The following table illustrates the sensitivity of these factors and the estimated potential impact on our medicalcosts payable estimates for the most recent two months as of December 31, 2020:Medical Cost PMPM Quarterly TrendIncrease (Decrease) in FactorsIncrease (Decrease)In Medical Costs Payable(in millions)3% .................................................................... $7932 ......................................................................5291 ......................................................................264(1).....................................................................(264)(2).....................................................................(529)(3).....................................................................(793)The completion factors and medical costs PMPM trend factors analyses above include outcomes consideredreasonably likely based on our historical experience estimating liabilities for incurred but not reported benefitclaims.Management believes the amount of medical costs payable is reasonable and adequate to cover our liability forunpaid claims as of December 31, 2020; however, actual claim payments may differ from established estimatesas discussed above. Assuming a hypothetical 1% difference between our December 31, 2020 estimates ofmedical costs payable and actual medical costs payable, excluding AARP Medicare Supplement Insurance andany potential offsetting impact from premium rebates, 2020 net earnings would have increased or decreased byapproximately $157 million.For more detail related to our medical cost estimates, see Note 2 of the Notes to the Consolidated FinancialStatements included in Part II, Item 8, “Financial Statements.”GoodwillWe evaluate goodwill for impairment annually or more frequently when an event occurs or circumstances changeindicating the carrying value may not be recoverable. When testing goodwill for impairment, we may first assessqualitative factors to determine if it is more likely than not the carrying value of a reporting unit exceeds itsestimated fair value. During a qualitative analysis, we consider the impact of changes, if any, to the followingfactors: macroeconomic, industry and market factors, cost factors, changes in overall financial performance, andany other relevant events and uncertainties impacting a reporting unit. If our qualitative assessment indicates agoodwill impairment is more likely than not, we perform additional quantitative analyses. We may also elect toskip the qualitative testing and proceed directly to the quantitative testing. For reporting units where aquantitative analysis is performed, we perform a test measuring the fair values of the reporting units andcomparing them to their aggregate carrying values, including goodwill. If the fair value is less than the carryingvalue of the reporting unit, an impairment is recognized for the difference, up to the carrying amount of goodwill.We estimate the fair values of our reporting units using a discounted cash flow method or a weightedcombination of discounted cash flows and a market-based method. The discounted cash flow method includesassumptions about a wide variety of internal and external factors. Significant assumptions used in the discountedcash flow method include financial projections of free cash flow, including revenue trends, medical costs trends,operating productivity, income taxes and capital levels; long-term growth rates for determining terminal valuebeyond the discretely forecasted periods; and discount rates. Financial projections and long-term growth ratesused for our reporting units are consistent with, and use inputs from, our internal long-term business plan andstrategies. Discount rates are determined for each reporting unit and include consideration of the implied riskinherent in their forecasts. Our most significant estimate in the discount rate determinations involves ouradjustments to the peer company weighted average costs of capital reflecting reporting unit-specific factors.45
We have not made any adjustments to decrease a discount rate below the calculated peer company weightedaverage cost of capital for any reporting unit. Company-specific adjustments to discount rates are subjective andthus are difficult to measure with certainty. The passage of time and the availability of additional informationregarding areas of uncertainty with respect to the reporting units’ operations could cause these assumptions tochange in the future. Additionally, as part of our quantitative impairment testing, we perform various sensitivityanalyses on certain key assumptions, such as discount rates, cash flow projections and peer company multiples toanalyze the potential for a material impact. The market-based method requires determination of appropriate peergroup whose securities are traded on an active market. The peer group is used to derive market multiples toestimate fair value. As of October 1, 2020, we completed our annual impairment tests for goodwill with all of ourreporting units having fair values substantially in excess of their carrying values.LEGAL MATTERSA description of our legal proceedings is presented in Note 12 of Notes to the Consolidated Financial Statementsincluded in Part II, Item 8, “Financial Statements.”CONCENTRATIONS OF CREDIT RISKInvestments in financial instruments such as marketable securities and accounts receivable may subject us toconcentrations of credit risk. Our investments in marketable securities are managed under an investment policyauthorized by our Board of Directors. This policy limits the amounts which may be invested in any one issuerand generally limits our investments to U.S. government and agency securities, state and municipal securities andcorporate debt obligations of investment grade. Concentrations of credit risk with respect to accounts receivableare limited due to the large number of employer groups and other customers constituting our client base. As ofDecember 31, 2020, there were no significant concentrations of credit risk.ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKOur primary market risks are exposures to changes in interest rates impacting our investment income and interestexpense and the fair value of certain of our fixed-rate investments and debt, as well as foreign currency exchangerate risk of the U.S. dollar primarily to the Brazilian real and Chilean peso.As of December 31, 2020, we had $20 billion of financial assets on which the interest rates received vary withmarket interest rates, which may significantly impact our investment income. Also as of December 31, 2020,$8 billion of our financial liabilities, which include commercial paper, debt and deposit liabilities, were at interestrates which vary with market rates, either directly or through the use of related interest rate swap contracts.The fair value of our fixed-rate investments and debt also varies with market interest rates. As of December 31,2020, $37 billion of our investments were fixed-rate debt securities and $45 billion of our debt was non-swappedfixed-rate term debt. An increase in market interest rates decreases the market value of fixed-rate investmentsand fixed-rate debt. Conversely, a decrease in market interest rates increases the market value of fixed-rateinvestments and fixed-rate debt.We manage exposure to market interest rates by diversifying investments across different fixed-income marketsectors and debt across maturities, as well as by matching a portion of our floating-rate assets and liabilities,either directly or through the use of interest rate swap contracts. Unrealized gains and losses on investments inavailable-for-sale debt securities are reported in comprehensive income.46
The following tables summarize the impact of hypothetical changes in market interest rates across the entire yieldcurve by 1% point or 2% points as of December 31, 2020 and 2019 on our investment income and interestexpense per annum and the fair value of our investments and debt (in millions, except percentages):December 31, 2020Increase (Decrease) in Market Interest RateInvestmentIncome PerAnnumInterestExpense PerAnnumFair Value ofFinancial AssetsFair Value ofFinancial Liabilities2% ..................................... $ 401 $163 $(3,020) $(8,700)1 .......................................20182(1,499)(4,744)(1)......................................(75)(12)8205,266(2)......................................(75)(12)8868,101December 31, 2019Increase (Decrease) in Market Interest RateInvestmentIncome PerAnnumInterestExpense PerAnnumFair Value ofFinancial AssetsFair Value ofFinancial Liabilities2% ..................................... $ 282 $185 $(2,668) $(6,813)1 .......................................14193(1,331)(3,704)(1)......................................(141)(93)1,2464,433(2)......................................(282)(185)2,0719,613Note: Given the low absolute level of short-term market rates on our floating-rate assets and liabilities as of December 31, 2020, theassumed hypothetical change in interest rates does not reflect the full 100 and 200 basis point reduction in interest income or interestexpense, as the rates are assumed not to fall below zero. As of December 31, 2020 and 2019, some of our investments had interest ratesbelow 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 foreign currencies, primarily the Brazilian real and the Chileanpeso, to the U.S. dollar in translation of UnitedHealthcare Global’s operating results at the average exchange rateover the accounting period, and UnitedHealthcare Global’s assets and liabilities at the exchange rate at the end ofthe accounting period. The gains or losses resulting from translating foreign assets and liabilities into U.S. dollarsare included in equity and comprehensive income.An appreciation of the U.S. dollar against the Brazilian real or Chilean peso reduces the carrying value of the netassets denominated in those currencies. For example, as of December 31, 2020, a hypothetical 10% and 25%increase in the value of the U.S. dollar against those currencies would have caused a reduction in net assets ofapproximately $535 million and $1.2 billion, respectively. We manage exposure to foreign currency earnings riskprimarily by conducting our international business operations in their functional currencies.As of December 31, 2020, we had $2.3 billion of investments in equity securities, primarily consisting ofinvestments in employee savings plan related investments and non-U.S. dollar fixed-income funds. Valuations innon-U.S. dollar funds are subject to foreign exchange rates.47
ITEM 8. FINANCIAL STATEMENTSPageReport of Independent Registered Public Accounting Firm...................................... 49Consolidated Balance Sheets............................................................. 52Consolidated Statements of Operations..................................................... 53Consolidated Statements of Comprehensive Income........................................... 54Consolidated Statements of Changes in Equity............................................... 55Consolidated Statements of Cash Flows..................................................... 56Notes to the Consolidated Financial Statements............................................... 571. Description of Business......................................................... 572. Basis of Presentation, Use of Estimates and Significant Accounting Policies................ 573. Investments................................................................... 644. Fair Value.................................................................... 665. Property, Equipment and Capitalized Software....................................... 696. Goodwill and Other Intangible Assets.............................................. 697. Medical Costs Payable.......................................................... 718. Short-Term Borrowings and Long-Term Debt........................................ 729. Income Taxes................................................................. 7310. Shareholders’ Equity............................................................ 7511. Share-Based Compensation...................................................... 7612. Commitments and Contingencies.................................................. 7813. Business Combinations.......................................................... 8014. Segment Financial Information.................................................... 8148
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the shareholders and the Board of Directors of UnitedHealth Group Incorporated and Subsidiaries:Opinion on the Financial StatementsWe have audited the accompanying consolidated balance sheets of UnitedHealth Group Incorporated andSubsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements ofoperations, comprehensive income, changes in equity and cash flows for each of the three years in the periodended December 31, 2020, and the related notes (collectively referred to as the “financial statements”). In ouropinion, the financial statements referred to above present fairly, in all material respects, the financial position ofthe Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each ofthe three years in the period ended December 31, 2020, in conformity with accounting principles generallyaccepted in the United States of America.We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board(United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020,based on criteria established inInternal Control—Integrated Framework (2013)issued by the Committee ofSponsoring Organizations of the Treadway Commission, and our report dated March 1, 2021 expressed anunqualified opinion on the Company’s internal control over financial reporting.Basis for OpinionThese financial statements are the responsibility of the Company’s management. Our responsibility is to expressan opinion on the Company’s financial statements based on our audits. We are a public accounting firmregistered with the PCAOB and are required to be independent with respect to the Company in accordance withthe U.S. federal securities laws and applicable rules and regulations of the Securities and Exchange Commissionand the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we planand perform the audits to obtain reasonable assurance about whether the financial statements are free of materialmisstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks ofmaterial misstatement of the financial statements, whether due to error or fraud, and performing procedures thatrespond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts anddisclosures in the financial statements. Our audits also included evaluating the accounting principles used andsignificant estimates made by management, as well as evaluating the overall presentation of the financialstatements. We believe that our audits provide a reasonable basis for our opinion.Critical Audit MattersThe critical audit matters communicated below are matters arising from the current-period audit of the financialstatements that were communicated or required to be communicated to the audit committee and that (1) relate toaccounts or disclosures that are material to the financial statements and (2) involved our especially challenging,subjective, or complex judgments. The communication of critical audit matters does not alter in any way ouropinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit mattersbelow, providing separate opinions on the critical audit matters or on the accounts or disclosures to which theyrelate.Incurred but not Reported (IBNR) Claim Liability—Refer to Notes 2 and 7 to the financial statements.Critical Audit Matter DescriptionMedical costs payable includes estimates of the Company’s obligations for medical care services rendered onbehalf of insured consumers, for which claims have either not yet been received or processed. These estimates49
are referred to as incurred but not reported (IBNR) claim liabilities. The Company develops IBNR estimatesusing an actuarial model that requires management to exercise certain judgments in developing its estimates.Judgments made by management include medical cost per member per month trend factors and completionfactors, which include assumptions over the time from date of service to claim receipt, the impact of claim levels,and processing cycles.We identified the IBNR claim liability as a critical audit matter because of the significant assumptions made bymanagement in estimating the liability. This required complex auditor judgment, and an increased extent ofeffort, including the involvement of actuarial specialists in performing procedures to evaluate the reasonablenessof management’s methods, assumptions and judgments in developing the liability.How the Critical Audit Matter Was Addressed in the AuditOur audit procedures included the following, among others:• We tested the effectiveness of controls over management’s estimate of the IBNR claim liability balance,including controls over the judgments in both the completion factors and the medical cost per member permonth trend factors.• We tested the underlying claims and membership data and other information that served as the basis for theactuarial analysis, to test that the inputs to the actuarial estimate were complete and accurate.• With the assistance of actuarial specialists, we evaluated the reasonableness of the actuarial methods andassumptions used by management to estimate the IBNR claim liability by:• Performing an overlay of the historical claims data used in management’s current year model to thedata used in prior periods to validate that there were no material changes to the claims data tested inprior periods.• Developing an independent estimate of the IBNR claim liability and comparing our estimate tomanagement’s estimate.• Performing a retrospective review comparing management’s prior year estimate of IBNR to claimsprocessed in 2020 with dates of service in 2019 or prior.Goodwill—Refer to Notes 2 and 6 to the financial statements.Critical Audit Matter DescriptionAt December 31, 2020, the Company’s goodwill balance was $71 billion. As discussed in Note 2 of the financialstatements, for reporting units where a quantitative analysis is performed, the Company performs an annualimpairment test measuring the fair values of the reporting units and comparing them to their aggregate carryingvalues including goodwill. The estimates of the reporting unit fair values are calculated using a discounted cashflow method or a weighted combination of discounted cash flows and a market-based method. The discountedcash flow method includes assumptions about revenue trends, medical cost trends, and operating costs as well asdiscount rates. The market-based method requires determination of an appropriate group of peer companieswhose securities are traded on an active market. The fair values of the reporting units exceeded the carryingvalues as of the impairment testing date, therefore no impairment was recognized.We identified a critical audit matter related to the quantitative analysis performed for such reporting unitsbecause of the significant assumptions made by management to estimate the fair value of the reporting unit. Thisrequired increased auditor judgment and extent of effort, including involvement of fair value specialists toevaluate the reasonableness of management’s estimates and assumptions related to peer company selection andfinancial projections, which can be impacted by regulatory and macro-economic factors.50
How the Critical Audit Matter Was Addressed in the AuditOur audit procedures related to the valuation, business, and market assumptions including the discount rate,financial forecasts, and peer group used by management to estimate the fair value of reporting units where aquantitative analysis was performed, included the following, among others:• We tested the effectiveness of controls over management’s annual goodwill impairment assessment,including those over the determination of the fair value such as controls related to management’s financialforecasts, as well as controls over the selection of discount rates, company specific risks, peer companies,and market multiples.• We evaluated management’s ability to forecast and meet future revenue, medical cost trend, and operatingcosts by comparing:• Actual results to historical forecasts.• Forecasted information to: internal communications to management and the Board of Directors,industry and economic trends, and analyst reports of revenue and earnings expectations for theCompany and its peers.• We evaluated the impact of changes in management’s forecasts from the October 1, 2020 annualmeasurement date to December 31, 2020.• We evaluated management’s selection of peer companies and market multiples.• With the assistance of our fair value specialists, we evaluated the reasonableness of the (1) valuationmethodologies, including testing the mathematical accuracy of the calculation, (2) the weighting of suchvaluation methodologies, and (3) discount rate and company specific risks by:• Testing the source information underlying the determination of the discount rate and the mathematicalaccuracy of the calculation.• Developing a range of independent discount rate estimates and comparing to those selected bymanagement./S/ DELOITTE & TOUCHE LLPMinneapolis, MinnesotaMarch 1, 2021We have served as the Company’s auditor since 2002.51
UnitedHealth GroupConsolidated Balance Sheets(in millions, except per share data)December 31,2020December 31,2019AssetsCurrent assets:Cash and cash equivalents.......................................... $16,921 $ 10,985Short-term investments............................................2,8603,260Accounts receivable, net of allowances of $990 and $519.................12,87011,822Other current receivables, net of allowances of $1,047 and $859...........12,5349,640Assets under management..........................................4,0763,076Prepaid expenses and other current assets.............................4,4573,851Total current assets...................................................53,71842,634Long-term investments................................................41,24237,209Property, equipment and capitalized software, net of accumulated depreciation andamortization of $5,230 and $4,995.....................................8,6268,704Goodwill...........................................................71,33765,659Other intangible assets, net of accumulated amortization of $5,455 and $5,072....10,85610,349Other assets.........................................................11,5109,334Total assets......................................................... $197,289 $ 173,889Liabilities, redeemable noncontrolling interests and equityCurrent liabilities:Medical costs payable............................................. $21,872 $ 21,690Accounts payable and accrued liabilities..............................22,49519,005Short-term borrowings and current maturities of long-term debt............4,8193,870Unearned revenues...............................................2,8422,622Other current liabilities............................................20,39214,595Total current liabilities................................................72,42061,782Long-term debt, less current maturities...................................38,64836,808Deferred income taxes.................................................3,3672,993Other liabilities......................................................12,31510,144Total liabilities......................................................126,750111,727Commitments and contingencies (Note 12)Redeemable noncontrolling interests.....................................2,2111,726Equity:Preferred stock, $0.001 par value — 10 shares authorized; no shares issued oroutstanding...................................................——Common stock, $0.01 par value — 3,000 shares authorized; 946 and 948issued and outstanding..........................................109Additional paid-in capital..........................................—7Retained earnings................................................69,29561,178Accumulated other comprehensive loss...............................(3,814)(3,578)Nonredeemable noncontrolling interests..............................2,8372,820Total equity.........................................................68,32860,436Total liabilities, redeemable noncontrolling interests and equity............. $197,289 $ 173,889See Notes to the Consolidated Financial Statements52
UnitedHealth GroupConsolidated Statements of OperationsFor the Years Ended December 31,(in millions, except per share data)202020192018Revenues:Premiums..................................................$201,478 $189,699 $178,087Products...................................................34,14531,59729,601Services...................................................20,01618,97317,183Investment and other income..................................1,5021,8861,376Total revenues..................................................257,141 242,155 226,247Operating costs:Medical costs...............................................159,396 156,440 145,403Operating costs.............................................41,70435,19334,074Cost of products sold.........................................30,74528,11726,998Depreciation and amortization.................................2,8912,7202,428Total operating costs.............................................234,736 222,470 208,903Earnings from operations........................................22,40519,68517,344Interest expense.................................................(1,663) (1,704) (1,400)Earnings before income taxes.....................................20,74217,98115,944Provision for income taxes........................................(4,973) (3,742) (3,562)Net earnings...................................................15,76914,23912,382Earnings attributable to noncontrolling interests.......................(366)(400)(396)Net earnings attributable to UnitedHealth Group commonshareholders................................................. $15,403 $ 13,839 $ 11,986Earnings per share attributable to UnitedHealth Group commonshareholders:Basic..................................................... $16.23 $ 14.55 $ 12.45Diluted.................................................... $16.03 $ 14.33 $ 12.19Basic weighted-average number of common shares outstanding........949951963Dilutive effect of common share equivalents........................121520Diluted weighted-average number of common shares outstanding......961966983Anti-dilutive shares excluded from the calculation of dilutive effect ofcommon share equivalents......................................8106See Notes to the Consolidated Financial Statements53
UnitedHealth GroupConsolidated Statements of Comprehensive IncomeFor the Years Ended December 31,(in millions)202020192018Net earnings......................................................$15,769 $14,239 $12,382Other comprehensive (loss) income:Gross unrealized gains (losses) on investment securities during theperiod..................................................1,0581,212(294)Income tax effect...........................................(253)(279)67Total unrealized gains (losses), net of tax....................805933(227)Gross reclassification adjustment for net realized gains included in netearnings................................................(75)(104)(62)Income tax effect...........................................172414Total reclassification adjustment, net of tax..................(58)(80)(48)Total foreign currency translation losses........................(983)(271) (1,242)Other comprehensive (loss) income................................(236)582 (1,517)Comprehensive income..............................................15,533 14,821 10,865Comprehensive income attributable to noncontrolling interests...............(366)(400)(396)Comprehensive income attributable to UnitedHealth Group commonshareholders....................................................$15,167 $14,421 $10,469See Notes to the Consolidated Financial Statements54