UnitedHealth Group Inc. UNH Q3 FY20 Earnings Call Transcript

Operator: (00:00) Good morning and welcome to the United Health Group Third Quarter 2020 Earnings Conference Call. A question and answer session will follow United Health Group's prepared remarks. As a reminder, this call is being recorded. Here are some important introductory information. This call contains forward looking statements under U.S. Federal Securities laws. These statements are subject to risk and uncertainty that could cause actual results to differ materially from historical experience or present expectations. A description of some of the risks and uncertainties can be found in the reports that we file with the Securities and Exchange Commission, including the cautionary statements included in our current and periodic filings. This call will also reference non-gap amounts. A reconciliation of the non-gap to gap amounts is available on the Financial and Earnings Reports section of the company's Investor Relations page at www.unitedhealthgroup.com. Information presented on this call was contained in the earnings release we issued this morning in our form 8-K dated October 14th, 2020, which may be accessed from the Investor Relations page of the company's website. Operator: (01:11) I will now turn the comments over to the Chief Executive Officer of United Health Group. Mr. David Wichmann, please go ahead, sir. David Wichmann: (01:19) Good morning. Thank you for joining us today. The past nine months have hopefully provided you a window into both the values and capabilities of this organization and how they enable us to serve our customers, patients, care providers, team members and their families, and you, our investors, in a period of unprecedented challenge. I'm fortunate to witness up close the exceptional work of our team every day. An innovative, growing, and highly adaptable enterprise driven by the compassion expertise and restless spirit of our 325,000 people. Over 120,000 of them providing care on the front lines. Our collective experiences over this year have made us an even more deeply committed and energized organization about our potential to help advance the next generation health system. David Wichmann: (02:10) One which is fair, affordable, simpler, and effective. Our team combines the vision with sharp focus on day-to-day execution, delivering strong well-balanced results across the enterprise. Third quarter adjusted earnings were $3.51 per share, with the decline from the year ago quarter reflecting the swift customer and consumer support actions we committed to from the very beginning of the COVID-19 pandemic. Based upon this performance and forward estimate of pandemic impacts, we are updating our full year 2020 adjusted earning's outlook to a range of $16.50 to $16.75 per share. In this, we remain committed to ensuring any financial imbalances arising from the pandemic are addressed proactively and fairly for those we serve. We have done this consistently over this period, even as the ultimate outcomes remain unclear. As the timeliness of relief to our stakeholders is critical. David Wichmann: (03:14) Service, fairness, and performance with a long-term view, this is what you can continue to expect from us. You should also expect this enterprise will apply its innovative spirit to contribute in new and different ways as our capabilities expand and circumstances require. We have partnered on and led clinical trials helping resolve the nation's critical PPE and PCR supply chain issues and enabling more rapid testing at considerable scale, while keeping the health workforce safe. We are supporting state testing operations in California, New Jersey, North Carolina, and Indiana, and contact tracing in New York City. We're supporting the Mayo Clinic's development of convalescent plasma and some of the most promising vaccine and antibody trials. David Wichmann: (04:05) We have helped enabled workforce safety through the development of ProtectWell, a protocol processing technology to enable the safety of the health workforce, as well as the safe opening of businesses, schools, and nursing homes. We're working to assist with employees health coverage transitions through our Get Covered campaign, now being offered by employers to assist people who have lost their jobs. We provided $2 billion in liquidity relief for the health system and our customers and consumers will realize over $3 billion in premium and cost sharing relief, including $1 billion in estimated rebates. We have contributed more than $100 million of financial support and 6 million pounds of meals for community suffering from food insecurity, homelessness, and health disparities. These efforts are possible because we operate a capable set of businesses and capacities that are leading the development of the next generation health system and expanding our opportunities to serve. David Wichmann: (05:10) Today, I'd like to give you a brief sense of this work. Early in the pandemic, we quickly enabled the Optum Physicians and the physicians of United Healthcare's the most vulnerable patients to adapt and expand rapidly to meet the needs of millions of patients for care of chronic and emergent conditions. This included advancing tele-health by creating direct connections between patients and their own physicians, a critical element to highly effective digital health, ensuring adoption will extend well beyond this crisis. So far this year, OptumCare physicians have facilitated 1 million digital clinical visits directly with their patients. We are rapidly developing a proprietary set of distinctive tools and aligning our clinical practices to further develop and amplify this capability. I'm sure you can see how advancing modern tele-health fits into our overall strategy to build high performing systems of care. David Wichmann: (06:11) Our growing therapeutics capacities are positively impacting the management of chronic diseases. With the introduction of Level2, a digital therapy developed to improve the lives of the 30 million people with type two diabetes, we are helping patients move toward remission of the disease. Level2 uniquely measures signals and applies artificial intelligence, engaging people and producing better health outcomes. You can expect more digital therapeutics from us in the coming months and years. David Wichmann: (06:43) Our growing capacities are especially apparent within our OptumCare platform where 53,000 physicians across 1500 local patient centered facilities serve nearly 20 million patients. Over 3.5 million of these in some form of risk arrangements. With 1.3 million Medicare Advantage or duly eligible members under global capitation. OptumCare creates substantial value by building a deeper clinician patient relationship and by leveraging data and artificial intelligence to enable our clinical model to intercept and treat disease early and proactively, leading to better health outcomes, value, and industry leading patient experiences. Our patients are experiencing safer, healthier, more fulfilling lifestyles, spending one third fewer days per year on average in a hospital bed, and 40% fewer days in a skilled nursing facility than patients supported by traditional Medicare fee for service. Moreover, our most advanced care delivery practices deliver this high quality care at upwards of 40% lower costs than the equivalent traditional Medicare benefit, with the value fully reflected in improved benefits and lower costs for seniors, all at world-class NPS scores in the mid 70s. David Wichmann: (08:09) The proven clinical success of Optum Senior Care offerings supports our considerable growth goals for OptumCare and also demonstrates the longer-term potential to greatly benefit consumers and commercial offerings. We have been building this platform for over a decade now and expect it to continue to grow at strong double digit rates for years to come. Another aspect of a modern next generation health system is managing the specialized and costly medications of the future in a way which works for patients, clinicians, employers, and payers. Our OptumRx integrated specialty solution brings a total approach to managing complex conditions across both the medical and pharmacy benefit, where we are able to generate up to $37,000 in annual savings per patient by employing clinically appropriate care at more convenient, lower cost sites. David Wichmann: (09:08) This approach is enabled by Optum's growing footprint of integrated community pharmacies, which will grow by over 60 centers in 2020. The number of patients served with our infusion services will grow at double digit rates. We expect this to be another durable growth trend, given the much safer and clinically equivalent patient experience. We see OptumRx as continuing to transform, to be a leader in pharmacy care services. Put differently, we believe the value for people and the system from pharmacy care services resides in managing personal engagement in health, not just supply chain management. This plays to our strengths and will increasingly contribute to the growth of OptumRx in the years ahead. United Healthcare continues to focus on the very needs of healthcare consumers. In the next generation health system we expect consumer benefits to become increasingly customized to meet these needs as people search for solutions, which are simple, affordable, and help enable quality outcomes. David Wichmann: (10:16) United Healthcare is seeing strong reception to our expanding suite of highly tailored and affordable individual coverages. This year alone the number of people we serve with individual health coverage has grown by 15%. Likewise, in employer sponsored coverage, our growing set of consumer centered, innovative and flexible offerings such as Bind, All Savers, and physician aligned plans, such as Harmony in Southern California are gaining traction. With membership in these offerings having grown over 50% this year. We know many of you are interested in the annual Medicare Advantage enrollment period, which opens tomorrow. The 2021 benefit year will be United Healthcare's largest Medicare Advantage footprint expansion in five years, reaching an additional 3.2 million people and nearly 300 additional counties. We are emphasizing what we know seniors are looking for this year even more than ever. Stability and value. Premiums for most people we serve will be flat or reduced and nearly 2.5 million people will have no premium at all. David Wichmann: (11:25) We continue to innovate our product offerings, with all Medicare Advantage plans, featuring zero co-pay primary care digital health visits and the expansion of our personal support services such as an annual clinical health assessment delivered in a senior's home and for many, the assignment of a dedicated United Health Care Navigator. We expect strong growth in individual MA and when combined with our group Medicare gains, 2021 is shaping up to be another year of market leading growth. We also expect continued growth in Medicaid due to transitions in coverage and net new market gains and are looking forward to a record RFP season, as we seek to serve more people in more geographies. David Wichmann: (12:12) What I've described for you this morning is a sampling of the initiatives we are pursuing today to help lead in the development of the next generation health system. A health system that works better for everyone, those who experienced care, those who provide care, and those who pay for care. Now I'll turn it over to Chief Financial Officer, John Rex. John Rex: (12:32) Thank you, Dave. Broadly speaking, third quarter results continue to be impacted by disruptive care patterns, albeit to a much lesser extent than the second quarter, as many regions of the country stabilized near to more normalized levels. Within the quarter, care deferral impacts were more than offset by the proactive consumer and customer assistance measures we voluntarily undertook earlier this year, as well as COVID-19 care and testing costs and broader economic affects. These factors resulted in a 10% year over year decline in adjusted earnings per share. As we discussed last quarter, the deepest period of care deferral, which occurred in the second quarter, and the timing of daft recognition of our assistance actions built entirely lying up, which makes for a more pronounced adverse impact to earnings in the second half of 2020. The measures we voluntarily undertook mostly impact our benefits' businesses and contribute to United Healthcare's third quarter operating earnings decline from a year ago. John Rex: (13:33) In the quarter we thought total care activity now seeding 95% of seasonal baselines, with certain categories even more closely approaching normal. This compares to an overall measure of about two thirds at the lowest point in the second quarter. Each of the three Optum businesses continue to perform well, while effected in different ways by still recovering care patterns and economic effects. OptumHealth's third quarter earnings increased 12% year over year as fee for service practices and ambulatory surgery activity began to recover. While risk-bearing practices still experienced some modest continual effects from deferral of care. Our SCA ambulatory surgery centers operated at about 95% of seasonal baseline in the third quarter, compared to 55% in the second quarter. Year to date over 1000 new surgeons have performed procedures at SCAs, as they seek a safe, convenient, and efficient clinical partner. New surgeon affiliations for the nine month period rose nearly 25% over the last year. We continue to expand the complexity of procedures performed in these settings. Having added over 40 new service lines, nearly double last year. John Rex: (14:43) Patients increasingly prefer these free standing centers with NPS measured at 92. The durable long-term trends will benefit our growth even more strongly in the future as elective care activity fully normalizes. OptumInsight third quarter earnings increased 24% year over year. While the revenue backlog grew by half a billion dollars in the quarter to nearly $20 billion. Peer services and state government businesses performed strongly. While we continue to see lower activity in the provider facing businesses due to procedural volumes. While still not fully normalized, business development activity has increased from the second quarter's much lower pacing. OptumRx earnings declined 2% year over year in the third quarter at script volumes were impacted by lower care activity and economic factors. First fill scripts, which are correlated to physician visit activity, greatly improved from the second quarter, which was down about 25%. While not yet fully back to prior year levels. Revenues in our standing pharmacy services businesses have grown nearly 30% year to date. John Rex: (15:54) Turning to United healthcare. The third quarter operating results reflect a considerable moderation of the care deferral impact experienced in the second quarter while still not at baseline levels. John Rex: (16:03) -experienced in the second quarter. Well, still not at baseline levels. This was more than offset by our assistance measures, direct COVID-19 care costs, and economic factors. The number of people served in commercial products declined primarily due to employer actions. For us, about 40% of the fee-based decline came from very large employers, primarily in the hospitality, transportation, and energy sectors. John Rex: (16:28) During the third quarter, growth in Medicaid membership accelerated, benefiting from the continued easing of state redetermination requirements. We have not yet seen material Medicaid enrollment activity due to job loss. Historically, these transitions lag loss of health care coverage by about six months. John Rex: (16:45) Our Medicaid business has seen strong year to date organic growth of over 500,000 people. Sales activity in Medicare Advantage has continued to move toward more normalized patterns after seeing some slowing in the second quarter due to the pandemic. Within this, we have seen considerably less plan-switching than typical for existing Medicare Advantage enrollees, while selection of MA over fee for service for people new to Medicare is tracking well. John Rex: (17:13) We continue to deepen our engagement with those seniors most in need, increasing the distribution of remote digital sensor kits to collect and monitor vital health data and address gaps in care generated by the pandemic. Seniors continue to highly value our house calls program, with the number of home visits in the third quarter growing by nearly 30% over the last year. John Rex: (17:36) Our liquidity and financial position remains strong. Third quarter cashflows of 3.1 billion or one times net income reflect the extra federal tax payment in the quarter due to the deferral of payments typically paid in the second quarter. Year to date cashflows from operations are 16.1 billion or 1.2 times net earnings, and our debt to total capital ratio of 39.1% compares to 43.7% in the year ago quarter. John Rex: (18:07) As noted earlier, we have updated our full year adjusted earnings outlook to a range of $16.50 to $16.75 per share. This reflects third quarter performance, while anticipating the fourth quarter will reflect continued customer assistance measures, normalization in care patterns, and rising acuity as a result of missed and deferred treatment. We will continue to work proactively to help people obtain the care they need. Now I'll turn it back to Dave. David Wichmann: (18:36) Thank you, John. With the third quarter earnings report, we have at times provided some early soundings on our growth outlook. Even as the current environment is anything but routine, I'll still try to offer some useful perspective. We approach the future with continued conviction on our long-term 13 to 16% earnings growth objective. David Wichmann: (18:57) Some of the factors giving us confidence include our rapidly expanding care delivery services, now benefiting from over a decade of building and investing in local value-based care systems and extension into market-leading post-acute home and modern behavioral health intervention services, our ability to support seniors across multiple channels and markets with increasingly innovative high value offerings, the way we meet the growing needs of people with highly complex conditions with comprehensive, personalized care, including people across commercial, federal, and state-based programs, the innovative and consumer-responsive products now being offered through the employer and individual market channels, our unmatched ability to support a more interoperable and intelligent health system as a result of significant investments over many years to improve performance, integrating data, analytics, and clinical information to provide essential insights to evidence-based next best care actions, and our restless drive to allocate capital and align with other innovative companies as we lead in the development of the next generation health system in a socially conscious way. David Wichmann: (20:07) These are just a few of the accelerating capabilities which will enable our enterprise to serve more people much more deeply as we look to the years ahead. As to early thoughts on 2021, we expect our underlying business performance to be strong and well-supportive of our long-term growth objectives, including the tailwinds we have highlighted throughout this morning. The pandemic and related economic impacts, of course, remain difficult to predict and, at this distance, likely represent a significant potential headwind. David Wichmann: (20:39) As a result, we envision stepping out initiall with a more conservative all-in 2021 starting point to accommodate these still developing and unknown COVID-related impacts, in particular, the pacing of a return to more normal levels of care services and the condition of the economy. As the environment continues to evolve, we will also continue to evolve our thinking and perspectives. As is our custom, we look forward to providing you further perspectives on all aspects of our business at our investor conference on Tuesday, December 1st, which will be held virtually this year. Thank you for your time today. Operator, can you please open the line for questions? Operator: (21:21) At this time, if you have a question or comment, please press star one on your touch tone phone. You may remove yourself from the queue by pressing the pound key. We will ask that you limit yourself to one question. If you ask multiple questions, we will only be answering the first question so we can respond to everyone in the queue this morning. Thank you. We'll take our first question from AJ Rice with Credit Suisse. Please go ahead. AJ: (21:48) Hi, everybody. Maybe just to pursue a little bit further the comment that Dave just made about thinking about next year, I guess predicting the medical cost trend, you've got a lot of moving parts there, potential further deferrals, potential pent-up demand that could come back, cost of vaccines and therapies that could be there, a number of things in thinking about the cost trend for next year. How are you approaching that? Do you see a competitive environment that's changing as a result of that, just to maybe flush that whole comment about how uncertain the ability to predict the medical cost trend is for next year? David Wichmann: (22:35) Thank you, AJ. A very thoughtful question. Hopefully you took away from the prepared remarks that we're optimistic about the performance of our business, and that's pretty much universal across Optum and United Healthcare. We didn't get into some of the smaller-sized businesses, but we're optimistic in particular about our relative competitive position and the growth prospects for 2021. But as also indicated, we remain deeply respectful of the environment, both the pandemic and related economic consequences. One thing I'd underscore, AJ, which you hit very well, there are a number of moving parts, which are very difficult to predict. You should also know that we're extending our efforts to ensure that our chronic members and patients are getting the care that they need during this unprecedented time. We also still have a strong commitment towards correcting any imbalances that could occur. David Wichmann: (23:33) So at this distance, we do see our underlying business performing strongly and aligned to our long-term growth objectives, which are 13 to 16% per year, offset in part by these pandemic-related effects. So the starting point, as we indicated, in December will likely represent a wider range, given the possible outcomes and the more conservative all-in expectation than normal, that you would normally see from us, given all the elements that you just described. So we're taking that into consideration as we develop our points of view about where our MLR might land, what the variability of that might be. We see, generally speaking, that whole pandemic-related impact as being a headwind for the organization, but don't misread it. We are very bullish on the strong underlying growth performance of our business. Thank you. Next question, please. Operator: (24:43) Okay, [inaudible 00:08:43]. The next question is from Josh Raskin with Nephron Research. Please go ahead. Josh: (24:50) Hi. Thanks and good morning. Just a question about Optum Care, I guess, and you're seeing big growth in the PMPMs there on the consumers served. I just want to better understand the relative performance sort of 3Q year over year versus 2Q. Kind of what's driving that increase in revenue per member? Then if you could also talk about sort of the physician recruiting and how that's going for the last six months. David Wichmann: (25:21) Sure. Josh, great question, and I think you're hitting on one of the strengths of the enterprise, one of the reasons why we're bullish on its growth for next year. Simply said, it would be more markets, more deeply penetrated into those markets, and a higher percentage of them having a risk-bearing arrangement. But Wyatt, you want to talk to more fully? Wyatt: (25:45) Yep, sure. Thanks, Josh, and thank you, Dave. I think, Dave, you captured it well. What we're seeing is as we grow, we not only have increased the number of members we serve to 98 million, but we've increased by 25% the revenue per member. That's being driven in part by the more extensive services that we would offer somebody through a risk-based arrangement in Optum Care versus the lighter touch that you might see through some of the other businesses within Optum itself. We expect that trend to continue and frankly are very excited about double-digit growth in our MA risk life and related fully capitated lives that we serve. The other piece, I'd say, Josh, around your question about physician recruitment is we have seen continued robust interest in both small tuck-in acquisitions, as well as medium and large physician groups who are attracted to both the stability, the physician leadership, and the evidence-based approach that we've embraced in Optum Care. Thank you. David Wichmann: (26:53) Good question, Josh. Thank you. Next question, please. Operator: (26:57) We'll go next to Justin Lake with Wolfe Research. Please go ahead. Justin: (27:03) Thanks. Good morning. I wanted to circle back to the tolerance on 2021. First, from a consensus [inaudible 00:27:11] around 11% range for both your ... Dave, I know you said that the range was going to be wider than average this year. I was wondering if you think consensus will fall within that range at any point. Then can you point us to [Inaudible 00:27:24] the breadth of the business. David Wichmann: (27:25) Hey, Justin. Justin. Justin: (27:26) [crosstalk 00:27:26] specific statements. David Wichmann: (27:28) Justin, Dustin, we're having a hard time hearing you. If you're on a headset, can you pick up a handset? Justin: (27:36) Sure. Is this better? David Wichmann: (27:38) No. Justin: (27:40) No? Okay. Hold on a second. Hold on a second. David Wichmann: (27:43) Okay. Justin: (27:45) Is that better? David Wichmann: (27:47) It is. Thank you. Justin: (27:49) Sorry about that. So what I wanted to do was circle back to the comments you made on 2021. First, [inaudible 00:27:56] earnings growth, I think it appears to look like it's targeting around 11% year over year, so below your 13 to 16. Wondering if you think that your wider than typical guidance still might include that consensus estimate within the range. Then can you point us to the specific businesses where you're seeing the potential impact of the COVID and recession concerns, maybe beyond just the typical commercial membership? Thanks. David Wichmann: (28:28) Sure. John? John Rex: (28:30) Good morning, Justin. John Rex here. Dave pointed out I think we are quite confident in terms of the underlying growth of the organization as we look towards 2021. In a normal year, I would think kind of things like even kind of where that consensus range sets at this point would be kind of in a normal zone that one could expect was an area that we would think about stepping out with. We are very respectful of the fact, however, it's anything but a normal year. We've learned so much every month, I've got to tell you, during this period over the last six months, and in terms of how we operate, how our businesses perform, how we need to respond for the people we serve. So we continue to be in a respectful mode in terms of learning more, understanding the situation better, and realizing there could be significant impact in certain businesses as we think about performance. John Rex: (29:37) So we look at it in the world of excluding kind of this world we operate in today, with kind of COVID-related impacts, a good zone where it sits, but you should expect that we think that there are potential headwinds within there, whether those are economic headwinds, whether those are factors in terms of what we need to do from a customer assistance perspective, and, really, the pacing of direct COVID care and treatment costs. John Rex: (30:09) So perhaps a long-winded way of getting at we are in a mode still of really trying to be responsive to what we're seeing in the environment and evolve our thinking as that environment evolves. Justin, I don't think I picked up your second question. If you could repeat that one, it was just hard to hear. Justin: (30:32) Yeah. What I was asking is specifically around the segments that could be impacted, and most of all, I know COVID is a potential uncertainty. What I've heard in the market is a lot of companies are trying to price for that, adding a little bit to trend. Is that something that you felt like you did for last year and you're just still being conservative, or do you feel like that's something that's tough to do in this environment? Thanks. Dirk: (30:58) I mean, Justin, this is Dirk McMahon. How you doing? What I would say is we're of course going to price to our best estimates of forward trends. That's going to include COVID. But you asked about the economic impact. So as we sat back and we looked at the third quarter, actually, our membership was a little less impacted than we thought it was going to be because of things like the Payroll Protection Program, as well as some furloughs that large employers did. So yes, there will be a little bit of a run-in problem, but less than what we expected. So from a membership standpoint, we're actually fairly optimistic about how we priced. We continue to look at how our block is priced for 1/1, and as we look at that, we're more than competitive. We monitor that every day. David Wichmann: (31:42) Thank you, Justin. Great questions. Next question, please. Operator: (31:45) Going next to Frank Morgan with RBC Capital Markets. Frank: (31:52) Good morning. John mentioned the expectation's already declining in plan switching this year in the MA market. Just curious if you have any color on why you expect that to be the case. Thanks. Frank: (32:03) ... in the MA market, just curious can you make any color on why you expect that to be the case? Thanks. John Rex: (32:05) Just to follow-up, I think one of the things I commented on was actually we are seeing less plan switching to normal actually, and what we're seeing is strong adoption of people new to Medicare coming into Medicare Advantage. Tim, anything to know? Tim Noel: (32:23) Yes, Frank. Thanks. Tim Noel. Good morning. Yes, what John alluded to is that what we have seen in the marketplace is a decline in people that are switching from one MA carrier to the next. However, a lot of strength in what we call the chooser market, which are folks that are newly eligible for Medicare or people that are choosing a Medicare Advantage plan compared to other coverage types throughout the course of the year. So we have seen really good, strong demand in those categories, but the plan switching activity was lighter and in particular, in March and April, it's come back a little bit throughout the course of the year and actually, we have seen some better activity recently. So the dynamic in the marketplace as we head into any enrollment period is one where we're trending back to an environment that's more normal compared to selling season in the past. Frank: (33:21) Okay, thank you. Dave: (33:25) Thank you, Frank. Next question, please. Speaker 1: (33:26) We are next to Ricky Goldwasser with Morgan Stanley. Please go ahead. Ricky Goldwasser: (33:33) Yeah. Hi, good morning. Question on the Medicaid side of the enrollment impact from higher unemployment is coming in lower than you expect. When do you expect the impact to peak? How do you think about the balance of going to Medicaid versus exchanges? And then on the Medicaid side, has the pandemic change how states think about transitioning to higher acuity populations to managed care fee-for-service and what type of visibility do you have for Medicaid rates for next year at this point of time? Dave: (34:10) Pretty much covered the entire landscape, Ricky, well done. We will try to be as responsive as possible on all of that. Tim Spilker is our Chief Executive for Community & State. Tim Spilker: (34:22) Yeah. Hey, thanks for the question, and you are definitely hitting on a lot of the factors that we have been tracking. The first step just in terms of enrollment, and Dirk mentioned this as did John in his opening comments. So far what we have seen just in terms of enrollment gains is really the result of the suspension re-determination through the result of the CARES Act. We really have not yet seen unemployment pull through, and I think that's reflective of some of the dynamics that we're seeing in the commercial market. And that's been supported I think by a lot of external studies as well. So we continue to watch this. I think we would expect that unemployment would pull through at some point, especially as the timeframe between lots of coverage increases. Tim Spilker: (35:04) As for your second question, just around complex populations, yeah, we are actively monitoring states as they explore transitions to managed care. We believe there is a very strong value proposition, especially for complex populations, including those that receive long-term care services and HCBS services. We know based on our experience that managed care can deliver significant value, not just in terms of cost savings, but also in terms of helping individuals remain in their homes, helping people access social services and support, and so we've been working with states and monitoring states activity as they transition. I think we are seeing a very robust RFP pipeline, as Dave mentioned, and we're hopeful that many states include long-term care services in complex populations in those. Tim Spilker: (35:57) And then finally, I think your last question was on funding and rates, and so just on that one, yeah, this is something that we have also been working closely with our state customers on really to ensure that funding is sustainable both now and into 2021, especially considering all of the dynamics in play. States are really taking a rational approach to funding. They are leveraging the appropriate risk management mechanisms, depending on their experience that include risk corridors and MLR structures. They're also benefiting from some of the additional federal funding through the CARES Act. And then of course, just as a reminder, Medicaid funding must be actuarially sound, which our states really do continue to use as a guiding principle. This is certainly an area of focus for us. We have strong relationships with our customers, and we feel good about those conversations thus far. And then maybe just the last thing I would say is sustainable funding and all of this work is really critical as it enables us to invest in programs that really do drive substantial social and health outcomes for our customers as well as for the people that we serve. Dave: (37:10) So, Ricky, I hope that was responsive, at least responsive enough. Thank you for the thorough question. Next question, please. Speaker 1: (37:15) And the next question is from Gary Taylor with J.P. Morgan. Please go ahead. Gary Taylor: (37:21) Hey, good morning. Two part question just in case I strike out on the first one. I was wondering if you could quantify the consumer and customer assistance how that impacted the MLR this quarter? The second part of the question is just thinking about cost trend heading into 2021. I think by the time this year is all said and done, you might end up being on your core commercial group, cost trend down a couple of 100 basis points at least. So when you're thinking about your guidance for '21, are you thinking it could be a normal cost trend on top of that? Are you thinking deferrals would accelerate it could be 200 basis points or more higher than normal? Just interested in your thought process on how you are going to comp what was easier than expected all-in trend for 2020? Dave: (38:21) Well, I'll give you the strike on the first one, because I don't think we're going to quantify customer and consumer assistance in the quarter. The one thing I would tell you is it's extensive. In particular, this is one of the primary quarters where the Medicare business was offering full co-pay waivers on both primary care and specialist visits, And the reason for that, Gary, is that we were deeply concerned and remain deeply concerned that Medicare consumers access their physicians just as quickly as possible, because they are obviously managing chronic disease. And we saw a very nice response to that program, so much so that we are extending elements of it into the fourth quarter, so that's where our customer assistance will continue. Dave: (39:16) In addition to that, we extended some other programs you probably saw that our $1.5 billion of initial estimate went to $2 billion and in part that was because of additional premium waivers and adjustments that we have made that will extend through the balance of this year and modestly into next as well. So that gives you a color for the kind of the volume, the quantity of things that were going on during that timeframe. And with respect to cost trends in 2021, Dirk you want to take? Dirk: (39:51) Yeah. I would say, Gary, this goes back to what Dave said originally. We do consider all of those factors you described. We consider what we expect COVID to do with respect to testing, with respect to treatment, all things that are associated with abatement as well, we make an estimate of that. We are tying to make a forecast of when the vaccines would come available. So all those things are considered as we price our business for next year. I'm not going to get into the exact number of basis points associated with each one of those that's competitive. But I mentioned earlier, we do monitor what's going on in the market, what we see with ongoing trends in all three of those buckets as well as all of the underlying cost, and we make our best estimate as to where we should land to be competitive for a membership growth standpoint as well as earnings standpoint. That's what we do, and we have actuaries and we have management teams that are pretty experienced with that. Dave: (40:45) So thank you for the question, Gary. Next question, please. Speaker 1: (40:47) We're going next to Scott Fidel with Stephens. Please go ahead. Scott Fidel: (40:52) Hi, thanks. Good morning. Just wanted to follow-up on Medicare Advantage for 2021 and the comments that David made around industry leading growth expectations and guess really just a two-part question to this just one, so we do have CMS projecting the at least 10% enrollment growth for individual MA for 2021. So just interested in terms of your commentary in industry leading growth how you take that into context and whether that would support double-digit enrollment growth in individual MA for 2021? And then just secondly, it sounded like the comments around group MA, it sounded pretty bullish in terms of sales. Just interested if you can maybe quantify for us the expected group MA lives that so far you think you have added for 2021? Thanks. Dave: (41:46) Just to clarify, Scott, from at least my standpoint, what I really look at is the number of people served and what our performance will be relative to the market overall, and as it's being consistent over time, United Healthcare Medicare and retirement has outperformed on that metric in particular. What I like about this year in particular is not only the group MA component really coming off of what would be a disappointing year in 2020, meaning the 2021 actual policy year, but also the kind of setup for individual MA and continuation with our newly eligible members in their growth. So that's the essence of the backdrop of the comment that I made. Tim, do you want add anything further? Tim Noel: (42:42) Yes, thanks, Scott. So selling obviously starts tomorrow for individual Medicare Advantage. We have been marketing our products since the beginning of October, receiving really positive feedback from the broker community about how we are positioned. And once again, as you know, our top priority is providing stability and benefit for the members that we serve. And as they go to market, we're happy to have succeeded in providing that for our members and in fact about 75% of our members will experience improving benefits in 2021 compared to 2020. Then, we also made some additional investments and capabilities to support seniors. So given that backdrop, we do feel really good about our positioning to gain share in individual MA, group MA as well as the dual special needs plans to market. We're not going to comment specifically on any point estimate for industry growth, but we really like our positioning from inside of the growth whatever that might be, and today's comments, we're really excited about our group MA growth for 2021. Dave: (43:58) Great. Thank you, Scott. Next question, please. Speaker 1: (44:01) And next, we have Robert Jones with Goldman Sachs. Please go ahead. Robert Jones: (44:06) Great, thanks for the question. I guess maybe just wanted to get your latest thinking on participating in direct contracting next year, obviously, through OptumCare. I was wondering if this would contribute at all to your projections around global cap-wise growth or would that be incremental? And then maybe just relatedly, how are you thinking about direct contracting relative to the opportunity obviously around MA on the UHC side? Thanks. Speaker 1: (44:33) Let's start with UHC. Brian Thompson: (44:37) Sure. Brian Thompson here. As it relates to Medicare Advantage, as you have known from us for a long time, we have had the enterprise perspective of modernizing fee-for-service, but we're certainly encouraged by any activities like this. We participate in things like bundled payment programs, et cetera, and I see direct contracting as a positive to try to modernize the overall fee-for-service system in total and why it obviously is looking at direct contracting to going to OptumCare. John Rex: (45:05) Yes, thanks, BT, and Robert, thanks for the question. We're very encouraged by every effort to move from fee-for-service to value based contracting, so view this as a positive trend. The direct contracting proposals are primarily geared towards smaller groups that are in fee-for-service, and we have been in risk based arrangements for over 10 years. And so while we will embrace this where it's appropriate, we have relationships with over 80 payers, and we will expect to see continued double digit growth of our MA and dual risk lives that we care for, and I don't anticipate that the direct contracting would be a major factor for us. But again, I don't mean to say that in any kind of a negative way, it's a good program, but we will embrace all vehicles to grow. Thank you. Dave: (46:04) Thanks for the question, Robert. Next question, please. Speaker 1: (46:07) We are going next to Sarah James with Piper. Please go ahead. Your line is open. Sarah James: (46:13) Thank you. I was hoping if you could give us some context around corporate tax reform looking back to 2018, you sized the benefit around $2 billion. Wondering where that sits now and if there is a difference between product lines and how we should think about which line benefited on a margin side versus was passed through for pricing changes or other items? John Rex: (46:40) Sarah, good morning. John Rex here. So I think if we go back to the former period that you are discussing in corporate tax reform I think there are a number of things that we commented on during that period, and in terms of impacts. If you recall, during that period, we also commented about investments that we're making, as a result, to build for future growth and how we were investing in the businesses for longer term. So that was an element there clearly. Since that period, a number of years ago now the company is much, much larger, so you would expect the kind of that impact is much smaller from an effective tax rate impact than we would have had back in that time. Among the other elements that you were talking to in corporate tax reform and impacts, I think it's tough, really, to kind of get out ahead of anything in terms of potential impacts, and even how those impact on specific businesses just because we just really don't want to get ahead in any kind of policy that might be out there, so probably would just leave it at that. Thank you. Dave: (48:01) Thank you, Sarah. Next question, please. Speaker 1: (48:03) Next ... Dave: (48:03) Thank you, sir. Next question, please. Moderator: (48:03) Next to David Wigley with Jefferies. Please go ahead. David Wigley: (48:07) Hi. Good morning. Thanks for taking my question. I'm interested in, I appreciate the comments, several percentage of baseline utilization numbers offered in the prepared remarks. I'm curious how that has progressed perhaps through the quarter. For example, by the end of the quarter, were some of those at or above a hundred percent? Are you expecting that to get to above baseline in the fourth quarter and based on your assessments of pent up under utilization and system capacity, how long might you expect that to last? Then just to tag on, the DCP for the first couple of quarters of the year had been pretty consistent year over year, but at the third quarter is down a couple of days, two to three days. I'm wondering how that folds into that view of where utilization is going. Thank you John Rex: (48:59) Morning, David. John Repps. Let me try to get at those. First of all, let me give you a little more color in terms of what we saw in utilization over the course of the quarter and how it fits to what we were seeing last quarter. I spoke to a baseline exceeding 95% across our businesses as we look at the utilization at this point here. To maybe give a little color with context within that and different categories and how those would trend. I point out with, if I look at physician services, that would be below that baseline. I'd put outpatient surgery, right in that zone, that baseline. I put inpatient above that baseline zone. As we look down to various populations and such, maybe a little color commentary in terms of how that trends, so commercial, certainly higher in terms of where we're seeing utilization and where we're seeing against the baseline and government program services, lower. John Rex: (50:04) Within that, I would say within the government programs, I'd say the community state business being the lower elements of those and the way it's trending. One important element here, so you referred to from the commentary we had for our expectations for the fourth quarter, and then so among those were that care that has been deferred, that we are able to help facilitate that are incurs. That's where we're making investments and what we want to see happen here. John Rex: (50:35) The other element that we anticipate as we look towards the end of the year is, we have been anticipating the rising acuity because of deferred and mistreatment and we'd see a higher acuity population. I would tell you, we really haven't seen that yet. Where we see rising acuity on the overall book. it's because of the COVID-19 cases that come in at a higher acuity level. You see a higher acuity on that component, but if you take that component out, we don't really see it across the full scope of the book of our business at this point. To your comment in terms of over the course of the quarter, what we saw, it was an interesting quarter from that perspective because you saw different incident rates in different parts of the country over the course of the quarter. We really monitored that quite closely. You would see, as a particular part of the country, you saw infection rates begin to rise, you would see deferral come into that mix. Given our platform across the entire country, we have a viewpoint into that, but you should see deferral and then you see it come back in. John Rex: (51:46) I think the piece I could place, I would just point out is within that baseline that we're talking about and so I said, exceeding 95%, I put in the zone of five points or so are probably COVID-19 driven in terms of within that mix, and that's inclusive in the baseline we're talking about. David Wigley: (52:06) Then DCP. John Rex: (52:08) DCP, thanks for reminding me. DCP, the decline year over year. That is due to the really could be acceleration in provider payments that we took on earlier in the year. As we really were trying to get liquidity injected into the healthcare system, when we accelerated our payment cycles very, very significantly, and that continues. The reason you wouldn't have seen that in the second quarter is because of the very significant deferral of medical care and the second quarter. It's getting into the math of it, right? You get a denominator here, right, medical cost per day was declining very, very significantly in the second quarter. That more than offset the impact of those payments. As we saw care being restored much closer to normal levels this quarter, then that comes up. Now, you're seeing the impact of that accelerated payment cycle show up in our DCP, but that was the impact. Dave: (53:10) Just [crosstalk 00:53:12] to give you a sense of that, as we indicated in the prepared remarks as well as around a $2 billion advance to the market or acceleration of payments. Thank you, David. Next question, please. Moderator: (53:24) Next is Charles Reed with Callin. Please go ahead. Charles Reed: (53:30) Yeah. Thanks for taking the question. Maybe if I could follow up on that about utilization and then tie it back to your comments around the outlook for 21. If it sounds like inpatient volume is a little bit above normal, other areas are a little bit below and overall, let's say we're getting back to a normal baseline utilization, given that pace that we're on this year and then we think about next year, what is it in your thinking that makes you think that we're going to see a really big uptick in utilization? Charles Reed: (54:04) It sounds like when we go back to the earlier part of the Q and A and your comments, Dave and John, at the end was, next year, you're thinking about a more conservative starting point to think about the 21 outlook. I understand that we'd want to back up some of the one-time items that were positive for this year, but maybe help us understand a little bit, what is your underlying assumptions for utilization? It seems to me, the pace that we're going at, it doesn't affect me that we're going to really have a really over utilization per se next year. Maybe help us understand what maybe you're seeing here as we're now into part of the fourth quarter, that gives you that sense. Dave: (54:48) Yeah. My comments are really grounded in the unprecedented uncertainty as we look forward and the deep respect for the pandemic and its impact on the economic climate. That's why, as you think about, being at this distance, stepping out, recognizing that as the future expectations, you would normally widen your range and you would probably take a more conservative posture. That's essentially what we were trying to communicate. John, do you have anything further to add? John Rex: (55:24) The one thing that your comment and I think you said, we've seen inpatient above normal, I wouldn't say that's where we are. I said on that exceeding 95% baseline, I was orienting those categories around how they orient around that exceeding 95%, but inpatient rides a little about that, physician below that and outpatient surgery is right in that zone. That's more that commentary that I was riding down there, not that inpatient is running above baseline yet, but we certainly categories are progressing to that. John Rex: (56:02) In terms of your broader commentary to what to expect for utilization. We want to make sure people get the care they need. That's why we're here ultimately. We're going to do in everything in our power to make sure that that care occurs, but you heard some of the commentary offered earlier in the year even in terms of what was going on different categories in terms of cancer diagnoses, different areas that were off significantly. That's not good for people. That's not good for the system. We want to make sure that that care is getting delivered. John Rex: (56:38) There are areas of care that we're going to be very proactive and making sure that people are able to access that. In our business, we have both direct access and the Optum care businesses. United Healthcare is being very proactive in its outreach to vulnerable populations and making sure that they're getting the treatments that they need. Our ambition is to make sure that that care is delivered. There's a lot of necessarily care that's not happening also, but I'd come back to Dave's commentary as we look out to 2021 and some earlier things of, we've been learning stuff all along the way over the past many months, and we continue to evolve that thinking and continue to feel like we get better perspectives and why deeply respectful in terms of we don't really know how this moves over the next several months also. John Rex: (57:37) I think that's what you hear in terms of our commentary in terms of how we think about stepping out and why, that we want to be respectful of the environment, frankly, that no one has navigated before. I think that's just what you would expect us to, the way you'd expect us to approach it. Thank you. Dave: (57:58) We'll take this next 30, 45 days or so to accumulate more facts to understand even better, and then lay all this out for you in more detail to the best of our ability. I want to get together on December 1st. We have time for one more question with a quick question and answer and then I'll close. Next question. Moderator: (58:18) We'll take that question from Lance Wolf with Bernstein. Please go ahead. Lance Wolf: (58:23) Yeah. Just wanted to ask for employer enrollment, how's that progressing in October and what's your outlook for 4Q and beyond? If you can give any clarification in Optum RX on the real sharp increase in revenue per script and that was some of the compression of margin, that would be helpful too. Thanks. Dave: (58:44) I don't think we'll be able to give you insights into October in the quarter specifically, but what we can give you insights into is what's the progress we're making across the board in the commercial market going forward. I'll give you some sense of that without quantifying it. John Rex: (59:00) I would say that as you think about the fourth quarter, there's the sense should be, is there's a good amount of stickiness with respect to the end of this year in terms of persistency that we're seeing with our groups and further, I think as we look at next year, I think we talked about it in the script, we'll have a lot of good products coming off the assembly line that we're very enthused about. All Savers, our level funded product, buying a good product, which basically is a scenario where you have a base level of courage and you buy out for care as needed in certain categories. John Rex: (59:31) Then we have, what I would say, a bunch of provider centric products where we're looking at really efficient, high quality networks and having a low consumer out-of-pockets associated with those. What I would say is, we're optimistic about our product portfolio for next year. As you look at the third quarter or the fourth quarter specifically, we've had good stickiness in terms of our persistency. Dave: (59:55) Yeah. I think the commercial businesses are doing a nice job. Obviously we're very dissatisfied with the start of this year, but I think they've come on stronger as the years progressed with a wider array of product choices and offerings, but also given that cost structures in line and being able to reflect that in more competitive price positions in the market overall, again, appropriately index for view of cost plus margin, which reflects the variability of the future marketplace. John, do you want to touch on the [crosstalk 00:12:29]. John Rex: (01:00:29) Lance, John Prince, talking about a revenue growth, we've had really strong growth in our specialty business, as well as infusion, our community pharmacies, which is Genoa. That has been a big driver, as well as our external client lens we had on the beginning of the year. If you look at our services businesses, which is those services, as I mentioned, they're growing on with 30% inside that, so really strong growth in that. John Rex: (01:00:55) In terms of our margin and why it's declined year over year, it's really two factors. One, on the earning side is the impact of COVID-19. As you know, with the pandemic, we've had less first bills in Q2. That continued in Q3 as well as you've seen into Q3 less utilization per member, as well as some loss and unemployment. That's impacted our earnings. Then on the denominators side, the retail co-payment, which was added to revenue in 2020, was added to denominator, which actually impacted the margin in Q3. John Rex: (01:01:32) Overall, we're quite pleased with our margin performance. If you see between Q2 and Q3, our earnings grew sequentially up by 16%, as well as continue to improve our margins. Overall we're seeing we're executing very well. Dave: (01:01:48) Thanks John. Thank you, Lance. Thank all of you for your interest and the very thoughtful and insightful questions that you offered today. As you know, this is an unprecedented time in our company's history, and as you've come to expect, we will continue to respond and lead with full strength, compassion, and fortitude, restlessness for serving the unique needs of every one of the 140 million people we serve around the world. Dave: (01:02:13) Despite the challenging times, the 325,000 people in the United Health Group are deeply committed and they're energized about our work to advance the next generation health system in a socially conscious way. It's a health system that'll be universal, affordable, simple, and effective. We look forward to engaging you in several weeks at our upcoming annual investor conference on Tuesday, December one. We see the virtual format as an opportunity to provide you an even deeper view of our company, its strategic plans, its people and our future. Thank you very much. Moderator: (01:02:47) This will conclude today's program. Thanks for your participation. You may now disconnect and have a great day.