Edgar Filing: UNITEDHEALTH GROUP INC

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2011

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

Commission file number: 1-10864

UnitedHealth Group Incorporated

(Exact name of registrant as specified in its charter)


Minnesota		41-1321939
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

UnitedHealth Group Center 9900 Bren Road East Minnetonka, Minnesota		55343
(Address of principal executive offices)		(Zip Code)

(952) 936-1300

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of July 29, 2011, there were 1,076,159,413 shares of the registrant’s Common Stock, $.01 par value per share, issued and outstanding.

UNITEDHEALTH GROUP

Table of Contents


		Page
Part I. Financial Information
Item 1.	Financial Statements		1
	Condensed Consolidated Balance Sheets as of June 30, 2011 and December 31, 2010		1
	Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2011 and 2010		2
	Condensed Consolidated Statements of Changes in Shareholders’ Equity for the six months ended June 30, 2011 and 2010		3
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2011 and 2010		4
	Notes to the Condensed Consolidated Financial Statements		5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		23
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		33
Item 4.	Controls and Procedures		34

Part II. Other Information
Item 1.	Legal Proceedings		34
Item 1A.	Risk Factors		34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		35
Item 6.	Exhibits		36
Signatures			38

PART I. FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

UnitedHealth Group

Condensed Consolidated Balance Sheets

(Unaudited)


(in millions, except per share data)	June 30, 2011			December 31, 2010
Assets
Current assets:
Cash and cash equivalents	$	9,775		$	9,123
Short-term investments		2,532			2,072
Accounts receivable, net		2,851			2,061
Assets under management		2,510			2,550
Deferred income taxes		153			403
Other current receivables, net		1,961			1,643
Prepaid expenses and other current assets		647			541

Total current assets		20,429			18,393

Long-term investments		14,935			14,707
Property, equipment and capitalized software, net		2,302			2,200
Goodwill		23,423			22,745
Other intangible assets, net		2,878			2,910
Other assets		2,148			2,108

Total assets	$	66,115		$	63,063

Liabilities and shareholders’ equity
Current liabilities:
Medical costs payable	$	9,521		$	9,220
Accounts payable and accrued liabilities		6,373			6,488
Other policy liabilities		5,317			3,979
Commercial paper and current maturities of long-term debt		1,689			2,480
Unearned revenues		1,474			1,533

Total current liabilities		24,374			23,700

Long-term debt, less current maturities		9,442			8,662
Future policy benefits		2,448			2,361
Deferred income taxes and other liabilities		2,488			2,515

Total liabilities		38,752			37,238

Commitments and contingencies (Note 12)

Shareholders’ equity:
Preferred stock, $0.001 par value - 10 shares authorized; no shares issued or outstanding		0			0
Common stock, $0.01 par value - 3,000 shares authorized; 1,069 and 1,086 issued and outstanding		11			11
Retained earnings		27,020			25,562
Accumulated other comprehensive income (loss):
Net unrealized gains on investments, net of tax effects		338			280
Foreign currency translation losses		(6	)		(28	)

Total shareholders’ equity		27,363			25,825

Total liabilities and shareholders’ equity	$	66,115		$	63,063

See Notes to the Condensed Consolidated Financial Statements

UnitedHealth Group

Condensed Consolidated Statements of Operations

(Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
(in millions, except per share data)	2011			2010			2011			2010
Revenues:
Premiums	$	22,813		$	21,125		$	45,816		$	42,253
Services		1,656			1,413			3,254			2,777
Products		605			577			1,254			1,105
Investment and other income		160			149			342			322

Total revenues		25,234			23,264			50,666			46,457

Operating costs:
Medical costs		18,578			17,221			37,303			34,391
Operating costs		3,733			3,359			7,350			6,635
Cost of products sold		554			534			1,153			1,017
Depreciation and amortization		270			249			540			497

Total operating costs		23,135			21,363			46,346			42,540

Earnings from operations		2,099			1,901			4,320			3,917
Interest expense		(119	)		(119	)		(237	)		(244	)

Earnings before income taxes		1,980			1,782			4,083			3,673
Provision for income taxes		(713	)		(659	)		(1,470	)		(1,359	)

Net earnings	$	1,267		$	1,123		$	2,613		$	2,314

Basic net earnings per common share	$	1.18		$	1.00		$	2.42		$	2.04

Diluted net earnings per common share	$	1.16		$	0.99		$	2.38		$	2.02

Basic weighted-average number of common shares outstanding		1,075			1,127			1,079			1,136
Dilutive effect of common stock equivalents		19			8			17			10

Diluted weighted-average number of common shares outstanding		1,094			1,135			1,096			1,146

Anti-dilutive shares excluded from the calculation of dilutive effect of common stock equivalents		44			100			52			98
Cash dividends per common share	$	0.1625		$	0.1550		$	0.2875		$	0.1550

See Notes to the Condensed Consolidated Financial Statements

UnitedHealth Group

Condensed Consolidated Statements of Changes in Shareholders’ Equity

(Unaudited)


						Additional						Accumulated
						Additional						Other			Total
	Common Stock					Paid-In			Retained			Comprehensive			Shareholders’
(in millions)	Shares			Amount		Capital			Earnings			Income (Loss)			Equity
Balance at January 1, 2011		1,086		$	11	$	0		$	25,562		$	252		$	25,825
Net earnings										2,613						2,613
Unrealized holding gains on investment securities during the period, net of tax expense													102			102
Reclassification adjustment for net realized gains included in net earnings, net of tax expense													(44	)		(44	)
Foreign currency translation gain													22			22
Issuances of common stock, and related tax benefits		11			0		153									153
Common stock repurchases		(28	)		0		(409	)		(846	)					(1,255	)
Share-based compensation, and related tax benefits							256									256
Common stock dividends										(309	)					(309	)

Balance at June 30, 2011		1,069		$	11	$	0		$	27,020		$	332		$	27,363


Balance at January 1, 2010		1,147		$	11	$	0		$	23,342		$	253		$	23,606
Net earnings										2,314						2,314
Unrealized holding gains on investment securities during the period, net of tax expense													148			148
Reclassification adjustment for net realized gains included in net earnings, net of tax expense													(35	)		(35	)
Foreign currency translation loss													(13	)		(13	)
Issuances of common stock, and related tax benefits		7			0		46									46
Common stock repurchases		(39	)		0		(224	)		(1,017	)					(1,241	)
Share-based compensation, and related tax benefits							178									178
Common stock dividends										(174	)					(174	)

Balance at June 30, 2010		1,115		$	11	$	0		$	24,465		$	353		$	24,829

See Notes to the Condensed Consolidated Financial Statements

UnitedHealth Group

Condensed Consolidated Statements of Cash Flows

(Unaudited)


	Six Months Ended June 30,
(in millions)	2011			2010
Operating activities
Net earnings	$	2,613		$	2,314
Noncash items:
Depreciation and amortization		540			497
Deferred income taxes		264			59
Share-based compensation		218			167
Other		(62	)		9
Net change in other operating items, net of effects from acquisitions and changes in AARP balances:
Accounts receivable		(843	)		(789	)
Other assets		(281	)		(70	)
Medical costs payable		120			41
Accounts payable and other liabilities		(128	)		(14	)
Other policy liabilities		37			(97	)
Unearned revenues		(59	)		(189	)

Cash flows from operating activities		2,419			1,928


Investing activities
Purchases of investments		(4,479	)		(3,258	)
Sales of investments		1,985			1,522
Maturities of investments		1,901			1,426
Cash paid for acquisitions, net of cash assumed		(827	)		(165	)
Cash received for dispositions		378			0
Purchases of property, equipment and capitalized software		(516	)		(343	)

Cash flows used for investing activities		(1,558	)		(818	)


Financing activities
Common stock repurchases		(1,255	)		(1,241	)
Proceeds from common stock issuances		225			106
Dividends paid		(309	)		(174	)
Proceeds from commercial paper, net		154			880
Proceeds from issuance of long-term debt		747			0
Payments for retirement of long-term debt		(955	)		(1,333	)
Customer funds administered		1,228			1,108
Checks outstanding		(88	)		(222	)
Other		44			(51	)

Cash flows used for financing activities		(209	)		(927	)

Increase in cash and cash equivalents		652			183
Cash and cash equivalents, beginning of period		9,123			9,800

Cash and cash equivalents, end of period	$	9,775		$	9,983

See Notes to the Condensed Consolidated Financial Statements

UNITEDHEALTH GROUP

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.	Basis of Presentation

The accompanying Condensed Consolidated Financial Statements include the consolidated accounts of UnitedHealth Group Incorporated and its subsidiaries (the Company). The Company has eliminated intercompany balances and transactions. The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. Generally Accepted Accounting Principles (U.S. GAAP). In accordance with the rules and regulations of the U.S. Securities and Exchange Commission (SEC), the Company has omitted certain footnote disclosures that would substantially duplicate the disclosures contained in its annual audited Consolidated Financial Statements. However, these Condensed Consolidated Financial Statements should be read together with the Consolidated Financial Statements and the Notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 as filed with the SEC (2010 10-K). The accompanying Condensed Consolidated Financial Statements include all normal recurring adjustments necessary to present the interim financial statements fairly.

During the first quarter of 2011, the Company renamed its reportable segments to conform to the naming conventions of its market facing businesses. Consequently, the Health Benefits reportable segment is now UnitedHealthcare, and the health services businesses, OptumHealth, Ingenix, and Prescriptions Solutions, are now under the Company’s Optum brand as OptumHealth, OptumInsight, and OptumRx, respectively. On January 1, 2011, the Company realigned certain of its businesses to respond to changes in the markets it serves and the opportunities that are emerging as the health system evolves. For example, OptumHealth’s results of operations now include the Company’s clinical services assets, including Southwest Medical multi-specialty clinics in Nevada and Evercare nurse practitioners serving the frail and elderly, which had historically been reported in UnitedHealthcare Employer & Individual and UnitedHealthcare Medicare & Retirement, respectively. UnitedHealthcare Employer & Individual’s results of operations now include OptumHealth Specialty Benefits, including dental, vision, life and disability. The Company’s reportable segments remain the same and prior period segment financial information has been recast to conform to the 2011 presentation. See Note 11 of Notes to the Condensed Consolidated Financial Statements for segment financial information.

Use of Estimates. These Condensed Consolidated Financial Statements include certain amounts based on the Company’s best estimates and judgments. The Company’s most significant estimates relate to medical costs, medical costs payable, revenues, goodwill, other policy liabilities, other current receivables, other intangible assets, investments, income taxes and contingent liabilities. These estimates require the application of complex assumptions and judgments, often because they involve matters that are inherently uncertain and will likely change in subsequent periods. The impact of any changes in estimates is included in earnings in the period in which the estimate is adjusted.

Recently Issued Accounting Standards. In July 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-06, “Other Expenses (Topic 720): Fees Paid to the Federal Government by Health Insurers a consensus of the FASB Emerging Issues Task Force” (ASU 2011-06). This update addresses the recognition and classification of an entity’s share of the annual health insurance industry assessment (the “fee”) mandated by the Patient Protection and Affordable Care Act and its related reconciliation act (Health Reform Legislation). The fee will be levied on health insurers for each calendar year beginning on or after January 1, 2014 and is not deductible for income tax purposes. For reporting entities subject to the fee, the amendments in ASU 2011-06 specify that the liability for the fee should be estimated and recorded in full once the entity provides qualifying health insurance in the applicable calendar year in which the fee is payable with a corresponding deferred cost that is amortized to expense using a straight-line method of allocation unless another method better allocates the fee over the calendar year that it is payable.

The Company has determined that there have been no other recently issued accounting standards that will have a material impact on its Condensed Consolidated Financial Statements.

2.	Investments

A summary of short-term and long-term investments is as follows:


(in millions)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
June 30, 2011
Debt securities - available-for-sale:
U.S. government and agency obligations	$	1,897	$	28	$	(3	)	$	1,922
State and municipal obligations		6,148		236		(12	)		6,372
Corporate obligations		5,409		198		(7	)		5,600
U.S. agency mortgage-backed securities		2,165		67		(3	)		2,229
Non-U.S. agency mortgage-backed securities		557		28		0			585

Total debt securities - available-for-sale		16,176		557		(25	)		16,708

Equity securities - available-for-sale		552		20		(14	)		558
Debt securities - held-to-maturity:
U.S. government and agency obligations		168		5		0			173
State and municipal obligations		15		0		0			15
Corporate obligations		18		0		0			18

Total debt securities - held-to-maturity		201		5		0			206

Total investments	$	16,929	$	582	$	(39	)	$	17,472

December 31, 2010
Debt securities - available-for-sale:
U.S. government and agency obligations	$	2,214	$	28	$	(8	)	$	2,234
State and municipal obligations		6,007		183		(42	)		6,148
Corporate obligations		5,111		210		(11	)		5,310
U.S. agency mortgage-backed securities		1,851		58		(6	)		1,903
Non-U.S. agency mortgage-backed securities		439		26		0			465

Total debt securities - available-for-sale		15,622		505		(67	)		16,060

Equity securities - available-for-sale		508		22		(14	)		516
Debt securities - held-to-maturity:
U.S. government and agency obligations		167		5		0			172
State and municipal obligations		15		0		0			15
Corporate obligations		21		0		0			21

Total debt securities - held-to-maturity		203		5		0			208

Total investments	$	16,333	$	532	$	(81	)	$	16,784

Included in the Company’s investment portfolio were securities collateralized by sub-prime home equity lines of credit with fair values of $3 million and $6 million as of June 30, 2011 and December 31, 2010, respectively. Also included were Alt-A securities with fair values of $11 million and $15 million as of June 30, 2011 and December 31, 2010, respectively.

The fair values of the Company’s mortgage-backed securities by credit rating and origination as of June 30, 2011 were as follows:


(in millions)	AAA		A		Non-Investment Grade		Total Fair Value
2011	$	20	$	0	$	0	$	20
2010		8		0		0		8
2007		123		0		3		126
2006		196		0		12		208
2005		138		0		3		141
Pre - 2005		78		4		0		82
U.S. agency mortgage-backed securities		2,229		0		0		2,229

Total	$	2,792	$	4	$	18	$	2,814

The amortized cost and fair value of available-for-sale debt securities as of June 30, 2011, by contractual maturity, were as follows:


(in millions)	Amortized Cost		Fair Value
Due in one year or less	$	2,673	$	2,686
Due after one year through five years		4,875		5,078
Due after five years through ten years		4,078		4,250
Due after ten years		1,828		1,880
U.S. agency mortgage-backed securities		2,165		2,229
Non-U.S. agency mortgage-backed securities		557		585

Total debt securities - available-for-sale	$	16,176	$	16,708

The amortized cost and fair value of held-to-maturity debt securities as of June 30, 2011, by contractual maturity, were as follows:


(in millions)	Amortized Cost		Fair Value
Due in one year or less	$	38	$	38
Due after one year through five years		136		139
Due after five years through ten years		18		19
Due after ten years		9		10

Total debt securities - held-to-maturity	$	201	$	206

The fair value of available-for-sale investments with gross unrealized losses by investment type and length of time that individual securities have been in a continuous unrealized loss position were as follows:


	Less Than 12 Months					12 Months or Greater					Total
(in millions)	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
June 30, 2011
Debt securities - available-for-sale:
U.S. government and agency obligations	$	179	$	(3	)	$	0	$	0		$	179	$	(3	)
State and municipal obligations		536		(10	)		19		(2	)		555		(12	)
Corporate obligations		699		(7	)		9		0			708		(7	)
U.S. agency mortgage-backed securities		306		(3	)		1		0			307		(3	)

Total debt securities - available-for-sale	$	1,720	$	(23	)	$	29	$	(2	)	$	1,749	$	(25	)

Equity securities - available-for-sale	$	243	$	(13	)	$	12	$	(1	)	$	255	$	(14	)


December 31, 2010
Debt securities - available-for-sale:
U.S. government and agency obligations	$	548	$	(8	)	$	0	$	0		$	548	$	(8	)
State and municipal obligations		1,383		(40	)		18		(2	)		1,401		(42	)
Corporate obligations		949		(11	)		14		0			963		(11	)
U.S. agency mortgage-backed securities		355		(6	)		0		0			355		(6	)

Total debt securities - available-for-sale	$	3,235	$	(65	)	$	32	$	(2	)	$	3,267	$	(67	)

Equity securities - available-for-sale	$	206	$	(14	)	$	11	$	0		$	217	$	(14	)

The unrealized losses from all securities as of June 30, 2011 were generated from 1,700 positions out of a total of 14,700 positions. The Company believes that it will collect the principal and interest due on its investments that have an amortized cost in excess of fair value. The unrealized losses on investments in U.S. government and agency obligations, state and municipal obligations and corporate obligations as of June 30, 2011 were primarily caused by interest rate increases and not by unfavorable changes in the credit ratings associated with these securities. The Company evaluates impairment at each reporting period for securities where the fair value of the investment is less than its amortized cost. The Company evaluated the underlying credit quality of the issuers and the credit ratings of the state and municipal obligations and the corporate obligations, noting neither a significant deterioration since purchase nor other factors leading to an other-than-temporary impairment (OTTI). The unrealized losses on mortgage-backed securities as of June 30, 2011 were primarily caused by higher interest rates in the marketplace. These unrealized losses represented less than 1% of the total amortized cost of the Company’s mortgage-backed security holdings as of June 30, 2011. The Company believes these losses to be temporary. All of the Company’s mortgage-backed securities in an unrealized loss position as of June 30, 2011 were rated “AAA” with no known deterioration or other factors leading to an OTTI. As of June 30, 2011, the Company did not have the intent to sell any of the securities in an unrealized loss position.

As of June 30, 2011, the Company’s holdings of non-U.S. agency mortgage-backed securities included $8 million of commercial mortgage loans in default. These investments were acquired in the first quarter of 2008 pursuant to an acquisition and were recorded at fair value. They represented less than 1% of the Company’s total mortgage-backed security holdings as of June 30, 2011.

A portion of the Company’s investments in equity securities and venture capital funds consists of investments held in various public and nonpublic companies concentrated in the areas of health care services and related information technologies. Market conditions that affect the value of health care and related technology stocks will likewise impact the value of the Company’s equity portfolio. The equity securities and venture capital funds were evaluated for severity and duration of unrealized loss, overall market volatility and other market factors.

Net realized gains included in Investment and Other Income on the Condensed Consolidated Statements of Operations were from the following sources:


	Three Months Ended June 30,						Six Months Ended June 30,
(in millions)	2011			2010			2011			2010
Total OTTI	$	(2	)	$	(4	)	$	(6	)	$	(5	)
Portion of loss recognized in other comprehensive income		0			0			0			0

Net OTTI recognized in earnings		(2	)		(4	)		(6	)		(5	)
Gross realized losses from sales		(3	)		(2	)		(4	)		(3	)
Gross realized gains from sales		26			22			79			62

Net realized gains	$	21		$	16		$	69		$	54

For the three and six months ended June 30, 2011 and 2010, all of the recorded OTTI charges resulted from the Company’s intent to sell certain impaired securities.

3.	Fair Value

Fair values of available-for-sale debt and equity securities are based on quoted market prices, where available. The Company obtains one price for each security primarily from a third-party pricing service (pricing service), which generally uses quoted or other observable inputs for the determination of fair value. The pricing service normally derives the security prices through recently reported trades for identical or similar securities, making adjustments through the reporting date based upon available observable market information. For securities not actively traded, the pricing service may use quoted market prices of comparable instruments or discounted cash flow analyses, incorporating inputs that are currently observable in the markets for similar securities. Inputs that are often used in the valuation methodologies include, but are not limited to, benchmark yields, credit spreads, default rates, prepayment speeds and non-binding broker quotes. As the Company is responsible for the determination of fair value, it performs quarterly analyses on the prices received from the pricing service to determine whether the prices are reasonable estimates of fair value. Specifically, the Company compares the prices received from the pricing service to prices reported by its custodian, its investment consultant and third-party investment advisors. Additionally, the Company compares changes in the reported market values and returns to relevant market indices to test the reasonableness of the reported prices. The Company’s internal price verification procedures and review of fair value methodology documentation provided by independent pricing services has not historically resulted in adjustment in the prices obtained from the pricing service.

In instances in which the inputs used to measure fair value fall into different levels of the fair value hierarchy, the fair value measurement has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular item to the fair value measurement in its entirety requires judgment, including the consideration of inputs specific to the asset or liability.

The fair value hierarchy is as follows:

Level 1 — Quoted (unadjusted) prices for identical assets/liabilities in active markets.

Level 2 — Other observable inputs, either directly or indirectly, including:

•

Quoted prices for similar assets/liabilities in active markets;

•

Quoted prices for identical or similar assets in non-active markets (e.g., few transactions, limited information, non-current prices, high variability over time);

•

Inputs other than quoted prices that are observable for the asset/liability (e.g., interest rates, yield curves, volatilities, default rates); and

•

Inputs that are derived principally from or corroborated by other observable market data.

Level 3 — Unobservable inputs that cannot be corroborated by observable market data.

The following table presents a summary of fair value measurements by level for assets and liabilities measured at fair value on a recurring basis excluding AARP related assets and liabilities.


(in millions)	Quoted Prices in Active Markets (Level 1)			Other Observable Inputs (Level 2)			Unobservable Inputs (Level 3)			Total Fair Value
June 30, 2011
Cash and cash equivalents	$	8,600		$	1,175		$	0		$	9,775
Debt securities - available-for-sale:
U.S. government and agency obligations		1,303			619			0			1,922
State and municipal obligations		0			6,372			0			6,372
Corporate obligations		51			5,417			132			5,600
U.S. agency mortgage-backed securities		0			2,229			0			2,229
Non-U.S. agency mortgage-backed securities		0			577			8			585

Total debt securities - available-for-sale		1,354			15,214			140			16,708
Equity securities - available-for-sale		334			2			222			558

Total cash, cash equivalents and investments at fair value		10,288			16,391			362			27,041

Interest rate swap assets		0			63			0			63

Total assets at fair value	$	10,288		$	16,454		$	362		$	27,104

Percentage of total assets at fair value		38	%		61	%		1	%		100	%

Interest rate swap liabilities	$	0		$	63		$	0		$	63


December 31, 2010
Cash and cash equivalents	$	8,069		$	1,054		$	0		$	9,123
Debt securities - available-for-sale:
U.S. government and agency obligations		1,515			719			0			2,234
State and municipal obligations		0			6,148			0			6,148
Corporate obligations		31			5,146			133			5,310
U.S. agency mortgage-backed securities		0			1,903			0			1,903
Non-U.S. agency mortgage-backed securities		0			457			8			465

Total debt securities - available-for-sale		1,546			14,373			141			16,060
Equity securities - available-for-sale		306			2			208			516

Total cash, cash equivalents and investments at fair value		9,921			15,429			349			25,699

Interest rate swap assets		0			46			0			46

Total assets at fair value	$	9,921		$	15,475		$	349		$	25,745

Percentage of total assets at fair value		39	%		60	%		1	%		100	%

Interest rate swap liabilities	$	0		$	104		$	0		$	104

There were no transfers between Levels 1 and 2 during the three and six months ended June 30, 2011 and 2010.

The Company provides health insurance products and services to members of AARP under a Supplemental Health Insurance Program (the Program). The Company elected to measure the entirety of the AARP Assets Under Management at fair value pursuant to the fair value option. See Note 12 of Notes to the Consolidated Financial Statements in the Company’s 2010 10-K for further detail on AARP. The following table presents fair value information about the AARP Program-related financial assets and liabilities:


(in millions)	Quoted Prices in Active Markets (Level 1)		Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)		Total Fair Value
June 30, 2011
Cash and cash equivalents	$	103	$	0	$	0	$	103
Debt securities:
U.S. government and agency obligations		426		215		0		641
State and municipal obligations		0		21		0		21
Corporate obligations		0		1,168		0		1,168
U.S. agency mortgage-backed securities		0		424		0		424
Non-U.S. agency mortgage-backed securities		0		151		0		151

Total debt securities		426		1,979		0		2,405

Equity securities - available-for-sale		0		2		0		2

Total cash, cash equivalents and investments at fair value	$	529	$	1,981	$	0	$	2,510

Other liabilities	$	13	$	52	$	0	$	65

Total liabilities at fair value	$	13	$	52	$	0	$	65


December 31, 2010
Cash and cash equivalents	$	115	$	0	$	0	$	115
Debt securities:
U.S. government and agency obligations		515		244		0		759
State and municipal obligations		0		15		0		15
Corporate obligations		0		1,129		0		1,129
U.S. agency mortgage-backed securities		0		393		0		393
Non-U.S. agency mortgage-backed securities		0		137		0		137

Total debt securities		515		1,918		0		2,433

Equity securities - available-for-sale		0		2		0		2

Total cash, cash equivalents and investments at fair value	$	630	$	1,920	$	0	$	2,550

Other liabilities	$	0	$	0	$	59	$	59

Total liabilities at fair value	$	0	$	0	$	59	$	59

There were no transfers between Levels 1 and 2 during the three and six months ended June 30, 2011 and 2010.

The table below includes fair values for certain financial instruments for which it is practicable to estimate fair value. The carrying values and fair values of these financial instruments were as follows:


	June 30, 2011				December 31, 2010
(in millions)	Carrying Value		Fair Value		Carrying Value		Fair Value
Assets
Debt securities - available-for-sale	$	16,708	$	16,708	$	16,060	$	16,060
Equity securities - available-for-sale		558		558		516		516
Debt securities - held-to-maturity		201		206		203		208
AARP Program-related investments		2,407		2,407		2,435		2,435
Interest rate swap assets		63		63		46		46

Liabilities
Senior unsecured notes		10,046		10,733		10,212		10,903
Interest rate swap liabilities		63		63		104		104
AARP Program-related other liabilities		65		65		59		59

The carrying amounts reported in the Condensed Consolidated Balance Sheets for cash and cash equivalents, accounts and other current receivables, unearned revenues, commercial paper, accounts payable and accrued liabilities approximate fair value because of their short-term nature. These assets and liabilities are not listed in the table above.

The following methods and assumptions were used to estimate the fair value of each class of financial instrument:

Cash and Cash Equivalents. The carrying value of cash and cash equivalents approximates fair value as maturities are less than three months. Fair values of cash equivalent instruments that do not trade on a regular basis in active markets are classified as Level 2.

Debt Securities. The estimated fair values of debt securities held as available-for-sale are based on quoted market prices and/or other market data for the same or comparable instruments and transactions in establishing the prices. Fair values of debt securities that do not trade on a regular basis in active markets but are priced using other observable inputs are classified as Level 2. The Company’s Level 3 debt securities consist mainly of low income housing investments that are unique and non transferrable.

Equity Securities. Equity securities are held as available-for-sale investments. Fair value estimates for Level 1 and Level 2 publicly traded equity securities are based on quoted market prices and/or other market data for the same or comparable instruments and transactions in establishing the prices. The fair values of Level 3 investments in venture capital portfolios are estimated using market modeling approaches that rely heavily on management assumptions and qualitative observations. These investments totaled $181 million and $166 million as of June 30, 2011 and December 31, 2010, respectively. The fair values of the Company’s various venture capital investments are computed using limited quantitative and qualitative observations of activity for similar companies in the current market. The key inputs utilized in the Company’s market modeling include, as applicable, transactions for comparable companies in similar industries and having similar revenue and growth characteristics; similar preferences in the capital structure; discounted cash flows; liquidation values and milestones established at initial funding; and the assumption that the values of the Company’s venture capital investments can be inferred from these inputs. The Company’s remaining Level 3 equity securities holdings of $41 million and $42 million as of June 30, 2011 and December 31, 2010, respectively, consist of preferred stock and other items for which there are no active markets.

Interest Rate Swaps. Fair values of the Company’s interest rate swaps are estimated using the terms of the swaps and publicly available market yield curves. Because the swaps are unique and not actively traded, the fair values are classified as Level 2.

AARP Program-related Investments. AARP Program-related investments consist of debt and equity securities held to fund costs associated with the AARP Program and are priced and classified using the same methodologies as the Company’s other securities.

Senior Unsecured Notes. The fair values of the senior unsecured notes are estimated based on third-party quoted market prices for the same or similar issues.

AARP Program-related Other Liabilities. AARP Program-related other liabilities consist of liabilities that represent the amount of net investment gains and losses related to AARP Program-related investments that accrue to the benefit of the AARP policyholders.

A reconciliation of the beginning and ending balances of assets measured at fair value on a recurring basis using Level 3 inputs is as follows:


	Three Months Ended									Six Months Ended
(in millions)	Debt Securities			Equity Securities			Total			Debt Securities			Equity Securities			Total
June 30, 2011
Balance at beginning of period	$	135		$	201		$	336		$	141		$	208		$	349
Purchases		9			27			36			9			31			40
Sales		0			(5	)		(5	)		0			(14	)		(14	)
Settlements		(4	)		0			(4	)		(10	)		0			(10	)
Net unrealized losses in accumulated other comprehensive income		0			(1	)		(1	)		0			(3	)		(3	)

Balance at end of period	$	140		$	222		$	362		$	140		$	222		$	362

June 30, 2010
Balance at beginning of period	$	114		$	324		$	438		$	120		$	312		$	432
Purchases		0			1			1			1			21			22
Sales		(7	)		0			(7	)		(8	)		(10	)		(18	)
Settlements		(2	)		(153	)		(155	)		(7	)		(153	)		(160	)
Net unrealized gains in accumulated other comprehensive income		0			6			6			0			6			6
Net realized gains in investment and other income		2			8			10			1			10			11

Balance at end of period	$	107		$	186		$	293		$	107		$	186		$	293

Non-financial assets and liabilities or financial assets and liabilities that are measured at fair value on a nonrecurring basis are subject to fair value adjustments only in certain circumstances, such as when the Company records an impairment. There were no significant fair value adjustments for these assets and liabilities recorded during the three and six months ended June 30, 2011 and 2010.

4.	Medicare Part D Pharmacy Benefits Contract

The Condensed Consolidated Balance Sheets include the following amounts associated with the Medicare Part D program:


	June 30, 2011						December 31, 2010
(in millions)	CMS Subsidies (a)		Drug Discount		Risk-Share		CMS Subsidies (a)		Risk-Share
Other current receivables	$	0	$	161	$	62	$	0	$	0
Other policy liabilities		1,310		345		0		475		265

(a)	Includes the Catastrophic Reinsurance Subsidy and the Low-Income Member Cost Sharing Subsidy.

The Catastrophic Reinsurance and the Low-Income Member Cost Sharing Subsidies represent cost reimbursements under the Medicare Part D program. The Company is fully reimbursed by the Centers for Medicare & Medicaid Services (CMS) for costs incurred for these contract elements and, accordingly, there is no insurance risk to the Company. Beginning in 2011, the Health Reform Legislation mandates consumer discounts of 50% on brand name prescription drugs and 7% on generic prescription drugs for Part D plan participants in the coverage gap. These discounts are funded by CMS and pharmaceutical manufacturers while the Company administers the application of these funds. Amounts received for these subsidies and discounts are not reflected as premium revenues, but rather are accounted for as deposits. Related cash flows are presented as Customer Funds Administered within financing activities in the Condensed Consolidated Statements of Cash Flows.

Premiums from CMS are subject to risk-sharing provisions based on a comparison of the Company’s annual bid estimates of prescription drug costs and the actual costs incurred. Variances may result in CMS making additional payments to the Company or require the Company to remit funds to CMS subsequent to the end of the year. The Company records risk-share adjustments to premium revenue and other current receivables or other policy liabilities in the Condensed Consolidated Balance Sheets.

5.	Goodwill

Changes in the carrying amount of goodwill, by reportable segment, were as follows:


(in millions)	UnitedHealthcare			OptumHealth		OptumInsight			OptumRx		Consolidated
Balance at December 31, 2010 (a)	$	17,837		$	760	$	3,308		$	840	$	22,745
Acquisitions		7			892		0			0		899
Dispositions		(2	)		0		(214	)		0		(216	)
Subsequent payments and adjustments, net		(2	)		0		(3	)		0		(5	)

Balance at June 30, 2011	$	17,840		$	1,652	$	3,091		$	840	$	23,423

(a)	Prior period reportable segment financial information has been recast to conform to the 2011 presentation as discussed in Note 1 of Notes to the Condensed Consolidated Financial Statements.

6.	Medical Costs and Medical Costs Payable

Medical costs and medical costs payable include estimates of the Company’s obligations for medical care services that have been rendered on behalf of insured consumers, but for which claims have either not yet been received or processed, and for liabilities for physician, hospital and other medical cost disputes. The Company develops estimates for medical costs incurred but not reported using an actuarial process that is consistently applied, centrally controlled and automated. The actuarial models consider factors such as time from date of service to claim receipt, claim backlogs, care provider contract rate changes, medical care consumption and other medical cost trends. The Company estimates liabilities for physician, hospital and other medical cost disputes based upon an analysis of potential outcomes, assuming a combination of litigation and settlement strategies. Each period, the Company re-examines previously established medical costs payable estimates based on actual claim submissions and other changes in facts and circumstances. As the medical costs payable estimates recorded in prior periods develop, the Company adjusts the amount of the estimates and includes the changes in estimates in medical costs in the period in which the change is identified.

For the three months ended June 30, 2011, there was $120 million of net favorable medical cost development related to prior fiscal years and $60 million of net favorable medical cost development related to the first quarter of 2011. For the six months ended June 30, 2011, medical costs included $560 million of net favorable medical cost development related to prior fiscal years. The favorable development for both the three and six months ended June 30, 2011 was primarily driven by changes in previous estimates related to lower than expected health system utilization levels and continued efficiencies in claims submission, handling and processing, which results in higher completion factors.

For the three months ended June 30, 2010, there was $90 million of net favorable medical cost development related to prior fiscal years and $180 million of net favorable medical cost development related to the first quarter of 2010. For the six months ended June 30, 2010, medical costs included $580 million of net favorable medical cost development related to prior fiscal years. The favorable development for both the three and six months ended June 30, 2010 was primarily driven by changes in previous estimates related to more efficient claims handling and processing, resulting in higher completion factors and lower than expected health system utilization levels.

7.	Commercial Paper and Long-Term Debt

Commercial paper and long-term debt consisted of the following:


	June 30, 2011						December 31, 2010
(in millions)	Par Value		Carrying Value		Fair Value		Par Value		Carrying Value		Fair Value
Commercial paper	$	1,085	$	1,085	$	1,085	$	930	$	930	$	930
Senior unsecured floating-rate notes due February 2011		0		0		0		250		250		250
5.3% senior unsecured notes due March 2011		0		0		0		705		712		711
5.5% senior unsecured notes due November 2012		352		368		373		352		372		377
4.9% senior unsecured notes due February 2013		534		542		564		534		541		568
4.9% senior unsecured notes due April 2013		409		424		433		409		425		437
4.8% senior unsecured notes due February 2014		172		186		186		172		186		184
5.0% senior unsecured notes due August 2014		389		424		427		389		425		423
4.9% senior unsecured notes due March 2015		416		457		454		416		456		444
5.4% senior unsecured notes due March 2016		601		669		673		601		666		661
5.4% senior unsecured notes due November 2016		95		95		107		95		95		105
6.0% senior unsecured notes due June 2017		441		488		499		441		484		491
6.0% senior unsecured notes due November 2017		156		169		177		156		167		174
6.0% senior unsecured notes due February 2018		1,100		1,085		1,247		1,100		1,065		1,249
3.9% senior unsecured notes due October 2020		450		422		440		450		413		429
4.7% senior unsecured notes due February 2021		400		399		417		0		0		0
Zero coupon senior unsecured notes due November 2022		1,095		604		697		1,095		588		677
5.8% senior unsecured notes due March 2036		850		844		858		850		844		862
6.5% senior unsecured notes due June 2037		500		495		547		500		495		552
6.6% senior unsecured notes due November 2037		650		645		721		650		645		729
6.9% senior unsecured notes due February 2038		1,100		1,084		1,258		1,100		1,085		1,281
5.7% senior unsecured notes due October 2040		300		298		297		300		298		299
6.0% senior unsecured notes due February 2041		350		348		358		0		0		0

Total commercial paper and long-term debt	$	11,445	$	11,131	$	11,818	$	11,495	$	11,142	$	11,833

Commercial Paper and Bank Credit Facility

Commercial paper consists of senior unsecured debt privately placed on a discount basis through broker-dealers with maturities up to 270 days. As of June 30, 2011, the Company’s outstanding commercial paper had a weighted-average annual interest rate of 0.4%.

The Company has a $2.5 billion five-year revolving bank credit facility with 23 banks, which matures in May 2012. This facility supports the Company’s commercial paper program and is available for general corporate purposes. There were no amounts outstanding under this facility during the six months ended June 30, 2011. The interest rate on borrowings is variable based on term and amount and is calculated based on the London Interbank Offered Rate (LIBOR) plus a credit spread based on the Company’s senior unsecured credit ratings. As of June 30, 2011, the annual interest rate on this facility, had it been drawn, would have ranged from 0.4% to 0.6%.

Debt Covenants

The Company’s bank credit facility contains various covenants including requiring the Company to maintain a debt-to-total-capital ratio, calculated as debt divided by the sum of debt and shareholders’ equity, below 50%. The Company was in compliance with its debt covenants as of June 30, 2011.

Long-Term Debt

In February 2011, the Company issued $750 million in senior unsecured notes. The issuance included $400 million of 4.7% fixed-rate notes due February 2021 and $350 million of 5.95% fixed-rate notes due February 2041.

Interest Rate Swap Contracts

During 2010, the Company entered into interest rate swap contracts to convert a portion of its interest rate exposure from fixed rates to floating rates to more closely align interest expense with interest income received on its cash equivalent and investment balances. The floating rates are benchmarked to LIBOR. The swaps are designated as fair value hedges on fixed-rate debt issues maturing between November 2012 through March 2016 and June 2017 through October 2020. Since the specific terms and notional amounts of the swaps match those of the debt being hedged, they were assumed to be highly effective hedges and all changes in fair value of the

swaps were recorded on the Condensed Consolidated Balance Sheets with no net impact recorded in the Condensed Consolidated Statements of Operations.

The following table summarizes the location and fair value of fair value hedges on the Company’s Condensed Consolidated Balance Sheets:


	June 30, 2011		December 31, 2010
(in millions)	($5,020 Notional Amount)		($5,725 Notional Amount)
Balance Sheet Location
Other assets	$	63	$	46
Other liabilities		63		104

The following table provides a summary of the effect of changes in fair value of fair value hedges on the Company’s Condensed Consolidated Statements of Operations:


	Three Months Ended June 30,						Six Months Ended June 30,
(in millions)	2011			2010			2011			2010
Hedge gain recognized in interest expense	$	96		$	47		$	58		$	33
Hedged item loss recognized in interest expense		(96	)		(47	)		(58	)		(33	)

Net impact on the Company’s Condensed Consolidated Statements of Operations	$	0		$	0		$	0		$	0

8.	Shareholders’ Equity

Share Repurchase Program

Under its Board of Directors’ authorization, the Company maintains a share repurchase program. The objectives of the share repurchase program are to optimize the Company’s capital structure and cost of capital, thereby improving returns to shareholders, as well as to offset the dilutive impact of share-based awards. Repurchases may be made from time to time at prevailing prices in the open market, subject to certain Board restrictions. In May 2011, the Board renewed the Company’s share repurchase program with an authorization to repurchase up to 110 million shares of its common stock. During the six months ended June 30, 2011, the Company repurchased 28 million shares at an average price of approximately $45 per share and an aggregate cost of $1.3 billion. As of June 30, 2011, the Company had Board authorization to purchase up to an additional 101 million shares of its common stock.

Dividends

In May 2011, the Company’s Board of Directors increased the Company’s cash dividend to shareholders to an annual dividend rate of $0.65 per share, paid quarterly. Since June 2010, the Company had paid a quarterly dividend of $0.125 per share. Declaration and payment of future quarterly dividends is at the discretion of the Board and may be adjusted as business needs or market conditions change.

The following table provides details of the Company’s dividend payments in 2011:


Payment Date	Amount per Share		Total Amount Paid
			(in millions)
3/21/2011	$	0.1250	$	135
6/21/2011		0.1625		174

9.	Share-Based Compensation

In May 2011, the Company’s shareholders approved the 2011 Stock Incentive Plan (Plan). The Plan is intended to attract and retain employees and non-employee directors, offer them incentives to put forth maximum efforts for the success of the Company’s business and afford them an opportunity to acquire a proprietary interest in the Company. The Plan allows the Company to grant stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards or other stock-based awards to eligible employees and non-employee directors. The Plan incorporates the following plans adopted by the Company: 2002 Stock and Incentive Plan, 1991 Stock and Incentive Plan, 1998 Broad-Based Stock Incentive Plan and Non-employee Director Stock Option Plan. All outstanding stock options, restricted stock and other awards issued under the prior plans will remain subject to the terms and conditions of the plans under which they were issued.

As of June 30, 2011, the Company had 49 million shares available for future grants of share-based awards under its share-based compensation plan, including, but not limited to, incentive or non-qualified stock options, stock-settled stock appreciation rights (SARs), and up to 23 million of awards in restricted stock and restricted stock units (collectively, restricted shares). The Company’s outstanding share-based awards consist mainly of non-qualified stock options, SARs and restricted shares.

Stock Options and SARs

Stock options and SARs generally vest ratably over four to six years and may be exercised up to 10 years from the date of grant. Stock option and SAR activity for the six months ended June 30, 2011 is summarized in the table below:


	Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life		Aggregate Intrinsic Value
	(in millions)					(in years)		(in millions)
Outstanding at beginning of period		112		$	40
Granted		1			43
Exercised		(11	)		30
Forfeited		(2	)		42

Outstanding at end of period		100		$	41		5.0	$	1,156

Exercisable at end of period		82		$	43		4.4	$	821
Vested and expected to vest end of period		99		$	41		5.0	$	1,136

To determine compensation expense related to the Company’s stock options and SARs, the fair value of each award is estimated on the date of grant using an option-pricing model. For purposes of estimating the fair value of the Company’s employee stock option and SAR grants, the Company uses a binomial model. The principal assumptions the Company used in applying the option-pricing models were as follows:


	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011	2010
Risk free interest rate		1.8	%		1.9	%	1.8% - 2.3%	1.9% -2.1%
Expected volatility		44.3	%		46.2	%	44.3%	45.8% - 46.2%
Expected dividend yield		1.0	%		1.7	%	1.0% - 1.2%	0.1% -1.7%
Forfeiture rate		5.0	%		5.0	%	5.0%	5.0%
Expected life in years		4.9			4.6		4.9	4.6 -5.1

Risk-free interest rates are based on U.S. Treasury yields in effect at the time of grant. Expected volatilities are based on the historical volatility of the Company’s common stock and the implied volatility from exchange-traded options on the Company’s common stock. The Company uses historical data to estimate option and SAR exercises and forfeitures within the valuation model. The expected lives of options and SARs granted represents the period of time that the awards granted are expected to be outstanding based on historical exercise patterns.

The weighted-average grant date fair value of stock options and SARs granted during the three and six months ended June 30, 2011 was approximately $17 per share and $15 per share, respectively. The weighted-average grant date fair value of stock options and SARs granted during the three and six months ended June 30, 2010 was approximately $10 per share and $13 per share, respectively. The total intrinsic value of stock options and SARs exercised during the three and six months ended June 30, 2011 was $107 million and $174 million, respectively. The total intrinsic value of stock options and SARs exercised during the three and six months ended June 30, 2010 was $9 million and $62 million, respectively.

Restricted Shares

Restricted shares generally vest ratably over three to four years. Compensation expense related to restricted shares is based on the share price on date of grant. Restricted share activity for the six months ended June 30, 2011 is summarized in the table below:


(shares in millions)	Shares			Weighted-Average Grant Date Fair Value per Share
Nonvested at beginning of period		13		$	31
Granted		8			42
Vested		(4	)		32

Nonvested at end of period		17		$	36

The weighted-average grant date fair value of restricted shares granted during the three and six months ended June 30, 2011 was approximately $48 per share and $42 per share, respectively. The weighted-average grant date fair value of restricted shares granted during the three and six months ended June 30, 2010 was approximately $29 per share and $33 per share, respectively. The total fair value of restricted shares vested during the three and six months ended June 30, 2011 was $39 million and $108 million, respectively.

The total fair value of restricted shares vested during the three and six months ended June 30, 2010 was $41 million and $85 million, respectively.

Share-Based Compensation Recognition

The Company recognizes compensation expense for share-based awards, including stock options, SARs and restricted shares, on a straight-line basis over the related service period (generally the vesting period) of the award, or to an employee’s eligible retirement date under the award agreement, if earlier. For the three and six months ended June 30, 2011, the Company recognized compensation expense related to its share-based compensation plans of $95 million ($70 million net of tax effects) and $218 million ($154 million net of tax effects), respectively. For the three and six months ended June 30, 2010, the Company recognized compensation expense related to its share-based compensation plans of $67 million ($65 million net of tax effects) and $167 million ($152 million net of tax effects), respectively. Share-based compensation expense is recognized in Operating Costs in the Company’s Condensed Consolidated Statements of Operations. As of June 30, 2011, there was $522 million of total unrecognized compensation cost related to share awards that is expected to be recognized over a weighted-average period of 1.2 years. For the three and six months ended June 30, 2011 the income tax benefit realized from share-based award exercises was $59 million and $116 million, respectively. For the three and six months ended June 30, 2010 the income tax benefit realized from share-based award exercises was $16 million and $44 million, respectively.

As further discussed in Note 8 of Notes to the Condensed Consolidated Financial Statements, the Company maintains a share repurchase program. The objectives of the share repurchase program are to optimize the Company’s capital structure, cost of capital and return to shareholders, as well as to offset the dilutive impact of shares issued for share-based award exercises.

10.

Comprehensive Income

The table below presents comprehensive income, defined as changes in the equity of the Company’s business excluding changes resulting from investments by and distributions to its shareholders.


	Three Months Ended June 30,						Six Months Ended June 30,
(in millions)	2011			2010			2011			2010
Net earnings	$	1,267		$	1,123		$	2,613		$	2,314
Unrealized holding gains on investment securities arising during the period, net of tax expense of $73, $65, $59 and $82, respectively		125			121			102			148
Reclassification adjustment for net realized gains included in net earnings, net of tax expense of $8, $5, $25 and $19, respectively		(13	)		(11	)		(44	)		(35	)
Foreign currency translation gains (losses)		13			(9	)		22			(13	)

Comprehensive income	$	1,392		$	1,224		$	2,693		$	2,414

11.

Segment Financial Information

The Company has four reportable segments:

•

UnitedHealthcare;

•

OptumHealth;

•

OptumInsight; and

•

OptumRx.

The following is a description of the types of products and services from which each of the Company’s reportable segments derives its revenues:

•

UnitedHealthcare includes the combined results of operations of UnitedHealthcare Employer & Individual, UnitedHealthcare Medicare & Retirement and UnitedHealthcare Community & State because they have similar economic characteristics, products and services, types of customers, distribution methods and operational processes and operate in a similar regulatory environment. These businesses also share significant common assets, including a contracted network of physicians, health care professionals, hospitals and other facilities, information technology infrastructure and other resources. UnitedHealthcare Employer & Individual offers a comprehensive array of consumer-oriented health benefit plans and services for large national employers, public sector employers, mid-sized employers, small businesses and individuals nationwide. UnitedHealthcare Medicare & Retirement provides health and well-being services to individuals age 50 and older, addressing their unique needs for preventive and acute health care services as well as services dealing with chronic disease and other specialized issues for older individuals. UnitedHealthcare Community & State provides network-based health and well-being services to beneficiaries of State Medicaid and Children’s Health Insurance Programs (CHIP) and other government-sponsored health care programs.

•

OptumHealth provides behavioral benefit solutions, clinical services and financial services to help consumers navigate the health care system, finance their health care needs and achieve their health and well-being goals.

•

OptumInsight offers health information and technology solutions, including connectivity, compliance, clinical workflow and electronic medical record software, and consulting and outsourced services to employers, health plan sponsors, physicians, hospital systems, life sciences companies, and other users of health information.

•

OptumRx offers a comprehensive suite of integrated pharmacy benefit management services, including retail network pharmacy management, mail order pharmacy services, specialty pharmacy services, benefit design consultation, drug utilization review, formulary management programs, disease management and compliance and therapy management programs.

Transactions between reportable segments principally consist of sales of pharmacy benefit products and services to UnitedHealthcare customers by OptumRx, certain product offerings and clinical services sold to UnitedHealthcare by OptumHealth, and consulting and other services sold to UnitedHealthcare by OptumInsight. These transactions are recorded at management’s estimate of fair value. Intersegment transactions are eliminated in consolidation.

Prior period reportable segment financial information has been recast to conform to the 2011 presentation as discussed in Note 1 of Notes to the Condensed Consolidated Financial Statements. The following table presents reportable segment financial information:


			Optum
(in millions)	UnitedHealthcare		OptumHealth (a)		OptumInsight		OptumRx		Total Optum		Corporate and Intersegment Eliminations			Consolidated
Three Months Ended June 30, 2011
Revenues - external customers:
Premiums	$	22,438	$	375	$	0	$	0	$	375	$	0		$	22,813
Services		1,080		137		421		18		576		0			1,656
Products		0		6		11		588		605		0			605

Total revenues - external customers		23,518		518		432		606		1,556		0			25,074

Total revenues - intersegment		0		1,127		226		4,082		5,435		(5,435	)		0
Investment and other income		135		25		0		0		25		0			160

Total revenues	$	23,653	$	1,670	$	658	$	4,688	$	7,016	$	(5,435	)	$	25,234

Earnings from operations	$	1,759	$	135	$	87	$	118	$	340	$	0		$	2,099
Interest expense		0		0		0		0		0		(119	)		(119	)

Earnings before income taxes	$	1,759	$	135	$	87	$	118	$	340	$	(119	)	$	1,980


Three Months Ended June 30, 2010
Revenues - external customers:
Premiums	$	20,812	$	313	$	0	$	0	$	313	$	0		$	21,125
Services		1,008		82		308		15		405		0			1,413
Products		0		4		11		562		577		0			577

Total revenues - external customers		21,820		399		319		577		1,295		0			23,115

Total revenues - intersegment		0		729		210		3,625		4,564		(4,564	)		0
Investment and other income		135		14		0		0		14		0			149

Total revenues	$	21,955	$	1,142	$	529	$	4,202	$	5,873	$	(4,564	)	$	23,264

Earnings from operations	$	1,565	$	142	$	60	$	134	$	336	$	0		$	1,901
Interest expense		0		0		0		0		0		(119	)		(119	)

Earnings before income taxes	$	1,565	$	142	$	60	$	134	$	336	$	(119	)	$	1,782


Six Months Ended June 30, 2011
Revenues - external customers:
Premiums	$	45,094	$	722	$	0	$	0	$	722	$	0		$	45,816
Services		2,136		224		857		37		1,118		0			3,254
Products		0		12		27		1,215		1,254		0			1,254

Total revenues - external customers		47,230		958		884		1,252		3,094		0			50,324

Total revenues - intersegment		0		2,174		445		8,068		10,687		(10,687	)		0
Investment and other income		297		45		0		0		45		0			342

Total revenues	$	47,527	$	3,177	$	1,329	$	9,320	$	13,826	$	(10,687	)	$	50,666

Earnings from operations	$	3,658	$	244	$	170	$	248	$	662	$	0		$	4,320
Interest expense		0		0		0		0		0		(237	)		(237	)

Earnings before income taxes	$	3,658	$	244	$	170	$	248	$	662	$	(237	)	$	4,083


Six Months Ended June 30, 2010
Revenues - external customers:
Premiums	$	41,641	$	612	$	0	$	0	$	612	$	0		$	42,253
Services		1,988		154		604		31		789		0			2,777
Products		0		8		25		1,072		1,105		0			1,105

Total revenues - external customers		43,629		774		629		1,103		2,506		0			46,135

Total revenues - intersegment		0		1,441		405		7,181		9,027		(9,027	)		0
Investment and other income		293		29		0		0		29		0			322

Total revenues	$	43,922	$	2,244	$	1,034	$	8,284	$	11,562	$	(9,027	)	$	46,457

Earnings from operations	$	3,256	$	285	$	113	$	263	$	661	$	0		$	3,917
Interest expense		0		0		0		0		0		(244	)		(244	)

Earnings before income taxes	$	3,256	$	285	$	113	$	263	$	661	$	(244	)	$	3,673

(a)	As of June 30, 2011, OptumHealth’s total assets were $5.8 billion as compared to $3.9 billion as of December 31, 2010. The increase was due to acquisitions completed in the first half of 2011.

12.

Commitments and Contingencies

Legal Matters

Because of the nature of its businesses, the Company is frequently made party to a variety of legal actions and regulatory inquiries, including class actions and suits brought by members, providers, customers and regulators, relating to the Company’s management and administration of health benefit plans. These matters include medical malpractice, employment, intellectual property, antitrust, privacy and contract claims, and claims related to health care benefits coverage and other business practices.

The Company records liabilities for its estimates of probable costs resulting from these matters where appropriate. Estimates of probable costs resulting from legal and regulatory matters involving the Company are inherently difficult to predict, particularly where the matters: involve indeterminate claims for monetary damages or may involve fines, penalties or punitive damages; present novel legal theories or represent a shift in regulatory policy; involve a large number of claimants or regulatory bodies; are in the early stages of the proceedings; or could result in a change in business practices. Accordingly, the Company is often unable to estimate the losses or ranges of losses for those matters where there is a reasonable possibility or it is probable that a loss may be incurred.

Litigation Matters

MDL Litigation. Beginning in 1999, a series of class action lawsuits were filed against the Company by health care providers alleging various claims relating to the Company’s reimbursement practices, including alleged violations of the Racketeer Influenced Corrupt Organization Act (RICO) and state prompt payment laws and breach of contract claims. Many of these lawsuits were consolidated in a multi-district litigation in the United States District Court for the Southern District Court of Florida (MDL). In 2006, the trial court dismissed all of the claims against the Company in the lead MDL lawsuit, and the Eleventh Circuit Court of Appeals later affirmed that dismissal. Seven related class action lawsuits that were stayed during the litigation of the lead MDL lawsuit (tag-along suits) remain pending before the District Court, and the Company is a defendant in one other related tag-along suit that was referred to arbitration. The Company is vigorously defending against the claims in these cases. The Company cannot reasonably estimate the range of loss, if any, that may result from these matters given the procedural status of the cases, the potential effect of prior rulings in related cases, the plaintiffs’ failure to provide any evidence-based damages analyses, and the indeterminate number of claims and parties involved. In fact, no formal demands have been made in any of the remaining suits and the plaintiffs have not provided an estimate of alleged damages. However, the Company does not believe that the remaining MDL proceedings will have a material adverse effect on the Company.

Out-of-Network Reimbursement Litigation. In 2000, a group of plaintiffs including the American Medical Association filed a lawsuit against the Company asserting a variety of claims challenging the Company’s determination of reimbursement amounts for non-network health care services based on the Company’s use of a database previously maintained by Ingenix, Inc. (now known as OptumInsight). The parties entered into a settlement agreement in 2009 and this class action lawsuit, along with a related industry-wide investigation by the New York Attorney General, is now resolved. The Company remains a party to a number of other lawsuits, including putative class actions and multidistrict litigation, brought on behalf of members of other health insurance companies, including Aetna, WellPoint and CIGNA, challenging those companies’ determinations of out-of network reimbursement amounts based on their use of the same database. Those suits allege, among other things, that the database licensed to these companies by Ingenix was flawed and that Ingenix conspired with these companies to underpay their members’ claims and seek unspecified damages and treble damages, injunctive and declaratory relief, interest, costs and attorneys fees. The Company is vigorously defending these suits. The Company cannot reasonably estimate the range of loss, if any, that may result from these matters due to the procedural status of the cases, motions to dismiss that are pending in all of the cases, the absence of class certification in any of the cases, the lack of a formal demand on the Company by the plaintiffs, and the involvement of other insurance companies as defendants.

California Claims Processing Matter. In 2007, the California Department of Insurance (CDI) examined the Company’s PacifiCare health insurance plan in California. The examination findings related to the timeliness and accuracy of claims processing, interest payments, provider contract implementation, provider dispute resolution and other related matters. On January 25, 2008, the CDI issued an Order to Show Cause to PacifiCare Life and Health Insurance Company, a subsidiary of the Company, alleging violations of certain insurance statutes and regulations in connection with the CDI’s examination findings. On June 3, 2009, the Company filed a Notice of Defense to the Order to Show Cause denying all material allegations and asserting certain defenses. The matter has been the subject of an administrative hearing before a California administrative law judge (ALJ) since December 2009. CDI amended its Order to Show Cause three times in 2010 to allege a total of 992,936 violations, the large majority of which relate to an alleged failure to include certain language in standard claims correspondence during a four month period in 2007. Although we believe that CDI has never issued an aggregate penalty in excess of $8 million, CDI alleges in press reports and releases that the Company could theoretically be subject to penalties of up to $10,000 per violation. The Company is vigorously defending against these claims. After the ALJ issues a ruling at the conclusion of the administrative proceeding, the California Insurance Commissioner may accept, reject or modify the ALJ’s ruling, issue his own decision, and impose a fine or penalty. The Commissioner’s decision is subject to challenge in court. The Company cannot reasonably estimate the range of loss, if any, that may result from this matter given the procedural

status of the dispute, the novel legal issues presented, the inherent difficulty in predicting regulatory fines and penalties, and the various remedies and levels of judicial review available to the Company in the event a fine or penalty is assessed.

Government Regulation

The Company’s business is regulated at federal, state, local and international levels. The laws and rules governing the Company’s business and interpretations of those laws and rules are subject to frequent change. Broad latitude is given to the agencies administering those regulations. Further, the Company must obtain and maintain regulatory approvals to market and sell many of its products.

The Company has been and is currently involved in various governmental investigations, audits and reviews. These include routine, regular and special investigations, audits and reviews by CMS, state insurance and health and welfare departments, state attorneys general, the Office of Inspector General (OIG), the Office of Personnel Management, the Office of Civil Rights, U.S. Congressional committees, the U.S. Department of Justice, U.S. Attorneys, the SEC, the IRS, the U.S. Department of Labor, the Federal Deposit Insurance Corporation and other governmental authorities. Examples of audits include the risk adjustment data validation (RADV) audits discussed below and a review by the U.S. Department of Labor of the Company’s administration of applicable customer employee benefit plans with respect to ERISA compliance.

Government actions can result in assessment of damages, civil or criminal fines or penalties, or other sanctions, including loss of licensure or exclusion from participation in government programs and could have a material adverse effect on the Company’s financial results.

Risk Adjustment Data Validation Audits. CMS adjusts capitation payments to Medicare Advantage and Medicare Part D plans according to the predicted health status of each beneficiary, as supported by data provided by health care providers. The Company collects claim and encounter data from providers, who the Company generally relies on to appropriately code their claim submissions and document their medical records. CMS then determines the risk score and payment amount for each enrolled member based on the health care data submitted and member demographic information.

In 2008, CMS announced that it would perform RADV audits of selected Medicare Advantage health plans each year to validate the coding practices of and supporting documentation maintained by health care providers. These audits involve a review of medical records maintained by providers and may result in retrospective adjustments to payments made to health plans. Certain of the Company’s health plans have been selected for audit. These audits are focused on medical records supporting risk adjustment data for 2006 that were used to determine 2007 payment amounts. Although these audits are ongoing, the Company does not believe they will have a material impact on the Company’s results of operations, financial position or cash flows.

In December 2010, CMS published for public comment a new proposed RADV audit and payment adjustment methodology. The proposed methodology contains provisions allowing retroactive contract level payment adjustments for the year audited using an extrapolation of the “error rate” identified in audit samples. The Company has submitted comments to CMS regarding concerns the Company has with CMS’ proposed methodology. These concerns include, among others, the fact that the proposed methodology does not take into account the “error rate” in the original Medicare fee-for-service data that was used to develop the risk adjustment system. Additionally, payments received from CMS, as well as benefits offered and premiums charged to members, are based on actuarially certified bids that did not include any assumption of retroactive audit payment adjustments. The Company believes that applying retroactive audit and payment adjustments after CMS acceptance of bids undermines the actuarial soundness of the bids. On February 3, 2011, CMS notified the Company that CMS was evaluating all comments received on the proposed methodology and that it anticipated making changes to the draft, based on input CMS had received. CMS also indicated that it anticipated the final methodology would be issued in the near future. Depending on the methodology utilized, potential payment adjustments could have a material adverse effect on the Company’s results of operations, financial position and cash flows.

The Company is also in discussions with the OIG for Health and Human Services (HHS) regarding audits of the Company’s risk adjustment data for two plans. While the Company does not believe OIG has governing authority to directly impose payment adjustments for risk adjustment audits of Medicare health plans operated under the regulatory authority of CMS, the OIG can recommend to CMS a proposed payment adjustment, and the Company is unable to predict the outcome of these discussions and audits.

Guaranty Fund Assessments. Under state guaranty assessment laws, certain insurance companies (and health maintenance organizations in some states), including those issuing health (which includes long-term care), life and accident insurance policies, doing business in those states can be assessed (up to prescribed limits) for certain obligations to the policyholders and claimants of insolvent insurance companies that write the same line or lines of business. Assessments are generally based on premiums in the state compared to the premiums of other insurers, and could be spread out over a period of years. Some states permit member insurers to recover assessments paid through full or partial premium tax offsets.

The Pennsylvania Insurance Commissioner has placed Penn Treaty Network America Insurance Company and its subsidiary (Penn Treaty), neither of which is affiliated with the Company, in rehabilitation, an intermediate action before insolvency, and has petitioned a state court for liquidation. If Penn Treaty is liquidated, the Company’s insurance entities and other insurers may be required to pay a portion of Penn Treaty’s policyholder claims through guaranty association assessments in future periods. The Company has estimated a potential assessment of $250 million to $300 million, or $0.12 to $0.15 per share, in 2011 related to this matter, and the Company would accrue the assessment in operating costs if and when the state court renders such a decision. The timing, actual amount and impact, if any, of any guaranty fund assessments will depend on several factors, including if and when the court declares Penn Treaty insolvent, the amount of the insolvency, the availability and amount of any potential offsets, such as an offset of any premium taxes otherwise payable by the Company, and the impact of any such assessments on potential premium rebate payments under the Health Reform Legislation, which have been considered in the Company’s per-share estimate above.

See Item 1, “Business — Government Regulation,” and Item 1A, “Risk Factors,” in the Company’s 2010 10-K for additional regulatory information and related risks.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read together with the accompanying Condensed Consolidated Financial Statements and Notes. References to the terms “we,” “our” or “us” used throughout this Management’s Discussion and Analysis of Financial Condition and Results of Operations refer to UnitedHealth Group Incorporated and its subsidiaries.

EXECUTIVE OVERVIEW

General

UnitedHealth Group is a diversified health and well-being company, whose focus is on improving the overall health and well-being of the people and communities we serve and enhancing the performance of the health system. We work with health care professionals and other key partners to expand access to high quality health care. We help people get the care they need at an affordable cost; support the physician/patient relationship; and empower people with the information, guidance and tools they need to make personal health choices and decisions.

Through our diversified family of businesses, we leverage core competencies in advanced technology-based transactional capabilities; health care data, knowledge and information; and health care resource organization and care facilitation to help make health care work better. We use these core competencies to address distinct market needs across the health economy through our two business platforms – Health Benefits through the UnitedHealthcare master brand and Health Services through the Optum master brand. UnitedHealthcare, our Health Benefits platform, includes three distinct businesses that share systems, networks and one unified brand name to offer customers broad access to high-quality, cost-effective health care at the local level. Health Benefits are offered in the individual and employer markets and the public and senior markets through our UnitedHealthcare Employer & Individual, UnitedHealthcare Medicare & Retirement, and UnitedHealthcare Community & State businesses. Optum, our Health Services platform, includes three diversified information and technology-enabled services businesses, OptumHealth, OptumInsight (formerly Ingenix) and OptumRx (formerly Prescription Solutions), serving the broad health care marketplace, ranging from employers and health plans to physicians, hospitals and life sciences companies. In aggregate, our two business platforms have more than two dozen distinct business units that address specific end markets. Each of these business units focuses on helping improve overall health system performance by optimizing care quality, reducing costs and improving the consumer experience.

Revenues

Our revenues are primarily comprised of premiums derived from risk-based health insurance arrangements in which the premium is typically at a fixed rate per individual served for a one-year period, and we assume the economic risk of funding our customers’ health care benefits and related administrative costs. Effective in 2011, commercial health plans with medical loss ratios on fully insured products, as calculated under the definitions in the Health Reform Legislation and implementing regulations, that fall below certain targets (85% for large employer groups, 80% for small employer groups and 80% for individuals, subject to state-specific exceptions) are required to rebate ratable portions of their premiums to their customers annually. Rebate payments for 2011 would be made in mid 2012. As a result, quarterly premium revenue may be reduced by a pro rata estimate of our full-year medical loss ratio rebate payable under the Health Reform Legislation. We also generate revenues from fee-based services performed for customers that self-insure the health care costs of their employees and employees’ dependants. For both risk-based and fee-based health care benefit arrangements, we provide coordination and facilitation of medical services; transaction processing; health care professional services; and access to contracted networks of physicians, hospitals and other health care professionals. We also generate service revenues from our health intelligence and consulting businesses. Product revenues are mainly comprised of products sold by our pharmacy benefit management business. We derive investment income primarily from interest earned on our investments in debt securities; investment income also includes gains or losses when investment securities are sold, or other-than-temporarily impaired.

Operating Costs

Medical Costs. Our operating results depend in large part on our ability to effectively estimate, price for and manage our medical costs through underwriting criteria, product design, negotiation of favorable care provider contracts and care coordination programs. Controlling medical costs requires a comprehensive and integrated approach to organize and advance the full range of interrelationships among patients/consumers, health professionals, hospitals, pharmaceutical/technology manufacturers and other key stakeholders.

Medical costs include estimates of our obligations for medical care services rendered on behalf of insured consumers for which we have not yet received or processed claims, and our estimates for physician, hospital and other medical cost disputes. In every reporting period, our operating results include the effects of more completely developed medical costs payable estimates associated with previously reported periods.

Our medical care ratio, calculated as medical costs as a percentage of premium revenues, reflects the combination of pricing, rebates, benefit designs, consumer health care utilization and comprehensive care facilitation efforts. We seek to sustain a stable medical care

ratio for an equivalent mix of business. However, changes in business mix, such as expanding participation in comparatively higher medical care ratio government-sponsored public sector programs and Health Reform Legislation may impact our premiums, medical costs and medical care ratio.

Operating Costs. Operating costs are primarily comprised of costs related to employee compensation and benefits, agent and broker commissions, premium taxes and assessments, professional fees, advertising and occupancy costs. We seek to improve our operating cost ratio, calculated as operating costs as a percentage of total revenues, for an equivalent mix of business. However, changes in business mix, such as increases in the size of our health services businesses may impact our operating costs and operating cost ratio.

Cash Flows

We generate cash primarily from premiums, service and product revenues and investment income, as well as proceeds from the sale or maturity of our investments. Our primary uses of cash are for payments of medical claims and operating costs, payments on debt, purchases of investments, acquisitions, dividends to shareholders and common stock repurchases. For more information on our cash flows, see “Liquidity” below.

Business Trends

Our businesses participate in the U.S. health economy, which comprises approximately 18% of U.S. gross domestic product and which has grown consistently for many years. We expect overall spending on health care in the U.S. to continue to rise in the future, due to inflation, medical technology and pharmaceutical advancement, regulatory requirements, demographic trends in the U.S. population and national interest in health and well-being. The rate of market growth may be affected by a variety of factors, including macro-economic conditions and enacted health care reforms, which could also impact our results of operations.

Health Care Reforms. In the first quarter of 2010, the Health Reform Legislation was signed into law. The Health Reform Legislation expands access to coverage and modifies aspects of the commercial insurance market, the Medicaid and Medicare programs, CHIP and other aspects of the health care system. HHS, the Department of Labor and the Treasury Department have issued regulations (or proposed regulations) on a number of aspects of Health Reform Legislation, but we await final rules and interim guidance on other key aspects of the legislation, all of which have a variety of effective dates.

We operate a diversified set of businesses that focus on health care, and our business model is designed to address a multitude of market sectors. The Health Reform Legislation and the related federal and state regulations will impact how we do business and could restrict growth in certain products and market segments, restrict premium rate increases for certain products and market segments, increase our medical and administrative costs or expose us to an increased risk of liability, any or all of which could have a material adverse effect on us. We also anticipate that the Health Reform Legislation will further increase attention on the need for health care cost containment and improvements in quality, as well as in prevention, wellness and disease management. We believe demand for many of our service offerings, such as consulting services, data management, information technology and related infrastructure construction, disease management, and population-based health and wellness programs will continue to grow.

As previously discussed, effective in 2011, commercial health plans with medical loss ratios on fully insured products are required to rebate ratable portions of their premiums to their customers annually. The potential for and size of the rebates will be measured by state, by group size and by licensed subsidiary. This disaggregation of insurance pools into much smaller pools will likely decrease the predictability of results for any given pool and could lead to variation over time in the estimates of rebates owed in total. In the aggregate, the rebate regulations cap the level of margin that can be attained.

Depending on the results of the calculation, there is a broad range of potential rebate and other business impacts and there could be meaningful disruption in local health care markets if companies decide to adjust their offerings in response to these requirements. For example, companies could elect to change pricing, modify product features or benefits, adjust their mix of business or even exit segments of the market. Companies could also seek to adjust their operating costs to support reduced premiums by making changes to their distribution arrangements or decreasing spending on non-medical product features and services. Companies continue to face a significant amount of uncertainty given the breadth of possible changes, including changes in the competitive environment, state rate approval, fluctuations in medical costs, the statistical variation that results from assessing business by state, by license and by group size and the potential for meaningful market disruption in 2011 and 2012. We have made changes to reduce our product distribution costs in the individual market in response to the Health Reform Legislation, including reducing broker commissions, and are implementing changes to distribution in the large group insured market segment. These changes could impact future growth in these products. Other market participants could also implement changes to their business practices in response to the Health Reform Legislation, which could positively or negatively impact our growth and market share.

The Health Reform Legislation also requires HHS to maintain an annual review of “unreasonable” increases in premium rates for commercial health plans. HHS issued final regulations in May 2011 that defined a review threshold of annual premium rate increases generally at or above 10% (with state-specific thresholds to be applicable commencing September 2012), and clarified that the HHS

review will not supersede existing state review and approval processes. The regulations further require commercial health plans to provide to the states and HHS extensive information supporting any rate increase of 10% (or applicable state threshold) or more.

The Federal government is encouraging states to intensify their reviews of requests for rate increases by commercial health plans and providing funding to assist in those state-level reviews. Generally, rate approval responsibility still lies with the states under the HHS regulations. Since August 2010, HHS has allocated approximately $245 million for grants to states to enable the states to conduct more robust reviews of requests for premium increases. Many states have applied for and received grants, and state regulators have signaled their intent to more closely scrutinize premium rates. For example, premium rate review legislation (ranging from new or enhanced rate filing requirements to prior approval requirements) has been introduced or passed in more than half of the states in 2011. As a result, we have begun to experience greater regulatory challenges to appropriate premium rate increases in several states, including California and New York. Depending on the level of anticipated increased scrutiny by the states, there is a broad range of potential business impacts. For example, it may become more difficult to price our commercial risk business consistent with expected underlying cost trends, leading to the risk of operating margin compression.

Effective in 2011, the Health Reform Legislation mandates consumer discounts of 50% on brand name prescription drugs and 7% on generic prescription drugs for Part D plan participants in the coverage gap. This statutory reduction in drug prices for seniors in the coverage gap may cause individuals who may have had difficulty affording their medications to increase their pharmaceutical usage. The change in pricing could also have secondary effects, such as changing the mix of brand name and generic drug usage by seniors. We have incorporated the anticipated impact of these changes in our 2011 product pricing and pharmacy benefit management business plan.

As part of the Health Reform Legislation, Medicare Advantage payment rates for 2011 were frozen at 2010 levels. Separately, CMS implemented a reduction in Medicare Advantage reimbursements of 1.6% for 2011. We expect the 2011 rates will be outpaced by underlying medical trends, placing continued importance on effective medical management and ongoing improvements in administrative costs. Beginning in 2012, additional cuts to Medicare Advantage plans will take effect (plans will ultimately receive rates ranging from 95% of Medicare fee-for-service rates in high cost areas to 115% in low cost areas), with changes being phased-in over two to six years, depending on the level of payment reduction in a county. All of these changes could result in reduced enrollment or reimbursement or payment levels. There are a number of annual adjustments we can make to our operations, which may partially offset any impact from these rate reductions. For example, we can seek to intensify our medical and operating cost management, adjust members’ benefits and decide on a county-by-county basis in which geographies to participate. Additionally, achieving high quality scores from CMS for improving upon certain clinical and operational performance standards will impact future quality bonuses. The impact of CMS quality bonus payments may further offset these anticipated rate reductions beginning in 2012. We also may be able to mitigate the effects of reduced funding on margins by increasing enrollment due to the anticipated increase in the number of people eligible for Medicare in coming years. Longer term, market wide decreases in the availability or relative quality of Medicare Advantage products may increase demand for other senior health benefits products such as our Medicare Part D and Medicare Supplement insurance offerings.

The Health Reform Legislation includes a “maintenance of effort” (MOE) provision that requires states to maintain their eligibility rules for people covered by Medicaid, until the Secretary of HHS determines that an insurance exchange is operational in a given state. The MOE provision is intended to prevent states from reducing eligibility standards and determination procedures as a way to remove adults above 133 percent of the federal poverty level from Medicaid before implementation of expanded Medicaid coverage effective in January 2014. However, states with, or projecting, a budget deficit may apply for an exception to the MOE provision. If states are successful in obtaining MOE waivers and allow certain Medicaid programs to expire, we could experience reduced Medicaid enrollment.

The Health Reform Legislation presents additional opportunities and challenges over the longer term, including the assessment of an annual $8 billion insurance industry assessment beginning in 2014, the operation of state-based exchanges for individuals and small businesses beginning in 2014, and numerous other commercial and governmental plan requirements. Individual states may also accelerate their procurement of Medicaid managed care services for sizeable groups of Medicaid program beneficiaries in order to even their administrative workloads when Medicaid market expansions take place in 2014. The law could increase near-term business growth opportunities for UnitedHealthcare Community & State. Due to the complexity of the health care system and the numerous changes that are taking place, the longer term effects of the new legislation, positive and negative, remain difficult to assess.

Court proceedings related to the Health Reform Legislation continue to evolve. For example, three federal district courts have declared the law constitutional, with the 6th U.S. Circuit Court of Appeals affirming one of the rulings in June 2011 and two federal district courts have declared all or part of the legislation unconstitutional. These court proceedings, and the potential for Congressional action to impede implementation, create additional uncertainties with respect to the law. For additional information regarding the Health Reform Legislation, see Item 1, “Business - Government Regulation” and Item 1A, “Risk Factors,” in our 2010 10-K.

RESULTS SUMMARY


(in millions, except percentages and per share data)	Three Months Ended June 30,						Change				Six Months Ended June 30,						Change
(in millions, except percentages and per share data)	2011			2010			2011 vs. 2010				2011			2010			2011 vs. 2010
Revenues:
Premiums	$	22,813		$	21,125		$	1,688	8	%	$	45,816		$	42,253		$	3,563		8	%
Services		1,656			1,413			243	17			3,254			2,777			477		17
Products		605			577			28	5			1,254			1,105			149		13
Investment and other income		160			149			11	7			342			322			20		6

Total revenues		25,234			23,264			1,970	8			50,666			46,457			4,209		9

Operating costs:
Medical costs		18,578			17,221			1,357	8			37,303			34,391			2,912		8
Operating costs		3,733			3,359			374	11			7,350			6,635			715		11
Cost of products sold		554			534			20	4			1,153			1,017			136		13
Depreciation and amortization		270			249			21	8			540			497			43		9

Total operating costs		23,135			21,363			1,772	8			46,346			42,540			3,806		9

Earnings from operations		2,099			1,901			198	10			4,320			3,917			403		10
Interest expense		(119	)		(119	)		0	0			(237	)		(244	)		(7	)	(3	)

Earnings before income taxes		1,980			1,782			198	11			4,083			3,673			410		11
Provision for income taxes		(713	)		(659	)		54	8			(1,470	)		(1,359	)		111		8

Net earnings	$	1,267		$	1,123		$	144	13	%	$	2,613		$	2,314		$	299		13	%

Diluted net earnings per common share	$	1.16		$	0.99		$	0.17	17	%	$	2.38		$	2.02		$	0.36		18	%
Medical care ratio		81.4	%		81.5	%			(0.1	)%		81.4	%		81.4	%				0.0	%
Operating cost ratio		14.8			14.4				0.4			14.5			14.3					0.2
Operating margin		8.3			8.2				0.1			8.5			8.4					0.1
Tax rate		36.0			37.0				(1.0	)		36.0			37.0					(1.0	)
Net margin		5.0			4.8				0.2			5.2			5.0					0.2
Return on equity (a)		18.8	%		18.3	%			0.5	%		19.7	%		19.1	%				0.6	%

(a)	Return on equity is calculated as annualized net earnings divided by average equity. Average equity is calculated using the equity balance at the end of the preceding year and the equity balances at the end of each of the quarters in the periods presented.

2011 RESULTS OF OPERATIONS COMPARED TO 2010 RESULTS

Consolidated Financial Results

Revenues

The increases in revenues for both the three and six months ended June 30, 2011 were driven by strong organic growth in risk-based offerings in our UnitedHealthcare businesses and revenue growth across all Optum businesses.

Medical Costs

Medical costs for both the three and six months ended June 30, 2011 increased due to membership growth in our commercial and public and senior markets risk-based businesses and continued increases in the cost per service we pay for health system use, and higher, though moderated, levels of overall health system use.

For each period, our operating results include the effects of revisions in medical cost estimates related to prior periods. Changes in medical cost estimates related to prior periods, resulting from more complete claim information identified in the current period, are included in total medical costs reported for the current period. For the three months ended June 30, 2011 there was $120 million of net favorable medical cost development related to prior fiscal years and $60 million of net favorable medical cost development related to the first quarter of 2011. For the six months ended June 30, 2011, medical costs included $560 million of net favorable medical cost development related to prior fiscal years. The favorable development in 2011 was primarily driven by lower than expected health system utilization levels and continued efficiencies in claims submission, handling and processing, which results in higher completion factors.

June 30, 2010, medical costs included $580 million of net favorable medical cost development related to prior fiscal years. The favorable development for both the three and six months ended June 30, 2010 was primarily driven by changes in previous estimates related to more efficient claims handling and processing, resulting in higher completion factors and lower than expected health system utilization levels.

In the second half of 2011, we expect consumer usage of the health system to increase seasonally, resuming its growth trend from the recent moderation in utilization growth. An increase in utilization will result in increased medical costs and an increase in our medical care ratio. We will work to manage medical cost trends through affordable network relationships, pay-for-performance reimbursement programs for care providers, and targeted clinical initiatives around improving quality and affordability.

Operating Costs

Operating costs for both the three and six months ended June 30, 2011 increased due to acquired and organic business growth, partially offset by ongoing cost management and quality improvements.

We expect to incur $250 million - $300 million for an assessment of our pro rata portion of policyholder claims of Penn Treaty. While we forecast these expenses for the fourth quarter of 2011, we have no ability to control the timing or the legal process. See Note 12 of Notes to Condensed Consolidated Financial Statements for more detail on Penn Treaty.

Income Tax Rate

The decrease in our effective income tax rate for both the three and six months ended June 30, 2011 resulted primarily from the cumulative implementation of changes that increased income taxes under the Health Reform Legislation which were included in our income tax rate for the three and six months ended June 30, 2010.

Due to the anticipated favorable resolution of various tax matters, we project our income tax rate for the second half of 2011 to decrease by 2% as compared to the first six months of 2011.

Reportable Segments

We have four reportable segments:

•

UnitedHealthcare, which includes UnitedHealthcare Employer & Individual, UnitedHealthcare Medicare & Retirement and UnitedHealthcare Community & State;

•

OptumHealth;

•

OptumInsight; and

•

OptumRx.

See Note 11 of Notes to the Condensed Consolidated Financial Statements for a description of the types and services from which each of these reportable segments derives its revenues.

On January 1, 2011, we realigned certain of our businesses to respond to changes in the markets we serve. Prior period segment financial information has been recast to conform to the 2011 presentation. See Note 1 of Notes to Condensed Consolidated Financial Statements for more information on our business realignment. The following table presents reportable segment financial information:


	Three Months Ended June 30,						Change					Six Months Ended June 30,						Change
(in millions, except percentages)	2011			2010			2011 vs. 2010					2011			2010			2011 vs. 2010
Revenues
UnitedHealthcare	$	23,653		$	21,955		$	1,698		8	%	$	47,527		$	43,922		$	3,605		8	%

OptumHealth		1,670			1,142			528		46			3,177			2,244			933		42
OptumInsight		658			529			129		24			1,329			1,034			295		29
OptumRx		4,688			4,202			486		12			9,320			8,284			1,036		13

Total Optum		7,016			5,873			1,143		19			13,826			11,562			2,264		20

Eliminations		(5,435	)		(4,564	)		(871	)	nm			(10,687	)		(9,027	)		(1,660	)	nm

Consolidated revenues	$	25,234		$	23,264		$	1,970		8	%	$	50,666		$	46,457		$	4,209		9	%


Earnings from operations
UnitedHealthcare	$	1,759		$	1,565		$	194		12	%	$	3,658		$	3,256		$	402		12	%

OptumHealth		135			142			(7	)	(5	)		244			285			(41	)	(14	)
OptumInsight		87			60			27		45			170			113			57		50
OptumRx		118			134			(16	)	(12	)		248			263			(15	)	(6	)

Total Optum		340			336			4		1			662			661			1		0

Consolidated earnings from operations	$	2,099		$	1,901		$	198		10	%	$	4,320		$	3,917		$	403		10	%


Operating margin
UnitedHealthcare		7.4	%		7.1	%				0.3	%		7.7	%		7.4	%				0.3	%
OptumHealth		8.1			12.4					(4.3	)		7.7			12.7					(5.0	)
OptumInsight		13.2			11.3					1.9			12.8			10.9					1.9
OptumRx		2.5			3.2					(0.7	)		2.7			3.2					(0.5	)
Total Optum		4.8			5.7					(0.9	)		4.8			5.7					(0.9	)
Consolidated operating margin		8.3	%		8.2	%				0.1	%		8.5	%		8.4	%				0.1	%

nm = not meaningful

The following summarizes the number of individuals served by our UnitedHealthcare businesses, by major market segment and funding arrangement, as of June 30, 2011 and 2010:


					Change
(in thousands, except percentages)	2011		2010		2011 vs. 2010
Commercial risk-based		9,495		9,235		260	3	%
Commercial fee-based		16,205		15,355		850	6

Total commercial		25,700		24,590		1,110	5

Medicare Advantage		2,185		2,040		145	7
Medicaid		3,430		3,185		245	8
Standardized Medicare Supplement		2,860		2,725		135	5

Total public and senior		8,475		7,950		525	7

Total UnitedHealthcare - medical		34,175		32,540		1,635	5	%

Supplemental Data:
Medicare Part D stand-alone		4,780		4,520		260	6	%
Total Part D prescription drug plans		6,930		6,455		475	7
Consumer-Driven health plans (included in commercial above)		3,850		3,300		550	17	%

UnitedHealthcare

The revenue growth in UnitedHealthcare for the three and six months ended June 30, 2011 was primarily due to growth in the number of individuals served across our businesses and commercial premium rate increases reflecting expected underlying medical cost trends. For the three and six months ended June 30, 2011 revenues were $11.3 billion and $22.4 billion for UnitedHealthcare Employer & Individual; $9.0 billion and $18.4 billion for UnitedHealthcare Medicare & Retirement; and $3.3 billion and $6.7 billion for UnitedHealthcare Community & State, respectively. For the three and six months ended June 30, 2010 revenues were $10.5 billion and $20.9 billion for UnitedHealthcare Employer & Individual; $8.5 billion and $17.4 billion for UnitedHealthcare Medicare & Retirement; and $2.9 billion and $5.6 billion for UnitedHealthcare Community & State, respectively.

UnitedHealthcare earnings from operations for the three and six months ended June 30, 2011 increased over the prior year primarily due to factors that increased revenues described above, favorable medical cost performance and continued overall cost management disciplines.

Optum. Our Health Services platform is comprised of OptumHealth, OptumInsight and OptumRx. Total revenue for these businesses increased due to business growth and acquisitions at OptumHealth and OptumInsight and growth in customers served through pharmaceutical benefit management programs at OptumRx.

Optum’s earnings from operations for the three and six months ended June 30, 2011 were essentially flat compared to 2010. The decrease in the operating margin was due to changes in business mix within Optum’s businesses and investments for future growth.

The results by segment were as follows:

OptumHealth

Increased revenues at OptumHealth for the three and six months ended June 30, 2011 were due to acquisitions completed in the first half of 2011 and strong consumer growth in population health management offerings serving payers and plan sponsors, such as wellness and health coaching services.

Earnings from operations and operating margins for the three and six months ended June 30, 2011 decreased as the factors that increased revenues were offset by internal business realignments and related revisions to service arrangements as well as continued investments in new markets.

OptumInsight

Increased revenues at OptumInsight for the three and six months ended June 30, 2011 were due to the impact of 2010 acquisitions and organic growth.

The increases in earnings from operations and operating margins for the three and six months ended June 30, 2011 reflect an increased mix of higher margin product and solutions sales.

OptumRx

The increase in OptumRx revenues for the three and six months ended June 30, 2011 was due to increased prescription volumes, primarily due to growth in customers served through Medicare Part D prescription drug plans by our UnitedHealthcare Medicare & Retirement business, and a favorable mix of higher revenue specialty drug prescriptions. Intersegment revenues eliminated in consolidation were $4.1 billion and $8.1 billion for the three and six months ended June 30, 2011, respectively. Intersegment revenues eliminated in consolidation were $3.6 billion and $7.2 billion for the three and six months ended June 30, 2010, respectively.

OptumRx earnings from operations and operating margins for the three and six months ended June 30, 2011 decreased as the mix of lower margin specialty and Medicaid business and investments in operating costs to support growth initiatives more than offset the earnings contribution from higher revenues.

LIQUIDITY, FINANCIAL CONDITION AND CAPITAL RESOURCES

Liquidity

Introduction

We manage our liquidity and financial position in the context of our overall business strategy. We continually forecast and manage our cash, investments, working capital balances and capital structure to meet the short- and long-term obligations of our businesses while maintaining liquidity and financial flexibility. Cash flows generated from operating activities are principally from earnings before non-cash expenses. The risk of decreased operating cash flow from a decline in earnings is partially mitigated by the diversity of our businesses, geographies and customers; our disciplined underwriting and pricing processes for our risk-based businesses; and continued productivity improvements in our operating costs.

Our regulated subsidiaries generate significant cash flows from operations. A majority of the assets held by our regulated subsidiaries are in the form of cash, cash equivalents and investments. After considering expected cash flows from operating activities, we generally invest cash of regulated subsidiaries that exceeds our expected short-term obligations in longer term, liquid, investment-grade, debt securities to improve our overall investment return. We make these investments pursuant to our Board of Directors’ approved investment policy, which focuses on preservation of capital, credit quality, diversification, income and duration. The policy also governs return objectives, regulatory limitations, tax implications and other risk tolerances.

Our regulated subsidiaries are subject to financial regulations and standards in their respective states of domicile. Most of these regulations and standards conform to those established by the National Association of Insurance Commissioners. These standards, among other things, require these subsidiaries to maintain specified levels of statutory capital, as defined by each state, and restrict the timing and amount of dividends and other distributions that may be paid to their parent companies. Except in the case of extraordinary dividends, these standards generally permit dividends to be paid from statutory unassigned surplus of the regulated subsidiary and are limited based on the regulated subsidiary’s level of statutory net income and statutory capital and surplus. These dividends are referred to as “ordinary dividends” and generally can be paid without prior regulatory approval. If the dividend, together with other dividends paid within the preceding twelve months, exceeds a specified statutory limit or is paid from sources other than earned surplus, the entire dividend is generally considered an “extraordinary dividend” and must receive prior regulatory approval.

In 2011, based on the 2010 statutory net income and statutory capital and surplus levels, the maximum amount of ordinary dividends which can be paid is $3.4 billion. For the six months ended June 30, 2011, as scheduled, our regulated subsidiaries paid their parent companies dividends of $1.5 billion, including $85 million of extraordinary dividends. For the year ended December 31, 2010, our regulated subsidiaries paid their parent companies dividends of $3.2 billion, including $686 million of extraordinary dividends.

Our non-regulated businesses also generate cash flows from operations for general corporate use. Cash flows generated by these entities, combined with dividends from our regulated entities and financing through the issuance of commercial paper and long-term debt, as well as the availability of our committed credit facility, further strengthen our operating and financial flexibility. We generally use these cash flows to expand our businesses through acquisitions, reinvest in our businesses through capital expenditures, repay debt, or return capital to our shareholders through shareholder dividends and/or repurchases of our common stock, depending on market conditions.

Results

A summary of our major sources and uses of cash is reflected in the table below:


	Six Months Ended June 30,
(in millions)	2011			2010
Sources of cash:
Cash provided by operating activities	$	2,419		$	1,928
Sales of investments		1,985			1,522
Maturities of investments		1,901			1,426
Proceeds from customer funds administered		1,228			1,108
Proceeds from issuance of long-term debt		747			0
Proceeds from dispositions		378			0
Proceeds from issuance of commercial paper, net		154			880
Other		269			106

Total sources of cash		9,081			6,970

Uses of cash:
Purchases of investments		(4,479	)		(3,258	)
Common stock repurchases		(1,255	)		(1,241	)
Retirement of long-term debt		(955	)		(1,333	)
Cash paid for acquisitions, net of cash assumed		(827	)		(165	)
Purchases of property, equipment and capitalized software		(516	)		(343	)
Dividends paid		(309	)		(174	)
Other		(88	)		(273	)

Total uses of cash		(8,429	)		(6,787	)

Net increase in cash	$	652		$	183

2011 Cash Flows Compared to 2010 Cash Flows

Cash flows from operating activities increased $491 million, or 25%, from the same period last year. The increased cash was primarily driven by growth in net earnings and related income tax accruals and early receipt of certain state premiums which were partially offset by an increase in CMS receivables.

Cash flows used for investing activities increased $740 million, or 90%, primarily due to acquisitions completed in 2011 and increased net purchases of investments.

Cash flows used for financing activities decreased $718 million, or 77%, primarily due to proceeds from the net issuance of long-term debt and commercial paper and an increase in customer funds administered related to payables associated with CMS subsidies.

Financial Condition

As of June 30, 2011, our cash, cash equivalent and available-for-sale investment balances of $27.0 billion included $9.8 billion of cash and cash equivalents (of which $1.4 billion was held by non-regulated entities), $16.7 billion of debt securities and $558 million of investments in equity securities and venture capital funds. Given the significant portion of our portfolio held in cash equivalents, we do not anticipate fluctuations in the aggregate fair value of our financial assets to have a material impact on our liquidity or capital position. The use of different market assumptions or valuation methodologies, primarily used in valuing our Level 3 securities (those securities priced using unobservable inputs which are significant), may have an effect on the estimated fair value amounts of our investments. Due to the subjective nature of these assumptions, the estimates may not be indicative of the actual exit price if we had sold the investment at the measurement date. Other sources of liquidity, primarily from operating cash flows and our commercial paper program, which is supported by our $2.5 billion bank credit facility, reduce the need to sell investments during adverse market conditions. See Note 3 of Notes to the Condensed Consolidated Financial Statements for further detail of our fair value measurements.

Our cash equivalent and investment portfolio has a weighted-average duration of 2.1 years and a weighted-average credit rating of “AA” as of June 30, 2011. Included in the debt securities balance are $2.6 billion of state and municipal obligations that are guaranteed by a number of third parties. We do not have any significant exposure to any single guarantor (neither indirect through the guarantees, nor direct through investment in the guarantor). Further, due to the high underlying credit rating of the issuers, the weighted-average credit rating of these securities both with and without the guarantee is “AA” as of June 30, 2011.

Capital Resources and Uses of Liquidity

In addition to cash flow from operations and cash and cash equivalent balances available for general corporate use, our capital resources and uses of liquidity are as follows:

Commercial Paper. We maintain a commercial paper borrowing program, which facilitates the private placement of unsecured debt through third-party broker-dealers. The commercial paper program is supported by the $2.5 billion bank credit facility described below. As of June 30, 2011, we had $1.1 billion of commercial paper outstanding with a weighted-average annual interest rate of 0.4%.

Bank Credit Facility. We have a $2.5 billion five-year revolving bank credit facility with 23 banks, which matures in May 2012. This facility supports our commercial paper program and is available for general corporate purposes. There were no amounts outstanding under this facility during the six months ended June 30, 2011. The interest rate on borrowings is variable based on term and amount and is calculated based on the London Interbank Offered Rate (LIBOR) plus a credit spread based on our senior unsecured credit ratings. As of June 30, 2011, the annual interest rate on this facility, had it been drawn, would have ranged from 0.4% to 0.6%.

Our bank credit facility contains various covenants, including requiring us to maintain a debt-to-total-capital ratio below 50%. Our debt-to-total-capital ratio, calculated as the sum of debt divided by the sum of debt and shareholders’ equity, was 28.9% and 30.1% as of June 30, 2011 and December 31, 2010, respectively. We were in compliance with our debt covenants as of June 30, 2011.

Shelf Registration. In February 2011, we filed an automatically effective shelf registration statement on Form S-3 with the SEC registering an unspecified amount of debt securities.

Debt Issuance. In February 2011, we issued $750 million in senior unsecured notes. The issuance included $400 million of 4.7% fixed-rate notes due February 2021 and $350 million of 5.95% fixed-rate notes due February 2041.

Credit Ratings. Our credit ratings at June 30, 2011 were as follows:

Moody’s (a)

Standard & Poor’s

Fitch

A.M. Best

Ratings

Outlook

Ratings

Outlook

Ratings

Outlook

Ratings

Outlook

Senior unsecured debt

Baa1

Stable

A-

Stable

A-

Stable

bbb+

Stable

Commercial paper

P-2

n/a

A-2

n/a

AMB-2

n/a

(a)	On July 21, 2011, Moody’s upgraded the credit rating on our senior unsecured debt to A3.

The availability of financing in the form of debt or equity is influenced by many factors, including our profitability, operating cash flows, debt levels, credit ratings, debt covenants and other contractual restrictions, regulatory requirements and economic and market conditions. For example, a significant downgrade in our credit ratings or conditions in the capital markets may increase the cost of borrowing for us or limit our access to capital. We have therefore adopted strategies and actions toward maintaining financial flexibility to mitigate the impact of such factors on our ability to raise capital.

Share Repurchases. Under our Board of Directors’ authorization, we maintain a common share repurchase program. Repurchases may be made from time to time at prevailing prices in the open market, subject to certain preset parameters. In May 2011, the Board renewed our share repurchase program with an authorization to repurchase up to 110 million shares of our common stock. During the six months ended June 30, 2011, we repurchased 28 million shares at an average price of approximately $45 per share and an

aggregate cost of $1.3 billion. As of June 30, 2011, we had Board authorization to purchase up to an additional 101 million shares of our common stock.

Dividends. In May 2011, our Board of Directors increased our cash dividend to shareholders to an annual dividend rate of $0.65 per share, paid quarterly. Since June 2010, we had paid a quarterly dividend of $0.125 per share. Declaration and payment of future quarterly dividends is at the discretion of the Board and may be adjusted as business needs or market conditions change.

The following table provides details of our dividend payments in 2011:


Payment Date	Amount per Share		Total Amount Paid
			(in millions)
3/21/2011	$	0.1250	$	135
6/21/2011		0.1625		174

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

A summary of future obligations under our various contractual obligations and commitments as of December 31, 2010 was disclosed in our 2010 10-K. During the six months ended June 30, 2011, other than the debt issuance, there were no material changes to this previously-filed information outside the ordinary course of business. However, we continually evaluate opportunities to expand our operations, including internal development of new products, programs and technology applications and acquisitions.

RECENTLY ISSUED ACCOUNTING STANDARDS

In July 2011, the FASB issued ASU 2011-06. This update addresses the recognition and classification of an entity’s share of the annual health insurance industry assessment (the “fee”) mandated by the Health Reform Legislation. The fee will be levied on health insurers for each calendar year beginning on or after January 1, 2014 and is not deductible for income tax purposes. For reporting entities subject to the fee, the amendments in ASU 2011-06 specify that the liability for the fee should be estimated and recorded in full once the entity provides qualifying health insurance in the applicable calendar year in which the fee is payable with a corresponding deferred cost that is amortized to expense using a straight-line method of allocation unless another method better allocates the fee over the calendar year that it is payable.

We have determined that there have been no other recently issued accounting standards that will have a material impact on our Condensed Consolidated Financial Statements.

CRITICAL ACCOUNTING ESTIMATES

We prepared our Condensed Consolidated Financial Statements in conformity with U.S. GAAP. In preparing these Condensed Consolidated Financial Statements, we are required to make judgments, assumptions and estimates, which we believe are reasonable and prudent based on the available facts and circumstances. These judgments, assumptions and estimates affect certain of our revenues and expenses and their related balance sheet accounts and disclosure of our contingent liabilities. We base our assumptions and estimates primarily on historical experience and trends and factor in known and projected trends. On an on-going basis, we re-evaluate our selection of assumptions and the method of calculating our estimates. Actual results, however, may materially differ from our calculated estimates and this difference would be reported in our current operations.

For a detailed description of our critical accounting estimates, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II of our 2010 10-K. As of June 30, 2011, our critical accounting policies have not changed from those described in our 2010 10-K. For a detailed discussion of our significant accounting policies, see Note 2 of Notes to the Consolidated Financial Statements in our 2010 10-K.

CONCENTRATIONS OF CREDIT RISK

Investments in financial instruments such as marketable securities and accounts receivable may subject us to concentrations of credit risk. Our investments in marketable securities are managed under an investment policy authorized by our Board of Directors. This policy limits the amounts that may be invested in any one issuer and generally limits our investments to U.S. government and agency securities, state and municipal securities and corporate debt obligations that are investment grade. Concentrations of credit risk with respect to accounts receivable are limited due to the large number of employer groups that constitute our customer base. As of June 30, 2011, we had an aggregate $1.9 billion reinsurance receivable resulting from the sale of our Golden Rule Financial Corporation life and annuity business in 2005. We regularly evaluate the financial condition of the reinsurer and only record the reinsurance receivable to the extent that the amounts are deemed probable of recovery. Currently, the reinsurer is rated by A.M. Best as “A+.” As of June 30, 2011, there were no other significant concentrations of credit risk.

FORWARD-LOOKING STATEMENTS

The statements, estimates, projections, guidance or outlook contained in this report include “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995 (PSLRA). These statements are intended to take advantage of the “safe harbor” provisions of the PSLRA. Generally the words “believe,” “expect,” “intend,” “estimate,” “anticipate,” “plan,” “project,” “should” and similar expressions identify forward-looking statements, which generally are not historical in nature. These statements may contain information about financial prospects, economic conditions and trends and involve risks and uncertainties. We caution that actual results could differ materially from those that management expects, depending on the outcome of certain factors.

Some factors that could cause results to differ materially from the forward-looking statements include: our ability to effectively estimate, price for and manage our medical costs, including the impact of any new coverage requirements; the potential impact that new laws or regulations, or changes in existing laws or regulations, or their enforcement or application could have on our results of operations, financial position and cash flows, including as a result of increases in medical, administrative, technology or other costs resulting from federal and state regulations affecting the health care industry; the impact of any potential assessments for insolvent payers under state guaranty fund laws; the ultimate impact of the Health Reform Legislation, which could materially adversely affect our financial position and results of operations through reduced revenues, increased costs, new taxes and expanded liability, or require changes to the ways in which we conduct business or put us at risk for loss of business; uncertainties regarding changes in Medicare, including potential changes in risk adjustment data validation audit and payment adjustment methodology; potential reductions in revenue received from Medicare and Medicaid programs; failure to comply with restrictions on patient privacy and data security regulations; regulatory and other risks and uncertainties associated with the pharmacy benefits management industry; competitive pressures, which could affect our ability to maintain or increase our market share; the potential impact of adverse economic conditions on our revenues (including decreases in enrollment resulting from increases in the unemployment rate and commercial attrition) and results of operations; our ability to execute contracts on competitive terms with physicians, hospitals and other service professionals; our ability to attract, retain and provide support to a network of independent third party brokers, consultants and agents; events that may negatively affect our contracts with AARP; increases in costs and other liabilities associated with increased litigation, government investigations, audits or reviews; the performance of our investment portfolio; possible impairment of the value of our intangible assets in connection with dispositions or if future results do not adequately support goodwill and intangible assets recorded for our existing businesses or the businesses that we acquire; increases in health care costs resulting from large-scale medical emergencies; failure to maintain effective and efficient information systems or if our technology products do not operate as intended; misappropriation of our proprietary technology; our ability to obtain sufficient funds from our regulated subsidiaries to fund our obligations; the potential impact of our future cash and capital requirements on our ability to maintain our quarterly dividend payment cycle; failure to complete or receive anticipated benefits of acquisitions; potential downgrades in our credit ratings; and failure to achieve targeted operating cost productivity improvements, including savings resulting from technology enhancement and administrative modernization.

This list of important factors is not intended to be exhaustive. We discuss certain of these matters more fully, as well as certain risk factors that may affect our business operations, financial condition and results of operations, in our other periodic and current filings with the SEC, including our 2010 10-K. Any or all forward-looking statements we make may turn out to be wrong. They can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. By their nature, forward-looking statements are not guarantees of future performance or results and are subject to risks, uncertainties and assumptions that are difficult to predict or quantify. Actual future results may vary materially from expectations expressed in this report or any of our prior communications. You should not place undue reliance on forward-looking statements, which speak only as of the date they are made. We do not undertake to update or revise any forward-looking statements.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our primary market risks are exposures to (a) changes in interest rates that impact our investment income and interest expense and the fair value of certain of our fixed-rate financial investments and debt and (b) changes in equity prices that impact the value of our equity investments.

As of June 30, 2011, $9.8 billion of our financial investments was classified as cash and cash equivalents on which interest rates received vary with market interest rates, which may materially impact our investment income. Also, $7.6 billion of our debt and deposit liabilities as of June 30, 2011 were at interest rates that vary with market rates, either directly or through the use of related interest rate swap contracts.

The fair value of certain of our fixed-rate financial investments and debt also varies with market interest rates. As of June 30, 2011, $16.9 billion of our investments was fixed-rate debt securities and $4.8 billion of our debt was fixed-rate term debt. An increase in market interest rates decreases the market value of fixed-rate investments and fixed-rate debt. Conversely, a decrease in market interest rates increases the market value of fixed-rate investments and fixed-rate debt.

We manage exposure to market interest rates by diversifying investments across different fixed income market sectors and debt across maturities, as well as endeavoring to match our floating-rate assets and liabilities over time, either directly or through the use of

interest rate swap contracts. Our swap agreements converted a portion of our interest expense from fixed to variable rates to better match the impact of changes in market rates on our variable-rate cash equivalent investments. Additional information on our interest rate swaps is included in Note 7 of Notes to the Condensed Consolidated Financial Statements.

The following table summarizes the impact of hypothetical changes in market interest rates across the entire yield curve by 1% or 2% as of June 30, 2011 on our investment income and interest expense per annum, and the fair value of our financial investments and debt (in millions):


Increase (Decrease) in Market Interest Rate	Investment Income Per Annum (a)			Interest Expense Per Annum (a)			Fair Value of Financial Investments			Fair Value of Debt
2 %	$	196		$	152		$	(1,196	)	$	(1,010	)
1		98			76			(610	)		(553	)
(1)		(10	)		(14	)		579			640
(2)		nm			nm			1,042			1,407

nm = not meaningful

(a)	Given the low absolute level of short-term market rates on our floating-rate assets and liabilities as of June 30, 2011, the assumed hypothetical change in interest rates does not reflect the full 1% point reduction in interest income or interest expense as the rate cannot fall below zero.

As of June 30, 2011, we had $558 million of investments in equity securities and venture capital funds, a portion of which were invested in various public and non-public companies concentrated in the areas of health care delivery and related information technologies. Market conditions that affect the value of health care or technology stocks will likewise impact the value of our equity investments.

ITEM 4.

CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (Exchange Act) that are designed to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms; and (ii) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

In connection with the filing of this Form 10-Q, management evaluated, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2011. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2011.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There have been no changes in our internal control over financial reporting during the quarter ended June 30, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

A description of our legal proceedings is included in and incorporated by reference to Note 12 of the Notes to the Condensed Consolidated Financial Statements contained in Part I, Item 1 of this report.

ITEM 1A.

RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A, “Risk Factors” of our 2010 10-K, which could materially affect our business, financial condition or future results. The risks described in our 2010 10-K are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

There have been no material changes to the risk factors disclosed in our 2010 10-K.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities (a)

Second Quarter 2011


For the Month Ended	Total Number of Shares Purchased			Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares That May Yet Be Purchased Under The Plans or Programs
April 30, 2011		4,645,474		$	45.41		4,645,474		28,417,293
May 31, 2011		4,293,780	(b)	$	49.40		4,291,964		105,708,036
June 30, 2011		4,275,169	(c)	$	49.98		4,241,325		101,466,711

Total		13,214,423		$	48.18		13,178,763

(a)

In November 1997, our Board of Directors adopted a share repurchase program, which the Board evaluates periodically. In May 2011, the Board renewed our share repurchase program with an authorization to repurchase up to 110 million shares of our common stock at prevailing market prices. There is no established expiration date for the program.

(b)	Represents 4,291,964 shares of our common stock repurchased during the period and 1,816 shares of our common stock withheld by us, as permitted by the applicable equity award certificates, to satisfy tax withholding obligations upon vesting of shares of restricted stock.

(c)	Represents 4,241,325 shares of our common stock repurchased during the period and 33,844 shares of our common stock withheld by us, as permitted by the applicable equity award certificates, to satisfy tax withholding obligations upon vesting of shares of restricted stock.

ITEM 6.

EXHIBITS**

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


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

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

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

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

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

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

*10.1		UnitedHealth Group Incorporated 2011 Stock Incentive Plan (incorporated by reference to Exhibit A to the Company’s Definitive Proxy Statement dated April 13, 2011)

*10.2		Form of Agreement for Restricted Stock Unit Award to Executives under UnitedHealth Group Incorporated’s 2011 Stock Incentive Plan, effective as of May 24, 2011 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated May 27, 2011)

*10.3		Form of Agreement for Non-Qualified Stock Option Award to Executives under UnitedHealth Group Incorporated’s 2011 Stock Incentive Plan, effective as of May 24, 2011 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated May 27, 2011)

*10.4		Form of Agreement for Performance-based Restricted Stock Unit Award to Executives under UnitedHealth Group Incorporated’s 2011 Stock Incentive Plan, effective as of May 24, 2011 (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K dated May 27, 2011)

*10.5		Form of Agreement for Stock Appreciation Right Award to Executives under UnitedHealth Group Incorporated’s 2011 Stock Incentive Plan, effective as of May 24, 2011 (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K dated May 27, 2011)

*10.6		Form of Agreement for Restricted Stock Award to Executives under UnitedHealth Group Incorporated’s 2011 Stock Incentive Plan, effective as of May 24, 2011 (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K dated May 27, 2011)

*10.7		Form of Agreement for Deferred Stock Unit Award to Directors under UnitedHealth Group Incorporated’s 2011 Stock Incentive Plan, effective as of May 24, 2011 (incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K dated May 27, 2011)

*10.8		Form of Agreement for Initial Deferred Stock Unit Award to Directors under UnitedHealth Group Incorporated’s 2011 Stock Incentive Plan, effective as of May 24, 2011 (incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K dated May 27, 2011)

12.1		Ratio of Earnings to Fixed Charges

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

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


101		The following materials from UnitedHealth Group Incorporated’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011, filed on August 2, 2011, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Changes in Shareholders’ Equity, (iv) Condensed Consolidated Statements of Cash Flows, and (v) Notes to the Condensed Consolidated Financial Statements.

*	Denotes management contracts and compensation plans in which certain directors and named executive officers participate and which are being filed pursuant to Item 601(b)(10)(iii)(A) of Regulation S-K.

**	Pursuant to Item 601(b)(4)(iii) of Regulation S-K, copies of instruments defining the rights of certain holders of long-term debt are not filed. The Company will furnish copies thereof to the SEC upon request.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

UNITEDHEALTH GROUP INCORPORATED


/s/ STEPHEN J. HEMSLEY	President and Chief Executive Officer	Dated: August 2, 2011
Stephen J. Hemsley	(principal executive officer)

/s/ DAVID S. WICHMANN	David S. Wichmann	Dated: August 2, 2011
David S. Wichmann	Executive Vice President and Chief Financial Officer of UnitedHealth Group and President of UnitedHealth Group Operations (principal financial officer)

/S/ ERIC S. RANGEN	Senior Vice President and	Dated: August 2, 2011
Eric S. Rangen	Chief Accounting Officer (principal accounting officer)

EXHIBIT INDEX**


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

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

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

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

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

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

*10.1		UnitedHealth Group Incorporated 2011 Stock Incentive Plan (incorporated by reference to Exhibit A to the Company’s Definitive Proxy Statement dated April 13, 2011)

*10.2		Form of Agreement for Restricted Stock Unit Award to Executives under UnitedHealth Group Incorporated’s 2011 Stock Incentive Plan, effective as of May 24, 2011 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated May 27, 2011)

*10.3		Form of Agreement for Non-Qualified Stock Option Award to Executives under UnitedHealth Group Incorporated’s 2011 Stock Incentive Plan, effective as of May 24, 2011 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated May 27, 2011)

*10.4		Form of Agreement for Performance-based Restricted Stock Unit Award to Executives under UnitedHealth Group Incorporated’s 2011 Stock Incentive Plan, effective as of May 24, 2011 (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K dated May 27, 2011)

*10.5		Form of Agreement for Stock Appreciation Right Award to Executives under UnitedHealth Group Incorporated’s 2011 Stock Incentive Plan, effective as of May 24, 2011 (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K dated May 27, 2011)

*10.6		Form of Agreement for Restricted Stock Award to Executives under UnitedHealth Group Incorporated’s 2011 Stock Incentive Plan, effective as of May 24, 2011 (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K dated May 27, 2011)

*10.7		Form of Agreement for Deferred Stock Unit Award to Directors under UnitedHealth Group Incorporated’s 2011 Stock Incentive Plan, effective as of May 24, 2011 (incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K dated May 27, 2011)

*10.8		Form of Agreement for Initial Deferred Stock Unit Award to Directors under UnitedHealth Group Incorporated’s 2011 Stock Incentive Plan, effective as of May 24, 2011 (incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K dated May 27, 2011)

12.1		Ratio of Earnings to Fixed Charges

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

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


101		The following materials from UnitedHealth Group Incorporated’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011, filed on August 2, 2011, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Changes in Shareholders’ Equity, (iv) Condensed Consolidated Statements of Cash Flows, and (v) Notes to the Condensed Consolidated Financial Statements.

*	Denotes management contracts and compensation plans in which certain directors and named executive officers participate and which are being filed pursuant to Item 601(b)(10)(iii)(A) of Regulation S-K.

**	Pursuant to Item 601(b)(4)(iii) of Regulation S-K, copies of instruments defining the rights of certain holders of long-term debt are not filed. The Company will furnish copies thereof to the SEC upon request.