UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Form 10-K
þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003 |
Commission file number: 1-10864
UnitedHealth Group Incorporated
Minnesota
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41-1321939 | |
(State or other jurisdiction of
incorporation or organization) |
(I.R.S. Employer
Identification No.) |
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UnitedHealth Group Center
9900 Bren Road East Minnetonka, Minnesota (Address of principal executive offices) |
55343
(Zip Code) |
Registrants telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act:
(Title of each class) | (Name of each exchange on which registered) | |
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|
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Common Stock, $.01 par Value
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New York Stock Exchange, Inc. |
Securities registered pursuant to Section 12(g) of the Act:
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 þ No o
Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes þ
Indicate by checkmark whether the registrant is an accelerated filer (as defined in the Exchange Act Rule 12b-2). Yes þ No o
The aggregate market value of stock held by non-affiliates of the registrant as of June 30, 2003, was approximately $29,612,414,897 (based on the last reported sale price of $50.25 per share on June 30, 2003, on the New York Stock Exchange).*
As of March 1, 2004, 620,897,092 shares of the registrants Common Stock, $.01 par value per share, were issued and outstanding.
Note that in Part II of this report on Form 10-K, we incorporate by reference certain information from our Annual Report to Shareholders for the fiscal year ended December 31, 2003, and in Part III we incorporate by reference certain information from our Definitive Proxy Statement for the Annual Meeting of Shareholders to be held on May 12, 2004. These documents will be filed with the Securities and Exchange Commission (SEC) within the time period permitted by the SEC. The SEC allows us to disclose important information by referring to it in that manner. Please refer to such information.
* | Only shares of common stock held beneficially by directors, executive officers and subsidiaries of the Company have been excluded in determining this number. |
TABLE OF CONTENTS
PART I
Item 1. | Business |
INTRODUCTION
UnitedHealth Group is a leader in the health and
well-being industry, serving approximately 52 million
Americans. We provide individuals with access to quality,
cost-effective health care services and resources through more
than 400,000 physicians and 3,600 hospitals across the United
States. We manage approximately $50 billion in aggregate
health care spending on behalf of more than
170,000 employer-customers and the consumers we serve. Our
primary focus is on improving the American health care system by
simplifying the administrative components of health care
delivery, promoting evidence-based medicine as the standard for
care, and providing relevant, actionable data that physicians,
health care providers, consumers, employers and other
participants in health care can use to make better, more
informed decisions.
Our revenues are derived from premium revenues on
risk-based products, fees from management, administrative and
consulting services, and investment and other income. We conduct
our business primarily through operating divisions in the
following business segments:
For a discussion of our results by segment see
Item 7, Managements Discussion and Analysis of
Financial Condition and Results of Operations.
UnitedHealth Group Incorporated is a Minnesota
corporation incorporated in January 1977. The terms
we, our or the Company refer
to UnitedHealth Group Incorporated and our subsidiaries. Our
executive offices are located at UnitedHealth Group Center, 9900
Bren Road East, Minnetonka, Minnesota 55343; telephone
(952) 936-1300. Our home page on the Internet can be
accessed at
www.unitedhealthgroup.com
. You can learn more
about us by visiting that site. You can download and print
copies of our annual reports to shareholders, annual reports on
Form 10-K, quarterly reports on Form 10-Q, and current
reports on Form 8-K, along with amendments to those
reports, from that site. You can also download from our website
our Articles of Incorporation, bylaws and corporate governance
policies, including our Principles of Governance, Board of
Directors Committee Charters, and Code of Business Conduct and
Ethics. We make periodic reports and amendments available, free
of charge, as soon as reasonably practicable after we file or
furnish these reports to the Securities and Exchange Commission
(SEC). We will also provide a copy of any of our
corporate governance policies published on our website free of
charge, upon request. To request a copy of any of these
documents, please submit your request to: UnitedHealth Group
Incorporated, 9900 Bren Road East, Minnetonka, MN 55343, Attn:
Corporate Secretary.
DESCRIPTION OF BUSINESS SEGMENTS
Uniprise
Uniprise serves the employee benefit needs of
large organizations by developing cost-effective health care
access and benefit strategies and programs, technology and
service-driven solutions tailored to the specific needs of each
customer. Uniprise offers consumers access to a wide spectrum of
health and well-being products and services. Together with its
affiliates, Uniprises core business provides
comprehensive, integrated health benefit services to
multi-location employers with more than 5,000 employees, and
specializes in large volume transaction management, large-scale
benefit design, and innovative technology
1
Large employers can also access through Uniprise
all of UnitedHealth Groups network-based medical,
insurance and specialty services, through a wide variety of
product arrangements. As of December 31, 2003, Uniprise
served over 320 clients, representing approximately
9.1 million individuals, including approximately 160 of the
Fortune 500 companies. Uniprise also provides claim, call and
other complex transaction processing services to consumers
served by UnitedHealthcare.
Health Care Services
Our Health Care Services segment consists of our
UnitedHealthcare, Ovations and AmeriChoice businesses.
UnitedHealthcare coordinates health and
well-being services on behalf of local employers and consumers
nationwide. UnitedHealthcares products are primarily
marketed to small and mid-size employers with up to 5,000
employees. As of December 31, 2003, this business served
approximately 8.3 million individuals. With its risk-based
product offerings, UnitedHealthcare assumes the risk of both
medical and administrative costs for its customers in return for
a monthly premium, which is typically at a fixed rate for a
one-year period. UnitedHealthcare also provides administrative
and other management services to customers that self-insure the
medical costs of their employees and their dependents, for which
UnitedHealthcare receives a fee. These customers retain the risk
of financing medical benefits for their employees, and
UnitedHealthcare administers the payment of customer funds to
physicians and other health care providers from customer-funded
bank accounts. Small employer groups are more likely to purchase
risk-based products because they are generally unable or
unwilling to bear a greater potential liability for health care
expenditures. UnitedHealthcare offers its products through
affiliates that are usually licensed as insurance companies or
as health maintenance organizations, depending upon a variety of
factors, including state regulations.
UnitedHealthcare arranges for discounted access
to care through more than 400,000 physicians and 3,600 hospitals
across the United States. The consolidated purchasing power
represented by the individuals UnitedHealthcare serves makes it
possible for UnitedHealthcare to contract for cost-effective
access to a large number of conveniently located care providers.
Directly or through UnitedHealth Groups family of
companies, UnitedHealthcare offers:
2
We believe that UnitedHealthcares
innovation distinguishes its product offerings from the
competition. UnitedHealthcare designs consumer-oriented health
benefits and services that value individual choice and control
in accessing health care. UnitedHealthcare has programs that
provide health education; admission counseling before hospital
stays; care advocacy to help avoid delays in patients
stays in the hospital; support for individuals at risk of
needing intensive treatment; care coordination for people with
chronic conditions; and prescription drug management, which
promotes safe use of medications. UnitedHealthcare has designed
its programs to encourage consumers to be engaged and active
participants in managing their own health and well-being.
Further, UnitedHealthcare offers Web sites that provide access
to a variety of information, including a directory of network
physicians and hospitals, reports on thousands of health topics,
a treatment cost estimator, and a health profile tailored to
individual interests.
In November 2003, we acquired Golden
Rule Financial Corporation, a company which, through its
subsidiaries, offers a broad range of health and life insurance
and annuity products to the individual consumer market, with
approximately 430,000 individual members. Golden Rule is a
freestanding business unit within UnitedHealthcare.
In February 2004, we acquired Mid Atlantic
Medical Services, Inc. (MAMSI), a company which, through
its subsidiaries, provides health, administrative and
network-based services in the mid-Atlantic region of the United
States, directly serving approximately 955,000 people in
Maryland, Washington D.C., Virginia, Delaware, West Virginia,
northern North Carolina and southeast Pennsylvania.
Ovations provides health and well-being services
for Americans age 50 and older, addressing their unique
needs for preventative and acute health care services, for
services dealing with chronic disease and for responding to
specialized issues relating to their overall well-being.
Ovations is one of few enterprises fully dedicated to this
market segment, providing products and services in all
50 states, the District of Columbia, Puerto Rico and the
U.S. Virgin Islands through licensed affiliates.
In January 1998, Ovations initiated a 10-year
contract with AARP, the nations largest organization for
older Americans. Ovations offers a range of health insurance
products and services to AARP members, and has expanded the
scope of services and programs offered over the past several
years.
Ovations operates the nations largest
Medicare Supplement business, providing Medicare Supplement and
hospital indemnity insurance, from its insurance company
affiliates, to approximately 3.8 million AARP members.
Ovations services also include an expanded AARP Nurse
Health Line Service to cover beneficiaries of all AARP Medicare
Supplement and certain hospital indemnity products, providing
24-hour access to health information from nurses. Ovations
developed an offering with lower cost Medicare Supplement
coverage that provides consumers with a hospital network and
24-hour access to health care information from nurses. During
2003, Ovations piloted a new health insurance program focused on
persons between 50 and 64 years of age. Ovations
revenues from the AARP insurance offerings were approximately
$4.1 billion in 2003.
Ovations addresses one of the most significant
cost problems facing older Americans prescription
drug costs. Ovations offers the nations largest pharmacy
discount card program, with approximately 1.8 million
users, providing access to retail and mail order pharmacy
services, and a complimentary health and well-being catalog
offering. These services offer cost savings and greater access
to prescription drugs and health and well-being products for
older Americans. Through its Group Retiree Solutions division,
Ovations offers innovative products for companies that provide
health care coverage to their retirees. Ovations Group Retiree
Solutions coordinates all Ovations group retiree sales
activities and spearheads new product development efforts for
group retiree coverage.
Ovations Senior & Retiree Services
division, through its affiliates, provides health care coverage
for the seniors market primarily through the Medicare Advantage
(formerly Medicare+Choice) program administered by the Centers
for Medicare and Medicaid Services (CMS). During 2003,
Ovations Senior & Retiree Services offered
13 new preferred provider organizations (PPO) pilot
projects in
3
Through its Evercare® division, Ovations is
one of the nations leaders in offering complete,
individualized care planning and care benefits for aging,
vulnerable and chronically ill individuals, serving
approximately 65,000 persons across the nation in nursing homes,
community-based settings and private homes. Evercare offers a
continuum of services through innovative programs such as
EverCare Choice, EverCare Select and EverCare Connections.
EverCare Choice is a Medicare product that offers enhanced
medical coverage to frail, elderly and chronically ill
populations in both nursing homes and community settings. These
services are provided primarily through nurse practitioners,
physicians assistants and physicians. EverCare Select is a
Medicaid, long-term health care product for elderly, physically
disabled and other needy individuals. EverCare Connections is a
comprehensive eldercare service program providing service
coordination, consultation, claim management and information
resource nationwide.
AmeriChoice is a leading health care organization
engaged in facilitating health care benefits and services for
state Medicaid and other government-sponsored health care
programs and their beneficiaries, through its licensed
affiliates. AmeriChoice is a dedicated business unit of our
Health Care Services segment working exclusively with selected
states to address the needs of their medically vulnerable
populations under their Medicaid and other programs for the
uninsured. AmeriChoice provides health insurance coverage to
eligible Medicaid beneficiaries in exchange for a fixed monthly
premium per member from the applicable state. As of
December 31, 2003, AmeriChoice organized health care
resources and benefits for more than 1.1 million
beneficiaries of Medicaid and other government-sponsored health
care programs in 10 states through licensed affiliates.
Specialized Care Services
Specialized Care Services is a portfolio of
specialized health and well-being companies, each serving a
specific market need with an offering of benefits, provider
networks, services and resources. Specialized Care Services
provides comprehensive products and services that are focused on
highly specialized health care and financial assurance needs,
such as mental health and chemical dependency, employee
assistance, work life balance, critical care programs, disease
management, care management, vision and dental services,
physical therapy services, health-related information, income
replacement and life insurance and other health and well-being
services. Various Specialized Care Services products are
marketed under different brands through multiple sales channels,
including directly to employers, health plan insurers and
consumers and through affiliates, as well as on a private label
basis. Specialized Care Services products and services
include both risk-based products, in which Specialized Care
Services assumes financial responsibility for health care and
income replacement costs, and products for which Specialized
Care Services receives management and administrative fees.
Through United Behavioral Health
(UBH) and its affiliated companies, Specialized Care
Services provides behavioral health care benefit services,
employee assistance programs and psychiatric disability benefit
services. UBHs care management capabilities and extensive
network of contracted mental health professionals represent the
core of its product offerings. UBHs services and products
reach more than 23 million individuals. Through its Working
Solutions business, UBH offers employee assistance, work life,
and other services and resources to assist consumers in managing
a variety of personal issues.
Optum® provides personalized health services
through its care management, condition management, and
longitudinal care management products, and health information
assistance, support and related services designed to improve the
health and well-being of the more than 24 million
individuals it serves. Through multiple access points, including
the Internet, telephone, audio tapes, print and in-person
consultations, Optum helps consumers address daily living
concerns, make informed health care decisions and become
4
United Resource Networks (URN) is the
gateway to highly specialized critical care programs at more
than 120 medical centers in the United States. URN negotiates
competitive rates for high-cost, complex health care services.
Access to URNs programs and services is available to more
than 42 million individuals through over 2,200 payers.
Dental Benefit Providers (DBP) and
its affiliates provide dental benefit management and related
services. Through relationships with nearly
60,000 contracted dental providers, DBP manages dental
benefit offerings for approximately four million individuals.
DBPs products serve commercial, Medicare and Medicaid
populations through both unaffiliated insurers and UnitedHealth
Group affiliates.
National Benefit Resources (NBR) is a
managing general underwriter that originates and administers
medical stop loss insurance provided to employers with
self-funded employee benefit plans. NBR markets stop loss
coverage primarily through third party administrators
(TPAs) located throughout the United States. NBR
distributes to its customer base certain products and services
of other Specialized Care Services businesses, including
those of URN and Optum.
Spectera is Specialized Care Services
operating platform for the vision benefit market. Spectera and
its licensed subsidiaries specialize in building vision care
benefit relationships with ophthalmologists, optometrists,
employer groups and benefit consultants. Spectera administers
vision benefits for approximately eight million individuals
through more than 2,500 employer groups. Spectera provides
comprehensive vision care services through its national network
of more than 15,000 private doctors offices and retail
store locations.
ACN Group provides benefit administration,
network management and access to chiropractic, physical therapy
and other complementary and alternative health care services
through its network of contracted providers to approximately
18 million consumers.
Through its Unimerica Workplace Benefits group
and licensed insurance company, Specialized Care Services
markets the sale of group life and accident insurance and
complementary group insurance products to small, medium and
large employer groups. Unimerica Workplace Benefits also offers
consumers a health value card product.
Ingenix
Ingenix is a leader in the field of health care
information, serving multiple health care markets on a
business-to-business basis. Ingenix customers include other
UnitedHealth Group businesses, pharmaceutical, biotechnology and
medical device companies, health insurers and other payers,
physicians and other health care providers, large employers and
government agencies.
Ingenix provides a wide variety of data and
software analytics, warehousing, and technology services and
products that help customers simplify the complex business of
health care delivery and enhance their insight into the
financial and clinical aspects of their operations. Ingenix
products include databases for benchmarking and reimbursement
methodology development, software to analyze and report costs
and utilization of services, data management services, physician
credentialing and provider directory services, HEDIS reporting,
fraud and abuse detection and prevention services, and claims
editing software.
Ingenix consulting services focuses on
actuarial and financial disciplines, product development,
provider contracting and medical policy and management. Ingenix
also publishes print and electronic media products that provide
customers with information regarding coding, reimbursement,
billing, compliance and other general health care issues.
Ingenix i3 Research division offers product
development-related services to pharmaceutical, biotechnology
and medical device manufacturers on a global basis. Such
services include global clinical research services, and related
protocol development, investigator identification and training,
regulatory
5
EXPANSION AND DIVESTITURE OF
OPERATIONS
We continually evaluate expansion opportunities
in all our businesses and, in the normal course of business,
often consider whether to sell certain businesses or stop
offering certain products or services. Expansion opportunities
may include acquiring businesses that are complementary to our
existing operations. We also devote significant attention to
internally developing new products and services for the health
and well-being sector as we have broadly defined it. During
2003, we completed several acquisitions and ceased offering some
products in certain markets, all as part of our ongoing emphasis
on our strategic focus.
GOVERNMENT REGULATION
Most of our health and well-being services are
regulated. This regulation can vary significantly from
jurisdiction to jurisdiction. Federal and state regulatory
agencies generally have discretion to issue regulations and
interpret and enforce laws and rules. Changes in applicable laws
and regulations are continually being considered, and the
interpretation of existing laws and rules also may change
periodically. These revisions could affect our consolidated
operations and financial results. Enactment of federal and state
health benefit laws and regulations can also affect our
businesses.
Federal Regulation
Our Health Care Services segment, which includes
UnitedHealthcare, Ovations, and AmeriChoice. Ovations has
Medicare Advantage contracts that are regulated by CMS. CMS has
the right to audit our performance in order to determine
compliance with CMS contracts and regulations and the
quality of care being given to members. Our Health Care Services
segment also has Medicaid and State Childrens Health
Insurance Program contracts that are subject to federal and
state regulations regarding services to be provided to Medicaid
enrollees, payment for those services, and other aspects of
these programs. There is a significant level of regulation
surrounding Medicare and Medicaid compliance. In addition,
because a portion of Ingenix business includes clinical
research, it is subject to regulation by the FDA. We believe we
are in compliance with the applicable regulations. We believe we
are in compliance with these regulations.
State Regulation
All of the states in which our subsidiaries offer
insurance and health maintenance products regulate those
products and operations. These states require periodic financial
reports from us and impose minimum capital or restricted cash
reserve requirements. Many of our health plans and each of our
insurance subsidiaries are regulated under state insurance
holding company regulations. Such regulations generally require
registration with applicable state Departments of Insurance and
the filing of reports that describe capital structure,
ownership, financial condition, certain inter-company
transactions and general business operations. Some state
insurance holding company laws and regulations require prior
regulatory approval of acquisitions and material inter-company
transfers of assets, as well as transactions between the
regulated companies and their parent holding companies or
affiliates. In addition, some of our subsidiaries or products
may be subject to PPO, managed care organization
(MCO) or TPA-related regulations and licensure
requirements. These regulations differ greatly from state to
state, but generally contain network, contracting, product and
rate, financial and reporting requirements. Many states also
have enacted laws and/or adopted regulations governing
utilization review and external appeals activities, and these
laws may apply to some of our operations. Additionally, there
are laws and regulations that set specific standards for
6
HIPAA
The administrative simplification provisions of
the Health Insurance Portability and Accountability Act of 1996,
as amended (HIPAA), apply to both the group and
individual health insurance markets, including self-funded
employee benefit plans. Federal regulations promulgated pursuant
to HIPAA are now effective. These regulations include minimum
standards for electronic transactions and code sets, and for the
privacy and security of protected health information. We believe
that we are in compliance with these regulations. New standards
for national provider and employer identifiers are currently
being developed by regulators. We intend to be in compliance by
the enforcement dates. However, where the law is far-reaching
and complex or the government delays in providing guidance on
some aspects of the law, the timeliness of our compliance
efforts may be affected. Additionally, different approaches to
HIPAAs provisions and varying enforcement philosophies in
the different states may adversely affect our ability to
standardize our products and services across state lines.
ERISA
The Employee Retirement Income Security Act of
1974, as amended (ERISA), regulates how goods and
services are provided to or through certain types of
employer-sponsored health benefit plans. ERISA is a complex set
of laws and regulations that is subject to periodic
interpretation by the United States Department of Labor as well
as the federal courts. ERISA places controls on how our business
units may do business with employers who sponsor employee
benefit health plans, particularly those that maintain
self-funded plans. During 2003, we processed and administered
the payment of approximately $25 billion of medical claims
on behalf of customers that self-insure the medical costs of
their employees and their employees dependents. ERISA
claim regulations which became effective July 2002 require
ongoing modifications to our operations. We believe that we are
in compliance with the regulations.
Fraud and Abuse
The regulations and contractual requirements
applicable to participants in federal government health care
programs such as Medicare and Medicaid are complex and changing.
We continue to emphasize our regulatory compliance efforts for
these programs, but ongoing vigorous law enforcement and the
highly technical nature of the regulations mean that compliance
efforts in this arena will continue to require significant
resources. Additionally, states have begun to focus their
anti-fraud efforts on insurance companies and health maintenance
organizations. Some states now require filing and approval of
anti-fraud plans and may monitor compliance as part of any
market conduct examination. We believe that we are in compliance
with these regulations and contractual requirements.
Audits and Investigations
We are regularly subject to governmental audits,
investigations and enforcement actions. Any such government
actions can result in assessment of damages, civil or criminal
fines or penalties, or other sanctions, including loss of
licensure or exclusion from participation in government
programs. In addition, a state Department of Insurance or other
state or federal authority (including CMS, the Office of the
Inspector General and state attorneys general) may from time to
time begin a special audit of one of our health plans, our
insurance plans or one of our other operations to investigate
issues such as utilization management; financial, eligibility or
other data reporting; prompt claims payment; or coverage
determinations for medical services, including emergency room
care. We are currently involved in various governmental
investigations, audits and reviews. These include routine,
regular and special investigations, audits and reviews by CMS,
state insurance departments and state attorneys general, the
Office of Personnel Management, the Office of the Inspector
General, the Office of Civil Rights, and U.S. Attorneys. We
do not believe the results of any of the current investigations,
audits or reviews,
7
International Regulation
Our Ingenix, Uniprise and Health Care Services
segments have limited international operations. These
international operations are subject to different legal and
regulatory requirements in different jurisdictions, including
various tax, tariff and trade regulations, as well as
employment, intellectual property and investment rules and laws.
MARKETING
Our marketing strategy is defined and coordinated
by each business dedicated marketing staff. Within these
businesses, primary marketing responsibility generally resides
with a marketing leader and a direct sales force. In addition,
several of the segments also rely upon independent insurance
agents and brokers to sell some of their products. Marketing
efforts also include public relations efforts and advertising
programs that may use television, radio, newspapers, magazines,
billboards, direct mail and telemarketing.
COMPETITION
As a diversified health and well-being services
company we operate in highly competitive markets. Our
competitors include managed health care companies, insurance
companies, third party administrators and business services
outsourcing companies, health care providers that have formed
networks to directly contract with employers, specialty benefit
providers, government entities, and various information and
consulting companies. For our Uniprise and Health Care Services
businesses, competitors include Aetna, Anthem, Cigna, Coventry,
Humana, PacifiCare, Oxford, WellPoint, numerous for profit and
not for profit organizations operating under licenses from the
Blue Cross Blue Shield Association and other enterprises
concentrated in more limited geographic areas. Our Specialized
Care Services and Ingenix business segments also compete with a
number of businesses. New entrants into the markets in which we
compete, as well as consolidation within these markets, also
contribute to a competitive environment. We believe the
principal competitive factors affecting us and the sales and
pricing of our products and services include product innovation,
consumer satisfaction, the level and quality of products and
services, network capabilities, price, market share, product
distribution systems, efficient administration operations,
financial strength and marketplace reputation.
We believe that our competitive strengths are
enhanced by our customer focus resulting from our operational
alignment. Each UnitedHealth Group business represents a
strategic platform from which we can penetrate more deeply into
specific markets using our three core competencies: network
management, knowledge and information and service
infrastructure. Other strengths include the breadth and quality
of our products, our geographic scope and diversity, the scope
and depth of our data and information about health care costs
and consumption, our effective use of proprietary tools and
products to coordinate and facilitate programs designed to
realize appropriately lower health care costs, our disciplined
underwriting and pricing practices and staff, our significant
market position in certain geographic areas, the strength of our
distribution network, our financial strength, our generally
large provider networks that provide more consumer choice and
minimize barriers to access, our point-of-service products and
our strong marketplace reputation. However, in some markets we
may be at a disadvantage for a number of reasons, including
competitors with more resources, longer operating histories,
larger market shares, broader networks, narrower networks (which
may allow greater cost control and lower prices) or more
established names and reputations.
EMPLOYEES
As of December 31, 2003, we employed
approximately 33,000 individuals. We believe our employee
relations are favorable.
8
EXECUTIVE OFFICERS OF THE REGISTRANT
Our Board of Directors elects executive officers
annually. Our executive officers serve until their successors
are duly elected and qualified.
Dr. McGuire
is
the Chairman of the Board of Directors and Chief Executive
Officer of UnitedHealth Group. Dr. McGuire joined
UnitedHealth Group as Executive Vice President in November 1988
and became its Chairman and Chief Executive Officer in 1991.
Dr. McGuire also served as UnitedHealth Groups Chief
Operating Officer from May 1989 to June 1995 and as its
President from November 1989 until May 1999.
Mr. Hemsley
is
the President and Chief Operating Officer of UnitedHealth Group
and has been a member of the Board of Directors since February
2000. Mr. Hemsley joined UnitedHealth Group in May 1997 as
Senior Executive Vice President. He became Chief Operating
Officer in September 1998 and was named President in May 1999.
Mr. Erlandson
joined UnitedHealth Group in 1997 as
Vice President of Process, Planning, and Information Channels.
He became Controller and Chief Accounting Officer in September
1998 and was named Chief Financial Officer in January 2001.
Mr. Lubben
joined UnitedHealth Group in October
1996 as General Counsel and Secretary. Prior to joining
UnitedHealth Group, he was a partner in the law firm of
Dorsey & Whitney LLP.
Ms. Quam
joined
UnitedHealth Group in 1989 and became the Chief Executive
Officer of Ovations in April 1998. Prior to April 1998,
Ms. Quam served in various capacities including Chief
Executive Officer, AARP Division; Vice President, Public Sector
Services; and Director, Research.
Mr. Sheehy
joined UnitedHealth Group in 1992 and
became Chief Executive Officer of UnitedHealthcare in January
2001. From April 1998 to December 2000, he was President of
UnitedHealthcare. Prior to April 1998, Mr. Sheehy served in
various capacities with UnitedHealth Group, including Chief
Executive Officer of United HealthCare of Ohio.
Mr. Wheeler
joined UnitedHealth Group in March
1995 and became Chief Executive Officer of Uniprise in May 1998.
Prior to May 1998, he served in various capacities with
UnitedHealth Group, including Chief Executive Officer, Northeast
Health Plans.
Mr. Wichmann
joined UnitedHealth Group in 1998 and
became Chief Executive Officer of Specialized Care Services in
June 2003. From 2001 to June 2003, he was President and Chief
Operating Officer of Specialized Care Services. Since he joined
UnitedHealth Group in 1998, Mr. Wichmann has also served as
Senior Vice President of Corporate Development.
9
CAUTIONARY STATEMENTS
The statements contained in this Annual Report on
Form 10-K, and in the Managements Discussion and
Analysis of Financial Condition and Results of Operations and
other sections of our Annual Report to Shareholders incorporated
by reference in this Form 10-K, include forward-looking
statements within the meaning of the Private Securities
Litigation Reform Act of 1995 (the PSLRA). When used
in this Annual Report on Form 10-K and in future filings by
us with the Securities and Exchange Commission, in our press
releases, presentations to securities analysts or investors, and
in oral statements made by or with the approval of one of our
executive officers, the words or phrases believes,
anticipates, intends, will likely
result, estimates, projects or
similar expressions are intended to identify such
forward-looking statements. These forward-looking statements
involve risks and uncertainties that may cause our actual
results to differ materially from the results discussed in the
forward-looking statements.
The following discussion contains certain
cautionary statements regarding our business that investors and
others should consider. This discussion is intended to take
advantage of the safe harbor provisions of the
PSLRA. Except to the extent otherwise required by federal
securities laws, in making these cautionary statements, we do
not undertake to address or update each factor in future filings
or communications regarding our business or operating results,
and do not undertake to address how any of these factors may
have caused results to differ from discussions or information
contained in previous filings or communications. In addition,
any of the matters discussed below may have affected our past,
as well as current, forward-looking statements about future
results. Any or all forward-looking statements in this
Form 10-K, in the 2003 Annual Report to Shareholders, and
in any other public statements we make may turn out to be wrong.
They can be affected by inaccurate assumptions we might make or
by known or unknown risks and uncertainties. Many factors
discussed below will be important in determining future results.
Consequently, no forward-looking statement can be guaranteed.
Actual future results may vary materially from expectations
expressed in our prior communications.
We must effectively manage our health care
costs.
Under risk-based product arrangements, we assume
the risk of both medical and administrative costs for our
customers in return for monthly premiums. Premium revenues from
risk-based products (excluding AARP) comprise approximately 75%
of our total consolidated revenues. We use approximately 80% to
85% of our premium revenues to pay the costs of health care
services delivered to our customers. The profitability of our
risk-based products depends in large part on our ability to
accurately predict, price for, and effectively manage health
care costs. Total health care costs are affected by the number
of individual services rendered and the cost of each service.
Our premium revenue is typically fixed in price for a 12-month
period and is generally priced one to four months before
contract commencement. Services are delivered and related costs
are incurred when the contract commences. Although we base the
premiums we charge on our estimate of future health care costs
over the fixed premium period, inflation, regulations and other
factors may cause actual costs to exceed what was estimated and
reflected in premiums. These factors may include increased use
of services, increased cost of individual services,
catastrophes, epidemics, the introduction of new or costly
treatments and technology, new mandated benefits or other
regulatory changes, insured population characteristics and
seasonal changes in the level of health care use. Relatively
small differences between predicted and actual medical costs as
a percentage of premium revenues can result in significant
changes in our financial results. For example, if medical costs
increased by one percent for UnitedHealthcares commercial
insured products, our annual net earnings for 2003 would have
been reduced by approximately $75 million. In addition, the
financial results we report for any particular period include
estimates of costs incurred for which the underlying claims have
not been received by us or for which the claims have been
received but not processed. If these estimates prove too high or
too low, the effect of the change will be included in future
results.
10
We face intense competition in many of our
markets and customers have flexibility in moving between
competitors.
Our businesses compete throughout the United
States and face significant competition in all of the geographic
markets in which they operate. For our Uniprise and Health Care
Services businesses, competitors include Aetna, Anthem, Cigna,
Coventry, Humana, PacifiCare, Oxford, WellPoint, numerous for
profit and not for profit organizations operating under licenses
from the Blue Cross Blue Shield Association and other
enterprises concentrated in more limited geographic areas. Our
Specialized Care Services and Ingenix businesses also compete
with a number of businesses. Moreover, we believe that barriers
to entry in many markets are not substantial, so the addition of
new competitors can occur relatively easily, and customers enjoy
significant flexibility in moving between competitors. In
particular markets, these competitors may have capabilities that
give them a competitive advantage. Greater market share,
established reputation, superior supplier arrangements, existing
business relationships, and other factors all can provide a
competitive advantage. In addition, significant merger and
acquisition activity has occurred in the industries in which we
operate, both as to our competitors and suppliers in these
industries. This level of consolidation makes it more difficult
for us to retain or increase customers, to improve the terms on
which we do business with our suppliers, and to maintain or
advance profitability.
Our relationship with AARP is significant to
our Ovations business.
Under our 10-year contract with AARP which we
entered into in 1998, we provide Medicare Supplement and
Hospital Indemnity health insurance and other products to AARP
members. As of December 31, 2003, our portion of
AARPs insurance program represented approximately
$4.1 billion in annual net premium revenue from
approximately 3.8 million AARP members. The AARP contract
may be terminated early by us or AARP under certain
circumstances, including a material breach by either party,
insolvency of either party, a material adverse change in the
financial condition of either party, and by mutual agreement.
The success of our AARP arrangement depends, in part, on our
ability to service AARP and its members, develop additional
products and services, price the products and services
competitively, and respond effectively to federal and state
regulatory changes. Additionally, events that adversely affect
AARP or one of its other business partners for its member
insurance program could have an adverse effect on the success of
our arrangement with AARP. For example, if customers were
dissatisfied with the products AARP offered or its reputation,
if federal legislation limited opportunities in the Medicare
market, or if the services provided by AARPs other
business partners were unacceptable, our business could be
adversely affected.
The effects of the new Medicare reform
legislation on our business are uncertain.
Recently enacted Medicare reform legislation is
complex and wide-ranging. There are numerous provisions in the
legislation that will influence our business, although at this
early stage, it is difficult to predict the extent to which our
business will be affected. While uncertain as to impact, we
believe the increased funding provided in the legislation will
intensify competition in the seniors health services market.
Our business is subject to intense government
scrutiny and we must respond quickly and appropriately to
frequent changes in government regulations.
Our business is regulated at the federal, state,
local and international levels. The laws and rules governing our
business and interpretations of those laws and rules are subject
to frequent change. Broad latitude is given to the agencies
administering those regulations. Existing or future laws and
rules could force us to change how we do business, restrict
revenue and enrollment growth, increase our health care and
administrative costs and capital requirements, and increase our
liability in federal and state courts for coverage
determinations, contract interpretation and other actions. We
must obtain and maintain regulatory approvals to market many of
our products, to increase prices for certain regulated products
and to consummate our acquisitions and dispositions. Delays in
obtaining or our failure to obtain or maintain these approvals
could reduce our revenue or increase our costs.
11
We participate in federal, state and local
government health care coverage programs. These programs
generally are subject to frequent change, including changes that
may reduce the number of persons enrolled or eligible, reduce
the amount of reimbursement or payment levels, or increase our
administrative or health care costs under such programs. Such
changes have adversely affected our financial results and
willingness to participate in such programs in the past and may
do so in the future.
State legislatures and Congress continue to focus
on health care issues. Legislative and regulatory proposals at
state and federal levels may affect certain aspects of our
business, including contracting with physicians, hospitals and
other health care professionals; physician reimbursement methods
and payment rates; coverage determinations; claim payments and
processing; use and maintenance of individually identifiable
health information; and government-sponsored programs. We cannot
predict if any of these initiatives will ultimately become
binding law or regulation, or, if enacted, what their terms will
be, but their enactment could increase our costs, expose us to
expanded liability, require us to revise the ways in which we
conduct business or put us at risk for a loss of business.
We are also subject to various governmental
investigations, audits and reviews. Such oversight could result
in our loss of licensure or our right to participate in certain
programs, or the imposition of civil or criminal fines,
penalties and other sanctions. In addition, disclosure of any
adverse investigation or audit results or sanctions could damage
our reputation in various markets and make it more difficult for
us to sell our products and services. We are currently involved
in various governmental investigations, audits and reviews.
These include routine, regular and special investigations,
audits and reviews by the Centers for Medicare and Medicaid
Services, state insurance and health and welfare departments and
state attorneys general, the Office of Personnel Management, the
Office of the Inspector General and U.S. Attorney General.
We depend on our relationships with
physicians, hospitals and other health care providers.
We contract with physicians, hospitals,
pharmaceutical benefit service providers and pharmaceutical
manufacturers, and other health care providers for favorable
prices. A number of organizations are advocating for legislation
that would exempt certain of these physicians and health care
professionals from federal and state antitrust laws. In any
particular market, these physicians and health care
professionals could refuse to contract, demand higher payments,
or take other actions that could result in higher health care
costs, less desirable products for customers or difficulty
meeting regulatory or accreditation requirements. In some
markets, certain health care providers, particularly hospitals,
physician/hospital organizations or multi-specialty physician
groups, may have significant market positions or near monopolies
that could result in diminished bargaining power on our part.
The nature of our business exposes us to
significant litigation risks and our insurance coverage may not
be sufficient to cover some of the costs associated with
litigation.
Periodically, we become a party to the types of
legal actions that can affect any business, such as employment
and employment discrimination-related suits, employee benefit
claims, breach of contract actions, tort claims, shareholder
suits, and intellectual property-related litigation. In
addition, because of the nature of our business, we are
routinely made party to a variety of legal actions related to
the design, management and offerings of our services. These
matters include, but are not limited to, claims related to
health care benefits coverage, medical malpractice actions,
contract disputes and claims related to disclosure of certain
business practices. In 1999, a number of class action lawsuits
were filed against us and virtually all major entities in the
health benefits business. The suits are purported class actions
on behalf of physicians for alleged breaches of federal
statutes, including ERISA and the Racketeer Influenced Corrupt
Organization Act (RICO). Although the expenses which
we have incurred to date in defending the 1999 class action
lawsuits have not been material to our business, we will
continue to incur expenses in the defense of the 1999 class
action litigation and other matters, even if they are without
merit.
12
Following the events of September 11, 2001,
the cost of business insurance coverage has increased
significantly. As a result, we have increased the amount of risk
that we self-insure, particularly with respect to matters
incidental to our business. We believe that we are adequately
insured for claims in excess of our self-insurance; however,
certain types of damages, such as punitive damages, are not
covered by insurance. We record liabilities for our estimates of
the probable costs resulting from self-insured matters. Although
we believe the liabilities established for these risks are
adequate, it is possible that the level of actual losses may
exceed the liabilities recorded.
Our businesses depend significantly on
effective information systems and the integrity of the data in
our information systems.
Our ability to adequately price our products and
services, provide effective and efficient service to our
customers, and to accurately report our financial results
depends significantly on the integrity of the data in our
information systems. As a result of our acquisition activities,
we have acquired additional systems. We have been taking steps
to reduce the number of systems we operate and have upgraded and
expanded our information systems capabilities. If the
information we rely upon to run our businesses was found to be
inaccurate or unreliable or if we fail to maintain effectively
our information systems and data integrity, we could lose
existing customers, have difficulty attracting new customers,
have problems in determining medical cost estimates and
establishing appropriate pricing, have customer and physician
and other health care provider disputes, have regulatory
problems, have increases in operating expenses or suffer other
adverse consequences.
We depend on independent third parties, such as
IBM and Medco Health Solutions, Inc., with whom we have
entered into agreements, for significant portions of our data
center operations and pharmacy benefits management and
processing, respectively. Even though we have appropriate
provisions in our agreement with IBM and Medco, including
provisions with respect to specific performance standards,
covenants, warranties, audit rights, indemnification, and other
provisions, our dependence on these third parties makes our
operations vulnerable to their failure to perform adequately
under the contracts, due to internal or external factors.
Although there are a limited number of service organizations
with the size, scale and capabilities to effectively provide
certain of these services, especially with regard to pharmacy
benefits processing and management, we believe that other
organizations could provide similar services on comparable
terms. A change in service providers, however, could result in a
decline in service quality and effectiveness or less favorable
contract terms.
We must comply with emerging restrictions on
patient privacy, including taking steps to ensure compliance by
our business associates who obtain access to sensitive patient
information when providing services to us.
The use of individually identifiable data by our
businesses is regulated at international, federal and state
levels. These laws and rules are changed frequently by
legislation or administrative interpretation. Various state laws
address the use and maintenance of individually identifiable
health data. Most are derived from the privacy provisions in the
federal Gramm-Leach-Bliley Act and HIPAA. HIPAA also imposes
guidelines on our business associates (as this term is defined
in the HIPAA regulations). Even though we provide for
appropriate protections through our contracts with our business
associates, we still have limited control over their actions and
practices. Compliance with these proposals and new regulations
may result in cost increases due to necessary systems changes,
the development of new administrative processes, and the effects
of potential noncompliance by our business associates. They also
may impose further restrictions on our use of patient
identifiable data that is housed in one or more of our
administrative databases.
Our knowledge and information-related
businesses depend significantly on our ability to maintain
proprietary rights to our databases and related
products.
We rely on our agreements with customers,
confidentiality agreements with employees, and our trade
secrets, copyrights and patents to protect our proprietary
rights. These legal protections and precautions
13
The effects of the war on terror and future
terrorist attacks could have a severe impact on the health care
industry.
The terrorist attacks launched on
September 11, 2001, the war on terrorism, the threat of
future acts of terrorism and the related concerns of customers
and providers have negatively affected, and may continue to
negatively affect, the U.S. economy in general and our
industry specifically. Depending on the governments
actions and the responsiveness of public health agencies and
insurance companies, future acts of terrorism and bio-terrorism
could lead to, among other things, increased use of health care
services including, without limitation, hospital and physician
services; loss of membership in health plans we administer as a
result of lay-offs or other reductions of employment; adverse
effects upon the financial condition or business of employers
who sponsor health care coverage for their employees; disruption
of our information and payment systems; increased health care
costs due to restrictions on our ability to carve out certain
categories of risk, such as acts of terrorism; and disruption of
the financial and insurance markets in general.
The market price of our common stock may be
particularly sensitive due to the nature of the business in
which we operate.
The market prices of the securities of the
publicly-held companies in the industry in which we operate have
shown volatility and sensitivity in response to many external
factors, including general market trends, public communications
regarding managed care, litigation and judicial decisions,
legislative or regulatory actions, health care cost trends,
pricing trends, competition, earnings, membership reports of
particular industry participants and acquisition activity.
Despite our specific outlook or prospects, the market price of
our common stock may decline as a result of any of these
external factors. By way of illustration, our stock price has
ranged from $35.33 on December 31, 2001 to $58.18 on
December 31, 2003 (as adjusted to reflect stock splits and
dividends).
Uniprise;
Health Care Services, which includes our
UnitedHealthcare, Ovations and AmeriChoice businesses;
Specialized Care Services; and
Ingenix.
Table of Contents
UnitedHealthcare
A broad range of benefit plans integrating
medical, ancillary and alternative care products so customers
can choose benefits that are right for them;
Affordability by leveraging the economic benefits
of the purchasing power of millions of people;
Access to broad and diverse numbers of health
care providers through benefit plans that give customers direct
access to specialists without obtaining referrals;
Innovative programs that facilitate integrated
care delivery;
Convenient self-service for customer
transactions, pharmacy services and health information;
Clinical information that physicians can use in
working with their patients; and
Simplified electronic transactions for customers.
Table of Contents
Ovations
Table of Contents
AmeriChoice
Table of Contents
Table of Contents
Table of Contents
Table of Contents
Table of Contents
First Elected as
Name
Age
Position
Executive Officer
55
Chairman, Chief Executive Officer and Director
1988
51
President, Chief Operating Officer and Director
1997
44
Chief Financial Officer
2001
52
General Counsel and Secretary
1996
42
Chief Executive Officer, Ovations
1998
46
Chief Executive Officer, UnitedHealthcare
2001
52
Chief Executive Officer, Uniprise
1998
41
Chief Executive Officer, Specialized Care Services
2003
Table of Contents
Table of Contents
Table of Contents
Table of Contents
Table of Contents
Item 2. | Properties |
As of December 31, 2003, we leased approximately 6.6 million and owned approximately 250,000 aggregate square feet of space in the United States and Europe. Our leases expire at various dates through May 31, 2025. Our various segments use this space exclusively for their respective business purposes and we believe these current facilities are suitable for their respective uses and are adequate for our anticipated future needs.
Item 3. | Legal Proceedings |
In Re: Managed Care Litigation: MDL No. 1334. Beginning in 1999, a series of class action lawsuits were filed against us and virtually all major entities in the health benefits business. A multi-district litigation panel has consolidated several litigation cases involving UnitedHealth Group and our affiliates in the Southern District Court of Florida, Miami division. In December 2000, the UnitedHealth Group litigation was consolidated with litigation involving other industry members. Generally, the health care provider plaintiffs allege violations of ERISA and RICO in connection with alleged undisclosed policies intended to maximize profits. Other allegations include breach of state prompt payment laws and breach of contract claims for failure to timely reimburse providers for medical services rendered. The consolidated suits seek injunctive, compensatory and equitable relief as well as restitution, costs, fees and interest payments. Discovery commenced on September 30, 2002. In November 2002, the Eleventh Circuit granted the industry defendants petition to review the class certification order. That appeal is pending. On April 7, 2003, the United States Supreme Court determined that the RICO claims against PacifiCare and
14
The American Medical Association et al. v. Metropolitan Life Insurance Company, United HealthCare Services, Inc. and UnitedHealth Group. This lawsuit was filed on March 15, 2000, in the Supreme Court of the State of New York, County of New York. On April 13, 2000, we removed this case to the United States District Court for the Southern District of New York. The suit alleges causes of action based on ERISA, as well as breach of contract and the implied covenant of good faith and fair dealing, deceptive acts and practices, and trade libel in connection with the calculation of reasonable and customary reimbursement rates for non-network providers. The suit seeks declaratory, injunctive and compensatory relief as well as costs, fees and interest payments. An amended complaint was filed on August 25, 2000, which alleged two classes of plaintiffs, an ERISA class and a non-ERISA class. After the Court dismissed certain ERISA claims and the claims brought by the American Medical Association, a third amended complaint was filed. On October 25, 2002, the court granted in part and denied in part our motion to dismiss the third amended complaint. We are engaged in discovery in this matter.
Because of the nature of our business, we are routinely subject to lawsuits alleging various causes of action. Some of these suits may include claims for substantial non-economic, treble or punitive damages. We record liabilities for our estimate of probable costs resulting from these matters. Although the results of pending litigation are always uncertain, we do not believe the results of any such actions, including those described above, or any other types of actions, currently threatened or pending, individually or in the aggregate, will have a material adverse effect on our consolidated financial position or results of operations.
Item 4. | Submission of Matters to a Vote of Security Holders |
None.
PART II
Item 5. | Market for Registrants Common Equity and Related Stockholder Matters |
The information contained under the heading Investor Information in our Annual Report to Shareholders for the fiscal year ended December 31, 2003, is incorporated herein by reference. As of February 27, 2004, we had 13,361 shareholders of record. The information required under Item 201(d) of Regulation S-K is included under Item 12 herein.
On November 8, 2001, in reliance on Rule 144A under the Securities Act of 1933, we issued $100 million of floating rate notes due in November 2003 (which have been repaid) and $150 million of floating rate notes due November 2004. The notes were not issued in a public offering and were not registered under the Securities Act. The principal underwriter for the offering was Merrill Lynch & Co.
Item 6. | Selected Financial Data |
The information contained under the heading Financial Highlights in our Annual Report to Shareholders for the fiscal year ended December 31, 2003, is incorporated herein by reference.
Item 7. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
The information contained under the heading Results of Operations in our Annual Report to Shareholders for the fiscal year ended December 31, 2003, is incorporated herein by reference.
15
Item 7A. | Quantitative and Qualitative Disclosures About Market Risk |
The information contained under the heading Quantitative and Qualitative Disclosures About Market Risk in our Annual Report to Shareholders for the fiscal year ended December 31, 2003, is incorporated herein by reference.
Item 8. | Financial Statements and Supplementary Data |
Our consolidated financial statements, together with the Independent Auditors Report thereon, appearing on pages 40 through 65 of our Annual Report to Shareholders for the fiscal year ended December 31, 2003, are incorporated herein by reference.
Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
On May 15, 2002, our Board of Directors and the Audit Committee ended the Companys engagement with Arthur Andersen LLP as our independent public accountants, effective May 15, 2002, and engaged Deloitte & Touche LLP, effective May 16, 2002, to serve as our independent auditors for fiscal year 2002.
Arthur Andersens reports on our consolidated financial statements for each of the years ended 2001, 2000 and 1999 did not contain an adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles.
During the years ended December 31, 2001, 2000 and 1999 and through May 15, 2002, there were no disagreements with Arthur Andersen on any matter of accounting principle or practice, financial statement disclosure, or auditing scope or procedure which, if not resolved to Arthur Andersens satisfaction, would have caused them to make reference to the subject matter in connection with their report on our consolidated financial statements for such years; and there were no reportable events as defined in Item 304(a)(1)(v) of Regulation S-K.
During the years ended December 31, 2001 and 2000 and through May 15, 2002, we did not consult with Deloitte & Touche with respect to the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our consolidated financial statements, or any other matters or reportable events as set forth in Items 304(a)(2)(i) and (ii) of Regulation S-K.
We reported the change in accountants on a Current Report on Form 8-K filed with the Securities and Exchange Commission on May 16, 2002. The Form 8-K contained a letter from Arthur Andersen LLP, addressed to the SEC, stating that Arthur Andersen LLP agreed with the statements concerning Arthur Andersen LLP contained in the Form 8-K. This letter is filed as Exhibit 16 to this Form 10-K.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of December 31, 2003, an evaluation was carried out under the supervision and with the participation of the Companys management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were effective.
Changes in Internal Control Over Financial Reporting During the Quarter Ended December 31, 2003
There were no significant changes in our internal control over financial reporting that occurred during the Companys quarter ended December 31, 2003 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
16
PART III
Item 10. | Directors and Executive Officers of the Registrant |
Code of Ethics
We have adopted a Code of Business Conduct and Ethics which applies to all of our employees and directors. The Code of Ethics is published on our website at www.unitedhealthgroup.com . Any amendments to the Code of Ethics and waivers of the Code of Ethics for our Chief Executive Officer, Chief Financial Officer or Controller will be published on our website. We will provide a copy of our Code of Business Conduct and Ethics, free of charge, upon request. To request a copy, please submit your request to: UnitedHealth Group Incorporated, 9900 Bren Road East, Minnetonka, MN 55343, Attn: Corporate Secretary.
The information included under the headings Election of Directors and Section 16(a) Beneficial Ownership Reporting Compliance in our definitive proxy statement for our Annual Meeting of Shareholders to be held May 12, 2004, is incorporated herein by reference.
Pursuant to General Instruction G(3) to Form 10-K and Instruction 3 to Item 401(b) of Regulation S-K, information regarding our executive officers is provided in Item 1 of Part I of this Annual Report on Form 10-K under the caption Executive Officers of the Registrant.
Item 11. | Executive Compensation |
The information included under the heading Executive Compensation in our definitive proxy statement for our Annual Meeting of Shareholders to be held May 12, 2004, is incorporated herein by reference.
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
The information included under the heading
Security Ownership of Certain Beneficial Owners and
Management in our definitive proxy statement for our
Annual Meeting of Shareholders to be held May 12, 2004, is
incorporated herein by reference.
Equity Compensation Plan Information
(c)
Number of
(a)
(b)
Securities
Number of
Weighted-
Remaining Available
Securities to be
Average Exercise
for Future Issuance
Issued upon
Price of
Under Equity
Exercise of
Outstanding
Compensation Plans
Outstanding
Options,
(Excluding
Options, Warrants
Warrants and
Securities Reflected
Plan Category
and Rights
Rights
in Column (a))
86,991,573
$
27.03
46,774,241
(3)
86,991,573
$
27.03
46,774,241
(1) | Consists of the UnitedHealth Group Incorporated 2002 Stock Incentive Plan, as amended, the 1987 Supplemental Stock Option Plan (no additional options may be granted under this plan), and the 1993 Qualified Employee Stock Purchase Plan, as amended. |
(2) | Excludes 315,112 shares underlying stock options assumed by us in connection with our acquisition of the companies under whose plans the options originally were granted. These options have a weighted |
17
average exercise price of $13.54 and an average remaining term of approximately 3.27 years. The options are administered pursuant to the terms of the plan under which the option originally was granted. No future options or other awards will be granted under these acquired plans. |
(3) | Includes 4,916,070 shares of common stock available for future issuance under the Employee Stock Purchase Plan as of December 31, 2003, and 41,858,171 shares available under the 2002 Stock Incentive Plan as of December 31, 2003. Shares available under the 2002 Stock Incentive Plan may become the subject of future awards in the form of stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards and other stock-based awards, except that only 13,954,700 of these shares are available for future grants of awards other than stock options or stock appreciation rights. |
Item 13. | Certain Relationships and Related Transactions |
Information regarding certain relationships and related transactions that appears under the heading Certain Relationships and Transactions in our definitive proxy statement for the Annual Meeting of Shareholders to be held May 12, 2004, is incorporated herein by reference.
Item 14. | Principal Accountant Fees and Services |
Information regarding accountant fees and services that appears under the heading Independent Public Auditors in our definitive proxy statement for the Annual Meeting of Shareholders to be held May 12, 2004, is incorporated herein by reference.
PART IV
Item 15. | Exhibits, Financial Statement Schedules and Reports on Form 8-K |
(a) 1. Financial Statements
The following consolidated financial statements of the Company are included in the Companys Annual Report to Shareholders for the fiscal year ended December 31, 2003 and are incorporated herein by reference:
Consolidated Statements of Operations for the years ended December 31, 2003, 2002 and 2001. |
(a) 2. Financial Statement Schedules
None |
(a) 3.
Exhibits
3
(a)
Articles of Amendment to Second Restated Articles
of Incorporation of the Company (incorporated by reference to
Exhibit 3(a) to the Companys Annual Report on
Form 10-K for the year ended December 31, 2001)
3
(b)
Articles of Merger amending the Articles of
Incorporation of the Company (incorporated by reference to
Exhibit 3(a) to the Companys Annual Report on
Form 10-K for the year ended December 31, 1999)
18
3
(c)
Second Restated Articles of Incorporation of the
Company (incorporated by reference to Exhibit 3(a) to the
Companys Annual Report on Form 10-K for the year
ended December 31, 1996)
3
(d)
Second Amended and Restated Bylaws of the Company
(incorporated by reference to Exhibit 3(d) to the
Companys Annual Report on Form 10-K for the year
ended December 31, 2002)
4
(a)
Senior Indenture, dated as of November 15,
1998, between the Company and The Bank of New York
(incorporated by reference to Exhibit 4.1 to the
Companys Registration Statement on Form S-3 (SEC File
No. 333-44569))
4
(b)
Amendment, dated as of November 6, 2000, to
Senior Indenture, dated as of November 15, 1998, between
the Company and The Bank of New York (incorporated by
reference to Exhibit 4.1 to the Companys Quarterly
Report on Form 10-Q for the quarter ended
September 30, 2001)
4
(c)
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
agrees to furnish copies thereof to the Securities and Exchange
Commission upon request.
*10
(a)
UnitedHealth Group Incorporated 2002 Stock
Incentive Plan, Amended and Restated Effective May 15, 2002
(incorporated by reference to Exhibit 10(a) to the
Companys Annual Report on Form 10-K for the year
ended December 31, 2002)
*10
(b)
UnitedHealth Group Incorporated Executive
Incentive Plan (incorporated by reference to Exhibit 10(b)
to the Companys Annual Report on Form 10-K for the
year ended December 31, 2002)
*10
(c)
UnitedHealth Group Executive Savings Plans (1998
Statement)(incorporated by reference to Exhibit 10(e) to
the Companys Annual Report on Form 10-K for the year
ended December 31, 2001)
*10
(d)
First Amendment to UnitedHealth Group Executive
Savings Plans (1998 Statement)
*10
(e)
UnitedHealth Group Executive Savings Plans (2004
Statement)
*10
(f)
UnitedHealth Group Directors Compensation
Deferral Plan (2002 Statement) (incorporated by reference to
Exhibit 10(d) of the Companys Annual Report on
Form 10-K for the year ended December 31, 2002)
*10
(g)
First Amendment to UnitedHealth Group
Directors Compensation Deferral Plan (2002 Statement)
*10
(h)
Employment Agreement, dated as of
October 13, 1999, between United HealthCare Corporation and
William W. McGuire, M.D. (incorporated by reference to
Exhibit 10(f) to the Companys Annual Report on
Form 10-K for the year ended December 31, 1999)
*10
(i)
Letter to William W. McGuire, M.D., dated as
of February 13, 2001, regarding Employment Agreement
(incorporated by reference to Exhibit 10(h) to the
Companys Annual Report on Form 10-K for the year
ended December 31, 2000)
*10
(j)
Employment Agreement dated as of October 13,
1999, between United HealthCare Corporation and Stephen J.
Hemsley (incorporated by reference to Exhibit 10(g) to the
Companys Annual Report on Form 10-K for the year
ended December 31, 1999)
*10
(k)
Letter to Stephen J. Hemsley, dated as of
February 13, 2001, regarding Employment Agreement
(incorporated by reference to Exhibit 10(j) to the
Companys Annual Report on Form 10-K for the year
ended December 31, 2000)
*10
(l)
Employment Agreement, dated as of
October 16, 1998, between United HealthCare
Services, Inc. and Robert J. Sheehy, as amended
(incorporated by reference to Exhibit 10(l) to the
Companys Annual Report on Form 10-K for the year
ended December 31, 2001)
19
*10
(m)
Employment Agreement, dated as of
October 16, 1998, between United HealthCare
Services, Inc. and Lois E. Quam, as amended, and Memorandum
of Understanding, effective as of October 11, 1999, between
Lois E. Quam and United HealthCare Services, Inc.
(incorporated by reference to Exhibit 10(l) to the
Companys Annual Report on Form 10-K for the year
ended December 31, 2000)
*10
(n)
Employment Agreement, dated as of October 1,
1998, between United HealthCare Services, Inc. and Patrick
J. Erlandson (incorporated by reference to Exhibit 10(m) to
the Companys Annual Report on Form 10-K for the year
ended December 31, 2000)
*10
(o)
Employment Agreement, dated as of October 1,
1998, as amended, between United HealthCare Services, Inc.
and David S. Wichmann
*10
(p)
Employment Agreement, dated as of May 20,
1998, between United HealthCare Services, Inc. and R.
Channing Wheeler (incorporated by reference to
Exhibit 10(c) to the Companys Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998)
*10
(q)
Employment Agreement, dated as of
October 16, 1998, between United HealthCare
Services, Inc. and David J. Lubben, as amended
(incorporated by reference to Exhibit 10(p) to the
Companys Annual Report on Form 10-K for the year
ended December 31, 2000)
10
(r)
AARP Health Insurance Agreement by and among
American Association of Retired Persons, Trustees of the AARP
Insurance Plan and United HealthCare Insurance Company dated as
of February 26, 1997 (incorporated by reference to
Exhibit 10(p) to the Companys Annual Report on
Form 10-K/ A for the year ended December 31, 1996)
10
(s)
First Amendment to the AARP Health Insurance
Agreement by and among American Association of Retired Persons,
Trustees of the AARP Insurance Plan and United HealthCare
Insurance Company effective January 1, 1998 (incorporated
by reference to Exhibit 10(a) to the Companys
Quarterly Report on Form 10-Q for the quarter period ended
June 30, 1998)
10
(t)
Second Amendment to the AARP Health Insurance
Agreement by and among American Association of Retired Persons,
Trustees of the AARP Insurance Plan and United HealthCare
Insurance Company effective January 1, 1998 (incorporated
by reference to Exhibit 10(b) to the Companys
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998)
10
(u)
Amendments to the AARP Health Insurance Agreement
by and among American Association of Retired Persons, Trustees
of the AARP Insurance Plan and United HealthCare Insurance
Company (incorporated by reference to Exhibit 10(s) to the
Companys Annual Report on Form 10-K for the year
ended December 31, 2002)
10
(v)
Amendments to the AARP Health Insurance Agreement
by and between AARP Services, Inc. and United HealthCare
Insurance Company, entered into between April and October 2003
10
(w)
Information Technology Services Agreement between
United HealthCare Services, Inc. and Unisys Corporation
dated June 1, 1996 (incorporated by reference to
Exhibit 10 to the Companys Quarterly Report on
Form 10-Q for the quarter ended March 31, 1998)
10
(x)
Amendments to the Information Technology Services
Agreement between United HealthCare Services, Inc. and
Unisys Corporation (incorporated by reference to
Exhibit 10(u) to the Companys Annual Report on
Form 10-K for the year ended December 31, 2002)
10
(y)
Information Technology Services Agreement between
United HealthCare Services, Inc. and International Business
Machines Corporation dated as of February 1, 2003
(incorporated by reference to Exhibit 10 to the
Companys Quarterly Report on Form 10-Q for the
quarter ended March 31, 2003)
10
(z)
Amendment #1 to the Information Technology
Services Agreement between United HealthCare Services, Inc.
and International Business Machines Corporation, dated
December 19, 2003
11
Statement regarding computation of per share
earnings (incorporated by reference to the information contained
under the heading Net Earnings Per Common Share in
Note 2 to the Notes to Consolidated Financial Statements
included in the Companys Annual Report to Shareholders for
the fiscal year ended December 31, 2003 and which is
included as part of Exhibit 13 hereto)
20
13
Portions of the Companys Annual Report to
Shareholders for the fiscal year ended December 31, 2003
16
Letter from Arthur Andersen LLP to the Securities
and Exchange Commission dated May 17, 2002 (incorporated by
reference to Exhibit 16 to the Companys Current
Report on Form 8-K/ A filed on May 17, 2002)
21
Subsidiaries of the Company
23
Independent Auditors Consent
24
Powers of Attorney
31
Certifications pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
32
Certifications pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
| Pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, confidential portions of these Exhibits have been deleted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment. |
* | 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. |
(b) Reports on Form 8-K
The following Current Reports on Form 8-K were filed or furnished, as applicable, during the last fiscal quarter of 2003.
8-K furnished October 16, 2003, together with a press release, announcing third quarter 2003 earnings results, under Item 9 Regulation FD Disclosure and Item 12 Results of Operations and Financial Condition. | |
8-K filed October 27, 2003, together with a press release and Agreement and Plan of Merger, announcing that the Company entered into an Agreement and Plan of Merger with Mid Atlantic Medical Services, Inc., under Item 2 Other Events and Required FD Disclosure. | |
8-K furnished November 19, 2003, together with a press release, announcing an investor conference and confirmation of earnings, under Item 9 Regulation FD Disclosure. | |
8-K filed December 3, 2003, together with a press release, Underwriting Agreement and related documents, announcing the issuance of debt securities, under Item 5 Other Events. | |
8-K furnished December 4, 2003, announcing the voluntary withdrawal of pre-merger notification and report form under the Hart-Scott-Rodino Antitrust Improvements Act, under Item 9 Regulation FD Disclosure. | |
8-K furnished December 12, 2003, announcing upcoming meetings with investors and analysts, under Item 9 Regulation FD Disclosure. |
21
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 |
By | /s/ WILLIAM W. MCGUIRE, M.D. |
|
|
William W. McGuire, M.D. | |
Chairman and Chief Executive Officer |
Dated: March 15, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature | Title | Date | ||||
|
|
|
||||
/s/ WILLIAM W. MCGUIRE, M.D.
William W. McGuire, M.D. |
Director, Chief Executive Officer (principal executive officer) | March 15, 2004 | ||||
/s/ PATRICK J. ERLANDSON
Patrick J. Erlandson |
Chief Financial Officer (principal financial and accounting officer) | March 15, 2004 | ||||
*
William C. Ballard, Jr. |
Director | March 15, 2004 | ||||
*
Richard T. Burke |
Director | March 15, 2004 | ||||
*
Stephen J. Hemsley |
Director | March 15, 2004 | ||||
*
James A. Johnson |
Director | March 15, 2004 | ||||
*
Thomas H. Kean |
Director | March 15, 2004 | ||||
*
Douglas W. Leatherdale |
Director | March 15, 2004 | ||||
*
Mary O. Mundinger |
Director | March 15, 2004 | ||||
*
Robert L. Ryan |
Director | March 15, 2004 |
22
Signature
Title
Date
*
Donna E. Shalala
Director
March 15, 2004
*
William G. Spears
Director
March 15, 2004
*
Gail R. Wilensky
Director
March 15, 2004
*By
/s/ DAVID J. LUBBEN
David J. Lubben
As Attorney-in-Fact
23
EXHIBIT INDEX
Number
Description
3
(a)
Articles of Amendment to Second Restated Articles
of Incorporation of the Company (incorporated by reference to
Exhibit 3(a) to the Companys Annual Report on
Form 10-K for the year ended December 31, 2001)
3
(b)
Articles of Merger amending the Articles of
Incorporation of the Company (incorporated by reference to
Exhibit 3(a) to the Companys Annual Report on
Form 10-K for the year ended December 31, 1999)
3
(c)
Second Restated Articles of Incorporation of the
Company (incorporated by reference to Exhibit 3(a) to the
Companys Annual Report on Form 10-K for the year
ended December 31, 1996)
3
(d)
Second Amended and Restated Bylaws of the Company
(incorporated by reference to Exhibit 3(d) to the
Companys Annual Report on Form 10-K for the year
ended December 31, 2002)
4
(a)
Senior Indenture, dated as of November 15,
1998, between the Company and The Bank of New York
(incorporated by reference to Exhibit 4.1 to the
Companys Registration Statement on Form S-3 (SEC File
No. 333-44569))
4
(b)
Amendment, dated as of November 6, 2000, to
Senior Indenture, dated as of November 15, 1998, between
the Company and The Bank of New York (incorporated by
reference to Exhibit 4.1 to the Companys Quarterly
Report on Form 10-Q for the quarter ended
September 30, 2001)
4
(c)
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
agrees to furnish copies thereof to the Securities and Exchange
Commission upon request.
*10
(a)
UnitedHealth Group Incorporated 2002 Stock
Incentive Plan, Amended and Restated Effective May 15, 2002
(incorporated by reference to Exhibit 10(a) to the
Companys Annual Report on Form 10-K for the year
ended December 31, 2002)
*10
(b)
UnitedHealth Group Incorporated Executive
Incentive Plan (incorporated by reference to Exhibit 10(b)
to the Companys Annual Report on Form 10-K for the
year ended December 31, 2002)
*10
(c)
UnitedHealth Group Executive Savings Plans (1998
Statement)(incorporated by reference to Exhibit 10(e) to
the Companys Annual Report on Form 10-K for the year
ended December 31, 2001)
*10
(d)
First Amendment to UnitedHealth Group Executive
Savings Plans (1998 Statement)
*10
(e)
UnitedHealth Group Executive Savings Plans (2004
Statement)
*10
(f)
UnitedHealth Group Directors Compensation
Deferral Plan (2002 Statement)(incorporated by reference to
Exhibit 10(d) of the Companys Annual Report on
Form 10-K for the year ended December 31, 2002)
*10
(g)
First Amendment to UnitedHealth Group
Directors Compensation Deferral Plan (2002 Statement)
*10
(h)
Employment Agreement, dated as of
October 13, 1999, between United HealthCare Corporation and
William W. McGuire, M.D. (incorporated by reference to
Exhibit 10(f) to the Companys Annual Report on
Form 10-K for the year ended December 31, 1999)
*10
(i)
Letter to William W. McGuire, M.D., dated as
of February 13, 2001, regarding Employment Agreement
(incorporated by reference to Exhibit 10(h) to the
Companys Annual Report on Form 10-K for the year
ended December 31, 2000)
*10
(j)
Employment Agreement dated as of October 13,
1999, between United HealthCare Corporation and Stephen J.
Hemsley (incorporated by reference to Exhibit 10(g) to the
Companys Annual Report on Form 10-K for the year
ended December 31, 1999)
*10
(k)
Letter to Stephen J. Hemsley, dated as of
February 13, 2001, regarding Employment Agreement
(incorporated by reference to Exhibit 10(j) to the
Companys Annual Report on Form 10-K for the year
ended December 31, 2000)
Number
Description
*10
(l)
Employment Agreement, dated as of
October 16, 1998 , between United HealthCare
Services, Inc. and Robert J. Sheehy, as amended
(incorporated by reference to Exhibit 10(l) to the
Companys Annual Report on Form 10-K for the year
ended December 31, 2001)
*10
(m)
Employment Agreement, dated as of
October 16, 1998, between United HealthCare
Services, Inc. and Lois E. Quam, as amended, and Memorandum
of Understanding, effective as of October 11, 1999, between
Lois E. Quam and United HealthCare Services, Inc.
(incorporated by reference to Exhibit 10(l) to the
Companys Annual Report on Form 10-K for the year
ended December 31, 2000)
*10
(n)
Employment Agreement, dated as of October 1,
1998, between United HealthCare Services, Inc. and Patrick
J. Erlandson (incorporated by reference to Exhibit 10(m) to
the Companys Annual Report on Form 10-K for the year
ended December 31, 2000)
*10
(o)
Employment Agreement, dated as of October 1,
1998, as amended, between United HealthCare Services, Inc.
and David S. Wichmann
*10
(p)
Employment Agreement, dated as of May 20,
1998, between United HealthCare Services, Inc. and R.
Channing Wheeler (incorporated by reference to
Exhibit 10(c) to the Companys Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998)
*10
(q)
Employment Agreement, dated as of
October 16, 1998, between United HealthCare
Services, Inc. and David J. Lubben, as amended
(incorporated by reference to Exhibit 10(p) to the
Companys Annual Report on Form 10-K for the year
ended December 31, 2000)
10
(r)
AARP Health Insurance Agreement by and among
American Association of Retired Persons, Trustees of the AARP
Insurance Plan and United HealthCare Insurance Company dated as
of February 26, 1997 (incorporated by reference to
Exhibit 10(p) to the Companys Annual Report on
Form 10-K/ A for the year ended December 31, 1996)
10
(s)
First Amendment to the AARP Health Insurance
Agreement by and among American Association of Retired Persons,
Trustees of the AARP Insurance Plan and United HealthCare
Insurance Company effective January 1, 1998 (incorporated
by reference to Exhibit 10(a) to the Companys
Quarterly Report on Form 10-Q for the quarter period ended
June 30, 1998)
10
(t)
Second Amendment to the AARP Health Insurance
Agreement by and among American Association of Retired Persons,
Trustees of the AARP Insurance Plan and United HealthCare
Insurance Company effective January 1, 1998 (incorporated
by reference to Exhibit 10(b) to the Companys
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998)
10
(u)
Amendments to the AARP Health Insurance Agreement
by and among American Association of Retired Persons, Trustees
of the AARP Insurance Plan and United HealthCare Insurance
Company (incorporated by reference to Exhibit 10(s) to the
Companys Annual Report on Form 10-K for the year
ended December 31, 2002)
10
(v)
Amendments to the AARP Health Insurance Agreement
by and between AARP Services, Inc. and United HealthCare
Insurance Company, entered into between April and October 2003
10
(w)
Information Technology Services Agreement between
United HealthCare Services, Inc. and Unisys Corporation
dated June 1, 1996 (incorporated by reference to
Exhibit 10 to the Companys Quarterly Report on
Form 10-Q for the quarter ended March 31, 1998)
10
(x)
Amendments to Information Technology Services
Agreement between United HealthCare Services, Inc. and
Unisys Corporation (incorporated by reference to
Exhibit 10(u) to the Companys Annual Report on
Form 10-K for the year ended December 31, 2002)
10
(y)
Information Technology Services Agreement between
United HealthCare Services, Inc. and International Business
Machines Corporation dated as of February 1, 2003
(incorporated by reference to Exhibit 10 to the
Companys Quarterly Report on Form 10-Q for the
quarter ended March 31, 2003)
10
(z)
Amendment #1 to the Information Technology
Services Agreement between United HealthCare Services, Inc.
and International Business Machines Corporation, dated
December 19, 2003
Number | Description | |||
|
|
|||
11 | Statement regarding computation of per share earnings (incorporated by reference to the information contained under the heading Net Earnings Per Common Share in Note 2 to the Notes to Consolidated Financial Statements included in the Companys Annual Report to Shareholders for the fiscal year ended December 31, 2003 and which is included as part of Exhibit 13 hereto) | |||
13 | Portions of the Companys Annual Report to Shareholders for the fiscal year ended December 31, 2003 | |||
16 | Letter from Arthur Andersen LLP to the Securities and Exchange Commission dated May 17, 2002 (incorporated by reference to Exhibit 16 to the Companys Current Report on Form 8-K/ A filed on May 17, 2002) | |||
21 | Subsidiaries of the Company | |||
23 | Independent Auditors Consent | |||
24 | Powers of Attorney | |||
31 | Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||
32 | Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| Pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, confidential portions of these Exhibits have been deleted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment. |
* | 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. |
Exhibit 10(d)
FIRST AMENDMENT
OF
UNITEDHEALTH GROUP
EXECUTIVE SAVINGS PLAN
(1998 Statement)
WHEREAS, UNITEDHEALTH GROUP INCORPORATED, a Minnesota corporation (UnitedHealth Group), has heretofore established and maintains several nonqualified, deferred compensation programs 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 entitled UNITEDHEALTH GROUP EXECUTIVE SAVINGS PLANS (1998 Statement) (the Plan Statement); and
WHEREAS, Pursuant to Sections 11.1 of the Plan Statement, the UnitedHealth Group Employee Benefits Committee (the EBC) has the general power to amend the Plan Statement by a written instrument executed by UnitedHealth Group; and
WHEREAS, Pursuant to the Written Action of the EBC dated October 3, 1997, the EBC has delegated to the Senior Vice President, Human Capital of UnitedHealth Group the authority to amend the UnitedHealth Group Executive Savings Plans (the ESP); and
WHEREAS, UnitedHealth Group desires to amend the Plan Statement to provide for the following: (i) to reflect changes in the eligibility provisions of the ESP; (ii) to clarify that if a participant in the ESP has terminated employment with UnitedHealth Group and all affiliates and has commenced payments of the participants account under the ESP and is subsequently reemployed by UnitedHealth Group or an affiliate of UnitedHealth Group before distribution is completed, then the participants payments will be suspended until the participants subsequent termination of employment; (iii) to clarify that accounts under the ESP are adjusted on a daily basis; (iv) to adopt a small cashout rule for terminated participants who have accounts of $5,000 or less; (v) to adopt a minimum ($1,000) withdrawal amount for pre-selected in-service distributions, on-demand in-service distributions and financial hardship in-service distributions; (vi) to reflect that no additional amounts (other than deemed earnings, gains or losses) will be credited to the ESP for Plan Years beginning on or after January 1, 2004; and (vii) to reflect that the name of the ESP will be changed to the UnitedHealth Group Legacy Executive Savings Plan effective as of January 1, 2004.
NOW, THEREFORE, The Plan Statement is hereby amended in the following respects:
I. Changes and Clarifications Made Due to Change in Trustee
1. CLARIFICATION REGARDING THE CREDITING OF CERTAIN AMOUNTS TO ACCOUNTS. Effective January 1, 2002, Section 3.4 of the Plan Statement is amended to read in full as follows:
3.4. Crediting to Accounts . The Committee shall cause to be credited to the Account of each Participant the amounts, if any, of such Participants automatic deferrals of pay determined under Section 3.1 or Section 3.2. Such amounts shall be credited as soon as administratively feasible on or after the day such pay would otherwise have been paid to the Participant.
2. CLARIFICATION REGARDING ENROLLMENT IN INCENTIVE DEFERRAL OPTION. Effective January 1, 2003, Sections 4.1 and 4.1.1 of the Plan Statement is amended to read in full as follows:
4.1. Incentive Deferral Option (for Annual Awards) .
4.1.1. Amount of Deferrals . Through a voice response system (or other written or electronic means) approved by the Committee, a Participant may elect to defer between (and including) 1% and 100% of such Participants Incentive Award that is based on annual (one year or less) performance. To be effective for an Incentive Award paid during a Plan Year, the deferral election must be received by the Committee or its designee by the enrollment deadline designated by the Committee. Such deferral election shall be irrevocable for the Plan Year with respect to which it is made once it has been received by the Committee or its designee.
3. CLARIFICATION REGARDING THE CREDITING OF INCENTIVE DEFERRALS TO ACCOUNTS. Effective January 1, 2002, Section 4.1.2 of the Plan Statement is amended to read in full as follows:
4.1.2. Crediting to Accounts . The Committee shall cause to be credited to the Account of each Participant the amount, if any, of such Participants voluntary deferrals of any Incentive Awards under Section 4.1.1. Such amount shall be credited as soon as administratively feasible on or after the day such Incentive Award would otherwise have been paid to the Participant.
4. CLARIFICATION REGARDING ENROLLMENT IN SALARY DEFERRAL OPTION. Effective January 1, 2003, Section 4.2.1 of the Plan Statement is amended to read in full as follows:
4.2.1. Amount of Deferrals . Through a voice response system (or other written or electronic means) approved by the Committee, a Participant may elect to defer between (and including) 1% and 100% of such Participants base salary for a Plan Year. For this purpose, base salary shall include any non-stock periodic incentive pay but shall not include any Incentive Awards. The Committee may establish prospectively other limits or other pay eligible for deferral. To be effective for such pay that is paid during a Plan Year, the deferral election must
-2-
be received by the Committee or its designee by the enrollment deadline designated by the Committee. Such deferral election shall be irrevocable for the Plan Year with respect to which it is made once it has been received by the Committee or its designee.
5. CLARIFICATION REGARDING THE CREDITING OF SALARY DEFERRALS TO ACCOUNTS. Effective January 1, 2002, Section 4.2.2 of the Plan Statement is amended to read in full as follows:
4.2.2. Crediting to Accounts . The Committee shall cause to be credited to the Account of each Participant the amount, if any, of such Participants voluntary deferrals of salary or other pay under Section 4.2.1. Such amount shall be credited as soon as administratively feasible on or after the day such salary or other pay would otherwise have been paid to the Participant.
6. CLARIFICATION REGARDING ENROLLMENT IN LIMITED BONUS DEFERRAL OPTION. Effective January 1, 2003, Section 4.3.1 of the Plan Statement is a amended to read in full as follows:
4.3.1. Amount of Deferrals . Through a voice response system (or other written or electronic means) approved by the Committee, a Participant may elect to defer between (and including) 1% and 100% of all bonuses, other than Incentive Awards and SLTEC Bonuses, received during the Plan Year, selected by the Committee to be eligible for deferral. Such eligible bonuses shall include (but not be limited to) ad hoc bonuses, bonuses tied to employment agreements, bonuses under formal incentive programs (other than UnitedHealth Groups Leadership Results Plan), retention bonuses, and spot bonuses. To be effective for a bonus paid during a Plan Year, the deferral election must be received by the Committee or its designee before the enrollment deadline designated by the Committee. Such deferral election shall be irrevocable for the Plan Year with respect to which it is made once it has been received by the Committee or its designee.
7. CLARIFICATION REGARDING THE CREDITING OF LIMITED BONUS DEFERRALS TO ACCOUNTS. Effective January 1, 2002, Section 4.3.2 of the Plan Statement is amended to read in full as follows:
4.3.2. Crediting to Accounts . The Committee shall cause to be credited to the Account of each Participant the amount, if any, of such Participants voluntary deferral of such bonus pay under Section 4.3.1. Such amount shall be credited as soon as administratively feasible on or after the day such bonus pay would otherwise have been paid to the Participant.
8. CLARIFICATION REGARDING ENROLLMENT IN SLTEC DEFERRAL OPTION. Effective January 1, 2003, Sections 4.4 and 4.4.1 of the Plan Statement is amended to read in full as follows:
-3-
4.4. | Supplemental Long Term Executive Compensation Deferral Option (for Long Term Awards) . |
4.4.1. Amount of Deferrals . Through a voice response system (or other written or electronic means) approved by the Committee, a Participant may elect to defer between (and including) 1% and 100% of such Participants SLTEC Bonus. To be effective for a SLTEC Bonus paid during a Plan Year, the deferral election must be received by the Committee or its designee before the enrollment deadline designated by the Committee. Such deferral election shall be irrevocable for the Plan Year which respect to which it is made once it has been received by the Committee or its designee.
9. CLARIFICATION REGARDING TIMING OF DISTRIBUTIONS TO PARTICIPANTS. Effective for all payments made on or after January 1, 2003, Section 9.1.1 of the Plan Statement is amended to read in full as follows:
9.1.1. General Rule . A Participants Account (reduced by the amount of any applicable payroll, withholding and other taxes) shall be distributable upon the Termination of Employment or Disability of the Participant. The amount of such distribution shall be determined as soon as administratively feasible following the Plan Year in which occurs such Termination of Employment or Disability and shall be actually paid (or, in the case of installments, commenced) to the Participant as soon as practicable after such determination (but not later than the last day of the February following such Plan Year).
10. CLARIFICATION REGARDING DISTRIBUTIONS TO PARTICIPANTS. Effective August 1, 2002, Section 9.2(b) of the Plan Statement is amended to read in full as follows:
(b) Installments . In the form of a series of 5 or 10 annual installments.
(i) | General Rule . The amount of the first installment will be determined as soon as administratively feasible following the Plan Year in which the Participant experienced a Termination of Employment or Disability as provided in Section 9.1 and the amount of future installments will be determined as soon as administratively feasible following the end of each following Plan Year. The amount of each installment shall be determined by dividing the Account balance as of the Valuation Date as of which the installment is being paid, by the number of remaining installment payments to be made (including the payment being determined). Such installments shall be actually paid as soon as practicable after each such determination (but not later than the last day of the February following such Plan Year). Notwithstanding the foregoing, if the value of the Participants Account does not exceed Five Thousand Dollars ($5,000) as of the Annual Valuation Date in the Plan Year in which the Participant experienced a |
-4-
Termination of Employment or Disability or any following Plan Year, the Participants Account shall be paid in a lump sum as soon as practicable after such determination (but not later than the last day of the February following such Plan Year). |
(ii) | Accelerated Payment . A Participant who has experienced a Termination of Employment or Disability and for whom an installment election is in effect may elect through a voice response system (or other written or electronic means) approved by the Committee to receive a cash lump sum payment of the total remaining balance of the Account (but not part thereof) for any reason; provided, however, that the Account balance will be reduced by a penalty of 10%, and the Participant will receive 90% of the Account balance. The penalty of 10% of the Account balance will be forfeited to the Employers to be used as the Committee determines in its discretion. The amount of such distribution shall be determined as soon as administratively feasible following the receipt of the request by the Committee and shall be actually paid to the Participant as soon as practicable after such determination. |
11. CLARIFICATION REGARDING DISTRIBUTIONS TO PARTICIPANTS CONCERNING TEN-YEAR DELAY OPTION. Effective August 1, 2002, Sections 9.2(c)(i) and (ii) of the Plan Statement is amended to read in full as follows:
(i) | General Rule . The amount of such distribution shall be determined as soon as administratively feasible following the Plan Year in which occurs the tenth (10th) anniversary of the Participants Termination of Employment or Disability. Actual distribution shall be made as soon as practicable after such determination (but not later than the last day of February following such Plan Year). Notwithstanding the foregoing, if the value of the Participants Account does not exceed Five Thousand Dollars ($5,000) as of the Annual Valuation Date in the Plan Year in which the Participant experienced a Termination of Employment or Disability or any following Plan Year, the Participants Account shall be paid in a lump sum as soon as practicable after such determination (but not later than the last day of the February following such Plan Year). |
(ii) | Accelerated Payment . A Participant who has experienced a Termination of Employment or Disability and for whom the delayed lump sum distribution option is in effect may elect through a voice response system (or other written or electronic means) |
-5-
approved by the Committee to receive a lump sum distribution of the Account before the tenth (10th) anniversary of the Participants Termination of Employment or Disability; provided, however, that the Account balance will be reduced by a penalty of 10%, and the Participant will receive 90% of the Account balance. The penalty of 10% of the Account balance will be forfeited to the Employers to be used as the Committee determines in its discretion. The amount of such distribution shall be determined as soon as administratively feasible following the receipt of the request by the Committee and shall be actually paid to the Participant as soon as practicable after such determination. |
12. CLARIFICATION REGARDING PRE-SELECTED DISTRIBUTIONS. Effective for all pre-selected distributions made on or after August 1, 2002, Section 9.8.1(f) of the Plan Statement is amended to read in full as follows:
(f) | The distribution amount shall be determined as soon as administratively feasible on or after the pre-selected distribution date and shall be actually paid as soon as practicable after such determination. |
13. CLARIFICATION REGARDING ON DEMAND IN-SERVICE DISTRIBUTIONS. Effective for all on demand in-service distributions made on or after August 1, 2002, Section 9.8.2(b) of the Plan Statement is amended to read in full as follows:
(b) | Distribution Amount . The amount of such distribution shall be determined as soon as administratively feasible following the receipt of the request by the Committee or its designee and shall be actually paid to the Participant as soon as practicable after such determination. |
14. CLARIFICATION REGARDING IN-SERVICE DISTRIBUTIONS FOR FINANCIAL HARDSHIP. Effective for all in-service distributions for financial hardship made on or after August 1, 2002, Section 9.8.3(c) of the Plan Statement is amended to read in full as follows:
(c) | Distribution Amount . The amount of such distribution shall be determined as soon as administratively feasible as of a Valuation Date on or after approval of the request by the Committee or its designee and shall be actually paid as soon as practicable after such approval. |
15. CLARIFICATION REGARDING COMMITTEE. Effective as of May 15, 2002, Section 13.4 of the Plan Statement is amended by adding the following new paragraph at the end thereof:
Prior to May 15, 2002, the Committee consisted of such members as were determined and appointed from time to time by the Chief Executive Officer of the Principal Sponsor and they
-6-
served at the pleasure of the Chief Executive Officer. Effective May 15, 2002, the Committee was dissolved. Effective May 15, 2002, the Principal Sponsor delegated all duties, authority and responsibilities assigned to the Committee under this Plan Statement to the Senior Vice President, Human Capital of the Principal Sponsor. Any references to Committee in this Plan Statement on or after May 15, 2002, shall mean the Senior Vice President, Human Capital of the Principal Sponsor.
16. SCHEDULE II. Effective August 1, 2002, Schedule II to the Plan Statement is amended by substituting therefor the Schedule II attached to this amendment.
II. Design Changes Effective in 2003
17. ELIGIBLE GRADE LEVEL. Effective January 1, 2003, Section 1.2.11 of the Plan Statement is amended to read in full as follows:
1.2.11. Eligible Grade Level
(a) | On or After January 1, 2003 . For Plan Years commencing on or after January 1, 2003, for regular full-time or part-time employees: the Executive Leadership Team; Salary Grades 31 and 32 (but only if base salary is equal to or exceeds any specific compensation criteria established by the Committee); Medical Director Grades M2, M3 and M4 (but only if base salary is equal to or exceeds any specific compensation criteria established by the Committee); and Sales Band SSL (but only if base salary is equal to or exceeds any specific compensation criteria established by the Committee). |
(b) | On or After January 1, 2000 and Prior to January 1, 2003 . For Plan Years commencing on or after January 1, 2000 and prior to January 1, 2003, for regular full-time or part-time employees: the Executive Leadership Team; Salary Grades 31 and 32 (but only if base salary is equal to or exceeds any specific compensation criteria established by the Committee); and Medical Director Grades M2, M3 and M4 (but only if base salary is equal to or exceeds any specific compensation criteria established by the Committee). |
(c) | Prior to January 1, 2000 . For Plan Years commencing prior to January 1, 2000, for regular full-time employees: the Executive Leadership Team or executive career band; Salary Grades 31 and 32 (but only if base salary is equal to or exceeds any specific compensation criteria established by the Committee); Medical Director Grades M2, M3 and M4; and Clinical Medical Staff Grades CD-2, CD-3, CM-2 and CM-3. |
(d) | Authority to Make Changes . Notwithstanding the foregoing, the Committee may from time to time in its discretion modify the applicable |
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eligible grade levels, the compensation criteria and the full-time and part-time criteria. |
18. CHANGE IN ELIGIBILITY PROVISIONS. Effective January 1, 2003, Section 2 of the Plan Statement is amended to read in full as follows:
SECTION 2
ELIGIBILITY TO PARTICIPATE
2.1. General Eligibility Rule .
(a) | For 2003 and Later . Effective January 1, 2003, an employee of an Employer who is in an Eligible Grade Level during a Plan Year and who is selected for participation (as described in Section 2.2) by the Committee (or, for a Section 16 Officer, by the Board of Directors) shall be eligible to become a Participant as soon as administratively feasible following such selection (unless the Committee or the Board of Directors designates a different date). |
(b) | Prior to 2003 . Prior to January 1, 2003, an employee of an Employer who is in an Eligible Grade Level during a Plan Year but who is not a member of the Executive Leadership Team and who is selected for participation (as described in Section 2.2) shall be eligible to become a Participant as of the first day of the Plan Year following the Plan Year in which such selection occurs (unless the Committee or the Board of Directors designates a different date). Prior to January 1, 2003, an employee of an Employer who is a member of the Executive Leadership Team or a comparable successor group and who is selected (as described in Section 2.2 below) for participation by the Committee (or, for a Section 16 Officer, by the Board of Directors) shall be eligible to become a Participant as soon as administratively feasible following such selection (unless the Committee or the Board of Directors designates a different date). |
2.2. Selection for Participation in the Plan . Only employees who are selected for participation in this Plan by the Committee (or, for a Section 16 Officer, by the Board of Directors) shall be eligible to become a Participant in this Plan. The Committee shall not select any employee for participation unless the Committee determines that such employee is a member of a select group of management or highly compensated employees (as that expression is used in ERISA). The Committee may determine that a Participant is not eligible for automatic deferral or matching credits under the Automatic Restoration Option in Section 3 for any Plan Year at any time before such deferrals or credits have actually been made. The Committee also may at
-8-
any time determine that a Participant is no longer eligible to make voluntary deferrals under Section 4.
19. CLARIFICATION REGARDING CHANGE IN IRS LIMITS. Effective January 1, 2003, the last sentence of Section 3.1 of the Plan Statement is amended to read in full as follows:
For purposes of this Section 3.1, an IRS Limit means either (a) the annual compensation limit under section 401(a)(17) of the Code (which is $200,000 for 2002 and 2003) or any comparable successor provision, or (b) the annual deferral limit under section 402(g) of the Code (which is $11,000 for 2002, and $12,000 for 2003) or any comparable successor provision.
20. CHANGE IN ELIGIBILITY PROVISIONS. Effective January 1, 2003, Section 3.2 of the Plan Statement is amended to read in full as follows:
3.2. Voluntary Enrollment if Over 402(g) Limit at Hire . If an employee who is in an Eligible Grade Level: (a) is selected for participation in this Plan after the first day of a Plan Year; and (b) has reached the annual deferral limit under section 402(g) of the Code under another qualified plan before becoming an UnitedHealth Group employee, such employee shall be eligible to participate in the Automatic Restoration Option and shall be eligible to elect, through a voice response system (or other written or electronic means) approved by the Committee, to defer between 1% and 50% of the employees recognized compensation (as defined under the 401(k) Plan) for the remainder of the Plan Year. Prior to January 1, 2003, the only employees who were eligible to participate in the Automatic Restoration Option pursuant to this Section 3.2 were employees who were members of the Executive Leadership Team.
21. OPT-OUT OF AUTOMATIC RESTORATION OPTION. Effective as of January 1, 2003, Section 3.3 of the Plan Statement is amended to read in full as follows:
3.3. Election Out . Notwithstanding Section 3.1, eligible employees and Participants can elect, through a voice response system (or other written or electronic means) approved by the Committee, to waive participation in the Automatic Restoration Option for a given Plan Year. Any such waiver shall be made in accordance with the procedures established by the Committee from time to time and must be received by the Committee or its designee by the deadline designated by the Committee for such Plan Year. A waiver of participation shall apply to such Plan Year. A new waiver must be filed for each Plan Year.
22. CLARIFICATION REGARDING SUSPENSION OF PAYMENTS UPON REEMPLOYMENT. Effective for all payments due on or after January 1, 2003, Section 9.1 of the Plan Statement is amended by adding thereto the following new Section 9.1.4 which shall read in full as follows:
9.1.4. Effect of Reemployment . If a Participant is reemployed by the Employer or an Affiliate after Termination of Employment and after distribution has commenced pursuant Section 9.1.1 (or after distribution has been scheduled to be made but before actual distribution
-9-
has been made), further distributions shall be suspended during the period of reemployment. Distribution of the Participants Account shall resume following the Participants subsequent Termination of Employment or Disability. Unless the Participant has elected to change the Participants form of distribution and such election was received by the Committee at least twelve (12) months prior to the Participants subsequent Termination of Employment or Disability, distribution of the Participants Account shall resume in the same form (and in the same number of installments, if applicable) as was in effect immediately prior to the suspension.
23. EXCEPTION FOR SMALL AMOUNTS. Effective for all payments made on or after January 1, 2004, Section 9.2(b) of the Plan Statement is amended by adding thereto the following new subparagraph (iii):
(iii) | Exception for Small Amounts . Notwithstanding the foregoing provisions of this Section 9.2, if the value of the Participants Account as of the Valuation Date as of which an installment payment is to be determined does not exceed Five Thousand Dollars ($5,000), the Participants entire Account shall be paid in the form of a lump sum as soon as practicable after such Valuation Date. |
24. CLARIFICATION REGARDING ELECTION TO CHANGE PRE-SELECTED FORM OF DISTRIBUTION. Effective for Plan Years beginning on or after January 1, 2003, Section 9.3.3 of the Plan Statement is amended to read in full as follows
9.3.3. Periodic Re-Election . Through a voice response system (or other written or electronic means) approved by the Committee, initial and default distribution elections may be changed by the Participant from time to time. Each such subsequent distribution election shall supercede all prior distribution elections and shall be effective as to the Participants entire Account (including the portions of the Account attributable to periods before the new distribution election is filed), as if the new distribution election had been made at the time of the Participants initial enrollment. Notwithstanding the foregoing, any new distribution election shall be disregarded as if it had never been filed (and the prior effective distribution election shall be given effect) unless the distribution election:
(a) | is filed by a Participant while employed by the Employer or an Affiliate, |
(b) | is filed with the Committee at least twelve (12) months before the Participants scheduled distribution date following the Participants Termination of Employment, Disability or death, and |
(b) | is filed at least twelve (12) months after the initial election (or, if one or more prior changes has been filed, at least twelve (12) months after the latest of such changes was filed). |
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No spouse, former spouse, Beneficiary or other person shall have any right to participate in the Participants decision to revise distribution elections.
25. PRE-SELECTED DISTRIBUTIONS - MINIMUM DISTRIBUTION AMOUNT. Effective for all pre-selected distributions made on or after June 1, 2003, Section 9.8.1(c) of the Plan Statement is amended to read in full as follows:
(c) | Only one such in-service distribution will be made in any Plan Year. The minimum amount of such in-service distribution is One Thousand Dollars ($1,000). |
26. ON DEMAND IN-SERVICE DISTRIBUTIONS MINIMUM DISTRIBUTION AMOUNT. Effective for all on demand in-service distributions made on or after June 1, 2003, Section 9.8.2(b) of the Plan Statement is amended to read in full as follows:
(b) | Distribution Amount . The minimum amount of such distribution is One Thousand Dollars ($1,000). The amount of such distribution shall be determined as soon as administratively feasible following the receipt of the request by the Committee or its designee and shall be actually paid to the Participant as soon as practicable after such determination. |
27. ON DEMAND IN-SERVICE DISTRIBUTIONS SUSPENSION RULE. Effective for all on demand in-service distributions made on or after June 1, 2003, Section 9.8.2(c) of the Plan Statement is amended to read in full as follows:
(c) | Suspension Rule . If a Participant receives such a distribution, the Participants deferrals under Sections 3 and 4 (or, as applicable, under Sections 3 and 4 of the UnitedHealth Group Executive Savings Plan (2004 Statement)) will cease as soon as administratively practicable following the date such distribution is made. The Participant may not again elect to defer compensation under this Plan until the enrollment period for the Plan Year that begins at least six (6) months after such distribution. |
28. IN-SERVICE DISTRIBUTIONS FOR FINANCIAL HARDSHIP MINIMUM DISTRIBUTION AMOUNT. Effective for all in-service distributions for financial hardship made on or after June 1, 2003, Section 9.8.3(c) of the Plan Statement is amended to read in full as follows:
(c) | Distribution Amount . The minimum amount of such distribution is One Thousand Dollars ($1,000). The amount of such distribution shall be determined as soon as administratively feasible on or after approval of the request by the Committee or its designee and shall be actually paid as soon as practicable after such approval. |
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29. IN-SERVICE DISTRIBUTIONS FOR FINANCIAL HARDSHIP SUSPENSION RULE. Effective for all in-service distributions for financial hardship made on or after June 1, 2003, Section 9.8.3(d) of the Plan Statement is amended to read in full as follows:
(c) | Suspension Rule . If a Participant receives such a distribution due to Financial Hardship, the Participants deferrals under Sections 3 and 4 (or, as applicable, under Sections 3 and 4 of the UnitedHealth Group Executive Savings Plan (2004 Statement)) will cease as soon as administratively practicable following the date such distribution is made. The Participant may not again elect to defer compensation under this Plan until the enrollment period for the Plan Year that begins at least six (6) months after such distribution. |
III. Design Changes Effective January 1, 2004
30. PLAN NAME CHANGE. Effective January 1, 2004, the title of the Plan Statement is changed from the UnitedHealth Group Executive Savings Plans (1998 Statement) and to the UnitedHealth Group Legacy Executive Savings Plan (1998 Statement).
31. PLAN NAME CHANGE. Effective January 1, 2004, Section 1.2.16 of the Plan Statement is amended to read in full as follows:
1.2.16. Plans the two nonqualified, unfunded, deferred compensation programs maintained by the Employers for the benefit of Participants eligible to participate therein, as set forth in this Plan Statement: (1) the Automatic Restoration Option Plan (which is attributable to credits to Accounts described in Section 3), and (2) the Incentive Deferral, Salary Deferral and Limited Bonus Deferral Option Plan (which is attributable to credits to Accounts described in Section 4). (As used herein, Plans does not refer to the document pursuant to which the Plans are maintained. That document is referred to herein as the Plan Statement.) Prior to January 1, 2004, the Plans taken together shall be referred to as the UnitedHealth Group Executive Savings Plan. Effective as of January 1, 2004, the Plans taken together shall be referred to as the UnitedHealth Group Legacy Executive Savings Plan.
32. CHANGE IN NAME OF THE PLAN STATEMENT. Effective January 1, 2004, Section 1.2.17 of the Plan Statement is amended to read in full as follows:
1.2.17. Plan Statement effective January 1, 2004, this document entitled UnitedHealth Group Legacy Executive Savings Plan (1998 Statement), as the same may be amended from time to time. Prior to January 1, 2004, the document entitled UnitedHealth Group Executive Savings Plans (1998 Statement)as adopted by the Committee and generally effective as of January 1, 1998, as the same may be amended from time to time thereafter.
-12-
33. FREEZING PLAN PARTICIPATION. Effective January 1, 2004, Section 2.1 of the Plan Statement is amended by adding thereto the following new subparagraph (c):
(c) | On or After January 1, 2004 . No employees shall be selected for participation in this Plan (as described in Section 2.2) for any Plan Years beginning on or after January 1, 2004. |
34. DISCONTINUANCE OF AUTOMATIC RESTORATION OPTION. Effective for Plan Years beginning on or after January 1, 2004, Section 3.1 of the Plan Statement is amended by adding the following sentence at the end thereof:
Notwithstanding anything to the contrary in the Plan Statement, no Participants shall be automatically enrolled in the Automatic Restoration Option under this Plan for any Plan Year beginning on or after January 1, 2004.
35. DISCONTINUANCE OF INCENTIVE DEFERRAL OPTION. Effective for Plan Years beginning on or after January 1, 2004, Section 4.1.1 of the Plan Statement is amended by adding the following sentence at the end thereof:
Notwithstanding anything to the contrary in the Plan Statement, no Participants shall be permitted to elect to defer under this Plan any portion of the Participants Incentive Award received during any Plan Year beginning on or after January 1, 2004.
36. DISCONTINUANCE OF SALARY DEFERRAL OPTION. Effective for Plan Years beginning on or after January 1, 2004, Section 4.2.1 of the Plan Statement is amended by adding the following sentence at the end thereof:
Notwithstanding anything to the contrary in the Plan Statement, no Participants shall be permitted to elect to defer under this Plan any portion of the Participants base salary received during any Plan Year beginning on or after January 1, 2004.
37. DISCONTINUANCE OF LIMITED BONUS DEFERRAL OPTION. Effective for Plan Years beginning on or after January 1, 2004, Section 4.3.1 of the Plan Statement is amended by adding the following sentence at the end thereof:
Notwithstanding anything to the contrary in the Plan Statement, no Participants shall be permitted to defer under this Plan any bonuses received during any Plan Year beginning on or after January 1, 2004.
38. SUPPLEMENTAL LONG TERM EXECUTIVE COMPENSATION DEFERRAL OPTION. Effective for Plan Years beginning on or after January 1, 2004, Section 4.4.1 of the Plan Statement is amended by adding the following sentence at the end thereof:
Notwithstanding anything to the contrary in the Plan Statement, no Participants shall be permitted to defer under this Plan any SLTEC bonuses received during any Plan Year beginning on or after January 1, 2004.
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39. EMPLOYER DISCRETIONARY SUPPLEMENTS. Effective for Plan Years beginning on or after January 1, 2004, Section 4.5 of the Plan Statement is amended by adding the following sentence at the end thereof:
Notwithstanding anything to the contrary in the Plan Statement, no Employer discretionary supplements shall be credited to the Accounts of any Participants under this Plan during any Plan Years beginning on or after January 1, 2004.
40. SAVINGS CLAUSE. Save and except as hereinabove expressly amended, the Plan Statement shall continue in full force and effect.
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SCHEDULE II
MEASURING INVESTMENTS
A. Measuring Investments as of August 1, 2002 . The following are the Measuring Investments as of August 1, 2002:
1. | American Funds EuroPacific A | |||
2. | Dodge & Cox Income Fund | |||
3. | Dodge & Cox Stock Fund | |||
4. | PBHG Growth Fund ( Note: Effective January 15, 2004, this fund is closed) | |||
5. | Rice Hall James Micro Cap Portfolio | |||
6. | Vanguard Institutional Index Fund (Investor Shares) | |||
7. | Vanguard MidCap Index Fund (Investor Shares) | |||
8. | Vanguard Prime Money Market (Investor Shares) | |||
9. | Wellington Managements Stock Fund: Y | |||
10. | Wellington Management: Hartford MidCap Fund: Y | |||
11. | Wells Fargo Growth Balanced Fund (Institutional Class) | |||
12. | Wells Fargo Stable Income (Institutional Class) | |||
13. | Wells Fargo Strategic Growth Allocation Fund (Institutional Class) | |||
14. | Wells Fargo Strategic Income Fund (Institutional Class) |
B. Measuring Investments on or after November 10, 2000 and prior to August 1, 2002 . The following are the Measuring Investments on or after November 10, 2000 and prior to August 1, 2002:
1. | One-Choice Conservative American Century Strategic Allocation: Conservative Fund | |||
2. | One-Choice Moderate American Century Strategic Allocation: Moderate Fund | |||
3. | One-Choice Aggressive American Century Strategic Allocation: Aggressive Fund |
4. | Bond Index Vanguard Total Bond Market Index Fund | |||
5. | S & P 500 Index First American Index Fund | |||
6. | Wilshire 4500 Index Vanguard Extended Market Index Fund | |||
7. | Money Market First American Prime Obligations Fund | |||
8. | Stable Value Wells Fargo Stable Income Fund | |||
9. | Bond Loomis Sayles Bond Fund | |||
10. | Large-Cap Dodge & Cox Stock Fund | |||
11. | Large-Cap Growth Alliance Premier Growth Fund | |||
12. | Mid-Cap Value Sound Shore Fund | |||
13. | Mid-Cap Growth Wanburg Pincus Emerging Growth Fund | |||
14. | International Value Templeton Foreign Fund | |||
15. | International Growth American Century International Growth Fund | |||
16. | Small-Cap Value Loomis Sayles Small-Cap Value Fund | |||
17. | Small-Cap Growth Loomis Sayles Small-Cap Growth Fund | |||
18. | Mid-Cap Growth PBHG Growth Fund ( Note: Effective January 15, 2004, this fund is closed) |
C. Default Rules . If a Participant does not designate which Measuring Investments shall be used to determine the value of the Participants Account, the value of the Participants Account will be determined using the following Measuring Investments:
(i) | On or After August 1, 2002 . For all amounts credited to the Participants Account as of August 1, 2002 and for all amounts credited to the Participants Account on or after August 1, 2002, the default Measuring Investment shall be the Wells Fargo Strategic Income Fund. |
(ii) | On or After November 10, 2000 and Prior to August 1, 2002 . For all amounts credited to the Participants Account on or after November 10, 2000, the default Measuring Investment shall be the American Century Strategic Allocation Conservative Fund. |
(iii) | Prior to November 10, 2000 . For all amounts credited to the Participants Account prior to November 10, 2000, the default Measuring Investment shall be the First American Prime Obligations Fund. |
16
Exhibit 10(e)
UNITEDHEALTH GROUP
EXECUTIVE SAVINGS PLAN
(2004 Statement)
TABLE OF CONTENTS
Page | ||||||||||||||
SECTION 1. | INTRODUCTION AND DEFINITIONS | 1 | ||||||||||||
1.1. | Statement of Plan | |||||||||||||
1.2. | Definitions | |||||||||||||
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1.2.1. | Account | ||||||||||||
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1.2.2. | Affiliate | ||||||||||||
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1.2.3. | Annual Valuation Date | ||||||||||||
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1.2.4. | Beneficiary | ||||||||||||
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1.2.5. | Board of Directors or Board | ||||||||||||
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1.2.6. | CEO | ||||||||||||
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1.2.7. | Code | ||||||||||||
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1.2.8. | Disability | ||||||||||||
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1.2.9. | Effective Date | ||||||||||||
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1.2.10. | Eligible Grade Level | ||||||||||||
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1.2.11. | Employers | ||||||||||||
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1.2.12. | ERISA | ||||||||||||
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1.2.13. | Incentive Award | ||||||||||||
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1.2.14. | Participant | ||||||||||||
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1.2.15. | Performance Award | ||||||||||||
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1.2.16. | Plan | ||||||||||||
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1.2.17. | Plan Statement | ||||||||||||
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1.2.18. | Plan Year | ||||||||||||
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1.2.19. | Section 16 Officer | ||||||||||||
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1.2.20. | Senior Vice President, Human Capital | ||||||||||||
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1.2.21. | Termination of Employment | ||||||||||||
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1.2.22. | UnitedHealth Group | ||||||||||||
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1.2.23. | Valuation Date | ||||||||||||
SECTION 2. | ELIGIBILITY TO PARTICIPATE | 4 | ||||||||||||
2.1. | General Eligibility Rule |
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Page | ||||||||||||||
2.2. | Selection for Participation in the Plan | |||||||||||||
SECTION 3. | 401(K) RESTORATION OPTION PLAN | 5 | ||||||||||||
3.1. | Automatic Enrollment | |||||||||||||
3.2. | Voluntary Enrollment if Over 402(g) Limit at Hire | |||||||||||||
3.3. | Election Out | |||||||||||||
3.4. | Crediting to Accounts | |||||||||||||
3.5. | Matching Credits | |||||||||||||
SECTION 4. | INCENTIVE DEFERRAL OPTION AND SALARY DEFERRAL OPTION PLAN | 6 | ||||||||||||
4.1. | Incentive Deferral Option (for Annual Awards) | |||||||||||||
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4.1.1. | Amount of Deferrals | ||||||||||||
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4.1.2. | Crediting to Accounts | ||||||||||||
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4.1.3. | Matching Credits | ||||||||||||
4.2. | Salary Deferral Option | |||||||||||||
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4.2.1. | Amount of Deferrals | ||||||||||||
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4.2.2. | Crediting to Accounts | ||||||||||||
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4.2.3. | No Matching Credits | ||||||||||||
4.3. | Performance Award Deferral Option (for Long-Term Awards) | |||||||||||||
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4.3.1. | Amount of Deferrals | ||||||||||||
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4.3.2. | Crediting to Accounts | ||||||||||||
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4.3.3. | No Matching Credits | ||||||||||||
4.4. | Employer Discretionary Supplements | |||||||||||||
4.5. | Limitation on Deferrals | |||||||||||||
SECTION 5. | CREDITS FROM MEASURING INVESTMENTS | 8 | ||||||||||||
5.1. | Designation of Measuring Investments | |||||||||||||
5.2. | UnitedHealth Group Stock as Measuring Investment | |||||||||||||
5.3. | Operational Rules for Measuring Investments | |||||||||||||
SECTION 6. | OPERATIONAL RULES | 9 | ||||||||||||
6.1. | Operational Rules for Deferrals | |||||||||||||
6.2. | Establishment of Accounts | |||||||||||||
6.3. | Accounting Rules | |||||||||||||
SECTION 7. | VESTING OF ACCOUNTS | 9 | ||||||||||||
SECTION 8. | SPENDTHRIFT PROVISION | 9 | ||||||||||||
SECTION 9. | DISTRIBUTIONS | 10 | ||||||||||||
9.1. | Time of Distribution to Participant | |||||||||||||
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9.1.1. | General Rule |
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Page | ||||||||||||||
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9.1.2. | No Application for Distribution Required | ||||||||||||
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9.1.3. | Code § 162(m) Delay | ||||||||||||
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9.1.4. | Effect of Reemployment | ||||||||||||
9.2. | Form of Distribution | |||||||||||||
9.3. | Election of Form of Distribution by Participant | |||||||||||||
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9.3.1. | Initial Enrollment | ||||||||||||
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9.3.2. | Default Election of Form of Distribution | ||||||||||||
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9.3.3. | Separate Distribution Elections Permitted for Subsequent Plan Years | ||||||||||||
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9.3.4 | Re-Election of Form of Distribution | ||||||||||||
9.4. | Payment to Beneficiary Upon Death of Participant | |||||||||||||
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9.4.1. | Payment to Beneficiary When Death Occurs Before Termination of Employment | ||||||||||||
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9.4.2. | Payment to Beneficiary When Death Occurs After Termination of Employment | ||||||||||||
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9.4.3. | Beneficiary Must Apply for Distribution | ||||||||||||
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9.4.4. | Election of Measuring Investments by Beneficiaries | ||||||||||||
9.5. | Designation of Beneficiaries | |||||||||||||
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9.5.1. | Right to Designate | ||||||||||||
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9.5.2. | Failure of Designation | ||||||||||||
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9.5.3. | Disclaimers by Beneficiaries | ||||||||||||
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9.5.4. | Definitions | ||||||||||||
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9.5.5. | Special Rules | ||||||||||||
9.6. | Death Prior to Full Distribution | |||||||||||||
9.7. | Facility of Payment | |||||||||||||
9.8. | In-Service Distributions | |||||||||||||
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9.8.1. | Pre-Selected In-Service Distributions | ||||||||||||
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9.8.2. | In-Service Distribution for Financial Hardship | ||||||||||||
9.9. | Distributions in Cash | |||||||||||||
SECTION 10. | FUNDING OF PLAN | 20 | ||||||||||||
10.1. | Unfunded Plan | |||||||||||||
10.2. | Corporate Obligation | |||||||||||||
SECTION 11. | AMENDMENT AND TERMINATION | 20 | ||||||||||||
11.1. | Amendment and Termination | |||||||||||||
11.2. | Special Rule for Section 16 Officers | |||||||||||||
11.3. | No Oral Amendments | |||||||||||||
11.4. | Plan Binding on Successors | |||||||||||||
SECTION 12. | DETERMINATIONS RULES AND REGULATIONS | 21 | ||||||||||||
12.1. | Determinations | |||||||||||||
12.2. | Rules and Regulations |
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Page | ||||||||||||||
12.3. | Method of Executing Instruments | |||||||||||||
12.4. | Claims Procedure | |||||||||||||
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12.4.1. | Original Claim | ||||||||||||
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12.4.2. | Review of Denied Claim | ||||||||||||
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12.4.3. | General Rules | ||||||||||||
12.5. | Limitations and Exhaustion | |||||||||||||
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12.5.1. | Limitations | ||||||||||||
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12.5.2. | Exhaustion Required | ||||||||||||
SECTION 13. | PLAN ADMINISTRATION | 24 | ||||||||||||
13.1. | Officers | |||||||||||||
13.2. | Chief Executive Officer | |||||||||||||
13.3. | Board of Directors | |||||||||||||
13.4. | Senior Vice President, Human Capital | |||||||||||||
13.5. | Delegation | |||||||||||||
13.6. | Conflict of Interest | |||||||||||||
13.7. | Administrator | |||||||||||||
13.8. | Service of Process | |||||||||||||
13.9. | Expenses | |||||||||||||
13.10. | Tax Withholding | |||||||||||||
13.11. | Certifications | |||||||||||||
13.12. | Errors in Computations | |||||||||||||
SECTION 14. | CONSTRUCTION | 27 | ||||||||||||
14.1. | Applicable Laws | |||||||||||||
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14.1.1. | Separate Plans | ||||||||||||
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14.1.2. | ERISA Status | ||||||||||||
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14.1.3. | IRC Status | ||||||||||||
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14.1.4. | Securities Laws Compliance | ||||||||||||
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14.1.5. | References to Laws | ||||||||||||
14.2. | Effect on Other Plans | |||||||||||||
14.3. | Disqualification | |||||||||||||
14.4. | Rules of Document Construction | |||||||||||||
14.5. | Choice of Law | |||||||||||||
14.6. | No Employment Contract | |||||||||||||
SCHEDULE I | EMPLOYERS PARTICIPATING IN THE UNITEDHEALTH GROUP EXECUTIVE SAVINGS PLANS | SI-1 | ||||||||||||
SCHEDULE II | MEASURING INVESTMENTS | SII-1 |
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UNITEDHEALTH GROUP
EXECUTIVE SAVINGS PLAN
(2004 Statement)
SECTION 1
INTRODUCTION AND DEFINITIONS
1.1. Statement of Plan . Effective January 1, 2004, UNITEDHEALTH GROUP INCORPORATED, a Minnesota corporation (hereinafter sometimes referred to as UnitedHealth Group), as plan sponsor, and certain affiliated corporations (hereinafter together with UnitedHealth Group sometimes collectively referred to as the Employers) hereby create and establish a nonqualified, unfunded, deferred compensation plan for the benefit of a select group of management or highly compensated employees of the Employers to defer the receipt of compensation which would otherwise be paid to those employees.
1.2. Definitions . When the following terms are used herein with initial capital letters, they shall have the following meanings:
1.2.1. Account the separate bookkeeping account established for each Participant which represents the separate unfunded and unsecured general obligation of the Employers established with respect to each person who is a Participant in this Plan in accordance with Section 2 and to which are credited the dollar amounts specified in Sections 3, 4 and 5 and from which are subtracted payments made pursuant to Section 9. To the extent necessary to accommodate and effect the distribution elections made by Participants pursuant to Section 9.3 or Section 9.8.1, separate bookkeeping sub-accounts shall be established with respect to each of the several annual forms of distribution elections and pre-selected in-service distribution elections made by Participants.
1.2.2. Affiliate a business entity which is not an Employer but which is part of a controlled group with the Employer or under common control with an Employer or which is a member of an affiliated service group that includes an Employer, as those terms are defined in section 414(b), (c) and (m) of the Code. A business entity which is a predecessor to an Employer shall be treated as an Affiliate if the Employer maintains a plan of such predecessor business entity or if, and to the extent that, such treatment is otherwise required by regulations under section 414(a) of the Code. A business entity shall also be treated as an Affiliate if, and to the extent that, such treatment is required by regulations under section 414(o) of the Code. In addition to said required treatment, the Senior Vice President, Human Capital may, in his or her discretion, designate as an Affiliate any business entity which is not such a controlled group, common control, affiliated service group or predecessor business entity but which is otherwise affiliated with an Employer, subject to such limitations as the Senior Vice President, Human Capital may impose.
1.2.3. Annual Valuation Date each December 31.
1.2.4. Beneficiary a person designated by a Participant (or automatically by operation of the Plan Statement) to receive all or a part of the Participants Account in the event of the Participants death prior to full distribution thereof. A person so designated shall not be considered a Beneficiary until the death of the Participant.
1.2.5. Board of Directors or Board the Board of Directors of UnitedHealth Group or its successor. Board of Directors shall also mean and refer to any properly authorized committee of the Board of Directors.
1.2.6. CEO the Chief Executive Officer of UnitedHealth Group or his or her delegee for Plan purposes.
1.2.7. Code the Internal Revenue Code of 1986, as amended.
1.2.8. Disability a medically determinable physical or mental impairment which: (i) renders the individual incapable of performing any substantial gainful employment, (ii) can be expected to be of long-continued and indefinite duration or result in death, and (iii) is evidenced by a certification to this effect by a doctor of medicine approved by the Senior Vice President, Human Capital. In lieu of such a certification, the Senior Vice President, Human Capital may accept, as proof of Disability, the official written determination that the individual will be eligible for disability benefits under the federal Social Security Act as now enacted or hereinafter amended (when any waiting period expires). The Senior Vice President, Human Capital shall determine the date on which the Disability shall have occurred if such determination is necessary.
1.2.9. Effective Date January 1, 2004.
1.2.10. Eligible Grade Level
(a) | In General . For regular full-time or part-time employees: the Executive Leadership Team; Salary Grades 31 and 32 (but only if base salary is equal to or exceeds any specific compensation criteria established by the Senior 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 Senior 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 Senior Vice President, Human Capital). |
(b) | Authority to Make Changes . Notwithstanding the foregoing, the Senior Vice President, Human Capital may from time to time in his or her discretion modify the applicable eligible grade levels, the compensation criteria and the full-time and part-time criteria. |
1.2.11. Employers UnitedHealth Group; each business entity listed as an Employer in the Schedule I to this Plan Statement; any other business entity that employs
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persons who are selected for participation under Section 2.3 of in this Plan; and any successor thereof.
1.2.12. ERISA the Employee Retirement Income Security Act of 1974, as amended.
1.2.13. Incentive Award any annual incentive awards that are payable under the Rewarding Results Plan or Executive Incentive Plan, or any other annual incentive plan designated by the Senior Vice President, Human Capital.
1.2.14. Participant an employee of an Employer who is selected for participation in this Plan in accordance with the provisions of Section 2 and who either has been automatically enrolled under Section 3 or has elected to defer compensation under Section 4. An employee who has become a Participant shall continue to be a Participant in this Plan until the date of the Participants death or, if earlier, the date when the Participant has received a distribution of the Participants entire Account.
1.2.15. Performance Award any incentive awards that are payable under the Executive Incentive Plan for performance over a performance cycle of more than one year or under any other long-term incentive plan designated by the Senior Vice President, Human Capital.
1.2.16. Plan the two nonqualified, unfunded, deferred compensation programs maintained by the Employers for the benefit of Participants eligible to participate therein, as set forth in this Plan Statement: (1) the 401(k) Restoration Option Plan (which is attributable to credits to Accounts described in Section 3), and (2) the Incentive Deferral and Salary Deferral Option Plan (which is attributable to credits to Accounts described in Section 4). (As used herein, Plan does not refer to the document pursuant to which the Plan is maintained. That document is referred to herein as the Plan Statement.) The Plan shall be referred to as the UnitedHealth Group Executive Savings Plan.
1.2.17. Plan Statement this document entitled UnitedHealth Group Executive Savings Plan (2004 Statement) as adopted by the Senior Vice President, Human Capital and generally effective as of January 1, 2004, as the same may be amended from time to time thereafter.
1.2.18. Plan Year the twelve (12) consecutive month period ending on any Annual Valuation Date.
1.2.19. Section 16 Officer an officer of an Employer who is subject to the provisions of Section 16 of the Securities Exchange Act of 1934, as amended.
1.2.20. Senior Vice President, Human Capital the Senior Vice President, Human Capital of UnitedHealth Group, and his or her successors.
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1.2.21. Termination of Employment a complete severance of an employees employment relationship with the Employers and all Affiliates, for any reason other than the employees death. A transfer from employment with an Employer to employment with another Employer or an Affiliate of an Employer shall not constitute a Termination of Employment. If an Employer who is an Affiliate ceases to be an Affiliate because of a sale of substantially all the stock or assets of the Employer, then Participants who are employed by that Employer and who cease to be employed by an Employer on account of such sale shall be deemed to have thereby had a Termination of Employment for the purpose of commencing distributions from this Plan.
1.2.22. UnitedHealth Group UNITEDHEALTH GROUP INCORPORATED, a Minnesota corporation, or any successor thereto.
1.2.23. Valuation Date any day that the U.S. securities markets are open and conducting business.
SECTION 2
ELIGIBILITY TO PARTICIPATE
2.1. General Eligibility Rule . An employee of an Employer who is in an Eligible Grade Level during a Plan Year and who is selected for participation (as described in Section 2.2) by the Senior Vice President, Human Capital (or, for a Section 16 Officer, by the Board of Directors) shall be eligible to become a Participant as soon as administratively feasible following such selection (unless the Senior Vice President, Human Capital or the Board of Directors designates a different date).
2.2. Selection for Participation in the Plan . Only employees who are selected for participation in this Plan by the Senior Vice President, Human Capital (or, for a Section 16 Officer, by the Board of Directors) shall be eligible to become a participant in this Plan. The Senior Vice President, Human Capital shall not select any employee for participation unless the Senior Vice President, Human Capital determines that such employee is a member of a select group of management or highly compensated employees (as that expression is used in ERISA). The Senior Vice President, Human Capital may determine that a Participant is not eligible for automatic deferral or matching credits under the 401(k) Restoration Option in Section 3 for any Plan Year at any time before such deferrals or credits have actually been made. The Senior Vice President, Human Capital also may at any time determine that a Participant is no longer eligible to make voluntary deferrals under Section 4.
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SECTION 3
401(K) RESTORATION OPTION PLAN
3.1. Automatic Enrollment . Except as provided in Section 3.3, each Participant who participates in the UnitedHealth Group 401(k) Savings Plan (the 401(k) Plan) and whose deferrals under the 401(k) Plan cease during a Plan Year because an IRS or Plan Limit is reached shall automatically be enrolled in the 401(k) Restoration Option. Such Participant shall be deemed to have elected to defer pay under the 401(k) Restoration Option at the rate of deferral that is in effect under the 401(k) Plan at the time the IRS or Plan Limit is reached. Such deferrals under the 401(k) Restoration Option shall begin as soon as administratively practicable after an IRS or Plan Limit first applies and shall continue until the following December 31. For purposes of this Section 3.1, an IRS or Plan Limit means (a) the annual compensation limit under section 401(a)(17) of the Code (which is $205,000 for plan years beginning on or after January 1, 2004) or any comparable successor provision, or (b) the annual deferral limit under section 402(g) of the Code (which is $13,000 for 2004, $14,000 for 2005 and $15,000 for 2006) or any comparable successor provision, or (c) any other limit imposed by the Code or by any Plan provision.
3.2. Voluntary Enrollment if Over 402(g) Limit at Hire . If an employee who is in an Eligible Grade Level: (a) is selected for participation in this Plan after the first day of a Plan Year; and (b) has reached the annual deferral limit under section 402(g) of the Code under another qualified plan before becoming an employee of the Employer, such employee shall be eligible to participate in the 401(k) Restoration Option and shall be eligible to elect, through a voice response system (or other written or electronic means) approved by the Senior Vice President, Human Capital, to defer between 1% and 50% of the employees recognized compensation (as defined under the 401(k) Plan) for the remainder of the Plan Year.
3.3. Election Out . Notwithstanding Section 3.1, eligible employees and Participants can elect, through a voice response system (or other written or electronic means) approved by the Senior Vice President, Human Capital, to waive participation in the 401(k) Restoration Option for a given Plan Year. Any such waiver shall be made in accordance with the procedures established by the Senior Vice President, Human Capital from time to time and must be received by the Senior Vice President, Human Capital by the enrollment deadline designated by the Senior Vice President, Human Capital for such Plan Year. A waiver of participation made by a Participant for such Plan Year shall remain in effect for subsequent Plan Years unless, prior to such Plan Year, the waiver is revoked by the Participant or the Participant is not selected for participation for that subsequent Plan Year.
3.4. Crediting to Accounts . The Senior Vice President, Human Capital shall cause to be credited to the Account of each Participant the amounts, if any, of such Participants automatic deferrals of pay determined under Section 3.1 or Section 3.2. Such amounts shall be credited as soon as administratively feasible after the day such pay would otherwise have been paid to the Participant, and shall be fully vested.
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3.5. Matching Credits . The Senior Vice President, Human Capital shall also cause to be credited to the Account of each Participant an additional matching amount equal to 50% of the amount credited to such Participants Account under Section 3.4. For this purpose, however, deferrals at a rate exceeding 6% of pay shall be disregarded. Such matching amounts shall be credited as soon as administratively feasible on or after the day the related deferral of pay is credited, and shall be fully vested.
SECTION 4
INCENTIVE DEFERRAL OPTION AND
SALARY DEFERRAL OPTION PLAN
4.1. Incentive Deferral Option (for Annual Awards) .
4.1.1. Amount of Deferrals . Through a voice response system (or other written or electronic means) approved by the Senior Vice President, Human Capital, a Participant may elect to defer between (and including) 1% and 100% of such Participants Incentive Award. To be effective for an Incentive Award paid during a Plan Year, the deferral election must be received by the Senior Vice President, Human Capital or his or her designee by the enrollment deadline designated by the Senior Vice President, Human Capital for the Plan Year in which the Incentive Award is earned. An election made by a Participant for a Plan Year shall remain in effect for subsequent Plan Years unless, prior to such Plan Year, the election is changed or terminated by the Participant or the Participant is not selected for participation for that subsequent Plan Year.
4.1.2. Crediting to Accounts . The Senior Vice President, Human Capital shall cause to be credited to the Account of each Participant the amount, if any, of such Participants voluntary deferrals of any Incentive Awards under Section 4.1.1. Such amount shall be credited as soon as administratively feasible after the day such Incentive Award would otherwise have been paid to the Participant, and shall be fully vested.
4.1.3. Matching Credits . The Senior Vice President, Human Capital shall cause to be credited to the Account of each Participant an additional matching amount equal to 50% of the amount credited to such Participants Account under Section 4.1.2 above. For this purpose, however, deferrals at a rate exceeding 6% of the Participants Incentive Award shall be disregarded. Such matching amounts shall be credited as soon as administratively feasible on or after the day the related deferral of the Incentive Award is credited, and shall be fully vested.
4.2. Salary Deferral Option .
4.2.1. Amount of Deferrals . Through a voice response system (or other written or electronic means) approved by the Senior Vice President, Human Capital, a Participant may elect to defer between (and including) 1% and 100% of such Participants base salary for a Plan Year. For this purpose, base salary shall include any non-stock periodic incentive pay but shall
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not include any Incentive Awards or Performance Awards. The Senior Vice President, Human Capital may establish prospectively other limits or other pay eligible for deferral. To be effective for a Plan Year, the deferral election must be received by the Senior Vice President, Human Capital or his or her designee by the enrollment deadline designated by the Senior Vice President, Human Capital. An election made by a Participant for a Plan Year shall remain in effect for subsequent Plan Years unless, prior to such Plan Year, the election is changed or terminated by the Participant or the Participant is not selected for participation for that subsequent Plan Year.
4.2.2. Crediting to Accounts . The Senior Vice President, Human Capital shall cause to be credited to the Account of each Participant the amount, if any, of such Participants voluntary deferrals of salary or other pay under Section 4.2.1. Such amount shall be credited as soon as administratively feasible after the day such salary or other pay would otherwise have been paid to the Participant, and shall be fully vested.
4.2.3. No Matching Credits . No matching amounts shall be credited for deferrals of salary or other pay under Section 4.2.1.
4.3. Performance Award Deferral Option (for Long-Term Awards) .
4.3.1. Amount of Deferrals . Through a voice response system (or other written or electronic means) approved by the Senior Vice President, Human Capital, a Participant may elect to defer between (and including) 1% and 100% of such Participants Performance Award. To be effective for a Performance Award that becomes payable during a Plan Year, the deferral election must be received by the Senior Vice President, Human Capital or his or her designee by the enrollment deadline designated by the Senior Vice President, Human Capital for the Plan Year in which the Performance Award is earned. An election made by a Participant for a Plan Year shall remain in effect for subsequent Plan Years unless, prior to such Plan Year, the election is changed or terminated by the Participant or the Participant is not selected for participation for that subsequent Plan Year.
4.3.2. Crediting to Accounts . The Senior Vice President, Human Capital shall cause to be credited to the Account of each Participant the amount, if any, of such Participants voluntary deferrals of any Performance Awards under Section 4.3.1. Such amount shall be credited as soon as administratively feasible after the day such Performance Award would otherwise have been paid to the Participant, and shall be fully vested.
4.3.3. No Matching Credits . No matching amounts shall be credited for deferrals of Performance Awards under Section 4.3.1.
4.4. Employer Discretionary Supplements . Upon written notice to one or more Participants and to the Senior Vice President, Human Capital, the CEO (or, for any Section 16 Officer, the Board of Directors) may (but is not required to) determine that additional amounts shall be credited to the Accounts of such Participants. Such notice shall also specify the date of such crediting. Notwithstanding Section 7, such notice may also establish vesting rules for such
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amounts, in which case separate Accounts shall be established for such amounts for such Participants.
4.5. Limitation on Deferrals . Notwithstanding any other provision of this Plan Statement, any amount deferred by a Participant from any paycheck shall not exceed the amount that would accommodate current payment of all required withholdings from such paycheck.
SECTION 5
CREDITS FROM MEASURING INVESTMENTS
5.1. Designation of Measuring Investments . Through a voice response system (or other written or electronic means) approved by the Senior Vice President, Human Capital, each Participant shall designate the following Measuring Investments, which shall be used to determine the value of such Participants Account (until changed as provided herein):
(a) | One or more Measuring Investments for the current Account balance, and |
(b) | One or more Measuring Investments for amounts that are credited to the Account in the future. |
The Accounts and such Measuring Investments are specified solely as a device for computing the amount of benefits to be paid by the Employers under the Plan, and the Employers are not required to purchase such investments. The Measuring Investments are listed in Schedule II to the Plan Statement. Schedule II to the Plan Statement may be revised and amended by the Senior Vice President, Human Capital, in his or her discretion, from time to time.
5.2. UnitedHealth Group Stock as Measuring Investment . The Board of Directors may (but shall not be required to) determine that the Measuring Investments available for election by Participants will include deemed (but not actual) investment in the common stock of UnitedHealth Group, valued at the closing price of UnitedHealth Group common stock as reported on the New York Stock Exchange composite tape on the applicable Valuation Date.
5.3. Operational Rules for Measuring Investments . The Senior Vice President, Human Capital shall adopt rules specifying the Measuring Investments, the circumstances under which a particular Measuring Investment may be elected, or shall be automatically utilized, the minimum or maximum amount or percentage of an Account which may be allocated to a Measuring Investment, the procedures for making or changing Measuring Investment elections, the extent (if any) to which Beneficiaries of deceased Participants may make Measuring Investment elections and the effect of a Participants or Beneficiarys failure to make an effective Measuring Investment election with respect to all or any portion of an Account. Notwithstanding the foregoing, any rules or revision with respect to deemed investment in the common stock of UnitedHealth Group elections by a Section 16 Officer shall be made only by the Board of Directors.
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SECTION 6
OPERATIONAL RULES
6.1. Operational Rules for Deferrals . A Participants waiver of automatic participation in the 401(k) Restoration Option under Section 3.3 or election to defer compensation under Section 4 shall be evergreen and shall remain in effect for subsequent Plan Years unless, prior to such Plan Year, the waiver is revoked or the election is changed or terminated or the Participant is not selected for participation for that subsequent Plan Year. If a Participants pay after deferrals is not sufficient to cover pre-tax and after-tax benefit payroll deductions, and tax or other payroll withholding requirements, the Participants deferrals shall be reduced to the extent necessary to meet such requirements.
6.2. Establishment of Accounts . There shall be established for each Participant an unfunded, bookkeeping Account which shall be adjusted each Valuation Date.
6.3. Accounting Rules . The Senior Vice President, Human Capital may adopt (and revise) accounting rules for the Accounts.
SECTION 7
VESTING OF ACCOUNTS
The Account of each Participant shall be fully (100%) vested and nonforfeitable at all times (except for any special vesting rules that apply to Employers discretionary supplements under Section 4.4).
SECTION 8
SPENDTHRIFT PROVISION
Participants and Beneficiaries shall have no power to transfer any interest in an Account nor shall any Participant or Beneficiary have any power to anticipate, alienate, dispose of, pledge or encumber the same while it is in the possession or control of the Employers, nor shall the Senior Vice President, Human Capital recognize any assignment thereof, either in whole or in part, nor shall the Account be subject to attachment, garnishment, execution following judgment or other legal process (including without limitation any domestic relations order, whether or not a qualified domestic relations order under section 414(p) of the Code and section 206(d) of ERISA) before the Account is distributed to the Participant or Beneficiary.
The power to designate Beneficiaries to receive the Account of a Participant in the event of such Participants death shall not permit or be construed to permit such power or right to be exercised
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by the Participant so as thereby to anticipate, pledge, mortgage or encumber such Participants Account or any part thereof. Any attempt by a Participant to so exercise said power in violation of this provision shall be of no force and effect and shall be disregarded by the Senior Vice President, Human Capital.
SECTION 9
DISTRIBUTIONS
9.1. Time of Distribution to Participant .
9.1.1. General Rule . Upon Participants Termination of Employment or Disability, the Employer shall commence payment of such Participants Account (reduced by the amount of any applicable payroll, withholding and other taxes) in the form and at the time designated by the Participant pursuant to Section 9.3.
9.1.2. No Application for Distribution Required . A Participants Account shall be distributed automatically following the Participants Termination of Employment or Disability. A Participant shall not be required to apply for distribution.
9.1.3. Code § 162(m) Delay . If the Senior Vice President, Human Capital (or, for any Section 16 Officer, the Board of Directors) determines that delaying the time that initial payments are made or commenced would increase the probability that such payments would be fully deductible by the Employer for federal or state income tax purposes, the Employer may unilaterally delay the time of the making or commencement of payments for up to twenty-four (24) months after the date such payments would otherwise be payable.
9.1.4. Effect of Reemployment . If a Participant is reemployed by the Employer or an Affiliate after Termination of Employment and after distribution has commenced pursuant to Section 9.1.1 (or distribution has been scheduled to be made but before actual distribution has been made), further distributions shall be suspended during the period of reemployment. Distribution of the Participants Account shall resume following the Participants subsequent Termination of Employment, Disability or death. Unless the Participant has elected to change the Participants form of distribution in accordance with the provisions of Section 9.3.4, distribution of the Participants Account shall resume in the same form (and in the same number of installments, if applicable) as was in effect immediately prior to the suspension. It is the general intent of the Plan that no distributions shall be made while a Participant is employed by the Employers or an Affiliate.
9.2. Form of Distribution . Distribution of the Participants Account shall be made in whichever of the following forms as the Participant shall have designated at the time of his or her enrollment (as described in Section 9.3):
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(a) | Lump Sum . In the form of a single lump sum. The amount of such distribution shall be determined as soon as administratively feasible as of a Valuation Date following the Plan Year in which the Participant experienced a Termination of Employment or Disability and shall be actually paid (or, in the case of installments, commenced) to the Participant as soon as practicable after such determination (but not later than the last day of the February following such Plan Year). |
(b) | Installments . In the form of a series of five (5) or ten (10) annual installments. |
(i) | General Rule . The amount of the first installment will be determined as soon as administratively feasible following the Plan Year in which Participant experienced a Termination of Employment or Disability and shall be actually paid to the Participant as soon as practicable after such determination (but not later than the last day of the February following such Plan Year). The amount of future installments will be determined as soon as administratively feasible following the end of each later Plan Year. The amount of each installment shall be determined by dividing the Account balance as of the Valuation Date as of which the installment is being paid, by the number of remaining installment payments to be made (including the payment being determined). Such installments shall be actually paid as soon as practicable after each such determination (but not later than the last day of the February following such Plan Year). |
(ii) | Exception for Small Amounts . Notwithstanding the foregoing provisions of this Section 9.2, if the value of the Participants Account as of the Valuation Date as of which an installment payment is to be determined does not exceed Five Thousand Dollars ($5,000), the Participants entire Account shall be paid in the form of a lump sum as soon as practicable after such Valuation Date. For this purpose, the value of the Account shall be determined after reduction for any lump sum or other payment that is also payable to such Participant as of such Valuation Date. |
(c) | Five (5) Year Delay, Then Lump Sum . In the form of a single lump sum following the fifth (5th) anniversary of the Participants Termination of Employment or Disability. The amount of such distribution shall be determined as soon as administratively feasible as of a Valuation Date following the Plan Year in which occurs the fifth (5th) anniversary of the Participants Termination of Employment or Disability. Actual distribution shall be made as soon as administratively practicable after such determination. Notwithstanding the foregoing, if the value of the |
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Participants Account does not exceed Five Thousand Dollars ($5,000) as of the Annual Valuation Date in the Plan Year in which the Participant experienced a Termination of Employment or Disability or any following Plan Year, the Participants Account shall be paid in a lump sum as soon as practicable after such determination (but not later than the last day of the February following such Plan Year). |
(d) | Ten (10) Year Delay, Then Lump Sum . In the form of a single lump sum following the tenth (10th) anniversary of the Participants Termination of Employment or Disability. The amount of such distribution shall be determined as soon as administratively feasible as of a Valuation Date following the Plan Year in which occurs the tenth (10th) anniversary of the Participants Termination of Employment or Disability. Actual distribution shall be made as soon as administratively practicable after such determination. Notwithstanding the foregoing, if the value of the Participants Account does not exceed Five Thousand Dollars ($5,000) as of the Annual Valuation Date in the Plan Year in which the Participant experienced a Termination of Employment or Disability or any following Plan Year, the Participants Account shall be paid in a lump sum as soon as practicable after such determination (but not later than the last day of the February following such Plan Year). |
9.3. Election of Form of Distribution by Participant .
9.3.1. Initial Enrollment . Through a voice response system (or other written or electronic means) approved by the Senior Vice President, Human Capital, each Participant shall elect at the time of initial enrollment in the Plan whether distribution shall be made (as described in Section 9.2) in either (i) an immediate lump sum, (ii) five (5) or ten (10) annual installments, or (iii) a delayed lump sum following the fifth (5th) or tenth (10th) anniversary of the Participants Termination of Employment or Disability. Such election shall apply with respect to distribution of that portion of the Participants Account attributable to deferrals and matching contributions (if any) for the Participants initial year of participation in the Plan and any investment gains or losses on such deferrals and matching contributions (if any). Subject to Section 9.3.3, an initial distribution election shall remain in effect for subsequent Plan Years.
9.3.2. Default Election of Form of Distribution . If a Participant fails to elect a form of distribution at the time of initial enrollment in the Plan, such Participant shall be deemed to have elected that distribution be made in an immediate lump sum as described in Section 9.2(a).
9.3.3. Separate Distribution Elections Permitted for Subsequent Plan Years . An initial or default distribution election made by a Participant shall remain in effect for subsequent Plan Years unless, prior to a subsequent Plan Year, the Participant elects a different form of distribution for that portion of the Participants Account attributable to deferrals and matching contributions (if any) for such subsequent Plan Year and any investment gains or losses
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on such deferrals and matching contributions (if any). Through a voice response system (or other written or electronic means) approved by the Senior Vice President, Human Capital, a Participant may elect a different form of distribution for that portion of the Participants Account attributable to deferrals and matching contributions (if any) for a subsequent Plan Year. To be effective for deferrals and matching contributions (if any) for a Plan Year, the new distribution election must be received by the Senior Vice President, Human Capital or its designee before the deadline designated by the Senior Vice President, Human Capital. If a Participant files a new distribution election with the Senior Vice President, Human Capital pursuant to this Section 9.3.3, such distribution election shall remain in effect for all subsequent Plan Years unless, prior to a subsequent Plan Year, the Participant files another distribution election with the Senior Vice President, Human Capital electing a different form of distribution for that portion of the Participants Account attributable to deferrals and matching contributions (if any) for such subsequent Plan Year and any subsequent investment gains or losses on such deferrals and matching contributions (if any).
9.3.4. Re-Election of Form of Distribution . Through a voice response system (or other written or electronic means) approved by the Senior Vice President, Human Capital, distribution elections may be changed by the Participant from time to time. Each subsequent distribution election shall be effective as to the specified portion of the Participants Account. Notwithstanding the foregoing, any new distribution election shall be disregarded as if it had never been filed (and the prior effective distribution election shall be given effect) unless the distribution election:
(a) | is filed by the Participant while employed by the Employer or an Affiliate; |
(b) | is filed with the Senior Vice President, Human Capital at least twelve (12) months before the Participants scheduled distribution date following the Participants Termination of Employment, Disability or death, |
(c) | is filed at least twelve (12) months after the initial distribution election for the specified portion of the Participants Account (or, if one or more prior changes has been filed, at least twelve (12) months after the latest of such changes was filed), and |
(d) | such distribution election has the effect of delaying payment of the lump sum (or, in the case of installments, of each installment) under the prior election for at least 5 years. |
No spouse, former spouse, Beneficiary or other person shall have any right to participate in the Participants decision to revise distribution elections.
9.4. Payment to Beneficiary Upon Death of Participant .
9.4.1. Payment to Beneficiary When Death Occurs Before Termination of Employment . If a Participant dies before Termination of Employment or Disability, such Participants Beneficiary will receive payment of the Participants Account at the same time and
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in the same form the Participant would have received if the Participant had experienced a Termination of Employment on the date of death.
9.4.2. Payment to Beneficiary When Death Occurs After Termination of Employment . If a Participant dies after a Termination of Employment or Disability, the Participants Beneficiary shall receive distribution of the Participants Account at the same time and in the same form the Participant would have received if the Participant had survived.
9.4.3. Beneficiary Must Apply for Distribution . Distribution shall not be made to any Beneficiary until such Beneficiary shall have filed a written application for benefits in a form acceptable to the Senior Vice President, Human Capital and such application shall have been approved by the Senior Vice President, Human Capital.
9.4.4. Election of Measuring Investments by Beneficiaries . A Beneficiary of a deceased Participant shall generally have the same rights to designate Measuring Investments for the Participants Account that Participants have under Section 5. The Senior Vice President, Human Capital may adopt (and revise) rules to govern designations of Measuring Investments by Beneficiaries. Unless changed by the Senior Vice President, Human Capital, the following rules shall apply:
(a) | The Measuring Investments for the Account of a deceased Participant shall not be changed until the Beneficiary so determines. |
(b) | If a deceased Participant has more than one Beneficiary, the unanimous consent of all Beneficiaries shall be required to change Measuring Investments for such Participants Account. |
9.5. Designation of Beneficiaries .
9.5.1. Right to Designate . Each Participant may designate, upon forms to be furnished by and filed with the Senior Vice President, Human Capital (or through other means approved by the Senior Vice President, Human Capital), one or more primary Beneficiaries or alternative Beneficiaries to receive all or a specified part of such Participants Account in the event of such Participants death. The Participant may change or revoke any such designation from time to time without notice to or consent from any Beneficiary. No such designation, change or revocation shall be effective unless executed by the Participant and received by the Senior Vice President, Human Capital during the Participants lifetime.
9.5.2. Failure of Designation . If a Participant:
(a) | fails to designate a Beneficiary, |
(b) | designates a Beneficiary and thereafter revokes such designation without naming another Beneficiary, or |
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(c) | designates one or more Beneficiaries and all such Beneficiaries so designated fail to survive the Participant, |
such Participants Account, or the part thereof as to which such Participants designation fails, as the case may be, shall be payable to the first class of the following classes of automatic Beneficiaries in which a member survives the Participant and (except in the case of surviving issue) in equal shares if there is more than one member in such class surviving the Participant:
(i) | Participants surviving spouse; | |||
(ii) | Participants surviving issue per stirpes and not per capita; | |||
(iii) | Participants surviving parents; | |||
(iv) | Participants surviving brothers and sisters; and | |||
(v) | Representative of Participants estate. |
9.5.3. Disclaimers by Beneficiaries . A Beneficiary entitled to a distribution of all or a portion of a deceased Participants Account may disclaim an interest therein subject to the following requirements. To be eligible to disclaim, a Beneficiary must be a natural person, must not have received a distribution of all or any portion of the Account at the time such disclaimer is executed and delivered, and must have attained at least age twenty-one (21) years as of the date of the Participants death. Any disclaimer must be in writing and must be executed personally by the Beneficiary before a notary public. A disclaimer shall state that the Beneficiarys entire interest in the undistributed Account is disclaimed or shall specify what portion thereof is disclaimed. To be effective, duplicate original executed copies of the disclaimer must be both executed and actually delivered to the Senior Vice President, Human Capital after the date of the Participants death but not later than nine (9) months after the date of the Participants death. A disclaimer shall be irrevocable when delivered to the Senior Vice President, Human Capital. A disclaimer shall be considered to be delivered to the Senior Vice President, Human Capital only when actually received by the Senior Vice President, Human Capital. The Senior Vice President, Human Capital shall be the sole judge of the content, interpretation and validity of a purported disclaimer. Upon the filing of a valid disclaimer, the Beneficiary shall be considered not to have survived the Participant as to the interest disclaimed. A disclaimer by a Beneficiary shall not be considered to be a transfer of an interest in violation of any other provisions under this Plan. No other form of attempted disclaimer shall be recognized by the Senior Vice President, Human Capital.
9.5.4. Definitions . When used herein and, unless the Participant has otherwise specified in the Participants Beneficiary designation, when used in a Beneficiary designation, issue means all persons who are lineal descendants of the person whose issue are referred to, subject to the following:
(a) | a legally adopted child and the adopted childs lineal descendants always shall be lineal descendants of each adoptive parent (and of each adoptive parents lineal ancestors); |
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(b) | a legally adopted child and the adopted childs lineal descendants never shall be lineal descendants of any former parent whose parental rights were terminated by the adoption (or of that former parents lineal ancestors); except that if, after a childs parent has died, the child is legally adopted by a stepparent who is the spouse of the childs surviving parent, the child and the childs lineal descendants shall remain lineal descendants of the deceased parent (and the deceased parents lineal ancestors); |
(c) | if the person (or a lineal descendant of the person) whose issue are referred to is the parent of a child (or is treated as such under applicable law) but never received the child into that parents home and never openly held out the child as that parents child (unless doing so was precluded solely by death), then neither the child nor the childs lineal descendants shall be issue of the person. |
Child means an issue of the first generation; per stirpes means in equal shares among living children of the person whose issue are referred to and the issue (taken collectively) of each deceased child of such person, with such issue taking by right of representation of such deceased child; and survive and surviving mean living after the death of the Participant.
9.5.5. Special Rules . Unless the Participant has otherwise specified in the Participants Beneficiary designation, the following rules shall apply:
(a) | If there is not sufficient evidence that a Beneficiary was living at the time of the death of the Participant, it shall be deemed that the Beneficiary was not living at the time of the death of the Participant. |
(b) | The automatic Beneficiaries specified in Section 9.5.2 and the Beneficiaries designated by the Participant shall become fixed at the time of the Participants death so that, if a Beneficiary survives the Participant but dies before the receipt of all payments due such Beneficiary hereunder, such remaining payments shall be payable to the representative of such Beneficiarys estate. |
(c) | If the Participant designates as a Beneficiary the person who is the Participants spouse on the date of the designation, either by name or by relationship, or both, the dissolution, annulment or other legal termination of the marriage between the Participant and such person shall automatically revoke such designation. (The foregoing shall not prevent the Participant from designating a former spouse as a Beneficiary on a form executed by the Participant and received by the Senior Vice President, Human Capital after the date of the legal termination of the marriage between the Participant and such former spouse, and during the Participants lifetime.) |
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(d) | Any designation of a nonspouse Beneficiary by name that is accompanied by a description of relationship to the Participant shall be given effect without regard to whether the relationship to the Participant exists either then or at the Participants death. |
(e) | Any designation of a Beneficiary only by statement of relationship to the Participant shall be effective only to designate the person or persons standing in such relationship to the Participant at the Participants death. |
The Senior Vice President, Human Capital shall be the sole judge of the content, interpretation and validity of a purported Beneficiary designation.
9.6. Death Prior to Full Distribution . If, at the death of the Participant, any payment to the Participant was due or otherwise pending but not actually paid, the amount of such payment shall be included in the Account which is payable to the Beneficiary (and shall not be paid to the Participants estate).
9.7. Facility of Payment . In case of minority, incapacity or legal disability of a Participant or Beneficiary entitled to receive any distribution under this Plan, payment shall be made, if the Senior Vice President, Human Capital shall be advised of the existence of such condition:
(a) | to the court-appointed guardian or conservator of such Participant or Beneficiary, or |
(b) | if there is no court-appointed guardian or conservator, to the lawfully authorized representative of the Participant or Beneficiary (and the Senior Vice President, Human Capital, in his or her sole discretion, shall determine whether a person is a lawfully authorized representative for this purpose), or | |||
(c) | to an institution entrusted with the care or maintenance of the incapacitated or disabled Participant or Beneficiary, provided such institution has satisfied the Senior Vice President, Human Capital, in his or her sole discretion, that the payment will be used for the best interest and assist in the care of such Participant or Beneficiary, and provided further, that no prior claim for said payment has been made by a person described in (a) or (b) above. |
Any payment made in accordance with the foregoing provisions of this section shall constitute a complete discharge of any liability or obligation of the Employers therefor.
9.8. In-Service Distributions .
9.8.1. Pre-Selected In-Service Distributions . Each Participant shall have the opportunity, when enrolling in the Plan for each Plan Year, to elect one (1) or more pre-selected in-service distribution dates for all or a portion of the Participants Account attributable to
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deferral and matching contributions (if any) for such Plan Year and any subsequent investment gains of losses on such deferrals and matching contributions (if any), subject to the following rules:
(a) | Such election shall be made through a voice response system (or other written or electronic means) approved by the Senior Vice President, Human Capital. | |||
(b) | No such distribution shall be made before January 1 of the calendar year that follows the third full Plan Year after the Participant was first eligible to elect a pre-selected in-service distribution from that portion of the Participants Account attributable to deferrals and matching contributions (if any) for such Plan Year and any subsequent investment gains or losses on such amounts ( e.g. , the earliest pre-selected in-service distribution date for any deferrals made in 2004 is January 1, 2007). | |||
(c) | A Participant may receive more than one (1) pre-selected in-service distribution in any Plan Year but only if each distribution is attributable to deferrals and matching contributions for different Plan Years. Only one (1) pre-selected in-service distribution may be made in any Plan Year from that portion of the Participants Account attributable to deferrals and matching contributions (if any) for the same Plan Year. | |||
(d) | A Participant who elects a pre-selected in-service distribution date and subsequently experiences a Termination of Employment or Disability will receive such in-service distribution, if the in-service distribution date is prior to the distribution of the Participants total Account. | |||
(e) | The minimum amount of such in-service distribution is One Thousand Dollars ($1,000). | |||
(f) | Through a voice response system (or other written or electronic means) approved by the Senior Vice President, Human Capital, the Participant may request to postpone any pre-selected in-service distribution for five (5) years. A pre-selected in-service distribution may be postponed only once. The Participant must file the extension request with the Senior Vice President, Human Capital at least twelve (12) months before the original scheduled date of distribution. | |||
(g) | A Participant may not cancel a pre-selected in-service distribution. | |||
(h) | The distribution amount shall be determined as soon as administratively feasible as of a Valuation Date on or after the pre-selected distribution date and shall be actually paid as soon as practicable after such determination. |
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9.8.2. In-Service Distribution for Financial Hardship . Each Participant may request a Financial Hardship distribution while employed from the Participants Account if the Senior Vice President, Human Capital determines that such distribution is for one of the purposes described in (b) below.
(a) | Election . A Participant may elect in writing to receive all or part of the Participants Account prior to Termination of Employment or Disability to alleviate a Financial Hardship. A Beneficiary of a deceased Participant may also request an early distribution for Financial Hardship. | |||
(b) | Financial Hardship Defined . For purposes of this Plan, Financial Hardship means a severe financial hardship to the Participant resulting from a sudden and unexpected illness or accident of the Participant or a dependent (as defined in section 152(a) of the Code), loss of the Participants property due to casualty, or other similar extraordinary and unforeseeable emergency circumstances arising as a result of events beyond the control of the Participant. If a hardship is or may be relieved either (i) through reimbursement or compensation by insurance or otherwise, (ii) by liquidation of the Participants assets (to the extent the liquidation of such assets would not itself cause severe financial hardship), or (iii) by cessation of deferrals under this Plan (at the earliest possible date otherwise permitted under this Plan) or any 401(k) plan, then the hardship shall not constitute a Financial Hardship for purposes of this Plan. If a Beneficiary of a deceased Participant requests an early distribution for Financial Hardship, then the references in this definition to Participant shall be deemed to be references to such Beneficiary. | |||
(c) | Distribution Amount . The minimum amount of such distribution is One Thousand Dollars ($1,000). The amount of such distribution shall be determined as soon as administratively feasible as of a Valuation Date following the receipt of the request by the Senior Vice President, Human Capital or his or her designee and shall be actually paid as soon as practicable after such determination. | |||
(d) | Suspension Rule . If a Participant receives a distribution due to Financial Hardship (under this Plan or the UnitedHealth Group Legacy Executive Savings Plan), the Participants deferrals under Sections 3 and 4 will cease as soon as administratively practicable following the date such distribution is made. The Participant may not again elect to defer compensation under this Plan until the enrollment period for the Plan Year that begins at least six (6) months after such distribution. |
9.9. Distributions in Cash . All distributions from this Plan shall be made in cash.
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SECTION 10
FUNDING OF PLAN
10.1. Unfunded Plan . The obligation of any Employer to make payments under the Plan constitutes only the unsecured (but legally enforceable) promises of that Employer to make such payments. No Participant shall have any lien, prior claim or other security interest in any property of any Employer. The Employers shall have no obligation to establish or maintain any fund, trust or account (other than a bookkeeping account) for the purpose of funding or paying the benefits promised under the Plan. If such a fund, trust or account is established, the property therein that is allocable to a particular Employer shall remain the sole and exclusive property of that Employer. The Employers shall be obligated to pay the cost of the Plan out of their general assets. All references to accounts, accruals, gains, losses, income, expenses, payments, custodial funds and the like are included merely for the purpose of measuring the obligation of the Employers to Participants in the Plan and shall not be construed to impose on the Employers the obligation to create any separate fund for purposes of the Plan.
10.2. Corporate Obligation . Neither any officer of any Employer nor the Senior Vice President, Human Capital in any way secures or guarantees the payment of any benefit or amount which may become due and payable hereunder to or with respect to any Participant. Each Participant and other person entitled at any time to payments hereunder shall look solely to the assets of such Participants Employer for such payments as an unsecured, general creditor. After benefits have been paid to or with respect to a Participant and such payment purports to cover in full the benefit hereunder, such former Participant or other person or persons, as the case may be, shall have no further right or interest in any other Plan assets. No person shall be under any liability or responsibility for failure to effect any of the objectives or purposes of the Plan by reason of the insolvency of any of the Employers.
SECTION 11
AMENDMENT AND TERMINATION
11.1. Amendment and Termination . The Senior Vice President, Human Capital may unilaterally amend the Plan Statement prospectively, retroactively or both, at any time and for any reason deemed sufficient by it without notice to any person affected by this Plan and the Board of Directors may terminate this Plan both with regard to persons receiving benefits and persons expecting to receive benefits in the future; provided, however, that:
(a) | No Reduction or Delay . The benefit, if any, payable to or with respect to a Participant, whether or not the Participant has had a Termination of Employment or Disability as of the effective date of such amendment, shall not be, without the written consent of the Participant, diminished or delayed by such amendment. |
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(b) | Cash Lump Sum Payment . If the Board of Directors terminates the Plan completely, all Accounts under the Plan shall be automatically and immediately distributed in single lump sum payments. |
11.2. Special Rule for Section 16 Officers . Notwithstanding anything in this Plan Statement to the contrary, the Senior Vice President, Human Capital may adopt rules to facilitate compliance with the rules and requirements of the Securities and Exchange Commission, including Section 16 of the Securities and Exchange Act of 1934, as amended, which rules may limit rights under this Plan for Section 16 Officers.
11.3. No Oral Amendments . No modification of the terms of the Plan Statement or termination of this Plan shall be effective unless it is in writing and signed on behalf of the Board of Directors by a person authorized to execute such writing. No oral representation concerning the interpretation or effect of the Plan Statement shall be effective to amend the Plan Statement.
11.4. Plan Binding on Successors . UnitedHealth Group shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise of all or substantially all of the business and/or assets of UnitedHealth Group), by agreement, to expressly assume and agree to perform this Plan Statement in the same manner and to the same extent that UnitedHealth Group would be required to perform it if no such succession had taken place.
SECTION 12
DETERMINATIONS RULES AND REGULATIONS
12.1. Determinations . The Senior Vice President, Human Capital shall make such determinations as may be required from time to time in the administration of the Plan. The Senior Vice President, Human Capital shall have the discretionary authority and responsibility to interpret and construe the Plan Statement and to determine all factual and legal questions under the Plan, including but not limited to the entitlement of Participants and Beneficiaries, and the amounts of their respective interests. Each interested party may act and rely upon all information reported to them hereunder and need not inquire into the accuracy thereof, nor be charged with any notice to the contrary.
12.2. Rules and Regulations . Any rule not in conflict or at variance with the provisions hereof may be adopted by the Senior Vice President, Human Capital.
12.3. Method of Executing Instruments . Information to be supplied or written notices to be made or consents to be given by the Senior Vice President, Human Capital pursuant to any provision of the Plan Statement may be signed in the name of the Senior Vice President, Human Capital by any officer who has been authorized to make such certification or to give such notices or consents.
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12.4. Claims Procedure . The claims procedure set forth in this Section 12.4 shall be the exclusive administrative procedure for the disposition of claims for benefits arising under the Plan.
12.4.1. Original Claim . Any person may, if he or she so desires, file with the Senior Vice President, Human Capital a written claim for benefits under the Plan. Within ninety (90) days after the filing of such a claim, the Senior Vice President, Human Capital shall notify the claimant in writing whether the claim is upheld or denied in whole or in part or shall furnish the claimant a written notice describing specific special circumstances requiring a specified amount of additional time (but not more than one hundred eighty (180) days from the date the claim was filed) to reach a decision on the claim. If the claim is denied in whole or in part, the Senior Vice President, Human Capital shall state in writing:
(a) | the specific reasons for the denial; | |||
(b) | the specific references to the pertinent provisions of the Plan Statement on which the denial is based; | |||
(c) | a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and | |||
(d) | an explanation of the claims review procedure set forth in this section. |
12.4.2. Review of Denied Claim . Within sixty (60) days after receipt of notice that the claim has been denied in whole or in part, the claimant may file with the Compensation and Human Resources Committee of the Board of Directors (the Comp Committee) a written request for a review and may, in conjunction therewith, submit written issues and comments. Within sixty (60) days after the filing of such a request for review, the Comp Committee shall notify the claimant in writing whether, upon review, the claim was upheld or denied in whole or in part or shall furnish the claimant a written notice describing specific special circumstances requiring a specified amount of additional time (but not more than one hundred twenty (120) days from the date the request for review was filed) to reach a decision on the request for review. If the claimant wishes to seek further review of the Comp Committees decision upon review, the claimant shall submit the claim (or dispute or complaint) to binding arbitration pursuant to the rules of the American Arbitration Association. This is the only right a complainant has for further consideration. The matter must be submitted to binding arbitration within one (1) year of receipt of notice of the Comp Committees final decision upon review. The arbitrators shall have no power to award any punitive or exemplary damages or to vary or ignore the provisions of the Plan Statement and shall be bound by controlling law.
12.4.3. General Rules .
(a) | No inquiry or question shall be deemed to be a claim or a request for a review of a denied claim unless made in accordance with the claims procedure. The Senior Vice President, Human Capital may require that |
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any claim for benefits and any request for a review of a denied claim be filed on forms to be furnished by the Senior Vice President, Human Capital upon request. | ||||
(b) | All decisions on original claims shall be made by the Senior Vice President, Human Capital and all decisions on requests for a review of denied claims shall be made by the Comp Committee. | |||
(c) | The Senior Vice President, Human Capital or the Comp Committee may, in their discretion, hold one or more hearings on a claim or a request for a review of a denied claim. | |||
(d) | A claimant may be represented by a lawyer or other representative (at the claimants own expense), but the Senior Vice President, Human Capital and the Comp Committee reserve the right to require the claimant to furnish written authorization. A claimants representative shall be entitled, upon request, to copies of all notices given to the claimant. | |||
(e) | The decision of the Senior Vice President, Human Capital on a claim and a decision of the Comp Committee on a request for a review of a denied claim shall be served on the claimant in writing. If a decision or notice is not received by a claimant within the time specified, the claim or request for a review of a denied claim shall be deemed to have been denied. | |||
(f) | Prior to filing a claim or a request for a review of a denied claim, the claimant or his or her representative shall have a reasonable opportunity to review a copy of the Plan Statement and all other pertinent documents in the possession of the Senior Vice President, Human Capital and the Comp Committee. | |||
(g) | The Senior Vice President, Human Capital and the Comp Committee may permanently or temporarily delegate its responsibilities under this claims procedure to an individual or a committee of individuals. |
12.5. Limitations and Exhaustion .
12.5.1. Limitations . No claim shall be considered under these administrative procedures unless it is filed with the Senior Vice President, Human Capital within one (1) year after the claimant knew (or reasonably should have known) of the principal facts on which the claim is based. Every untimely claim shall be denied by the Senior Vice President, Human Capital without regard to the merits of the claim. No legal action (whether arising under section 502 or section 510 of ERISA or under any other statute or non-statutory law) may be brought by any claimant on any matter pertaining to the Plans unless the legal action is commenced in the proper forum before the earlier of:
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(a) | two (2) years after the claimant knew (or reasonably should have known) of the principal facts on which the claim is based, or | |||
(b) | ninety (90) days after the claimant has exhausted these administrative procedures. |
Knowledge of all facts that a Participant knew (or reasonably should have known) shall be imputed to each claimant who is or claims to be a Beneficiary of the Participant (or otherwise claims to derive an entitlement by reference to a Participant) for the purpose of applying the one (1) year and two (2) year periods.
12.5.2. Exhaustion Required . The exhaustion of these administrative procedures is mandatory for resolving every claim and dispute arising under the Plans. As to such claims and disputes:
(a) | no claimant shall be permitted to commence any legal action relating to any such claim or dispute (whether arising under section 502 or section 510 of ERISA or under any other statute or non-statutory law) unless a timely claim has been filed under these administrative procedures and these administrative procedures have been exhausted; and | |||
(b) | in any such legal action all explicit and implicit determinations by the Senior Vice President, Human Capital and the Comp Committee (including, but not limited to, determinations as to whether the claim was timely filed) shall be afforded the maximum deference permitted by law. |
SECTION 13
PLAN ADMINISTRATION
13.1. Officers . Except as hereinafter provided, functions generally assigned to UnitedHealth Group shall be discharged by its officers or delegated and allocated as provided herein.
13.2. Chief Executive Officer . Except as hereinafter provided, the CEO may delegate or redelegate and allocate and reallocate to one or more persons or to a committee of persons jointly or severally, and whether or not such persons are directors, officers or employees, such functions assigned to UnitedHealth Group generally hereunder as the CEO may from time to time deem advisable.
13.3. Board of Directors . Notwithstanding the foregoing, the Board of Directors shall have the authority to terminate the Plan and the exclusive authority to determine eligibility of Section 16 Officers to participate in this Plan under Section 2.
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13.4. Senior Vice President, Human Capital . The Senior Vice President, Human Capital shall:
(a) | keep a record of all its proceedings and acts and keep all books of account, records and other data as may be necessary for the proper administration of the Plans; notify the Employers of any action taken by the Senior Vice President, Human Capital and, when required, notify any other interested person or persons; | |||
(b) | determine from the records of the Employers the compensation, status and other facts regarding Participants and other employees; | |||
(c) | prescribe forms to be used for distributions, notifications, etc., as may be required in the administration of the Plans; | |||
(d) | set up such rules, applicable to all Participants similarly situated, as are deemed necessary to carry out the terms of this Plan Statement; | |||
(e) | perform all other acts reasonably necessary for administering the Plans and carrying out the provisions of this Plan Statement and performing the duties imposed on it by the Board of Directors; | |||
(f) | resolve all questions of administration of the Plans not specifically referred to in this section; | |||
(g) | in accordance with regulations of the Secretary of Labor, provide adequate notice in writing to any claimant whose claim for benefits under the Plans has been denied, setting forth the specific reasons for such denial, written in a manner calculated to be understood by the claimant; and | |||
(h) | delegate or redelegate to one or more persons, jointly or severally, and whether or not such persons are employees of the Employers, such functions assigned to the Senior Vice President, Human Capital hereunder as it may from time to time deem advisable. |
If it so determines, the Board of Directors may create a committee and assign any or all duties, authority and responsibilities currently assigned to the Senior Vice President, Human Capital to such committee.
13.5. Delegation . The Board of Directors and the Senior Vice President, Human Capital shall not be liable for an act or omission of another person with regard to a responsibility that has been allocated to or delegated to such other person pursuant to the terms of the Plan Statement or pursuant to procedures set forth in the Plan Statement.
13.6. Conflict of Interest . If any individual to whom authority has been delegated or redelegated hereunder shall also be a Participant in either Plan, such Participant shall have no
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authority with respect to any matter specially affecting such Participants individual rights hereunder or the interest of a person superior to him or her in the organization (as distinguished from the rights of all Participants and Beneficiaries or a broad class of Participants and Beneficiaries), all such authority being reserved exclusively to other individuals as the case may be, to the exclusion of such Participant, and such Participant shall act only in such Participants individual capacity in connection with any such matter.
13.7. Administrator . UnitedHealth Group shall be the administrator for purposes of section 3(16)(A) of ERISA.
13.8. Service of Process . In the absence of any designation to the contrary by the Senior Vice President, Human Capital, the General Counsel of UnitedHealth Group is designated as the appropriate and exclusive agent for the receipt of process directed to the Plans in any legal proceeding, including arbitration, involving the Plan.
13.9. Expenses . All expenses of administering the Plan shall be payable out of the trust fund established for the Plan except to the extent that the Employers, in their discretion, directly pay the expenses.
13.10. Tax Withholding . The Employer (or its delegee) shall withhold the amount of any federal, state or local income tax or other tax required to be withheld by the Employer under applicable law with respect to any amount payable under the Plan.
13.11. Certifications . Information to be supplied or written notices to be made or consents to be given by the Senior Vice President, Human Capital pursuant to any provision of this Plan Statement may be signed in the name of the Senior Vice President, Human Capital by any officer who has been authorized to make such certification or to give such notices or consents.
13.12. Errors in Computations . Neither UnitedHealth Group or the Employer shall be liable or responsible for any error in the computation of the Account or the determination of any benefit payable to or with respect to any Participant resulting from any misstatement of fact made by the Participant or by or on behalf of any survivor to whom such benefit shall be payable, directly or indirectly, to the Employer and used by the Senior Vice President, Human Capital in determining the benefit. The Senior Vice President, Human Capital shall not be obligated or required to increase the benefit payable to or with respect to such Participant which, on discovery of the misstatement, is found to be understated as a result of such misstatement of the Participant. However, the benefit of any Participant which is overstated by reason of any such misstatement or any other reason shall be reduced to the amount appropriate in view of the truth (and to recover any prior overpayment).
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SECTION 14
CONSTRUCTION
14.1. Applicable Laws .
14.1.1. Separate Plans . For purposes of state taxation of benefits under the Plan, the Plan consist of two separate plans: (1) the 401(k) Restoration Option Plan, and (2) the Incentive Deferral and Salary Deferral Option Plan. The purpose of the Plans is to provide retirement income to Participants.
14.1.2. ERISA Status . The Plan is maintained with the understanding that the Plan is an unfunded plan maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees as provided in section 201(2), section 301(3) and section 401(a)(1) of ERISA. Each provision shall be interpreted and administered accordingly. If any individually contracted supplemental retirement arrangement with any Section 16 Officer is deemed to be covered by ERISA, such arrangement shall be included in the Incentive Deferral Option and Salary Deferral Option Plan but only to the extent that such inclusion is necessary to comply with ERISA.
14.1.3. IRC Status . The Plan is intended to be a nonqualified deferred compensation arrangement. The rules of section 401(a) et. seq. of the Code shall not apply to the Plan. The rules of section 3121(v) and section 3306(r)(2) of the Code shall apply to the Plan.
14.1.4. Securities Laws Compliance . If any security of UnitedHealth Group is offered as a Measuring Investment under the Plan, then decisions assigned in this Plan Statement to the Senior Vice President, Human Capital shall instead by made by the Board of Directors to the extent any such decision could affect the interest of any Section 16 Officer in securities of UnitedHealth Group, including without limitation any change in Valuation Dates.
14.1.5. References to Laws . Any reference in the Plan Statement to a statute or regulation shall be considered also to mean and refer to any subsequent amendment or replacement of that statute or regulation.
14.2. Effect on Other Plans . This Plan Statement shall not alter, enlarge or diminish any persons employment rights or obligations or rights or obligations under any other employee pension benefit or employee welfare benefit plan.
14.3. Disqualification . Notwithstanding any other provision of the Plan Statement or any election or designation made under the Plan, any potential Beneficiary who feloniously and intentionally kills a Participant shall be deemed for all purposes of the Plan and all elections and designations made under the Plan to have died before such Participant. A final judgment of conviction of felonious and intentional killing is conclusive for this purpose. In the absence of a conviction of felonious and intentional killing, the Senior Vice President, Human Capital shall determine whether the killing was felonious and intentional for this purpose.
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14.4. Rules of Document Construction .
(a) | Whenever appropriate, words used herein in the singular may be read in the plural, or words used herein in the plural may be read in the singular; the masculine may include the feminine; and the words hereof, herein or hereunder or other similar compounds of the word here shall mean and refer to the entire Plan Statement and not to any particular paragraph or Section of the Plan Statement unless the context clearly indicates to the contrary. | |||
(b) | The titles given to the various Sections of the Plan Statement are inserted for convenience of reference only and are not part of the Plan Statement, and they shall not be considered in determining the purpose, meaning or intent of any provision hereof. | |||
(c) | Notwithstanding any thing apparently to the contrary contained in the Plan Statement, the Plan Statement shall be construed and administered to prevent the duplication of benefits provided under the Plans and any other qualified or nonqualified plan maintained in whole or in part by the Employers. |
14.5. Choice of Law . This instrument has been executed and delivered in the State of Minnesota and has been drawn in conformity to the laws of that State and shall, except to the extent that federal law is controlling, be construed and enforced in accordance with the laws of the State of Minnesota.
14.6. No Employment Contract . This Plan Statement is not and shall not be deemed to constitute a contract of employment between the Employer and any person, nor shall anything herein contained be deemed to give any person any right to be retained in the employ of the Employer or in any way limit or restrict any such Employers right or power to discharge any person at any time and to treat any person without regard to the effect which such treatment might have upon him or her as a Participant in the Plan. Neither the terms of the Plan Statement nor the benefits under the Plan nor the continuance of the Plan shall be a term of the employment of any employee. The Employer shall not be obliged to continue the Plans.
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Dated: , 2004. |
UNITEDHEALTH GROUP
INCORPORATED |
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By: | |||
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L. Robert Dapper | |||
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Senior Vice President, Human Capital |
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SCHEDULE I
EMPLOYERS PARTICIPATING
IN THE
UNITEDHEALTH GROUP EXECUTIVE SAVINGS PLAN
1. | United HealthCare Services, Inc. | |||
2. | U.S. Behavioral Health Plan, California | |||
3. | UHC International Services, Inc. | |||
4. | UnitedHealthcare International, Inc. | |||
5. | UnitedHealthcare Alliance LLC (formerly UnitedHealthcare of Minnesota, Inc.) | |||
6. | Evercare Collaborative Solutions, Inc. |
SI-1
SCHEDULE II
MEASURING INVESTMENTS
A. Measuring Investments as of January 1, 2004 . The following are the Measuring Investments as of January 1, 2004:
1. | American Funds EuroPacific A | |||
2. | Dodge & Cox Income Fund | |||
3. | Dodge & Cox Stock Fund | |||
4. | PBHG Growth Fund ( Note: Effective January 15, 2004, this fund is closed) | |||
5. | Rice Hall James Micro Cap Portfolio | |||
6. | Vanguard Institutional Index Fund (Investor Shares) | |||
7. | Vanguard MidCap Index Fund (Investor Shares) | |||
8. | Vanguard Prime Money Market (Investor Shares) | |||
9. | Wellington Managements Stock Fund: Y | |||
10. | Wellington Management: Hartford MidCap Fund: Y | |||
11. | Wells Fargo Growth Balanced Fund (Institutional Class) | |||
12. | Wells Fargo Stable Income (Institutional Class) | |||
13. | Wells Fargo Strategic Growth Allocation Fund (Institutional Class) | |||
14. | Wells Fargo Strategic Income Fund (Institutional Class) |
B. Default Rules . If a Participant does not designate which Measuring Investments shall be used to determine the value of the Participants Account, the value of the Participants Account will be determined using the default Measuring Investment designated by the Senior Vice President, Human Capital. As of January 1, 2004, the default Measuring Investment shall be the Wells Fargo Strategic Income Fund.
SII-1
Exhibit 10(g)
FIRST AMENDMENT
OF
UNITEDHEALTH GROUP
DIRECTORS COMPENSATION DEFERRAL PLAN
(2002 Statement)
WHEREAS, UNITEDHEALTH GROUP INCORPORATED, a Minnesota corporation (UnitedHealth Group), has heretofore established and maintains a nonqualified, unfunded, deferred compensation plan (the Plan) for the benefit of certain members of its Board of Directors; and
WHEREAS, Said Plan is currently embodied in a document adopted on October 30, 2001, and entitled UNITEDHEALTH GROUP DIRECTORS COMPENSATION DEFERRAL PLAN (2002 Statement) (the Plan Statement); and
WHEREAS, Pursuant to Sections 10.1 of the Plan Statement, the Compensation and Human Resources Committee of the Board of Directors of UnitedHealth Group (the Compensation Committee) has the general power to amend the Plan Statement by a written instrument executed by UnitedHealth Group; and
WHEREAS, UnitedHealth Group desires to amend the Plan Statement to provide for the following: (i) pre-2004 and post-2003 deferrals will be accounted for separately; (ii) post-2003 deferrals shall not be available for on-demand distributions or accelerated distributions; (iii) beginning in 2004, a participant may elect different distribution options for each years deferrals; and (iv) the addition of new distribution option: a lump sum payment in the year following the fifth anniversary of the participants last day of service as a director.
NOW, THEREFORE, The Plan Statement is hereby amended in the following respects:
1. DEFINITION OF ACCOUNT. Effective January 1, 2004, Section 1.2.1 of the Plan Statement is amended to read in full as follows:
1.2.1. Account - the separate bookkeeping account established for each Participant which represents the separate unfunded and unsecured general obligation of UnitedHealth Group established with respect to each person who is a Participant in this Plan in accordance with Section 2 and which are credited to the dollar amounts specified in Sections 3 and 4 and from which are subtracted payments made pursuant to Section 8. The following accounts will be maintained under this Plan for Participants:
(a) | Pre-2004 Account - the account maintained for each Participant to which are credited the dollar amounts specified in Sections 3 and 4 for Plan Years ending on or before December 31, 2003. | ||
(b) | Post-2003 Account - the account maintained for each Participant to which are credited the dollar amounts specified in Sections 3 and 4 for |
Plan Years beginning after December 31, 2003. To the extent necessary to accommodate and effect the distribution elections made by Participants pursuant to Section 8.3 and Section 8.9.2 for Plan Years beginning after December 31, 2003, separate bookkeeping sub-accounts shall be established with respect to each of the several annual forms of distribution elections and pre-selected in-service distribution elections made by Participants. |
2. CLARIFICATION REGARDING ENROLLMENT IN DEFERRAL OPTIONS. Effective January 1, 2004, Section 3.1.1 of the Plan Statement is amended to read in full as follows:
3.1.1. Amount of Deferrals . Through a voice response system (or other written or electronic means) approved by the Committee, a Participant may elect to defer between (and including) 1% and 100% of such Participants Board Compensation for Board services for a Plan Year. The Committee may establish prospectively other percentage limits. To be effective for a Plan Year, the deferral election must be received by the Committee or its designee by the enrollment deadline designated by the Committee. For a newly eligible Participant, however, the deferral election must be received by the Committee within 30 days after the first day of such eligibility, and, if so received, deferral shall be effective as of the first day of the month following such receipt with respect to the remainder of the Plan Year. Such deferral election shall be irrevocable for the Plan Year with respect to which it is made once it has been received by the Committee or its designee.
3. MEASURING INVESTMENT. Effective as of August 1, 2002, the third sentence of Section 4.1 of the Plan Statement is amended to read in full as follows:
The Measuring Investments as of August 1, 2002 are listed in Schedule I to the Plan Statement.
4. DISTRIBUTION OF POST-2003 ACCOUNTS. Effective for Plan Years beginning on or after January 1, 2004, Section 8.2 of the Plan Statement is amended to read in full as follows:
8.2. Form of Distribution . As determined under the rules of Section 8.4, distribution of the Participants Post-2003 Account shall be made in one or more of the following forms:
(a) | Immediate Lump Sum . Distribution of the Participants Post-2003 Account shall be made in a single lump sum. The amount of such distribution shall be determined as soon as administratively feasible as of a Valuation Date following the Plan Year in which occurs the Participants Termination of Directorship and shall be actually paid to the Participant as soon as practicable after such determination (but not later than the last day of the February following such Plan Year). | ||
(b) | Installments . Distribution of the Participants Post-2003 Account shall be made in a series of five (5) or ten (10) annual installments. |
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(i) | In General . The amount of the first installment will be determined as soon as administratively feasible following the Plan Year in which occurs the Participants Termination of Directorship and the amount of future installments will be determined as soon as administratively feasible following the end of each following Plan Year. The amount of each installment shall be determined by dividing the Participants Post-2003 Account balance as of the Valuation Date as of which the installment is being paid, by the number of remaining installment payments to be made (including the payment being determined). Such installments shall be actually paid as soon as practicable after each such determination (but not later than the last day of the February following such Plan Year). | |||
(ii) | Exception for Small Amounts . Notwithstanding the foregoing provisions of this Section 8.2(b), if the value of the Participants Post-2003 Account as of the Valuation Date as of which an installment payment is to be determined does not exceed Five Thousand Dollars ($5,000), the Participants entire Post-2003 Account shall be paid in the form of a lump sum as soon as administratively practicable after such Valuation Date. For this purpose, the value of the Post-2003 Account shall be determined after reduction for any lump sum or other payment that is also payable to such Participant as of such Valuation Date. |
(c) | Five (5) Year Delay, Then Lump Sum . Distribution of the Participants Post-2003 Account shall be made in a single lump sum payment following the fifth (5th) anniversary of the Participants Termination of Directorship. The amount of such distribution shall be determined as soon as administratively feasible as of a Valuation Date following the calendar year in which occurs the fifth (5th) anniversary of the Participants Termination of Directorship. Actual distribution shall be made as soon as administratively practicable after such determination. Notwithstanding the foregoing, if the value of the Participants Post-2003 Account does not exceed Five Thousand Dollars ($5,000) as of the Annual Valuation Date in the Plan Year in which the Participant experienced a Termination of Employment or Disability or any following Plan Year, the Participants Post-2003 Account shall be paid in a lump sum as soon as practicable after such determination (but not later than the last day of the February following such Plan Year). | ||
(d) | Ten (10) Year Delay, Then Lump Sum . Distribution of the Participants Post-2003 Account shall be made in a single lump sum payment following the tenth (10th) anniversary of the Participants Termination of Directorship. The amount of such distribution shall be determined as soon |
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as administratively feasible as of a Valuation Date following the calendar year in which occurs the tenth (10th) anniversary of the Participants Termination of Directorship. Actual distribution shall be made as soon as administratively practicable after such determination. Notwithstanding the foregoing, if the value of the Participants Post-2003 Account does not exceed Five Thousand Dollars ($5,000) as of the Annual Valuation Date in any Plan Year in which the Participant experienced a Termination of Employment or Disability or any following Plan Year, the Participants Post-2003 Account shall be paid in a lump sum as soon as practicable after such determination (but not later than the last day of the February following such Plan Year). |
5. DISTRIBUTION OF PRE-2004 ACCOUNTS. Effective for Plan Years beginning on or after January 1, 2004, Section 8 of the Plan Statement is amended by adding thereto the following new Section 8.3 and all subsequent sections (and cross references thereto) shall be renumbered accordingly.
8.3. Form of Distribution for Pre-2004 Account . As determined under the rules of Section 8.4, distribution of the Participants Pre-2004 Account shall be made in one of the following forms:
(a) | Immediate Lump Sum . Distribution of the Participants Pre-2004 Account shall be made in a single lump sum. The amount of such distribution shall be determined as soon as administratively feasible as of a Valuation Date following the Plan Year in which occurs the Participants Termination of Directorship and shall be actually paid to the Participant as soon as practicable after such determination (but not later than the last day of the February following such Plan Year). | ||
(b) | Installments . Distribution of the Participants Pre-2004 Account shall be made in a series of five (5) or ten (10) annual installments. |
(i) | General Rule . The amount of the first installment will be determined as soon as administratively feasible following the Plan Year in which occurs the Participants Termination of Directorship and the amount of future installments will be determined as soon as administratively feasible following the end of each following Plan Year. The amount of each installment shall be determined by dividing the Participants Pre-2004 Account balance as of the Valuation Date as of which the installment is being paid, by the number of remaining installment payments to be made (including the payment being determined). Such installments shall be actually paid as soon as practicable after each such determination |
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(but not later than the last day of the February following such Plan Year). | ||||
(ii) | Accelerated Payment . A Participant who has the installment option may, after Termination of Directorship, elect through a voice response system (or other written or electronic means) approved by the Committee to receive a cash lump sum payment of the total remaining balance of the Participants Pre-2004 Account (but not part thereof) for any reason; provided, however, that the Pre-2004 Account balance will be reduced by a penalty of ten percent (10%), and the Participant will receive ninety percent (90%) of the Pre-2004 Account balance. The penalty of ten percent (10%) of the Pre-2004 Account balance will be forfeited to UnitedHealth Group to be used as the Committee determines in its discretion. The amount of such distribution shall be determined as soon as administratively feasible following the receipt of the request by the Committee and shall be actually paid to the Participant as soon as practicable after such determination. | |||
(iii) | Exception for Small Amounts . Notwithstanding the foregoing provisions of this Section 8.3(b), if the value of the Participants Pre-2004 Account as of the Valuation Date as of which an installment payment is to be determined does not exceed Five Thousand Dollars ($5,000), the Participants entire Pre-2004 Account shall be paid in the form of a lump sum as soon as administratively practicable after such Valuation Date. |
(c) | Delayed Lump Sum . Distribution of the Participants Pre-2004 Account shall be made in a single lump sum following the tenth (10) anniversary of the Participants Termination of Directorship, subject to the following rules: |
(i) | General Rule . The amount of such distribution shall be determined as soon as administratively feasible as of a Valuation Date following the Plan Year in which occurs the tenth (10th) anniversary of the Participants Termination of Directorship. Actual distribution shall be made as soon as practicable after such determination (but not later than the last day of February following such Plan Year). Notwithstanding the foregoing, if the value of the Participants Pre-2004 Account does not exceed Five Thousand Dollars ($5,000) as of the Annual Valuation Date in any year following the Plan Year in which the Participant experienced a Termination of Employment or Disability or any following Plan Year, the Participants Pre-2004 Account shall be paid in a lump |
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sum as soon as practicable after such determination (but not later than the last day of the February following such Plan Year). | ||||
(ii) | Immediate Accelerated Payment . A Participant who has experienced a Termination of Directorship and for whom the delayed lump sum distribution option is in effect may elect through a voice response system (or other written or electronic means) approved by the Committee to receive a lump sum distribution of the Participants Pre-2004 Account before the tenth (10th) anniversary of the Participants Termination of Directorship; provided, however, that the Pre-2004 Account balance will be reduced by a penalty of ten percent (10%), and the Participant will receive ninety percent (90%) of the Pre-2004 Account balance. The penalty of ten percent (10%) of the Pre-2004 Account balance will be forfeited to UnitedHealth Group to be used as the Committee determines in its discretion. The amount of such distribution shall be determined as soon as administratively feasible following the receipt of the request by the Committee and shall be actually paid to the Participant as soon as practicable after such determination. | |||
(iii) | Delayed Accelerated Payment . A Participant who has elected the delay lump sum distribution option may, after Termination of Directorship, make a one-time election through a voice response system (or other written or election means), approved by the Committee to receive either a lump sum distribution of the Participants Pre-2004 Account before the tenth (10th) anniversary of the Participants Termination of Directorship, or five (5) annual installments, subject to the following rules: |
(A) | Any election to receive a lump sum payment before the tenth (10) anniversary of the Participants Termination of Directorship must be received by the Committee no later than the December 31 of the calendar year in which occurs the eighth (8th) anniversary of the Participants Termination of Directorship. | |||
(B) | Any election to receive five (5) annual installments must be received by the Committee no later than the December 31 of the calendar year in which occurs the fourth (4th) anniversary of the Participants Termination of Directorship. | |||
(C) | Any election to receive either a lump sum distribution of the Participants Pre-2004 Account before the tenth (10th) |
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anniversary of the Participants Termination of Directorship or five (5) annual installments shall not be effective until twelve (12) months after it is received by the Committee (if the Participant dies before the end of such 12-month period, such election shall not be effective). |
6. ELECTION OF FORM OF DISTRIBUTION BY PARTICIPANT. Effective for Plan Years beginning on or after January 1, 2004, Section 8.4 (formerly Section 8.3) of the Plan Statement is amended to read in full as follows:
8.4. Election of Form of Distribution by Participant .
8.4.1. Initial Enrollment . Through a voice response system (or other written or electronic means) approved by the Committee, each Participant shall elect a form of distribution at the time of initial enrollment in the Plan, subject to the following:
(a) | Forms of Distribution For Pre-2004 Accounts . If an individual was first eligible to become a Participant in the Plan prior to December 31, 2003, such Participant elected at the time of initial enrollment in the Plan whether to receive distribution of the Participants Pre-2004 Account (as described in Section 8.3) in either: (i) an immediate lump sum, (ii) five (5) or ten (10) annual installments, or (iii) a delayed lump sum following the tenth (10th) anniversary of the Participants Termination of Directorship. An initial distribution election made by a Participant for any Plan Year beginning prior to December 31, 2003, shall remain in effect with respect to the Participants Pre-2004 Account for all subsequent Plan Years unless the Participant elects to change the form of distribution pursuant to the provisions of Section 8.4.4. An initial distribution election made by a Participant for any Plan Year beginning prior to December 31, 2003, shall remain in effect with respect to the Participants Post-2003 Account for all Plan Years beginning on or after January 1, 2004, unless, prior to a subsequent Plan Year, the Participant files a new distribution election for the Participants Post-2003 Account with the Committee in accordance with the provisions of Section 8.4.3. | ||
(b) | Forms of Distribution For Post-2003 Account . If an individual is first eligible to become a Participant in this Plan after December 31, 2003, such Participant shall elect at the time of initial enrollment in the Plan whether distribution of the Participants Post-2003 Account shall be made (as described in Section 8.2) in either: (i) an immediate lump sum, (ii) five (5) or ten (10) annual installments, or (iii) a delayed lump sum following the fifth (5th) or tenth (10th) anniversary of the Participants Termination of Directorship. Such distribution election shall remain in effect with respect to the Participants Post-2003 Account for all subsequent Plan Years unless, prior to a subsequent Plan Year, the Participant files a new |
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distribution election for the Participants Post-2003 Account with the Committee in accordance with the provisions of Section 8.4.3. |
8.4.2. Default Election of Form of Distribution . If a Participant fails to elect a form of distribution, such Participant shall be deemed to have elected that distribution be made in an immediate lump sum as described in Section 8.2(a) or Section 8.3(a).
8.4.3. Separate Distributions Elections Permitted Each Plan Year for Post-2003 Account . Any initial or default distribution election made by a Participant with respect to the Participants Post-2003 Account shall remain in effect with respect to the Participants Post-2003 Account for all subsequent Plan Years unless, prior to a subsequent Plan Year, the Participant files a new distribution election for the Participants Post-2003 Account electing a different form of distribution for that portion of the Participants Post-2003 Account attributable to deferrals for such subsequent Plan Year (and any investment gains or losses on such deferrals). Through a voice response system (or other written or electronic means) approved by the Committee, a Participant may elect a different form of distribution for that portion of the Participants Post-2003 Account attributable to deferrals for a subsequent Plan Year (and any investment gains or losses on such deferrals). To be effective for deferrals for a Plan Year, the new distribution election must be received by the Committee or its designee by the deadline designated by the Committee. If a Participant files a new distribution election with respect to the Participants Post-2003 Account with the Committee pursuant to this Section 8.4.3, such distribution election shall remain in effect for all subsequent Plan Years unless, prior to a subsequent Plan Year, the Participant files with the Committee another distribution election for the Participants Post-2003 Account electing a different form of distribution for that portion of the Participants Post-2003 Account attributable to deferrals for such subsequent Plan Year (and any investment gains or losses in such deferrals).
8.4.4. Periodic Re-Election . Through a voice response system (or other written or electronic means) approved by the Committee, initial and default distribution elections may be changed by the Participant from time to time, subject to the following:
(a) | For Pre-2004 Accounts . Each subsequent distribution election filed with respect to the Participants Pre-2004 Account shall supercede all prior distribution elections filed with respect to the Participants Pre-2004 Account and shall be effective as to the Participants entire Pre-2004 Account as if the new distribution election had been made at the time of the Participants initial enrollment. | ||
(b) | For Post-2003 Accounts . Each subsequent distribution election filed with respect to the Participants Post-2003 Account shall supersede all prior distribution elections filed with respect to such specified portion of the Participants Post-2003 and shall be effective as to the specified portion of the Participants Post-2003 Account. If, however, the subsequent distribution election does not have the effect of delaying payment of the lump sum (or, in the case of installments, of each installment) under the |
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prior election for at least five (5) years, such distribution election shall be disregarded as if it had never been filed (and the prior effective distribution election shall be given effect). | |||
(c) | In General . Notwithstanding the foregoing, any new distribution election shall be disregarded as if it had never been filed (and the prior effective distribution election shall be given effect) unless the distribution election: |
(i) | is filed by a Participant who is still performing Board services, | |||
(ii) | is filed with the Committee at least twelve (12) months before the Participants scheduled distribution date following the Participants Termination of Directorship, and | |||
(iii) | is filed at least twelve (12) months after the initial distribution election for the Participants Pre-2004 Account (or, if one or more prior changes has been filed, within twelve (12) months after the latest of such changes was filed), or is filed at least twelve (12) months after the initial distribution election for the specified portion of the Participants Post-2003 Account (or, if one or more prior changes has been filed, within twelve (12) months after the latest of such changes was filed). | |||
No spouse, former spouse, Beneficiary or other person shall have any right to participate in the Participants decision to revise distribution elections. |
7. IN-SERVICE DISTRIBUTIONS. Effective for all in-service distributions payable on or after January 1, 2004, Section 8.9 (formerly Section 8.8) of the Plan Statement is amended to read in full as follows:
8.9. In Service Distributions .
8.9.1. Pre-Selected In-Service Distributions From Pre-2004 Account . Each Participant who initially enrolled in the Plan prior to January 1, 2004, had a one-time opportunity, when initially enrolling in the Plan, to elect one (1) or more pre-selected in-service distribution dates for all or a portion of the Participants Pre-2004 Account, subject to the following rules:
(a) | Such election shall be made through a voice response system (or other written or electronic means) approved by the Committee. | ||
(b) | No such distribution will be made from the Participants Pre-2004 before the January 1 of the calendar year that follows the third full Plan Year after the Participant first enrolled in the Plan. |
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(c) | Only one such in-service distribution from the Participants Pre-2004 Account will be made in any Plan Year. | ||
(d) | The minimum amount of such in-service distribution from the Participants Pre-2004 Account is One Thousand Dollars ($1,000). | ||
(e) | Through a voice response system (or other written or electronic means) approved by the Committee, the Participant may request to postpone any pre-selected in-service distribution date. A pre-selected in-service distribution date may be postponed only once. The Participant must file the extension request with the Committee at least twelve (12) months before the scheduled date of distribution. | ||
(f) | Through a voice response system (or other written or electronic means) approved by the Committee, the Participant may request that a pre-selected in-service distribution date be cancelled (whether or not previously extended). The Participant must file the cancellation request with the Committee at least twelve (12) months before the scheduled date of distribution. | ||
(g) | The distribution amount shall be determined as soon as administratively feasible on or after the pre-selected distribution date and shall be actually paid as soon as practicable after such determination. | ||
(h) | If the Participant dies or experiences a Termination of Directorship before the scheduled pre-selected in-service distribution date, no distribution shall be made on such date. |
8.9.2. Pre-Selected In-Service Distributions From Post-2003 Account . Each Participant has the opportunity, when enrolling in the Plan for each Plan Year beginning on or after January 1, 2004, to elect one (1) or more pre-selected in-service distribution dates for all or a portion of the Participants Post-2003 Account attributable to deferrals for such Plan Year (and any investment gains or losses on such deferrals), subject to the following rules:
(a) | Such election shall be made through a voice response system (or other written or electronic means) approved by the Committee. | ||
(b) | No such distribution will be made before the January 1 of the calendar year that follows the third full Plan Year after the Participant was first eligible to elect a pre-selected in-service distribution from that portion of the Participants Post-2003 Account attributable to deferrals for such Plan Year and any subsequent investment gains or losses on such deferrals ( e.g. , the earliest pre-selected in-service distribution date for any deferrals made in 2004 is January 1, 2007). |
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(c) | A Participant may receive more than one (1) pre-selected in-service distribution from the Participants Post-2003 Account in any Plan Year but only if each distribution is attributable to deferrals for different Plan Years. Only one (1) pre-selected in-service distribution may be made in any Plan Year from that portion of the Participants Post-2003 Account attributable to deferrals for the same Plan Year. | ||
(d) | The Participant who elects a pre-selected in-service distribution date and subsequently experiences a Termination of Directorship will receive such in-service distribution, if the in-service distribution date is prior to the distribution of the Participants total Post-2003 Account. | ||
(e) | The minimum amount of any pre-selected in-service distribution from the Participants Post-2003 Account is One Thousand Dollars ($1,000). | ||
(f) | Through a voice response system (or other written or electronic means) approved by the Committee, the Participant may request to postpone any pre-selected in-service distribution date for five (5) years. A pre-selected in-service distribution may be postponed only once. The Participant must file the extension request with the Committee at least twelve (12) months before the scheduled date of distribution. | ||
(g) | A Participant may not cancel any pre-selected in-service distribution from the Participants Post-2003 Account. | ||
(h) | The distribution amount shall be determined as soon as administratively feasible on or after the pre-selected distribution date and shall be actually paid as soon as practicable after such determination. |
8.9.3. On Demand In-Service Distributions .
(a) | Election . Through a voice response (or other written or electronic means) approved by the Committee, a Participant may elect to receive all or a portion of such Participants Pre-2004 Account prior to Termination of Directorship for any reason; provided, however, that the requested distribution amount will be reduced by a penalty equal to ten percent (10%) of the requested amount, and the Participant will receive ninety percent (90%) of the requested amount. The penalty of ten percent (10%) of the requested amount will be forfeited to UnitedHealth Group to be used as the Committee determines in its discretion. A Participant may not elect to receive an on demand in-service distribution of any portion of the Participants Post-2003 Account. | ||
(b) | Distribution Amount . The minimum amount of such distribution is One Thousand Dollars ($1,000). The amount of such distribution shall be determined as soon as administratively feasible as of a Valuation Date |
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following the receipt of the request by the Committee or its designee and shall be actually paid to the Participant as soon as practicable after such determination. | |||
(c) | Suspension Rule . If a Participant receives such a distribution, the Participants deferrals under Section 3 shall cease as soon as administratively practicable following the date such distribution is made. The Participant may not again elect to defer compensation under this Plan until the enrollment for the Plan Year that begins at least six (6) months after such distribution. |
8.9.4. In-Service Distribution for Financial Hardship .
(a) | Election . A Participant may elect in writing to receive all or part of the Participants Account prior to Termination of Directorship to alleviate a Financial Hardship. A Beneficiary of a deceased Participant may also request an early distribution for Financial Hardship. | ||
(b) | Financial Hardship Defined . For purposes of this Plan, Financial Hardship means a severe financial hardship to the Participant resulting from a sudden and unexpected illness or accident of the Participant or a dependent (as defined in section 152(a) of the Code), loss of the Participants property due to casualty, or other similar extraordinary and unforeseeable emergency circumstances arising as a result of events beyond the control of the Participant. If a hardship is or may be relieved either (i) through reimbursement or compensation by insurance or otherwise, (ii) by liquidation of the Participants assets (to the extent the liquidation of such assets would not itself cause severe financial hardship), or (iii) by cessation of deferrals under this Plan (at the earliest possible date otherwise permitted under this Plan) or any 401(k) plan, then the hardship shall not constitute a Financial Hardship for purposes of this Plan. If a Beneficiary of a deceased Participant requests an early distribution for Financial Hardship, then the references in this definition to Participant shall be deemed to be references to such Beneficiary. | ||
(c) | Distribution Amount . The minimum amount of such distribution is One Thousand Dollars ($1,000). The amount of such distribution shall be determined as soon as administratively feasible on or after approval of the request by the Committee or its designee and shall be actually paid as soon as practicable after such approval. | ||
(d) | Suspension Rule . If a Participant receives a distribution due to Financial Hardship, the Participants deferrals under Section 3 will cease as soon as administratively practicable following the date such distribution is made. The Participant may not again elect to defer compensation under this Plan |
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until the enrollment period for the Plan Year that begins at least six (6) months after such distribution. |
8. SCHEDULE I. Effective August 1, 2002, Schedule I to the Plan Statement is amended by substituting therefor the Schedule I attached to this amendment.
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9. SAVINGS CLAUSE. Save and except as hereinabove expressly amended, the Plan
Statement shall continue in full force and effect.
Dated:
, 2004.
UNITEDHEALTH GROUP INCORPORATED
By:
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SCHEDULE I
MEASURING INVESTMENTS
A. Measuring Investments as of August 1, 2002 . The following are the Measuring Investments as of August 1, 2002:
1. | American Funds EuroPacific A | ||
2. | Dodge & Cox Income Fund | ||
3. | Dodge & Cox Stock Fund | ||
4. | PBHG Growth Fund ( Note: Effective January 15, 2004, this fund is closed) | ||
5. | Rice Hall James Micro Cap Portfolio | ||
6. | Vanguard Institutional Index Fund (Investor Shares) | ||
7. | Vanguard MidCap Index Fund (Investor Shares) | ||
8. | Vanguard Prime Money Market (Investor Shares) | ||
9. | Wellington Managements Stock Fund: Y | ||
10. | Wellington Management: Hartford MidCap Fund: Y | ||
11. | Wells Fargo Growth Balanced Fund (Institutional Class) | ||
12. | Wells Fargo Stable Income (Institutional Class) | ||
13. | Wells Fargo Strategic Growth Allocation Fund (Institutional Class) | ||
14. | Wells Fargo Strategic Income Fund (Institutional Class) |
B. Measuring Investments prior to August 1, 2002 . The following are the Measuring Investments prior to August 1, 2002:
1. |
One-Choice Conservative American Century Strategic
Allocation:
Conservative Fund |
||
2. |
One-Choice Moderate American Century Strategic
Allocation:
Moderate Fund |
SI-1
3. |
One-Choice Aggressive American Century Strategic
Allocation:
Aggressive Fund |
||
4. | Bond Index Vanguard Total Bond Market Index Fund | ||
5. | S & P 500 Index First American Index Fund | ||
6. | Wilshire 4500 Index Vanguard Extended Market Index Fund | ||
7. | Money Market First American Prime Obligations Fund | ||
8. | Stable Value Wells Fargo Stable Income Fund | ||
9. | Bond Loomis Sayles Bond Fund | ||
10. | Large-Cap Dodge & Cox Stock Fund | ||
11. | Large-Cap Growth Alliance Premier Growth Fund | ||
12. | Mid-Cap Value Sound Shore Fund | ||
13. | Mid-Cap Growth Wanburg Pincus Emerging Growth Fund | ||
14. | International Value Templeton Foreign Fund | ||
15. | International Growth American Century International Growth Fund | ||
16. | Small-Cap Value Loomis Sayles Small-Cap Value Fund | ||
17. | Small-Cap Growth Loomis Sayles Small-Cap Growth Fund | ||
18. | Mid-Cap Growth PBHG Growth Fund ( Note: Effective January 15, 2004, this fund is closed) |
C. Default Rules . If a Participant does not designate which Measuring Investments shall be used to determine the value of the Participants Account, the value of the Participants Account will be determined using the following Measuring Investments:
(i) | On or After August 1, 2002 . For all amounts credited to the Participants Account on or after August 1, 2002, the default Measuring Investment shall be the Wells Fargo Strategic Income Fund. | ||
(ii) | Prior to August 1, 2002 . For all amounts credited to the Participants Account prior to August 1, 2002, the default Measuring Investment shall be the American Century Strategic Allocation Conservative Fund. |
SI-2
EXHIBIT 10(O)
EMPLOYMENT AGREEMENT
This Agreement, effective as of October 1, 1998 (the Effective Date), is made by and between David S. Wichmann (Executive) and United HealthCare Services, Inc. (United HealthCare) for the purpose of setting forth the terms and conditions of Executives employment by United HealthCare, or an affiliate or subsidiary of United HealthCare, and to protect United HealthCares knowledge, expertise, customer relationships and the confidential information United HealthCare has developed about its customers, products, operations and services. Unless the context otherwise requires, when used in this Agreement United HealthCare includes any entity affiliated with United HealthCare.
WHEREAS, as additional consideration for entering into this Agreement Executive shall receive, upon execution of this Agreement, a nonqualified stock option to purchase 30,000 shares of United HealthCare Corporation (UHC) common stock with a grant date the same as the Effective Date pursuant to the terms of the UHC Amended and Restated 1991 Stock and Incentive Plan.
WHEREAS, Executive and United HealthCare desire to enter into this Agreement, which shall supersede any and all other prior employment-related agreements between Executive and United HealthCare.
NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained and intending to be legally bound hereby, the parties hereto agree as follows:
1. Employment and Duties; Termination of Prior Agreements.
A. Employment. United HealthCare hereby employs Executive, either directly or through an affiliate or subsidiary of United HealthCare, and Executive hereby accepts such employment on the terms and conditions set forth in this Agreement. Except as specifically superseded by this Agreement, Executives employment hereunder shall be subject to all of United HealthCares policies and procedures in regard to its employees. Executives employment hereunder shall begin on the Effective Date and shall continue until terminated as set forth in Section 3 hereof.
B. Duties. Executive shall initially hold the executive level position of Senior Vice President, Corporate Development and perform the duties associated therewith. Executive shall perform such other executive level responsibilities as are reasonably assigned Executive from time to time. Executive agrees to devote substantially all of Executives business time and energy to the performance of Executives duties in a diligent and proper manner.
C. Termination of Prior Agreements. As of the Effective Date all other prior employment related agreements between Executive and United HealthCare will terminate in their entirety and no longer be of any force or effect.
2. Compensation.
A. Base Salary. Executive shall initially be paid a base annual salary in the amount of $200,000, payable bi-weekly, less all applicable withholdings and deductions (the Initial Base Salary). Executive shall receive a periodic performance review and consideration for an increase in the Initial Base Salary.
B. Bonus and Stock Plans. Executive shall be eligible to participate in the incentive compensation plans and the stock option and grant plans maintained by United HealthCare or an affiliate or subsidiary of United HealthCare, in the sole discretion of United HealthCare and in accordance with the terms and conditions of those plans and applicable laws and regulations.
C. Employee Benefits. Executive shall be eligible to participate in the employee benefit plans maintained by either United HealthCare or an affiliate or subsidiary of United HealthCare, including without limitation, any life, health, dental, short-term and long-term disability insurance coverages and any retirement plans, in the sole discretion of United HealthCare and in accordance with the terms and conditions of those plans and applicable laws and regulations.
D. Vacation; Illness. Executive shall be eligible for paid vacation and sick leave each year in accordance with the then-current policies of either United HealthCare or an affiliate or subsidiary of United HealthCare, in the sole discretion of United HealthCare and in accordance with the terms and conditions of those plans and applicable laws and regulations.
3. Term and Termination.
A. Term. The term of this Agreement shall begin on the Effective Date and shall continue until terminated as set forth in Section 3B.
B. Termination of Agreement.
1. By Mutual Agreement: This Agreement and Executives employment hereunder may be terminated at any time by the mutual written agreement of the parties.
2. By United HealthCare: United HealthCare may terminate this Agreement and Executives employment hereunder on 30 days written notice.
3. By Executive: Executive may terminate this Agreement and Executives employment hereunder on 30 days written notice.
4. Death, Disability, Etc.: This Agreement and Executives employment by United HealthCare shall terminate immediately upon Executives death. This Agreement and Executives employment hereunder shall automatically terminate in the event
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of a permanent and total disability which renders Executive incapable of performing Executives duties, with or without reasonable accommodation. United HealthCare has the sole discretion to determine whether Executive is permanently or totally disabled with the meaning of this Section 3B4, and the effective date on which Executive was rendered so disabled.
C. Employee Benefits: On the effective date of the termination of this Agreement and Executives employment by United HealthCare, Executive shall cease to be eligible for all employee benefit plans maintained by United HealthCare, except as required by federal or state continuation of coverage laws (COBRA Benefits). If Executive elects COBRA Benefits, Executive shall pay the entire cost of such benefits either through after-tax payroll deductions from the cash component of any severance compensation Executive receives or directly if Executive does not receive such severance compensation or if such severance compensation ceases.
D. Severance Events and Benefits: If a Severance Event, as hereinafter defined, occurs, Executive shall receive the severance benefits set forth in this Section 3D for a period of 12 months from the effective date of the applicable Severance Event (the Severance Period). For purposes of this Agreement a Severance Event shall occur if and when:
(i) | United HealthCare (a) terminates this Agreement and Executives employment without Cause, as hereinafter defined, or (b) terminates this Agreement without terminating Executives employment and Executive elects to treat such termination of this Agreement as a Change in Employment, as hereinafter defined (collectively a Termination without Cause), or |
(ii) | Within two years following a Change in Control, as hereinafter defined, either (a) United HealthCare terminates this Agreement and Executives employment without Cause, or (b) a Change in Employment occurs and Executive elects to treat such Change in Employment as a termination of Executives employment (a Termination following a Change in Control). |
1. Severance Compensation: Executive shall receive the following severance compensation (the Severance Compensation):
a) Termination without Cause. Subject to Section 3D(1)(b) below, upon a Termination without Cause Executive shall receive biweekly payments equal to 1/26 of the sum of (1) Executives annualized base salary as of the date of the Severance Event, less all applicable withholdings or deductions required by law and Executives COBRA Benefit payments, if any, plus (2) one-half of the total of any bonus or incentive compensation paid or payable to Executive for the two most recent calendar years (excluding any special or one-time bonus or incentive compensation payments), or if Executive has been eligible for such bonus or incentive compensation payments for less than two such periods, the last such payment paid or payable to
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Executive (excluding any special or one-time bonus or incentive compensation payments).
b) Termination following a Change in Control: Upon a Termination following a Change in Control, Executive shall receive biweekly payments equal to 1/26 of two times the sum of (1) Executives highest annualized base salary during the 2 year period immediately preceding the Severance Event, less all applicable withholdings or deductions required by law and Executives COBRA Benefit payments, if any, plus (2) the greater of (i) all bonuses that would be payable to Executive under any incentive compensation plans in which Executive then participates at Executives then-current target level, or (ii) one-half of the total of any bonus or incentive compensation paid or payable to Executive for the two most recent calendar years (excluding any special or one-time bonus or incentive compensation payments), or if Executive has been eligible for such bonus or incentive compensation payments for less than two such periods, the last such payment paid or payable to Executive (excluding any special or one-time bonus or incentive compensation payments.
2. Cash Payment: Executive shall receive a one-time cash payment within a reasonable time following commencement of the Severance Period in an amount equal to the portion of the premiums that United HealthCare, or its affiliate or subsidiary, as applicable, subsidizes for employee-only health, dental and group term life benefit coverages (the Cash Payment). The Cash Payment shall cover the Severance Period and shall be determined as of the effective date of the applicable Severance Event.
3. Job Search Fees. For a period not to exceed the Severance Period, United HealthCare shall pay to an outplacement firm selected by United HealthCare an amount deemed reasonable by United HealthCare for outplacement and job search services for Executive.
This Section 3D shall be the sole liability of United HealthCare to Executive upon the termination of this Agreement and Executives employment hereunder, and shall replace and be in lieu of any payments or benefits which otherwise might be owed Executive under any other severance plan or program maintained by United HealthCare. Such compensation and benefits shall be conditioned on receipt by United HealthCare of a separation agreement and a release of claims by Executive on terms and conditions acceptable to United HealthCare in its sole discretion.
E. Definitions and Procedures.
1. Cause. For purposes of this Agreement Cause shall mean (a) the refusal of Executive to follow the reasonable direction of the Board of Directors of United HealthCare or Executives supervisor or to perform any duties reasonably required on material matters by United HealthCare, (b) material violations of United
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HealthCares Code of Conduct or (c) the commission of any criminal act or act of fraud or dishonesty by Executive in connection with Executives employment by United HealthCare. Prior to the termination of Executives employment under subsection (a) of this definition of Cause, United HealthCare shall provide Executive with a 30 day notice specifying the basis for Cause. If the Cause described in the notice is cured to United HealthCares reasonable satisfaction prior to the end of the 30 day notice period, Executives employment hereunder shall not be terminated on that basis.
2. Change in Control. For purposes of this Agreement Change in Control shall mean (a) the acquisition by any person, entity or group, within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934 (the Exchange Act), other than United HealthCare or any employee benefit plan of United HealthCare, of beneficial ownership (as defined in the Exchange Act) of 20% or more of the common stock of UHC or the combined voting power of UHCs then-outstanding voting securities in a transaction or series of transactions not approved in advanced by a vote of at least three-quarters of the directors of UHC; (b) a change in 50% or more of the directors of UHC in any 12 month period; (c) the approval by the shareholders of UHC of a reorganization, merger, consolidation, liquidation or dissolution of UHC or of the sale (in one transaction or a series of related transactions) of all or substantially all of the assets of UHC other than a reorganization, merger, consolidation, liquidation, dissolution or sale approved in advance by a vote of at least three-quarters of the directors; (d) the first purchase under any tender offer or exchange offer (other than an offer by UHC) pursuant to which shares of UHC common stock are purchased; or (e) at least a majority of the directors of UHC determine in their sole discretion that there has been a change of control of UHC.
3. Change in Employment. For purposes of this Agreement a Change in Employment shall be deemed to have occurred (a) if (i) Executives duties are materially and adversely changed without Executives prior consent, (ii) Executives salary or benefits are reduced other than as a general reduction of salaries and benefits by United HealthCare, (iii) without terminating Executives employment United HealthCare terminates this Agreement, or (iv) the geographic location for the performance of Executives duties hereunder is moved more than 50 miles from the geographic location at the Effective Date without Executives prior consent, and (b) if in each case under subsections (a) (i), (ii), (iii) and (iv), in the period beginning 90 days before the time the Change in Employment occurs, Cause does not exist or if Cause does exist United HealthCare has not given Executive written notice that Cause exists. Notwithstanding the foregoing, an isolated, insubstantial or inadvertent action by United HealthCare, which is remedied by United HealthCare within 30 days after receipt of notice thereof by Executive, shall not constitute a Change in Employment. Executive may elect to treat a Change in Employment as a termination of this Agreement and Executives employment hereunder. To do so Executive shall send written notice of such election to United HealthCare within 90 days after the date Executive receives
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notice from United HealthCare or otherwise is definitively informed of the events constituting the Change in Employment. No Change in Employment shall be deemed to have occurred if Executive fails to send the notice of election within the 90 day period. Executives failure to treat a particular Change in Employment as a termination of employment shall not preclude Executive from treating a subsequent Change in Employment as a termination of employment. The effective date of a Change in Employment termination shall be the date 30 days after United HealthCare receives the written notice of election.
4. Property Rights, Confidentiality, Non-Disparagement, Non-Solicit and Non-Compete Provisions.
A. United HealthCares Property.
1. Assignment of Property Rights. Executive shall promptly disclose to United HealthCare in writing all inventions, discoveries and works of authorship, whether or not patentable or copyrightable, which are conceived, made, discovered, written or created by Executive alone or jointly with another person, group or entity, whether during the normal hours of employment at United HealthCare or on Executives own time, during the term of this Agreement. Executive assigns all rights to all such inventions and works of authorship to United HealthCare. Executive shall give United HealthCare any assistance it reasonably requires in order for United HealthCare to perfect, protect, and use its rights to inventions and works of authorship.
This provision shall not apply to an invention for which no equipment, supplies, facility or trade secret information of United HealthCare was used and which was developed entirely on the Executives own time and which (1) does not relate to the business of United HealthCare or to United HealthCares anticipated research or development, or (2) does not result from any work performed by the Executive for United HealthCare.
2. No Removal of Property. Executive shall not remove any records, documents, or any other tangible items (excluding Executives personal property) from the premises of United HealthCare in either original or duplicate form, except as is needed in the ordinary course of conducting business for United HealthCare.
3. Return of Property. Executive shall immediately deliver to United HealthCare, upon termination of employment with United HealthCare, or at any other time upon United HealthCares request, any property, records, documents, and other tangible items (excluding Executives personal property) in Executives possession or control, including data incorporated in word processing, computer and other data storage media, and all copies of such records, documents and information, including all Confidential Information, as defined below.
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B. Confidential Information. During the course of employment Executive will develop, become aware of and accumulate expertise, knowledge and information regarding United HealthCares organization, strategies, business and operations and United HealthCares past, current or potential customers and suppliers. United HealthCare considers such expertise, knowledge and information to be valuable, confidential and proprietary and it shall be considered Confidential Information for purposes of this Agreement. During this Agreement and at all times thereafter Executive shall not use such Confidential Information or disclose it to other persons or entities except as is necessary for the performance of Executives duties for United HealthCare or as has been expressly permitted in writing by United HealthCare. This Section 4B shall survive the termination of this Agreement.
C. Non-Disparagement. Executive agrees that he will not criticize, make any negative comments or otherwise disparage or put in disrepute United HealthCare, or those associated with United HealthCare, in any way, whether orally, in writing or otherwise, directly or by implication in communication with any person, including but not limited to customers or agents of United HealthCare. This Section 4C shall survive the termination of this Agreement.
D. Non-Solicitation. During (i) the term of this Agreement, (ii) the Severance Period or any period in which Executive receives severance compensation pursuant to United HealthCares election under Section 4E, as applicable (iii) any period following the termination or expiration of this Agreement during which Executive remains employed by United HealthCare and (iv) for a period of one year after the last day of the latest of any period described in (i), (ii) or (iii), Executive shall not (y) directly or indirectly attempt to hire away any then-current employee of United HealthCare or a subsidiary of United HealthCare or to persuade any such employee to leave employment with United HealthCare, or (z) directly or indirectly solicit, divert, or take away, or attempt to solicit, divert, or take away, the business of any person, partnership, company or corporation with whom United HealthCare (including any subsidiary or affiliated company in which United HealthCare has a more than 20% equity interest) has established or is actively seeking to establish a business or customer relationship. This Section 4D shall survive the termination of this Agreement.
E. Non-Competition. During (i) the term of this Agreement, (ii) the Severance Period or any period in which Executive receives severance compensation pursuant to United HealthCares election under this Section 4E, as applicable, and (iii) any period following the termination or expiration of this Agreement during which Executive remains employed by United HealthCare, Executive shall not, without United HealthCares prior written consent, engage or participate, either individually or as an employee, consultant or principal, partner, agent, trustee, officer or director of a corporation, partnership or other business entity, in any business in which United HealthCare (including any subsidiary or affiliated company in which United HealthCare has more than a 20% equity interest) is engaged. If Executive terminates this Agreement, and as of such termination or within 90 days of such termination Executive also terminates Executives employment by United HealthCare, United HealthCare may elect to have
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the provisions of this Section 4E be in effect for up to 24 months following the effective date of Executives employment termination if, during the period up to 24 months specified by United HealthCare, United HealthCare pays Executive severance compensation equal to biweekly payments of 1/26 of the Severance Compensation and the Cash Payment. United HealthCare must send written notice of such election within 10 days after it receives written notice of Executives termination of employment. This Section 4E shall survive the termination of this Agreement.
5. Miscellaneous.
A. Assignment. This Agreement shall be binding upon and shall inure to the benefit of the parties and their successors and assigns, but may not be assigned by either party without the prior written consent of the other party, except that United HealthCare in its sole discretion may assign this Agreement to an entity controlled by United HealthCare at the time of the assignment. If United HealthCare subsequently loses or gives up control of the entity to which this Agreement is assigned, such entity shall become United HealthCare for all purposes under this Agreement, beginning on the date on which United HealthCare loses or gives up control of the entity. Any successor to United HealthCare shall be deemed to be United HealthCare for all purposes of this Agreement.
B. Notices. All notices under this Agreement shall be in writing and shall
be
deemed to have been duly given if delivered by hand or mailed by
registered
or certified mail, return receipt requested, postage prepaid, to the party
to
receive the same at the address set forth below or at such other address
as
may have been furnished by proper notice.
United HealthCare:
300 Opus Center
9900 Bren Road East
Minnetonka, MN 55343
Attn: General Counsel
Executive:
300 Opus Center
9900 Bren Road East
Minnetonka, MN 55343
Attn: David S. Wichmann
C. Entire Agreement. This Agreement contains the entire understanding of the parties with respect to its subject matter and may be amended or modified only by a subsequent written amendment executed by the parties. This Agreement replaces and supersedes any and all prior employment or employment related agreements and understandings, including any letters or memos which may have been construed as agreements, between the Executive and United HealthCare.
D. Choice of Law. This Agreement shall be construed and interpreted under the applicable laws and decisions of the State of Minnesota.
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E. Waivers. No failure on the part of either party to exercise, and no delay in exercising, any right or remedy under this Agreement shall operate as a waiver; nor shall any single or partial exercise of any right or remedy preclude any other or further exercise of any right or remedy.
F. Adequacy of Consideration. Executive acknowledges and agrees that Executive has received adequate consideration from United HealthCare to enter into this Agreement.
G. Dispute Resolution and Remedies. Any dispute arising between the parties relating to this Agreement or to Executives employment by United HealthCare shall be resolved by binding arbitration pursuant to United HealthCares Employment Arbitration Policy. The arbitrators shall not ignore or vary the terms of this Agreement and shall be bound by and apply controlling law. The parties acknowledge that Executives failure to comply with the Confidential Information, Non-Solicitation and Non-Competition provisions of this Agreement will cause immediate and irreparable injury to United HealthCare and that therefore the arbitrators, or a court of competent jurisdiction if an arbitration panel cannot be immediately convened, will be empowered to provide injunctive relief, including temporary or preliminary relief, to restrain any such failure to comply.
H. No Third-Party Beneficiaries. This Agreement shall not confer or be deemed or construed to confer any rights or benefits upon any person other than the parties.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION THAT MAY BE ENFORCED BY THE PARTIES.
IN WITNESS WHEREOF, this Agreement has been signed by the parties hereto as of the Effective Date set forth above.
United HealthCare Services, Inc. | Executive | |||
By | /s/ Robert Backes | /s/ David S. Wichmann | ||
|
|
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Its | SR VP HR | |||
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EXHIBIT 10(v)
BUSINESS ASSOCIATE AMENDMENT
This Amendment is made to the AARP Health Insurance Agreement (Agreement) between United HealthCare Insurance Company (United), AARP, AARP Services, Inc. and the Trustees of the AARP Insurance Plan, as amended and assigned (Agreement), for the purpose of outlining requirements relating to services provided by AARP Services, Inc. (Business Associate) on behalf of United. This Amendment shall apply only to the extent that in the performance of the Agreement, Business Associate, or any of its employees, Business Associates or agents, may obtain access to Protected Health Information or Personal Information, as defined below. The terms and conditions of this Amendment required by HIPAA and/or GLB are effective as of the compliance date applicable to United, or this Agreement, under HIPAA and/or GLB, respectively.
1. | The Agreement is hereby amended by the addition of the following section: | |
Section 7.8. Protected Health and Personal Information | ||
1. Business Associate understands and acknowledges that it may receive from or create or receive on behalf of United Protected Health Information, as defined under the privacy regulations issued pursuant to the Health Insurance Portability and Accountability Act of 1996 (HIPAA), and/or nonpublic personal information, as defined under the Gramm-Leach-Bliley Act and implementing regulations (GLB), during the performance of its obligations under this Agreement. The provisions of this Agreement do not apply to (i) information provided to or created by AARP Services, Inc. and/or AARP prior to the effective date of GLB, or (ii) information provided to or created by AARP Services, Inc. and/or AARP before the HIPAA effective date concerning individuals who had received the United GLB Privacy Notice but did not exercise their rights to opt out from information sharing. | ||
2. Except as otherwise specified herein, Business Associate may use or disclosure Protected Health Information received from or created or received on behalf of United (PHI) and nonpublic personal information received from or created or received on behalf of United (Personal Information) to perform functions, activities, or services for, or on behalf of, United as specified in this Agreement and Exhibit A (or as otherwise agreed by the parties), provided that such use or disclosure would not violate the HIPAA privacy regulations, GLB or other federal or state privacy laws applicable to United, if done by United. | ||
3. With regard to its use and/or disclosure of PHI or Personal Information, Business Associate hereby agrees and represents and warrants to United that Business Associate shall: |
(a) | not use or further disclose any PHI or Personal Information other than as permitted by this Agreement or required by law. | ||
(b) | at all times maintain and use appropriate safeguards to prevent uses or disclosures of any PHI or Personal Information other than as permitted by this Agreement or required by law; | ||
(c) | ensure that any subBusiness Associate or agent to whom it provides any PHI or Personal Information agrees in writing to the same conditions and restrictions that apply to Business Associate with regard to the PHI or Personal Information, including, without limitation, all of the requirements of this Section. |
4. With regard to its use and/or disclosure of PHI, Business Associate hereby agrees and represents and warrants to United that Business Associate shall: |
(a) | report promptly to United any use or disclosure of any PHI of which it becomes aware that is not permitted by this Agreement; | ||
(b) | mitigate, to the extent practicable, any harmful effect that is known to Business Associate of a use or disclosure of PHI by Business Associate in violation of the requirements of this Agreement; in the time and manner designated by United, make available PHI in a Designated Record Set, to United, or as directed by United, to an individual, in order for United to respond to individuals requests for access to information about them in accordance with the HIPAA privacy regulation; | ||
(c) | in the time and manner designated by United, make any amendments or corrections to the PHI in a Designated Record Set that United directs in accordance with the HIPAA privacy regulation; | ||
(d) | in the time and manner designated by United, document such disclosures of PHI and information related to such disclosures as would be required for United to respond to a request by an individual for an accounting of disclosures of PHI in accordance with the HIPAA privacy regulations; | ||
(e) | in the time and manner designated by United, make available to United, or as directed by United, to an individual, the information documented in accordance with subsection (d) above, to permit United to respond |
BA Amendment (United is CE)
to a request by an individual for an accounting of disclosures, in accordance with the HIPAA privacy regulations; | |||
(f) | in the time and manner designated by United or the Secretary of HHS, make its internal practices, books and records relating to the use and disclosure of PHI available to the United and to the Secretary of HHS for purposes of determining Uniteds compliance with the HIPAA privacy regulations. |
5. Each term and condition of this section required by HIPAA and/or GLB shall be effective on the compliance date applicable to United, or this Agreement, under the HIPAA privacy regulation and/or GLB, respectively. | ||
6. Business Associate agrees that this Agreement may be terminated by United in accordance with the written notice, breach and cure provisions in the Agreement in the event that United determines that Business Associate has violated any material term of this section. | ||
7. Upon the termination of this Agreement for any reason, Business Associate shall return to United or destroy all PHI and/or Personal Information, and retain no copies in any form whatsoever. This provision shall apply to PHI and/or Personal Information that is in the possession of subBusiness Associates, vendors or agents of Business Associate. | ||
8. Unless otherwise specified in this Agreement, all capitalized terms in this section not otherwise defined have the meaning established for purposes of Title 45 parts 160 and 164 of the United States Code of Federal Regulations, as amended from time to time. | ||
9. The Parties agree to take such action as is necessary to amend this Agreement from time to time as is necessary for United to comply with the requirements of HIPAA, the HIPAA privacy regulations, GLB and other federal and state privacy and consumer rights laws and regulations applicable to United. Business Associate agrees to cooperate with and assist United in order for United to meet its obligations under applicable privacy laws and regulations. | ||
10. This section shall survive any termination of this Agreement. | ||
11. The terms and conditions of this section required by HIPAA shall be construed in light of any applicable interpretation of and/or guidance on the HIPAA privacy regulation issued by HHS from time to time. Any ambiguity in this section shall be resolved in favor of a meaning that permits United to comply with applicable laws and regulations. | ||
2. | All other provisions of the Agreement shall remain in full force and effect. |
United HealthCare Insurance Company | AARP Services, Inc. | |||||
Signature | /s/ DAVID P. INGRAHAM | Signature | /s/ DAWN M. SWEENEY | |||
|
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Title | SVP | Title | President | |||
|
|
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Date | 4/11/03 | Date | 4-11-03 | |||
|
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BA Amendment (United is CE)
EXHIBIT A
BUSINESS ASSOCIATE AMENDMENT
Function
Process
Frequency
Required Data
Royalty Verification
Verify member
premium and
provider royalty
payments
Monthly
Individual member
names, demographic
contact
information,
specific product
participation,
enrollment/term
dates, premium
amounts by product,
any and all
Insurance Trust
activity related
information
Customer Service
Respond to member
requests for issue
or dispute
resolution,
maintain ombudsmen
services to help
resolve claims,
disputes and other
issues with service
providers,
responding to
complaint
correspondence
regarding the
service providers
Daily
Individual member
names, specific
product
participation,
enrollment/term
dates, premium
amounts by product,
member age,
Medicare status,
demographic contact
information, claim
payment history and
status, reasons for
claim denial,
explanations for
benefit
authorization,
benefit amounts,
premium/EFT
billing, account
status,
prescription
purchase and
pricing
information, status
of prescription
orders,
prescription
billing
information, status
of accounts, copies
of scripts as
requested to verify
incorrect orders.
Quality Assurance
Create and monitor
performance and
service standards
for HCO, monitor
providers for
compliance with
agreed upon
standards, develop
and complete ASI
member satisfaction
surveys.
Review/approve
strategic operating
and marketing
plans, review and
approve all
marketing and
website copy. Audit
and inspect
management reports,
complaints,
finances and
statistical data of
providers, perform
internal audits of
providers, review
product
development,
budgets and pricing
by the providers,
and provide general
quality control
under the
Agreement
Monthly
Claims inventory,
claims received,
claims processed,
claims pended, days
to complete claim
processing,
enrollment
inventory,
enrollments
received,
enrollments
processed by
product, numbers of
members transferred
to UHC for claim
issue resolution,
timeliness of
answering and
responding to these
calls and member
inquiries, numbers
of pieces of
correspondence
received, percent
of correspondence
resolved in 5
business days,
percent resolved in
10 business days,
related outstanding
issues; numbers of
underwriting
appeals, percent
resolved in 10 days
and related
outstanding issues,
all customer
satisfaction
surveys and results
from each survey,
all marketing
plans, operating
plans, marketing
copy, strategic
plans, financial
reports and
statistical data,
product
development,
budgets and pricing
information, new
product planning
and any other
related
information.
EIGHTH AMENDMENT TO THE AARP HEALTH INSURANCE AGREEMENT
This Eighth Amendment to the AARP Health Insurance Agreement (this Amendment), effective as of July 24, 2003 (the Effective Date), is made by and between AARP Services, Inc., a Delaware corporation (ASI) and United HealthCare Insurance Company, a Connecticut corporation (United). The parties hereto shall collectively be referred to as the Parties.
RECITALS
WHEREAS, the AARP, the Trustees of the AARP Insurance Plan, and United are parties to a certain AARP Health Insurance Agreement dated as of February 26, 1997 (the Original Agreement).
WHEREAS, by subsequent amendment and assignment on December 28, 1999, AARP, AARP Trust and United agreed to the assignment to and assumption by ASI of certain rights and obligations (the Third Amendment) and, further, United, AARP and AARP Trust executed a Royalty Agreement dated December 28, 1999 granting United a license to the AARP Marks defined therein and the amended and assigned agreement was made a part thereof.
WHEREAS, in addition to the Third Amendment, six other amendments have been made to the Original Agreement (collectively, the Agreement).
WHEREAS, pursuant to Subsection 6.4.5, the funds in the SHIP Portfolio have been invested in accordance with a written investment strategy (AARP Investment Policy).
WHEREAS, the Parties desire to improve SHIP Portfolio performance through a modification in risk tolerance and the elimination of the December 31, 2007 maturity date constraint.
WHEREAS, pursuant to Subsection 6.4.5, United has proposed revisions to the AARP Investment Policy that have been approved by AARP Trust and memorialized in a letter from United to ASI dated July 24, 2003.
WHEREAS, elimination of the December 31, 2007 maturity date constraint necessitates a modification to the Agreement to effectuate this change and mitigate Uniteds resulting risk of loss at the maturity date.
NOW, THEREFORE, the Parties agree as follows:
1. | Subsection 6.4.7 of the Agreement is amended by deleting the subsection in its entirety and replacing it with the following: |
6.4.7. Investment Performance; Ownership. United does not guarantee the preservation of the principal amount of the assets comprising the SHIP Portfolio, and does not guarantee the achievement of any specific rate of return on the assets comprising the SHIP Portfolio. United shall not impose any investment liquidation charge in connection with the scheduled termination of this Agreement, except as permitted under Section 10.4.3.8 hereof. The SHIP Portfolio shall not constitute an asset of AARP or AARP Trust, nor shall AARP or AARP Trust have any interest in the income derived therefrom. |
2. | Subsection 10.4.3 of the Agreement is amended by the addition of new subparagraph 10.4.3.8, to read as follows: |
10.4.3.8. Investments Maturing Beyond Termination Date. The investment strategy described in Subsection 6.4.5 hereof, as approved by AARP Trust, permits the SHIP Portfolio (as defined in Subsection 6.4.1 hereof) to include investments that may have part or all of their principal amount outstanding after the termination date set forth in Section 10.1 of this Agreement. In this event, if this Agreement terminates on the date set forth in Section 10.1: |
(a) any transfers made pursuant to Subsection 10.4.3 shall be adjusted for the Portfolio Capital Gain/Loss in the manner described in Subparagraph 10.4.3.4 (including but not limited to the provision of Subparagraph 10.4.3.4 that permits AARP to require an alternative method of transfer) and |
(b) the determination of the required RSF Balance pursuant to Subparagraph 10.4.3.7 shall be made prior to the adjustment for the Portfolio Capital Gain/Loss, and this adjustment may serve to decrease the transferred RSF Balance below the minimum level prescribed by Subparagraph 10.4.3.7. |
3. | Except as amended hereby, all other terms and conditions of the Agreement shall remain in full force and effect. |
IN WITNESS WHEREOF, the Parties have executed this Eighth Amendment as of the date and year first above written.
/s/ DAWN M. SWEENEY | /s/ DAVID P. INGRAHAM | |
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AARP Services, Inc. | United HealthCare Insurance | |
Company |
NINTH AMENDMENT TO THE AARP HEALTH INSURANCE AGREEMENT:
50-64 PLAN
This Ninth Amendment to the AARP Health Insurance Agreement (Ninth Amendment or Amendment), effective as of October 1, 2003 (the Effective Date), is made by and between AARP Services, Inc., a Delaware corporation (ASI) and United HealthCare Insurance Company, a Connecticut corporation (United). The parties hereto shall collectively be referred to as the Parties.
RECITALS
WHEREAS, AARP, the Trustees of the AARP Insurance Plan (Trustees), and United are parties to a certain AARP Health Insurance Agreement dated as of February 26, 1997 (the Original Agreement).
WHEREAS, by subsequent amendment and assignment on December 28, 1999, AARP, AARP Trust and United agreed to the assignment to and assumption by ASI of certain rights and obligations (the Third Amendment).
WHEREAS, various other amendments have been made to the Original Agreement (collectively, the Agreement).
WHEREAS, pursuant to subsections 3.2.3 and 3.2.4 of the Agreement, the Parties agreed to undertake product development activities with respect to additional products and services to enhance the value of the SHIP to AARP members and differentiate the SHIP from other insurance programs.
*** | Represents text deleted pursuant to a confidentiality treatment request filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. |
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WHEREAS, the Parties have worked together to design a program offering comprehensive insurance products for AARP members age 50 to 64 (50-64 Plan, as defined below).
WHEREAS, the Trustees have approved the 50-64 Plan and authorized the Parties to implement it on a pilot basis, with a review to occur during the Pilot Period, as defined below, to determine whether the 50-64 Plan will be offered beyond the Pilot Period.
WHEREAS, subsection 3.2.4 of the Agreement requires the terms and conditions associated with the offering of any new products to be documented in amendments or exhibits to the Agreement.
NOW, THEREFORE, the Parties agree as follows:
A. | Article 2 of the Agreement is amended by amending sections 2.56, 2.86, 2.118 and 2.123 to read as follows: | |
2.56. Policy Year means January 1 through December 31 inclusive. For the 50-64 Plan, the first Policy Year is calendar year 2004. Any 50-64 Plan sales effective as of the end of 2003 and their experience will be included as part of the 2004 Policy Year. |
2.86. SHIP Plan means any health insurance plan, including any Medicare Select plan and any 50-64 Plan, underwritten by United pursuant to this Agreement, including without limitation any such plan described by any master group insurance policy issued to AARP Trust by United (or its affiliates) and insured or reinsured by United (or its affiliates) at any time during the term of this Agreement. |
2.118. Network Provider means any health care provider in the United network that has agreed to participate in (a) a Medicare Select plan made available under the SHIP, other than a Network Pharmacy, Network Pharmaceutical Manufacturer, or Network Pharmacy Benefit Manager or (b) the 50-64 Plan. |
*** | Represents text deleted pursuant to a confidentiality treatment request filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. |
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2.123. SHIP Pharmacy Plan means a Medicare Supplement, pre-standardized Medicare Supplement or Medicare Select policy or certificate, or a 50-64 Plan, offered under the SHIP which provides an outpatient prescription drug benefit. |
B. | Article 2 of the Agreement is further amended by the addition of the following sections 2.129 through 2.134: | |
2.129. 50-64 Member Contributions for a Policy Year means the sum of the monthly amounts earned for that Policy Year from each insured enrolled in the 50-64 Plan during that Policy Year. | ||
2.130. 50-64 Plan means the preferred provider organization (PPO) insurance products, initially consisting of comprehensive PPO and catastrophic PPO products, that have been developed for AARP members age 50 to 64. These products include the use of Network Providers and coverage for services received from out-of-network providers. These products are further described in Exhibit 2.130, which exhibit may be modified from time to time in writing upon mutual agreement. | ||
2.131. 50-64 Subfund has the meaning set forth in Section 8.2.1 hereof. | ||
2.132. 50-64 Target Benefit Ratio means the quotient obtained by dividing the target Incurred Claims for the 50-64 Plan by the target 50-64 Member Contributions for a Policy Year. | ||
2.133. Marketing Expenses includes those expenses incurred directly for marketing such as postage, advertising, creative development, production, printing, agency fees, model and segmentation development, and campaign implementation costs, exclusive of corporate overhead charges. | ||
2.134. Pilot Period means January 1, 2004 until June 30, 2005. The Pilot Period may be changed upon mutual written agreement. Any 50-64 Plan sales effective as of the end of 2003 and their experience will be included as part of the Pilot Period. | ||
C. | Section 3.2.2 of the Agreement is amended by the addition of new subparagraph (j) to read as follows: | |
"(j). United shall develop and make available to AARP members the 50-64 Plan in such sites and within such timeframes as agreed to by the Parties. United shall make available a network of Network Providers and manage the Network Provider relationships for the 50-64 Plan. |
*** | Represents text deleted pursuant to a confidentiality treatment request filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. |
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Additionally, the Parties agree to the following: | ||
(1) Pilot Period Evaluation. The Parties shall conduct a Pilot Period evaluation of the 50-64 Plan to be completed by June 30, 2005. The evaluation will measure the following criteria: (a) the underwriting acceptance rate calculated by dividing the number of accepted applications by the total number of applications received net of withdrawals, (b) the cumulative number of paid sales, (c) lapse rate, (d) 50-64 benefit ratio (loss ratio), (e) the marketing cost per paid response, and (f) such other criteria that may be mutually agreed upon. The benchmarks for conducting the evaluation of criteria (a) through (e) above are set forth in Exhibit 3.2.2(j)(1). The Parties agree that the results of this evaluation may necessitate changes to the program or necessitate the discontinuance of new 50-64 Plan sales. Any changes to the program or the decision to discontinue new 50-64 Plan sales shall be made upon mutual written agreement, except as provided in Subparagraph 3.3.7.1 below. The Parties further agree to conduct preliminary evaluations every six (6) months during the Pilot Period that measure the above criteria to the extent feasible and meaningful. | ||
(2) Reports. United shall provide reports to ASI, at intervals and in a format and medium to be mutually agreed to by the Parties, to monitor and evaluate program performance. The types of reports and frequency of distribution to ASI are set forth in Exhibit 3.2.2(j)(1). | ||
(3) Decisions. Except as provided in Sections 3.2.2(j)(1) and 3.3.7.1, ASI and the Trustees shall have the decision-making authority during the Pilot Period in recognition of the greater risk borne by the 50-64 Subfund. After the first twelve (12) months of the Pilot Period, the Parties shall negotiate and agree on the terms relating to decision making authority that will apply after the Pilot Period, taking into account such factors as claims risk, brand risk, marketing risk and other relevant risk factors identified by the Parties. Notwithstanding the foregoing, United shall retain decision-making authority for all activities required by law and this Agreement to be made by the insurer and claim and service administrator, such as decisions relating to claim adjudication (e.g., benefit payments and denials). | ||
(4) Pharmacy benefit. Determination of the pharmacy benefit design for the 50-64 Plan is the responsibility of United and ASI. United shall utilize its pharmacy management programs in the administration of the pharmacy benefit for the 50-64 Plan for the Pilot Period, including its Retail Pharmacy Network, Drug List (Formulary), Pharmacy and Therapeutics Committee and Drug Utilization programs. United contracts with a pharmacy benefit management company (PBM) for the purpose of administering these management programs. However, subject to input by |
*** | Represents text deleted pursuant to a confidentiality treatment request filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. |
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ASI, United retains responsibility and control of all pharmacy management program decisions. The contracted PBM shall not have the authority to implement clinical or benefit programs without Uniteds written consent. | ||
(5) Performance Standards. United shall meet or exceed the performance standards and measurements set forth in Exhibit 3.2.2(j)(5) in performing its obligations relating to administration of the 50-64 Plan. Exhibit 3.2.2(j)(5) also lists penalties, in percentage terms, that will be applied in the event that United fails to meet a 50-64 Plan performance standard; such penalties are a percentage of 50-64 Member Contributions for the applicable Policy Year. In addition, United will adhere to AARP Health Care Options brand guidelines and creative development process, which includes 50-64 Plan marketing budget approval. | ||
D. | Section 3.3 of the Agreement is amended by the addition of new subparagraph 3.3.7.1 to read as follows: | |
3.3.7.1. The provisions of Sections 3.3.7 and 3.3.8 shall apply with respect to the determination of 50-64 Member Contribution rates; provided however that, during the Pilot Period, United may propose revisions to 50-64 rates at appropriate times for review and approval by the Trustees. Either party may decide to cease new 50-64 Plan sales at any time. | ||
E. | Section 3.7 of the Agreement is amended by the addition of new subsection 3.7.1 to read as follows: | |
3.7.1. The provisions of Section 3.7 shall not apply to the 50-64 Plan. | ||
F. | Section 6.1 of the Agreement is amended by the addition of new subsection 6.1.1 to read as follows: | |
6.1.1. AARP Royalty for 50-64 Plan. AARP shall be entitled to receive a royalty for AARPs endorsement of the 50-64 Plan and the license to use the AARP Marks in connection therewith. This royalty shall be *** of 50-64 Member Contributions initially and is subject to annual review and revision. | ||
G. | Section 6.2 of the Agreement is amended by the addition of new subsection 6.2.6 to read as follows: | |
6.2.6. Administration Charges for 50-64 Plan Services; Expenses. | ||
(a) Uniteds Administrative Services Fee for 50-64 Plan Services. Uniteds Administrative Services Fee for Services provided for the 50-64 |
*** | Represents text deleted pursuant to a confidentiality treatment request filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. |
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Plan shall be a specified percentage of 50-64 Member Contributions. This percentage shall be *** initially and is subject to annual review and revision upon mutual written agreement. Postage costs for activities other than marketing shall be included as a component of the Administrative Service Fee for the 50-64 Plan rather than included as Pass-Through Expenses. Marketing postage costs shall be included as part of Marketing Expenses under Subparagraph 6.2.6(c) below. | ||
(b) Contingency Margin. Pricing for the 50-64 Plan shall include a contingency margin to cover higher than expected costs for benefits and expenses as mutually agreed by the Parties (Contingency Margin). The Contingency Margin shall be *** of 50-64 Member Contributions for the Pilot Period. | ||
(c) Marketing Expenses. Pricing for the 50-64 Plan shall include provision for expected Marketing Expenses. Actual Marketing Expenses shall be charged to the 50-64 Subfund but treated like a loan and repaid with interest on a monthly basis to the 50-64 Subfund as the 50-64 Member Contributions are earned. During the first Policy Year, the repayment with interest will equal *** of 50-64 Member Contributions. For subsequent Policy Years, the provision in pricing for new Marketing Expenses and the percentage of actual 50-64 Member Contributions that is applied to repay the 50-64 Subfund with interest for Marketing Expenses shall be subject to review and approval by the Trustees. | ||
(d) Charges for Claims and Marketing Risks. The 50-64 Subfund shall receive *** of the 50-64 Member Contributions for claims risk and *** of the 50-64 Member Contributions for marketing risk associated with the 50-64 Plan. | ||
(e) Tax-Timing Expenses, premium tax, AARP royalty, United compensation, Contingency Margin, Marketing Expenses and investment income for the 50-64 Plan shall be paid through a retrospective experience rating charge (as described in Section 8.3 hereof). Attached as Exhibit 6.2.6(e) is a pro forma expense summary for the 50-64 Plan which itemizes the expected expenses (on a present value basis) as of the Effective Date. | ||
H. | Section 6.3 of the Agreement is amended by the addition of new subsection 6.3.4 to read as follows: | |
6.3.4. Uniteds Risk and Profit Charges for 50-64 Plan. The Parties agree that the first paragraph of Section 6.3 and Subsections 6.3.1 and 6.3.2 shall not apply to the 50-64 Plan. Instead, Uniteds risk and profit compensation for assuming the risk associated with the 50-64 Plan shall |
*** | Represents text deleted pursuant to a confidentiality treatment request filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. |
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be the sum of the following components: | ||
(a) Base risk and profit charge: *** of 50-64 Member Contributions; | ||
(b) United charge for claims risk: *** of 50-64 Member Contributions; and | ||
(c) Risk sharing of benefit losses and gains: as set forth in Section 6.12. | ||
I. | Article 6 of the Agreement is amended by the addition of the following new section 6.12 to read as follows: | |
6.12. Risk Sharing of Benefit Losses and Gains for the 50-64 Plan. | ||
6.12.1. 50-64 Target Benefit Ratio. Initially, the 50-64 Target Benefit Ratio shall be *** of 50-64 Member Contributions and is illustrated in Exhibit 6.2.6(e). During the Pilot Period, United will recommend appropriate changes to the 50-64 Target Benefit Ratio for the next Policy Year for ASI and Trustee approval. | ||
6.12.2. Stop-Loss Arrangement; Loss Corridor Limit. United shall reimburse the 50-64 Subfund for 50-64 Plan benefit costs above the Loss Corridor Limit in any Policy Year in which the Loss Corridor Limit is exceeded. The Loss Corridor Limit refers to actual 50-64 Plan benefit costs above the 50-64 Target Benefit Ratio in a Policy Year, expressed as a percentage as set forth below: | ||
(a) First Policy Year The Loss Corridor Limit is actual 50-64 Plan benefit costs that are *** above the 50-64 Target Benefit Ratio; | ||
(b) Second Policy Year The Loss Corridor Limit is actual 50-64 Plan benefit costs that are *** above the 50-64 Target Benefit Ratio; and | ||
(c) Third and Subsequent Policy Years The Loss Corridor Limit is actual 50-64 Plan benefit costs that are *** above the 50-64 Target Benefit Ratio in the applicable Policy Year. | ||
6.12.3. Sharing of Benefit Gains; Gains Corridor Limit. United shall receive gain-sharing compensation from the 50-64 Subfund for 50-64 Plan benefit costs below the Gains Corridor Limit in any Policy Year. The Gains Corridor Limit refers to actual 50-64 Plan benefit costs below the 50-64 Target Benefit Ratio in a Policy Year, expressed as a percentage as set forth below: | ||
(a) First Policy Year The Gains Corridor Limit is actual 50-64 Plan benefit costs that are *** below the 50-64 Target Benefit Ratio; |
*** | Represents text deleted pursuant to a confidentiality treatment request filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. |
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(b) Second Policy Year The Gains Corridor Limit is actual 50-64 Plan benefit costs that are *** below the 50-64 Target Benefit Ratio; and | ||
(c) Third and Subsequent Policy Years The Gains Corridor Limit is actual 50-64 Plan benefit costs that are *** below the 50-64 Target Benefit Ratio in the applicable Policy Year. | ||
6.12.4. Attached as Exhibit 6.12.4 is a document that illustrates how risk sharing of benefit losses and gains will occur as described in this Section 6.12. | ||
J. | Section 8.2 of the Agreement is amended by the addition of the following new subsection 8.2.1 to read as follows: | |
8.2.1. 50-64 Subfund. As of the Effective Date of this Ninth Amendment, the 50-64 Subfund (50-64 Subfund or 50-64 SF) shall consist of a *** initial allocation of funds in the RSF. The 50-64 Subfund shall increase or decrease over time based on the financial performance of the 50-64 Plan. | ||
K. | The parties shall negotiate in good faith twelve months prior to expiration of the Pilot Period to reach agreement on new terms or a new agreement to be effective upon completion of the Pilot Period, if the parties decide to offer the 50-64 Plan beyond the Pilot Period. |
IN WITNESS WHEREOF, the Parties have executed this Amendment as of the date and year first above written.
/s/ DAWN M. SWEENEY | /s/ DAVID P. INGRAHAM | |
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AARP Services, Inc. | United HealthCare Insurance | |
Company |
*** | Represents text deleted pursuant to a confidentiality treatment request filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. |
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EXHIBIT 2.130
50-64 PLAN DESCRIPTION
Background
The 50-64 Plan has been designed to bring to the market for AARP Members a program tailored to the needs of the 50-64 population,1 specifically in the areas of broad coverage, innovative intervention-oriented care and disease management and affordability relative to the level of benefit coverage.
Initially, two PPO products (one comprehensive and one catastrophic) designed to address the diverse needs of the target population will be offered. In the first phase, these products will be available in a select number of pilot states, with plans to expand to additional markets.
Comprehensive PPO Product
This product provides the insured member with benefits both in and out of network within agreed price points while maintaining an appropriate level of cost sharing to promote responsible usage of the services. Expenses for the insured member and the program are reduced when services are rendered through a Network Provider. In-network benefits are richer in order to encourage the insured member to use a Network Provider. The overall quality of care is enhanced through Uniteds Care Coordination program which is available in and out of network. In-network benefits have caps on the amount the member will share in the cost of health care while out-of-network utilization has no caps on the members out-of-pocket expenditures. The benefit design for this product is further described below.
Catastrophic PPO Product
This product is designed to provide benefits for the high cost items that create the biggest burden for members. It focuses on hospital and surgical benefits as well as catastrophic illnesses. This product lowers premium costs by eliminating benefits for lower-cost services. Therefore, unlike the comprehensive product, this product does not provide coverage for preventive care, physicians office visits, behavioral health, most forms of diagnostic testing, and other services listed below in the chart. This product provides
1 Although the 50-64 Plan is designed for the 50-64 AARP membership, spouses of AARP members, including spouses under the age of 50, are also eligible to participate. Additionally, state and federal laws may require coverage to be continued for insured members once they turn 65; the 50-64 Plans will conform to all applicable state and federal requirements.
*** | Represents text deleted pursuant to a confidentiality treatment request filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. |
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benefits for services that are potentially more catastrophic to the insured member financially, such as inpatient hospital stays and expensive surgical procedures. The benefit design for this product is further described below.
Value-added Services
The following services shall be provided to members who participate in the 50-64 Plan:
| AARP Nurse HealthLine This service provides toll-free 24 hour, 365-day access to registered nurses who provide health information, discuss treatment options, and guide individuals to an appropriate level of care. AARP Nurse HealthLine gives individuals information that helps them make educated decisions about their personal health and use of medical resources. | |
| Web-based tools Access to myuhc.com and online pharmacy web site. To help members find prescription drug information, the Online Pharmacy provides information on safe drug use, email prescription reminders, drug cost comparisons across retail and mail order channels, and other information. The following references on myuhc.com shall be suppressed: | |
(1) The reference to alternative medicine discounted providers shall be suppressed by removing United Naturally from the Alternative and Complementary medicine section of myuhc.com under health topics and tools ; and | ||
(2) The reference to OTC shall be suppressed by removing Family meds from the OTC/Other products section of myuhc.com under prescriptions . | ||
| Care Management This service provides care management services to members at risk or affected by chronic health conditions. Care coordination offers proactive programs to help individuals manage their condition or disease and improve their health status. Community partners offer services to high-risk members. | |
| Transplant Benefit Management and Cancer Benefit Management This service provides individuals with case management support to assist with counseling, physician interaction and referrals to credentialed transplant or cancer resources. | |
| Behavioral Health Management This feature provides access to mental health and substance abuse programs to help people live and work well. A network of professionals is available for direct access to the most appropriate care. |
*** | Represents text deleted pursuant to a confidentiality treatment request filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. |
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50-64 Plan Design
Comprehensive Plan
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Catastrophic Plan
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Core Plan Design
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In Network
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Out-of-Network
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In Network
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Out-of-Network
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Annual Deductible |
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$ | 1,000 | $ | 2,000 | $ | 2,000 | $ | 3,000 | |||||||||||
Annual out-of-pocket |
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$2,500 combined,
then 100% |
$2,500 combined,
then 80% |
$2,500 combined,
then 100% |
$2,500 combined,
then 80% |
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Maximum (Coinsurance |
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only) | ||||||||||||||||||||
Lifetime Maximum |
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$5 Million | $5 Million | |||||||||||||||||
Benefits | ||||||||||||||||||||
Inpatient Hospital |
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80% after | 60% after deductible | |||||||||||||||||
Outpatient Surgery |
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deductible | ||||||||||||||||||
Office Visit |
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Not Covered | ||||||||||||||||||
Primary or Specialist |
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80% after deductible | 60% after deductible | ||||||||||||||||||
Preventive Care | ||||||||||||||||||||
Radiology and Lab |
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80% after | ||||||||||||||||||
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deductible | 60% after deductible | ||||||||||||||||||
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(Outpatient surgery | (Outpatient surgery or | ||||||||||||||||||
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or Inpatient only) | Inpatient only) | ||||||||||||||||||
Prescription | ||||||||||||||||||||
Generic |
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$10 Copay/ | 50% of Network | $10 Copay after | 50% after $5K | |||||||||||||||
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(Unlimited) | Amount | $5K deductible | deductible | ||||||||||||||||
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(Unlimited) | (Unlimited) | (Unlimited) | |||||||||||||||||
Brand |
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50% Coinsurance | 50% after $5K | 50% after $5K | ||||||||||||||||
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(Unlimited) | 50% of Network | deductible | deductible | ||||||||||||||||
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Amount | (Unlimited) | (Unlimited) | |||||||||||||||||
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(Unlimited) | |||||||||||||||||||
Behavioral Health/ | ||||||||||||||||||||
Substance Abuse |
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80% after deductible | 60% after deductible | Not Covered | ||||||||||||||||
Emergency Care |
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80% after deductible | 80% after deductible | 80% after | Same as network | |||||||||||||||
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(in network | deductible | (in network deductible) | |||||||||||||||||
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deductible) |
***
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Represents text deleted pursuant to a confidentiality treatment request filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. | 11 |
Comprehensive Plan
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Catastrophic Plan
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Core Plan Design
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In Network
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Out-of-Network
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In Network
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Out-of-Network
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Skilled Nursing Facility / Inpatient Rehabilitation |
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80% after deductible (60 days combined | 60% after deductible (60 days combined | 80% after deductible (60 days combined | 60% after deductible (60 days combined | |||||||||||||||
Facility Service |
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calendar year max) | calendar year max) | calendar year max) | calendar year max) | |||||||||||||||
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Durable Medical |
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80% after deductible | 60% after deductible | 80% after | 60% after deductible | |||||||||||||||
Equipment |
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$2,500 combined | $2,500 combined | deductible | $2,500 combined | |||||||||||||||
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calendar year max | calendar year max | $2,500 combined | calendar year max only | ||||||||||||||||
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calendar year max | for Covered Health | ||||||||||||||||||
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only for Covered | Services ordered at time | ||||||||||||||||||
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Health Services | of treatment in hospital | ||||||||||||||||||
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ordered at time of | |||||||||||||||||||
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treatment in | |||||||||||||||||||
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hospital | |||||||||||||||||||
Home Health |
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80% after deductible | 60% after deductible | |||||||||||||||||
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(60 visit combined max) | (60 visit combined | Not Covered | |||||||||||||||||
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max) | |||||||||||||||||||
IV Therapy |
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80% after deductible | 60% after deductible | 80% after | 60% after deductible | |||||||||||||||
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deductible | (Covered Health | ||||||||||||||||||
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(Covered Health | Service) | ||||||||||||||||||
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Service) | |||||||||||||||||||
Ambulance |
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80% after deductible | Same as network | 80% after deductible | Same as network | |||||||||||||||
Emergency Only | ||||||||||||||||||||
Dental Services |
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80% after deductible | Same as network | 80% after | Same as network | |||||||||||||||
Accident Only |
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deductible | ||||||||||||||||||
Hospice |
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80% after deductible | 60% after deductible | 80% after | 60% after deductible | |||||||||||||||
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360 day max | deductible | ||||||||||||||||||
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360 day max | |||||||||||||||||||
Prosthetic Devices |
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80% after deductible/5k | 60% after | 80% after | 60% after deductible/5k | |||||||||||||||
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combined calendar year | deductible/5k | deductible/5k | combined calendar year | ||||||||||||||||
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max | combined calendar | combined calendar | max | ||||||||||||||||
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year max | year max | ||||||||||||||||||
Reconstructive |
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80% after deductible | 60% after deductible | 80% after deductible | 60% after deductible | |||||||||||||||
Procedures | ||||||||||||||||||||
(non-cosmetic) | ||||||||||||||||||||
Rehabilitation Services |
|
80% after deductible; 20 | 60% after deductible; | Not Covered | ||||||||||||||||
|
visits of each PT, OT, ST | 20 visits each of PT, | ||||||||||||||||||
|
allowed Cardiac Rehab 36 |
OT, ST allowed
Cardiac Rehab 36 |
||||||||||||||||||
|
visits; no chiropractic | visits; no chiropractic | ||||||||||||||||||
|
||||||||||||||||||||
Transplantation |
|
80% after deductible | Non-network not | 80% after | Non-network not | |||||||||||||||
|
available (unless | deductible | available (unless | |||||||||||||||||
Services |
|
mandated by state) | mandated by state) | |||||||||||||||||
Urgent Care Services |
|
80% after deductible | 60% after deductible | Not Covered |
***
|
Represents text deleted pursuant to a confidentiality treatment request filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. | 12 |
Comprehensive Plan
|
Catastrophic Plan
|
|||||||||||||||||||
Core Plan Design
|
In Network
|
Out-of-Network
|
In Network
|
Out-of-Network
|
||||||||||||||||
Health & Well Being | ||||||||||||||||||||
Services | ||||||||||||||||||||
- Behavioral Health |
|
Yes | No | |||||||||||||||||
Mgmt | ||||||||||||||||||||
- NurseLine |
|
Yes | Yes | |||||||||||||||||
- Care Management |
|
Yes | Yes | |||||||||||||||||
- Transplant & |
|
Yes | Yes | |||||||||||||||||
Cancer Benefit | ||||||||||||||||||||
Management |
***
|
Represents text deleted pursuant to a confidentiality treatment request filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. | 13 |
EXHIBIT 3.2.2(j)(1)
PILOT EVALUATION BENCHMARKS
Criteria
0 6 Months
7 12
Months
13 18
Months
Evaluation
Comments
Cumulative Sales
***
***
***
Evaluate by pilot
market segment
Cost Per
Paid Response
***
***
***
Evaluate by Pilot
Market state
50-64
Incurred
Benefit Ratio
***
***
***
Evaluate by:
Lapse Rates
***
***
***
Evaluate:
Average length of
policy
Average policy
*** | Represents text deleted pursuant to a confidentiality treatment request filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. |
14
Criteria
0 6 Months
7 12
Months
13 18
Months
Evaluation
Comments
***
***
***
An abbreviated
lapser report will
be done at each
time interval, with
a full report after
12 months
Underwriting
(Distribution
of
Applicants)
Level 1:
***
Level 2: ***
Level 3: ***
Denied: ***
Level 1:
***
Level 2:
***
Level 3:
***
Denied:
***
Level 1:
***
Level 2:
***
Level 3:
***
Denied:
***
Evaluate level
distributions
quarterly by:
Age category
Pilot market & age
Cumulatively over
the time periods
Evaluate by each
product
(comprehensive and
catastrophic) and
the total (both
products combined).
50-64
Subfund (SF)
Impact
Track the following
items across each
quarter (3 month
time period):
*** | Represents text deleted pursuant to a confidentiality treatment request filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. | |||||
15 |
Criteria
0 6 Months
7 12
Months
13 18
Months
Evaluation
Comments
Note: Except for the 50-64 Subfund Impact, information will be tracked and
reported separately for each product (comprehensive and catastrophic) and in
total (both products combined).
Report Chart
Report
Monthly
Quarterly
Semiannually
Annually
End of Pilot
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
*** | Represents text deleted pursuant to a confidentiality treatment request filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. |
16
Report
Monthly
Quarterly
Semiannually
Annually
End of Pilot
X
X
X
X
X
X
X
X
*** | Represents text deleted pursuant to a confidentiality treatment request filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. |
17
EXHIBIT 3.2.2(j)(5)
Penalty (Percent of | ||||||||
50-64 Plan | 50-64 Plan | |||||||
Functions/Services
|
Service Standard
|
Contributions)
|
||||||
Claim Member Services Functions
|
||||||||
Speed to Answer Calls
|
||||||||
n
within 20 seconds
|
80 | % | *** | |||||
Call Resolution
|
||||||||
n
within first day
|
75 | % | *** | |||||
n
within 72 hours
|
98 | % | *** | |||||
Correspondence
|
||||||||
n
within 5 business days
|
90 | % | *** | |||||
n
within 10 business days
|
98 | % | *** | |||||
Underwriting and Issue Functions
|
||||||||
Appeals
|
||||||||
n
within 10 business days
|
98 | % | *** | |||||
Claims Processing Functions
|
||||||||
Claim Turnaround Time
|
||||||||
n
within 10 business days
|
95 | % | *** | |||||
Payment Accuracy
|
95 | % | *** | |||||
Enrollments
|
||||||||
Enrollment Turnaround Time
|
||||||||
n
within 10 business days
|
90 | % | *** | |||||
Enrollment Accuracy
|
97.5 | % | *** | |||||
Billing and Collections
|
||||||||
Payment Application Turnaround
|
||||||||
n
within 3 business days
|
95 | % | *** | |||||
Payment Application Accuracy
|
98 | % | *** |
*** | Represents text deleted pursuant to a confidentiality treatment request filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. |
18
Fulfillment
Fulfillment Turnaround Time | ||||||
§ | within 5 business days | 90% | *** |
Customer Satisfaction
First Quarter Results
Claim Service | Included in larger SHIP sample | *** |
Note: Penalties will be calculated based on 50-64 Member Contributions, and shall be as defined and agreed in Exhibit 3.2.5 as revised effective March 31, 2003.
*** | Represents text deleted pursuant to a confidentiality treatment request filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. |
19
EXHIBIT 6.2.6(e)
50-64 PLAN
PRO FORMA EXPENSE SUMMARY
Percent of Premium
|
||||
Marketing Expenses
|
*** | |||
Royalty
|
*** | |||
United Base Risk and Profit
|
*** | |||
Claim Administration
|
*** | |||
Enrollments, Underwriting and
Other Administration
|
*** | |||
Subtotal
|
*** | |||
Premium Tax
|
*** | |||
Tax Timing including DAC tax
|
*** | |||
United Charge for Claims Risk
|
*** | |||
50-64 SF Claims Risk Provision
|
*** | |||
50-64 SF Marketing Risk Provision
|
*** | |||
Contingencies
|
*** | |||
Investment Income
|
*** | |||
Total Expense Ratio
|
*** | |||
Target Benefit Ratio
|
*** |
All items are shown on a present value basis as a level percent of premiums over ten years. Percentages for premium tax, tax timing and investment income may vary based on actual expenses.
***
|
Represents text deleted pursuant to a confidentiality treatment request filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. |
20
EXHIBIT 6.12.4
RISK-SHARING OF BENEFIT LOSSES AND GAINS:
ILLUSTRATIONS
Risk/Gain sharing is based on actual benefit costs that are higher (+) or lower
(-) than expected benefit costs. The risk/gain sharing corridor is *** first
year, *** second year and *** in the third year. By capping the 50-64 Subfund
risk to a fixed percentage of expected benefit costs each year, the risk of
catastrophic claims is shifted to United, especially during the pilot phase
when revenue is expected to be relatively low and random shock claims could
adversely impact the program. Illustrations of risk sharing of benefit losses
and sharing of benefit gains are shown below:
A. Risk Sharing of Benefit Losses
Example A1 Benefits
***
Higher Than Expected
Example A2 Benefits *** Higher than Expected
50-64 SF share of losses capped at corridor limits
Uniteds share of losses is the remainder (catastrophic risk)
Year 1
Year 2
Year 3
*
**
*
**
*
**
*
**
*
**
*
**
*
**
*
**
*
**
*
**
*
**
*
**
*
**
*
**
*
**
Year 1
Year 2
Year 3
*
**
*
**
*
**
*
**
*
**
*
**
*
**
*
**
*
**
*
**
*
**
*
**
*
**
*
**
*
**
*** | Represents text deleted pursuant to a confidentially treatment request filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. |
21
B. | Sharing of Benefit Gains |
| 50-64 SF share of gains capped at corridor limits | |||
| Uniteds share of benefit gains is the excess outside of the corridor |
Example B1 Benefits
***
Lower Than Expected
Year 1
Year 2
Year 3
***
***
***
***
***
***
***
***
***
***
***
***
***
***
***
Example B2 Benefits
***
Lower Than Expected
Year 1
Year 2
Year 3
***
***
***
***
***
***
***
***
***
***
***
***
***
***
***
*** | Represents text deleted pursuant to a confidentialy treatment request filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. |
22
EXHIBIT 10(z)
AMENDMENT #1
TO
INFORMATION TECHNOLOGY SERVICES AGREEMENT
This is Amendment # 1 to the Information Technology Services Agreement between United HealthCare Services, Inc. (UHS) and International Business Machines Corporation (IBM) is made effective this 19th day of December, 2003.
Unless modified herein, all capitalized terms defined in the Agreement shall have the same meaning when used in this Amendment.
Recitals
WHEREAS, IBM and UHS have previously entered into an Information Technology Services Agreement dated February 1, 2003 (the Agreement);
WHEREAS, the parties now desire to amend the Agreement to (1) bill in arrears each month for the Mainframe portion of the Base Charges; and (2) offer financial credits for prompt payment;
NOW THEREFORE, in consideration of the mutual covenants contained herein, and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, IBM and UHS agree to amend the Agreement as follows:
Terms and Conditions
1. | Effective November 1, 2003, the first sentence of Article 19.01 of the Agreement is revised to read IBM shall provide UHS during the Term with an invoice during the first week of each calendar month for (a) the current months Base Charges (but excluding the Mainframe services described in Exhibit 1.1), plus any Additional Charges, and (b) the previous months Mainframe portion of the Base Charges, plus any variable Charges (i.e., ARCs). | ||
2. | For services rendered from November 1, 2003 and continuing through October 31, 2006, (Earned Credit Period) for each months IBM invoice for the Mainframe portion of the Base Charges, as specified in Exhibit 1.3 (excludes ARCs and RRCs) (the Mainframe Base Charges) for which IBM receives payment within 30 days of UHS receipt of the IBM invoice, UHS shall earn a credit equal to one point nine percent (1.9%) of the monthly Mainframe Base Charges invoice. | ||
3. | Notwithstanding anything in this Amendment, IBM will consider a payment of the Mainframe Base Charges to be made on time either upon receipt of payment of the invoice within 30 days of receipt of the invoice by UHS or upon the presentation of appropriate documentation by UHS showing that a payment was processed by UHS but was minimally late due to circumstances beyond the control of UHS. |
Page 1 of 4 | 11/10/2003 |
IBM / UHS Confidential
*** | Represents text deleted pursuant to a confidentiality treatment request filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. |
4. | Notwithstanding anything in this Amendment, disputes pursued in accordance with Section 19.04 of the Agreement relating to any services other than those related to the Mainframe Base Charges shall not constitute a failure by UHS to make a payment in full for purposes of this Amendment. | ||
5. | Notwithstanding anything in this Amendment, credits shall be earned based upon actual amounts paid for the Mainframe Base Charges that are the subject of this Amendment, and IBM will consider payment in full to be payments made at the IBM invoiced amount excluding any amounts disputed in good faith under Section 19.04 of the Agreement. Any such disputed amounts shall be subject to the financial caps and escrow procedures defined in Section 19.04. | ||
a. | Should UHS dispute an invoice for Mainframe Base Charges pursuant to Section 19.04 of the Agreement prior to actual payment of the invoice and resolution of the dispute results in no modification to the Mainframe Base Charges, the applicable credit shall appear on the invoice immediately following payment of the disputed invoice. | ||
b. | Should UHS dispute an invoice for Mainframe Base Charges pursuant to Section 19.04 of the Agreement subsequent to payment of the invoice and a credit was either (1) previously issued to UHS during the earned credit year or (2) reflected as an earned credit to be applied during the Earned Credit Period, and resolution of the dispute results in a modification to the Mainframe Base Charge invoiced amount, the earned credit attributable to such modified amount will be corrected on the next invoice submitted by IBM to UHS. |
6. | Because invoice submission per the Agreement requires that the monthly invoice be submitted by IBM to UHS prior to the receipt of payment for the previous months invoice, the first earned credit will begin to accrue and will appear as a separate line item on the February 2004 invoice. For example, services performed in November 2003 will be invoiced in December 2003 with timely payment received in January 2004 and the earned credit reflected on the February 2004 invoice. | ||
7. | Any credits shall accrue to UHS monthly, be clearly identified on each monthly invoice, and will appear as an actual applied cumulative credit on the IBM November invoice presented to UHS by IBM one time per each calendar year beginning November 2004 and continuing through January 2007. Application of the credit to UHS by IBM will be based upon actual timely payment of invoices submitted for Mainframe Base Charges by IBM during each earned credit year (November 2003 through September 2004 11 months, October 2004 through September 2005 12 months, October 2005 through September 2006 12 months, and October 2006 1 month), pursuant to the terms of this Amendment. | ||
8. | Upon prompt payment of each October invoice for Mainframe Base Charges by UHS, IBM will reissue the November invoice to reflect the credit earned by UHS such that the one time annual issuance of the credit by IBM to UHS for the earned credit year which will reflect all credits earned during that credit year (i.e. October 2004 through September 2005). However, services rendered in October 2006, billed in November 2006, with timely payment received in December 2006 will be reflected on the January 2007 invoice. | ||
9. | Should UHS fail to make a payment on time for Mainframe Base Charges during the Earned Credit Period and such payment is undisputed under Section 19.04 of the Agreement, then UHS will (1) retain any accrued earned credits that have been previously issued to UHS, (2) receive |
Page 2 of 4 | 11/10/2003 |
IBM / UHS Confidential
*** | Represents text deleted pursuant to a confidentiality treatment request filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. |
any accrued earned credits that have not been previously issued to UHS during the earned credit year pursuant to paragraphs 6, 7, and 8 above, and (3) remain eligible to earn any unearned credits remaining during the Earned Credit Period. However, IBM will not be obligated to (1) extend the date of Earned Credit Period due to the failure of UHS to make timely payment, or (2) issue an additional credit equal to the difference between the earned credits and ***. | |||
10. | Should the mainframe services be terminated for any reason during the Earned Credit Period then UHS will (1) retain any accrued earned credits that have been previously issued to UHS, (2) be eligible to earn credits in any other month, up to the effective date of termination or the end of the Earned Credit Period, whichever occurs first, and (3) receive any accrued earned credits that have not been previously issued to UHS during the earned credit year, pursuant to this Amendment, on the next IBM invoice presented to UHS following the end of the Earned Credit Period or the effective date of the termination, whichever occurs first. | ||
11. | Each credit, once earned, is unconditional and irrevocable unless the invoice upon which the credit was calculated was disputed and the resolution of the dispute resulted in a modification in the invoice then any credit amount applied would be modified proportional to the invoice modification. | ||
12. | In the event UHS pays each and every monthly invoice for the Mainframe Base Charges, in full and on time during the Earned Credit Period *** . The aforementioned additional credit shall be in addition to the credits earned by UHS pursuant to this Amendment during the Earned Credit Period. | ||
13. | The table below represents the current billing schedule for Mainframe Services provided during the periods specified for the Earned Credit Period. The billing schedule reflects the Mainframe services performed in the prior month and billed in the current month. The payout amount schedule for available earned credits is based upon the timely payment of current month invoices for Mainframe Base Charges in the following month for which earned credits will be reflected in the next month (i.e. Mainframe Services performed in November 2004, billed in December 2004, paid in January 2005 with credit applied in February 2005). The chart presumes the re-issuance of the November invoice. The table below is based upon the Original Baselines for Mainframe services and is subject to change with modification of the Baselines pursuant to Exhibit 1.3, Section 6.0. |
Monthly Mainframe ASC Billing in | ||||
arrears during the period between | Potential annual payout amounts of available Earned Credits based | |||
Nov 1, 2003 and Mar 31, 2008 | upon timely payments of invoices during the following months. | |||
|
|
|||
Nov 2003=***(note-Svc rendered in Oct
2003 Invoice in Oct 2003)
|
Dec 2003-Oct 2004, payout Nov 2004=*** | |||
Dec 2003-Jan 2004=***
|
Nov 2004-Oct 2005, payout Nov 2005=*** | |||
Feb 2004-Jan 2005=***
|
Nov 2005-Oct 2006, payout Nov 2006=*** | |||
Feb 2005-Jan 2006=***
|
Nov 2006 payout Jan 2007=*** | |||
Feb 2006-Jan 2007=***
|
||||
Feb 2007-Jan 2008=***
|
||||
Feb 2008-Apr 2008=***
|
Except as provided in this Amendment, all other provisions of the Agreement shall remain in effect. In the event of any inconsistency between the terms of the Agreement and the terms of this Amendment, the
Page 3 of 4 | 11/10/2003 |
IBM / UHS Confidential
*** | Represents text deleted pursuant to a confidentiality treatment request filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. |
terms of this Amendment
shall apply. This Amendment and the Agreement constitute the entire agreement
between the parties regarding the subject matter contained herein and supersede
all prior oral or written agreements on this subject.
Accepted By:
Accepted By:
United HealthCare Services, Inc.
INTERNATIONAL BUSINESS MACHINES CORPORATION
By:
/s/ BRIGID BONNER
By:
/s/ DAVID STEINMAN
Name:
Brigid Bonner
Name:
David Steinman
Title:
Senior Vice President
Title:
Vice President
Date:
12-19-03
Date:
12-23-03
Page 4 of 4 |
IBM / UHS Confidential
*** | Represents text deleted pursuant to a confidentiality treatment request filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. |
Financial Highlights
Financial Highlights and Results of Operations should be read together with the accompanying Consolidated Financial Statements and Notes. | ||
1 2000 results include a $14 million net permanent tax benefit related to the contribution of UnitedHealth Capital investments to the United Health Foundation and a $27 million gain ($17 million after tax) related to a separate disposition of UnitedHealth Capital investments. Excluding these items for comparability purposes, 2000 net earnings and diluted earnings per common share were $705 million and $1.05 per share, and return on shareholders equity was 19.0%. | ||
2 1999 results include a net permanent tax benefit primarily related to the contribution of UnitedHealth Capital investments to the United Health Foundation. Excluding this benefit for comparability purposes, net earnings and diluted net earnings per common share were $563 million and $0.79 per share. |
20 UnitedHealth Group
Results of Operations
BUSINESS OVERVIEW
UnitedHealth Group is a leader in the health and well-being industry, serving approximately 52 million Americans. Our primary focus is on improving the American health care system by simplifying the administrative components of health care delivery, promoting evidence-based medicine as the standard for care and providing relevant, actionable data that physicians, health care providers, consumers, employers and other participants in health care can use to make better, more informed decisions.
Through our diversified family of businesses, we leverage core competencies in advanced technology-based transactional capabilities; health care data, knowledge and informatics; and health care resource organization and care facilitation to make health care work better. We provide individuals with access to quality, cost-effective health care services and resources. We promote the delivery of care, consistent with the best available evidence for effective health care. We provide employers with superb value, service and support, and we deliver value to our shareholders by executing a business strategy founded upon a commitment to balanced growth, profitability and capital discipline.
2003 FINANCIAL PERFORMANCE HIGHLIGHTS
UnitedHealth Group had a very strong year in 2003. The company continued to achieve diversified growth across its business segments and generated net earnings of $1.8 billion and operating cash flows of $3.0 billion, representing increases of 35% and 24%, respectively, over 2002. Other financial performance highlights include:
Ø Diluted net earnings per common share of $2.96, representing an increase of 39% over 2002. | ||||
Ø Revenues of $28.8 billion, a 15% increase over 2002. | ||||
Ø Operating earnings of more than $2.9 billion, up 34% over 2002. | ||||
Ø Consolidated operating margin of 10.2%, up from 8.7% in 2002 driven primarily by improved margins on risk-based products, a product mix shift from risk-based products to higher-margin, fee-based products, and operational and productivity improvements. | ||||
Ø Return on shareholders equity of 39.0%, up from 33.0% in 2002. |
2003 RESULTS COMPARED TO 2002 RESULTS
Consolidated Financial Results
Revenues
Revenues are comprised of premium revenues from risk-based products; service revenues, which primarily include fees for management, administrative and consulting services; and investment and other income.
Premium revenues are primarily derived from risk-based health insurance arrangements in which the premium is fixed, typically for a one-year period, and we assume the economic risk of funding our customers health care services and related administrative costs. Service revenues consist primarily of fees derived from services performed for customers that self-insure the medical costs of their employees and their dependents. For both premium risk-based and fee-based customer arrangements, we provide coordination and facilitation of medical services, transaction processing, customer, consumer and care provider services, and access to contracted networks of physicians, hospitals and other health care professionals.
Consolidated revenues increased by $3.8 billion, or 15%, in 2003 to $28.8 billion. Consolidated revenues increased by approximately 11% as a result of rate increases on premium and fee-based services and growth across business segments, and 4% as a result of revenues from businesses acquired since the beginning of 2002. Following is a discussion of 2003 consolidated revenue trends for each of our three revenue components.
UnitedHealth Group 21
Premium Revenues Consolidated premium revenues in 2003 totaled $25.4 billion, an increase of $3.5 billion, or 16%, over 2002. UnitedHealthcare premium revenues increased by $1.8 billion, driven primarily by average premium rate increases of 12% to 13% on renewing commercial risk-based business. Premium revenues from Medicaid programs also increased by approximately $1.0 billion over 2002. Approximately 70% of this increase resulted from the acquisition of AmeriChoice on September 30, 2002, with the remaining 30% driven by growth in the number of individuals served by our AmeriChoice Medicaid programs since the acquisition date. The remaining premium revenue growth in 2003 was primarily driven by growth in the number of individuals served by Ovations Medicare supplement products provided to AARP members and its Evercare business, along with growth in several of Specialized Care Services businesses.
Service Revenues Service revenues in 2003 totaled $3.1 billion, an increase of $224 million, or 8%, over 2002. The increase in service revenues was driven primarily by aggregate growth of 7% in the number of individuals served by Uniprise and UnitedHealthcare under fee-based arrangements during 2003.
Investment and Other Income Investment and other income totaled $257 million, representing an increase of $37 million over 2002, due primarily to increased capital gains on sales of investments. Net capital gains on sales of investments were $22 million in 2003, compared with net capital losses of $18 million in 2002. Interest income decreased by $3 million in 2003, driven by lower yields on investments, partially offset by the impact of increased levels of cash and fixed-income investments.
Medical Costs
The combination of pricing, benefit designs, consumer health care utilization and comprehensive care facilitation efforts is reflected in the medical care ratio (medical costs as a percentage of premium revenues).
The consolidated medical care ratio decreased from 83.0% in 2002 to 81.4% in 2003. Excluding the AARP business, 1 the medical care ratio decreased 140 basis points from 81.4% in 2002 to 80.0% in 2003. Approximately 30 basis points of the decrease in the medical care ratio was driven by favorable development of prior period medical cost estimates as further discussed below. The balance of the medical care ratio decrease resulted primarily from net premium rate increases that exceeded overall medical benefit cost increases and changes in product, business and customer mix.
Each period, our operating results include the effects of revisions in medical cost estimates related to all prior periods. Changes in medical cost estimates related to prior fiscal years that are identified in the current year are included in total medical costs reported for the current fiscal year. Medical costs for 2003 include approximately $150 million of favorable medical cost development related to prior fiscal years. Medical costs for 2002 include approximately $70 million of favorable medical cost development related to prior fiscal years.
On an absolute dollar basis, 2003 medical costs increased $2.5 billion, or 14%, over 2002. The increase was driven primarily by a rise in medical costs of approximately 10% to 11% due to medical cost inflation and a moderate increase in health care consumption, and incremental medical costs related to businesses acquired since the beginning of 2002.
1 Management believes disclosure of the medical care ratio excluding the AARP business is meaningful since underwriting gains or losses related to the AARP business accrue to AARP policyholders through a rate stabilization fund (RSF). Although the company is at risk for underwriting losses to the extent cumulative net losses exceed the balance in the RSF, we have not been required to fund any underwriting deficits to date and management believes the RSF balance is sufficient to cover potential future underwriting or other risks associated with the contract during the foreseeable future. |
22 UnitedHealth Group
Operating Costs
The operating cost ratio (operating costs as a percentage of total revenues) for 2003 was 16.9%, down from 17.5% in 2002. This decrease was driven primarily by revenue mix changes, with greater growth from premium revenues than from service revenues, and productivity gains from technology deployment and other cost management initiatives. Our premium-based products have lower operating cost ratios than our fee-based products. The impact of operating cost efficiencies in 2003 was partially offset by the continued incremental costs associated with the development, deployment, adoption and maintenance of new technology releases.
On an absolute dollar basis, operating costs for 2003 increased $488 million, or 11%, over 2002. This increase was driven by a 6% increase in total individuals served by Health Care Services and Uniprise during 2003, increases in broker commissions and premium taxes due to increased revenues, general operating cost inflation and additional operating costs associated with change initiatives and acquired businesses.
Depreciation and Amortization
Depreciation and amortization in 2003 was $299 million, an increase of $44 million over 2002. This increase was due to additional depreciation and amortization from higher levels of computer equipment and capitalized software as a result of technology enhancements, business growth and businesses acquired since the beginning of 2002.
Income Taxes
Our effective income tax rate was 35.7% in 2003, compared to 35.5% in
2002. The change from 2002 was due to changes in business and income
mix between states with differing income tax rates.
Business Segments
The following summarizes the operating results of our business segments
for the years ended December 31 (in millions):
UnitedHealth Group
23
REVENUES
Percent
2003
2002
Change
$
24,807
$
21,552
15
%
3,107
2,725
14
%
1,878
1,509
24
%
574
491
17
%
(1,543
)
(1,257
)
nm
$
28,823
$
25,020
15
%
nm not meaningful
Health Care Services
The Health Care Services segment consists of the UnitedHealthcare, Ovations and AmeriChoice businesses. UnitedHealthcare coordinates network-based health and well-being services on behalf of local employers and consumers. Ovations delivers health and well-being services to Americans over the age of 50, including the administration of supplemental health insurance coverage on behalf of AARP. AmeriChoice facilitates and manages health care services for state Medicaid programs and their beneficiaries.
Health Care Services had revenues of $24.8 billion in 2003, representing an increase of $3.3 billion, or 15%, over 2002. The majority of the increase resulted from an increase of $1.9 billion in UnitedHealthcare revenue, an increase of 14% over 2002. The increase in UnitedHealthcare revenues was driven by average premium rate increases of approximately 12% to 13% on renewing commercial risk-based business and 8% growth in the number of individuals served by fee-based products during 2003. Revenues from Medicaid programs in 2003 increased by $1.0 billion over 2002. Approximately 70% of this increase resulted from the acquisition of AmeriChoice on September 30, 2002, with the remaining 30% driven by growth in the number of individuals served by AmeriChoice Medicaid programs since the acquisition date. Ovations revenues increased by $319 million, or 5%, primarily due to increases in the number of individuals served by both its Medicare supplement products provided to AARP members and by its Evercare business.
Health Care Services earnings from operations in 2003 were nearly $1.9 billion, representing an increase of $537 million, or 40%, over 2002. This increase primarily resulted from revenue growth and improved gross margins on UnitedHealthcares risk-based products, growth in the number of individuals served by UnitedHealthcares fee-based products, and the acquisition of AmeriChoice on September 30, 2002. UnitedHealthcares commercial medical care ratio improved to 80.0% in 2003 from 81.8% in 2002. Approximately 40 basis points of the decrease in the commercial medical care ratio was driven by the favorable development of prior period medical cost estimates, with the balance of the decrease resulting from net premium rate increases that exceeded overall medical benefit cost increases and changes in business and customer mix. Health Care Services 2003 operating margin was 7.5%, an increase of 130 basis points over 2002. This increase was driven by a combination of improved medical care ratios and a shift in commercial product mix from risk-based products to higher-margin, fee-based products.
The following table summarizes the number of individuals served by Health Care Services, by major market segment and funding arrangement, as of December 31 1 :
(in thousands)
|
2003
|
2002
|
||||||
Commercial
|
||||||||
Risk-Based
|
5,400 | 5,070 | ||||||
Fee-Based
|
2,895 | 2,715 | ||||||
|
|
|
||||||
Total Commercial
|
8,295 | 7,785 | ||||||
|
|
|
||||||
Medicare
|
230 | 225 | ||||||
Medicaid
|
1,105 | 1,030 | ||||||
|
|
|
||||||
Total Health Care Services
|
9,630 | 9,040 | ||||||
|
|
|
1 Excludes individuals served by Ovations Medicare supplement products provided to AARP members. |
The number of individuals served by UnitedHealthcares commercial business as of December 31, 2003 increased by 510,000, or 7%, over the prior year. This included an increase of 180,000, or 7%, in the number of individuals served with fee-based products, driven by new customer relationships and existing customers converting from risk-based products to fee-based products. In addition, the number of individuals served by risk-based products increased by 330,000. This increase was driven by the acquisition of Golden Rule Financial Corporation (Golden Rule) in November 2003, which resulted in
24 UnitedHealth Group
the addition of 430,000 individuals served, partially offset by customers converting to self-funded, fee-based arrangements and UnitedHealthcares targeted withdrawal of risk-based offerings from unprofitable arrangements with customers using multiple benefit carriers.
Ovations year-over-year Medicare+Choice enrollment remained relatively stable, with 230,000 individuals served as of December 31, 2003. Medicaid enrollment increased by 75,000, or 7%, due to strong growth in the number of individuals served by AmeriChoice over the past year.
Uniprise
Uniprise provides network-based health and well-being services, business-to-business transaction processing services, consumer connectivity and technology support services to large employers and health plans. Uniprise revenues in 2003 were $3.1 billion, representing an increase of 14% over 2002. This increase was driven primarily by growth of 6% in the number of individuals served by Uniprise during 2003, annual service fee rate increases for self-insured customers, and a change in customer funding mix during 2002. Uniprise served 9.1 million individuals and 8.6 million individuals as of December 31, 2003 and 2002, respectively.
Uniprise earnings from operations in 2003 were $610 million, representing an increase of 18% over 2002. Operating margin for 2003 improved to 19.6% from 19.0% in 2002. Uniprise has expanded its operating margin through operating cost efficiencies derived from process improvements, technology deployment and cost management initiatives that have reduced labor and occupancy costs in its transaction processing and customer service, billing and enrollment functions. Additionally, Uniprises infrastructure can be scaled efficiently, allowing its business to grow revenues at a proportionately higher rate than the associated growth in operating expenses.
Specialized Care Services
Specialized Care Services is a portfolio of health and well-being companies, each serving a specialized market need with a unique offering of benefits, networks, services and resources. Specialized Care Services revenues during 2003 of $1.9 billion increased by $369 million, or 24%, over 2002. This increase was principally driven by an increase in the number of individuals served by United Behavioral Health, its mental health benefits business; Dental Benefit Providers, its dental services business; and Spectera, its vision care benefits business; as well as rate increases related to these businesses.
Earnings from operations in 2003 of $385 million increased $99 million, or 35%, over 2002. Specialized Care Services operating margin increased to 20.5% in 2003, up from 19.0% in 2002. This increase was driven primarily by operational and productivity improvements at United Behavioral Health. With the continuing growth of the Specialized Care Services segment, we are consolidating production and service operations to a segmentwide service and production infrastructure to improve service, quality and consistency, and to enhance productivity and efficiency.
Ingenix
Ingenix is an international leader in the field of health care data analysis and application, serving pharmaceutical companies, health insurers and other payers, physicians and other health care providers, large employers and governments. Ingenix revenues in 2003 of $574 million increased by $83 million, or 17%, over 2002. This was driven primarily by new business growth in the health information business.
Earnings from operations in 2003 were $75 million, up $20 million, or 36%, from 2002. Operating margin was 13.1% in 2003, up from 11.2% in 2002. The increase in the operating margin was primarily due to growth in the health information business.
UnitedHealth Group 25
2002 RESULTS COMPARED TO 2001 RESULTS
Consolidated Financial Results
Revenues
Consolidated revenues increased by approximately $1.6 billion, or 7%, in 2002 to $25.0 billion. Strong growth across our business segments was partially offset by the impact of targeted withdrawals from unprofitable risk-based arrangements with customers using multiple health benefit carriers, and withdrawals and benefit design changes in our Medicare+Choice product offering in certain markets. Following is a discussion of 2002 consolidated revenue trends for each revenue component.
Premium Revenues Consolidated premium revenues in 2002 totaled $21.9 billion, an increase of $1.2 billion, or 6%, compared with 2001. Premium revenues from UnitedHealthcares commercial risk-based products increased by approximately $1.2 billion, or 10%, to $12.9 billion in 2002. Average net premium rate increases exceeded 13% on UnitedHealthcares renewing commercial risk-based business. This increase was partially offset by the effects of targeted withdrawals from unprofitable risk-based arrangements with customers using multiple health benefit carriers and a shift in product mix from risk-based to fee-based products. During 2002, the number of individuals served by UnitedHealthcare commercial risk-based products decreased by 180,000, or 3%.
Premium revenues from Medicaid and Medicare+Choice programs decreased by $400 million, or 11%, to $3.2 billion in 2002. Premium revenues from Medicare+Choice programs decreased by $850 million to $1.6 billion because of planned withdrawals and benefit design changes in certain markets undertaken in response to insufficient Medicare program reimbursement rates. Premium revenues from Medicaid programs increased by $450 million to $1.6 billion in 2002. More than half of this increase, $240 million, related to the acquisition of AmeriChoice on September 30, 2002.
The balance of premium revenue growth in 2002 included a $240 million increase in Health Care Services premium revenues driven by an increase in the number of individuals served by both Ovations Medicare supplement products provided to AARP members and by its Evercare business. In addition, Specialized Care Services realized a $140 million increase in premium revenues in 2002.
Service Revenues Service revenues in 2002 totaled $2.9 billion, an increase of $404 million, or 16%, over 2001. The increase in service revenues was driven primarily by aggregate growth of 11% in the number of individuals served by Uniprise and UnitedHealthcare under fee-based arrangements. Uniprise and UnitedHealthcare service revenues grew by an aggregate of $230 million during 2002. Additionally, revenues from Ovations Pharmacy Services business, established in June 2001, increased by approximately $110 million, as it was in operation for the full year in 2002.
Investment and Other Income Investment and other income in 2002 totaled $220 million, a decrease of $61 million, or 22%, from 2001. Interest income decreased by $32 million due to lower interest yields on investments in 2002 compared with 2001, partially offset by the impact of increased levels of cash and fixed-income investments. Net realized capital losses in 2002 were $18 million, compared to net realized capital gains of $11 million in 2001. The 2002 net realized capital losses were mainly due to sales of investments in debt securities of certain companies in the telecommunications industry and impairments recorded on certain UnitedHealth Capital equity investments. The losses were partially offset by capital gains on sales of investments in other debt securities.
26 UnitedHealth Group
Medical Costs
The consolidated medical care ratio decreased from 85.3% in 2001 to 83.0% in 2002. Excluding the AARP business, the medical care ratio decreased by 250 basis points from 83.9% in 2001 to 81.4% in 2002. Approximately 90 basis points of the medical care ratio decrease resulted from targeted withdrawals from unprofitable risk-based arrangements with commercial customers using multiple health benefit carriers and a shift in commercial customer mix, with a larger percentage of premium revenues derived from small business customers. These employer groups typically have a lower medical care ratio, but carry higher operating costs than larger customers. Additionally, the medical care ratio decreased approximately 90 basis points because of withdrawals and benefit design changes in certain Medicare markets pertaining to our Medicare+Choice offering. The balance of the decrease in the medical care ratio was primarily driven by changes in product and business mix, care management activities and net premium rate increases that exceeded overall medical benefit cost increases.
On an absolute dollar basis, consolidated medical costs increased by $548 million, or 3%, over 2001. This increase principally resulted from a rise in medical costs of approximately 12%, or $2.1 billion, driven by the combination of medical cost inflation and increased health care consumption. Partially offsetting this increase, medical costs decreased by approximately $1.4 billion due to net reductions in the number of people receiving benefits under our Medicare and commercial risk-based products. The balance of the decrease in medical costs was driven primarily by changes in benefit designs in certain Medicare markets.
Operating Costs
The operating cost ratio was 17.5% in 2002, compared with 17.0% in 2001. During 2002, our fee-based products and services grew at a faster rate than our premium-based products, and fee-based products have much higher operating cost ratios than premium-based products. In addition, our Medicare business, which has relatively low operating costs as a percentage of revenues, decreased in size relative to our overall operations. Using a revenue mix comparable to 2001, the 2002 operating cost ratio would have decreased slightly in 2002. This decrease was principally driven by operating cost efficiencies derived from process improvements, technology deployment and cost management initiatives that reduced labor and occupancy costs in our transaction processing and customer service, billing and enrollment functions. The impact of these efficiencies was partially offset by the incremental costs associated with the development, deployment, adoption and maintenance of new technology releases, as well as increased business self-insurance costs during 2002.
On an absolute dollar basis, operating costs increased by $408 million, or 10%, over 2001. This increase was driven by a 7% increase in the total number of individuals served by Health Care Services and Uniprise during 2002, general operating cost inflation and the additional costs associated with acquired businesses.
Depreciation and Amortization
Depreciation and amortization was $255 million in 2002 and $265 million in 2001. This decrease was due to $93 million of amortization expense in 2001 recorded for goodwill, which was no longer amortized in 2002 pursuant to the adoption of Financial Accounting Standards (FAS) No. 142, Goodwill and Other Intangible Assets. This decrease was largely offset by $83 million of additional depreciation and amortization resulting from higher levels of equipment and capitalized software as a result of technology enhancements and business growth.
Income Taxes
Our effective income tax rate was 35.5% in 2002 and 38.0% in 2001. The decrease was primarily due to the impact of non-tax-deductible goodwill amortization that is no longer amortized for financial reporting purposes, as required by FAS No. 142. Assuming FAS No. 142 was effective during 2001, the effective tax rate would have been approximately 36.0% during 2001.
UnitedHealth 27
Business Segments
The following summarizes the operating results of our business segments for the years ended December 31 (in millions):
REVENUES | Percent | |||||||||||
|
2002
|
2001
|
Change
|
|||||||||
Health Care Services
|
$ | 21,552 | $ | 20,403 | 6 | % | ||||||
Uniprise
|
2,725 | 2,474 | 10 | % | ||||||||
Specialized Care Services
|
1,509 | 1,254 | 20 | % | ||||||||
Ingenix
|
491 | 447 | 10 | % | ||||||||
Corporate and Eliminations
|
(1,257 | ) | (1,124 | ) | nm | |||||||
|
|
|
|
|||||||||
Consolidated Revenues
|
$ | 25,020 | $ | 23,454 | 7 | % | ||||||
|
|
|
|
nm not meaningful | ||
1 Adjusted to exclude $93 million of amortization expense associated with goodwill for comparability purposes. Pursuant to FAS No. 142, which we adopted effective January 1, 2002, goodwill is no longer amortized. Where applicable, the percent change is calculated comparing the 2002 results to the 2001 Adjusted results. |
Health Care Services
Health Care Services posted record revenues of $21.6 billion in 2002, an increase of nearly $1.2 billion, or 6%, over 2001. The increase in revenues primarily resulted from an increase of approximately $1.2 billion in UnitedHealthcares commercial premium revenues. This was driven by average net premium rate increases in excess of 13% on renewing commercial risk-based business, partially offset by the effects of targeted withdrawals from unprofitable risk-based arrangements with commercial customers using multiple health benefit carriers. Premium revenues from Medicaid programs increased by $450 million in 2002, of which $240 million related to the acquisition of AmeriChoice on September 30, 2002. Offsetting these increases, Medicare+Choice premium revenues decreased by $850 million as a result of planned withdrawals and benefit design changes in certain markets in response to insufficient Medicare program reimbursement rates. The balance of Health Care Services revenue growth in 2002 includes a $240 million increase in Ovations revenues driven by an increase in the number of individuals served by both its Medicare supplement products provided to AARP members and its Evercare business, and a $140 million increase in revenues from its Pharmacy Services business, established in June 2001.
Health Care Services realized earnings from operations of $1.3 billion in 2002, an increase of $392 million, or 42%, over 2001 on a reported basis, and an increase of $354 million, or 36%, over 2001 on a FAS No. 142 comparable reporting basis. This increase primarily resulted from improved gross margins on UnitedHealthcares commercial risk-based products, revenue growth and operating cost efficiencies derived from process improvements, technology deployment and cost management initiatives that reduced labor and occupancy costs in the transaction processing and customer service, billing and enrollment functions. Health Care Services operating margin increased to 6.2% in 2002 from 4.6% on a reported basis and from 4.8% on a FAS No. 142 comparable reporting basis in 2001. This increase was driven by a combination of an improved medical care ratio, productivity improvements and a shift in product mix from risk-based products to higher-margin, fee-based products.
28 UnitedHealth Group
UnitedHealthcares commercial medical care ratio decreased by 230 basis points from 84.1% in 2001 to 81.8% in 2002. Approximately 130 basis points of the commercial medical care ratio decrease resulted from targeted withdrawals from unprofitable risk-based arrangements with commercial customers using multiple carriers and a shift in commercial customer mix, with a larger percentage of premium revenues derived from small business customers. These employer groups typically have a lower medical care ratio, but carry higher operating costs than larger customers. The balance of the decrease in the commercial medical care ratio was primarily driven by changes in product mix, care management activities and net premium rate increases that exceeded overall medical benefit cost increases.
The following table summarizes the number of individuals served, by major market segment and funding arrangement, as of December 31 1 :
(in thousands)
|
2002
|
2001
|
||||||
Commercial
|
||||||||
Risk-Based
|
5,070 | 5,250 | ||||||
Fee-Based
|
2,715 | 2,305 | ||||||
|
|
|
||||||
Total Commercial
|
7,785 | 7,555 | ||||||
|
|
|
||||||
Medicare
|
225 | 345 | ||||||
Medicaid
|
1,030 | 640 | ||||||
|
|
|
||||||
Total Health Care Services
|
9,040 | 8,540 | ||||||
|
|
|
1 Excludes individuals served by Ovations Medicare supplement products provided to AARP members. |
The number of individuals served by UnitedHealthcares commercial products increased by 230,000, or 3%, during 2002. This included an increase of 410,000, or 18%, in the number of individuals served with fee-based products, driven by new customer relationships and customers converting from risk-based products during 2002. This increase was partially offset by a decrease of 180,000, or 3%, in the number of individuals served by risk-based products, driven by customers converting to self-funded, fee-based arrangements and UnitedHealthcares targeted withdrawal of risk-based product offerings from unprofitable arrangements with customers using multiple health benefit carriers.
Ovations year-over-year Medicare enrollment decreased 35% because of market withdrawals and benefit design changes. These actions were taken in response to insufficient Medicare program reimbursement rates in specific counties and were intended to preserve profit margins and better position the Medicare program for long-term success. Year-over-year Medicaid enrollment increased by 390,000, largely due to the acquisition of AmeriChoice on September 30, 2002, which served approximately 360,000 individuals as of the acquisition date.
Uniprise
Uniprise revenues were $2.7 billion in 2002, up $251 million, or 10%, over 2001. This increase was driven primarily by an 8% increase in Uniprises customer base. Uniprise served 8.6 million individuals as of December 31, 2002, and 8.0 million individuals as of December 31, 2001.
Uniprise earnings from operations grew by $135 million, or 35%, over 2001 on a reported basis, and by $107 million, or 26%, over 2001 on a FAS No. 142 comparable reporting basis. Operating margin improved to 19.0% in 2002 from 15.4% on a reported basis and from 16.6% on a FAS No. 142 comparable reporting basis in 2001. Uniprise expanded its operating margin through operating cost efficiencies derived from process improvements, technology deployment and cost management initiatives that reduced labor and occupancy costs supporting its transaction processing and customer service, billing and enrollment functions. Additionally, Uniprises infrastructure can be scaled efficiently, allowing its business to grow revenues at a proportionately higher rate than the associated growth in operating expenses.
UnitedHealth Group 29
Specialized Care Services
Specialized Care Services had revenues of $1.5 billion in 2002, an increase of $255 million, or 20%, over 2001. This increase was principally driven by $140 million of revenue growth from Spectera, its vision care benefits business acquired in October 2001, and an increase in the number of individuals served by United Behavioral Health, its mental health benefits business, and Dental Benefit Providers, its dental services business.
Earnings from operations reached $286 million in 2002, an increase over 2001 of $72 million, or 34%, on a reported basis and $66 million, or 30%, on a FAS No. 142 comparable reporting basis. Specialized Care Services operating margin increased to 19.0% in 2002, up from 17.1% on a reported basis and from 17.5% on a FAS No. 142 comparable reporting basis in 2001. This increase was driven by operational and productivity improvements, partially offset by a shifting business mix toward higher revenue, lower margin products. With the growth of this segment, we began consolidating production and service operations to a segmentwide service and production infrastructure to improve service quality and consistency and enhance productivity and efficiency.
Ingenix
Revenues were $491 million in 2002, an increase of $44 million, or 10%, over 2001. This was the result of strong new business growth in the health information business and revenues from acquired businesses, partially offset by reduced revenues in the pharmaceutical services business.
Earnings from operations were $55 million, up $7 million, or 15%, over 2001 on a reported basis, and down $14 million, or 20%, from 2001 on a FAS No. 142 comparable reporting basis. Operating margin was 11.2% in 2002, up from 10.7% in 2001 on a reported basis, and down from 15.4% on a FAS No. 142 comparable reporting basis. The reduction in earnings from operations and operating margin on a FAS No. 142 comparable reporting basis was due to cancellations and delays of certain clinical research trials by pharmaceutical clients, which were affected by weak industry-specific conditions. This reduction was partially offset by strong business growth and slightly expanding margins in the health information business.
Corporate
Corporate includes costs for certain companywide process improvement initiatives, net expenses from charitable contributions to the United Health Foundation and eliminations of intersegment transactions. The decrease in corporate expenses of $14 million from 2001 to 2002 reflects the completion during 2001 of certain companywide process improvement initiatives.
30 UnitedHealth Group
FINANCIAL CONDITION AND LIQUIDITY AT DECEMBER 31, 2003
Liquidity
We manage our cash, investments and capital structure so we are able to meet the short- and long-term obligations of our business while maintaining strong financial flexibility and liquidity. We forecast, analyze and monitor our cash flows to enable prudent investment and financing within the confines of our financial strategy.
Our regulated subsidiaries generate significant cash flows from operations. A majority of the assets held by our regulated subsidiaries are in the form of cash, cash equivalents and investments. After considering expected cash flows from operating activities, we generally invest monies of regulated subsidiaries that exceed our short-term obligations in longer term, investment-grade, marketable debt securities to improve our overall investment return. Factors we consider in making these investment decisions include our board of directors approved investment policy, regulatory limitations, return objectives, tax implications, risk tolerance and maturity dates. Our long-term investments are also available for sale to meet short-term liquidity and other needs. Monies in excess of the capital needs of our regulated entities are paid to their non-regulated parent companies, typically in the form of dividends, for general corporate use, when and as permitted by applicable regulations.
Our non-regulated businesses also generate significant cash from operations for general corporate use. Cash flows generated by these entities, combined with the issuance of commercial paper, long-term debt and the availability of committed credit facilities, further strengthen our operating and financial flexibility. We generally use these cash flows to reinvest in our businesses in the form of capital expenditures, to expand the depth and breadth of our services through business acquisitions, and to repurchase shares of our common stock, depending on market conditions.
Cash generated from operating activities, our primary source of liquidity, is principally from net earnings, excluding depreciation and amortization. As a result, any future decline in our profitability may have a negative impact on our liquidity. The level of profitability of our risk-based business depends in large part on our ability to accurately predict and price for health care cost increases. This risk is partially mitigated by the diversity of our other businesses, the geographic diversity of our risk-based business and our disciplined underwriting and pricing processes, which seek to match premium rate increases with future health care costs. In 2003, a hypothetical 1% increase in commercial insured medical costs would have reduced net earnings by approximately $75 million.
The availability of financing in the form of debt or equity is influenced by many factors, including our profitability, operating cash flows, debt levels, debt ratings, contractual restrictions, regulatory requirements and market conditions. We believe that our strategies and actions toward maintaining financial flexibility mitigate much of this risk.
UnitedHealth Group 31
Cash and Investments
Cash flows from operating activities was $3.0 billion in 2003, representing an increase over 2002 of $580 million, or 24%. This increase in operating cash flows resulted primarily from an increase of $454 million in net income excluding depreciation, amortization and other noncash items. Additionally, operating cash flows increased by $126 million due to cash generated by working capital changes, driven primarily by an increase in medical costs payable. As premium revenues and related medical costs increase, we generate incremental operating cash flows because we collect premium revenues in advance of the claim payments for related medical costs.
We maintained a strong financial condition and liquidity position, with cash and investments of $9.5 billion at December 31, 2003. Total cash and investments increased by $3.1 billion since December 31, 2002, primarily due to $2.2 billion in cash and investments acquired in the Golden Rule acquisition in November 2003 and strong operating cash flows, partially offset by capital expenditures, businesses acquired for cash and common stock repurchases.
As further described under Regulatory Capital and Dividend Restrictions, many of our subsidiaries are subject to various government regulations that restrict the timing and amount of dividends and other distributions that may be paid to their parent companies. At December 31, 2003, approximately $385 million of our $9.5 billion of cash and investments was held by non-regulated subsidiaries. Of this amount, approximately $45 million was segregated for future regulatory capital needs and the remainder was available for general corporate use, including acquisitions and share repurchases.
Financing and Investing Activities
In addition to our strong cash flows generated by operating activities, we use commercial paper and debt to maintain adequate operating and financial flexibility. As of December 31, 2003 and 2002, we had commercial paper and debt outstanding of approximately $2.0 billion and $1.8 billion, respectively. Our debt-to-total-capital ratio was 27.8% and 28.5% as of December 31, 2003 and December 31, 2002, respectively. We believe the prudent use of debt leverage optimizes our cost of capital and return on shareholders equity, while maintaining appropriate liquidity.
In December and March 2003, we issued $500 million of four-year, fixed-rate notes and $450 million of 10-year, fixed-rate notes with interest rates of 3.3% and 4.9%, respectively. We entered into interest rate swap agreements to convert our interest exposure on $725 million of the 2003 borrowings from a fixed to a variable rate. At December 31, 2003, the rate used to accrue interest expense on these agreements ranged from 1.2% to 1.6%. The differential between the fixed and variable rates to be paid or received is accrued and recognized over the life of the agreements as an adjustment to interest expense in the Consolidated Statements of Operations. We used the proceeds from these borrowings to repay commercial paper and term debt maturing in 2003, and for general corporate purposes, including working capital, capital expenditures, business acquisitions and share repurchases. Commercial paper and current maturities of long-term debt decreased from $811 million as of December 31, 2002, to $229 million as of December 31, 2003, as a result of these actions.
We have credit arrangements for $900 million that support our commercial paper program. These credit arrangements include a $450 million revolving facility that expires in July 2005, and a $450 million, 364-day facility that expires in July 2004. As of December 31, 2003, we had no amounts outstanding under our credit facilities.
Our debt arrangements and credit facilities contain various covenants, the most restrictive of which require us to maintain a debt-to-total-capital ratio (calculated as the sum of commercial paper and debt divided by the sum of commercial paper, debt and shareholders equity) below 45% and to exceed specified minimum interest coverage levels. We are in compliance with the requirements of all debt covenants.
32 UnitedHealth Group
Our senior debt is rated A by Standard & Poors (S&P) and Fitch, and A3 with a positive outlook by Moodys. Our commercial paper is rated A-1 by S&P, F-1 by Fitch, and P-2 with a positive outlook by Moodys. Consistent with our intention of maintaining our senior debt ratings in the A range, we intend to maintain our debt-to-total-capital ratio at 30% or less. A significant downgrade in our debt or commercial paper ratings could adversely affect our borrowing capacity and costs.
Under our board of directors authorization, we maintain a common stock repurchase program. Repurchases may be made from time to time at prevailing prices, subject to certain restrictions on volume, pricing and timing. During 2003, we repurchased 33 million shares at an average price of approximately $47 per share and an aggregate cost of approximately $1.6 billion. As of December 31, 2003, we had board of directors authorization to purchase up to an additional 45 million shares of our common stock. Our common stock repurchase program is discretionary as we are under no obligation to repurchase shares. We repurchase shares because we believe it is a prudent use of capital. A decision by the company to discontinue share repurchases would significantly increase our liquidity and financial flexibility.
In May 2003, our board of directors declared a two-for-one split of the companys common stock in the form of a 100% common stock dividend. The stock dividend was issued on June 18, 2003, to shareholders of record as of June 2, 2003. All share and per share amounts have been restated to reflect the stock split.
On November 13, 2003, our Health Care Services business segment acquired Golden Rule Financial Corporation and subsidiaries. We paid $495 million in cash in exchange for all of the outstanding stock of Golden Rule.
On February 10, 2004, our Health Care Services business segment acquired Mid Atlantic Medical Services, Inc. (MAMSI). Under the terms of the purchase agreement, MAMSI shareholders received 0.82 shares of UnitedHealth Group common stock and $18 in cash for each share of MAMSI common stock they owned. Total consideration issued was approximately $2.7 billion, comprised of 36.4 million shares of UnitedHealth Group common stock (valued at $1.9 billion based upon the average of UnitedHealth Groups share closing price for two days before, the day of and two days after the acquisition announcement date of October 27, 2003) and approximately $800 million in cash.
We financed the cash portion of the MAMSI purchase price primarily through commercial paper issuances and a total of $500 million of five- and 10-year fixed-rate notes issued on February 10, 2004. We have entered into interest rate swap agreements to convert our interest exposure on these notes from a fixed to a variable rate. Following the closing of this acquisition and the debt issuances, our debt-to-total-capital ratio remained below 30%.
Under our S-3 shelf registration statement (for common stock, preferred stock, debt securities and other securities), the remaining issuing capacity of all covered securities, after consideration of the notes issued in connection with the MAMSI acquisition described above, is $250 million. We may publicly offer securities from time to time at prices and terms to be determined at the time of offering. We plan to file an amendment to increase the issuing capacity under our S-3 shelf registration statement to $2.0 billion during the first half of 2004. Under our S-4 acquisition shelf registration statement, we have remaining issuing capacity of approximately 24.3 million shares of our common stock in connection with acquisition activities. We filed a separate S-4 registration statement for the 36.4 million shares issued in connection with the acquisition of MAMSI described above.
UnitedHealth Group 33
Contractual Obligations, Off-Balance Sheet Arrangements And Commitments
The following table summarizes future obligations due by period as of December 31, 2003, under our various contractual obligations, off-balance sheet arrangements and commitments (in millions):
2004
|
2005 to 2006
|
2007 to 2008
|
Thereafter
|
Total
|
||||||||||||||||
Debt and Commercial Paper
1
|
$ | 229 | $ | 400 | $ | 900 | $ | 450 | $ | 1,979 | ||||||||||
Operating Leases
|
103 | 185 | 144 | 191 | 623 | |||||||||||||||
Purchase Obligations
2
|
83 | 99 | 14 | | 196 | |||||||||||||||
Future Policy Benefits
3
|
160 | 290 | 265 | 962 | 1,677 | |||||||||||||||
Other Long-Term Obligations
4
|
| | 65 | 173 | 238 | |||||||||||||||
|
|
|
|
|
|
|||||||||||||||
Total Contractual Obligations
|
$ | 575 | $ | 974 | $ | 1,388 | $ | 1,776 | $ | 4,713 | ||||||||||
|
|
|
|
|
|
1 Debt payments could be accelerated upon violation of debt covenants. We believe the likelihood of a debt covenant violation is remote. | ||
2 Minimum commitments under existing purchase obligations for goods and services. | ||
3 Estimated payments required under life insurance and annuity contracts. | ||
4 Includes obligations associated with certain employee benefit programs and minority interest purchase commitments. |
Currently, we do not have any other material contractual obligations, off-balance sheet arrangements or commitments that require cash resources; however, we continually evaluate opportunities to expand our operations. This includes internal development of new products, programs and technology applications, and may include acquisitions.
REGULATORY CAPITAL AND DIVIDEND RESTRICTIONS
We conduct a significant portion of our operations through companies that are subject to standards established by the National Association of Insurance Commissioners (NAIC). These standards, among other things, require these subsidiaries to maintain specified levels of statutory capital, as defined by each state, and restrict the timing and amount of dividends and other distributions that may be paid to their parent companies. Generally, the amount of dividend distributions that may be paid by a regulated subsidiary, without prior approval by state regulatory authorities, is limited based on the entitys level of statutory net income and statutory capital and surplus. The agencies that assess our creditworthiness also consider capital adequacy levels when establishing our debt ratings. Consistent with our intent to maintain our senior debt ratings in the A range, we maintain an aggregate statutory capital level for our regulated subsidiaries that is significantly higher than the minimum level regulators require. As of December 31, 2003, our regulated subsidiaries had aggregate statutory capital of approximately $3.1 billion, which is significantly more than the aggregate minimum regulatory requirements.
34 UnitedHealth Group
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Critical accounting policies are those policies that require management to make the most challenging, subjective or complex judgments, often because they must estimate the effects of matters that are inherently uncertain and may change in subsequent periods. Critical accounting policies involve judgments and uncertainties that are sufficiently sensitive to result in materially different results under different assumptions and conditions. We believe our most critical accounting policies are those described below. For a detailed discussion of these and other accounting policies, see Note 2 to the Consolidated Financial Statements.
Revenues
Revenues are principally derived from health care insurance premiums. We recognize premium revenues in the period eligible individuals are entitled to receive health care services. Customers are typically billed monthly at a contracted rate per eligible person multiplied by the total number of people eligible to receive services, as recorded in our records. Employer groups generally provide us with changes to their eligible population one month in arrears. Each billing includes an adjustment for prior month changes in eligibility status that were not reflected in our previous billing. We estimate and adjust the current periods revenues and accounts receivable accordingly. Our estimates are based on historical trends, premiums billed, the level of contract renewal activity and other relevant information. We revise estimates of revenue adjustments each period, and record changes in the period they become known.
Medical Costs
Each reporting period, we estimate our obligations for medical care services that have been rendered on behalf of insured consumers but for which claims have either not yet been received or processed, and for liabilities for physician, hospital and other medical cost disputes. We develop estimates for medical care services incurred but not reported using an actuarial process that is consistently applied, centrally controlled and automated. The actuarial models consider factors such as time from date of service to claim receipt, claim backlogs, seasonal variances in medical care consumption, provider contract rate changes, medical care utilization and other medical cost trends, membership volume and demographics, benefit plan changes, and business mix changes related to products, customers and geography. Depending on the health care provider and type of service, the typical billing lag for services can range from two to 90 days from the date of service. Substantially all claims related to medical care services are known and settled within nine to 12 months from the date of service. We estimate liabilities for physician, hospital and other medical cost disputes based upon an analysis of potential outcomes, assuming a combination of litigation and settlement strategies.
Each period, we re-examine previously established medical costs payable estimates based on actual claim submissions and other changes in facts and circumstances. As the liability estimates recorded in prior periods become more exact, we increase or decrease the amount of the estimates, with the changes in estimates included in medical costs in the period in which the change is identified. In every reporting period, our operating results include the effects of more completely developed medical costs payable estimates associated with previously reported periods. If the revised estimate of prior period medical costs is less than the previous estimate, we will decrease reported medical costs in the current period (favorable development). If the revised estimate of prior period medical costs is more than the previous estimate, we will increase reported medical costs in the current period (unfavorable development). Historically, the net impact of estimate developments has represented less than one-half of 1% of annual medical costs, less than 4% of annual earnings from operations and less than 3% of medical costs payable.
UnitedHealth Group 35
In order to evaluate the impact of changes in medical cost
estimates for any particular discrete period, one should consider both
the amount of development recorded in the current period pertaining to
prior periods and the amount of development recorded in subsequent
periods pertaining to the current period. The accompanying table
provides a summary of the net impact of favorable development on
medical costs and earnings from operations (in millions).
Favorable
Net Impact on
Medical Costs
Earnings from Operations
Development
Medical Costs(a)
As Reported
As Adjusted(b)
As Reported
As Adjusted(b)
$
15
$
(15
)
$
16,155
$
16,140
$
1,200
$
1,215
$
30
$
(40
)
$
17,644
$
17,604
$
1,566
$
1,606
$
70
$
(80
)
$
18,192
$
18,112
$
2,186
$
2,266
$
150
(c
)
$
20,714
(c
)
$
2,935
(c
)
a) | The amount of favorable development recorded in the current year pertaining to the prior year less the amount of favorable development recorded in the subsequent year pertaining to the current year. | |
b) | Represents reported amounts adjusted to reflect the net impact of medical cost development. | |
c) | Not yet determinable as the amount of prior period development recorded in 2004 will change as our December 31, 2003 medical costs payable estimate develops throughout 2004. |
Our estimate of medical costs payable represents managements best estimate of the companys liability for unpaid medical costs as of December 31, 2003, developed using consistently applied actuarial methods. Management believes the amount of medical costs payable is reasonable and adequate to cover the companys liability for unpaid claims as of December 31, 2003; however, actual claim payments may differ from established estimates. Assuming a hypothetical 1% difference between our December 31, 2003 estimates of medical costs payable and actual costs payable, excluding the AARP business, 2003 earnings from operations would increase or decrease by approximately $33 million and diluted net earnings per common share would increase or decrease by approximately $0.03 per share.
Investments
As of December 31, 2003, we had approximately $7.2 billion of investments, primarily held in marketable debt securities. Our investments are principally classified as available for sale and are recorded at fair value. We exclude unrealized gains and losses on investments available for sale from earnings and report them together, net of income tax effects, as a separate component in shareholders equity. We continually monitor the difference between the cost and fair value of our investments. As of December 31, 2003, our investments had gross unrealized gains of $238 million and gross unrealized losses of $7 million. If any of our investments experience a decline in fair value that is determined to be other than temporary, based on analysis of relevant factors, we record a realized loss in our Consolidated Statement of Operations. Management judgment is involved in evaluating whether a decline in an investments fair value is other than temporary. New information and the passage of time can change these judgments. We revise impairment judgments when new information becomes known and record any resulting impairment charges at that time. We manage our investment portfolio to limit our exposure to any one issuer or industry and largely limit our investments to U.S. Government and Agency securities, state and municipal securities, and corporate debt obligations that are investment grade.
Long-Lived Assets
As of December 31, 2003 and 2002, we had long-lived assets, including goodwill, other intangible assets, and property, equipment and capitalized software, of $4.7 billion and $4.4 billion, respectively. We review these assets for events and changes in circumstances that would indicate we might not recover their carrying value. In assessing the recoverability of our long-lived assets, we must make assumptions regarding estimated future utility, cash flows and other internal and external factors to determine the fair value of the respective assets. If these estimates or their related assumptions change in the future, we may be required to record impairment charges for these assets.
36 UnitedHealth Group
Contingent Liabilities
Because of the nature of our businesses, we are routinely involved in various disputes, legal proceedings and governmental audits and investigations. We record liabilities for our estimates of the probable costs resulting from these matters. Our estimates are developed in consultation with outside legal counsel and are based upon an analysis of potential results, assuming a combination of litigation and settlement strategies and considering our insurance coverages, if any, for such matters. We do not believe any matters currently threatened or pending will have a material adverse effect on our consolidated financial position or results of operations. It is possible, however, that future results of operations for any particular quarterly or annual period could be materially affected by changes in our estimates or assumptions.
INFLATION
The current national health care cost inflation rate significantly exceeds the general inflation rate. We use various strategies to lessen the effects of health care cost inflation. These include setting commercial premiums based on anticipated health care costs and coordinating care with physicians and other health care providers. Through contracts with physicians and other health care providers, we emphasize preventive health care, appropriate use of health care services consistent with clinical performance standards, education and closing gaps in care.
We believe our strategies to mitigate the impact of health care cost inflation on our operating results have been and will continue to be successful. However, other factors including competitive pressures, new health care and pharmaceutical product introductions, demands from physicians and other health care providers and consumers, major epidemics, and applicable regulations may affect our ability to control the impact of health care cost inflation. Because of the narrow operating margins of our risk-based products, changes in medical cost trends that were not anticipated in establishing premium rates can create significant changes in our financial results.
LEGAL MATTERS
Because of the nature of our businesses, we are routinely party to a variety of legal actions related to the design, management and offerings of our services. We record liabilities for our estimates of probable costs resulting from these matters. These matters include, but are not limited to: claims relating to health care benefits coverage; medical malpractice actions; contract disputes; and claims related to disclosure of certain business practices. Following the events of September 11, 2001, the cost of business insurance coverage increased significantly. As a result, we have increased the amount of risk that we self-insure, particularly with respect to matters incidental to our business.
Beginning in 1999, a series of class action lawsuits were filed against us and virtually all major entities in the health benefits business. Generally, the health care provider plaintiffs allege violations of the Employee Retirement Income Security Act of 1974, as amended (ERISA), and the Racketeer Influenced Corrupt Organization Act (RICO), as well as several state law claims. The suit seeks injunctive, compensatory and equitable relief as well as restitution, costs, fees and interest payments. We are engaged in discovery in this matter. A trial date has been set for September 13, 2004.
In March 2000, the American Medical Association filed a lawsuit against the company in connection with the calculation of reasonable and customary reimbursement rates for non-network providers. The suit seeks declaratory, injunctive and compensatory relief as well as costs, fees and interest payments. An amended complaint was filed on August 25, 2000, which alleged two classes of plaintiffs, an ERISA class and a non-ERISA class. After the court dismissed certain ERISA claims and the claims brought by the American Medical Association, a third amended complaint was filed. On October 25, 2002, the court granted in part and denied in part our motion to dismiss the third amended complaint. We are engaged in discovery in this matter.
UnitedHealth Group 37
Although the results of pending litigation are always uncertain, we do not believe the results of any such actions currently threatened or pending, including those described above, will, individually or in aggregate, have a material adverse effect on our consolidated financial position or results of operations.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk represents the risk of changes in the fair value of a financial instrument caused by changes in interest rates and equity prices. The companys primary market risk is exposure to changes in interest rates that could impact the fair value of our investments and long-term debt.
Approximately $7.0 billion of our investments at December 31, 2003 were fixed-income securities. Assuming a hypothetical and immediate 1% increase or decrease in interest rates applicable to our fixed-income investment portfolio at December 31, 2003, the fair value of our fixed-income investments would decrease or increase by approximately $340 million. We manage our investment portfolio to limit our exposure to any one issuer or industry and largely limit our investments to U.S. Government and Agency securities, state and municipal securities, and corporate debt obligations that are investment grade.
To mitigate the financial impact of changes in interest rates, we have entered into interest rate swap agreements to more closely match the interest rates of our long-term debt with those of our cash equivalents and short-term investments. Including the impact of our interest rate swap agreements, approximately $1.2 billion of our commercial paper and debt had variable rates of interest and $825 million had fixed rates as of December 31, 2003. A hypothetical 1% increase or decrease in interest rates would not be material to the fair value of our commercial paper and debt.
At December 31, 2003, we had $181 million of equity investments, primarily held by our UnitedHealth Capital business in various public and non-public companies concentrated in the areas of health care delivery and related information technologies. Market conditions that affect the value of health care or technology stocks will likewise impact the value of our equity portfolio.
CONCENTRATIONS OF CREDIT RISK
Investments in financial instruments such as marketable securities and accounts receivable may subject UnitedHealth Group to concentrations of credit risk. Our investments in marketable securities are managed under an investment policy authorized by our board of directors. This policy limits the amounts that may be invested in any one issuer and generally limits our investments to U.S. Government and Agency securities, state and municipal securities and corporate debt obligations that are investment grade. Concentrations of credit risk with respect to accounts receivable are limited due to the large number of employer groups that constitute our customer base. As of December 31, 2003, there were no significant concentrations of credit risk.
38 UnitedHealth Group
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The statements contained in Results of Operations and other sections of this annual report to shareholders include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (PSLRA). When used in this report, the words and phrases believes, anticipates, intends, will likely result, estimates, projects and similar expressions are intended to identify such forward-looking statements. Any of these forward-looking statements involve risks and uncertainties that may cause the companys actual results to differ materially from the results discussed in the forward-looking statements. Statements that are not strictly historical are forward-looking and known and unknown risks may cause actual results and corporate developments to differ materially from those expected. Except to the extent otherwise required by federal securities laws, we do not undertake to address or update each statement in future filings or communications regarding our business or results, and do not undertake to address how any of these factors may have caused results to differ from discussions or information contained in previous filings or communications. In addition, any of the matters discussed in this annual report may have affected our past as well as current forward-looking statements about future results. Any or all forward-looking statements in this report and in any other public statements we make may turn out to be inaccurate. They can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties.
Many factors will be important in determining future results. Consequently, no forward-looking statement can be guaranteed. Actual future results may vary materially from those expressed in our prior communications. Factors that could cause results and developments to differ materially from expectations include, without limitation, (a) increases in medical costs that are higher than we anticipated in establishing our premium rates, including increased consumption of or costs of medical services; (b) increases in costs associated with increased litigation, legislative activity and government regulation and review of our industry; (c) heightened competition as a result of new entrants into our market, mergers and acquisitions of health care companies and suppliers, and expansion of physician or practice management companies; (d) failure to maintain effective and efficient information systems, which could result in the loss of existing customers, difficulties in attracting new customers, difficulties in determining medical costs estimates and establishing appropriate pricing, customer and physician and health care provider disputes, regulatory violations, increases in operating costs or other adverse consequences; (e) events that may negatively affect our contract with AARP, including any failure on our part to service AARP customers in an effective manner and any adverse events that directly affect AARP or its business partners; (f) significant deterioration in customer retention; (g) our ability to execute contracts on favorable terms with physicians, hospitals and other service providers, and (h) significant deterioration in economic conditions, including the effects of acts of terrorism, particularly bioterrorism, or major epidemics. A further list and description of these risks, uncertainties and other matters can be found in our annual report on Form 10-K for the year ended December 31, 2003, and in our reports on Forms 10-Q and 8-K.
UnitedHealth Group 39
Consolidated Statements of Operations
For the Year Ended December 31,
|
||||||||||||
(in millions, except per share data)
|
2003
|
2002
|
2001
|
|||||||||
REVENUES
|
||||||||||||
Premiums
|
$ | 25,448 | $ | 21,906 | $ | 20,683 | ||||||
Services
|
3,118 | 2,894 | 2,490 | |||||||||
Investment and Other Income
|
257 | 220 | 281 | |||||||||
|
|
|
|
|||||||||
Total Revenues
|
28,823 | 25,020 | 23,454 | |||||||||
|
|
|
|
|||||||||
MEDICAL AND OPERATING COSTS
|
||||||||||||
Medical Costs
|
20,714 | 18,192 | 17,644 | |||||||||
Operating Costs
|
4,875 | 4,387 | 3,979 | |||||||||
Depreciation and Amortization
|
299 | 255 | 265 | |||||||||
|
|
|
|
|||||||||
Total Medical and Operating Costs
|
25,888 | 22,834 | 21,888 | |||||||||
|
|
|
|
|||||||||
EARNINGS FROM OPERATIONS
|
2,935 | 2,186 | 1,566 | |||||||||
Interest Expense
|
(95 | ) | (90 | ) | (94 | ) | ||||||
|
|
|
|
|||||||||
EARNINGS BEFORE INCOME TAXES
|
2,840 | 2,096 | 1,472 | |||||||||
Provision for Income Taxes
|
(1,015 | ) | (744 | ) | (559 | ) | ||||||
|
|
|
|
|||||||||
NET EARNINGS
|
$ | 1,825 | $ | 1,352 | $ | 913 | ||||||
|
|
|
|
|||||||||
BASIC NET EARNINGS PER COMMON SHARE
|
$ | 3.10 | $ | 2.23 | $ | 1.46 | ||||||
|
|
|
|
|||||||||
DILUTED NET EARNINGS PER COMMON SHARE
|
$ | 2.96 | $ | 2.13 | $ | 1.40 | ||||||
|
|
|
|
|||||||||
BASIC WEIGHTED-AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING
|
589 | 607 | 625 | |||||||||
DILUTIVE EFFECT OF OUTSTANDING STOCK OPTIONS
|
28 | 29 | 29 | |||||||||
|
|
|
|
|||||||||
DILUTED WEIGHTED-AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING
|
617 | 636 | 654 | |||||||||
|
|
|
|
See Notes to Consolidated Financial Statements.
40 UnitedHealth Group
Consolidated Balance Sheets
As of December 31,
|
||||||||
(in millions, except per share data)
|
2003
|
2002
|
||||||
ASSETS
|
||||||||
Current Assets
|
||||||||
Cash and Cash Equivalents
|
$ | 2,262 | $ | 1,130 | ||||
Short-Term Investments
|
486 | 701 | ||||||
Accounts Receivable, net of allowances of $88 and $86
|
745 | 664 | ||||||
Assets Under Management
|
2,019 | 2,069 | ||||||
Deferred Income Taxes
|
269 | 389 | ||||||
Other Current Assets
|
339 | 221 | ||||||
|
|
|
||||||
Total Current Assets
|
6,120 | 5,174 | ||||||
Long-Term Investments
|
6,729 | 4,498 | ||||||
Property, Equipment and Capitalized Software, net of accumulated
depreciation and amortization of $538 and $456
|
1,032 | 955 | ||||||
Goodwill
|
3,509 | 3,363 | ||||||
Other Intangible Assets, net of accumulated amortization of $43 and $31
|
180 | 122 | ||||||
Other Assets
|
64 | 52 | ||||||
|
|
|
||||||
TOTAL ASSETS
|
$ | 17,634 | $ | 14,164 | ||||
|
|
|
||||||
LIABILITIES AND SHAREHOLDERS EQUITY
|
||||||||
Current Liabilities
|
||||||||
Medical Costs Payable
|
$ | 4,152 | $ | 3,741 | ||||
Accounts Payable and Accrued Liabilities
|
1,575 | 1,459 | ||||||
Other Policy Liabilities
|
2,117 | 1,781 | ||||||
Commercial Paper and Current Maturities of Long-Term Debt
|
229 | 811 | ||||||
Unearned Premiums
|
695 | 587 | ||||||
|
|
|
||||||
Total Current Liabilities
|
8,768 | 8,379 | ||||||
Long-Term Debt, less current maturities
|
1,750 | 950 | ||||||
Future Policy Benefits for Life and Annuity Contracts
|
1,517 | | ||||||
Deferred Income Taxes and Other Liabilities
|
471 | 407 | ||||||
Commitments and Contingencies (Note 12)
|
||||||||
|
|
|
||||||
Shareholders Equity
|
||||||||
Common Stock, $0.01 par value 1,500 shares authorized;
583 and 599 shares outstanding
|
6 | 6 | ||||||
Additional Paid-In Capital
|
58 | 170 | ||||||
Retained Earnings
|
4,915 | 4,104 | ||||||
Accumulated Other Comprehensive Income:
|
||||||||
Net Unrealized Gains on Investments, net of tax effects
|
149 | 148 | ||||||
|
|
|
||||||
TOTAL SHAREHOLDERS EQUITY
|
5,128 | 4,428 | ||||||
|
|
|
||||||
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
|
$ | 17,634 | $ | 14,164 | ||||
|
|
|
See Notes to Consolidated Financial Statements.
UnitedHealth Group 41
Consolidated Statements of Changes in Shareholders Equity
Common Stock
|
Additional
Paid-In |
Retained |
Net Unrealized
Gains on |
Total
Shareholders' |
Comprehensive | |||||||||||||||||||||||
(in millions)
|
Shares
|
Amount
|
Capital
|
Earnings
|
Investments
|
Equity
|
Income
|
|||||||||||||||||||||
BALANCE AT DECEMBER 31, 2000
|
634 | $ | 6 | $ | | $ | 3,592 | $ | 90 | $ | 3,688 | |||||||||||||||||
Issuances of Common Stock,
and related tax benefits
|
22 | | 474 | | | 474 | ||||||||||||||||||||||
Common Stock Repurchases
|
(39 | ) | | (438 | ) | (691 | ) | | (1,129 | ) | ||||||||||||||||||
Comprehensive Income
|
||||||||||||||||||||||||||||
Net Earnings
|
| | | 913 | | 913 | $ | 913 | ||||||||||||||||||||
Other Comprehensive Income Adjustments
Change in Net Unrealized Gains
on Investments, net of tax effects
|
| | | | (46 | ) | (46 | ) | (46 | ) | ||||||||||||||||||
|
|
|||||||||||||||||||||||||||
Comprehensive Income
|
$ | 867 | ||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||
Common Stock Dividend
|
| | | (9 | ) | | (9 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
||||||||||||||||||||||
BALANCE AT DECEMBER 31, 2001
|
617 | 6 | 36 | 3,805 | 44 | 3,891 | ||||||||||||||||||||||
Issuances of Common Stock,
and related tax benefits
|
26 | | 905 | | | 905 | ||||||||||||||||||||||
Common Stock Repurchases
|
(44 | ) | | (771 | ) | (1,044 | ) | | (1,815 | ) | ||||||||||||||||||
Comprehensive Income
|
||||||||||||||||||||||||||||
Net Earnings
|
| | | 1,352 | | 1,352 | $ | 1,352 | ||||||||||||||||||||
Other Comprehensive Income Adjustments
Change in Net Unrealized Gains
on Investments, net of tax effects
|
| | | | 104 | 104 | 104 | |||||||||||||||||||||
|
|
|||||||||||||||||||||||||||
Comprehensive Income
|
$ | 1,456 | ||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||
Common Stock Dividend
|
| | | (9 | ) | | (9 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
||||||||||||||||||||||
BALANCE AT DECEMBER 31, 2002
|
599 | 6 | 170 | 4,104 | 148 | 4,428 | ||||||||||||||||||||||
Issuances of Common Stock,
and related tax benefits
|
17 | | 490 | | | 490 | ||||||||||||||||||||||
Common Stock Repurchases
|
(33 | ) | | (602 | ) | (1,005 | ) | | (1,607 | ) | ||||||||||||||||||
Comprehensive Income
|
||||||||||||||||||||||||||||
Net Earnings
|
| | | 1,825 | | 1,825 | $ | 1,825 | ||||||||||||||||||||
Other Comprehensive Income Adjustments
Change in Net Unrealized Gains
on Investments, net of tax effects
|
| | | | 1 | 1 | 1 | |||||||||||||||||||||
|
|
|||||||||||||||||||||||||||
Comprehensive Income
|
$ | 1,826 | ||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||
Common Stock Dividend
|
| | | (9 | ) | | (9 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
||||||||||||||||||||||
BALANCE AT DECEMBER 31, 2003
|
583 | $ | 6 | $ | 58 | $ | 4,915 | $ | 149 | $ | 5,128 | |||||||||||||||||
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
42 UnitedHealth Group
Consolidated Statements of Cash Flows
For the Year Ended December 31,
|
||||||||||||
(in millions)
|
2003
|
2002
|
2001
|
|||||||||
OPERATING ACTIVITIES
|
||||||||||||
Net Earnings
|
$ | 1,825 | $ | 1,352 | $ | 913 | ||||||
Noncash Items
|
||||||||||||
Depreciation and Amortization
|
299 | 255 | 265 | |||||||||
Deferred Income Taxes and Other
|
91 | 154 | 40 | |||||||||
Net Change in Other Operating Items, net of effects
from acquisitions, sales of subsidiaries and changes
in AARP balances
|
||||||||||||
Accounts Receivable and Other Current Assets
|
(46 | ) | 83 | 7 | ||||||||
Medical Costs Payable
|
276 | 74 | 156 | |||||||||
Accounts Payable and Accrued Liabilities
|
460 | 423 | 280 | |||||||||
Other Policy Liabilities
|
87 | 70 | 131 | |||||||||
Unearned Premiums
|
11 | 12 | 52 | |||||||||
|
|
|
|
|||||||||
CASH FLOWS FROM OPERATING ACTIVITIES
|
3,003 | 2,423 | 1,844 | |||||||||
|
|
|
|
|||||||||
INVESTING ACTIVITIES
|
||||||||||||
Cash Paid for Acquisitions, net of cash assumed and other effects
|
(590 | ) | (302 | ) | (92 | ) | ||||||
Purchases of Property, Equipment and Capitalized Software
|
(352 | ) | (419 | ) | (425 | ) | ||||||
Purchases of Investments
|
(2,583 | ) | (3,246 | ) | (2,088 | ) | ||||||
Maturities and Sales of Investments
|
2,780 | 2,576 | 1,467 | |||||||||
|
|
|
|
|||||||||
CASH FLOWS USED FOR INVESTING ACTIVITIES
|
(745 | ) | (1,391 | ) | (1,138 | ) | ||||||
|
|
|
|
|||||||||
FINANCING ACTIVITIES
|
||||||||||||
Proceeds from (Payments of) Commercial Paper, net
|
(382 | ) | (223 | ) | 275 | |||||||
Proceeds from Issuance of Long-Term Debt
|
950 | 400 | 250 | |||||||||
Payments for Retirement of Long-Term Debt
|
(350 | ) | | (150 | ) | |||||||
Common Stock Repurchases
|
(1,607 | ) | (1,815 | ) | (1,129 | ) | ||||||
Proceeds from Common Stock Issuances
|
268 | 205 | 178 | |||||||||
Dividends Paid
|
(9 | ) | (9 | ) | (9 | ) | ||||||
Other
|
4 | | | |||||||||
|
|
|
|
|||||||||
CASH FLOWS USED FOR FINANCING ACTIVITIES
|
(1,126 | ) | (1,442 | ) | (585 | ) | ||||||
|
|
|
|
|||||||||
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
1,132 | (410 | ) | 121 | ||||||||
|
|
|
|
|||||||||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
1,130 | 1,540 | 1,419 | |||||||||
|
|
|
|
|||||||||
CASH AND CASH EQUIVALENTS, END OF PERIOD
|
$ | 2,262 | $ | 1,130 | $ | 1,540 | ||||||
|
|
|
|
|||||||||
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
|
||||||||||||
Common Stock Issued for Acquisitions
|
$ | | $ | 567 | $ | 163 | ||||||
|
|
|
|
See Notes to Consolidated Financial Statements.
UnitedHealth Group 43
Notes to Consolidated Financial Statements
1 DESCRIPTION OF BUSINESS
UnitedHealth Group Incorporated (also referred to as UnitedHealth
Group, the company, we, us, and our) is a national leader in
forming and operating orderly, efficient markets for the exchange of
high quality health and well-being services. Through strategically
aligned, market-defined businesses, we offer health care access,
benefits and related administrative, technology and information
services designed to enable, facilitate and advance optimal health
care.
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
We have prepared the consolidated financial statements according to
accounting principles generally accepted in the United States of
America and have included the accounts of UnitedHealth Group and its
subsidiaries. We have eliminated all significant intercompany balances
and transactions.
Use of Estimates
These consolidated financial statements include certain amounts that
are based on our best estimates and judgments. These estimates require
us to apply complex assumptions and judgments, often because we must
make estimates about the effects of matters that are inherently
uncertain and will change in subsequent periods. The most significant
estimates relate to medical costs, medical costs payable, revenues,
contingent liabilities and asset valuations, allowances and
impairments. We adjust these estimates each period, as more current
information becomes available. The impact of any changes in estimates
is included in the determination of earnings in the period in which the
estimate is adjusted.
Revenues
Premium revenues are primarily derived from risk-based health insurance
arrangements in which the premium is fixed, typically for a one-year
period, and we assume the economic risk of funding our customers
health care services and related administrative costs. We recognize
premium revenues in the period in which eligible individuals are
entitled to receive health care services. We record health care premium
payments we receive from our customers in advance of the service period
as unearned premiums.
Service revenues consist primarily of fees derived from services
performed for customers that self-insure the medical costs of their
employees and their dependents. Under service fee contracts, we
recognize revenue in the period the related services are performed
based upon the fee charged to the customer. The customers retain the
risk of financing medical benefits for their employees and their
employees dependents, and we administer the payment of customer funds
to physicians and other health care providers from customer-funded bank
accounts. Because we do not have the obligation for funding the medical
expenses, nor do we have responsibility for delivering the medical
care, we do not recognize gross revenue and medical costs for these
contracts in our consolidated financial statements.
For both premium
risk-based and fee-based customer arrangements, we provide coordination
and facilitation of medical services, transaction processing, customer,
consumer and care provider services, and access to contracted networks
of physicians, hospitals and other health care professionals.
Medical Costs and Medical Costs Payable
Medical costs and medical costs payable include estimates of our
obligations for medical care services that have been rendered on behalf
of insured consumers but for which claims have either not yet been
received or processed, and for liabilities for physician, hospital and
other medical cost disputes. We develop estimates for medical costs
incurred but not reported using an actuarial process that is
consistently applied, centrally controlled and automated. The actuarial
models consider factors such as time from date of service to claim
receipt, claim backlogs, provider contract rate changes, medical care
44
UnitedHealth Group
consumption and other medical cost trends. Each period, we re-examine
previously established medical costs payable estimates based on actual
claim submissions and other changes in facts and circumstances. As the
liability estimates recorded in prior periods become more exact, we
increase or decrease the amount of the estimates, with the changes in
estimates included in medical costs in the period in which the change
is identified. In every reporting period, our operating results include
the effects of more completely developed medical costs payable
estimates associated with previously reported periods.
Cash, Cash Equivalents and Investments
Cash and cash equivalents are highly liquid investments with an
original maturity of three months or less. The fair value of cash and
cash equivalents approximates their carrying value because of the
short maturity of the instruments. Investments with a maturity of less
than one year are classified as short-term. We may sell investments
classified as long-term before their maturity to fund working capital
or for other purposes. Because of regulatory requirements, certain
investments are included in long-term investments regardless of their
maturity date. We classify these investments as held to maturity and
report them at amortized cost. All other investments are classified as
available for sale and reported at fair value based on quoted market
prices.
We exclude unrealized gains and losses on investments available
for sale from earnings and report it, net of income tax effects, as a
separate component of shareholders equity. We continually monitor the
difference between the cost and estimated fair value of our
investments. If any of our investments experiences a decline in value
that is determined to be other than temporary, based on analysis of
relevant factors, we record a realized loss in Investment and Other
Income in our Consolidated Statement of Operations. To calculate
realized gains and losses on the sale of investments, we use the
specific cost or amortized cost of each investment sold.
Assets Under Management
We administer certain aspects of AARPs insurance program (see Note 4).
Pursuant to our agreement, AARP assets are managed separately from our
general investment portfolio and are used to pay costs associated with
the AARP program. These assets are invested at our discretion, within
investment guidelines approved by AARP. At December 31, 2003, the
assets were invested in marketable debt securities. We do not guarantee
any rates of investment return on these investments and, upon transfer
of the AARP contract to another entity, we would transfer cash equal in
amount to the fair value of these investments at the date of transfer
to that entity. Because the purpose of these assets is to fund the
medical costs payable, the rate stabilization fund liabilities and
other related liabilities associated with the AARP contract, assets
under management are classified as current assets, consistent with the
classification of these liabilities. Interest earnings and realized
investment gains and losses on these assets accrue to AARP
policyholders through the rate stabilization fund. As such, they are
not included in our earnings. Interest income and realized gains and
losses related to assets under management are recorded as an increase
to the AARP rate stabilization fund and were $101 million, $102 million
and $113 million in 2003, 2002 and 2001, respectively. Assets under
management are reported at their fair market value, and unrealized
gains and losses are included directly in the rate stabilization fund
associated with the AARP program. As of December 31, 2003 and 2002, the
AARP investment portfolio and rate stabilization fund included net
unrealized gains of $86 million and $117 million, respectively.
Property, Equipment and Capitalized Software
Property, equipment and capitalized software is stated at cost, net of
accumulated depreciation and amortization. Capitalized software
consists of certain costs incurred in the development of internal-use
software, including external direct costs of materials and services
and payroll costs of employees devoted to specific software
development.
UnitedHealth Group
45
We calculate depreciation and amortization using the straight-line
method over the estimated useful lives of the assets. The useful lives
for property, equipment and capitalized software are: from three to
seven years for furniture, fixtures and equipment; from 35 to 40 years
for buildings; the shorter of the useful life or remaining lease term
for leasehold improvements; and from three to nine years for
capitalized software. The weighted-average useful life of property,
equipment and capitalized software at December 31, 2003, was
approximately five years.
The net book value of property and equipment
was $503 million and $490 million as of December 31, 2003 and 2002,
respectively. The net book value of capitalized software was $529
million and $465 million as of December 31, 2003 and 2002,
respectively.
Goodwill and Other Intangible Assets
Goodwill represents the amount by which the purchase price and
transaction costs of businesses we have acquired exceed the estimated
fair value of the net tangible assets and separately identifiable
intangible assets of these businesses. Goodwill and intangible assets
with indefinite useful lives are not amortized, but are tested at least
annually for impairment. Intangible assets with discrete useful lives
are amortized on a straight-line basis over their estimated useful
lives.
Long-Lived Assets
We review long-lived assets, including property, equipment, capitalized
software and intangible assets, for events or changes in circumstances
that would indicate we might not recover their carrying value. We
consider many factors, including estimated future utility and cash
flows associated with the assets, to make this decision. An impairment
charge is recorded for the amount by which an assets carrying value
exceeds its estimated fair value. We record assets held for sale at the
lower of their carrying amount or fair value, less any costs for the
final settlement.
Other Policy Liabilities
Other policy liabilities include the rate stabilization fund associated
with the AARP program (see Note 4), customer balances related to
experience-rated insurance products and the current portion of future
policy benefits for life insurance and annuity contracts. Customer
balances represent excess customer payments and deposit accounts under
experience-rated contracts. At the customers option, these balances
may be refunded or used to pay future premiums or claims under eligible
contracts.
Income Taxes
Deferred income tax assets and liabilities are recognized for the
differences between the financial and income tax reporting bases of
assets and liabilities based on enacted tax rates and laws. The
deferred income tax provision or benefit generally reflects the net
change in deferred income tax assets and liabilities during the year,
excluding any deferred income tax assets and liabilities of acquired
businesses. The current income tax provision reflects the tax
consequences of revenues and expenses currently taxable or deductible
on various income tax returns for the year reported.
Future Policy Benefits for Life and Annuity Contracts
Future policy benefits for life insurance and annuity contracts
represents account balances that accrue to the benefit of the
policyholders, excluding surrender charges, for universal life and
investment annuity products.
Policy Acquisition Costs
For our health insurance contracts, costs related to the acquisition
and renewal of customer contracts are charged to expense as incurred.
Our health insurance contracts typically have a one-year term and may
be cancelled upon 30 days notice by either the company or the
customer.
46
UnitedHealth Group
Stock-Based Compensation
We account for activity under our stock-based employee compensation
plans under the recognition and measurement principles of Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees. Accordingly, we do not recognize compensation expense in
connection with employee stock option grants because we grant stock
options at exercise prices not less than the fair value of our common
stock on the date of grant.
The following table shows the effect on net
earnings and earnings per share had we applied the fair value expense
recognition provisions of Statement of Financial Accounting Standards
(FAS) No. 123, Accounting for Stock-Based Compensation, to
stock-based employee compensation.
Information on our stock-based compensation plans and data used to
calculate compensation expense in the table above are described in
more detail in Note 10.
Net Earnings Per Common Share
We compute basic net earnings per common share by dividing net
earnings by the weighted-average number of common shares outstanding
during the period. We determine diluted net earnings per common share
using the weighted-average number of common shares outstanding during
the period, adjusted for potentially dilutive shares that might be
issued upon exercise of common stock options.
Derivative Financial Instruments
As part of our risk management strategy, we enter into interest rate
swap agreements to manage our exposure to interest rate risk. The
differential between fixed and variable rates to be paid or received is
accrued and recognized over the life of the agreements as an adjustment
to interest expense in the Consolidated Statements of Operations. Our
existing interest rate swap agreements convert a portion of our
interest rate exposure from a fixed to a variable rate and are
accounted for as fair value hedges. Additional information on our
existing interest rate swap agreements is included in Note 8.
Recently Issued Accounting Standards
During 2003, we adopted the following accounting standards, which did
not have a material impact on our consolidated financial position or
results of operations: 1) FAS No. 143, Accounting for Asset Retirement
Obligations, which addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived
assets and the associated retirement costs; 2) FAS No. 146, Accounting
for Costs Associated with Exit or Disposal Activities, which requires
companies to recognize a liability for costs associated with exit or
disposal activities when they are incurred, rather than at the date of
a commitment to an exit or disposal plan; 3) Interpretation No. 45,
Guarantors Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others, which
requires that upon issuance of certain guarantees, a guarantor must
UnitedHealth Group
47
recognize a liability for the fair value of the obligation assumed
under the guarantee; 4) Interpretation No. 46, Consolidation of
Variable Interest Entities an Interpretation of ARB No. 51, which
requires an enterprise to consolidate a variable interest entity if
that enterprise has a variable interest that will absorb a majority of
the entitys expected losses, receive a majority of the entitys
expected residual returns, or both; 5) FAS No. 149, Amendment of
Statement 133 on Derivative Instruments and Hedging Activities, which
amends and clarifies accounting for derivative instruments and hedging
activities under FAS No. 133, Accounting for Derivative Instruments
and Hedging Activities and 6) FAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and
Equity, which establishes standards for classifying and measuring as
liabilities certain freestanding financial instruments that represent
obligations of the issuer and have characteristics of both liabilities
and equity.
Reclassifications
Certain 2001 and 2002 amounts in the consolidated financial
statements have been reclassified to conform to the 2003
presentation. These reclassifications have no effect on net
earnings or shareholders equity as previously reported.
3 ACQUISITIONS
On February 10, 2004, our Health Care Services business segment
acquired Mid Atlantic Medical Services, Inc. (MAMSI). MAMSI offers a
broad range of health care coverage and related administrative services
for individuals and employers in the mid-Atlantic region of the United
States. This merger significantly strengthens UnitedHealthcares market
position in the mid-Atlantic region and provides substantial
distribution opportunities for other UnitedHealth Group businesses.
Under the terms of the purchase agreement, MAMSI shareholders received
0.82 shares of UnitedHealth Group common stock and $18 in cash for each
share of MAMSI common stock they owned. Total consideration issued was
approximately $2.7 billion, comprised of 36.4 million shares of
UnitedHealth Group common stock (valued at $1.9 billion based on the
average of UnitedHealth Groups share closing price for two days
before, the day of and two days after the acquisition announcement date
of October 27, 2003) and $800 million in cash. The purchase price and
costs associated with the acquisition exceeded the preliminary
estimated fair value of the net tangible assets acquired by
approximately $2.1 billion. We have preliminarily allocated the excess
purchase price over the fair value of the net tangible assets acquired
to finite-lived intangible assets of $360 million and associated
deferred tax liabilities of $126 million, and goodwill of approximately
$1.9 billion. The finite-lived intangible assets consist primarily of
member lists and health care physician and hospital networks, with an
estimated weighted-average useful life of 19 years. The acquired
goodwill is not deductible for income tax purposes. Our preliminary
estimate of the fair value of the tangible assets/(liabilities) as of
the acquisition date, which is subject to further refinement, is as
follows:
48
UnitedHealth Group
The results of operations and financial condition of MAMSI have not been
included in our Consolidated Statements of Operations or Consolidated Balance Sheets
since the acquisition closed after December 31, 2003. The unaudited pro
forma financial information presented below assumes that the
acquisition of MAMSI had occurred as of the beginning of each
respective period. The pro forma adjustments include the pro forma
effect of UnitedHealth Group shares issued in the acquisition, the
amortization of finite-lived intangible assets arising from the
preliminary purchase price allocation, interest expense related to
financing the cash portion of the purchase price and the associated
income tax effects of the pro forma adjustments. Because the unaudited
pro forma financial information has been prepared based on preliminary
estimates of fair values, the actual amounts recorded as of the
completion of the purchase price allocation may differ materially from
the information presented below. The unaudited pro forma results have
been prepared for comparative purposes only and do not purport to be
indicative of the results of operations that would have occurred had
the MAMSI acquisition been consummated at the beginning of the
respective periods.
On November 13, 2003, our Health Care Services business segment
acquired Golden Rule Financial Corporation and subsidiaries (Golden
Rule). Golden Rule offers a broad range of health and life insurance
and annuity products to the individual consumer market, and this
acquisition provides UnitedHealth Group with a dedicated business to
serve this market. We paid $495 million in cash in exchange for all of
the outstanding stock of Golden Rule. The purchase price and costs
associated with the acquisition exceeded the preliminary estimated fair
value of the net tangible assets acquired by approximately $111
million. We have preliminarily allocated the excess purchase price over
the fair value of the net tangible assets acquired to finite-lived
intangible assets of $53 million and associated deferred tax
liabilities of $17 million, and goodwill of $75 million. The
finite-lived intangible assets consist primarily of customer contracts
and the present value of future operating profits from life insurance
contracts, with an estimated weighted-average useful life of 14 years.
The acquired goodwill is not deductible for income tax purposes. The
results of operations for Golden Rule since the acquisition date have
been included in our consolidated financial statements. The pro forma
effects of the Golden Rule acquisition on our consolidated financial
statements were not material. Our preliminary estimate of the fair
value of the tangible assets/(liabilities) as of the acquisition date
is as follows:
UnitedHealth Group
49
Effective September 30, 2002, we acquired AmeriChoice Corporation
(AmeriChoice), a leading organization engaged in facilitating health
care benefits and services for Medicaid beneficiaries in the states of
New York, New Jersey and Pennsylvania. We integrated our existing
Medicaid business with AmeriChoice within the Health Care Services
reporting segment, creating efficiencies from the consolidation of
physician and health care provider networks, technology platforms and
operations. We issued 5.3 million shares of our common stock with a
fair value of approximately $480 million in exchange for 93.5% of the
outstanding AmeriChoice common stock. We also issued vested stock
options with a fair value of approximately $15 million in exchange for
outstanding stock options held by AmeriChoice employees and paid cash
of approximately $82 million, mainly to pay off existing AmeriChoice
debt. The purchase price and costs associated with the acquisition of
approximately $577 million exceeded the estimated fair value of the net
tangible assets acquired by approximately $541 million. The excess
purchase price was assigned to goodwill in the amount of $485 million,
and finite-lived intangible assets, primarily customer contracts, in
the amount of $56 million. The weighted-average useful life of the
finite-lived intangible assets was approximately 11 years. The acquired
goodwill is not deductible for income tax purposes. We will acquire the
remaining minority interest in October 2007 at a value based on a
multiple of the earnings of the combined Medicaid business. We have the
option to acquire the minority interest at an earlier date if specific
events occur, such as the termination or resignation of key AmeriChoice
employees. The results of operations for AmeriChoice since the
acquisition date have been included in our Consolidated Statements of
Operations. The pro forma effects of the AmeriChoice acquisition on our
consolidated financial statements were not material. The estimated fair
value of the tangible assets/(liabilities) as of the acquisition date
was as follows:
For the years ended December 31, 2003, 2002 and 2001, aggregate
consideration paid or issued for smaller acquisitions accounted for
under the purchase method was $127 million, $267 million and $134
million, respectively. These acquisitions were not material to our
consolidated financial statements.
50
UnitedHealth Group
4 AARP
In January 1998, we initiated a 10-year contract to provide health
insurance products and services to members of AARP. Under the terms of
the contract, we are compensated for transaction processing and other
services as well as for assuming underwriting risk. We are also engaged
in product development activities to complement the insurance offerings
under this program. Premium revenues from our portion of the AARP
insurance offerings were approximately $4.1 billion in 2003, $3.7
billion in 2002 and $3.6 billion in 2001.
The underwriting gains or losses related to the AARP business are
directly recorded as an increase or decrease to a rate stabilization
fund (RSF). The primary components of the underwriting results are
premium revenue, medical costs, investment income, administrative
expenses, member service expenses, marketing expenses and premium
taxes. Underwriting gains and losses are recorded as an increase or
decrease to the RSF and accrue to AARP policyholders, unless
cumulative net losses were to exceed the balance in the RSF. To the
extent underwriting losses exceed the balance in the RSF, we would
have to fund the deficit. Any deficit we fund could be recovered by
underwriting gains in future periods of the contract. To date, we have
not been required to fund any underwriting deficits. The RSF balance
is reported in Other Policy Liabilities in the accompanying
Consolidated Balance Sheets. We believe the RSF balance is sufficient
to cover potential future underwriting or other risks associated with
the contract.
The following AARP program-related assets and liabilities are
included in our Consolidated Balance Sheets:
The effects of changes in balance sheet amounts associated with the
AARP program accrue to AARP policyholders through the RSF balance.
Accordingly, we do not include the effect of such changes in our
Consolidated Statements of Cash Flows.
UnitedHealth Group
51
5 CASH, CASH EQUIVALENTS AND INVESTMENTS
As of December 31, the amortized cost, gross unrealized gains and
losses, and fair value of cash, cash equivalents and investments were
as follows (in millions):
As of December 31, 2003 and 2002, respectively, debt securities
consisted of $1,221 million and $1,439 million in U.S. Government and
Agency obligations, $2,617 million and $2,475 million in state and
municipal obligations, and $3,196 million and $1,135 million in
corporate obligations. At December 31, 2003, we held $563 million in
debt securities with maturities of less than one year, $2,102 million
in debt securities maturing in one to five years, $2,554 million in
debt securities maturing in five to 10 years and $1,815 million in
debt securities with maturities of more than 10 years.
During 2001, we contributed UnitedHealth Capital investments
valued at approximately $22 million to the United Health Foundation, a
non-consolidated, not-for-profit organization. The realized gain of
approximately $18 million was offset by related contribution expense of
$22 million. The net expense of $4 million is included in Investment
and Other Income in the accompanying Consolidated Statements of
Operations.
We recorded realized gains and losses on sales of
investments, excluding the UnitedHealth Capital dispositions described
above, as follows:
52
UnitedHealth Group
6 GOODWILL AND OTHER INTANGIBLE ASSETS
Changes in the carrying amount of goodwill, by operating segment, during
the year ended December 31, 2003, were as follows:
The weighted-average useful life, gross carrying value, accumulated
amortization and net carrying value of other intangible assets as of
December 31, 2003 and 2002 were as follows:
Amortization expense relating to intangible assets was $18 million in
2003 and $9 million in 2002. Estimated future amortization expense
relating to intangible assets for the years ending December 31 are as
follows:
UnitedHealth Group
53
7 MEDICAL COSTS PAYABLE
The following table shows the components of the change in medical
costs payable for the years ended December 31:
8 COMMERCIAL PAPER AND DEBT
Commercial paper and debt consisted of the following as of December 31:
As of December 31, 2003, our outstanding commercial paper had interest
rates of approximately 1.2%. The interest rates on our November 2004
floating-rate notes are reset quarterly to the three-month LIBOR (London
Interbank Offered Rate) plus 0.6%. As of December 31, 2003, the
applicable rate on the notes was 1.8%.
54
UnitedHealth Group
In December 2003, we issued $500 million of 3.3% fixed-rate notes
due January 2008, and in March 2003, we issued $450 million of 4.9%
fixed-rate notes due April 2013. We used the proceeds from these
borrowings to repay commercial paper and term debt maturing in 2003, and
for general corporate purposes including working capital, business
acquisitions and share repurchases.
We have interest rate swap
agreements that qualify as fair value hedges to convert a portion of our
interest rate exposure from a fixed to a variable rate. The interest
rate swap agreements have aggregate notional amounts of $925 million
with variable rates that are benchmarked to the six-month LIBOR rate and
are reset on a semiannual basis in arrears. At December 31, 2003, the
rate used to accrue interest expense on these agreements ranged from
1.2% to 1.6%. The differential between the fixed and variable rates to
be paid or received is accrued and recognized over the life of the
agreements as an adjustment to interest expense in the Consolidated
Statements of Operations.
We have credit arrangements for $900 million that support our
commercial paper program. These credit arrangements include a $450
million revolving facility that expires in July 2005, and a $450
million, 364-day facility that expires in July 2004. As of December 31,
2003, we had no amounts outstanding under our credit facilities.
Our debt arrangements and credit facilities contain various
covenants, the most restrictive of which require us to maintain a
debt-to-total-capital ratio below 45% and to exceed specified minimum
interest coverage levels. We are in compliance with the requirements of
all debt covenants.
Maturities of commercial paper and debt for the years ending December 31 are
as follows:
We made cash payments for interest of $94 million, $86 million and
$91 million in 2003, 2002 and 2001, respectively.
On February 10, 2004, we issued $250 million of 3.8% fixed-rate
notes due February 2009 and $250 million of 4.8% fixed-rate notes due
February 2014 to finance a majority of the cash portion of the MAMSI
purchase price as described in Note 3. When we issued these notes, we
entered into interest rate swap agreements that qualify as fair value
hedges to convert our interest rates from a fixed to a variable rate.
The interest rate swap agreements have aggregate notional amounts of
$500 million with variable rates that are benchmarked to the six-month
LIBOR rate and are reset on a semiannual basis in arrears. As of the
date of the note issuance, the rate on these agreements ranged from
1.4% to 1.6%.
UnitedHealth Group
55
9 SHAREHOLDERS EQUITY
Regulatory Capital and Dividend Restrictions
We conduct a significant portion of our operations through companies
that are subject to standards established by the National Association
of Insurance Commissioners (NAIC). These standards, among other things,
require these subsidiaries to maintain specified levels of statutory
capital, as defined by each state, and restrict the timing and amount
of dividends and other distributions that may be paid to their parent
companies. Generally, the amount of dividend distributions that may be
paid by a regulated subsidiary, without prior approval by state
regulatory authorities, is limited based on the entitys level of
statutory net income and statutory capital and surplus. At December
31, 2003, approximately $385 million of our $9.5 billion of cash and
investments was held by non-regulated subsidiaries. Of this amount,
approximately $45 million was segregated for future regulatory capital
needs and the remainder was available for general corporate use,
including acquisitions and share repurchases.
The agencies that assess our creditworthiness also consider
capital adequacy levels when establishing our debt ratings. Consistent
with our intent to maintain our senior debt ratings in the A range,
we maintain an aggregate statutory capital and surplus level for our
regulated subsidiaries that is significantly higher than the minimum
level regulators require. As of December 31, 2003, our regulated
subsidiaries had aggregate statutory capital and surplus of
approximately $3.1 billion, which is significantly more than the
aggregate minimum regulatory requirements.
Stock Repurchase Program
Under our board of directors authorization, we maintain a common stock
repurchase program. Repurchases may be made from time to time at
prevailing prices, subject to certain restrictions on volume, pricing
and timing. During 2003, we repurchased 33 million shares at an average
price of approximately $47 per share and an aggregate cost of
approximately $1.6 billion. As of December 31, 2003, we had board of
directors authorization to purchase up to an additional 45 million
shares of our common stock.
Common Stock Split
In May 2003, our board of directors declared a two-for-one split of
the companys common stock in the form of a 100% common stock
dividend. The stock dividend was issued on June 18, 2003, to
shareholders of record as of June 2, 2003. The accompanying
consolidated financial statements have been restated to reflect the
share and per share effects of the common stock split.
Preferred Stock
At December 31, 2003, we had 10 million shares of $0.001 par value
preferred stock authorized for issuance, and no preferred shares
issued and outstanding.
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UnitedHealth Group
10 STOCK-BASED COMPENSATION PLANS
As of December 31, 2003, we had approximately 42 million shares available
for future grants of stock-based awards under our stock-based
compensation plan including, but not limited to, incentive or
non-qualified stock options, stock appreciation rights and restricted
stock.
Stock options are granted at an exercise price not less than the
fair value of our common stock on the date of grant. They generally vest
ratably over four years and may be exercised up to 10 years from the date
of grant. Activity under our stock option plan is summarized in the table
below (shares in thousands):
To determine compensation expense under the fair value method, the fair
value of each option grant is estimated on the date of grant using an
option-pricing model. During 2001 and 2002 we utilized a Black-Scholes
model for purposes of estimating the fair value of our employee stock
option grants. During 2003, we began using a binomial model that
considers certain factors that the Black-Scholes model does not, such as
historical exercise patterns and the illiquid nature of employee
options. For these reasons, we believe that the binomial model provides
a more representative employee stock option fair value. The principal
assumptions we used in applying the option pricing models were as
follows:
Information regarding the effect on net earnings and net earnings per
common share had we applied the fair value expense recognition
provisions of FAS No. 123 is included in Note 2. We also maintain a
401(k) plan and an employee stock purchase plan. Activity related to
these plans was not significant in relation to our consolidated
financial results in 2003, 2002 and 2001.
UnitedHealth Group
57
11 INCOME TAXES
The components of the provision (benefit) for income taxes are as follows:
The reconciliation of the tax provision at the U.S. Federal Statutory Rate to the provision for income taxes
is as follows:
The components of deferred income tax assets and liabilities are as follows:
Valuation allowances are provided when it is considered more likely than
not that deferred tax assets will not be realized. The valuation
allowances primarily relate to future tax benefits on certain federal and
state net operating loss carryforwards. Federal net operating loss
carryforwards expire beginning in 2012 through 2023, and state net
operating loss carryforwards expire beginning in 2005 through 2023.
We made cash payments for income taxes of $783 million in 2003,
$458 million in 2002 and $384 million in 2001. We increased
additional paid-in capital and reduced income taxes payable by $222
million in 2003, and by $133 million in both 2002 and 2001 to reflect
the tax benefit we received upon the exercise of non-qualified stock
options.
Consolidated income tax returns for fiscal years 2000 through 2002
are currently being examined by the Internal Revenue Service. We do not
believe any adjustments that may result from the examination will have a
significant impact on our consolidated financial position or results of
operations.
58
UnitedHealth Group
12 COMMITMENTS AND CONTINGENCIES
Leases
We lease facilities, computer hardware and other equipment under
long-term operating leases that are noncancelable and expire on
various dates through 2025. Rent expense under all operating leases
was $133 million in 2003, $132 million in 2002 and $135 million in
2001.
At December 31, 2003, future minimum annual lease payments, net
of sublease income, under all noncancelable operating leases were as
follows:
Service Agreements
We have noncancelable contracts for certain data center operations
and support, network and voice communication services, and other
services, which expire on various dates through 2008. Expenses
incurred in connection with these agreements were $256 million in
2003, $264 million in 2002 and $254 million in 2001. At December 31,
2003, future minimum obligations under our noncancelable contracts
were as follows:
Legal Matters
Because of the nature of our businesses, we are routinely party to a
variety of legal actions related to the design, management and offerings
of our services. We record liabilities for our estimates of probable
costs resulting from these matters. These matters include, but are not
limited to: claims relating to health care benefits coverage, medical
malpractice actions, contract disputes and claims related to disclosure
of certain business practices. Following the events of September 11,
2001, the cost of business insurance coverage increased significantly.
As a result, we have increased the amount of risk that we self-insure,
particularly with respect to matters incidental to our business.
Beginning in 1999, a series of class action lawsuits were filed
against us and virtually all major entities in the health benefits
business. Generally, the health care provider plaintiffs allege
violations of the Employee Retirement Income Security Act of 1974, as
amended (ERISA), and the Racketeer Influenced Corrupt Organization Act
(RICO), as well as several state law claims. The suit seeks injunctive,
compensatory and equitable relief as well as restitution, costs, fees
and interest payments. We are engaged in discovery in this matter. A
trial date has been set for September 13, 2004.
In March 2000, the American Medical Association filed a lawsuit
against the company in connection with the calculation of reasonable
and customary reimbursement rates for non-network providers. The suit
seeks declaratory, injunctive and compensatory relief as well as costs,
fees and interest payments. An amended complaint was filed on August
25, 2000, which alleged two classes of plaintiffs, an ERISA class and a
non-ERISA class. After the court dismissed certain ERISA claims and the
claims brought by the American Medical Association, a third amended
complaint was filed. On October 25, 2002, the court granted in part and
denied in part our motion to dismiss the third amended complaint. We
are engaged in discovery in this matter.
Although the results of pending litigation are always uncertain,
we do not believe the results of any such actions currently threatened
or pending, including those described above, will, individually or in
aggregate, have a material adverse effect on our consolidated financial
position or results of operations.
UnitedHealth Group
59
Government Regulation
Our business is regulated at federal, state, local and international
levels. The laws and rules governing our business are subject to
frequent change, and agencies have broad latitude to administer those
regulations. State legislatures and Congress continue to focus on
health care issues as the subject of proposed legislation. Existing or
future laws and rules could force us to change how we do business,
restrict revenue and enrollment growth, increase our health care and
administrative costs and capital requirements, and increase our
liability related to coverage interpretations or other actions.
Further, we must obtain and maintain regulatory approvals to market
many of our products.
We are also subject to various ongoing governmental
investigations, audits and reviews, and we record liabilities for our
estimate of probable costs resulting from these matters. Although the
results of pending matters are always uncertain, we do not believe the
results of any of the current investigations, audits or reviews,
individually or in the aggregate, will have a material adverse effect
on our consolidated financial position or results of operations.
13 SEGMENT FINANCIAL INFORMATION
Factors used in determining our reportable business segments include
the nature of operating activities, existence of separate senior
management teams, and the type of information presented to the
companys chief operating decision-maker to evaluate our results of
operations.
Our accounting policies for business segment operations are the
same as those described in the Summary of Significant Accounting
Policies (see Note 2). Transactions between business segments
principally consist of customer service and transaction processing
services that Uniprise provides to Health Care Services, certain
product offerings sold to Uniprise and Health Care Services customers
by Specialized Care Services, and sales of medical benefits cost,
quality and utilization data and predictive modeling to Health Care
Services and Uniprise by Ingenix. These transactions are recorded at
managements best estimate of fair value, as if the services were
purchased from or sold to third parties. All intersegment transactions
are eliminated in consolidation. Assets and liabilities that are
jointly used are assigned to each segment using estimates of pro-rata
usage. Cash and investments are assigned such that each segment has
minimum specified levels of regulatory capital or working capital for
non-regulated businesses. The Corporate and Eliminations column
includes costs associated with companywide process improvement
initiatives, net expenses from charitable contributions to the United
Health Foundation and eliminations of intersegment transactions.
Substantially all of our operations are conducted in the United States.
In accordance with accounting principles generally accepted in
the United States of America, segments with similar economic
characteristics may be combined. The financial results of
UnitedHealthcare, Ovations and AmeriChoice have been combined in the
Health Care Services segment column in the tables presented on the
next page because these businesses have similar economic
characteristics and have similar products and services, types of
customers, distribution methods and operational processes, and
operate in a similar regulatory environment, typically within the
same legal entity.
60
UnitedHealth Group
The following table presents segment financial information as of and for the years ended December 31, 2003,
2002 and 2001 (in millions):
UnitedHealth Group
61
14 QUARTERLY FINANCIAL DATA (UNAUDITED)
62
UnitedHealth Group
Report of Management
The management of UnitedHealth Group is responsible for the integrity
and objectivity of the consolidated financial information contained
in this annual report. The consolidated financial statements and
related information were prepared according to accounting principles
generally accepted in the United States of America and include some
amounts that are based on managements best estimates and judgments.
To meet its responsibility, management depends on its accounting
systems and related internal accounting controls. These systems are
designed to provide reasonable assurance, at an appropriate cost, that
financial records are reliable for use in preparing financial
statements and that assets are safeguarded. Qualified personnel
throughout the organization maintain and monitor these internal
accounting controls on an ongoing basis.
The Audit Committee of the
board of directors, composed entirely of directors who are not
employees of the company, meets periodically and privately with the
companys independent auditors and management to review accounting,
auditing, internal control, financial reporting and other matters.
William W. McGuire, MD
Stephen J. Hemsley
Patrick J. Erlandson
UnitedHealth Group
63
Independent Auditors Report
To the Board of Directors and Shareholders of UnitedHealth Group Incorporated
and Subsidiaries:
We have audited the accompanying consolidated balance sheets of UnitedHealth
Group Incorporated and Subsidiaries (the Company) as of December 31, 2003
and 2002 and the related statements of operations, changes in shareholders
equity, and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits. The consolidated financial statements of
UnitedHealth Group Incorporated and Subsidiaries for the year ended December
31, 2001 were audited by other auditors who have ceased operations. Those
auditors expressed an unqualified opinion on those consolidated financial
statements in their report dated January 24, 2002.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company at December 31,
2003 and 2002 and the results of its operations and its cash flows for the
years then ended in conformity with accounting principles generally accepted
in the United States of America.
As discussed in Note 6 to the consolidated financial statements,
effective January 1, 2002, the Company changed its methods of accounting
for goodwill and other intangible assets.
As discussed above, the consolidated financial statements of UnitedHealth
Group Incorporated and Subsidiaries for the year ended December 31, 2001 were
audited by other auditors who have ceased operations. As described in Note 6,
Note 7 and Note 9, these consolidated financial statements have been revised
to (i) include the transitional disclosures required by Statement of Financial
Accounting Standards (Statement) No. 142,
Goodwill and Other Intangible
Assets,
which, as described in Note 6, was adopted by the Company as of
January 1, 2002, (ii) include disclosure of the components of the change in
medical costs payable consistent with Statement of Position 94-5,
Disclosure
of Certain Matters in the Financial Statements of Insurance Enterprises,
and
(iii) give effect to the June 2003 stock split. Our audit procedures with
respect to the disclosures in Note 6 with respect to 2001 included (i)
agreeing the previously reported net income to the previously issued
consolidated financial statements and the adjustments to reported net income
representing amortization expense (including any related tax effects)
recognized in those periods related to goodwill, intangible assets that are no
longer being amortized, deferred credits related to an excess over cost,
equity method goodwill, and changes in amortization periods for intangible
assets that will continue to be amortized as a result of initially applying
Statement No. 142 (including any related tax effects) to the Companys
underlying records obtained from management, and (ii) testing the mathematical
accuracy of the reconciliation of adjusted net income to reported net income,
and the related earnings-per-share amounts. Our audit procedures with respect
to the disclosures in Note 7 with respect to 2001 included (i) agreeing the
previously reported beginning and end of year medical costs payable to the
previously issued consolidated financial statements, (ii) agreeing the
previously reported medical costs to the previously issued consolidated
financial statements, (iii) agreeing paid claims payments and prior years
medical costs change in medical costs payable to supporting documentation of
claims payment detail, and (iv) testing the mathematical accuracy of the
components of the change in medical costs payable. Additionally, as described
in Note 9, the 2001 consolidated financial statements have been revised to
give effect to the stock split June 18, 2003. We audited the adjustments
described in Note 9 that were applied to revise the 2001 consolidated
financial statements for such stock split. Our audit procedures included (1)
comparing the amounts shown in the earnings per share disclosure for 2001 to
the Companys underlying accounting analysis obtained from management, (2)
comparing the previously reported shares outstanding and income statement
amounts per the Companys accounting analysis to the previously issued
consolidated financial statements, and (3) recalculating the additional shares
to give effect to the stock split and testing the mathematical accuracy of the
underlying analysis. In our opinion, the disclosures for 2001 in Notes 6 and 7
are appropriate, and the adjustments for the stock split described in Note 9
have been appropriately applied. However, we were not engaged to audit,
review, or apply any procedures to the 2001 consolidated financial statements
of the Company other than with respect to such adjustments and accordingly, we
do not express an opinion or any other form of assurance on the 2001
consolidated financial statements taken as a whole.
/s/ DELOITTE & TOUCHE LLP
64
UnitedHealth Group
Independent Auditors Report
The following audit report of Arthur Andersen LLP, our former independent
auditors, is a copy of the original report dated January 24, 2002, rendered
by Arthur Andersen LLP on our consolidated financial statements included in
our Annual Report on Form 10-K filed on April 1, 2002, and has not been
reissued by Arthur Andersen LLP since that date.
To the Shareholders and
We have audited the accompanying consolidated balance sheets of
UnitedHealth Group Incorporated (a Minnesota Corporation) and Subsidiaries
as of December 31, 2001 and 2000, and the related consolidated statements
of operations, changes in shareholders equity and cash flows for each of
the three years in the period ended December 31, 2001. These financial
statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of UnitedHealth
Group Incorporated and its Subsidiaries as of December 31, 2001 and 2000,
and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2001, in conformity with
accounting principles generally accepted in the United States.
/s/ ARTHUR ANDERSEN LLP
UnitedHealth Group
65
Amortized
Gross Unrealized
Gross Unrealized
Fair
2003
Cost
Gains
Losses
Value
$
2,262
$
$
$
2,262
6,737
229
(6
)
6,960
173
9
(1
)
181
74
74
$
9,246
$
238
$
(7
)
$
9,477
$
1,130
$
$
$
1,130
4,742
238
(8
)
4,972
150
5
(5
)
150
77
77
$
6,099
$
243
$
(13
)
$
6,329
For the Year Ended December 31,
(in millions)
2003
2002
2001
$
45
$
57
$
30
(23
)
(75
)
(19
)
$
22
$
(18
)
$
11
We adopted FAS No. 142, Goodwill and Other Intangible Assets, on
January 1, 2002. Under FAS No. 142, goodwill and intangible assets with
indefinite useful lives are not amortized. The following table shows net
earnings and earnings per common share adjusted to reflect the adoption
of the non-amortization provision of FAS No. 142 as of the beginning of
the respective periods:
For the Year Ended December 31,
(in millions, except per share data)
2003
2002
2001
$
1,825
$
1,352
$
913
89
$
1,825
$
1,352
$
1,002
$
3.10
$
2.23
$
1.46
0.14
$
3.10
$
2.23
$
1.60
$
2.96
$
2.13
$
1.40
0.13
$
2.96
$
2.13
$
1.53
(in millions)
2003
2002
2001
$
3,741
$
3,460
$
3,266
165
180
17
20,864
18,262
17,674
(150
)
(70
)
(30
)
20,714
18,192
17,644
(17,411
)
(15,147
)
(14,536
)
(3,057
)
(2,944
)
(2,931
)
(20,468
)
(
18,091
)
(17,467
)
$
4,152
$
3,741
$
3,460
2003
2002
Carrying
Fair
Carrying
Fair
(in millions)
Value
Value
Value
Value
$
79
$
79
$
461
$
461
100
100
250
260
150
150
150
150
400
438
400
450
400
427
400
423
500
499
450
454
1,979
2,047
1,761
1,844
(229
)
(229
)
(811
)
(821
)
$
1,750
$
1,818
$
950
$
1,023
2003
2002
2001
2.6
%
2.5
%
3.7
%
30.9
%
40.2
%
45.9
%
0.1
%
0.1
%
0.1
%
4.1
4.5
4.8
Year Ended December 31, (in millions)
2003
2002
2001
$
932
$
675
$
524
46
57
45
978
732
569
37
12
(10
)
$
1,015
$
744
$
559
(in millions)
2004
2005
2006
2007
2008
$
83
$
56
$
43
$
10
$
4
1
Total Assets and Net Assets exclude, where applicable, debt and accrued interest of $1,993 million, $1,775 million and $1,603 million,
income tax-related assets of $269 million, $389 million and $316 million, and income tax-related liabilities of $401 million, $510 million and
$252 million as of December 31, 2003, 2002 and 2001, respectively.
For the Quarter Ended
(in millions, except per share data)
March 31
June 30
September 30
December 31
$
6,975
$
7,087
$
7,238
$
7,523
$
6,322
$
6,378
$
6,475
$
6,713
$
653
$
709
$
763
$
810
$
403
$
439
$
476
$
507
$
0.68
$
0.74
$
0.81
$
0.87
$
0.65
$
0.71
$
0.77
$
0.83
$
6,013
$
6,078
$
6,247
$
6,682
$
5,531
$
5,555
$
5,675
$
6,073
$
482
$
523
$
572
$
609
$
295
$
325
$
353
$
379
$
0.48
$
0.53
$
0.59
$
0.63
$
0.46
$
0.51
$
0.56
$
0.60
Chairman and Chief Executive Officer
President and Chief Operating Officer
Chief Financial Officer
Minneapolis, Minnesota
February 10, 2004
Directors of UnitedHealth Group Incorporated:
Minneapolis, Minnesota
January 24, 2002
Exhibit 21
Subsidiaries of the Registrant
State of
Name of Entity
Incorporation
Subsidiary of What Entity
Minnesota
UnitedHealth Group Incorporated
Delaware
United HealthCare Services, Inc.
Alabama
UnitedHealthcare, Inc.
Arizona
UnitedHealthcare, Inc.
Arizona
United HealthCare of Arizona, Inc.
Arkansas
UnitedHealthcare, Inc.
Colorado
UnitedHealthcare, Inc.
Florida
UnitedHealthcare, Inc.
Georgia
UnitedHealthcare, Inc.
Illinois
UnitedHealthcare, Inc.
Louisiana
UnitedHealthcare, Inc.
Maryland
UnitedHealthcare, Inc.
Nebraska
UnitedHealthcare, Inc.
Missouri
UnitedHealthcare, Inc.
Mississippi
UnitedHealthcare, Inc.
New Jersey
UnitedHealthcare, Inc.
New York
UnitedHealthcare, Inc.
North Carolina
UnitedHealthcare, Inc.
Tennessee
UnitedHealthcare, Inc.
Texas
UnitedHealthcare, Inc.
Utah
UnitedHealthcare, Inc.
Wisconsin
UnitedHealthcare, Inc.
Wisconsin
UnitedHealthcare, Inc.
Wisconsin
Midwest Security Holding, Inc.
Wisconsin
Midwest Security Holding, Inc.
Wisconsin
Midwest Security Holding, Inc.
Rhode Island
United HealthCare Services, Inc.
Ohio
United HealthCare Services, Inc.
Delaware
United HealthCare Services, Inc.
Delaware
United HealthCare Services, Inc.
Kentucky
United HealthCare Services, Inc.
Delaware
United HealthCare Services, Inc.
Utah
UnitedHealth Financial Services, Inc.
Kentucky
United HealthCare Services, Inc.
Delaware
United HealthCare Services, Inc.
Delaware
Specialized Care Services, Inc.
Delaware
Specialized Care Services, Inc.
New York
Coordinated Vision Care, Inc.
Wisconsin
Specialized Care Services, Inc.
Delaware
Specialized Care Services, Inc.
Delaware
United Resource Networks, Inc.
Minnesota
Specialized Care Services, Inc.
Maine
Specialized Care Services, Inc.
Maine
DCG Holdings, Inc.
Maine
DCG Holdings, Inc.
Maine
DCG Holdings, Inc.
Illinois
Specialized Care Services, Inc.
Maryland
Specialized Care Services, Inc.
California
Spectera, Inc.
Florida
Spectera, Inc.
North Carolina
Spectera, Inc.
Texas
Spectera, Inc.
Virginia
Spectera, Inc.
Pennsylvania
Spectera, Inc.
Maryland
Specialized Care Services, Inc.
Illinois
Specialized Care Services, Inc.
Delaware
Specialized Care Services, Inc.
State of
Name of Entity
Incorporation
Subsidiary of What Entity
Minnesota
United HealthCare Services, Inc.
New York
ACN Group, Inc.
New York
ACN Group, Inc.
California
ACN Group, Inc.
California
ACN Group of California, Inc.
California
ACN Group of California, Inc.
Delaware
United HealthCare Services, Inc.
California
Dental Benefit Providers, Inc.
Illinois
Dental Benefit Providers, Inc.
New Jersey
Dental Benefit Providers, Inc.
New York
Dental Benefit Providers, Inc.
New York
Dental Benefit Providers, Inc.
Maryland
Dental Benefit Providers, Inc.
California
United HealthCare Services, Inc.
California
United Behavioral Health
California
United Behavioral Health
New York
United Behavioral Health
Oregon
United Behavioral Health
Delaware
United HealthCare Services, Inc.
Connecticut
Unimerica, Inc.
Delaware
United HealthCare Insurance Company
Illinois
United HealthCare Insurance Company
New York
United HealthCare Insurance Company
Ohio
United HealthCare Insurance Company
New York
United HealthCare Insurance Company
Delaware
United HealthCare Insurance Company
Delaware
United HealthCare Insurance Company
Delaware
United HealthCare Insurance Company
South Carolina
United HealthCare Insurance Company
Delaware
United HealthCare Services, Inc.
Delaware
Uniprise, Inc.
Delaware
United HealthCare Services, Inc.
New York
Ovations, Inc.
Delaware
Ovations, Inc.
Arizona
Lifemark Corporation
Arizona
Lifemark Corporation
Texas
Lifemark Corporation
Delaware
Lifemark Corporation
Delaware
Lifemark Corporation
Delaware
Lifemark Corporation
Delaware
UnitedHealth Group Incorporated
Indiana
Golden Rule Financial Corporation
Alabama
Golden Acquisition Corporation
Tennessee
Golden Acquisition Corporation
Illinois
Golden Rule Financial Corporation
Indiana
Golden Rule Insurance Company
California
Golden Rule Insurance Company
Indiana
Golden Rule Financial Corporation
Indiana
Golden Rule Financial Corporation
Delaware
Golden Rule Financial Corporation
Delaware
Golden Rule Financial Corporation
State of
Name of Entity
Incorporation
Subsidiary of What Entity
Delaware
UnitedHealth Group Incorporated
Delaware
AmeriChoice Corporation
Nevada
AmeriChoice Health Services, Inc.
New Jersey
AmeriChoice Corporation
New York
AmeriChoice Corporation
Pennsylvania
AmeriChoice Corporation
Arizona
AmeriChoice Corporation
Pennsylvania
Information Network Corporation
Delaware
UnitedHealth Group Incorporated
Delaware
Ingenix, Inc.
Delaware
Aperture Credentialing Holdings, Inc.
Delaware
Ingenix, Inc.
Canada
Ingenix Pharmaceutical Services, Inc.
Germany
Ingenix Pharmaceutical Services, Inc.
Hong Kong
Ingenix Pharmaceutical Services, Inc.
Croatia
Ingenix Pharmaceutical Services, Inc.
Delaware
Ingenix Pharmaceutical Services, Inc.
United Kingdom
Ingenix Pharmaceutical Services Holdings, Inc.
United Kingdom
ClinPharm International Limited
Spain
Ingenix Pharmaceutical Services (UK) Limited
Australia
Ingenix Pharmaceutical Services (UK) Limited
Italy
Ingenix Pharmaceutical Services (UK) Limited
France
Ingenix Pharmaceutical Services (UK) Limited
California
Ingenix Pharmaceutical Services Holdings, Inc.
Netherlands
Ingenix Pharmaceutical Services Holdings, Inc.
Sweden
Ingenix Pharmaceutical Services Holdings, Inc.
Argentina
Ingenix Pharmaceutical Services Holdings, Inc.
Delaware
Ingenix Pharmaceutical Services Holdings, Inc.
Czechoslovakia
Ingenix Pharmaceutical Services Holdings, Inc.
Spain
Ingenix Pharmaceutical Services Holdings, Inc.
Hungary
Ingenix Pharmaceutical Services Holdings, Inc.
South Africa
Ingenix Pharmaceutical Services Holdings, Inc.
Finland
Ingenix Pharmaceutical Services Holdings, Inc.
Minnesota
Ingenix, Inc.
Minnesota
Ingenix, Inc.
Kansas
Ingenix, Inc.
Delaware
Ingenix, Inc.
Delaware
Ingenix Publishing, Inc.
Arizona
Ingenix, Inc.
Arizona
Symmetry Health Data Systems, Inc.
Delaware
UnitedHealth Group Incorporated
Malaysia
UnitedHealthcare International Asia, LLC
Hong Kong
UnitedHealthcare International Asia, LLC
Philippines
UnitedHealth Group Incorporated
Delaware
UnitedHealth Group Incorporated
Delaware
UnitedHealth Group Incorporated
Delaware
UnitedHealth Group Incorporated
Delaware
UnitedHealth Group Finance Company, Inc.
Caymans
UnitedHealth Group Incorporated
Delaware
UnitedHealth Group Incorporated
Delaware
UnitedHealth Group Incorporated
Mauritius
UnitedHealth Group Incorporated
India
United Healthcare International Mauritius Limited
Malaysia
United Healthcare International Mauritius Limited
India
United Healthcare International Mauritius Limited
India
United Healthcare India (Private) Limited
State of
Name of Entity
Incorporation
Subsidiary of What Entity
Delaware
UnitedHealth Group Incorporated
Maryland
Mid Atlantic Medical Services, LLC
North Carolina
Mid Atlantic Medical Services, LLC
Pennsylvania
Mid Atlantic Medical Services, LLC
Maryland
Mid Atlantic Medical Services, LLC
Maryland
Mid Atlantic Medical Services, LLC
Maryland
MAMSI Life and Health Ins. Co.
Maryland
MAMSI Life and Health Ins. Co.
North Carolina
MAMSI Life and Health Ins. Co.
Maryland
Mid Atlantic Medical Services, LLC
Maryland
Physicians Health Plan of Maryland
Maryland
MD-Individual Practice Association, Inc.
Maryland
Mid Atlantic Medical Services, LLC
Maryland
Mid Atlantic Medical Services, LLC
Maryland
Mid Atlantic Medical Services, LLC
Maryland
HomeCall, Inc.
EXHIBIT 23
INDEPENDENT AUDITORS CONSENT
We consent to the incorporation by reference in Registration Statement File
Nos. 33-22310, 33-50282, 33-59083, 33-59623, 33-63885, 33-67918,
33-68300, 33-75846, 333-02525, 333-04875, 333-25923, 333-44613,
333-45289, 333-50461, 333-66013, 333-71007, 333-81337, 333-87243,
333-88506, 333-90247, 333-46284, 333-55666, 333-100027, 333-10585,
333-105877 and 333-110356 of UnitedHealth Group Incorporated of our report
dated February 10, 2004, relating to the consolidated financial statements of
UnitedHealth Group Incorporated and Subsidiaries as of and for the years ended
December 31, 2003 and 2002 (which report expresses an unqualified opinion and
includes explanatory paragraphs relating to (i) the adoption of a new
accounting principle and (ii) the application of procedures relating to certain
other disclosures and reclassifications of financial statement amounts related
to the 2001 consolidated financial statements that were audited by other
auditors who have ceased operations and for which we have expressed no opinion
or other form of assurance other than with respect to such disclosures and
reclassifications) incorporated by reference in this Annual Report on Form 10-K
of UnitedHealth Group Incorporated for the year ended December 31, 2003.
/s/ Deloitte & Touche LLP
Minneapolis, Minnesota
March 15, 2004
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints William W. McGuire, M.D., Stephen J.
Hemsley, and David J. Lubben, and each of them, his or her true and lawful
attorneys-in-fact and agents, each acting alone, with full power of
substitution and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign an Annual Report on Form 10-K for
the year ended December 31, 2003 for UnitedHealth Group Incorporated, and any
and all amendments thereto, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, each acting alone,
or his or her substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Dated: February 3, 2004
/s/ William C. Ballard, Jr.
William C. Ballard, Jr.
/s/ William W. McGuire, M.D.
William W. McGuire, M.D.
/s/ Richard T. Burke, Sr.
Richard T. Burke, Sr.
/s/ Mary ONeil Mundinger
Mary ONeil Mundinger
/s/ Stephen J. Hemsley
Stephen J. Hemsley
/s/ Robert L. Ryan
Robert L. Ryan
/s/ James A. Johnson
James A. Johnson
/s/ Donna E. Shalala
Donna E. Shalala
/s/ Thomas H. Kean
Thomas H. Kean
/s/ William G. Spears
William G. Spears
/s/ Douglas W. Leatherdale
Douglas W. Leatherdale
/s/ Gail R. Wilensky
Gail R. Wilensky
Exhibit 31
CERTIFICATIONS PURSUANT TO SECTION 302 OF
THE
Certification of Principal Executive
Officer
I, William W. McGuire, M.D., Chairman and
Chief Executive Officer of UnitedHealth Group Incorporated,
certify that:
1. I have reviewed this annual report on
Form 10-K 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 registrants 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)) for the registrant and we
have:
5. The registrants other certifying
officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the
registrants auditors and the audit committee of the
registrants board of directors (or persons performing the
equivalent functions):
Date: March 15, 2004
Certification of Principal Financial
Officer
I, Patrick J. Erlandson, Chief Financial Officer
of UnitedHealth Group Incorporated, certify that:
1. I have reviewed this annual report on
Form 10-K 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 registrants 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)) for the registrant and we
have:
5. The registrants other certifying
officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the
registrants auditors and the audit committee of the
registrants board of directors (or persons performing the
equivalent functions):
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) evaluated the effectiveness of the
registrants 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
c) disclosed in this report any change in
the registrants internal control over financial reporting
that occurred during the registrants most recent fiscal
quarter that has materially affected, or is reasonably likely to
materially affect, the registrants internal control over
financial reporting; and
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 registrants 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 registrants internal control over financial
reporting.
/s/ WILLIAM W. MCGUIRE, M.D.
William W. McGuire, M.D.
Chairman and Chief Executive Officer
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) evaluated the effectiveness of the
registrants 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
c) disclosed in this report any change in
the registrants internal control over financial reporting
that occurred during the registrants most recent fiscal
quarter that has materially affected, or is reasonably likely to
materially affect, the registrants internal control over
financial reporting; and
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 registrants 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 registrants internal control over financial
reporting.
/s/ PATRICK J. ERLANDSON
Patrick J. Erlandson
Chief Financial Officer
Date: March 15, 2004
Exhibit 32
CERTIFICATIONS PURSUANT TO
Certification of Principal Executive
Officer
In connection with the Annual Report of
UnitedHealth Group Incorporated (the Company) on
Form 10-K for the year ended December 31, 2003 as
filed with the Securities and Exchange Commission on the date
hereof (the Report), I, William W.
McGuire, M.D., Chairman and Chief Executive Officer of the
Company, certify, pursuant to 18 U.S.C. § 1350,
as adopted pursuant to § 906 of the Sarbanes-Oxley Act
of 2002, that to my knowledge:
Date: March 15, 2004
Certification of Principal Financial
Officer
In connection with the Annual Report of
UnitedHealth Group Incorporated (the Company) on
Form 10-K for the year ended December 31, 2003 as
filed with the Securities and Exchange Commission on the date
hereof (the Report), I, Patrick J. Erlandson,
Chief Financial Officer of the Company, 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.
/s/ WILLIAM W. MCGUIRE, M.D.
William W. McGuire, M.D.
Chairman and Chief Executive Officer
(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.
/s/ PATRICK J. ERLANDSON
Patrick J. Erlandson
Chief Financial Officer
Date: March 15, 2004