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Presentation

UnitedHealth Group Incorporated beats earnings expectations. Reported EPS is $6.16, expectations were $5.98.

Operator: Good morning and welcome to the UnitedHealth Group Fourth Quarter and Full-Year 2023 Earnings Conference Call. A question-and-answer session will follow UnitedHealth Group’s prepared remarks. As a reminder, this call is being recorded. Here is some important introductory information. This call contains forward-looking statements under U.S. Federal Securities Laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from historical experience or present expectations. A description of some of the risks and uncertainties can be found in the reports that we file with the Securities and Exchange Commission, including the cautionary statements included in our current and periodic filings.

This call will also reference non-GAAP amounts. A reconciliation of non-GAAP to GAAP amounts is available on the financial and earnings report section of the company’s Investor Relations page at www.unitedhealthgroup.com. Information presented on this call contained in the earnings release will be issued — we issued this morning in our Form 8-K dated January 12, 2024, which may be accessed from the Investor Relations page of the company’s website. I will now turn the conference over to the Chief Executive Officer of UnitedHealth Group, Andrew Witty.

Andrew Witty: Thank you and good morning and thank you all for joining us today. As we conclude 2023 and embark on a new year, I’d like to express my gratitude to our more than 400,000 talented colleagues who really were UnitedHealth Group. It’s directly due to their tireless efforts over the past year that we expanded our opportunities to serve more people, more comprehensively. As I reflect on our 2023 performance, certainly, the shift in care activity among seniors was an important element for us to manage effectively, and the reduced Medicare Advantage funding outlook was a significant influence on how we prepared for 2024 and all the way through to 2026. Despite the shifting care patterns and the commensurate pressure felt during ‘23, we’ve been able to both deliver on our growth commitments and invest and prepare for reduced MA funding cycle over the next three years.

Even considering these factors, 2023 marked the year of balanced, sustainable growth for UnitedHealth Group. Importantly, we also strengthened the foundations, from which we will continue to grow in 2024 and beyond. To illustrate briefly during 2023, Optum Health approached growth of 900,000 more patients under value-based care. UnitedHealthcare added over 1.7 million new consumers in its Medicare and commercial offerings. Optum Rx managed an additional 100 million prescriptions for people. Optum Financial handled more than $500 billion in consumer payer and care provider payments. And Optum Insights facilitated more than 23 billion electronic transactions. The increasingly impactful ways we can engage with patients, consumers, care providers, and customers resulted in revenue growth of over $47 billion and adjusted earnings per share growth of over 13% in 2023.

Looking to ‘24, ‘25 and beyond, we will continue to drive quality, simplicity, affordability, and accessibility to help improve healthcare system-wide, and we remain confident in and committed to our long-term 13% to 16% adjusted earnings per share growth rate. Having held our Investor Conference just six weeks ago, I’ll take only a few minutes this morning to recap what you should expect from us this year, starting with our work in value-based care. Value-based care for us is a proven way of overcoming many of the widely recognized shortcomings of a fee-for-service-based health system such as fragmented consumer experiences and incentives, that can emphasize volume over quality. Our value-based offerings empower physicians to provide more connected, coordinated and comprehensive care, align incentives among consumers, care providers, and health plans, deliver better health outcomes, and improve costs.

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At the end of 2023, Optum Health served more than 4 million patients in fully accountable value-based arrangements in partnership with many dozens of health plans. By the end of this year, Optum Health will grow to serve at least another 750,000 patients, under such arrangements, for a total of more than twice the number of people we served just two years ago. Yet, even with the strong growth and significant investments we’ve made, our market presence is still quite modest and the opportunity expansive. 4 million patients served, just a small fraction of the many more people whose health ultimately will benefit from these models of care. And the total Optum Health revenue base, which today represents only 2% of the $5 trillion U.S. Healthcare System spend.

We have a considerable distance to go, to achieve the broad positive system-wide impact for people’s health we believe we can help drive. Turning to our consumer focus, we’re working hard to help consumers more easily find experience and pay for healthcare, and that includes using their health benefits. One example of our progress can be seen in the results of UnitedHealthcare’s commercial benefits business. Most recently completed selling season was among our strongest in recent years. The majority of this growth will come from our relationships with large employers among the most sophisticated buyers of health benefits. Our customers tell us where we are focused on what their employees value most. Lower cost, simpler experiences, and adaptable benefits that meet their unique needs and circumstances.

And the consumer NPS for these new innovative products is some 20 plus points higher than traditional health plans. We have more to do. Our goal is to become the trusted source for Healthcare information and advice, a go-to-market place for health services payments and benefits, all through a few simple taps on a consumer’s phone. One of our larger consumer offerings is Medicare Advantage, which I’d like to touch on briefly. We’re proud of our long track record of growth and delivering for the people who choose our offerings. During the recently completed annual enrollment period, we added about 100,000 more consumers and we remain committed to our full-year goal of 450,000 to 550,000. We believe our assumptions of ongoing care activity and approach to supplemental benefit management are entirely appropriate for the environment we are planning for and feel positive about our positioning for growth entering this three-year period.

One additional item as we close out the year. To achieve our enterprise-wide long-term goals, we must consistently ensure best use of our resources, both time and capital to enable us to serve people more effectively and deliver value for our shareholders. As you likely saw, we recently agreed to the sale of our Brazil operations, where our dedicated colleagues serve people with care and compassion. We highly value the relationships we have developed over more than a decade in Brazil. After carefully evaluating our best course, we ultimately determined a sale was the right step for the people we serve and for us to best focus our energies on the many compelling growth opportunities that we consistently discuss with you. And with that, I’ll turn it over to Dirk McMahon, UnitedHealth Group’s President and Chief Operating Officer.

Dirk?

Dirk McMahon: Thanks, Andrew. Our growth is rooted in innovation and our intense desire always to do better. We’re investing heavily in ways to accomplish that, increasing digital engagement and using AI to be more efficient, and then measuring our performance through net promoter scores to be sure we’re hitting the mark. The impact of our digital engagement efforts was evident in our one-one performance metrics. As Andrew noted, we brought on one of our biggest cohorts of new people served by our commercial offerings, and our technology played an important role in making the process work well. Since last month, the UHC mobile app consistently ranked number one or number two in the Apple App Store Medical Category and on Google Play.

Through the first week of the year, mobile app installs were up over more than 100% year-over-year, and our chat volume was more than twice our historical average. At Optum Rx, digital investments enabled us to bring on a record number of new clients, who brought with them more than 3 million new consumers, on-boarded with improved customer service scores and at an overall cost, 8% lower than last year, more consumer served, higher satisfaction, and lower costs. Our investments in AI and other advanced technology play an important role in improving customer service and in productivity throughout the enterprise. For example, we are removing repetitive tasks from our workflows by using AI to help with tasks such as responses to consumer inquiries, updating provider directories, and summarizing interactions with customers and patients.

This frees up our service staff and clinicians to focus on solving more complicated tasks for the people we serve. And recently we launched a new capability, where we use real-time admissions and discharge data to engage high-risk MA members immediately after an emergency department visit. Connecting them to follow-up care to ensure higher-quality post-admit outcomes and avoid readmissions. This rapid response, driven by timely clinical data has improved member engagement rates by over 300% and has an NPS of 83. NPS remains a vital way to measure how we’re performing for our customers and consumers and how our digital initiatives and other efforts are impacting those measures, and leading to improved retention. Couple of examples, through digital optimization, we’re providing consumers with on-demand access to care, highly personalized benefits information, real-time support, and integrated pharmacy capabilities.

This is translating into significant NPS improvements in many of our businesses. And we removed friction from the system through expanded access to 24/7 virtual visits and UnitedHealthcare’s efforts to eliminate nearly 20% of prior authorizations. Throughout ‘24, you should expect to see an even greater investment in our digital capabilities, as we continue to identify opportunities to, leverage technology to reduce administrative costs, improve productivity, and further enhance the consumer experience at both Optum and UnitedHealthcare. And now, I’ll turn it over to John Rex, UnitedHealth Group’s, Chief Financial Officer. John?

John Rex: Thank you, Dirk. Our colleagues’ ongoing focus on further expanding and strengthening the foundations, which underpinned our growth pillars is paving the way for consistent growth in 2024 and beyond. Revenue in ‘23 of $372 billion grew by over 14% with double-digit growth at both Optum and UnitedHealthcare. Fourth quarter adjusted earnings per share of $6.16, grew 15% and brought full-year adjusted earnings per share to $25.12, a growth of 13%. As Andrew noted earlier, at the end of December, we entered into an agreement to sell our Brazil operations and expect to close in the first-half of this year. Upon closing, we expect to record a charge of approximately $7 billion, the majority of which is non-cash and largely due to foreign currency translation losses accumulated over several years.

The impact of this one-time charge will be excluded from our ‘24 adjusted earnings per share measure. For your modeling purposes, the full-year ‘24 outlook incorporated about $6 billion of revenue for Brazil or about 1.5% of consolidated revenue. Before reviewing our business results, I’ll offer some brief comments on care activity. Care patterns remain consistent with those we shared with you in the first-half of ‘23. Activity levels continue to be led by outpatient care for seniors with orthopedic and cardiac procedure categories among the more prominent. As we’ve noted, our benefit design approach assumed these activity levels persist throughout ‘24. And the care patterns we observed exiting ‘23 reconfirmed that decision. On the margin, we saw some modest late-year seasonal activity, such as strong and welcome response from seniors to scheduled physicians at this to receive RSV vaccinations.

In some cases, these were accompanied by additional necessary care being obtained, especially for people that had not seeing a physician in some time. A positive outcome for people’s health. In some though, as we reflect on full-year ‘23 results, overall care activity was broadly in-line with the views we’ve shared earlier. And as we enter ’24, we’re confident in the response of pricing and benefit design actions we undertook. With care patterns, continuing to be supportive of our care ratio outlook of 84% plus or minus 50 basis points. Turning to the performance of our businesses in ‘23. Optum Health revenues grew by 34% to over $95 billion as we increased the number of patients served under value-based care arrangements by about 900,000 to more than 4.1 million, expanded services in the home, and broadened and deepened the levels and types of care we offer.

Optum Insight’s revenues grew 30% to $18.9 billion. We concluded the year with a revenue backlog of $32.1 billion, an increase of $2.1 billion over last year. This growth was driven by our diverse and expanding product portfolio, which connects many of the key stakeholders across healthcare, whether it’s launching new decision support solutions for providers, claims editing software for payers, or simplifying the payment process for all, our continued investments are fostering the next phase of Optum Insight growth. Optum Rx revenues grew 16% to over $116 billion, driven by the continued addition of new clients, expansion with an existing relationship, and organic growth of our pharmacy services businesses. In 2023, both customer retention and new wins were among the best Optum Rx has delivered.

At UnitedHealthcare full-year revenues of over $281 billion grew nearly 13%. Adding to Andrew’s earlier comments, within Medicare Advantage, we expect a majority of our full-year growth outlook to be realized outside the annual enrollment period with the growth patterns consistent with those we have experienced over the more recent years. Our Medicaid enrollment outlook for 2024 balances two key elements. First is that, state redetermination activities will be largely completed by mid-year. And second, that growth within existing states such as North Carolina and other new opportunities will partially offset these impacts. Within our domestic commercial offerings, we expect to serve about 1.5 million additional people in ‘24, a strong result.

And we are encouraged by the continued positive customer response we are experiencing as we look ahead. Our ample capital capacities continue to underpin our long-term growth objectives. Cash flow from operations in ‘23 was $29 billion or 1.3 times net income. We returned nearly $15 billion to shareholders through share repurchase and dividends and deployed over $10 billion in growth capital to build for the future. To summarize our ‘23 performance and start to the New Year further solidifies and reinforces our confidence in both the ‘24 and long-term growth objectives we shared with you at the end of November. Now, I’ll turn it back to Andrew.

Andrew Witty: Thanks, John, and thank you, Dirk. Heading into 2024, I hope you all sense our confidence. We have talented people who are committed to our efforts, to help build a simpler and more consumer-friendly health system for the people we serve. And we are well-positioned to continue to deliver on the well-established commitments we’ve made. Operator, let’s open it up for questions.

Operator: Thank you. The floor is now open for questions. [Operator Instructions] We’ll go first to Justin Lake with Wolfe Research.

Justin Lake: Thanks, good morning. I wanted to touch on the cost trend commentary, specifically between the Investor Day at the end of the year, looks like the MLR was a little bit higher, can you tell us what you saw there over the last month? Maybe give us some color, John, I know you guys did a great job in the second quarter of getting ahead of cost trend and utilizing some of those facility kind of insights that you have on scheduling et cetera. We’re trying to figure out whether this is just seasonality or a further pickup in utilization given the Q3 to Q4 that you saw. So, maybe you could tell us what you saw — seeing into January and just tell us where you think the Q1 comes in versus the full year? Thanks.

Andrew Witty: Hey Justin, thanks so much for the question. Let me just make a couple of comments, and I’m going to ask John Rex to give you a little bit more detail on the area you just talked about. So, you know, I think overall, as we look at ’23, overall, it came in very much in the sort of zone we expected toward the top end of that zone, but very much within the zone of what we were expecting for the full-year and we signaled back in the middle of the year. And the bulk of that story is driven by the outpatient shift in behavior around seniors that we talked about back in June. You’re right, though, post the investor conference, what we certainly saw was a click up in some seasonal activity, each of which individually are kind of pretty small.

But added together just made a bit of a difference in that last run out of the quarter, around things like RSV vaccination, which has brought with it — dragged with it, if you will, some extra utilization of services from seniors who’ve come in for their vaccine. Listen, to be clear, all of that is good news for healthcare, right? So these are seniors, many of whom had not been to the office for a long time. They’ve come back in and now got vaccinated. The physicians have picked up other things while they’ve been there. So a little bit of that going on combined with a little bit of heightened COVID activity just as we rolled out of the year. None of which we really think is durably impacting our outlook for ‘24. So we feel very solid around our ‘24 guidance point of 84, plus or minus 50 bps.

Maybe, I ask John just to give you a little bit more click down kind of insight into all about them. Go ahead, John.

John Rex: Yes. Good morning, Justin. You’re absolutely right. So the prime factor here when we think about the full-year view and where we ended up being, what we talked about much earlier in the year in terms of the outpatient care activity among senior populations. And that continuing consistent with what we saw back much earlier in the year and very supportive of what we staked out in terms of the benefit design that we stepped into ‘24 with, in particular for senior populations in our Medicare Advantage products. So all those elements very much supportive of that view and the activities we undertook earlier in the year. As it relates to kind of where we landed the full year, so 10 basis points really above kind of what we indicated at the investor conference back in November of differential and Andrew hit on those items.

Let me just kind of take it a little bit deep here. So, definitely some typical seasonality involved in there and the incremental elements were — I point out a couple of items, seniors did really respond strongly to RSV vaccinations and scheduled physician visits. Sometimes those physician visits, what we noted were driving other care activity around that. So in some cases, seniors that hadn’t perhaps been to a physician in a little while, and so they visited their PCP, got an RSV vaccine, and then in the meantime, their PCPs were able to close some additional care gaps as they were there, which is a great thing because some of these seniors hadn’t been in for a while. So important activity to occur there in the fourth quarter. So that was one of the elements that we saw there.

As it relates to kind of what we were seeing with elevated care costs for COVID, what we saw in the fourth quarter in particular in December. Overall, we’ve been noticing is that COVID admits for inpatient stays are running a higher cost per case than we traditionally saw. That actually kind of makes some sense. There are more intense cases typically that are going into inpatient stay. I will say we did notice in December that the total level of COVID admits were probably 50% to 60% above the October-November average that we had seen. So that was kind of the highest part of the year in terms of COVID inpatient admits. If I take those elements and sum together, that then more than accounts for the 10 basis points differential in our full-year view, Justin.

As that pertains to your second question, as we look out into the next year and what we see in terms of patterns, I would call it patterns commensurate, kind of, with what we saw this year in terms of just the movement, with this kind of 84% view that we view for the full-year. As I step back and reflect and just kind of thinking about where — broadly where the analyst consensus is, you picked particularly the 1Q. It’s kind of in the right — it looks like an appropriate zone in terms of staked out there for what one would expect. So thank you, Justin.

Andrew Witty: Yes. John, thank you. And Justin, thanks for the question. Appreciate that. Next question, please operator.

Operator: We’ll go next to Josh Raskin with Nephron Research.

Josh Raskin: Hi. Thanks. Can you describe the competitive environment for Medicare Advantage? And I’m specifically thinking about how you’ve adjusted benefits in 2024 as part of a three-year process? I don’t want to put words in your mouth, but it sounds like you’re trying to adjust for the majority of the risk model changes in one fell swoop. And I’m curious how you think that plays out and positions you not just for ‘24, but then for ‘25 and ‘26 as well?

Andrew Witty: Hey, Josh, thank you so much. Before I ask Tim Noel to give you more detail on your question, I mean, listen, I think the way we’ve looked at the shift in the rate notice is, it is a three-year set of adjustments, and that’s why we’ve been very thoughtful about how we’ve planned, not just, frankly benefit design, but how we continue to accelerate our management of OpEx through the organization, how we continue to focus on eliminating unnecessary care and waste within the system through our various medical management capabilities. So it’s really a three-pronged set of agendas, which we’re going to be focused on over the next three years. And we’ve been very thoughtful about making sure that we are setting those tables in a way which we can be sustainable on through this cycle, so that we’re not taking sharp left turns or right turns halfway through the period.

With that kind of overall perspective, maybe I ask Tim to give you a little bit more deep dive on the competitive environment and how he is very specifically planning for this.

Tim Noel: Yes. Thanks, Josh, for the question. So I agree with Andrew’s comments and a couple of things to start with is, there’s been a number of changes to the Medicare Advantage and Part D programs, over the last 18-months to two years that are really phasing in over multiple years. And as we plan for 2024, we once again took a very rational view to the environment and also a long-term view with always our overarching goal being benefit stability for our members. As we stepped into — as we step into benefit planning in future years, we really feel like we have got a very thoughtful way to respond to all of those changes that will be encountered by the Medicare Advantage and Part D programs into 2025 and beyond. And certainly as we look forward, we don’t believe that we have any material pricing catch up to do in future periods and feel like we’ve got a very thoughtful response to the changes that will be encountered by the program into 2025 and 2026.

So we think the forward view of our competitive outlook is quite solid and quite strong as we think about growth over the long-term.

Andrew Witty: Thank you very much. Next question, please operator.

Operator: We’ll go next to A.J. Rice with UBS.

A.J. Rice: Hi, everybody. Just, I apologize, it’s sort of granular, but we’re getting asked a lot of questions about it. The two metrics, days claims payable down a couple of days year-to-year sequentially, some from third quarter. And then the prior period development being down $100 million, maybe accounts for some of the variance on MLR, I’m guessing. I don’t know if that’s what you were guiding for when you updated — last updated your outlook, but any comment on that as well?

Andrew Witty: Let me ask John to address that A.J., thank you.

John Rex: Yes. Good morning, A.J. So first on the days claims payable, so 2.8 day sequential decline, two days year-over-year. So primarily the single largest factor would be exactly what you pointed to, the change in prior period development. So that has a significant impact, if you look about the year ago where we were in prior period development and where we were even the 3Q. So the significant impact on that part, that’d be the main factor. In terms of other contributing factors that we saw, we did see in the fourth quarter some modest acceleration in provider claim submission timing. So just speed up in terms of those submissions, how quickly we’re receiving them from data service in terms of receipt. We also noted that as it related to the fourth quarter some higher claims intensity in the first part of the quarter, particularly October.

So that’s a factor that impacts the denominator, Medex per day in the day’s claims payable metric. And that was a piece that was in that also. As it relates to the $100 million of unfavorable medical development in the quarter, put that mostly, the items that we were talking about in my response to Justin’s question. So the respiratory-related activity that we saw in there, the modestly higher cost per case for inpatient, COVID admits, really kind of those were the main factors that we had in there in terms of contributing to the unfavorable development. Thank you.

Andrew Witty: It’s a good question, A.J. And as John just said, even back in the sort of second-half of Q3, we saw — we’ve seen subsequently that this RSV pickup and this phenomena of more services being delivered around the vaccination was already starting as we were rolling out through Q3, which is really what explains that. So in many ways, this kind of Q3 issue, kind of, Q3 issue of negative development and then this slight pressure at the end of the year, it’s kind of the same story, and which is why we don’t feel it has any real direct relevance in terms of thinking through 2024. Thanks for the question, though. I appreciate that. Next question, please operator.

Operator: We’ll go next to Lisa Gill with J.P. Morgan.

Lisa Gill: Thanks very much. Good morning. I want to go to Optum Health and just maybe talk about the medical cost trend there. John, just going specifically to the comments that you made, did you see something similar in Optum Health or we see anything different there? And then also, I just want to understand the claim lag there. We’ve heard from some others that there can be a pretty big claim lag when we think about the providers versus the payers?

Andrew Witty: So let me ask John to start and then maybe ask Heather to make a couple of comments on the claim dynamic. Go ahead, John.

John Rex: Yes, Lisa. So definitely kind of seeing seniors obtaining RSV vaccinations and some of the respiratory activity that was going on in the quarter. So broadly similar features. For Optum Health, one of the comments that we’ve made throughout the year, though, also has to do with the progression here of taking on a large block of new membership. So we took on about 900,000 new members as we started the year. And one of the comments we’ve made throughout the year is engaging with these members, because the most important thing we need to do is have the clinical engagement with these members in terms of start improving their health outcomes, getting them and to see physicians, having our clinicians interacting — having — interacting with them.

And it’s a comment we’ve made throughout the years, we’ve seen the Optum Health margin progression, so one of the great things. We probably started the year at kind of roughly at 20% engagement level with that 900,000-member block. We exit the year having engaged with about 80% of these members. Super important factor as we think about Optum Health, as we think about 2024 and how — and that progression. And that’s been a big focus of the team at Optum Health all year long of getting that engagement in. So we can have impact on their health. But far and away, especially given what this population is like, they typically have complex needs, that’s important. Another really important market as it relates to the new membership patients that we’re bringing into Optum Health for 2024 again.

So I talked about that 20% engagement level we started ’23 with. For 2024, we’re going to start at a 50% engagement level with that new membership. So we’re making advances in that and that’s exactly what you should expect from the team. Their efforts have been really strong.

Andrew Witty: Great. Thanks, John. Maybe, Heather, you could comment on Lisa’s question around claims, and then I’d like to ask Amar also to follow up on your perspective on engagement and what’s driving that. Please go ahead, Heather.

Heather Cianfrocco: Sure. So the only thing — the thing I would add to, so I appreciate, on top of John’s point, when you think about engaging the patient early, then it’s really in the clinician’s hands. And I think about the way we think about our clinicians is that importance to your point about visibility than to kind of action. And the way we think about our clinicians is, once we get that engagement, and as John said, early engagement is so important, then our clinicians having the tools, and I think we’ve been — what’s really essential for us is those 130,000 clinicians having visibility early, what to do next. And the first thing is that they’ve got the technology, they’ve got solutions around them, they’ve got referral management practices that they can engage with high-quality specialists when they need to for outpatient procedures.

And then that they’ve got the supports in behavioral health and the home and community-based — home and community services that we’ve been investing heavily in over the last year. And then the last thing I would point to is the contract protections that we’ve been focused on with our payers, to be sure that the structures are in place so that our clinicians can practice in a responsible way. They have got visibility into the dynamics that are happening with the patients, and then they’ve got the support in place with the payers.

Andrew Witty: Amar?

Amar Desai: Yes, thanks for that question. Look, I think I’d reiterate the point around our highest risk complex members, where we’re engaging at a 2 times higher rate than the same time last year. And within engagement and our clinical programs, I’d focus around referral management and high-value evidence-based medicine programs, including our optimal care program, where a majority of our clinicians are engaged with these evidence-based programs are able to get patients the care that they need. And importantly, get the support with the provision of wraparound services, including specifically home-based services, so that the highest risk groups have their care connected from the primary care setting into the home. Thanks for the question.

Andrew Witty: Amar, thanks. And John, maybe just to tie up the whole question.

John Rex: Yes, and Lisa, tying up just on the last part of your question here regarding visibility into care activity claims like, no — we don’t — that’s not a factor. Just given the model of Amar’s business and how those groups run, we — frankly, it’s one of the areas where we get probably early sensing mechanisms in terms of the care activity that’s going on, is one of the early sensing mechanisms from much earlier in the year when we were able to talk about what we were seeing in these senior populations and the care activity within these orthopedic and other procedures. So that’s not a factor. In fact, if anything, it’s probably a strength of the organization.

Andrew Witty: Yes. Thanks, John. And Lisa, thanks so much for the question. And we obviously just spent a couple of minutes there talking about engagement, and I hope that gave you a strong sense of some of the progress we’ve made over the last 12 months in this area. I would say we’re night and day in a different position today than we were a year ago in terms of our ability to be engaged with these complex patients making sure our physicians are ready to go, that’s a really important aspect of what’s building our confidence for 2024. And make no apology for just spending a couple more minutes, making sure you hear some of the great work that’s gone on over the last year to ensure that we’ve got these very high levels of engagement and real substance behind that engagement.

So that these patients will be supported and managed really positively going through ’24. That’s what then underpins and unlocks the whole opportunity of value based care for Optum Health. Lisa, thank you for your question. And I’ll move on to the next question.

Operator: We’ll go next to Stephen Baxter with Wells Fargo.

Stephen Baxter: Yes, hi. Thank you. I was hoping you could talk a little about what you’re seeing for cost performance in the group commercial or exchange or Medicaid businesses? As you step back, is this still appropriate to attribute all the pressure really, you’ve seen in 2023 to seniors or should we be mindful of anything else there? Thank you.

Andrew Witty: Stephen, thanks so much. Maybe I ask Brian just to give you a kind of overarching summary of what UHC has seen in its different books of business, Brian?

Brian Thompson: Yes, I appreciate that. Thanks, Stephen, for the question. And I think I’ll just lead with, I feel really good not only about how we finished the year in UnitedHealth Care 2023, growth at the top end of our ranges, performance run in positions across the board, but also as we step into the businesses for 2024, feel very good about the key assumptions that underpin our plan and very optimistic. And you mentioned a couple of areas. You’re right, as we’ve discussed some of these elements with respect to cost trend, they are centered in our senior community. And I think the message around those other businesses, nothing to see here and really aligned with our expectations, some good stability and durability in the underlying elements, both utilization and unit cost of our trend outlook and obviously feel very confident in how we’re showing up competitively when you look at our growth outlook.

So very optimistic about UnitedHealthcare, durability in those other lines that you’re suggesting and a lot to look forward to here in the year.

Andrew Witty: Right. Thanks, Brian. Next question, please.

Operator: We’ll go next to Lance Wilkes with Bernstein.

Lance Wilkes: Great, thanks. Can you talk a little bit about Optum Rx, the drivers of growth in the quarter, in particular topline? And then if you could comment a little on revenue per Rx? And do you have any programs that either in the fourth quarter or in ’24 that you’ve been rolling out that are capturing some of the increased demand on topics like GLP-1s that might be contributors to some of the strong performance? Thanks.

Andrew Witty: Hey, Lance, thanks so much for the question. Before I ask Patrick to start the response on Optum Rx. First off, I just want to note a super strong selling year for us in Optum Rx, probably our best ever. Extraordinary and across a wide range of categories, plans, public service states, as well as obviously commercial. And really, really pleased with the differentiated product offering, really built on transparency, choice, and of course cost. And so we feel we’ve built a strong momentum in ‘23, rolling into ‘24. Patrick, you may want to go a little deeper, maybe share a little detail on weight engaged, specifically around the question that Lance raised around GLPs?

Patrick Conway: Yes, thanks, Lance, for the question. So, as Andrew said, really diverse growth, both new business and high retention rates. So one of our best-selling years ever. I’d also call out the pharmacy services expansion, the organic growth there across the diverse set of pharmacy services, cost management. And then last, as you mentioned, new products and services, just to call out one weight engaged. So comprehensive management, medication, provider support, client support, lifestyle modification, digital, so a comprehensive solution across Optum, not just Optum Rx, partnering with Optum Health and Optum Insights. Already live with clients and robust interest in the marketplace, because patients, members, employers want comprehensive solutions that demonstrate better health outcomes at lower total cost of care.

Andrew Witty: Thanks so much, Patrick. And Lance, thanks for the question. Next question, please.

Operator: We’ll go next to Kevin Fischbeck with Bank of America.

Kevin Fischbeck: Great, thanks. I guess, I’m still just struggling with the concept of 2023 coming in worse, but this having no impact on the 2024 outlook. I mean, are you saying that the incremental pressure is really just like flu RSV and therefore unlikely to replicate at these levels next year, because the negative development speaks to costs earlier in the year also coming in worse, which implies that the baseline is — the core baseline is also higher. So can you just help me reconcile, you know, why this isn’t raising the base for next year and I guess within that you may feel confident with the guidance range for MLR, but is there reason to be at the higher end of the range to start the year or is the midpoint still where you’re orienting? Thanks.

Andrew Witty: So I’ll ask John to go a little deeper. Obviously, as you know, Kevin, we’ve set an MLR target next year, which is in fact higher than the actual closeout for this year in any case, which takes into consideration some of that kind of elevation, which we’ve seen throughout the year. So I’m going to call it the core elevation associated with the outpatient senior behaviors that we’ve been talking about now for several quarters. And then as we’ve talked a little bit already, this end of Q4 type of a small seasonality variation, we don’t think is really durable or relevant to the rest of the year. But John, maybe go a little deeper on that.

John Rex: Sure. Good morning, Kevin. So yes, so the elements that contributed to the unfavorable development being around respiratory activity that was going on as the seniors came in to get vaccines, another care was being delivered and such. And that higher inpatient cost per case for the COVID admits that we’re seeing. So those would largely be the prime contributors of the elements that we are seeing here in terms of that unfavourability. So you’re absolutely correct in your assumption. That doesn’t impact our run-in assumption as we think about our outlook for 2024, and which — so keeps us right squarely in where we thought we’d be as we were at our investor conference, is taking out the 84% plus/minus 50 basis points.

Really as we look across the scope of our businesses and we think reflect on how we performed in ’20 and in ‘23, the scope of it being very much with what we saw back in mid-year of 2023, that this is — that the running factors are about outpatient care activity among senior populations, which we incorporated into our bids. The elements that you’re appropriately referring to in 4Q, again, not factors impacting our view at all in terms of how we staked out ‘24 and how we expect to perform in ‘24. Really good question.

Andrew Witty: Yes. And I’d also just add, I mean, as you would fully expect, Kevin, we’re reviewing the leading indicators of care activity, frankly, daily, weekly, monthly and have been all year. And we’ve also been investing significantly in increasing numbers of early warning signals, if I can put it that way, to strengthen our radar capability to see this. And I can tell you, we’re really not seeing any deviation from what we’ve been telling you all year in terms of the core activities across the system. The seasonal bumps at the end of the year, obviously, a little different. But in terms of outpatient utilization, all of those lines of activity that we’ve been discussing at different times with you, the patterns there, very supportive of how we’ve stepped out for ’24. Thanks for the question. Next question, please.

Operator: We’ll go next to Scott Fidel with Stephens.

Scott Fidel: Hi, thanks. I was hoping to just hop back over to Optum Health for a second. And just as it relates, one, to the margin targets that you gave us at Investor Day for the 7.7% to 8%, just want to see if those are still the appropriate targets for 2024? And then maybe if we could walk through the sort of pacing exercise with OH margins, given the expected step-up from the exit rate in the fourth quarter, how you’re thinking about those OH margins for 1Q, and then sort of pacing over the course of the year? Thanks.

Andrew Witty: Scott, thanks so much for the question. I’m going to ask Dr. Desai to make a couple of comments, and then I’m going to talk about where we’ve staked out for Optum Health next year. A ton of work done during 2023 to strengthen the business. You saw that beginning to show through as we roll through the second-half. We continue to expect that to be a very strong driver of improvement as we go into 2024. A lot of that work we talked about already today around engagement is a key element of our confidence in being able to build our profile of that business. And Amar, maybe you could go a little deeper, and then John can close out with discussing on the progression.

Amar Desai: Thanks for the question, Scott. We’re confident in our 7.7% to 8.0% target for 2024. We’ve discussed engagement in detail. The second important piece is our medical management programs, which we’ve scaled effectively. I talked a little bit about OptumCare and evidence-based guidelines. What I would reiterate is the work we’re doing across our network with payment integrity. Again, with the idea of being able to provide the right support services across our network. The last piece I would also hit on is our initiatives around OpEx, which have been progressing well and are on track, driving operating efficiencies and G&A discipline across the organization. And it really with focus on more consistency in our systems and unification of our operating platform. So we feel very good about the 7.7% to 8.0% as we go into ’24. A – Andrew Witty Great. Thanks so much, Amar. John?

John Rex: Yes, Scott. Good morning. So as Amar said, feel very good about where we established our margin objectives for 2024. The element super important here is, again, how these new patient cohorts progress as they come into our business, and we’re able to engage with them clinically and improve their health outcomes, make sure we’re able to close care gaps. And the progress that Amar and teams accomplished during 2023 in terms of getting those engagement levels will assist a lot in terms of the health of the people that we’re serving here, and then particularly, this cohort from 2023 to 900,000 new patients that we’re able to serve and how that business performs over the course of the year. So that’s a big step into it. Another big step into it is this group of 750,000 new patients that came on to the business.

The fact that we were able to. Yet engagement level is significantly higher than we were at last year, where the new cohort will help also. So it gives us a lot of confidence in where we’re stepping out in terms of serving these people throughout the course of the coming year. In terms of your comment, you’d expect them typical than seasonality factors to weigh in how the quarters performed. So much more think about that as seasonality factors, so they’re probably having impact here. So typical in terms of seasonal factors that we would have experienced this year, starting with a stronger base that sets us up well to reach our targets.

Andrew Witty: Right. Thanks, John. Next question?

Operator: We’ll go next to Erin Wright with Morgan Stanley.

Erin Wright: Great. Thanks so much for taking my question. So a question on Optum Rx. Over the past year, there’s been some evolving dynamics around — news flow around the regulatory changes for PBMs unbundling. There were some news flow there as well as pharmacy reimbursement model changes, such as cost plus type of approach? I guess how are you thinking about potential implications of some of these dynamics, if any at all? And do these dynamics have a material impact on Optum Rx? Or how are you thinking about those profit drivers remaining intact kind of going forward for the PBM? Thanks.

Andrew Witty: Erin, thanks so much for the question. Let me ask Heather to give you some comments there. As you know, Heather’s been very, very involved with the various legislative processes, and it’d good to get her perspective on that.

Heather Cianfrocco: Sure. Thanks. So maybe just quickly, I’ll say, completely respectful of the evolving dynamic and just make the headline that our business is incredibly dynamic. I’d be remiss if I don’t say, again, at this juncture, that we continue to engage because it’s incredibly important to note that in a space where affordable drugs — affordable prescription drugs to consumers is on everybody’s mind, including ours, and that’s what the PBM is built to do. We are really pressing to make sure that policymakers understand that it’s important to preserve choice for clients. It’s important to make sure that we preserve value-based structures, because we know that value base is the way to ensure that we deliver lower price — lower-cost drugs.

And we can’t break that alignment of incentives where PBMs work with payers to reduce costs. And that it is incredibly important that discounts remain, because there’s no indication that rebates drive list prices up. The PBMs work as a counterweight against high drug cost. That being said, you’ve seen in our model held diverse the business is. And across Optum Rx, across the PBM, across the pharmacy services, it’s a multitude of businesses. And we really listen to our clients. We exist on behalf of our clients, and we compete in a highly competitive market. And we win because our model translates. It translates in transparency, it translates in innovation and it translates in partnership to our clients. So we’ll follow the client will be incredibly respectful of the legislation, but I feel really good that we act quickly, we act responsibly, and we work towards value.

And you see that in the results. You see that in the growth. But most importantly, you see that in the client validation of the model. So I feel good about where we’re positioned. I feel good about the experience in 2023 as a guide to that, but really confident in the growth in ‘24.

Andrew Witty: Heather, thanks so much. And Erin, thanks very much for the question. I’m sure there’ll continue to be debate around this area. High drug cost, of course, is a big issue for everybody. First and foremost, we need to see list prices come down. That’s the most important thing that can make a big difference here. I would say that as you look at all the different ideas, which float up from time-to-time around reform in this area, there really isn’t anything that we don’t offer in some form or fashion to our clients and our customers. And the reality is we think that’s the right position. We think we should be offering a portfolio of different tools, different product designs, which allows people to choose what’s right for them.

Because what a state wants, what a union wants, what a corporation wants differs. And it’s super important that their views are taken into account here. We believe we do that well in the diversity of our product offering, and that’s what’s underpinning our record growth and it underpins our confidence for ‘24. Appreciate that, Erin. Next question?

Operator: We’ll go next to Nathan Rich with Goldman Sachs.

Nathan Rich: Great. Good morning. Thanks for the question. I wanted to ask on the Medicare AEP enrollment that you talked about, the 100,000 lives that you added. I guess were there any differences in terms of what consumers responded to this year or differences in the retention rate relative to what you’re expecting? And just can you help us think about the drivers of membership growth over the year as you needed to get to the guidance that you gave for the full-year?

Andrew Witty: Yes, Nathan, thanks so much for the question. Let me ask Tim Noel to give you that.

Tim Noel: Yes. Thanks for the question, Nathan. So once again, the Medicare environment, selling environment is highly competitive. And we probably saw one of the more aggressive years of pricing that we’ve ever seen in the 2024 session. We guided at investor conference to growth of 450,000 to 550,000 lives, which is a little bit more modest than we have grown in past years, but it’s reflective of our response to the new risk model changes, what we saw in outpatient utilization patterns early in ’23 and reflecting that into 2024 pricing. And as we close out AEP, I would say that we were a little bit light against what we were thinking, kind of, end of November. Most of that actually is in the group business, some of the very aggressive benefits, a little bit more switching, drove some of our term rates a bit higher in AEP than we were initially thinking.

But we still feel like we’re going to have a much heavier weighting of our growth outside of the annual enrollment period from February to December. And this is really just a continuation of a trend that we have seen play out over the last five years really. And in fact, last year, we drove 430,000 lives of growth or about 60% of our total growth in the period from February to December. This is a portion of the selling season that we really do well in given our large dual footprint and also the fact that some of the selling and AEP tends to be focused on some of those headline benefits that have been really aggressively positioned. And throughout the remainder of the year, there tends to be some switching back as folks think more deeply about things like network, the fulfillment of supplemental benefits, overall service and delivery of product.

So I guess the headline is it is a very aggressive marketplace this year. We feel like we’re positioned really well for ‘25 and ‘26 on how we priced, and very pleased with what we’ve done so far and excited about our opportunity, once again, to have a really great growth in the selling period from February to December of ‘24.

Andrew Witty: Right, Tim. Thanks so much. Last question, please operator.

Operator: We’ll go next to Gary Taylor with Cowen.

Gary Taylor: Hi, good morning. Most of my questions has been asked. I’ll throw this one out, too. We’ve been seeing more articles about health system just dropping their MA contracts, some of those articles sites, United I know — historically, most of these types of contracts that, you know, conflicts that make the press historically ultimately come to terms, so I’m just wondering, is this just a media threat? Or do you think there’s something more measurable happening here with your health system partners?

Andrew Witty: Hey, Gary, thanks so much. Let me ask Brian to respond to that.

Brian Thompson: Hey Gary, thanks for the question. I would say, overall, the disruptions that we see in the market this year are, I would say, at/or even lower than historical comparisons on average, leaving 2023. I will say though that any disruption for our consumers is too much. They come to rely on an in-network provider relationship. They have a coverage expectation from their health plan. So we obviously want to avoid that type of network disruption. And we, however, do need to balance that ambition with affordability. Now as we speak specifically to the Medicare Advantage space, we did have some deals that came down to the wire. And I do think that had some impact on AEP. And again, going to Tim’s commentary around our confidence February forward, where we have those deals intact, I think you’ll see that response in our growth as well. But again, on average, really not much change overall compared to historical periods on disruption.

Andrew Witty: Yes. No, it’s well said, Brian. And I think, obviously, Gary, we — what you seen on behalf of patients, on behalf of government to make sure that we’re getting the very best cost associated for the care delivered. And it’s important that, that negotiation is robust. And the good news is that the overwhelming majority get resolved. We really don’t like to see disruption happen. Unfortunately, occasionally, it does. But rest assured, we’re making good progress in this area. As Brian said, no real kind of difference in outcome to what we’ve seen in previous years. With all of that, let me say thank you for all of your questions. Very much appreciated. And as you’ve heard, we’re confident in our mission, focused on our growth pillars, delivering innovation that matters and disciplined in our operations and in our approach to the market.

And we look forward to delivering on our commitments in 2024 to our customers, patients and shareholders. Very much appreciate your attention this morning. Thank you, and look forward to talking with you between calls. Thank you very much.

Operator: That will conclude today’s call. We appreciate your participation.