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 SEPTEMBER 30, 2015
or
[ ]
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)
 __________________________________________________________ 
Delaware
 
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:
Large accelerated filer
[X]
 
Accelerated filer
[ ]
 
Non-accelerated filer
[ ]
 
Smaller reporting company
[ ]
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 October 30, 2015, there were 953,108,435 shares of the registrant’s Common Stock, $.01 par value per share, issued and outstanding.
 
 
 
 
 



UNITEDHEALTH GROUP
Table of Contents
 
 
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



PART I
ITEM 1.    FINANCIAL STATEMENTS
UnitedHealth Group
Condensed Consolidated Balance Sheets
(Unaudited)
(in millions, except per share data)
 
September 30,
2015
 
December 31,
2014
Assets
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
7,983

 
$
7,495

Short-term investments
 
1,942

 
1,741

Accounts receivable, net
 
6,752

 
4,252

Other current receivables, net
 
7,667

 
5,498

Assets under management
 
2,948

 
2,962

Deferred income taxes
 
670

 
556

Prepaid expenses and other current assets
 
1,973

 
1,052

Total current assets
 
29,935

 
23,556

Long-term investments
 
18,535

 
18,827

Property, equipment and capitalized software, net
 
4,532

 
4,418

Goodwill
 
43,680

 
32,940

Other intangible assets, net
 
8,405

 
3,669

Other assets
 
3,185

 
2,972

Total assets
 
$
108,272

 
$
86,382

Liabilities and equity
 
 
 
 
Current liabilities:
 
 
 
 
Medical costs payable
 
$
13,906

 
$
12,040

Accounts payable and accrued liabilities
 
11,300

 
9,247

Other policy liabilities
 
7,249

 
5,965

Commercial paper and current maturities of long-term debt
 
5,767

 
1,399

Unearned revenues
 
1,731

 
1,972

Total current liabilities
 
39,953

 
30,623

Long-term debt, less current maturities
 
26,015

 
16,007

Future policy benefits
 
2,489

 
2,488

Deferred income taxes
 
3,593

 
2,065

Other liabilities
 
1,529

 
1,357

Total liabilities
 
73,579

 
52,540

Commitments and contingencies (Note 12)
 
 
 


Redeemable noncontrolling interests
 
1,571

 
1,388

Equity:
 
 
 
 
Preferred stock, $0.001 par value - 10 shares authorized; no shares issued or outstanding
 
—

 
—

Common stock, $0.01 par value - 3,000 shares authorized; 953 and 954 issued and outstanding
 
10

 
10

Additional paid in capital
 
69

 
—

Retained earnings
 
36,382

 
33,836

Accumulated other comprehensive loss
 
(3,347
)
 
(1,392
)
Nonredeemable noncontrolling interest
 
8

 
—

Total equity
 
33,122

 
32,454

Total liabilities and equity
 
$
108,272

 
$
86,382


See Notes to the Condensed Consolidated Financial Statements

1
Table of Contents

UnitedHealth Group
Condensed Consolidated Statements of Operations
(Unaudited)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(in millions, except per share data)
 
2015
 
2014
 
2015
 
2014
Revenues:
 
 
 
 
 
 
 
 
Premiums
 
$
31,801

 
$
28,972

 
$
95,436

 
$
85,927

Products
 
6,482

 
1,080

 
8,935

 
3,115

Services
 
3,036

 
2,535

 
8,607

 
7,386

Investment and other income
 
170

 
172

 
530

 
613

Total revenues
 
41,489

 
32,759

 
113,508

 
97,041

Operating costs:
 
 
 
 
 
 
 
 
Medical costs
 
25,618

 
23,092

 
77,333

 
69,823

Operating costs
 
6,301

 
5,436

 
18,102

 
15,836

Cost of products sold
 
6,100

 
955

 
8,311

 
2,776

Depreciation and amortization
 
452

 
373

 
1,209

 
1,097

Total operating costs
 
38,471

 
29,856

 
104,955

 
89,532

Earnings from operations
 
3,018

 
2,903

 
8,553

 
7,509

Interest expense
 
(229
)
 
(152
)
 
(530
)
 
(467
)
Earnings before income taxes
 
2,789

 
2,751

 
8,023

 
7,042

Provision for income taxes
 
(1,171
)
 
(1,149
)
 
(3,407
)
 
(2,933
)
Net earnings
 
1,618

 
1,602

 
4,616

 
4,109

Earnings attributable to noncontrolling interests
 
(21
)
 
—

 
(21
)
 
—

Net earnings attributable to UnitedHealth Group common shareholders
 
$
1,597

 
$
1,602

 
$
4,595

 
$
4,109

Earnings per share attributable to UnitedHealth Group common shareholders:
 
 
 
 
 
 
 
 
Basic
 
$
1.68

 
$
1.65

 
$
4.82

 
$
4.21

Diluted
 
$
1.65

 
$
1.63

 
$
4.75

 
$
4.15

Basic weighted-average number of common shares outstanding
 
953

 
969

 
953

 
977

Dilutive effect of common share equivalents
 
14

 
13

 
14

 
13

Diluted weighted-average number of common shares outstanding
 
967

 
982

 
967

 
990

Anti-dilutive shares excluded from the calculation of dilutive effect of common share equivalents
 
8

 
7

 
8

 
8

Cash dividends declared per common share
 
$
0.5000

 
$
0.3750

 
$
1.3750

 
$
1.0300


See Notes to the Condensed Consolidated Financial Statements

2
Table of Contents


UnitedHealth Group
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)

 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(in millions)
 
2015
 
2014
 
2015
 
2014
Net earnings
 
$
1,618

 
$
1,602

 
$
4,616

 
$
4,109

Other comprehensive loss:
 
 
 
 
 
 
 
 
Gross unrealized gains (losses) on investment securities during the period
 
66

 
(53
)
 
(51
)
 
427

Income tax effect
 
(26
)
 
20

 
17

 
(155
)
Total unrealized gains (losses), net of tax
 
40

 
(33
)
 
(34
)
 
272

Gross reclassification adjustment for net realized gains included in net earnings
 
(28
)
 
(30
)
 
(99
)
 
(183
)
Income tax effect
 
11

 
11

 
37

 
67

Total reclassification adjustment, net of tax
 
(17
)
 
(19
)
 
(62
)
 
(116
)
Total foreign currency translation losses
 
(1,063
)
 
(642
)
 
(1,859
)
 
(232
)
Other comprehensive loss
 
(1,040
)
 
(694
)
 
(1,955
)
 
(76
)
Comprehensive income
 
578

 
908

 
2,661

 
4,033

Comprehensive income attributable to noncontrolling interests
 
(21
)
 
—

 
(21
)
 
—

Comprehensive income attributable to UnitedHealth Group common shareholders
 
$
557

 
$
908

 
$
2,640

 
$
4,033


See Notes to the Condensed Consolidated Financial Statements

3
Table of Contents

UnitedHealth Group
Condensed Consolidated Statements of Changes in Equity
(Unaudited)
 
 
Common Stock
 
Additional Paid-In Capital
 
Retained Earnings
 
Accumulated Other Comprehensive (Loss) Income
 
Nonredeemable Noncontrolling Interest
 
Total
Equity
(in millions)
 
Shares
 
Amount
 
 
 
Net Unrealized Gains (Losses) on Investments
 
Foreign Currency Translation Losses
 
 
Balance at January 1, 2015
 
954

 
$
10

 
$
—

 
$
33,836

 
$
223

 
$
(1,615
)
 
$
—

 
$
32,454

Net earnings
 
 
 
 
 
 
 
4,595

 
 
 
 
 
11

 
4,606

Other comprehensive loss
 
 
 
 
 
 
 
 
 
(96
)
 
(1,859
)
 
 
 
(1,955
)
Issuances of common shares, and related tax effects
 
9

 
—

 
112

 
 
 
 
 
 
 
 
 
112

Share-based compensation, and related tax benefits
 
 
 
 
 
477

 
 
 
 
 
 
 
 
 
477

Common share repurchases
 
(10
)
 
—

 
(391
)
 
(739
)
 
 
 
 
 
 
 
(1,130
)
Cash dividends paid on common shares
 
 
 
 
 
 
 
(1,310
)
 
 
 
 
 
 
 
(1,310
)
 Redeemable noncontrolling interests fair value and other adjustments
 
 
 
 
 
(129
)
 
 
 
 
 
 
 
 
 
(129
)
Acquisition of nonredeemable noncontrolling interest
 
 
 
 
 
 
 
 
 
 
 
 
 
9

 
9

Distribution to nonredeemable noncontrolling interest
 
 
 
 
 
 
 
 
 
 
 
 
 
(12
)
 
(12
)
Balance at September 30, 2015
 
953

 
$
10

 
$
69

 
$
36,382

 
$
127

 
$
(3,474
)
 
$
8

 
$
33,122

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2014
 
988

 
$
10

 
$
—

 
$
33,047

 
$
54

 
$
(962
)
 
$
—

 
$
32,149

Net earnings
 
 
 
 
 
 
 
4,109

 
 
 
 
 
—

 
4,109

Other comprehensive income (loss)
 
 
 
 
 
 
 
 
 
156

 
(232
)
 
 
 
(76
)
Issuances of common shares, and related tax effects
 
12

 
—

 
130

 
 
 
 
 
 
 
 
 
130

Share-based compensation, and related tax benefits
 
 
 
 
 
320

 
 
 
 
 
 
 
 
 
320

Common share repurchases
 
(38
)
 
—

 
(450
)
 
(2,574
)
 
 
 
 
 
 
 
(3,024
)
Cash dividends paid on common shares
 
 
 
 
 
 
 
(1,004
)
 
 
 
 
 
 
 
(1,004
)
Balance at September 30, 2014
 
962

 
$
10

 
$
—

 
$
33,578

 
$
210

 
$
(1,194
)
 
$
—

 
$
32,604



See Notes to the Condensed Consolidated Financial Statements

4
Table of Contents

UnitedHealth Group
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
 
Nine Months Ended September 30,
(in millions)
 
2015
 
2014
Operating activities
 
 
 
 
Net earnings
 
$
4,616

 
$
4,109

Noncash items:
 
 
 
 
Depreciation and amortization
 
1,209

 
1,097

Deferred income taxes
 
(49
)
 
(107
)
Share-based compensation
 
306

 
269

Other, net
 
(208
)
 
(253
)
Net change in other operating items, net of effects from acquisitions and changes in AARP balances:
 
 
 
 
Accounts receivable
 
(907
)
 
(545
)
Other assets
 
(1,686
)
 
(819
)
Medical costs payable
 
2,137

 
654

Accounts payable and other liabilities
 
616

 
1,126

Other policy liabilities
 
374

 
—

Unearned revenues
 
(179
)
 
91

Cash flows from operating activities
 
6,229

 
5,622

Investing activities
 
 
 
 
Purchases of investments
 
(6,712
)
 
(7,823
)
Sales of investments
 
4,041

 
5,810

Maturities of investments
 
2,557

 
2,266

Cash paid for acquisitions, net of cash assumed
 
(16,183
)
 
(851
)
Purchases of property, equipment and capitalized software
 
(1,072
)
 
(1,121
)
Other, net
 
(51
)
 
(139
)
Cash flows used for investing activities
 
(17,420
)
 
(1,858
)
Financing activities
 
 
 
 
Common stock repurchases
 
(1,130
)
 
(3,024
)
Cash dividends paid
 
(1,310
)
 
(1,004
)
Proceeds from common stock issuances
 
366

 
400

Proceeds from long-term debt
 
11,982

 
—

Repayments of long-term debt
 
(416
)
 
(812
)
Proceeds from commercial paper, net
 
2,665

 
1,355

Customer funds administered
 
119

 
(440
)
Other, net
 
(446
)
 
(285
)
Cash flows from (used for) financing activities
 
11,830

 
(3,810
)
Effect of exchange rate changes on cash and cash equivalents
 
(151
)
 
3

Increase (decrease) in cash and cash equivalents
 
488

 
(43
)
Cash and cash equivalents, beginning of period
 
7,495

 
7,276

Cash and cash equivalents, end of period
 
$
7,983

 
$
7,233


See Notes to the Condensed Consolidated Financial Statements

5
Table of Contents

UnitedHealth Group
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
UnitedHealth Group Incorporated (individually and together with its subsidiaries, “UnitedHealth Group” and “the Company”) is a diversified health and well-being company dedicated to helping people live healthier lives and making the health system work better for everyone. Through its diversified family of businesses, the Company leverages core competencies in advanced, enabling technology; health care data, information and intelligence; and clinical care management and coordination to help meet the demands of the health system. The Company offers a broad spectrum of products and services through two distinct platforms: UnitedHealthcare, which provides health care coverage and benefits services; and Optum, which provides pharmacy care services and information and technology-enabled health services.
The Company has prepared the Condensed Consolidated Financial Statements according to U.S. Generally Accepted Accounting Principles (GAAP) and has included the accounts of UnitedHealth Group and its subsidiaries. The year-end condensed consolidated balance sheet was derived from audited financial statements, but does not include all disclosures required by 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. Therefore, these Condensed Consolidated Financial Statements should be read together with the Consolidated Financial Statements and the Notes included in Part II, Item 8, “Financial Statements” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 as filed with the SEC ( 2014 10-K). The accompanying Condensed Consolidated Financial Statements include all normal recurring adjustments necessary to present the interim financial statements fairly.
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 estimates and judgments for medical costs payable and revenues, valuation and impairment analysis of goodwill and other intangible assets, estimates of other policy liabilities and other current receivables, valuations of certain investments, and estimates and judgments related to income taxes and contingent liabilities. Certain of 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 change in estimates is included in earnings in the period in which the estimate is adjusted.
The accounting policies disclosed in Note 2 of Notes to the Consolidated Financial Statements in Part II, Item 8, “Financial Statements” in the 2014 10-K remain unchanged.
Reincorporation
On July 1, 2015, UnitedHealth Group Incorporated changed its state of incorporation from Minnesota to Delaware pursuant to a plan of conversion. The reincorporation was approved by the Company’s shareholders at its 2015 Annual Meeting of Shareholders held on June 1, 2015. Upon reincorporation, the affairs of UnitedHealth Group Incorporated became subject to the Delaware General Corporation Law, a new certificate of incorporation and new bylaws, and each previously outstanding share of UnitedHealth Group Incorporated’s common stock as a Minnesota corporation (UNH Minnesota) converted into an outstanding share of common stock of UnitedHealth Group Incorporated as a Delaware corporation after the reincorporation (UNH Delaware). The reincorporation was a tax-free reorganization under the U.S. Internal Revenue Code and did not affect the Company’s business operations.
Recently Issued Accounting Standards
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (ASU 2014-09) as modified by ASU No. 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date.” ASU 2014-09 will supersede existing revenue recognition standards with a single model unless those contracts are within the scope of other standards (e.g., an insurance entity’s insurance contracts). The revenue recognition principle in ASU 2014-09 is that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, new and enhanced disclosures will be required. Companies can adopt the new standard either using the full retrospective approach, a modified retrospective approach with practical expedients, or a cumulative effect upon adoption approach. ASU 2014-09 is effective for annual and interim reporting periods beginning after December 15, 2017. Early adoption at the original effective date, interim and annual periods beginning after December 15, 2016, will be permitted. The Company is currently evaluating the effect of the new revenue recognition guidance.

6

The Company has determined that there have been no other recently adopted or issued accounting standards that had, or will have, a material impact on its Condensed Consolidated Financial Statements.
2.      Business Combination

On July 23, 2015, the Company acquired all of the outstanding common shares of Catamaran Corporation (Catamaran) and funded Catamaran’s payoff of its outstanding debt and credit facility for $14.3 billion in cash. Catamaran offers pharmacy benefits management services similar to OptumRx to a broad client portfolio, including health plans and employers serving 35 million people, and provides health care information technology solutions to the pharmacy benefits management industry.
The Company paid for the acquisition primarily with the proceeds of new indebtedness. Debt issuances included $10.5 billion of senior unsecured notes, approximately $2.4 billion of commercial paper and a $1.5 billion term loan. The total consideration exceeded the estimated fair value of the net tangible assets acquired by $15.6 billion , of which $5.4 billion has been allocated to finite-lived intangible assets and $10.2 billion to goodwill. The goodwill is not deductible for income tax purposes.
Acquired tangible assets (liabilities) for Catamaran at acquisition date were:
(in millions)
 
 
Accounts receivable and other current assets
 
$
1,947

Rebates receivable
 
602

Property, equipment and other long-term assets
 
215

Accounts payable and other current liabilities
 
(2,038
)
Deferred income taxes and other long-term liabilities
 
(2,019
)
Nonredeemable noncontrolling interest
 
(9
)
Total net tangible liabilities
 
$
(1,302
)
Since the Catamaran acquisition closed during the three months ended September 30, 2015, the preliminary purchase price allocation is subject to adjustment as valuation analyses, primarily related to intangible assets and contingent and tax liabilities, are finalized.
The acquisition date fair values and weighted-average useful lives assigned to Catamaran’s finite-lived intangible assets were:
(in millions, except years)
 
Fair Value
 
Weighted-Average Useful Life
Customer-related
 
$
5,278

 
19 years
Trademarks and technology
 
159

 
4 years
Total acquired finite-lived intangible assets
 
$
5,437

 
19 years

The results of operations and financial condition of Catamaran have been included in the Company’s consolidated results and the results of the OptumRx segment as of July 23, 2015. Since then, the Catamaran business has generated $5.3 billion in revenue, and had an immaterial impact on net earnings.
Unaudited pro forma revenues for the nine months ended September 30, 2015 and 2014 as if the acquisition of Catamaran had occurred on January 1, 2014 were $128 billion and $113 billion , respectively. The pro forma effects of this acquisition on net earnings were immaterial for both periods.

7

3.    Goodwill and Other Intangible Assets
Changes in the carrying amount of goodwill, by reportable segment, were as follows:
(in millions)
 
UnitedHealthcare
 
OptumHealth
 
OptumInsight
 
OptumRx
 
Consolidated
Balance at January 1, 2014
 
$
24,251

 
$
2,860

 
$
3,653

 
$
840

 
$
31,604

Acquisitions
 
266

 
978

 
591

 
—

 
1,835

Foreign currency effects and adjustments, net
 
(487
)
 
(4
)
 
(8
)
 
—

 
(499
)
Balance at December 31, 2014
 
24,030

 
3,834

 
4,236

 
840

 
32,940

Acquisitions
 
51

 
1,679

 
89

 
10,238

 
12,057

Foreign currency effects and adjustments, net
 
(1,288
)
 
(1
)
 
(28
)
 
—

 
(1,317
)
Balance at September 30, 2015
 
$
22,793

 
$
5,512

 
$
4,297

 
$
11,078

 
$
43,680

The increase in the Company’s goodwill is primarily due to the acquisition of Catamaran in July 2015. For more detail on the Catamaran acquisition, see Note 2 of the Notes to the Condensed Consolidated Financial Statements.
During the three months ended September 30, 2015, the Company changed its annual quantitative goodwill impairment testing date from January 1 to October 1 of each year. The change in the goodwill impairment test date better aligns the impairment testing procedures with the timing of the Company’s long-term planning process, which is a significant input to the testing. This change in testing date did not delay, accelerate, or avoid a goodwill impairment charge.
Estimated full year amortization expense relating to intangible assets for each of the next five years ending September 30 is as follows:
(in millions)
 
 
2016
 
$
799

2017
 
768

2018
 
675

2019
 
617

2020
 
543



8

4.    Investments
A summary of short-term and long-term investments by major security type is as follows:
(in millions)
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
September 30, 2015
 
 
 
 
 
 
 
 
Debt securities - available-for-sale:
 
 
 
 
 
 
 
 
U.S. government and agency obligations
 
$
1,890

 
$
14

 
$
—

 
$
1,904

State and municipal obligations
 
5,993

 
155

 
(6
)
 
6,142

Corporate obligations
 
7,441

 
77

 
(47
)
 
7,471

U.S. agency mortgage-backed securities
 
2,026

 
27

 
(6
)
 
2,047

Non-U.S. agency mortgage-backed securities
 
872

 
11

 
(4
)
 
879

Total debt securities - available-for-sale
 
18,222

 
284

 
(63
)
 
18,443

Equity securities - available-for-sale
 
1,526

 
44

 
(58
)
 
1,512

Debt securities - held-to-maturity:
 
 
 
 
 
 
 
 
U.S. government and agency obligations
 
162

 
2

 
—

 
164

State and municipal obligations
 
15

 
—

 
—

 
15

Corporate obligations
 
345

 
—

 
—

 
345

Total debt securities - held-to-maturity
 
522

 
2

 
—

 
524

Total investments
 
$
20,270

 
$
330

 
$
(121
)
 
$
20,479

December 31, 2014
 
 
 
 
 
 
 
 
Debt securities - available-for-sale:
 
 
 
 
 
 
 
 
U.S. government and agency obligations
 
$
1,614

 
$
7

 
$
(1
)
 
$
1,620

State and municipal obligations
 
6,456

 
217

 
(5
)
 
6,668

Corporate obligations
 
7,241

 
112

 
(26
)
 
7,327

U.S. agency mortgage-backed securities
 
2,022

 
39

 
(5
)
 
2,056

Non-U.S. agency mortgage-backed securities
 
872

 
12

 
(4
)
 
880

Total debt securities - available-for-sale
 
18,205

 
387

 
(41
)
 
18,551

Equity securities - available-for-sale
 
1,511

 
36

 
(25
)
 
1,522

Debt securities - held-to-maturity:
 
 
 
 
 
 
 
 
U.S. government and agency obligations
 
178

 
2

 
—

 
180

State and municipal obligations
 
19

 
—

 
—

 
19

Corporate obligations
 
298

 
—

 
—

 
298

Total debt securities - held-to-maturity
 
495

 
2

 
—

 
497

Total investments
 
$
20,211

 
$
425

 
$
(66
)
 
$
20,570

The amortized cost and fair value of available-for-sale debt securities as of September 30, 2015 , by contractual maturity, were as follows:
(in millions)
 
Amortized
Cost
 
Fair
Value
Due in one year or less
 
$
2,047

 
$
2,051

Due after one year through five years
 
6,830

 
6,901

Due after five years through ten years
 
4,720

 
4,793

Due after ten years
 
1,727

 
1,772

U.S. agency mortgage-backed securities
 
2,026

 
2,047

Non-U.S. agency mortgage-backed securities
 
872

 
879

Total debt securities - available-for-sale
 
$
18,222

 
$
18,443


9

The amortized cost and fair value of held-to-maturity debt securities as of September 30, 2015 , by contractual maturity, were as follows:
(in millions)
 
Amortized
Cost
 
Fair
Value
Due in one year or less
 
$
121

 
$
121

Due after one year through five years
 
203

 
204

Due after five years through ten years
 
84

 
84

Due after ten years
 
114

 
115

Total debt securities - held-to-maturity
 
$
522

 
$
524

The fair value of available-for-sale investments with gross unrealized losses by major security 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
September 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
Debt securities - available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
 
State and municipal obligations
 
$
507

 
$
(5
)
 
$
17

 
$
(1
)
 
$
524

 
$
(6
)
Corporate obligations
 
2,799

 
(39
)
 
270

 
(8
)
 
3,069

 
(47
)
U.S. agency mortgage-backed securities
 
365

 
(3
)
 
122

 
(3
)
 
487

 
(6
)
Non-U.S. agency mortgage-backed securities
 
317

 
(3
)
 
93

 
(1
)
 
410

 
(4
)
Total debt securities - available-for-sale
 
$
3,988

 
$
(50
)
 
$
502

 
$
(13
)
 
$
4,490

 
$
(63
)
Equity securities - available-for-sale
 
$
140

 
$
(16
)
 
$
82

 
$
(42
)
 
$
222

 
$
(58
)
December 31, 2014
 
 
 
 
 
 
 
 
 
 
 
 
Debt securities - available-for-sale:
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency obligations
 
$
420

 
$
(1
)
 
$
—

 
$
—

 
$
420

 
$
(1
)
State and municipal obligations
 
711

 
(4
)
 
99

 
(1
)
 
810

 
(5
)
Corporate obligations
 
2,595

 
(17
)
 
464

 
(9
)
 
3,059

 
(26
)
U.S. agency mortgage-backed securities
 
—

 
—

 
272

 
(5
)
 
272

 
(5
)
Non-U.S. agency mortgage-backed securities
 
254

 
(2
)
 
114

 
(2
)
 
368

 
(4
)
Total debt securities - available-for-sale
 
$
3,980

 
$
(24
)
 
$
949

 
$
(17
)
 
$
4,929

 
$
(41
)
Equity securities - available-for-sale
 
$
107

 
$
(6
)
 
$
88

 
$
(19
)
 
$
195

 
$
(25
)
The Company’s unrealized losses from all securities as of September 30, 2015 were generated from approximately 6,000 positions out of a total of 23,000 positions. The Company believes that it will collect the principal and interest due on its debt securities that have an amortized cost in excess of fair value. The unrealized losses were primarily caused by interest rate increases and not by unfavorable changes in the credit quality associated with these securities. At each reporting period, the Company evaluates securities for impairment when the fair value of the investment is less than its amortized cost. The Company evaluated the underlying credit quality and credit ratings of the issuers, noting neither a significant deterioration since purchase nor other factors leading to an other-than-temporary impairment (OTTI). As of September 30, 2015 , the Company did not have the intent to sell any of the securities in an unrealized loss position. Therefore, the Company believes these losses to be temporary.
The Company’s investments in equity securities consist of investments in Brazilian real denominated fixed-income funds, employee savings plan related investments, venture capital funds, and dividend paying stocks. The Company evaluated its investments in equity securities for severity and duration of unrealized loss, overall market volatility and other market factors.

10

Net realized gains reclassified out of accumulated other comprehensive income were from the following sources:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(in millions)
 
2015
 
2014
 
2015
 
2014
Total OTTI
 
$
(4
)
 
$
(18
)
 
$
(8
)
 
$
(25
)
Portion of loss recognized in other comprehensive income
 
—

 
—

 
—

 
—

Net OTTI recognized in earnings
 
(4
)
 
(18
)
 
(8
)

(25
)
Gross realized losses from sales
 
(9
)
 
(3
)
 
(20
)
 
(42
)
Gross realized gains from sales
 
41

 
51

 
127

 
250

Net realized gains (included in investment and other income on the Condensed Consolidated Statements of Operations)
 
28

 
30

 
99

 
183

Income tax effect (included in provision for income taxes on the Condensed Consolidated Statements of Operations)
 
(11
)
 
(11
)
 
(37
)
 
(67
)
Realized gains, net of taxes
 
$
17

 
$
19

 
$
62

 
$
116

5.    Fair Value
Certain assets and liabilities are measured at fair value in the Condensed Consolidated Financial Statements or have fair values disclosed in the Notes to the Condensed Consolidated Financial Statements. These assets and liabilities are classified into one of three levels of a hierarchy defined by GAAP.
For a description of the methods and assumptions that are used to estimate the fair value and determine the fair value hierarchy classification of each class of financial instrument, see Note 4 of Notes to the Consolidated Financial Statements in Part II, Item 8, “Financial Statements” in the 2014 10-K.


11

The following table presents a summary of fair value measurements by level and carrying values for items measured at fair value on a recurring basis in the Condensed Consolidated Balance Sheets excluding assets and liabilities, related to a Supplemental Health Insurance Program (AARP Program), which are presented in a separate table below:
(in millions)
 
Quoted Prices
in Active
Markets
(Level 1)
 
Other
Observable
Inputs
(Level 2)
 
Unobservable
Inputs
(Level 3)
 
Total
Fair and Carrying
Value
September 30, 2015
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
7,865

 
$
118

 
$
—

 
$
7,983

Debt securities - available-for-sale:
 
 
 
 
 
 
 
 
U.S. government and agency obligations
 
1,705

 
199

 
—

 
1,904

State and municipal obligations
 
—

 
6,142

 
—

 
6,142

Corporate obligations
 
15

 
7,368

 
88

 
7,471

U.S. agency mortgage-backed securities
 
—

 
2,047

 
—

 
2,047

Non-U.S. agency mortgage-backed securities
 
—

 
874

 
5

 
879

Total debt securities - available-for-sale
 
1,720

 
16,630

 
93

 
18,443

Equity securities - available-for-sale
 
1,137

 
12

 
363

 
1,512

Interest rate swap assets
 
—

 
168

 
—

 
168

Total assets at fair value

$
10,722

 
$
16,928

 
$
456

 
$
28,106

Percentage of total assets at fair value
 
38
%
 
60
%
 
2
%
 
100
%
Interest rate swap liabilities
 
$
—

 
$
1

 
$
—

 
$
1

December 31, 2014
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
7,472

 
$
23

 
$
—

 
$
7,495

Debt securities - available-for-sale:
 
 
 
 
 
 
 
 
U.S. government and agency obligations
 
1,427

 
193

 
—

 
1,620

State and municipal obligations
 
—

 
6,668

 
—

 
6,668

Corporate obligations
 
2

 
7,257

 
68

 
7,327

U.S. agency mortgage-backed securities
 
—

 
2,056

 
—

 
2,056

Non-U.S. agency mortgage-backed securities
 
—

 
874

 
6

 
880

Total debt securities - available-for-sale
 
1,429

 
17,048

 
74

 
18,551

Equity securities - available-for-sale
 
1,200

 
12

 
310

 
1,522

Interest rate swap assets
 
—

 
62

 
—

 
62

Total assets at fair value
 
$
10,101

 
$
17,145

 
$
384

 
$
27,630

Percentage of total assets at fair value
 
37
%
 
62
%
 
1
%
 
100
%
Interest rate swap liabilities
 
$
—

 
$
55

 
$
—

 
$
55

Transfers between levels, if any, are recorded as of the beginning of the reporting period in which the transfer occurs; there were no transfers between Levels 1, 2 or 3 of any financial assets or liabilities during the nine months ended September 30, 2015 or 2014 .



12

The following table presents a summary of fair value measurements by level and carrying values for certain financial instruments not measured at fair value on a recurring basis in the Condensed Consolidated Balance Sheets:
(in millions)
 
Quoted Prices
in Active
Markets
(Level 1)
 
Other
Observable
Inputs
(Level 2)
 
Unobservable
Inputs
(Level 3)
 
Total
Fair
Value
 
Total Carrying Value
September 30, 2015
 
 
 
 
 
 
 
 
 
 
Debt securities - held-to-maturity:
 
 
 
 
 
 
 
 
 
 
U.S. government and agency obligations
 
$
164

 
$
—

 
$
—

 
$
164

 
$
162

State and municipal obligations
 
—

 
—

 
15

 
15

 
15

Corporate obligations
 
91

 
13

 
241

 
345

 
345

Total debt securities - held-to-maturity
 
$
255

 
$
13

 
$
256

 
$
524

 
$
522

Other assets
 
$
—

 
$
478

 
$
—

 
$
478

 
$
480

Long-term debt and other financing obligations
 
$
—

 
$
30,309

 
$
—

 
$
30,309

 
$
28,796

December 31, 2014
 
 
 
 
 
 
 
 
 
 
Debt securities - held-to-maturity:
 
 
 
 
 
 
 
 
 
 
U.S. government and agency obligations
 
$
180

 
$
—

 
$
—

 
$
180

 
$
178

State and municipal obligations
 
—

 
—

 
19

 
19

 
19

Corporate obligations
 
46

 
10

 
242

 
298

 
298

Total debt securities - held-to-maturity
 
$
226

 
$
10

 
$
261

 
$
497

 
$
495

Other assets
 
$
—

 
$
478

 
$
—

 
$
478

 
$
484

Long-term debt and other financing obligations
 
$
—

 
$
18,863

 
$
—

 
$
18,863

 
$
17,085

Nonfinancial 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 nine months ended September 30, 2015 or 2014 .
The carrying amounts reported on the Condensed Consolidated Balance Sheets for other current financial assets and liabilities approximate fair value because of their short-term nature. These assets and liabilities are not listed in the table above.

13

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
 
Nine Months Ended
(in millions)
 
Debt
Securities
 
Equity
Securities
 
Total
 
Debt
Securities
 
Equity
Securities
 
Total
September 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
Balance at beginning of period
 
$
84

 
$
319

 
$
403

 
$
74

 
$
310

 
$
384

Purchases
 
12

 
45

 
57

 
22

 
59

 
81

Sales
 
(2
)
 
(6
)
 
(8
)
 
(4
)
 
(20
)
 
(24
)
Net unrealized gains in accumulated other comprehensive income
 
—

 
6

 
6

 
2

 
1

 
3

Net realized (losses) gains in investment and other income
 
(1
)
 
(1
)
 
(2
)
 
(1
)
 
13

 
12

Balance at end of period
 
$
93

 
$
363

 
$
456

 
$
93

 
$
363

 
$
456

 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2014
 
 
 
 
 
 
 
 
 
 
 
 
Balance at beginning of period
 
$
57

 
$
302

 
$
359

 
$
42

 
$
269

 
$
311

Purchases
 
11

 
36

 
47

 
24

 
86

 
110

Sales
 
—

 
(18
)
 
(18
)
 
—

 
(169
)
 
(169
)
Net unrealized (losses) gains in accumulated other comprehensive income
 
(2
)
 
(4
)
 
(6
)
 
—

 
6

 
6

Net realized (losses) gains in investment and other income
 
—

 
(15
)
 
(15
)
 
—

 
109

 
109

Balance at end of period
 
$
66

 
$
301

 
$
367

 
$
66

 
$
301

 
$
367

The following table presents quantitative information regarding unobservable inputs that were significant to the valuation of assets measured at fair value on a recurring basis using Level 3 inputs:
 
 
 
 
 
 
 
 
Range
(in millions, except ranges)
 
Fair Value
 
Valuation Technique
 
Unobservable Input
 
Low
 
High
September 30, 2015
 
 
 
 
 
 
 
 
 
 
Equity securities - available-for-sale:
 
 
 
 
 
 
 
 
 
 
Venture capital portfolios
 
$
322

 
Market approach - comparable companies
 
Revenue multiple
 
1.0
 
5.0
 
 
 
 
 
 
EBITDA   multiple
 
9.0
 
10.0
 
 
41

 
Market approach - recent transactions
 
Inactive market transactions
 
N/A
 
N/A
Total equity securities
      available-for-sale
 
$
363

 
 
 
 
 
 
 
 
Also included in the Company’s assets measured at fair value on a recurring basis using Level 3 inputs were $93 million of available-for-sale debt securities as of September 30, 2015 , which were not significant.

14

The Company elected to measure the entirety of the AARP Program assets under management at fair value pursuant to the fair value option. See Note 2 of Notes to the Consolidated Financial Statements in Part II, Item 8, “Financial Statements” in the Company’s 2014 10-K for further detail on the AARP Program. 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)
 
Total
Fair and Carrying
Value
September 30, 2015
 
 
 
 
 
 
Cash and cash equivalents
 
$
292

 
$
—

 
$
292

Debt securities:
 
 
 
 
 
 
U.S. government and agency obligations
 
444

 
142

 
586

State and municipal obligations
 
—

 
105

 
105

Corporate obligations
 
—

 
1,292

 
1,292

U.S. agency mortgage-backed securities
 
—

 
391

 
391

Non-U.S. agency mortgage-backed securities
 
—

 
199

 
199

Total debt securities
 
444

 
2,129

 
2,573

Other investments
 
—

 
83

 
83

Total assets at fair value
 
$
736

 
$
2,212

 
$
2,948

Other liabilities
 
$
7

 
$
6

 
$
13

December 31, 2014
 
 
 
 
 
 
Cash and cash equivalents
 
$
415

 
$
—

 
$
415

Debt securities:
 
 
 
 
 
 
U.S. government and agency obligations
 
409

 
245

 
654

State and municipal obligations
 
—

 
95

 
95

Corporate obligations
 
—

 
1,200

 
1,200

U.S. agency mortgage-backed securities
 
—

 
340

 
340

Non-U.S. agency mortgage-backed securities
 
—

 
177

 
177

Total debt securities
 
409

 
2,057

 
2,466

Other investments
 
—

 
81

 
81

Total assets at fair value
 
$
824

 
$
2,138

 
$
2,962

Other liabilities
 
$
5

 
$
13

 
$
18

6.    Medicare Part D Pharmacy Benefits
The Condensed Consolidated Balance Sheets include the following amounts associated with the Medicare Part D program:
 
 
September 30, 2015
 
December 31, 2014
(in millions)
 
Subsidies
 
Drug Discount
 
Risk-Share
 
Subsidies
 
Drug Discount
 
Risk-Share
Other current receivables
 
$
2,466

 
$
690

 
$
—

 
$
1,801

 
$
719

 
$
20

Other policy liabilities
 
—

 
377

 
200

 
—

 
302

 
—

See Note 2 of Notes to the Consolidated Financial Statements in Part II, Item 8, “Financial Statements” in the Company’s 2014 10-K for further detail on Medicare Part D.

15

7.    Medical Costs Reserve Development
The following table provides details of the Company's medical cost reserve development:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(in millions)
 
2015
 
2014
 
2015
 
2014
Related to Prior Years
 
$
100

 
$
120

 
$
230

 
$
380

Related to Current Year
 
50

 
150

 
N/A

 
N/A

In the three and nine months ended September 30, 2015 and 2014 , the medical cost reserve development was driven by a number of individual factors that were not material .
8.    Health Insurance Industry Tax
The Patient Protection and Affordable Care Act and a reconciliation measure, the Health Care and Education Reconciliation Act of 2010 (together, Health Reform Legislation) includes an annual, nondeductible insurance industry tax (Health Insurance Industry Tax). In September 2015, the Company paid its full year 2015 Health Insurance Industry Tax of $1.8 billion . As of September 30, 2015 , the deferred cost recorded in prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets related to the Health Insurance Industry Tax was $450 million . There was no liability or asset related to the Health Insurance Industry Tax recorded as of December 31, 2014 as the Health Insurance Industry Tax was paid in September 2014 and the asset was fully expensed by year end. See Note 2 of Notes to the Consolidated Financial Statements in Part II, Item 8, “Financial Statements” in the Company’s 2014 10-K for further detail on the Health Insurance Industry Tax.

16

9.     Commercial Paper and Long-Term Debt
Commercial paper, term loan and senior unsecured long-term debt consisted of the following:
 
 
September 30, 2015
 
December 31, 2014
(in millions, except percentages)
 
Par
Value
 
Carrying
Value
 
Fair
Value
 
Par
Value
 
Carrying
Value
 
Fair
Value
Commercial paper
 
$
2,986

 
$
2,986

 
$
2,986

 
$
321

 
$
321

 
$
321

Floating rate term loan due July 2016
 
1,500

 
1,500

 
1,500

 
—

 
—

 
—

4.875% notes due March 2015 (a)
 
—

 
—

 
—

 
416

 
419

 
419

0.850% notes due October 2015 (a), (b)
 
625

 
625

 
625

 
625

 
625

 
627

5.375% notes due March 2016 (a), (b)
 
601

 
610

 
612

 
601

 
623

 
634

1.875% notes due November 2016 (a), (b)
 
400

 
400

 
405

 
400

 
397

 
406

5.360% notes due November 2016
 
95

 
95

 
100

 
95

 
95

 
103

Floating rate notes due January 2017 (c)
 
750

 
750

 
750

 
—

 
—

 
—

6.000% notes due June 2017 (a), (b)
 
441

 
461

 
476

 
441

 
466

 
489

1.450% notes due July 2017 (c)
 
750

 
750

 
754

 
—

 
—

 
—

1.400% notes due October 2017 (a), (b)
 
625

 
625

 
629

 
625

 
616

 
624

6.000% notes due November 2017 (a), (b)
 
156

 
164

 
171

 
156

 
164

 
175

1.400% notes due December 2017 (a), (b)
 
750

 
753

 
749

 
750

 
745

 
749

6.000% notes due February 2018 (a), (b)
 
1,100

 
1,117

 
1,212

 
1,100

 
1,106

 
1,238

1.900% notes due July 2018 (c)
 
1,500

 
1,498

 
1,516

 
—

 
—

 
—

1.625% notes due March 2019 (a), (b)
 
500

 
504

 
497

 
500

 
496

 
493

2.300% notes due December 2019 (a)
 
500

 
508

 
507

 
500

 
496

 
502

2.700% notes due July 2020 (c)
 
1,500

 
1,499

 
1,535

 
—

 
—

 
—

3.875% notes due October 2020 (a)
 
450

 
461

 
483

 
450

 
450

 
477

4.700% notes due February 2021 (a)
 
400

 
422

 
445

 
400

 
413

 
450

3.375% notes due November 2021 (a)
 
500

 
510

 
525

 
500

 
496

 
519

2.875% notes due December 2021 (a)
 
750

 
768

 
761

 
750

 
748

 
759

2.875% notes due March 2022 (a)
 
1,100

 
1,077

 
1,110

 
1,100

 
1,042

 
1,104

3.350% notes due July 2022 (c)
 
1,000

 
999

 
1,032

 
—

 
—

 
—

0.000% notes due November 2022
 
15

 
10

 
12

 
15

 
10

 
11

2.750% notes due February 2023 (a)
 
625

 
623

 
616

 
625

 
604

 
613

2.875% notes due March 2023 (a)
 
750

 
797

 
747

 
750

 
777

 
745

3.750% notes due July 2025 (c)
 
2,000

 
1,995

 
2,067

 
—

 
—

 
—

4.625% notes due July 2035 (c)
 
1,000

 
1,000

 
1,055

 
—

 
—

 
—

5.800% notes due March 2036
 
850

 
845

 
1,016

 
850

 
845

 
1,052

6.500% notes due June 2037
 
500

 
495

 
637

 
500

 
495

 
670

6.625% notes due November 2037
 
650

 
646

 
836

 
650

 
646

 
888

6.875% notes due February 2038
 
1,100

 
1,085

 
1,465

 
1,100

 
1,085

 
1,544

5.700% notes due October 2040
 
300

 
298

 
354

 
300

 
298

 
378

5.950% notes due February 2041
 
350

 
348

 
424

 
350

 
348

 
455

4.625% notes due November 2041
 
600

 
593

 
615

 
600

 
593

 
646

4.375% notes due March 2042
 
502

 
486

 
494

 
502

 
486

 
536

3.950% notes due October 2042
 
625

 
612

 
589

 
625

 
611

 
621

4.250% notes due March 2043
 
750

 
740

 
742

 
750

 
740

 
786

4.750% notes due July 2045 (c)
 
2,000

 
1,992

 
2,111

 
—

 
—

 
—

Total commercial paper, term loan and long-term debt
 
$
31,596

 
$
31,647

 
$
33,160

 
$
17,347

 
$
17,256

 
$
19,034

(a)
Fixed-rate debt instruments hedged with interest rate swap contracts. See below for more information on the Company’s interest rate swaps.
(b)
The Company terminated the interest rate swap contacts on these hedged instruments during the three months ended September 30, 2015. See below for more information on this termination.
(c)
Debt issued to fund the Catamaran acquisition. For more detail on Catamaran, see Note 2 of Notes to the Condensed Consolidated Financial Statements.
The Company’s long-term debt obligations also included $135 million and $150 million of other financing obligations, of which $46 million and $34 million were current as of September 30, 2015 and December 31, 2014 , respectively.

17

Commercial Paper and Bank Credit Facilities
Commercial paper consists of short-duration, senior unsecured debt privately placed on a discount basis through broker-dealers. As of September 30, 2015 , the Company’s outstanding commercial paper had a weighted-average annual interest rate of 0.4% .
The Company has $3.0 billion five-year and $1.0 billion 364-day revolving bank credit facilities with 23 banks, which mature in November 2019 and November 2015 , respectively. The Company also has a $2.0 billion 364-day revolving bank credit facility with 22 banks maturing in April 2016 . These facilities provide liquidity support for the Company’s commercial paper program and are available for general corporate purposes. As of September 30, 2015 , no amounts had been drawn on any of the bank credit facilities. The annual interest rates, which are variable based on term, are calculated based on the London Interbank Offered Rate (LIBOR) plus a credit spread based on the Company’s senior unsecured credit ratings. If amounts had been drawn on the bank credit facilities as of September 30, 2015 , annual interest rates would have ranged from 1.0% to 1.4% .
Debt Covenants
The Company’s bank credit facilities contain various covenants, including covenants requiring the Company to maintain a defined debt to debt-plus-shareholders’ equity ratio of not more than 50% . The Company was in compliance with its debt covenants as of September 30, 2015 .
Interest Rate Swap Contracts
The Company uses 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 variable rate financial assets. The floating rates are benchmarked to LIBOR. The swaps are designated as fair value hedges on the Company’s fixed-rate debt. Since the critical terms of the swaps match those of the debt being hedged, they are considered to be highly effective hedges and all changes in the fair values of the swaps are recorded as adjustments to the carrying value of the related debt with no net impact recorded on the Condensed Consolidated Statements of Operations. Both the hedge fair value changes and the offsetting debt adjustments are recorded in interest expense on the Condensed Consolidated Statements of Operations. The following table summarizes the location and fair value of the interest rate swap fair value hedges on the Company’s Condensed Consolidated Balance Sheet:
Type of Fair Value Hedge
 
Notional Amount
 
Fair Value
 
Balance Sheet Location
 
 
(in billions)
 
(in millions)
 
 
September 30, 2015
 
 
 
 
 
 
Interest rate swap contracts
 
$
5.1

 
$
168

 
Other assets
 
 
 
 
1

 
Other liabilities
 
 
 
 
 
 
 
December 31, 2014
 
 
 
 
 
 
Interest rate swap contracts
 
$
10.7

 
$
62

 
Other assets

 
 
 
55

 
Other liabilities
During the three months ended September 30, 2015, the Company terminated $5.2 billion notional amount of its interest rate swap fair value hedges. The resulting gain was not material.
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 September 30,
 
Nine Months Ended September 30,
(in millions)
 
2015
 
2014
 
2015
 
2014
Hedge - interest rate swap gain (loss) recognized in interest expense
 
$
146

 
$
(11
)
 
$
160

 
$
122

Hedged item - long-term debt (loss) gain recognized in interest expense
 
(146
)
 
11

 
(160
)
 
(122
)
Net impact on the Company’s Condensed Consolidated Statements of Operations
 
$
—

 
$
—

 
$
—

 
$
—

10.    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 in

18

open market purchases or other types of transactions (including prepaid or structured repurchase programs), subject to certain Board restrictions. During the nine months ended September 30, 2015 , the Company repurchased 10 million shares at an average price of $112.30 per share and an aggregate cost of $1.1 billion . As of September 30, 2015 , the Company had Board authorization to purchase up to 61 million  shares of its common stock.
Dividends
In June 2015 , the Company’s Board of Directors increased the Company’s quarterly cash dividend to shareholders to equal an annual dividend rate of $2.00 per share compared to the annual dividend rate of $1.50 per share, which the Company had paid since June 2014 . 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 2015 dividend payments:
Payment Date
 
Amount per Share
 
Total Amount Paid
 
 
 
 
(in millions)
March 24, 2015
 
$
0.3750

 
$
357

June 24, 2015
 
0.5000

 
476

September 22, 2015
 
0.5000

 
477

11.    Share-Based Compensation
In June 2015, the Company’s shareholders approved an amendment to the 2011 Stock Incentive Plan (Plan). The approved amendment increased the number of shares authorized for issuance under the Plan by 70 million and removed the limit in the Plan for shares other than options and stock-settled stock appreciation rights (SARs) that can be awarded. The Company’s outstanding share-based awards consist mainly of nonqualified stock options, SARs and restricted stock and restricted stock units (collectively, restricted shares). As of September 30, 2015 , the Company had 85 million shares available for future grants of share-based awards under its share-based compensation plan.
Stock Options and SARs
Stock option and SAR activity for the nine months ended September 30, 2015 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
33

 
$
53

 
 
 
 
Granted
9

 
110

 
 
 
 
Exercised
(6
)
 
52

 
 
 
 
Forfeited
(1
)
 
79

 
 
 
 
Outstanding at end of period
35

 
68

 
6.1

 
$
1,693

Exercisable at end of period
17

 
47

 
3.5

 
1,167

Vested and expected to vest, end of period
34

 
67

 
6.0

 
1,668


19

Restricted Shares
Restricted share activity for the nine months ended September 30, 2015 is summarized in the table below:
(shares in millions)
 
Shares
 
Weighted-Average Grant Date Fair Value per Share
Nonvested at beginning of period
 
9

 
$
61

Granted
 
3

 
110

Vested
 
(5
)
 
61

Nonvested at end of period
 
7

 
82

Other Share-Based Compensation Data
(in millions, except per share amounts)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Stock Options and SARs
 
 
 
 
 
 
 
 
Weighted-average grant date fair value of shares granted, per share
 
$
22

 
$
17

 
$
23

 
$
22

Total intrinsic value of stock options and SARs exercised
 
74

 
89

 
402

 
375

Restricted Shares
 
 
 
 
 
 
 
 
Weighted-average grant date fair value of shares granted, per share
 
122

 
80

 
110

 
71

Total fair value of restricted shares vested
 
41

 
5

 
448

 
428

Share-Based Compensation Items
 
 
 
 
 
 
 
 
Share-based compensation expense, before tax
 
95

 
81

 
306

 
269

Share-based compensation expense, net of tax effects
 
86

 
73

 
263

 
230

Income tax benefit realized from share-based award exercises
 
38

 
39

 
212

 
182

(in millions, except years)
 
September 30, 2015
Unrecognized compensation expense related to share awards
 
$
536

Weighted-average years to recognize compensation expense
 
1.4

Share-Based Compensation Recognition and Estimates
The principal assumptions the Company used in calculating grant-date fair value for stock options and SARs were as follows:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2015
 
2014
 
2015
 
2014
Risk-free interest rate
 
1.6%
 
1.7%
 
1.6% - 1.7%
 
1.7% - 1.8%
Expected volatility
 
22.3%
 
27.2%
 
22.3% - 24.1%
 
27.2% - 39.6%
Expected dividend yield
 
1.6%
 
1.9%
 
1.4% - 1.7%
 
1.6% - 1.9%
Forfeiture rate
 
5.0%
 
5.0%
 
5.0%
 
5.0%
Expected life in years
 
5.5
 
5.4
 
5.5 - 6.1
 
5.4
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, care providers, consumer advocacy organizations, customers and regulators, relating to the Company’s businesses, including management and administration of health benefit plans and other services. 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 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

20

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
California Claims Processing Matter. On January 25, 2008, the California Department of Insurance (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 related to an alleged failure to include certain language in standard claims correspondence, timeliness and accuracy of claims processing, interest payments, care provider contract implementation, care provider dispute resolution and other related matters. Although the Company believes that CDI had never before issued a fine in excess of $8 million , CDI advocated a fine of approximately $325 million in this matter. The matter was the subject of an administrative hearing before a California administrative law judge beginning in December 2009, and in August 2013, the administrative law judge issued a nonbinding proposed decision recommending a fine of $11.5 million . The California Insurance Commissioner rejected the administrative law judge’s recommendation and on June 9, 2014, issued his own decision imposing a fine of approximately $174 million . On July 10, 2014, the Company filed a lawsuit in California state court challenging the Commissioner’s decision. On September 8, 2015, in the first phase of that lawsuit, the California state court issued an order invalidating certain of the regulations the Commissioner had relied upon in issuing his decision and penalty. 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 wide range of possible outcomes, the legal issues presented (including the legal basis for the majority of the alleged violations), the inherent difficulty in predicting a regulatory fine in the event of a remand, and the various remedies and levels of judicial review that remain available to the Company.
Government Investigations, Audits and Reviews
The Company has been involved or 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, the Brazilian national regulatory agency for private health insurance and plans (the Agência Nacional de Saúde Suplementar), state attorneys general, the Office of the Inspector General, the Office of Personnel Management, the Office of Civil Rights, the Government Accountability Office, the Federal Trade Commission, U.S. Congressional committees, the U.S. Department of Justice, the SEC, the Internal Revenue Service, the U.S. Drug Enforcement Administration, the Brazilian federal revenue service (the Secretaria da Receita Federal), the U.S. Department of Labor, the Federal Deposit Insurance Corporation, the Defense Contract Audit Agency and other governmental authorities. Certain of the Company’s businesses have been reviewed or are currently under review, including for, among other things, compliance with coding and other requirements under the Medicare risk-adjustment model.
In February 2012, CMS announced a final Risk Adjustment Data Validation (RADV) audit and payment adjustment methodology and that it will conduct RADV audits beginning with the 2011 payment year. These audits involve a review of medical records maintained by care providers and may result in retrospective adjustments to payments made to health plans. CMS has not communicated how the final payment adjustment under its methodology will be implemented.
The Company cannot reasonably estimate the range of loss, if any, that may result from any material government investigations, audits and reviews in which it is currently involved given the inherent difficulty in predicting regulatory action, fines and penalties, if any, and the various remedies and levels of judicial review available to the Company in the event of an adverse finding.
Guaranty Fund Assessments
Under state guaranty fund laws, certain insurance companies can be assessed (up to prescribed limits) for certain obligations to the policyholders and claimants of insolvent insurance companies (including certain state health insurance cooperatives). In 2009, the Pennsylvania Insurance Commissioner placed long term care insurer Penn Treaty Network America Insurance Company and its subsidiary (Penn Treaty), neither of which is affiliated with the Company, in rehabilitation and petitioned a state court for approval to liquidate Penn Treaty. In 2012, the court denied the liquidation petition and ordered the Insurance Commissioner to submit a rehabilitation plan. The court held a hearing on July 13-14, 2015 to begin its consideration of the latest proposed rehabilitation plan. The hearing is scheduled to continue on February 16, 2016.
If the current proposed rehabilitation plan, which contemplates the partial liquidation of Penn Treaty, is approved by the court, the Company’s insurance entities and other insurers may be required to pay a portion of Penn Treaty’s policyholder claims through state guaranty association assessments in future periods. The Company intends to vigorously challenge the proposed rehabilitation plan. The Company is currently unable to estimate losses or ranges of losses because the Company cannot predict whether, when or to what extent Penn Treaty will ultimately be declared insolvent, the amount of the insolvency, if any, the

21

amount and timing of any associated guaranty fund assessments or the availability and amount of any premium tax and other potential offsets.
13.    Segment Financial Information
The Company’s four reportable segments are UnitedHealthcare, OptumHealth, OptumInsight and OptumRx . For more information on the Company’s segments see Part I, Item I, “Business” and Note 13 of Notes to the Consolidated Financial Statements in Part II, Item 8, “Financial Statements” in the Company's 2014 10-K.
The following table presents the reportable segment financial information:
 
 
 
 
Optum
 
 
 
 
(in millions)
 
UnitedHealthcare
 
OptumHealth
 
OptumInsight
 
OptumRx (a)
 
Optum Eliminations
 
Optum
 
Corporate and
Eliminations
 
Consolidated
Three Months Ended September 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues - external customers:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Premiums
 
$
30,978

 
$
823

 
$
—

 
$
—

 
$
—

 
$
823

 
$
—

 
$
31,801

Products
 
—

 
8

 
31

 
6,443

 
—

 
6,482

 
—

 
6,482

Services
 
1,710

 
594

 
592

 
140

 
—

 
1,326

 
—

 
3,036

Total revenues - external customers
 
32,688

 
1,425

 
623

 
6,583

 
—

 
8,631

 
—

 
41,319

Total revenues - intersegment
 
—

 
2,067

 
961

 
7,824

 
(222
)
 
10,630

 
(10,630
)
 
—

Investment and other income
 
129

 
40

 
1

 
—

 
—

 
41

 
—

 
170

Total revenues
 
$
32,817

 
$
3,532

 
$
1,585

 
$
14,407

 
$
(222
)
 
$
19,302

 
$
(10,630
)
 
$
41,489

Earnings from operations
 
$
1,876

 
$
363

 
$
289

 
$
490

 
$
—

 
$
1,142

 
$
—

 
$
3,018

Interest expense
 
—

 
—

 
—

 
—

 
—

 
—

 
(229
)
 
(229
)
Earnings before income taxes
 
$
1,876

 
$
363

 
$
289

 
$
490

 
$
—

 
$
1,142

 
$
(229
)
 
$
2,789

Three Months Ended September 30, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues - external customers:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Premiums
 
$
28,287

 
$
685

 
$
—

 
$
—

 
$
—

 
$
685

 
$
—

 
$
28,972

Products
 
—

 
6

 
23

 
1,051

 
—

 
1,080

 
—

 
1,080

Services
 
1,617

 
373

 
521

 
24

 
—

 
918

 
—

 
2,535

Total revenues - external customers
 
29,904

 
1,064

 
544

 
1,075

 
—

 
2,683

 
—

 
32,587

Total revenues - intersegment
 
—

 
1,749

 
705

 
6,936

 
(124
)
 
9,266

 
(9,266
)
 
—

Investment and other income
 
135

 
36

 
1

 
—

 
—

 
37

 
—

 
172

Total revenues
 
$
30,039

 
$
2,849

 
$
1,250

 
$
8,011

 
$
(124
)
 
$
11,986

 
$
(9,266
)
 
$
32,759

Earnings from operations
 
$
2,038

 
$
314

 
$
225

 
$
326

 
$
—

 
$
865

 
$
—

 
$
2,903

Interest expense
 
—

 
—

 
—

 
—

 
—

 
—

 
(152
)
 
(152
)
Earnings before income taxes
 
$
2,038

 
$
314

 
$
225

 
$
326

 
$
—

 
$
865

 
$
(152
)
 
$
2,751


22

 
 
 
 
Optum
 
 
 
 
(in millions)
 
UnitedHealthcare
 
OptumHealth
 
OptumInsight
 
OptumRx (a)
 
Optum Eliminations
 
Optum
 
Corporate and
Eliminations
 
Consolidated
Nine Months Ended September 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues - external customers:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Premiums
 
$
93,069

 
$
2,367

 
$
—

 
$
—

 
$
—

 
$
2,367

 
$
—

 
$
95,436

Products
 
1

 
24

 
67

 
8,843

 
—

 
8,934

 
—

 
8,935

Services
 
5,028

 
1,694

 
1,693

 
192

 
—

 
3,579

 
—

 
8,607

Total revenues - external customers
 
98,098

 
4,085

 
1,760

 
9,035

 
—

 
14,880

 
—

 
112,978

Total revenues - intersegment
 
—

 
6,061

 
2,623

 
22,579

 
(553
)
 
30,710

 
(30,710
)
 
—

Investment and other income
 
415

 
113

 
1

 
1

 
—

 
115

 
—

 
530

Total revenues
 
$
98,513

 
$
10,259

 
$
4,384

 
$
31,615

 
$
(553
)
 
$
45,705

 
$
(30,710
)
 
$
113,508

Earnings from operations
 
$
5,805

 
$
850

 
$
782

 
$
1,116

 
$
—

 
$
2,748

 
$
—

 
$
8,553

Interest expense
 
—

 
—

 
—

 
—

 
—

 
—

 
(530
)
 
(530
)
Earnings before income taxes
 
$
5,805

 
$
850

 
$
782

 
$
1,116

 
$
—

 
$
2,748

 
$
(530
)
 
$
8,023

Nine Months Ended September 30, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues - external customers:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Premiums
 
$
84,011

 
$
1,916

 
$
—

 
$
—

 
$
—

 
$
1,916

 
$
—

 
$
85,927

Products
 
2

 
17

 
63

 
3,033

 
—

 
3,113

 
—

 
3,115

Services
 
4,849

 
878

 
1,578

 
81

 
—

 
2,537

 
—

 
7,386

Total revenues - external customers
 
88,862

 
2,811

 
1,641

 
3,114

 
—

 
7,566

 
—

 
96,428

Total revenues - intersegment
 
—

 
5,094

 
2,098

 
20,355

 
(354
)
 
27,193

 
(27,193
)
 
—

Investment and other income
 
502

 
110

 
1

 
—

 
—

 
111

 
—

 
613

Total revenues
 
$
89,364

 
$
8,015

 
$
3,740

 
$
23,469

 
$
(354
)
 
$
34,870

 
$
(27,193
)
 
$
97,041

Earnings from operations
 
$
5,266

 
$
749

 
$
635

 
$
859

 
$
—

 
$
2,243

 
$
—

 
$
7,509

Interest expense
 
—

 
—

 
—

 
—

 
—

 
—

 
(467
)
 
(467
)
Earnings before income taxes
 
$
5,266

 
$
749

 
$
635

 
$
859

 
$
—

 
$
2,243

 
$
(467
)
 
$
7,042

(a)
As of September 30, 2015, OptumRx’s total assets were $25.7 billion as compared to $5.5 billion as of December 31, 2014. The increase was due to the Catamaran acquisition completed during the three months ended September 30, 2015. See Note 2 of Notes to the Condensed Consolidated Financial Statements for more information on the Company’s acquisition of Catamaran.
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 and with our 2014 10-K, including the Consolidated Financial Statements and Notes in Part II, Item 8, “Financial Statements” in that report. Unless the context indicates otherwise, references to the terms “UnitedHealth Group,” “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 consolidated subsidiaries.
Readers are cautioned that the statements, estimates, projections or outlook contained in this Management's Discussion and Analysis of Financial Condition and Results of Operations, including discussions regarding financial prospects, economic conditions, trends and uncertainties contained in this Item 2, may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (PSLRA). These forward-looking statements involve risks and uncertainties that may cause our actual results to differ materially from the results discussed or implied in the forward-looking statements. A description of some of the risks and uncertainties is set forth in Part I, Item 1A, “Risk Factors” in our 2014 10-K and in the discussion below.
EXECUTIVE OVERVIEW
General
UnitedHealth Group is a diversified health and well-being company dedicated to helping people live healthier lives and making the health system work better for everyone. Through our diversified family of businesses, we leverage core competencies in advanced, enabling technology; health care data, information and intelligence; and clinical care management and coordination to help meet the demands of the health system. We offer a broad spectrum of products and services through two distinct

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platforms: UnitedHealthcare, which provides health care coverage and benefits services; and Optum, which provides pharmacy care services and information and technology-enabled health services.
Further information on our business is included in Part I, Item 1, “Business” and Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2014 10-K and additional information on our segments can be found in this Item 2 and in Note 13 of Notes to the Condensed Consolidated Financial Statements in Part I, Item 1 of this report.
Business Trends
Our businesses participate in the U.S., Brazilian and certain other international health economies. In the United States, health care spending comprises approximately 18% of gross domestic product and has grown consistently for many years. We expect overall spending on health care to continue to grow in the future, due to inflation, medical technology and pharmaceutical advancement, regulatory requirements, demographic trends in the 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 regulatory changes, including enacted health reform legislation in the United States, which have impacted and could further impact our results of operations.
Pricing Trends . To price our health care benefit products, we start with our view of expected future costs. We frequently evaluate and adjust our approach in each of the local markets we serve, considering all relevant factors, such as product positioning, price competitiveness and environmental, competitive, legislative and regulatory considerations. Our review of regulatory considerations involves a focus on minimum loss ratio (MLR) thresholds and the risk adjustment, risk corridor and reinsurance provisions that impact the small group and individual markets. We will continue seeking to balance growth and profitability across all of these dimensions.
We continue to be under pressure from ongoing market competition in commercial products and from government payment rates. The intensity of commercial pricing competition depends on local market conditions and competitive dynamics. Annual commercial premium rate increases are subject to federal and state review and approval procedures. The Medicare Advantage rate structure is changing and funding has been cut in recent years, with additional reductions taking effect in 2015, as discussed below in “Regulatory Trends and Uncertainties.” Although we expect continued Medicaid revenue increases due to anticipated growth in the number of people served through our offerings, the reimbursement rate environment creates the risk of downward pressure on Medicaid net margin percentages.
Medical Cost Trends. Our medical cost trends are primarily related to changes in unit costs, health system utilization and prescription drug costs. Although Health Reform Legislation and prescription drug utilization, particularly use of new specialty medications, have exerted upward pressure on medical cost trends, our medical cost management strategies have had a moderating impact on utilization trends in recent years.
Regulatory Trends and Uncertainties
Following is a summary of management’s view of the trends and uncertainties related to some of the key provisions of Health Reform Legislation and other regulatory items. For additional information regarding Health Reform Legislation and regulatory trends and uncertainties, see Part I, Item 1, “Business - Government Regulation”, Item 1A, “Risk Factors”, and Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2014 10-K.
Medicare Advantage Rates. Medicare Advantage rates have been cut over the last several years, with additional funding reductions to be phased-in through 2017. The impact of these cuts to our 2015 Medicare Advantage revenues is partially mitigated by reductions in provider reimbursements for those care providers with rates indexed to Medicare Advantage revenues or Medicare fee-for-service reimbursement rates. These factors affected our plan benefit designs, market participation, growth prospects and earnings expectations for our Medicare Advantage plans this year.
The 2016 Final Rate notice released by CMS in April 2015 provided some progress toward more stable program rates, with the industry seeing an average increase in funding of 125 basis points. However, these rates still trail the pace of the rising cost of medical care and create continued pressure on the Medicare Advantage program. 
Our Medicare Advantage rates are currently enhanced by CMS quality bonuses in certain counties based on our local plans’ Star ratings. The level of Star ratings from CMS, based upon specified clinical and operational performance standards, will impact future quality bonuses. In addition, Star ratings affect the amount of savings a plan has to generate to offer supplemental benefits, which ultimately may affect the plan’s membership and revenue. The previous Star bonus program, which paid bonuses to qualifying plans rated 3 stars or higher, expired after 2014. In 2015, quality bonus payments will be paid only to plans rated 4 stars and higher. For the 2015 Star bonus payment year, 39% of our Medicare Advantage members are enrolled in plans rated 4 stars or higher. For the 2016 and 2017 Star bonus payment years, we estimate approximately 56% and 63%,

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respectively, of our Medicare Advantage members will be enrolled in plans rated 4 stars or higher, based on current enrollment. We are dedicating substantial resources to advance our quality scores and Star ratings to strengthen our local market programs and further improve our performance in future years.
Health Insurance Industry Tax and Premium Stabilization Programs. Health Reform Legislation includes a Health Insurance Industry Tax levied on risk-based products proportionally across the industry. The industry-wide amount of the annual tax is $11.3 billion in 2015 and we paid our proportionate share of $1.8 billion in September 2015. Health Reform Legislation also includes three programs designed to stabilize the health insurance markets. These programs encompass: a temporary reinsurance program; a temporary risk corridors program; and a permanent risk adjustment program. Of the $8 billion for the reinsurance program in 2015, $6 billion will fund the reinsurance pool and $2 billion will fund the U.S. Treasury. While funding for the reinsurance program will come from all commercial lines of business, only market reform compliant individual business will be eligible for reinsurance recoveries.
For further detail on the Health Insurance Industry Tax and Premium Stabilization Programs, see Note 2 of Notes to the Consolidated Financial Statements included in Part II, Item 8, “Financial Statements” in our 2014 10-K.
Exchanges and Coverage Expansion. We and our competitors are adapting product, network and marketing strategies across markets to anticipate new or expanding distribution channels, including public exchanges, private exchanges and off exchange purchasing. In 2015, we are participating in 23 individual public exchanges and in 12 small group public exchanges.
RESULTS SUMMARY
The following table summarizes our consolidated results of operations and other financial information:
(in millions, except percentages and per share data)
 
Three Months Ended September 30,
 
Increase/(Decrease)
 
Nine Months Ended September 30,
 
Increase/(Decrease)
 
2015
 
2014
 
2015 vs. 2014
 
2015
 
2014
 
2015 vs. 2014
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Premiums
 
$
31,801

 
$
28,972

 
$
2,829

 
10
%
 
$
95,436

 
$
85,927

 
$
9,509

 
11
%
Products
 
6,482

 
1,080

 
5,402

 
500

 
8,935

 
3,115

 
5,820

 
187

Services
 
3,036

 
2,535

 
501

 
20

 
8,607

 
7,386

 
1,221

 
17

Investment and other income
 
170

 
172

 
(2
)
 
(1
)
 
530

 
613

 
(83
)
 
(14
)
Total revenues
 
41,489

 
32,759

 
8,730

 
27

 
113,508

 
97,041

 
16,467

 
17

Operating costs:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Medical costs
 
25,618

 
23,092

 
2,526

 
11

 
77,333

 
69,823

 
7,510

 
11

Operating costs
 
6,301

 
5,436

 
865

 
16

 
18,102

 
15,836

 
2,266

 
14

Cost of products sold
 
6,100

 
955

 
5,145

 
539

 
8,311

 
2,776

 
5,535

 
199

Depreciation and amortization
 
452

 
373

 
79

 
21

 
1,209

 
1,097

 
112

 
10

Total operating costs
 
38,471

 
29,856

 
8,615

 
29

 
104,955

 
89,532

 
15,423

 
17

Earnings from operations
 
3,018

 
2,903

 
115

 
4

 
8,553

 
7,509

 
1,044

 
14

Interest expense
 
(229
)
 
(152
)
 
77

 
51

 
(530
)
 
(467
)
 
63

 
13

Earnings before income taxes
 
2,789

 
2,751

 
38

 
1

 
8,023

 
7,042

 
981

 
14

Provision for income taxes
 
(1,171
)
 
(1,149
)
 
22

 
2

 
(3,407
)
 
(2,933
)
 
474

 
16

Net earnings
 
1,618

 
1,602

 
16

 
1

 
4,616

 
4,109

 
507

 
12

Earnings attributable to noncontrolling interests
 
(21
)
 
—

 
(21
)
 
nm

 
(21
)
 
—

 
(21
)
 
nm

Net earnings attributable to UnitedHealth Group common shareholders
 
$
1,597

 
$
1,602

 
$
(5
)
 
—
 %
 
$
4,595

 
$
4,109

 
$
486

 
12
 %
Diluted earnings per share attributable to UnitedHealth Group common shareholders
 
$
1.65

 
$
1.63

 
$
0.02

 
1
 %
 
$
4.75

 
$
4.15

 
$
0.60

 
14
 %
Medical care ratio (a)
 
80.6
%
 
79.7
%
 
0.9
 %
 
 
 
81.0
%
 
81.3
%
 
(0.3
)%
 
 
Operating cost ratio
 
15.2

 
16.6

 
(1.4
)
 
 
 
15.9

 
16.3

 
(0.4
)
 
 
Operating margin
 
7.3

 
8.9

 
(1.6
)
 
 
 
7.5

 
7.7

 
(0.2
)
 
 
Tax rate
 
42.0

 
41.8

 
0.2

 
 
 
42.5

 
41.7

 
0.8

 
 
Net earnings margin (b)
 
3.8

 
4.9

 
(1.1
)
 
 
 
4.0

 
4.2

 
(0.2
)
 
 
Return on equity (c)
 
19.3
%
 
19.6
%
 
(0.3
)%
 
 
 
18.8
%
 
16.8
%
 
2.0
 %
 
 
(a)
Medical care ratio is calculated as medical costs divided by premium revenue.
(b)
Net earnings margin attributable to UnitedHealth Group shareholders.
(c)
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.

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SELECTED OPERATING PERFORMANCE AND OTHER SIGNIFICANT ITEMS
The following summarizes select third quarter 2015 year-over-year operating comparisons to third quarter 2014 and other 2015 significant items.
•
Consolidated revenues grew 27% , UnitedHealthcare revenues grew 9% and Optum revenues grew 61% .
•
UnitedHealthcare grew to serve an additional 1.7 million people domestically.
•
Earnings from operations increased 4% , including an increase of 32% at Optum partially offset by a decrease of 8% at UnitedHealthcare.
•
Diluted earnings per common share increased 1% to $1.65 .
•
Year-to-date 2015 cash flows from operations were $6.2 billion , an increase of 11% .
•
On July 23, 2015, we acquired Catamaran through the purchase of all of its outstanding common stock for cash. See Note 2 of Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this report for more information.
2015 RESULTS OF OPERATIONS COMPARED TO 2014 RESULTS
Our results of operations for the three and nine months ended September 30, 2015 compared to the corresponding prior periods was affected by our acquisition of Catamaran on July 23, 2015.
Consolidated Financial Results
Revenues
The increase in revenues during the three and nine months ended September 30, 2015 was primarily driven by the effect of the Catamaran acquisition and organic growth in the number of individuals served across our benefits businesses and across all of Optum’s businesses.
Medical Costs and Medical Care Ratio
Medical costs during the three and nine months ended September 30, 2015 increased due to risk-based membership growth in our benefits businesses. The medical care ratio for the three months ended September 30, 2015 increased primarily due to increased medical spending for Medicare Star quality performance, an increased mix of government sponsored benefits businesses and lower levels of favorable reserve development. The medical care ratio for the nine months ended September 30, 2015 was consistent with 2014.
Operating Cost Ratio
The decrease in our operating cost ratio during the three and nine months ended September 30, 2015 was due to the inclusion of Catamaran and by growth in government benefits programs, both of which have lower operating cost ratios, and Company-wide productivity gains.

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Reportable Segments
See Note 13 of Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1, “Financial Statements” for more information on our segments. The following table presents a summary of the reportable segment financial information:
 
 
Three Months Ended September 30,
 
Increase/(Decrease)
 
Nine Months Ended September 30,
 
Increase/(Decrease)
(in millions, except percentages)
 
2015
 
2014
 
2015 vs. 2014
 
2015
 
2014
 
2015 vs. 2014
Revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
UnitedHealthcare
 
$
32,817

 
$
30,039

 
$
2,778

 
9
%
 
$
98,513

 
$
89,364

 
$
9,149

 
10
%
OptumHealth
 
3,532

 
2,849

 
683

 
24

 
10,259

 
8,015

 
2,244

 
28

OptumInsight
 
1,585

 
1,250

 
335

 
27

 
4,384

 
3,740

 
644

 
17

OptumRx
 
14,407

 
8,011

 
6,396

 
80

 
31,615

 
23,469

 
8,146

 
35

Optum eliminations
 
(222
)
 
(124
)
 
98

 
79

 
(553
)
 
(354
)
 
199

 
56

Optum
 
19,302

 
11,986

 
7,316

 
61

 
45,705

 
34,870

 
10,835

 
31

Eliminations
 
(10,630
)
 
(9,266
)
 
1,364

 
15

 
(30,710
)
 
(27,193
)
 
3,517

 
13

Consolidated revenues
 
$
41,489

 
$
32,759

 
$
8,730

 
27
%
 
$
113,508

 
$
97,041

 
$
16,467

 
17
%
Earnings from operations
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
UnitedHealthcare
 
$
1,876

 
$
2,038

 
$
(162
)
 
(8
)%
 
$
5,805

 
$
5,266

 
$
539

 
10
%
OptumHealth
 
363

 
314

 
49

 
16

 
850

 
749

 
101

 
13

OptumInsight
 
289

 
225

 
64

 
28

 
782

 
635

 
147

 
23

OptumRx
 
490

 
326

 
164

 
50

 
1,116

 
859

 
257

 
30

Optum
 
1,142

 
865

 
277

 
32

 
2,748

 
2,243

 
505

 
23

Consolidated earnings from operations
 
$
3,018

 
$
2,903

 
$
115

 
4
 %
 
$
8,553

 
$
7,509

 
$
1,044

 
14
%
Operating margin
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
UnitedHealthcare
 
5.7
%
 
6.8
%
 
(1.1
)%
 
 
 
5.9
%
 
5.9
%
 
—
 %
 
 
OptumHealth
 
10.3

 
11.0

 
(0.7
)
 
 
 
8.3

 
9.3

 
(1.0
)
 
 
OptumInsight
 
18.2

 
18.0

 
0.2

 
 
 
17.8

 
17.0

 
0.8

 
 
OptumRx
 
3.4

 
4.1

 
(0.7
)
 
 
 
3.5

 
3.7

 
(0.2
)
 
 
Optum
 
5.9

 
7.2

 
(1.3
)
 
 
 
6.0

 
6.4

 
(0.4
)
 
 
Consolidated operating margin
 
7.3
%
 
8.9
%
 
(1.6
)%
 
 
 
7.5
%
 
7.7
%
 
(0.2
)%
 
 
UnitedHealthcare
The following table summarizes UnitedHealthcare revenues by business:
 
 
Three Months Ended September 30,
 
Increase/(Decrease)
 
Nine Months Ended September 30,
 
Increase/(Decrease)
(in millions, except percentages)
 
2015
 
2014
 
2015 vs. 2014
 
2015
 
2014
 
2015 vs. 2014
UnitedHealthcare Employer & Individual
 
$
11,871

 
$
10,610

 
$
1,261

 
12
 %
 
$
35,139

 
$
32,296

 
$
2,843

 
9
 %
UnitedHealthcare Medicare & Retirement
 
12,267

 
11,477

 
790

 
7

 
37,607

 
34,764

 
2,843

 
8

UnitedHealthcare Community & State
 
7,392

 
6,131

 
1,261

 
21

 
21,502

 
17,069

 
4,433

 
26

UnitedHealthcare Global
 
1,287

 
1,821

 
(534
)
 
(29
)
 
4,265

 
5,235

 
(970
)
 
(19
)
Total UnitedHealthcare revenues
 
$
32,817

 
$
30,039

 
$
2,778

 
9
 %
 
$
98,513

 
$
89,364

 
$
9,149

 
10
 %

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The following table summarizes the number of individuals served by our UnitedHealthcare businesses, by major market segment and funding arrangement:
 
 
September 30,
 
Increase/(Decrease)
(in thousands, except percentages)
 
2015
 
2014
 
2015 vs. 2014
Commercial risk-based
 
8,180

 
7,545

 
635

 
8
 %
Commercial fee-based, including TRICARE
 
21,350

 
21,210

 
140

 
1

Total commercial
 
29,530

 
28,755

 
775

 
3

Medicare Advantage
 
3,225

 
2,995

 
230

 
8

Medicaid
 
5,305

 
4,920

 
385

 
8

Medicare Supplement (Standardized)
 
4,010

 
3,715

 
295

 
8

Total public and senior
 
12,540

 
11,630

 
910

 
8

Total UnitedHealthcare - domestic medical
 
42,070

 
40,385

 
1,685

 
4

International
 
4,010

 
4,550

 
(540
)
 
(12
)
Total UnitedHealthcare - medical
 
46,080

 
44,935

 
1,145

 
3
 %
Supplemental Data:
 
 
 
 
 
 
 
 
Medicare Part D stand-alone
 
5,075

 
5,155

 
(80
)
 
(2
)%
The increase in commercial risk-based enrollment was a result of strong participation in UnitedHealthcare’s individual public exchange products and favorable annual renewal activity and new business wins in the employer group segment. Medicare Advantage participation increased year-over-year primarily due to growth in people served through employer-sponsored group Medicare Advantage plans. Medicaid growth was driven by the combination of ACA Medicaid expansion, states launching new programs to complement established programs and growth in established programs, which was partially offset by a decrease of 175,000 people in one market, where an additional offering was introduced by the state in the first quarter of 2015. Medicare Supplement growth reflected strong customer retention and new sales. The number of people served internationally decreased year-over-year primarily due to pricing and underwriting disciplines in Brazil in response to regulatory actions and declining employment levels in Brazil.
UnitedHealthcare’s revenue growth during the three and nine months ended September 30, 2015 was due to growth in the number of individuals served across its businesses and price increases reflecting underlying medical cost trends.
UnitedHealthcare’s operating earnings for the three months ended September 30, 2015 decreased year-over-year due to lower levels of favorable reserve development, increased investments in and medical costs associated with advancing Medicare Star performance, as well as the impact of individual public exchange products. Operating earnings for the nine months ended September 30, 2015 increased as strong growth across the business along with improved medical cost management and increased productivity more than offset the items that resulted in the third quarter operating earnings decrease. 
Optum
Total revenues and operating earnings increased for the three and nine months ended September 30, 2015 as each reporting segment increased revenues and earnings from operations by double-digit percentages as a result of the factors discussed below.
The results by segment were as follows:
OptumHealth
Revenue and earnings from operations increased at OptumHealth during the three and nine months ended September 30, 2015 primarily due to growth in its health delivery businesses and the impact of acquisitions in patient care centers and population health management services. The operating margins for the three and nine months ended September 30, 2015 decreased from the prior year primarily due to investments made to develop future growth opportunities.
OptumInsight
Revenue, earnings from operations and operating margins at OptumInsight for the three and nine months ended September 30, 2015 increased primarily due to expansion and growth in care provider revenue management services, payment integrity and government exchange services.



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OptumRx
Revenue and earnings from operations for the three and nine months ended September 30, 2015 increased due to the acquisition of Catamaran and strong organic growth. Operating margins for both the three and nine months ended September 30, 2015 decreased due to the inclusion of lower margin Catamaran business. For more information about Catamaran, see Note 2 in Notes to the Condensed Consolidated Financial Statements in Part I, Item 1 of this report.
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-term and long-term obligations of our businesses while seeking to maintain liquidity and financial flexibility. Cash flows generated from operating activities are principally from earnings before noncash expenses.
Our regulated subsidiaries generate significant cash flows from operations and are subject to financial regulations and standards in their respective jurisdictions. These standards, among other things, require these subsidiaries to maintain specified levels of statutory capital, as defined by each jurisdiction, and restrict the timing and amount of dividends and other distributions that may be paid to their parent companies. In the United States, these regulations and standards are generally consistent with model regulations established by the National Association of Insurance Commissioners. 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 may 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.
For the nine months ended September 30, 2015 , our U.S. regulated subsidiaries paid their parent companies dividends of $3.5 billion, and we had approximately $1.1 billion in ordinary dividend capacity remaining for the year.
Our nonregulated businesses also generate cash flows from operations that are available for general corporate use. Cash flows generated by these entities, combined with dividends from our regulated entities and financing through the issuance of long-term debt as well as issuance of commercial paper or the ability to draw under our committed credit facilities, further strengthen our operating and financial flexibility. We use these cash flows to expand our businesses through acquisitions, reinvest in our businesses through capital expenditures, repay debt, and return capital to our shareholders through shareholder dividends and/or repurchases of our common stock, depending on market conditions.

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Summary of our Major Sources and Uses of Cash and Cash Equivalents
 
 
Nine Months Ended September 30,
 
Increase/(Decrease)
(in millions)
 
2015
 
2014
 
2015 vs. 2014
Sources of cash:
 
 
 
 
 
 
Cash provided by operating activities
 
$
6,229

 
$
5,622

 
$
607

Issuances of commercial paper and long-term debt, net of repayments
 
14,231

 
543

 
13,688

Proceeds from common stock issuances
 
366

 
400

 
(34
)
Customer funds administered
 
119

 
—

 
119

Sales and maturities of investments, net of purchases
 
—

 
253

 
(253
)
Total sources of cash
 
20,945

 
6,818

 
 
Uses of cash:
 
 
 
 
 
 
Common stock repurchases
 
(1,130
)
 
(3,024
)
 
1,894

Cash paid for acquisitions, net of cash assumed
 
(16,183
)
 
(851
)
 
(15,332
)
Purchases of investments, net of sales and maturities
 
(114
)
 
—

 
(114
)
Purchases of property, equipment and capitalized software, net
 
(1,072
)
 
(1,121
)
 
49

Cash dividends paid
 
(1,310
)
 
(1,004
)
 
(306
)
Customer funds administered
 
—

 
(440
)
 
440

Other
 
(497
)
 
(424
)
 
(73
)
Total uses of cash
 
(20,306
)
 
(6,864
)
 
 
Effect of exchange rate changes on cash and cash equivalents
 
(151
)
 
3

 
(154
)
Net increase (decrease) in cash and cash equivalents
 
$
488

 
$
(43
)
 
$
531

2015 Cash Flows Compared to 2014 Cash Flows
Cash flows provided by operating activities in 2015 increased primarily due to improvement in net earnings and growth in risk-based products, which increased medical costs payable, partially offset by the increase in the third quarter payment of the 2015 Health Insurance Industry Tax and the first quarter 2015 payment of reinsurance program fees.
Other significant changes in sources or uses of cash year-over-year included increased cash paid for acquisitions and net debt issuances and decreased share repurchases, all due to the Catamaran acquisition.
Financial Condition
As of September 30, 2015 , our cash, cash equivalent and available-for-sale investment balances of $27.9 billion included $8.0 billion of cash and cash equivalents (of which $983 million was available for general corporate use), $18.4 billion of debt securities and $1.5 billion of investments in equity securities consisting of investments in non-U.S. dollar fixed-income funds; employee savings plan related investments; venture capital funds; and dividend paying stocks. 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, especially those used in valuing our $456 million of available-for-sale Level 3 securities (those securities priced using significant unobservable inputs), may have an effect on the estimated fair values 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 bank credit facilities, reduce the need to sell investments during adverse market conditions. See Note 5 of Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this report for further detail concerning our fair value measurements.
Our available-for-sale debt portfolio had a weighted-average duration of 3.4 years and a weighted-average credit rating of “AA” as of September 30, 2015 . When multiple credit ratings are available for an individual security, the average of the available ratings is used to determine the weighted-average credit rating.

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Capital Resources and Uses of Liquidity
In addition to cash flows 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 and Bank Credit Facilities. Our bank credit facilities provide liquidity support for our commercial paper borrowing program, which facilitates the private placement of unsecured debt through third-party broker-dealers, and are available for general corporate purposes. For more information on our commercial paper and bank credit facilities, see Note 9 of Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this report.
Our bank credit facilities contain various covenants, including covenants requiring us to maintain a defined debt to debt-plus-shareholders’ equity ratio of not more than 50%. As of September 30, 2015, our debt to debt-plus-shareholders’ equity ratio, as defined and calculated under the credit facilities was approximately 47%.
Long-Term Debt. Periodically, we access capital markets and issue long-term debt for general corporate purposes, for example, to meet our working capital requirements, to refinance debt, to finance acquisitions or for share repurchases. In July 2015, we issued debt to fund the acquisition of Catamaran. For more information on this debt issuance, see Note 9 of Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this report.
Credit Ratings. Our credit ratings as of September 30, 2015 , were as follows:
   
Moody’s
 
Standard & Poor’s
 
Fitch
 
A.M. Best
 
Ratings
 
Outlook
 
Ratings
 
Outlook
 
Ratings
 
Outlook
 
Ratings
 
Outlook
Senior unsecured debt
A3
 
Negative
 
A+
 
Negative
 
A-
 
Negative
 
bbb+
 
Stable
Commercial paper
P-2
 
n/a
 
A-1
 
n/a
 
F1
 
n/a
 
AMB-2
 
n/a
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 adverse conditions in the capital markets may increase the cost of borrowing for us or limit our access to capital.
Share Repurchase Program. We expect continued moderated share repurchase activity for the remainder of 2015 due to the acquisition of Catamaran. For more information on our share repurchase program, see Note 10 of Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this report.
Dividends. In June 2015 , our Board increased our quarterly cash dividend to shareholders to an annual dividend rate of $2.00 per share. For more information on our dividend, see Note 10 of Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this report.
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
A summary of future obligations under our various contractual obligations and commitments as of December 31, 2014 was disclosed in our 2014 10-K. During the nine months ended September 30, 2015 , there were no material changes to this previously disclosed information outside the ordinary course of business. However, we continually evaluate opportunities to expand our operations, including through internal development of new products, programs and technology applications and acquisitions.
RECENTLY ISSUED ACCOUNTING STANDARDS
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” as modified by ASU No. 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date.” ASU 2014-09 will supersede existing revenue recognition standards with a single model unless those contracts are within the scope of other standards (e.g., an insurance entity’s insurance contracts). The revenue recognition principle in ASU 2014-09 is that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, new and enhanced disclosures will be required. Companies can adopt the new standard either using the full retrospective approach, a modified retrospective approach with practical expedients, or a cumulative effect upon adoption approach. ASU 2014-09 is effective for annual and interim reporting periods beginning after December 15, 2017. Early adoption at the original effective date, interim and annual periods beginning after December 15, 2016, will be permitted. We are currently evaluating the effect of the new revenue recognition guidance.

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We have determined that there have been no other recently issued, but not yet adopted, accounting standards that will have a material impact on our Condensed Consolidated Financial Statements.
CRITICAL ACCOUNTING ESTIMATES
In preparing our 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 consider known and projected trends. On an ongoing 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.
Our critical accounting estimates include medical costs payable, revenues, goodwill and intangible assets, investments, income taxes and contingent liabilities. For a detailed description of our critical accounting estimates, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our 2014 10-K. For a detailed discussion of our significant accounting policies, see Note 2 of Notes to the Consolidated Financial Statements in Part II, Item 8, “Financial Statements” in our 2014 10-K.
FORWARD-LOOKING STATEMENTS
The statements, estimates, projections, guidance or outlook contained in this document include “forward-looking” statements within the meaning of the PSLRA. These statements are intended to take advantage of the “safe harbor” provisions of the PSLRA. Generally the words “believe,” “expect,” “intend,” “estimate,” “anticipate,” “forecast,” “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 actual results to differ materially from results discussed or implied in 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; new laws or regulations, or changes in existing laws or regulations, or their enforcement or application, including increases in medical, administrative, technology or other costs or decreases in enrollment resulting from U.S., Brazilian and other jurisdictions regulations affecting the health care industry; assessments for insolvent payers under state guaranty fund laws; our ability to achieve improvement in CMS Star ratings and other quality scores that impact revenue; reductions in revenue or delays to cash flows received under Medicare, Medicaid and TRICARE programs, including sequestration and the effects of a prolonged U.S. government shutdown or debt ceiling constraints; changes in Medicare, including changes in payment methodology, the CMS Star ratings program or the application of risk adjustment data validation audits; our participation in federal and state health insurance exchanges which entail uncertainties associated with mix and volume of business; cyber-attacks or other privacy or data security incidents; failure to comply with privacy and data security regulations; regulatory and other risks and uncertainties of the pharmacy benefits management industry; competitive pressures, which could affect our ability to maintain or increase our market share; challenges to our public sector contract awards; our ability to execute contracts on competitive terms with physicians, hospitals and other service providers; failure to achieve targeted operating cost productivity improvements, including savings resulting from technology enhancement and administrative modernization; increases in costs and other liabilities associated with increased litigation, government investigations, audits or reviews; failure to manage successfully our strategic alliances or complete or receive anticipated benefits of acquisitions and other strategic transactions, including our acquisition of Catamaran; fluctuations in foreign currency exchange rates on our reported shareholders equity and results of operations; downgrades in our credit ratings; adverse economic conditions, including decreases in enrollment resulting from increases in the unemployment rate and commercial attrition; the performance of our investment portfolio; impairment of the value of our goodwill and intangible assets in connection with dispositions or if estimated 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; and our ability to obtain sufficient funds from our regulated subsidiaries or the debt or capital markets to fund our obligations, to maintain our debt to total capital ratio at targeted levels, to maintain our quarterly dividend payment cycle or to continue repurchasing shares of our common stock.
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 annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. Any or all forward-looking statements we make may turn out to be wrong, and can be affected by inaccurate

32
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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 or implied in this document 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, except as required by applicable securities laws.
ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our primary market risks are exposures to changes in interest rates that impact our investment income and interest expense and the fair value of certain of our fixed-rate investments and debt, as well as foreign currency exchange rate risk of the U.S. dollar primarily to the Brazilian real.
We manage exposure to market interest rates by diversifying investments across different fixed income market sectors and debt across maturities, as well as by endeavoring to match our floating-rate assets and liabilities over time, either directly or through the use of interest rate swap contracts. Unrealized gains and losses on investments in available-for-sale securities are reported in comprehensive income.
The following table summarizes the impact of hypothetical changes in market interest rates across the entire yield curve by 1% point or 2% points as of September 30, 2015 on our investment income and interest expense per annum, and the fair value of our investments and debt (in millions, except percentages):
 
 
September 30, 2015
Increase (Decrease) in Market Interest Rate
 
Investment
Income Per
Annum (a)
 
Interest
Expense Per
Annum (a)
 
Fair Value of
Financial Assets (b)
 
Fair Value of
Financial Liabilities
2 %
 
$
198

 
$
238

 
$
(1,380
)
 
$
(3,351
)
1
 
99

 
119

 
(696
)
 
(1,813
)
(1)
 
(59
)
 
(23
)
 
634

 
2,121

(2)
 
nm

 
nm

 
1,013

 
4,487

nm = not meaningful
(a)
Given the low absolute level of short-term market rates on our floating-rate assets and liabilities as of September 30, 2015 , the assumed hypothetical change in interest rates does not reflect the full 100 basis point reduction in interest income or interest expense as the rate cannot fall below zero and thus the 200 basis point reduction is not meaningful.
(b)
As of September 30, 2015 , some of our investments had interest rates below 2% so the assumed hypothetical change in the fair value of investments does not reflect the full 200 basis point reduction.
We have an exposure to changes in the value of the Brazilian real to the U.S. dollar in translation of Amil’s operating results at the average exchange rate over the accounting period, and Amil’s assets and liabilities at the spot rate at the end of the accounting period. The gains or losses resulting from translating foreign assets and liabilities into U.S. dollars are included in shareholders’ equity and comprehensive income.
An appreciation of the U.S. dollar against the Brazilian real reduces the carrying value of the net assets denominated in Brazilian real. For example, as of September 30, 2015 , a hypothetical 10% and 25% increase in the value of the U.S. dollar against the Brazilian real would have caused a reduction in net assets of approximately $280 million and $620 million, respectively. We manage exposure to foreign currency risk by conducting our international business operations primarily in their functional currencies.
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 September 30, 2015 . 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 September 30, 2015 .

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CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There have been no changes in our internal control over financial reporting during the quarter ended September 30, 2015 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 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 2014 10-K, which could materially affect our business, financial condition or future results. The risks described in our 2014 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 future results.
There have been no material changes to the risk factors disclosed in our 2014 10-K.
ITEM 2.    UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities (a)
Third Quarter 2015
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
 
 
(in millions)
 
 
 
(in millions)
 
(in millions)
July 31, 2015
 
—

 
$
—

 
—

 
63

August 31, 2015
 
2

 
116

 
2

 
61

September 30, 2015
 
—

 
—

 
—

 
61

Total
 
2

 
$
116

 
2

 
 
 
(a)
In November 1997, our Board of Directors adopted a share repurchase program, which the Board evaluates periodically. In June 2014, the Board renewed our share repurchase program with an authorization to repurchase up to 100 million shares of our common stock in open market purchases or other types of transactions (including prepaid or structured repurchase programs). There is no established expiration date for the program.

ITEM 5.    OTHER INFORMATION
On November 5, 2015, we adopted an amendment (the “Amendment”) to the Amended and Restated UnitedHealth Group Incorporated 2008 Executive Incentive Plan which:
•
changed the change in control provision to a “double-trigger” provision requiring both a change in control and termination of employment in order for cash long-term incentive plan awards to be paid out; and
•
conformed the change in control definition to the definition in our equity award agreements , which included increasing from 20% to 50% the stock ownership threshold constituting a change in control and eliminating the Board’s ability to determine within its discretion whether a change in control has occurred.
The Amendment is attached hereto as Exhibit 10.3 and is incorporated herein by reference.
On November 5, 2015, we also adopted new forms of equity award agreements to be used for grants beginning in 2016 under the UnitedHealth Group Incorporated 2011 Stock Incentive Plan, as amended and restated in 2015 (the “2011 Plan”). The definition of “good reason” contained in each award agreement has been revised to delete as good reason triggers: (1) a diminution in budget responsibility, (2) a change in reporting relationship and (3) an office relocation of more than 25 miles. The performance-based restricted stock unit award agreement was further revised to include a “double-trigger” change in control provision requiring both a change in control and termination of employment for an award to vest in the event of a change in control.
The forms of stock option, restricted stock unit and performance-based restricted stock unit award agreements to be used for awards under the 2011 Plan beginning in 2016 are attached hereto as Exhibit 10.4, Exhibit 10.5 and Exhibit 10.6, respectively.

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ITEM 6.
EXHIBITS**

The following exhibits are filed in response to Item 601 of Regulation S-K.
3.1

 
Certificate of Incorporation of UnitedHealth Group Incorporated (incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form 8-A/A filed on July 1, 2015)
3.2

 
Bylaws of UnitedHealth Group Incorporated (incorporated by reference to Exhibit 3.2 to the Company's Registration Statement on Form 8-A/A filed on July 1, 2015)
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 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 as of 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

 
Form of Indemnification Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 1, 2015)
*10.2

 
Sixth Amendment to UnitedHealth Group Executive Savings Plan (2004 Statement)
*10.3

 
Second Amendment, dated as of November 5, 2015, of Amended and Restated UnitedHealth Group Incorporated 2008 Executive Incentive Plan
*10.4

 
Form of Agreement for Non-Qualified Stock Option Award to Executives under UnitedHealth Group Incorporated’s 2011 Stock Incentive Plan, as amended and restated in 2015, for awards made after January 1, 2016
*10.5

 
Form of Agreement for Restricted Stock Unit Award to Executives under UnitedHealth Group Incorporated’s 2011 Stock Incentive Plan, as amended and restated in 2015, for awards made after January 1, 2016
*10.6

 
Form of Agreement for Performance-based Restricted Stock Unit Award to Executives under UnitedHealth Group Incorporated’s 2011 Stock Incentive Plan, as amended and restated in 2015, for awards made after January 1, 2016
  12.1

 
Computation of 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 September 30, 2015 filed on November 5, 2015, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Comprehensive Income, (iv) Condensed Consolidated Statements of Changes in Equity, (v) Condensed Consolidated Statements of Cash Flows, and (vi) 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.



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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/    S TEPHEN  J. H EMSLEY
 
Chief Executive Officer
(principal executive officer)
Dated:
November 5, 2015
Stephen J. Hemsley
 
  
 
 
 
 
/s/    D AVID  S. W ICHMANN
 
President and Chief Financial Officer
(principal financial officer)
Dated:
November 5, 2015
David S. Wichmann
 
  
 
 
 
 
/ S /    T HOMAS  E. R OOS
 
Senior Vice President and
Chief Accounting Officer
(principal accounting officer)
Dated:
November 5, 2015
Thomas E. Roos
 
  
 


36
Table of Contents

EXHIBIT INDEX**
 
The following exhibits are filed in response to Item 601 of Regulation S-K.
3.1

 
Certificate of Incorporation of UnitedHealth Group Incorporated (incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form 8-A/A filed on July 1, 2015)
3.2

 
Bylaws of UnitedHealth Group Incorporated (incorporated by reference to Exhibit 3.2 to the Company's Registration Statement on Form 8-A/A filed on July 1, 2015)
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 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 as of 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

 
Form of Indemnification Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 1, 2015)
*10.2

 
Sixth Amendment to UnitedHealth Group Executive Savings Plan (2004 Statement)
*10.3

 
Second Amendment, dated as of November 5, 2015, of Amended and Restated UnitedHealth Group Incorporated 2008 Executive Incentive Plan
*10.4

 
Form of Agreement for Non-Qualified Stock Option Award to Executives under UnitedHealth Group Incorporated’s 2011 Stock Incentive Plan, as amended and restated in 2015, for awards made after January 1, 2016
*10.5

 
Form of Agreement for Restricted Stock Unit Award to Executives under UnitedHealth Group Incorporated’s 2011 Stock Incentive Plan, as amended and restated in 2015, for awards made after January 1, 2016
*10.6

 
Form of Agreement for Performance-based Restricted Stock Unit Award to Executives under UnitedHealth Group Incorporated’s 2011 Stock Incentive Plan, as amended and restated in 2015, for awards made after January 1, 2016
12.1

 
Computation of 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 September 30, 2015 filed on November 5, 2015, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Comprehensive Income, (iv) Condensed Consolidated Statements of Changes in Equity, (v) Condensed Consolidated Statements of Cash Flows, and (vi) 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.


37


Exhibit 10.2
SIXTH AMENDMENT
OF
UNITEDHEALTH GROUP
EXECUTIVE SAVINGS PLAN
(2004 Statement)


WHEREAS, UnitedHealth Group Incorporated, a Minnesota corporation (“UnitedHealth Group”) has heretofore established and maintains several nonqualified, deferred compensation programs (the “ESP”) for the benefit of a select group of management or highly compensated employees of UnitedHealth Group and certain affiliates of UnitedHealth Group; and
WHEREAS, said programs are currently embodied in a single document which is effective January 1, 2004, and which is entitled “UNITEDHEALTH GROUP EXECUTIVE SAVINGS PLAN (2004 Statement)” (hereinafter referred to as the “Plan Statement”); and
WHEREAS, the Board of Directors of UnitedHealth Group has delegated to the Compensation and Human Resources Committee of the Board of Directors the power and authority to amend the Plan Statement; and
WHEREAS, the Compensation and Human Resources Committee has further delegated its authority to amend the Plan Statement to the Executive Vice President, Human Capital with the exception of amendments that would materially increase the cost of the ESP, and amendments that are required to be adopted by the Board of Directors or the Compensation and Human Resources Committee in order to comply with the requirements of Section 162(m) of the Internal Revenue Code or Section 16 of the Securities Exchange Act of 1934; and
WHEREAS, the Executive Vice President, Human Capital wishes to amend the Plan Statement to provide that members of the Senior Leadership Team are eligible to participate in the Plan, and to clarify the rules governing participation in the ESP by employees who transfer between different affiliates of UnitedHealth, or who terminate employment and are subsequently rehired; and
WHEREAS, the Executive Vice President, Human Capital has determined that such amendments will not materially increase the cost of the ESP, and that none of such amendments are required to be adopted by the Board of Directors or the Compensation and Human Resources Committee in order to comply with the requirements of Section 162(m) of the Internal Revenue Code or Section 16 of the Securities Exchange Act of 1934;
NOW, THEREFORE, BE IT RESOLVED, that the Plan Statement is hereby amended in the following respect:
1.      DEFINITION OF ELIGIBLE GRADE LEVEL . Effective as of January 1, 2015, Section 1.2.11(a) (as renumbered by the Sixth Amendment) is amended to read as follows:
(a)
In General . For regular full-time or part-time employees: the Executive Leadership Team; the Senior Leadership Team; Salary Grades 31 and 32 (but only if base salary is equal to or exceeds any specific compensation criteria established by the Executive Vice



President, Human Capital); Medical Director Grades M2, M3 and M4 (but only if base salary is equal to or exceeds any specific compensation criteria established by the Executive Vice President, Human Capital); and Sales Band SSL (but only if base salary is equal to or exceeds any specific compensation criteria established by the Executive Vice President, Human Capital).
2.      ELIGIBILITY OF CERTAIN RE-EMPLOYED PARTICIPANTS. Effective as of January 1, 2015, Section 2.3 is amended to read as follows
2.3. Special Eligibility Rule For Former Participants . If a Participant terminates employment with the Employer and all Affiliates and such Participant:
(a)
is subsequently reemployed by an Employer as an Eligible Employee, and
(b)
is selected for participation in this Plan by the Administrative Committee (or, for a Section 16 Officer, by the Board of Directors),
(c)
either
(i)
has been paid all amounts deferred under this Plan (and all other like-type plans of the Employers and all Affiliates which are required to be aggregated for purposes of section 409A of the Code), and on and before the date of the last payment was not eligible to continue (or elect to continue) to participate in this Plan (and all other like-type plans of the Employers and all Affiliates which are required to be aggregated for purposes of section 409A of the Code) for periods after the last payment, or
(ii)
has not been eligible to participate in this Plan (or any other like-type plan of any Employer or Affiliate which is required to be aggregated with this Plan for purposes of section 409A of the Code) at any time during the twenty-four (24) month period ending on the date such employee is selected for participation in this Plan, other than by the accrual of earnings, and
the Administrative Committee (or, for a Section 16 Officer, the Board of Directors) may designate that such employee shall be allowed to reenter the Plan as a Participant as of a fixed prospective date that is other than the first day of a Plan Year so long as that prospective date is within thirty (30) days of selection. Such employee shall be subject to the same enrollment requirements as any other selected employee who first becomes eligible to participate in this Plan after the first day of a Plan Year as provided in Section 2.2. A Participant whose employment is transferred to an Affiliate that has not adopted this Plan (or any other like-type plan which is required to be aggregated with this Plan for purposes of section 409A of the Code) and who otherwise meets the requirements of this Section 2.3 shall be treated as having terminated employment.
3.      ELIGIBILITY OF CERTAIN EMPLOYEES OF ACQUIRED COMPANIES. Effective as of January 1, 2015, Section 2.4 is amended by deleting the phrase “is a participant in any account balance deferred compensation plan maintained by such

- 2 -


acquired company and such employee” in the introductory language, and by amending 2.4(b) to read as follows:
(b)
has not been eligible to participate in any account balance deferred compensation plan which is required to be aggregated with this Plan for purposes of section 409A of the Code (other than by the accrual of earnings) at any time during the twenty-four (24) month period ending on the date such employee is selected for participation in this Plan, and
3.      CLARIFICATION OF TREATMENT OF CERTAIN TRANSFERS . Effective as of January 1, 2015, a new Section 2.7 is added to read as follows:
2.7 Treatment of Certain Transferred Participants. Optum Medical Services, P.C. is a wholly owned indirect subsidiary of UnitedHealth Group, which sponsors the Optum Partner Services Executive Savings Plan (the “Optum ESP”), a nonqualified deferred compensation plan for the benefit of Optum Medical Services, P.C., and its respective affiliates, all of which are Affiliates as defined in this Plan. The following rules shall apply to transfers of employment between an Employer and any other Affiliate that occurs during a Plan Year:
(a)
If a participant in either this Plan or the Optum ESP is transferred during a Plan Year to the employ of any Employer or Affiliate that has adopted either this Plan or the Optum ESP as of the first day of the Plan Year (the “New Participating Employer”), then the deferral elections made under either this Plan or the Optum ESP shall be applied to compensation paid by the New Participating Employer as follows:
(i)
An election to defer base salary for the Plan Year in which such transfer occurs shall be treated as an election to defer the same percentage of the Participant’s base salary paid by the New Participating Employer under either this Plan or the Optum ESP for the balance of the Plan Year.
(ii)
An election to defer any incentive compensation paid with respect to a performance period of not more than one year, which performance period either coincides with or is contained with the Plan Year, shall be treated as an election to defer the same percentage of any incentive compensation plan sponsored by the New Participating Employer for a performance period of not more than one year which performance period either coincides with or is contained with the Plan Year, but only if, at the time the participant made the original deferral election he could have made an election to defer such incentive compensation consistent with section 409A (regardless of whether the Plan or Optum ESP would have permitted such an election).
(iii)
If the participant is participating in any long-term incentive plan with a performance period that exceeds one year, and is transferred during such performance period, any election to defer any long-term incentive compensation paid with respect to such performance period, shall be treated as an election to defer the same percentage of any long-term incentive compensation plan sponsored by the New Participating Employer for a performance period that ends

- 3 -


on the same date as the original performance period, but only to the extent, at the time the participant made the original deferral election he could have made an election to defer such incentive compensation consistent with section 409A (regardless of whether the Plan or Optum ESP would have permitted such an election).
(iv)
If the participant first became eligible to participate in the Plan or Optum ESP in the Plan Year in which the transfer occurs, and was permitted to make an election because of his initial eligibility, the rules described above shall apply to the remaining portion of the Plan Year, and whether the Employer or Affiliate to which the participant is transferred is a New Participating Employer shall be determined by whether the Employer or Affiliate had adopted either this Plan or the Optum ESP on the date of the participant’s initial eligibility.
(b)
Except as otherwise provided in (a), or as otherwise required by Section 409A of the Code, a participant’s deferral election shall not apply to any compensation paid by any Employer or Affiliate other than the Employer or Affiliate by which he was employed at the time the election was made, provided, however, that:
(i)
To the extent any form of incentive compensation with respect to which a Participant has made a deferral election becomes payable after the Participant’s employment has been transferred to another Employer or Affiliate, it shall be deferred as if the Participant had still been employed by an Employer at the time of payment.
(ii)
Nothing contained herein shall preclude the Administrative Committee (or, for a Section 16 Officer, the Board of Directors) from permitting an Eligible Employee to make a deferral election following a transfer of employment if such election would otherwise be permitted under Section 4.
(c)
Accounts representing compensation deferred under the Optum ESP of a person whose employment is transferred to an Employer may be transferred to this Plan, and the Account balance of a Participant whose employment is transferred to an Affiliate that participates in the Optum ESP may be transferred to the Optum ESP, in both cases in accordance with procedures, and subject to limitations, established by the Administrative Committee; provided, however, that such transfer shall have no effect on the time or form of payment of the amount transferred, except as otherwise permitted by section 409A of the Code.



- 4 -


Exhibit 10.3
SECOND AMENDMENT
TO THE
AMENDED AND RESTATED UNITEDHEALTH GROUP INCORPORATED
2008 EXECUTIVE INCENTIVE PLAN
THIS AMENDMENT, is made and entered into as of November 5, 2015, by UNITEDHEALTH GROUP INCORPORATED, a Delaware corporation (“UnitedHealth Group”);

WHEREAS, UnitedHealth Group has heretofore established and maintains the Amended and Restated UnitedHealth Group Incorporated 2008 Executive Incentive Plan (the “Plan”); and

WHEREAS, pursuant to Section 7(a) of the Plan, the Compensation and Human Resources Committee (the "Committee") of the Board of Directors of UnitedHealth Group has the authority to amend the Plan; and

WHEREAS, the Committee has determined that it is in the best interests of UnitedHealth Group to amend the Plan in certain respects;

NOW, THEREFORE, BE IT RESOLVED, that the Plan is hereby amended by Section 6(d) Change in Control being restated in its entirety for Performance Awards granted on or after November 5, 2015, as follows:

(d) Change in Control . If a Change in Control (as defined below) occurs during a Performance Period or after the end of a Performance Period but before a Performance Award is paid, a Participant shall vest in the Performance Award for such Performance Period if, on or within two years after the effective date of a Change in Control, the Participant ceases to be an employee of the Company as a result of a termination of employment by the Participant for Good Reason or by the Company without Cause. The Committee will determine the level of attainment of any performance factors for which Performance Awards may be paid for each outstanding Performance Period for which Performance Awards have not yet been paid as of the effective date of the Change of Control, in accordance with Section 4(c) hereof. For the purposes of this Section 6:

(i)      “Change in Control” shall mean the sale of all or substantially all of the Company’s assets or any merger, reorganization, or exchange or tender offer which, in each case, will result in a change in the power to elect 50% or more of the members of the Board of Directors of the Company; provided, however, that such a sale, merger or other event must also constitute either (A) a “change in the ownership” of the Company within the meaning of Treasury Regulation 1.409A-3(i)(5)(v), (B) a “change in the effective control” of the Company within the meaning of Treasury Regulation 1.409A-3(i)(5)(vi)(A)(1) (replacing “30 percent” with “50 percent” as used in such regulation), or (C) a change “in the ownership of a substantial portion of the assets” of the Company within the meaning of Treasury Regulation 1.409A-3(i)(5)(vii).

(ii)      “Cause” shall mean a Participant’s (A) material failure to follow the Company’s reasonable direction or to perform any duties reasonably required on material
        



matters, (B) material violation of, or failure to act upon or report known or suspected violations of, the Company’s Code of Conduct, as may be amended from time to time, (C) conviction of any felony, (D) commission of any criminal, fraudulent, or dishonest act in connection with a Participant’s employment, or (E) material breach of any employment agreement between a Participant and the Company, if any. The Company will, within 90 days of discovery of the conduct, give Participant written notice specifying the conduct constituting Cause in reasonable detail and Participant will have 60 days to remedy such conduct, if such conduct is reasonably capable of being remedied. In any instance where the Company may have grounds for Cause, failure by the Company to provide written notice of the grounds for Cause within 90 days of discovery shall be a waiver of its right to assert the subject conduct as a basis for termination for Cause.

(iii)      “Good Reason” shall mean the occurrence of any of the following without a Participant’s written consent, in each case, when compared to the arrangements in effect immediately prior to the Change in Control: (A) any reduction in Participant’s base salary or a significant reduction in Participant’s total compensation; (B) a reduction in Participant’s annual or long-term incentive opportunities; or (C) a diminution in Participant’s duties, responsibilities or authority.

A Participant will, within 90 days of discovery of such circumstances, give the Company written notice specifying the circumstances constituting Good Reason in reasonable detail; provided however that this notice period shall be shortened or waived to the extent necessary if compliance with the notice period would cause the termination for Good Reason to occur following the second anniversary of the effective date of the Change in Control. Except as contemplated by the preceding sentence, in any instance where Participant may have grounds for Good Reason, failure by a Participant to provide written notice of the grounds for Good Reason within 90 days of discovery shall be a waiver of such Participant’s right to assert the subject circumstance as a basis for termination for Good Reason.

Performance Awards granted prior to November 5, 2015 shall be construed in accordance with the terms of the Plan in effect prior to this Second Amendment.




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Exhibit 10.4
NONQUALIFIED STOCK OPTION AWARD
  

Award Date

[Grant Date]
 
Option Shares

[Number of Shares Granted]
 
Exercise Price

$108.97
 
Expiration Date

February 10, 2025

THIS CERTIFIES THAT UnitedHealth Group Incorporated (the “Company”) has on the award date specified above (the “Award Date”) granted to
[Participant Name]

(the “Optionee”) the option (the “Option”) to purchase that number of shares of UnitedHealth Group Incorporated Common Stock, $.01 par value per share (the “Common Stock”), indicated above (the “Option Shares”). The Option that this Award represents will expire on the expiration date indicated above (the “Expiration Date”), unless it is terminated prior to that time in accordance with this Award.
The Option Shares represented by this Award shall become exercisable as follows: 25% on each of the first, second, third and fourth anniversaries, unless this Option shall have terminated or the vesting shall have accelerated as provided in this Award. Once this Option has become exercisable for all or a portion of the Option Shares, it will remain exercisable for all or such portion of the Option Shares, as the case may be, until the Option expires or is terminated as provided in this Award.
By accepting this Award, the Optionee acknowledges that the Optionee will not have any of the rights of a shareholder with respect to the Option Shares until the Option has been duly exercised and the exercise price indicated above (the “Exercise Price”) and applicable withholding taxes paid in accordance with this Award. The Optionee further acknowledges and agrees that the Company may deliver, by electronic mail, the use of the Internet, including through the website of the agent appointed by the Committee to administer the UnitedHealth Group Incorporated 2011 Stock Incentive Plan (the “Plan”), the Company intranet web pages or otherwise, any information concerning the Company, this Award, the Plan pursuant to which the Company granted this Award, and any information required by the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
This Option is subject to the further terms and conditions set forth below and to the terms of the Plan. A copy of the Plan is available upon request. In the event of any conflict between the terms of the Plan and this Award, the terms of the Plan shall govern. Any terms not defined herein shall have the meaning set forth in the Plan.
* * * * *



1.      Nonqualified Option . The Company does not intend that the Option shall be an Incentive Stock Option governed by the provisions of Section 422 of the Internal Revenue Code of 1986, as amended.
2.      Termination of Option . The Option shall terminate on the Expiration Date. The Option shall terminate prior to the Expiration Date if the Optionee ceases to be employed by the Company or any Affiliate, except that:
(a)      General. Except as expressly provided in Section 10 or this Section 2, if prior to vesting of the Options as set forth herein, the Optionee ceases to be an employee of the Company or any Affiliate for any reason (voluntary or involuntary), then the Optionee may, at any time within the Exercise Period (as defined below), exercise the Option to the extent of the full number of Option Shares which were exercisable and which the Optionee was entitled to purchase under the Option on the date of the termination of his or her employment.
(b)      Death or Long-Term Disability. If the Optionee dies while employed by the Company or any Affiliate, or if the Optionee’s employment by the Company or any Affiliate is terminated due to the Optionee’s failure to return to work as the result of a long-term disability which renders the Optionee incapable of performing his or her duties as determined under the provisions of the Company’s long-term disability insurance program (“Disability”), then: (i) all unvested Option Shares hereunder shall immediately vest and be exercisable, and (ii) the Optionee (or the Optionee’s personal representatives, administrators or guardians, as applicable, or any person or persons to whom the Option is transferred by will or the applicable laws of descent and distribution) may (subject to earlier expiration on the Expiration Date) at any time within a period of five years after the Optionee’s death or Disability, or for such other longer period established at the discretion of the Committee, exercise the Option to the extent of the full number of Option Shares which are exercisable following such vesting.
(c)      Severance. Subject to Section 10, if Optionee’s employment with the Company or any Affiliate terminates at a time when Optionee is not eligible for Retirement (as defined below) and, in the circumstances, Optionee is entitled to severance or separation pay, the following provisions will apply. If the Optionee is entitled to severance under the Company’s severance pay plan as in effect on the date hereof and the Optionee is not eligible for Retirement (as defined below) at the time of termination of employment, then the Option shall continue to vest and become exercisable for the period of such severance. If Optionee is entitled to severance under an employment agreement entered into with the Company, then the Option shall continue to vest and become exercisable for the period of such severance that Optionee is entitled to receive as of the date hereof. If the Optionee is entitled to separation pay other than under the Company’s severance pay plan or an employment agreement, then vesting of the Option shall continue for the lesser of the period (i) the Optionee would have received payments under the severance pay plan as in effect on the date hereof, had the Optionee been eligible for such payments; or (ii) of separation pay. In either case, should the Optionee be paid in a lump sum versus bi-weekly payments, the Option shall continue to vest for the time in which severance or separation pay would have been paid had it been paid bi-weekly. Any portion of the Option that vests after the Optionee’s termination of employment pursuant to this Section 2(c) may be exercised during the Exercise Period

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(as defined below). For avoidance of doubt, any Options that are unvested on the date of termination of Optionee’s employment and do not vest under the schedule set forth herein during the applicable severance or separation pay period identified above in this Section 2(c) shall be forfeited.
(d)      Retirement. If the Optionee’s employment by the Company or any Affiliate is terminated and at the time of termination the Optionee is eligible for Retirement, then (i) the Option shall continue to vest and become exercisable as if such termination of employment had not occurred and (ii) the Optionee may, at any time within the shorter of (1) the Expiration Date of the Option, or (2) a period of five years after such termination of employment or for such other longer period established at the discretion of the Committee, exercise the Option to the extent of the full number of Option Shares which are then exercisable.
(e)      For the purposes of this Award, “Exercise Period” shall mean the greater of: (i) a period of three months after the date of termination of the Optionee’s employment; (ii) a period of three months after vesting ceases as provided in Section 2(c) if Optionee receives severance or separation pay; or (iii) such other longer period established at the discretion of the Committee. This Option shall in no event be exercisable after the Expiration Date.
(f)      For purposes of this Award, “Retirement” means the termination of employment of an Optionee who is age 55 or older with at least ten years of Recognized Employment with the Company or any Affiliate other than by reason of (i) death or Disability or (ii) Cause.
(g)      For purposes of this Award, “Recognized Employment” shall include only employment since the Optionee’s most recent date of hire by the Company or any Affiliate, and shall not include employment with a company acquired by UnitedHealth Group or any Affiliate before the date of such acquisition.
3.      Forfeiture of Option and Shares. This section sets forth circumstances under which the Optionee shall forfeit all or a portion of the Options, or be required to repay the Company for the value realized in respect of all or a portion of the Options.
(a)      Violation of Restrictive Covenants . If the Optionee violates any provision of the Restrictive Covenants in Section 4 of this Award, then any (i) unvested Options and (ii) Options that vested within one year prior to the Optionee’s termination of employment with the Company or any Affiliate or at any time after such termination of employment and that have not been exercised shall be immediately cancelled and rendered null and void without any payment therefor (the “Forfeited Options”). If any such Forfeited Options have been exercised prior to the Optionee’s violation of the Restrictive Covenants, the Optionee shall be required to repay or otherwise reimburse the Company, upon demand, an amount in cash or Common Stock having a value equal to the amount described in this Section 3(a) below.
To the extent that such Option Shares have been sold, the amount shall be the aggregate proceeds received from such sale of the net Option Shares acquired after payment of the Exercise Price and any applicable taxes (“Net Option Shares”). To the extent that the Net Option Shares have not been sold at the time Company demand is

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made, the amount shall be the aggregate Fair Market Value of the Net Option Shares on the date the Forfeited Options were exercised.
(b)    Fraud. If the Board determines that the Optionee has engaged in fraud that, in whole or in part, caused the need for a material restatement of the Company’s consolidated financial statements, then any vested and unvested Options then held by the Optionee shall be immediately cancelled and rendered null and void without any payment therefor. In addition, for any Options that were exercised during the 12-month period following the first public issuance or filing with the Securities Exchange Commission (whichever occurs first) of the incorrect financial statements (the “Covered Options”), the Optionee shall be required to repay or otherwise reimburse the Company, upon demand, an amount in cash or Common Stock having a value equal to the amount described in this Section 3(b) below, depending on whether the Optionee still holds the Option Shares acquired upon exercise of the Covered Options.
To the extent that such Option Shares have been sold, the amount shall be the aggregate proceeds received from such sale of the Net Option Shares. To the extent that the Net Option Shares have not been sold at the time Company demand is made, the amount shall be the aggregate Fair Market Value of the Net Option Shares on the date the Covered Options were exercised.
(c)    In General. This section does not constitute the Company’s exclusive remedy for the Optionee’s violation of the Restrictive Covenants or commission of fraudulent conduct. As the forfeiture and repayment provisions are not adequate remedies at law, the Company may seek any additional legal or equitable remedy, including injunctive relief, for any such violations. The provisions in this section are essential economic conditions to the Company’s grant of Options to the Optionee. By receiving the grant of Options hereunder, the Optionee agrees that the Company may deduct from any amounts it owes the Optionee from time to time (such as wages or other compensation, deferred compensation credits, vacation pay, any severance or other payments owed following a termination of employment, as well as any other amounts owed to the Optionee by the Company) to the extent of any amounts the Optionee owes the Company under this section. The provisions of this section and any amounts repayable by the Optionee hereunder are intended to be in addition to any rights to repayment the Company may have under Section 304 of the Sarbanes-Oxley Act of 2002 and other applicable law.
4.     Restrictive Covenants. In consideration of the terms of this Award and the Company’s sharing of Confidential Information with the Optionee, the Optionee agrees to the Restrictive Covenants set forth below. For purposes of these Restrictive Covenants, the “Company” means UnitedHealth Group Incorporated and all of any Affiliate and other affiliates.
(a)     Confidential Information. The Optionee will be given access to and provided with sensitive, confidential, proprietary and trade secret information (“Confidential Information”) in the course of the Optionee’s employment. Examples of Confidential Information include: inventions; new product or marketing plans; business strategies and plans; merger and acquisition targets; financial and pricing information; computer programs, source codes, models and databases; analytical models; customer

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lists and information; and supplier and vendor lists and other information which is not generally available to the public. The Optionee agrees not to disclose or use Confidential Information, either during or after the Optionee’s employment with the Company, except as necessary to perform the Optionee’s duties or as the Company may consent in writing.
(b)      Non-Solicitation. During the Optionee’s employment and for the greater of two years after the termination of the Optionee’s employment for any reason whatsoever, or the period of time for which the Option remains exercisable, the Optionee may not, without the Company’s prior written consent, directly or indirectly, for the Optionee or for any other person or entity, as agent, employee, officer, director, consultant, owner, principal, partner or shareholder, or in any other individual or representative capacity:
(i)
Solicit or conduct business with any business competitive with the Company from any person or entity: (A) who was a Company provider or customer within the 12 months before Optionee’s employment termination and with whom Optionee had contact regarding the Company’s activity, products or services, or for whom Optionee provided services or supervised employees who provided those services, or about whom the Optionee learned Confidential Information during employment related to the Company’s provision of products or services to such Company provider or customer, or (B) was a prospective provider or customer the Company solicited within the 12 months before Optionee’s employment termination and with whom Optionee had contact for the purposes of soliciting the person or entity to become a provider or customer of the Company, or supervised employees who had those contacts, or about whom the Optionee learned Confidential Information during employment related to the Company’s provision of products or services to such prospective Company provider or customer;
(ii)
Raid, hire, employ, recruit or solicit any Company employee or consultant who possesses Confidential Information of the Company to leave the Company;
(iii)
Induce or influence any Company employee, consultant, or provider who possesses Confidential Information of the Company to terminate his, her or its employment or other relationship with the Company; or
(iv)
Assist anyone in any of the activities listed above.
(c)      Non-Competition . During the Optionee’s employment and for the greater of one year after the termination of the Optionee’s employment for any reason whatsoever or the period of time for which the Option remains exercisable, the Optionee may not, without the Company’s prior written consent, directly or indirectly, for the Optionee or for any other person or entity, as agent, employee, officer, director, consultant, owner, principal, partner or shareholder, or in any other individual or representative capacity:

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(i)
Engage in or participate in any activity that competes, directly or indirectly, with any Company activity, product or service that Optionee engaged in, participated in, or had Confidential Information about during Optionee’s last 36 months of employment with the Company; or
(ii)
Assist anyone in any of the activities listed above.
Notwithstanding the foregoing, this Section 4(c) will apply to the extent permissible under the ABA Model Rules of Professional Conduct’s provisions regarding restrictions on the right to practice law or any applicable state counterpart.
(d)      Because the Company’s business competes on a nationwide basis, the Optionee’s obligations under this “Restrictive Covenants” section shall apply on a nationwide basis anywhere in the United States.
(e)      To the extent Optionee and the Company agree at any time to enter into separate agreements containing restrictive covenants with different or inconsistent terms than those contained herein, Optionee and the Company acknowledge and agree that such different or inconsistent terms shall not in any way affect or have relevance to the Restrictive Covenants contained herein.
By accepting this Option, the Optionee agrees that the provisions of this Restrictive Covenants section are reasonable and necessary to protect the legitimate interests of the Company.
5.      Manner of Exercise . On the terms set forth herein, the Option may be exercised by the Optionee in whole or in part from time to time by delivering notice of exercise (in a form and manner acceptable to the Company) to the Company or the Committee’s designated agent, accompanied by payment of the Exercise Price and any applicable withholding taxes (i) in cash, by wire transfer, certified check or bank cashier’s check payable to the Company, (ii) by delivery of shares of Common Stock already owned by the Optionee, (iii) by withholding shares of Common Stock from the total number of shares of Common Stock acquired upon exercise under this Award having a fair market value, on the exercise date, equal to the aggregate Exercise Price and any applicable withholding taxes, or (iv) by delivery of a combination of cash, withholding of shares of Common Stock acquired upon exercise of this Award, and/or delivery of shares of Common Stock already owned by the Optionee; provided, that the Optionee shall not be entitled to tender shares of Common Stock pursuant to successive, substantially simultaneous exercises of options to purchase Common Stock. Any shares already owned by the Optionee referred to in the preceding sentence must have been owned by the Optionee for no less than six months prior to the date of exercise of the Option if such shares were acquired upon the exercise of another option or upon the vesting of restricted stock or restricted stock units. To the extent the vested and exercisable portion of the Option remains unexercised as of the close of business on the date the Option expires (the Expiration Date or such earlier date that is the last date on which the Option may be exercised pursuant to the terms of this Award), that portion of

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the Option will be exercised without any action by the Optionee in accordance with the terms of this Certificate if the Fair Market Value of a Share on that date is at least $0.01 greater than the Exercise Price and the exercise will result in Optionee receiving at least one Share. Notwithstanding anything to the contrary in this Award, the Company shall not be required to issue or deliver any shares of Common Stock upon exercise of any Option until the requirements of any federal or state securities laws, rules or regulations or other laws or rules (including the rules of any securities exchange) as may be determined by the Company to be applicable have been and continue to be satisfied (including an effective registration of the shares under federal and state securities laws).
6.      No Guarantee of Employment . This Award does not confer on the Optionee any right to continued employment or any other relationship with the Company or any Affiliate, nor will it interfere in any way with the right of the Company to terminate Optionee at any time. Optionee’s employment with the Company is at will.
7.      No Transfer . During the Optionee’s lifetime, only the Optionee can exercise the Option. The Optionee may not transfer the Option except by will or the laws of descent and distribution, or pursuant to a domestic relations order as described in the Code or Title I of the Employee Retirement Income Security Act (or the rules promulgated thereunder), to the extent provided in Section 2 (b) entitled “Termination of Option.” Any attempt to otherwise transfer the Option shall be void.
8.      Special Restriction on Transfer for Certain Optionees . If the Optionee is an officer of the Company within the meaning of Section 16 of the Securities Exchange Act of 1934 and Rule 16a-1 issued thereunder, as such status is reasonably determined from time to time by the Board of Directors of the Company (a “Section 16 Officer”), at any time that the Option is exercised in whole or in part and the Company has theretofore communicated the Optionee’s status as a Section 16 Officer to the Optionee, the following special transfer restrictions apply to any shares of Common Stock acquired upon the exercise of the Option. One-third (1/3) of the net number of any shares of Common Stock acquired upon the exercise of the Option at a time when the Optionee is a Section 16 Officer (including any shares of Common Stock or other securities subject to the Option following any adjustment made pursuant to this Option or Section 7 of the Plan) must be retained, and may not be sold or otherwise transferred, for a period of at least one year following the date the Option is exercised. For purposes of this Option, the “net number of any shares of Common Stock acquired” shall mean the number of shares of Common Stock received with respect to the particular exercise after reduction for any shares of Common Stock withheld by or tendered to the Company, or sold on the market, to cover the Exercise Price of the Option and/or to cover any federal, state, local or other payroll, withholding, income or other applicable tax withholding required in connection with the exercise of the Option. The restrictions of this Section 8 are in addition to, and not in lieu of, the restrictions imposed under other Company policies and applicable laws.
9.      Adjustments to Option Shares . In the event that any dividend or other distribution (whether in the form of cash, shares of Common Stock, other securities or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of Shares or other securities of the Company or other similar corporate transaction or event affecting the

7


Shares would be reasonably likely to result in the diminution or enlargement of any of the benefits or potential benefits intended to be made available under the Option (including, without limitation, the benefits or potential benefits of provisions relating to the term, vesting or exercisability of the Option), the Committee shall, in such manner as it shall deem equitable or appropriate in order to prevent such diminution or enlargement of any such benefits or potential benefits, adjust any or all of (a) the number and type of shares (or other securities or other property) subject to the Option and (b) the exercise price with respect to the Option; provided, however, that the number of shares covered by the Option shall always be a whole number. Without limiting the foregoing, if any capital reorganization or reclassification of the capital stock of the Company, or consolidation or merger of the Company with another entity, or the sale of all or substantially all of the Company’s assets to another entity, shall be effected in such a way that holders of the Company’s Common Stock shall be entitled to receive stock, securities, cash or other assets with respect to or in exchange for such shares, the Optionee shall have the right to purchase and receive upon the basis and upon the terms and conditions specified in this Award and in lieu of the shares of Common Stock of the Company immediately theretofore purchasable and receivable upon the exercise of the Option, with appropriate adjustments to prevent diminution or enlargement of benefits or potential benefits intended to be made available under the Option, such shares of stock, other securities, cash or other assets as would have been issued or delivered to the Optionee if the Optionee had exercised the Option and had received such shares of Common Stock prior to such reorganization, reclassification, consolidation, merger or sale. The Company shall not effect any such reorganization, consolidation, merger or sale unless prior to the consummation thereof the successor entity (if other than the Company) resulting from such reorganization, consolidation or merger or the entity purchasing such assets shall assume by written instrument the obligation to deliver to the Optionee such shares of stock, securities, cash or other assets as, in accordance with the foregoing provisions, the Optionee may be entitled to purchase or receive.
10.      Certain Terminations on or After Change in Control . Notwithstanding the other vesting provisions set forth herein, but subject to the other terms and conditions set forth herein, the Option shall become fully vested and exercisable if, on or within two years after the effective date of a Change in Control, the Optionee ceases to be an employee of the Company or any Affiliate as a result of a termination of employment (i) by the Optionee for Good Reason, (ii) by the Company or any Affiliate without Cause, (iii) at a time when Optionee is eligible for Retirement, (iv) due to Optionee’s Disability, or (v) in the circumstances described in Section 2(c). For purposes of this Award:

(a)      “Change in Control” shall mean the sale of all or substantially all of the Company’s assets or any merger, reorganization, or exchange or tender offer which, in each case, will result in a change in the power to elect 50% or more of the members of the Board of Directors of the Company; provided, however, that such a sale, merger or other event must also constitute either (i) a “change in the ownership” of the Company within the meaning of Treasury Regulation 1.409A-3(i)(5)(v), (ii) a “change in the effective control” of the Company within the meaning of Treasury Regulation 1.409A-3(i)(5)(vi)(A)(1) (replacing “30 percent” with “50 percent” as used in such regulation), or (iii) a change “in the ownership of a substantial portion of the assets” of the Company within the meaning of Treasury Regulation 1.409A-3(i)(5)(vii).

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(b)      “Cause” shall mean Optionee’s (a) material failure to follow the Company’s reasonable direction or to perform any duties reasonably required on material matters, (b) material violation of, or failure to act upon or report known or suspected violations of, the Company’s Code of Conduct, as may be amended from time to time, (c) conviction of any felony, (d) commission of any criminal, fraudulent, or dishonest act in connection with Optionee’s employment, or (e) material breach of any employment agreement between the Optionee and the Company or any Affiliate, if any. The Company will, within 90 days of discovery of the conduct, give Optionee written notice specifying the conduct constituting Cause in reasonable detail and Optionee will have 60 days to remedy such conduct, if such conduct is reasonably capable of being remedied. In any instance where the Company may have grounds for Cause, failure by the Company to provide written notice of the grounds for Cause within 90 days of discovery shall be a waiver of its right to assert the subject conduct as a basis for termination for Cause.

(c)      “Good Reason” shall mean the occurrence of any of the following without Optionee’s written consent, in each case, when compared to the arrangements in effect immediately prior to the Change in Control:
(i)
any reduction in Optionee’s base salary or a significant reduction in Optionee’s total compensation;
(ii)
a reduction in Optionee’s annual or long-term incentive opportunities; or
(iii)
a diminution in Optionee’s duties, responsibilities or authority.

Optionee will, within 90 days of discovery of such circumstances, give the Company written notice specifying the circumstances constituting Good Reason in reasonable detail; provided however that this notice period shall be shortened or waived to the extent necessary if compliance with the notice period would cause the termination for Good Reason to occur following the second anniversary of the effective date of the Change in Control. Except as contemplated by the preceding sentence, in any instance where Optionee may have grounds for Good Reason, failure by Optionee to provide written notice of the grounds for Good Reason within 90 days of discovery shall be a waiver of Optionee’s right to assert the subject circumstance as a basis for termination for Good Reason.
11.      Narrowed Enforcement and Severability . If a court or arbitrator decides that any provision of this Award is invalid or overbroad, the Optionee agrees that the court or arbitrator should narrow such provision so that it is enforceable or, if narrowing is not possible or permissible, such provision should be considered severed and the other provisions of this Award should be unaffected.
12.      Injunctive Relief . The Optionee agrees that (a) legal remedies (money damages) for any breach of the Restrictive Covenants in Section 4 of this Award will be inadequate, (b) the Company will suffer immediate and irreparable harm from any such breach, and (c) the Company will be entitled to injunctive relief from a court in addition to any legal remedies the Company may seek in arbitration.

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13.      Survival . The Restrictive Covenants and provisions regarding the forfeiture of Options and shares in this Award shall survive the termination of the Option.
14.      Other . An original record of this Award and all the terms thereof is held on file by the Company. To the extent there is any conflict between the terms contained in this Award and the terms contained in the original held by the Company, the terms of the original held by the Company shall control. Neither the Plan nor the Option shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any Affiliate and Optionee or any other Person. To the extent that any Person acquires a right to receive payments from the Company or any Affiliate pursuant to an Option, such right shall be no greater than the right of any unsecured creditor of the Company or any Affiliate.
15.      Governing Law . The validity, construction and effect of this Award and any rules and regulations relating to this Award shall be determined in accordance with the laws of the State of Delaware (without regard to its conflict of laws principles).
16.      Code Section 409A . It is intended that this Award and any amounts payable under this Award shall either be exempt from or comply with Code Section 409A (including the Treasury regulations and other published guidance relating thereto) so as not to subject Optionee to payment of any additional tax, penalty or interest imposed under Code Section 409A. .The provisions of this Award certificate shall be construed and interpreted to avoid the imputation of any such additional tax, penalty or interest under Code Section 409A yet preserve (to the nearest extent reasonably possible) the intended benefit payable to Optionee.

Acceptance Date: [Acceptance Date]
Signed Electronically/Signed Manually: [Signed Electronically]




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Exhibit 10.5
RESTRICTED STOCK UNIT AWARD
Award Date

[Grant Date]
 
Number of Units

[Number of Shares Granted]
 
Final Vesting Date

February 10, 2019

THIS CERTIFIES THAT UnitedHealth Group Incorporated (the “Company”) has on the award date specified above (the “Award Date”) granted to
[Participant Name]
(“Participant”) an award (the “Award”) to receive that number of restricted stock units (the “Restricted Stock Units”) indicated above in the box labeled “Number of Units,” each Restricted Stock Unit representing the right to receive one share of UnitedHealth Group Incorporated Common Stock, $.01 par value per share (the “Common Stock”), subject to certain restrictions and on the terms and conditions contained in this Award and the UnitedHealth Group Incorporated 2011 Stock Incentive Plan (the “Plan”).
The Participant acknowledges and agrees that the Company may deliver, by electronic mail, the use of the Internet, including through the website of the agent appointed by the Committee to administer the Plan, the Company intranet web pages or otherwise, any information concerning the Company, this Award, the Plan, pursuant to which the Company granted this Award, and any information required by the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
A copy of the Plan is available upon request. In the event of any conflict between the terms of the Plan and this Award, the terms of the Plan shall govern. Any terms not defined herein shall have the meaning set forth in the Plan.
* * * * *
1.       Rights of the Participant with Respect to the Restricted Stock Units .
(a)      No Shareholder Rights . The Restricted Stock Units granted pursuant to this Award do not and shall not entitle Participant to any rights of a shareholder of Common Stock, except as provided below. The rights of Participant with respect to the Restricted Stock Units shall remain forfeitable at all times prior to the date on which such rights become vested, and the restrictions with respect to the Restricted Stock Units lapse, in accordance with Section 2, 3 or 4.
(b)      Conversion of Restricted Stock Units; Issuance of Common Stock . No shares of Common Stock shall be issued to Participant prior to the date on which the Restricted Stock Units vest, and the restrictions with respect to the Restricted Stock



Units lapse, in accordance with Section 2, 3 or 4. Neither this Section 1(b) nor any action taken pursuant to or in accordance with this Section 1(b) shall be construed to create a trust of any kind. After any Restricted Stock Units vest pursuant to Section 2, 3 or 4, the Company shall promptly cause to be issued shares of Common Stock to Participant or in the name of Participant’s legal representatives, beneficiaries or heirs, as the case may be, in payment of such vested whole Restricted Stock Units, at the times provided in Section 2, 3 or 4, as applicable, unless such payment is deferred in accordance with the terms and conditions of the Company’s non-qualified compensation deferral plans.
(c)      Dividends . If a cash dividend is declared and paid by the Company with respect to the Common Stock, Participant shall be credited as of the applicable dividend payment date with an additional number of whole and/or fractional Restricted Stock Units (the “Dividend Units”) equal to (A) the total cash dividend Participant would have received had Participant’s Restricted Stock Units (and any previously credited Dividend Units with respect thereto) been actual shares of Common Stock, divided by (B) the Fair Market Value of a share of Common Stock as of the applicable dividend payment date. As of each vesting date pursuant to Sections 2, 3 or 4, the number of Dividend Units paid on the Restricted Stock Units vesting on such vesting date shall become vested, earned and payable in the form of shares of Common Stock; provided, however, that any vested Dividend Units not converted into a whole share of Common Stock may be converted into a fractional Dividend Unit, cash or carried forward to a future vesting date in accordance with the rules and regulations of agent selected by the Committee to administer the Plan. To the extent Participant’s rights to any unvested Restricted Stock Units are forfeited, the Dividend Units paid on such forfeited Restricted Stock Units shall also be forfeited. The terms of this Award certificate shall apply to all Dividend Units paid on the Restricted Stock Units.
2.       Vesting . Subject to the terms and conditions of this Award, 25% of the Restricted Stock Units shall vest, and the restrictions with respect to the Restricted Stock Units shall lapse, on each of the first, second, third and fourth anniversaries of the grant date if Participant remains continuously employed by the Company or any Affiliate until the respective vesting dates. Any Restricted Stock Units that vest pursuant to this Section 2 shall be paid to Participant not later than seventy four (74) days after the applicable vesting date.
3.       Early Vesting On Certain Terminations On or After Change in Control . Notwithstanding the other vesting provisions contained in Section 2 and Section 4, but subject to the other terms and conditions set forth herein, all of the Restricted Stock Units shall become immediately and unconditionally vested if, on or within two years after the effective date of a Change in Control, the Participant ceases to be an employee of the Company or any Affiliate as a result of a termination of employment (i) by the Participant for Good Reason, (ii) by the Company or any Affiliate without Cause, (iii) at a time when Participant is eligible for Retirement (as defined below), (iv) due to Participant’s failure to return to work as the result of a long-term disability which renders Participant incapable of performing his or her duties as determined under the provisions

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of the Company’s long-term disability insurance program applicable to Participant (“Disability”), or (v) in the circumstances described in Section 4(c). Any Restricted Stock Units that vest pursuant to this Section 3 shall be paid to Participant in a lump sum within thirty (30) days after the date of Participant’s Separation from Service. For purposes of this Award:
(a) “Change in Control” shall mean the sale of all or substantially all of the Company’s assets or any merger, reorganization, or exchange or tender offer which, in each case, will result in a change in the power to elect 50% or more of the members of the Board of Directors of the Company; provided, however, that such a sale, merger or other event must also constitute either (i) a “change in the ownership” of the Company within the meaning of Treasury Regulation 1.409A-3(i)(5)(v), (ii) a “change in the effective control” of the Company within the meaning of Treasury Regulation 1.409A-3(i)(5)(vi)(A)(1) (replacing “30 percent” with “50 percent” as used in such regulation), or (iii) a change “in the ownership of a substantial portion of the assets” of the Company within the meaning of Treasury Regulation 1.409A-3(i)(5)(vii).
(b)      “Cause” shall mean Participant’s (a) material failure to follow the Company’s reasonable direction or to perform any duties reasonably required on material matters, (b) material violation of, or failure to act upon or report known or suspected violations of, the Company’s Code of Conduct, as may be amended from time to time, (c) conviction of any felony, (d) commission of any criminal, fraudulent, or dishonest act in connection with Participant’s employment, or (e) material breach of any employment agreement between Participant and the Company or any Affiliate, if any. The Company will, within 90 days of discovery of the conduct, give Participant written notice specifying the conduct constituting Cause in reasonable detail and Participant will have 60 days to remedy such conduct, if such conduct is reasonably capable of being remedied. In any instance where the Company may have grounds for Cause, failure by the Company to provide written notice of the grounds for Cause within 90 days of discovery shall be a waiver of its right to assert the subject conduct as a basis for termination for Cause.
(c)      “Good Reason” shall mean the occurrence of any of the following without Participant’s written consent, in each case, when compared to the arrangements in effect immediately prior to the Change in Control:
(i)
any reduction in Participant’s base salary or a significant reduction in Participant’s total compensation;
(ii)
a reduction in Participant’s annual or long-term incentive opportunities; or
(iii)
a diminution in Participant’s duties, responsibilities or authority.


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Participant will, within 90 days of discovery of such circumstances, give the Company written notice specifying the circumstances constituting Good Reason in reasonable detail; provided however that this notice period shall be shortened or waived to the extent necessary if compliance with the notice period would cause the termination for Good Reason to occur following the second anniversary of the effective date of the Change in Control. Except as contemplated by the preceding sentence, in any instance where Participant may have grounds for Good Reason, failure by Participant to provide written notice of the grounds for Good Reason within 90 days of discovery shall be a waiver of Participant’s right to assert the subject circumstance as a basis for termination for Good Reason.
(d)      “Separation from Service” shall mean when Participant dies, retires, or otherwise has a termination of employment with the Company that constitutes a “separation from service” within the meaning of Treasury Regulation Section 1.409A-1(h)(1), without regard to the optional alternative definitions available thereunder.
(e)      Section 409A - Possible Acceleration of Payment . The Committee may provide for payment of the outstanding Restricted Stock Units in accordance with the requirements of Treasury Regulation 1.409A-3(j)(4)(ix)(A), (B) or (C) promulgated under Section 409A of the Code (or any similar successor provision), which regulation generally provides that a deferred compensation arrangement may be terminated in limited circumstances following a dissolution or change in control of the Company. If the outstanding Restricted Stock Units are to be so terminated, they shall be deemed fully vested upon such termination. Notwithstanding anything in the Plan or any other agreement to the contrary, there is no discretion to change the time of payment of the Restricted Stock Units (in connection with a Change in Control, similar event, or otherwise) except as expressly provided in this Section 3 or as otherwise permitted under, and would not result in any tax, penalty or interest under, Section 409A of the Code.
(f)      Section 409A - Possible Six-Month Delay in Payment . Notwithstanding any provision of this Award certificate to the contrary, if payment of the Restricted Stock Units is triggered by Participant’s Separation from Service as provided in this Section 3 and, as of the date of such Separation from Service, Participant is a “specified employee” (within the meaning of Section 409A of the Code and determined pursuant to procedures adopted by the Company), Participant shall not be entitled to such payment of the Restricted Stock Units until the earlier of (i) the date which is six (6) months after Participant’s Separation from Service for any reason other than death, or (ii) the date of Participant’s death. Any amounts otherwise payable to Participant upon or in the six (6) month period following Participant’s Separation from Service that are not so paid by reason of this Section 3(f) shall be paid (without interest) as soon as practicable (and in all events within thirty (30) days) after the date that is six (6) months after Participant’s Separation from Service (or, if earlier, as soon as practicable, and in all events within thirty (30) days, after the date of Participant’s death). The provisions of this Section

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3(f) shall only apply if, and to the extent, required to avoid the imputation of any tax, penalty or interest pursuant to Section 409A of the Code.
4.       Termination of Employment .
(a)      Termination of Employment Generally . Except as expressly provided in Section 3 or this Section 4, if, prior to vesting of the Restricted Stock Units pursuant to Section 2, Participant ceases to be an employee of the Company or any Affiliate for any reason (voluntary or involuntary), and does not continue after such cessation of service to be either an employee of the Company or any Affiliate, then Participant’s rights to all of the unvested Restricted Stock Units shall be immediately and irrevocably forfeited on the date of termination.
(b)      Death . If Participant dies while employed by the Company or any Affiliate, then all unvested Restricted Stock Units shall become immediately vested, and the restrictions with respect to all of the Restricted Stock Units shall lapse, as of the date of such death. Any Restricted Stock Units that vest pursuant to this Section 4(b) shall be paid to Participant’s estate not later than 90 days after the date of such death.
(c)      Severance . If Participant’s employment with the Company or any Affiliate terminates at a time when Participant is not eligible for Retirement (and other than due to Participant’s death or Disability) and, in the circumstances, Participant is entitled to severance or separation pay, the following provisions of this Section 4(c) will apply. If Participant is entitled to severance under the Company’s severance pay plan as in effect on the date hereof, then the Restricted Stock Units shall continue to vest, and the restrictions with respect to the Restricted Stock Units shall continue to lapse, for the period of such severance that Participant is eligible to receive. If Participant is entitled to severance under an employment agreement entered into with the Company, then vesting of the Restricted Stock Units, and lapsing of their restrictions, shall continue for the period of such severance that Participant would be entitled to receive under that agreement as of the date hereof. If Participant is entitled to separation pay other than under the Company’s severance pay plan or an employment agreement, then vesting of the Restricted Stock Units, and lapsing of their restrictions, shall continue for the lesser of the period (i) Participant would have received payments under the severance pay plan as in effect on the date hereof, had Participant been eligible for such payments or (ii) of separation pay. In any case, should Participant’s severance or separation pay be paid in a lump sum versus bi-weekly payments, the Restricted Stock Units shall continue to vest for the period of time in which severance or separation pay would have been paid had it been paid bi-weekly. Any Restricted Stock Units that vest pursuant to this Section 4(c) shall be paid to Participant not later than seventy four (74) days after the applicable vesting date of the Restricted Stock Units under the original vesting schedule set forth in Section 2. For avoidance of doubt, any Restricted Stock Units that are unvested on the date of termination of Participant’s employment and do not vest under the schedule set forth in Section 2 during the

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applicable severance or separation pay period identified above in this Section 4(c) shall be forfeited.
(d)      Retirement or Long-Term Disability. If Participant ceases to be an employee of the Company or any Affiliate and either (i) Participant is eligible for Retirement at the time of such termination of employment or (ii) Participant’s employment terminates due to Participant’s Disability, then the vesting of the Restricted Stock Units shall continue as if such termination of employment had not occurred, subject to provisions set out in the section entitled “Forfeiture of Restricted Stock Units and Shares of Common Stock” below. Any Restricted Stock Units that vest pursuant to this Section 4(d) shall be paid to Participant not later than seventy four (74) days after the applicable vesting date of the Restricted Stock Units under the original vesting schedule set forth in Section 2.
(e)      For purposes of this Award, “Retirement” means the termination of employment of a Participant who is age 55 or older with at least ten years of Recognized Employment with the Company or any Affiliate other than by reason of (i) death or Disability or (ii) Cause.
(f)      For purposes of this Award, “Recognized Employment” shall include only employment since the Participant’s most recent date of hire by the Company or any Affiliate, and shall not include employment with a company acquired by the Company or any Affiliate before the date of such acquisition.
5.       Restriction on Transfer . Participant may not transfer the Restricted Stock Units except by will or by the laws of descent and distribution, or pursuant to a domestic relations order as described in the Code or Title I of the Employee Retirement Income Security Act (or the rules promulgated thereunder). Any attempt to otherwise transfer the Restricted Stock Units shall be void.
6.      Special Restriction on Transfer for Certain Participants . If Participant is an officer of the Company within the meaning of Section 16 of the Securities Exchange Act of 1934 and Rule 16a-1 issued thereunder, as such status is reasonably determined from time to time by the Board of Directors of the Company (a “Section 16 Officer”), at any time that shares of Common Stock are issued upon the vesting of Restricted Stock Units and the Company has theretofore communicated Participant’s status as a Section 16 Officer to Participant, the following special transfer restrictions apply to Participant’s Award. One-third (1/3) of the net number of any shares of Common Stock acquired to Participant upon the vesting of Restricted Stock Units at a time when Participant is a Section 16 Officer (including any shares of Common Stock or other securities into which such shares may be converted or exchanged as a result of any adjustment made pursuant to this Award or Section 7 of the Plan) must be retained, and may not be sold or otherwise transferred, for a period of at least one year following the applicable vesting date. For purposes of this Award, the “net number of any shares of Common Stock acquired” shall mean the number of shares issued upon vesting of Restricted Stock Units after reduction for any shares of Common Stock withheld by or tendered to the Company, or sold on the market, to cover any federal, state, local or other payroll, withholding, income or other

6


applicable tax withholding required in connection with the issuance of the shares. The restrictions of this Section 6 are in addition to, and not in lieu of, the restrictions imposed under other Company policies and applicable laws.
7.      Forfeiture of Restricted Stock Units and Shares of Common Stock . This section sets forth circumstances under which Participant shall forfeit all or a portion of the Restricted Stock Units, or be required to repay the Company for the value realized in respect of all or a portion of the Restricted Stock Units.
(a)      Violation of Restrictive Covenants . If Participant violates any provision of the Restrictive Covenants set forth in Section 8 below, then any unvested Restricted Stock Units shall be immediately and irrevocably forfeited without any payment therefor. In addition, for any Restricted Stock Units that vested within one year prior to Participant’s termination of employment with the Company or any Affiliate or at any time after such termination of employment, the Participant shall be required, upon demand, to repay or otherwise reimburse the Company (including by forfeiting any deferred compensation credits in respect of such Restricted Stock Units under the Company’s non-qualified compensation deferral plans) an amount having a value equal to the aggregate Fair Market Value of the shares of Common Stock underlying such Restricted Stock Units on the date the Restricted Stock Units became vested.
(b)      Fraud . If the Board determines that Participant has engaged in fraud that, in whole or in part, caused the need for a material restatement of the Company’s consolidated financial statements, then any Restricted Stock Units that have not yet been settled in shares of Common Stock (including any deferred compensation credits under the Company’s non-qualified compensation deferral plans in respect of Restricted Stock Units that have previously become vested) shall be immediately and irrevocably forfeited without any payment therefore. In addition, for any Restricted Stock Units that became vested during the 12-month period following the first public issuance or filing with the Securities Exchange Commission (whichever occurs first) of the incorrect financial statements, Participant shall be required, upon demand, to repay or otherwise reimburse the Company (including by forfeiting any deferred compensation credits in respect of such Restricted Stock Units under the Company’s non-qualified compensation deferral plans) an amount having a value equal to the aggregate Fair Market Value of the shares of Common Stock underlying such Restricted Stock Units on the date the Restricted Stock Units became vested.
(c)      In General . This section does not constitute the Company’s exclusive remedy for Participant’s violation of the Restrictive Covenants or commission of fraudulent conduct. As the forfeiture and repayment provisions are not adequate remedies at law, the Company may seek any additional legal or equitable remedy, including injunctive relief, for any such violations. The provisions in this section are essential economic conditions to the Company’s grant of Restricted Stock Units to Participant. By receiving the grant of Restricted Stock Units hereunder, Participant agrees that the Company may deduct from any amounts it owes Participant from time to time (such as wages or other compensation, deferred

7


compensation credits, vacation pay, any severance or other payments owed following a termination of employment, as well as any other amounts owed to the Participant by the Company) to the extent of any amounts Participant owes the Company under this section. The provisions of this section and any amounts repayable by Participant hereunder are intended to be in addition to any rights to repayment the Company may have under Section 304 of the Sarbanes-Oxley Act of 2002 and other applicable law.

8.      Restrictive Covenants . In consideration of the terms of this Award and the Company’s sharing of Confidential Information with the Participant, Participant agrees to the Restrictive Covenants set forth below. For purposes of the Restrictive Covenants, the “Company” means UnitedHealth Group and all of its subsidiaries and other affiliates.
(a)      Confidential Information . Participant has or will be given access to and provided with sensitive, confidential, proprietary and/or trade secret information (collectively, “Confidential Information”) in the course of Participant’s employment. Examples of Confidential Information include inventions, new product or marketing plans, business strategies and plans, merger and acquisition targets, financial and pricing information, computer programs, source codes, models and data bases, analytical models, customer lists and information, and supplier and vendor lists and other information which is not generally available to the public. Participant agrees not to disclose or use Confidential Information, either during or after Participant’s employment with the Company, except as necessary to perform Participant’s duties or as the Company may consent in writing.
(b)      Non-Solicitation. During Participant’s employment and for two years after the later of (i) the termination of Participant’s employment for any reason whatsoever or (ii) the last scheduled vesting date under Section 4, Participant may not, without the Company’s prior written consent, directly or indirectly, for Participant or for any other person or entity, as agent, employee, officer, director, consultant, owner, principal, partner or shareholder, or in any other individual or representative capacity:
(i)
Solicit or conduct business with any business competitive with the Company from any person or entity: (A) who was a Company provider or customer within the 12 months before Participant’s employment termination and with whom Participant had contact regarding the Company’s activity, products or services, or for whom Participant provided services or supervised employees who provided those services, or about whom Participant learned Confidential Information during employment related to the Company’s provision of products and services to such person or entity, or (B) was a prospective provider or customer the Company solicited within the 12 months before Participant’s employment termination and with whom Participant had contact for the purposes of soliciting the person or entity to become a provider or customer of the Company, or supervised employees who had those

8


contacts, or about whom Participant learned Confidential Information during employment related to the Company’s provision of products and services to such person or entity;
(ii)
Raid, hire, employ, recruit or solicit any Company employee or consultant who possesses Confidential Information of the Company to leave the Company;
(iii)
Induce or influence any Company employee, consultant, or provider who possesses Confidential Information of the Company to terminate his, her or its employment or other relationship with the Company; or
(iv)
Assist anyone in any of the activities listed above.
(c)      Non-Competition . During Participant’s employment and for one year after the later of (i) the termination of Participant’s employment for any reason whatsoever or (ii) the last scheduled vesting date under Section 4, Participant may not, without the Company’s prior written consent, directly or indirectly, for Participant or for any other person or entity, as agent, employee, officer, director, consultant, owner, principal, partner or shareholder, or in any other individual or representative capacity:
(i)
Engage in or participate in any activity that competes, directly or indirectly, with any Company activity, product or service that Participant engaged in, participated in, or had Confidential Information about during Participant’s last 36 months of employment with the Company; or
(ii)
Assist anyone in any of the activities listed above.
Notwithstanding the foregoing, this Section 8(c) will apply to the extent permissible under the ABA Model Rules of Professional Conduct’s provisions regarding restrictions on the right to practice law or any applicable state counterpart.
(d)      Because the Company’s business competes on a nationwide basis, the Participant’s obligations under this “Restrictive Covenants” section shall apply on a nationwide basis anywhere in the United States.
(e)      To the extent Participant and the Company agree at any time to enter into separate agreements containing restrictive covenants with different or inconsistent terms than those contained herein, Participant and the Company acknowledge and agree that such different or inconsistent terms shall not in any way affect or have relevance to the Restrictive Covenants contained herein.

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By accepting this Restricted Stock Unit Award, Participant agrees that the provisions of this Restrictive Covenants section are reasonable and necessary to protect the legitimate interests of the Company.
9.       Adjustments to Restricted Stock Units . In the event that any dividend or other distribution (whether in the form of cash,  shares of Common Stock, other securities or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of Common Stock or other securities of the Company or other similar corporate transaction or event affecting the Common Stock would be reasonably likely to result in the diminution or enlargement of any of the benefits or potential benefits intended to be made available under the Award (including, without limitation, the benefits or potential benefits of provisions relating to the vesting of the Restricted Stock Units), the Committee shall, in such manner as it shall deem equitable or appropriate in order to prevent such diminution or enlargement of any such benefits or potential benefits, make adjustments to the Award, including adjustments in the number and type of shares of Common Stock Participant would have received upon vesting of the Restricted Stock Units.
10.       Tax Matters .
(a)       In order to comply with all applicable federal, state and local tax laws or regulations, the Company may take such action as it deems appropriate to ensure that all applicable federal, state and local payroll, withholding, income or other taxes, which are the sole and absolute responsibility of Participant, are withheld or collected from Participant.
(b) On each applicable vesting date, Participant will be deemed to have elected to satisfy Participant’s minimum required federal, state, and local payroll, withholding, income or other tax withholding obligations arising from the receipt of shares or the lapse of restrictions relating to the Restricted Stock Units, by having the Company withhold a portion of the shares of Common Stock otherwise to be delivered having a Fair Market Value equal to the amount of such taxes (but only to the extent of the minimum amount required to be withheld under applicable laws or regulations).
11.       Miscellaneous .
(a)       This Award does not confer on Participant any right to continued employment or any other relationship with the Company or any Affiliate, nor will it interfere in any way with the right of the Company to terminate Participant at any time. Participant’s employment with the Company is at will.
(b)      Neither the Plan nor this Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any Affiliate and Participant or any other Person. To the extent that any Person acquires a right to receive payments from the Company or any Affiliate pursuant to

    

10


an Award, such right shall be no greater than the right of any unsecured creditor of the Company or any Affiliate.
(c)       The Company shall not be required to deliver any shares of Common Stock upon the vesting of any Restricted Stock Units until the requirements of any federal or state securities laws, rules or regulations or other laws or rules (including the rules of any securities exchange) as may be determined by the Company to be applicable have been and continue to be satisfied (including an effective registration of the shares under federal and state securities laws).
(d)       An original record of this Award and all the terms hereof, executed by the Company, is held on file by the Company. To the extent there is any conflict between the terms contained in this Award and the terms contained in the original held by the Company, the terms of the original held by the Company shall control.
(e)      If a court or arbitrator decides that any provision of this Award is invalid or overbroad, Participant agrees that the court or arbitrator should narrow such provision so that it is enforceable or, if narrowing is not possible or permissible, such provision should be considered severed and the other provisions of this Award should be unaffected.
(f)      Participant agrees that (i) legal remedies (money damages) for any breach of the Restrictive Covenants in Section 8 will be inadequate, (ii) the Company will suffer immediate and irreparable harm from any such breach, and (iii) the Company will be entitled to injunctive relief from a court in addition to any legal remedies the Company may seek in arbitration.
(g)      The Restrictive Covenants in this Award and the provisions regarding the forfeiture of Restricted Stock Units and shares of Common Stock shall survive termination of the Restricted Stock Units.
(h)      The validity, construction and effect of this Award and any rules and regulations relating to this Award shall be determined in accordance with the laws of the State of Delaware (without regard to its conflict of law principles).
(i)      It is intended that this Award and any amounts payable under this Award shall either be exempt from or comply with Section 409A of the Code (including the Treasury regulations and other published guidance relating thereto) so as not to subject Participant to payment of any additional tax, penalty or interest imposed under Section 409A of the Code. The provisions of this Award certificate shall be construed and interpreted to avoid the imputation of any such additional tax, penalty or interest under Section 409A of the Code yet preserve (to the nearest extent reasonably possible) the intended benefit payable to Participant.
Acceptance Date: [Acceptance Date]
Signed Electronically/Signed Manually: [Signed Electronically]


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Exhibit 10.6
PERFORMANCE-BASED RESTRICTED STOCK UNIT AWARD

Award Date



[Grant Date]
 
Target Number of Performance-Based Units

[Number of Shares Granted]
 
Performance Period



[Performance Period]


THIS CERTIFIES THAT UnitedHealth Group Incorporated (the “Company”) has on the award date specified above (the “Award Date”) granted to
[Participant Name]
(“Participant”) an award (the “Award”) to be eligible to receive a number of Performance-Based Restricted Stock units (the “Performance-Based Restricted Stock Units”), the target number of which is indicated above in the box labeled “Target Number of Performance-Based Units,” each Performance-Based Restricted Stock Unit representing the right to receive one share of UnitedHealth Group Incorporated Common Stock, $.01 par value per share (the “Common Stock”), subject to certain restrictions and on the terms and conditions contained in this Award and the UnitedHealth Group Incorporated 2011 Stock Incentive Plan (the “Plan”).
The Participant acknowledges and agrees that the Company may deliver, by electronic mail, the use of the Internet, including through the website of the agent appointed by the Committee to administer the Plan, the Company intranet web pages or otherwise, any information concerning the Company, this Award, the Plan pursuant to which the Company granted this Award, and any information required by the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
A copy of the Plan is available upon request. In the event of any conflict between the terms of the Plan and this Award, the terms of the Plan shall govern. Any terms not defined herein shall have the meaning set forth in the Plan. This Award is intended to qualify as “qualified performance-based compensation” as described in Section 162(m)(4) of the Code.
* * * * *
1.       Rights of the Participant with Respect to the Performance-Based Restricted Stock Units .
(a)      No Shareholder Rights . The Performance-Based Restricted Stock Units granted pursuant to this Award do not and shall not entitle Participant to any rights



of a shareholder of Common Stock. The rights of Participant with respect to the Performance-Based Restricted Stock Units shall remain forfeitable at all times prior to the date on which such rights become vested, and the restrictions with respect to the Performance-Based Restricted Stock Units lapse, in accordance with Section 2, 3 or 4.
(b)      Conversion of Performance-Based Restricted Stock Units; Issuance of Common Stock . No shares of Common Stock shall be issued to Participant prior to the date on which the Performance-Based Restricted Stock Units vest, and the restrictions with respect to the Performance-Based Restricted Stock Units lapse, in accordance with Section 2, 3 or 4. Neither this Section 1(b) nor any action taken pursuant to or in accordance with this Section 1(b) shall be construed to create a trust of any kind. After any Performance-Based Restricted Stock Units vest pursuant to Section 2, 3 or 4, the Company shall promptly cause to be issued shares of Common Stock to Participant or in the name of Participant’s legal representatives, beneficiaries or heirs, as the case may be, in payment of such vested whole Performance-Based Restricted Stock Units, such shares of Common Stock shall be issued promptly, and in any event, no later than March 15 th of the year following the year in which the vesting event occurs (which payment schedule is intended to comply with the “short-term deferral” exemption from the application of Section 409A of the Code), unless such payment is deferred in accordance with the terms and conditions of the Company’s non-qualified compensation deferral plans.
2.       Vesting. Subject to the terms and conditions of this Award, including without limitation the terms set forth in Attachment 1, the Performance-Based Restricted Stock Units shall vest and the restrictions with respect to the Performance-Based Restricted Stock Units shall lapse (i) if Participant has remained continuously employed with the Company or any Affiliate from the Award Date through and including the end of the Performance Period, and (ii) if and to the extent the Performance Vesting Criteria described in Attachment 1 have been achieved during the Performance Period. Regardless of whether Participant meets the continuous employment or service criterion described in subpart (i) of this Section 2, if and to the extent the Performance Vesting Criteria have not been achieved by the end of the Performance Period, the Participant’s rights to the Performance-Based Restricted Stock Units shall be immediately and irrevocably forfeited on that date. The Committee will determine in its sole discretion and certify in accordance with the requirements of Section 162(m) of the Code the extent, if any, to which the Performance Vesting Criteria have been met, and it will retain sole discretion to reduce the number of Performance-Based Restricted Stock Units that would otherwise vest as a result of the performance measured against the Performance Vesting Criteria. The Committee may not increase the number of Performance-Based Restricted Stock Units that may vest as a result of the performance as measured against the Performance Vesting Criteria. Any vesting that may occur pursuant to this Section 2 will be effective on the date on which the Committee has certified the extent to which the Performance Vesting Criteria in subpart (ii) of this Section 2 were satisfied.
3.       Certain Terminations on or After Change in Control . Notwithstanding the other vesting provisions contained in Section 2, but subject to the other terms and conditions set forth herein, the Performance-Based Restricted Stock Units described in this Award

2


will become immediately and unconditionally vested, and the restrictions with respect thereto shall lapse if, on or within two years after the effective date of a Change in Control, the Participant ceases to be an employee of the Company or any Affiliate as a result of a termination of employment (i) by the Participant for Good Reason, (ii) by the Company or any Affiliate without Cause, (iii) at a time when Participant is eligible for Retirement, (iv) due to Participant’s Disability, or (v) in the circumstances described in Section 4(c). Upon a Change in Control, the Committee will determine: (i) the extent, if any, to which the Performance Vesting Criteria have been met, and (ii) the number of the Performance-Based Restricted Stock Units that will vest and convert into shares of Common Stock in the event of Participant’s termination of employment in accordance with this Section 3. For purposes of this Award:
(a) “Change in Control” shall mean the sale of all or substantially all of the Company’s assets or any merger, reorganization, or exchange or tender offer which, in each case, will result in a change in the power to elect 50% or more of the members of the Board of Directors of the Company; provided, however, that such a sale, merger or other event must also constitute either (i) a “change in the ownership” of the Company within the meaning of Treasury Regulation 1.409A-3(i)(5)(v), (ii) a “change in the effective control” of the Company within the meaning of Treasury Regulation 1.409A-3(i)(5)(vi)(A)(1) (replacing “30 percent” with “50 percent” as used in such regulation), or (iii) a change “in the ownership of a substantial portion of the assets” of the Company within the meaning of Treasury Regulation 1.409A-3(i)(5)(vii).
(b) “Good Reason” shall mean the occurrence of any of the following without Participant’s written consent, in each case, when compared to the arrangements in effect immediately prior to the Change in Control:
(i)      any reduction in Participant’s base salary or a significant reduction      in Participant’s total compensation;
(ii)      a reduction in Participant’s annual or long-term incentive opportunities; or
(iii)      a diminution in Participant’s duties, responsibilities or authority.
Participant will, within 90 days of discovery of such circumstances, give the Company written notice specifying the circumstances constituting Good Reason in reasonable detail; provided however that this notice period shall be shortened or waived to the extent necessary if compliance with the notice period would cause the termination for Good Reason to occur following the second anniversary of the effective date of the Change in Control. Except as contemplated by the preceding sentence, in any instance where Participant may have grounds for Good Reason, failure by Participant to provide written notice of the grounds for Good Reason within 90 days of discovery shall be a waiver of Participant’s right to assert the subject circumstance as a basis for termination for Good Reason.

3


4.       Termination of Employment .
(a)      Termination of Employment Generally . Subject to the provisions of this Section 4, if, prior to vesting of the Performance-Based Restricted Stock Units pursuant to Section 2 or 3, Participant ceases to be an employee of the Company or any Affiliate, for any reason (voluntary or involuntary), then Participant’s rights to all of the unvested Performance-Based Restricted Stock Units shall be immediately and irrevocably forfeited on the date of termination.
(b)      Death or Long-Term Disability . If Participant dies while employed by the Company or any Affiliate, or if Participant’s employment by the Company or any Affiliate is terminated due to Participant’s failure to return to work as the result of a long-term disability which renders Participant incapable of performing his or her duties as determined under the provisions of the Company’s long-term disability program applicable to Participant (“Disability”), then following the end of the Performance Period, if and to the extent the Committee, in accordance with Section 2 above, determines that the Performance Vesting Criteria has been met, such that some number of Performance-Based Restricted Stock Units will vest and the restrictions with respect thereto will lapse, Participant will vest in a pro rata number of Performance-Based Restricted Stock Units, and the restrictions with respect thereto will lapse. Such pro rationing shall be based on the number of full months of the Performance Period that Participant was employed prior to the date of death or termination due to Disability.
(c)      Severance . If Participant’s employment ends at a time when the Participant is not eligible for Retirement (as defined below) and in connection with that separation from employment the Company pays the Participant severance benefits pursuant to an employment agreement with Participant that is in effect on the date of this Award or pursuant to any Company severance policy, plan or program in effect on the date of this Award, then following the end of the Performance Period, if and to the extent the Committee, in accordance with Section 2 above, determines that the Performance Vesting Criteria has been met, such that some number of Performance-Based Restricted Stock Units will vest and the restrictions with respect thereto will lapse, Participant will vest in a pro rata number of Performance-Based Restricted Stock Units, and the restrictions with respect thereto will lapse. Such pro rationing shall be based on the number of full months of the Performance Period that Participant was employed prior to the date of termination plus the number of full months during which the Participant is entitled to receive severance benefits under an employment agreement that is in effect on the date of this Award or pursuant to any Company severance policy, plan or program in effect on the date of this Award (provided that in no event shall such sum exceed the number of months in the Performance Period).
(d)      Retirement. If the Participant’s employment ends and at the time of separation from employment the Participant is eligible for Retirement (the “Retirement Date”) and at least one year of the Performance Period of this Award is completed at or prior to the Retirement Date, then following the end of the Performance Period, if and to the extent the Committee, in accordance with Section

4


2 above, determines that the Performance Vesting Criteria has been met, such that some number of Performance-Based Restricted Stock Units will vest and the restrictions with respect thereto will lapse, Participant will vest in the full number of Performance-Based Restricted Stock Units and the restrictions with respect thereto will lapse as if the Participant had been continuously employed throughout the entire Performance Period.
(e)      For purposes of this Award, “Retirement” means the termination of employment of a Participant who is age 55 or older with at least ten years of Recognized Employment with the Company or any Affiliate other than by reason of (i) death or Disability or (ii) Cause.
(f)      For purposes of this Award, “Recognized Employment” shall include only employment since the Participant’s most recent date of hire by the Company or any Affiliate, and shall not include employment with a company acquired by UnitedHealth Group or any Affiliate before the date of such acquisition.
(g)      For purposes of this Award, “Cause” shall mean Participant’s (a) material failure to follow the Company’s reasonable direction or to perform any duties reasonably required on material matters, (b) material violation of, or failure to act upon or report known or suspected violations of, the Company’s Code of Conduct, as may be amended from time to time, (c) conviction of any felony, (d) commission of any criminal, fraudulent, or dishonest act in connection with Participant’s employment, or (e) material breach of any employment agreement between Participant and the Company or any Affiliate, if any. The Company will, within 90 days of discovery of the conduct, give Participant written notice specifying the conduct constituting Cause in reasonable detail and Participant will have 60 days to remedy such conduct, if such conduct is reasonably capable of being remedied. In any instance where the Company may have grounds for Cause, failure by the Company to provide written notice of the grounds for Cause within 90 days of discovery shall be a waiver of its right to assert the subject conduct as a basis for termination for Cause.
5.       Restriction on Transfer . Participant may not transfer the Performance-Based Restricted Stock Units except by will or by the laws of descent and distribution, or pursuant to a domestic relations order as described in the Code or Title I of the Employee Retirement Income Security Act (or the rules promulgated thereunder). Any attempt to otherwise transfer the Performance-Based Restricted Stock Units shall be void.
6.      Special Restriction on Transfer for Certain Participants . If Participant is an officer of the Company within the meaning of Section 16 of the Securities Exchange Act of 1934 and Rule 16a-1 issued thereunder, as such status is reasonably determined from time to time by the Board of Directors of the Company (a “Section 16 Officer”), at any time that shares of Common Stock are issued upon vesting of the Performance-Based Restricted Stock Units and the Company has theretofore communicated Participant’s status as a Section 16 Officer to Participant, the following special transfer restrictions apply to Participant’s Award. One-third (  1 /3) of the net number of any shares of Common Stock acquired to Participant upon vesting of the Performance-Based Restricted Stock Units at a time when Participant is a Section 16 Officer (including any shares of Common Stock

5


or other securities into which such shares may be converted or exchanged as a result of any adjustment made pursuant to this Award or Section 7 of the Plan) must be retained, and may not be sold or otherwise transferred, for a period of at least one year following the issuance date. For purposes of this Award, the “net number of any shares of Common Stock acquired” shall mean the number of shares issued with respect to the Award after reduction for any shares of Common Stock withheld by or tendered to the Company, or sold on the market, to cover any federal, state, local or other payroll, withholding, income or other applicable tax withholding required in connection with the issuance of the shares. The restrictions of this Section 6 are in addition to, and not in lieu of, the restrictions imposed under other Company policies and applicable laws.
7.      Forfeiture of Performance-Based Restricted Stock Units and Shares of Common Stock . This section sets forth circumstances under which Participant shall forfeit all or a portion of the Performance-Based Restricted Stock Units, or be required to repay the Company for the value realized in respect of all or a portion of the Performance-Based Restricted Stock Units.
(a)      Violation of Restrictive Covenants . If Participant violates any provision of the Restrictive Covenants set forth in Section 8 below, then any unvested Performance-Based Restricted Stock Units shall be immediately and irrevocably forfeited without any payment therefor. In addition, for any Performance-Based Restricted Stock Units that did vest, whether before or after Participant’s employment terminated, the Participant shall be required, upon demand, to repay or otherwise reimburse the Company (including by forfeiting any deferred compensation credits in respect of such Performance-Based Restricted Stock Units under the Company’s non-qualified compensation deferral plans) an amount having a value equal to the aggregate Fair Market Value of the shares of Common Stock underlying such Performance-Based Restricted Stock Units on the date the Performance-Based Restricted Stock Units became vested.
(b)      Fraud . If the Committee determines that: (i) the Participant has engaged in fraud that, in whole or in part, caused the need for a material restatement of the Company’s consolidated financial statements, (ii) the Performance Vesting Criteria were met was based, in whole or in part, on achievement of financial results that were restated in connection with the restatement of the Company’s consolidated financial statements, and (iii) the number of Performance-Based Restricted Stock Units in which Participant vested would have been less if that number had been based on the restated consolidated financial statements, then any Performance-Based Restricted Stock Units that have not yet been settled in shares of Common Stock (including any deferred compensation credits under the Company’s non-qualified compensation deferral plans in respect of Performance-Based Restricted Stock Units that have previously become vested) shall be immediately and irrevocably forfeited without any payment therefore. In addition, for any Performance-Based Restricted Stock Units that did vest, Participant shall be required, upon demand, to repay or otherwise reimburse the Company (including by forfeiting any deferred compensation credits in respect of such Performance-Based Restricted Stock Units under the Company’s non-qualified compensation deferral plans) an amount having a value equal to the aggregate Fair Market Value of the shares of Common Stock

6


underlying such Performance-Based Restricted Stock Units on the date the Performance-Based Restricted Stock Units became vested. For the avoidance of doubt, a Participant shall be required to repay the full amount of the aggregate Fair Market Value of any such Common Stock, and not just the amount by which the amount of the aggregate Fair Market Value of the Common Stock underlying the Performance-Based Restricted Stock Units that vested exceeded the amount of the aggregate Fair Market Value of the Common Stock underlying the number of Performance-Based Restricted Stock Units that would have vested based on the corrected and restated financial results.
(c)      In General . This section does not constitute the Company’s exclusive remedy for Participant’s violation of the Restrictive Covenants or commission of fraudulent conduct. As the forfeiture and repayment provisions are not adequate remedies at law, the Company may seek any additional legal or equitable remedy, including injunctive relief, for any such violations. The provisions in this section are essential economic conditions to the Company’s grant of Performance-Based Restricted Stock Units to Participant. By receiving the grant of Performance-Based Restricted Stock Units hereunder, Participant agrees that the Company may deduct from any amounts it owes Participant from time to time (such as wages or other compensation, deferred compensation credits, vacation/PTO pay, any severance or other payments owed following a termination of employment, as well as any other amounts owed to the Participant by the Company) to the extent of any amounts Participant owes the Company under this section. The provisions of this section and any amounts repayable by Participant hereunder are intended to be in addition to any rights to repayment the Company may have under Section 304 of the Sarbanes-Oxley Act of 2002 and other applicable law.
8.      Restrictive Covenants . In consideration of the terms of this Award and the Company’s sharing of Confidential Information with the Participant, Participant agrees to the Restrictive Covenants set forth below. For purposes of the Restrictive Covenants, the “Company” means UnitedHealth Group and all of its Affiliates.
(a)      Confidential Information . Participant has or will be given access to and provided with sensitive, confidential, proprietary and/or trade secret information (collectively, “Confidential Information”) in the course of Participant’s employment. Examples of Confidential Information include inventions, new product or marketing plans, business strategies and plans, merger and acquisition targets, financial and pricing information, computer programs, source codes, models and data bases, analytical models, customer lists and information, and supplier and vendor lists and other information which is not generally available to the public. Participant agrees not to disclose or use Confidential Information, either during or after Participant’s employment with the Company, except as necessary to perform Participant’s duties or as the Company may consent in writing.
(b)      Non-Solicitation. During Participant’s employment and for two years after the later of (i) the termination of Participant’s employment for any reason whatsoever or (ii) the date on which any number of Performance-Based Restricted Stock Units vests under Sections 2, 3 or 4, Participant may not, without the

7


Company’s prior written consent, directly or indirectly, for Participant or for any other person or entity, as agent, employee, officer, director, consultant, owner, principal, partner or shareholder, or in any other individual or representative capacity:
(i)
Solicit or conduct business with any business competitive with the Company from any person or entity: (A) who was a Company provider or customer within the 12 months before Participant’s employment termination and with whom Participant had contact regarding the Company’s activities, products or services, or for whom Participant provided services or supervised employees who provided those services, or about whom the Participant learned Confidential Information during employment related to the Company’s provision of products and services to such person or entity, or (B) was a prospective provider or customer the Company solicited within the 12 months before Participant’s employment termination and with whom Participant had contact for the purposes of soliciting the person or entity to become a provider or customer of the Company, or supervised employees who had those contacts, or about whom the Participant learned Confidential Information during employment related to the Company’s provision of products and services to such person or entity;
(ii)
Raid, hire, employ, recruit or solicit any Company employee or consultant who possesses Confidential Information of the Company to leave the Company;
(iii)
Induce or influence any Company employee, consultant, or provider who possesses Confidential Information of the Company to terminate his, her or its employment or other relationship with the Company; or
(iv)
Assist anyone in any of the activities listed above.
(c)      Non-Competition . During Participant’s employment and for one year after the later of (i) the termination of Participant’s employment for any reason whatsoever or (ii) the date on which any number of Performance-Based Restricted Stock Units vest under Sections 2, 3 or 4, Participant may not, without the Company’s prior written consent, directly or indirectly, for Participant or for any other person or entity, as agent, employee, officer, director, consultant, owner, principal, partner or shareholder, or in any other individual or representative capacity:
(i)
Engage in or participate in any activity that competes, directly or indirectly, with any Company activity, product or service that Participant engaged in, participated in, or had Confidential Information about during Participant’s last 36 months of employment with the Company; or

8


(ii)
Assist anyone in any of the activities listed above.
Notwithstanding the foregoing, this Section 8(c) will apply to the extent permissible under the ABA Model Rules of Professional Conduct’s provisions regarding restrictions on the right to practice law or any applicable state counterpart.
(d)      Because the Company’s business competes on a nationwide basis, the Participant’s obligations under this “Restrictive Covenants” section shall apply on a nationwide basis anywhere in the United States.
(e)      To the extent Participant and the Company agree at any time to enter into separate agreements containing restrictive covenants with different or inconsistent terms than those contained herein, Participant and the Company acknowledge and agree that such different or inconsistent terms shall not in any way affect or have relevance to the Restrictive Covenants contained herein.
By accepting this Performance-Based Restricted Stock Units Award, Participant agrees that the provisions of this Restrictive Covenants section are reasonable and necessary to protect the legitimate interests of the Company.
9.       Adjustments to Performance-Based Restricted Stock Units . In the event that any dividend or other distribution (whether in the form of cash,  shares of Common Stock, other securities or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of Common Stock or other securities of the Company or other similar corporate transaction or event affecting the Common Stock would be reasonably likely to result in the diminution or enlargement of any of the benefits or potential benefits intended to be made available under the Award (including, without limitation, the benefits or potential benefits of provisions relating to the vesting of the Performance-Based Restricted Stock Units), the Committee shall, in such manner as it shall deem equitable or appropriate in order to prevent such diminution or enlargement of any such benefits or potential benefits, make adjustments to the Award, including adjustments in the number and type of shares of Common Stock Participant would have received upon vesting of the Performance-Based Restricted Stock Units.
10.       Tax Matters .
(a)       In order to comply with all applicable federal or state income tax laws or regulations, the Company may take such action as it deems appropriate to ensure that all applicable federal or state payroll, withholding, income or other taxes, which are the sole and absolute responsibility of Participant, are withheld or collected from Participant.
(b)       On any pertinent vesting date described in this Award, Participant will be deemed to have elected to satisfy Participant’s minimum required federal, state, and local payroll, withholding, income or other tax withholding obligations arising from the receipt of shares or the lapse of restrictions relating to the Performance-based Restricted Stock Units, by having the Company withhold a portion of the shares of

9


Common Stock otherwise to be delivered having a Fair Market Value equal to the amount of such taxes (but only to the extent of the minimum amount required to be withheld under applicable laws or regulations).
11.       Miscellaneous .
(a)       This Award does not confer on Participant any right to continued employment or any other relationship with the Company or any Affiliate, nor will it interfere in any way with the right of the Company to terminate Participant at any time. Participant’s employment with the Company is at will.
(b)      Neither the Plan nor this Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company and Participant or any other Person. To the extent that any Person acquires a right to receive payments from the Company or any Affiliate pursuant to an Award, such right shall be no greater than the right of any unsecured creditor of the Company or any Affiliate.
(c)       The Company shall not be required to deliver any shares of Common Stock upon the vesting of any Performance-Based Restricted Stock Units until the requirements of any federal or state securities laws, rules or regulations or other laws or rules (including the rules of any securities exchange) as may be determined by the Company to be applicable have been and continue to be satisfied (including an effective registration of the shares under federal and state securities laws).
(d)       An original record of this Award and all the terms hereof, executed by the Company, is held on file by the Company. To the extent there is any conflict between the terms contained in this Award and the terms contained in the original held by the Company, the terms of the original held by the Company shall control.
(e)      If a court or arbitrator decides that any provision of this Award certificate is invalid or overbroad, Participant agrees that the court or arbitrator should narrow such provision so that it is enforceable or, if narrowing is not possible or permissible, such provision should be considered severed and the other provisions of this Award certificate should be unaffected.
(f)      Participant agrees that (i) legal remedies (money damages) for any breach of the Restrictive Covenants in Section 8 will be inadequate, (ii) the Company will suffer immediate and irreparable harm from any such breach, and (iii) the Company will be entitled to injunctive relief from a court in addition to any legal remedies the Company may seek in arbitration.
(g)      The Restrictive Covenants in Section 8 and the provisions regarding the forfeiture of Performance-Based Restricted Stock Units and shares of Common Stock shall survive termination of the Performance-Based Restricted Stock Units.
(h)      The validity, construction and effect of this Award and any rules and regulations relating to this Award shall be determined in accordance with the laws of the State of Delaware (without regard to its conflict of law principles).

10


(i) It is intended that this Award and any amounts payable under this Award shall either be exempt from or comply with Section 409A of the Code (including the Treasury regulations and other published guidance relating thereto) so as not to subject Participant to payment of any additional tax, penalty or interest imposed under Section 409A of the Code. The provisions of this Award certificate shall be construed and interpreted to avoid the imputation of any such additional tax, penalty or interest under Section 409A of the Code yet preserve (to the nearest extent reasonably possible) the intended benefit payable to Participant.

Acceptance Date: [Acceptance Date]
Signed Electronically/Signed Manually: [Signed Electronically]

 
 



11


EXHIBIT 12.1
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(dollars in millions)
 
2015
 
2014
 
2015
 
2014
Earnings before income taxes
 
$
2,789

 
$
2,751

 
$
8,023

 
$
7,042

Fixed charges
 
272

 
186

 
653

 
566

Total earnings available for fixed charges
 
$
3,061

 
$
2,937

 
$
8,676

 
$
7,608

 
 
 
 
 
 
 
 
 
Fixed Charges:
 
 
 
 
 
 
 
 
Interest expense
 
$
229

 
$
152

 
$
530

 
$
467

Interest component of rental payments
 
43

 
34

 
123

 
99

Total fixed charges
 
$
272

 
$
186

 
$
653

 
$
566

Ratio of earnings to fixed charges
 
11.3

 
15.8

 
13.3

 
13.4



The ratio of earnings to fixed charges is computed by dividing total earnings available for fixed charges by the fixed charges. For purposes of computing this ratio, fixed charges consist of interest expense plus the interest factor in rental expense.






EXHIBIT 31.1
CERTIFICATIONS PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
Certification of Principal Executive Officer

 I, Stephen J. Hemsley, certify that:

1.
I have reviewed this report on Form 10-Q of UnitedHealth Group Incorporated (the “registrant”);
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 
November 5, 2015
/s/    STEPHEN J. HEMSLEY
 
Stephen J. Hemsley
Chief Executive Officer
 
 





Certification of Principal Financial Officer

I, David S. Wichmann, certify that:

1.
I have reviewed this report on Form 10-Q of UnitedHealth Group Incorporated (the “registrant”);
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.


 
November 5, 2015
/s/    DAVID S. WICHMANN
 
David S. Wichmann
President and Chief Financial Officer






EXHIBIT 32.1
CERTIFICATIONS PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Certification of Principal Executive Officer
In connection with the report of UnitedHealth Group Incorporated (the “Company”) on Form 10-Q for the period ended September 30, 2015 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Stephen J. Hemsley, certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 
November 5, 2015
/s/    STEPHEN J. HEMSLEY
 
Stephen J. Hemsley
Chief Executive Officer

Certification of Principal Financial Officer
In connection with the report of UnitedHealth Group Incorporated (the “Company”) on Form 10-Q for the period ended September 30, 2015 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David S. Wichmann, certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


 
November 5, 2015
/s/    DAVID S. WICHMANN
 
David S. Wichmann
President and Chief Financial Officer