grew $1.3 billion or 8 percent year-over-year and $0.9 billion or 5 percent sequentially to $17.1 billion in the first quarter of 2007.

First quarter Health Care Services earnings from operations of $1.3 billion increased $243 million or 23 percent year-over-year, led by a strong advance in operating earnings in the Ovations business. Factors contributing to this advance include an increase in mail-order drug sales, appropriate benefit designs in Medicare Advantage plans, enhanced care facilitation and better-than-expected medical cost trends, and disciplined operating cost management, including marketing, distribution and other operational costs.

Health Care Services’ operating margin improved 90 basis points year-over-year to 7.6 percent in the first quarter of 2007.

Ovations reported revenues of $7.2 billion in the first quarter, up $1.0 billion or 16 percent year-over-year and $0.9 billion or 14 percent from the fourth quarter of 2006.

The Ovations Part D business served a total of 5.9 million seniors as of March 31, 2007, representing growth of 1.4 million people or 30 percent year-over-year, and an increase of 125,000 people or 2 percent from December 31, 2006.

As previously disclosed, the Ovations Medicare Advantage programs reported a first quarter net decline of 100,000 people, principally in Private-Fee-For-Service offerings. Ovations has taken steps to strengthen marketing, distribution and overall executive leadership in Medicare Advantage, and anticipates improving growth results from this business line. Ovations Medicare Advantage plans grew by 15,000 seniors on a year-over-year basis.

The Ovations Evercare business, including Special Needs Plans and a spectrum of offerings for the frail elderly, reported first quarter revenues in excess of $500 million, up 35 percent year-over-year.

AmeriChoice first quarter revenues of $978 million increased $88 million or 10 percent year-over-year and $15 million or 2 percent from the fourth quarter of 2006.

AmeriChoice membership grew by 20,000 people in the first quarter of 2007, and expanded by 100,000 members year-over-year. On April 1, 2007, AmeriChoice initiated services to approximately 175,000 new members in central Tennessee.

First quarter revenues of $8.9 billion for UnitedHealthcare increased $203 million or 2 percent year-over-year and were flat sequentially.

UnitedHealthcare, together with Uniprise, increased the number of commercial health benefit consumers served by 45,000 people in the first quarter. First quarter gains in fee-based business of 285,000 people were offset by a 240,000-person reduction in risk-based subscribers, composed of a reduction of 145,000 members due to targeted re-positioning actions at the acquired PacifiCare businesses, the conversion of approximately 140,000 people from risk-based to fee-based benefit plans sponsored by UnitedHealth Group and growth of 45,000 people in risk-based products.

UnitedHealthcare’s first quarter 2007 medical care ratio of 81.2 percent compares to ratios of 79.4 percent and 80.4 percent in the first quarter and fourth quarter of 2006, respectively. The increases relate almost exclusively to changes in medical cost reserves (and related underlying medical cost items). First quarter 2006 included $90 million in favorable development of 2005 cost estimates. First quarter 2007 includes unfavorable reserve development of approximately $100 million related to the fourth quarter of 2006, composed of approximately $30 million in unusual, nonrecurring items and $70 million related to items that recur on a full year, annualized basis, such as increased fourth quarter benefit usage in high deductible policies. Reflecting the recurring costs, UnitedHealthcare continues to affirm its estimated cost trend for 2007 within the range of 7.5 percent plus or minus 50 basis points and continues its policy of appropriately balanced price increases.

Based on these items, UnitedHealthcare has increased its outlook for the 2007 full year medical care ratio by 80 basis points over 2006 full year results as follows:

The full year 2006 medical care ratio was 79.8 percent.

The impact of foregone favorable development as compared to first quarter 2006 was approximately 30 basis points on a full year basis.

The impact of unfavorable development in the first quarter of 2007 was approximately 30 basis points on a full year basis.

The sustained increase in utilization on certain products is approximately 20 basis points on a full year basis.

Therefore, UnitedHealthcare estimates its full year 2007 medical care ratio to be in the range of 80.5 percent, plus or minus 50 basis points.