UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________________________________
Form 10-Q
__________________________________________________________
[X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2016
or
[ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE TRANSITION PERIOD FROM _______ TO _______
Commission file number: 1-10864
__________________________________________________________
UnitedHealth Group Incorporated
(Exact name of registrant as specified in its charter)
__________________________________________________________
Delaware | 41-1321939 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
UnitedHealth Group Center 9900 Bren Road East Minnetonka, Minnesota | 55343 | |
(Address of principal executive offices) | (Zip Code) | |
(952) 936-1300
(Registrant’s telephone number, including area code)
__________________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer | [X] | Accelerated filer | [ ] | Non-accelerated filer | [ ] | Smaller reporting company | [ ] | |||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of April 29, 2016, there were 950,804,129 shares of the registrant’s Common Stock, $.01 par value per share, issued and outstanding.
UNITEDHEALTH GROUP
Table of Contents
Page | ||||
PART I
ITEM 1. FINANCIAL STATEMENTS
UnitedHealth Group
Condensed Consolidated Balance Sheets
(Unaudited)
(in millions, except per share data) | March 31, 2016 | December 31, 2015 | ||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 10,596 | $ | 10,923 | ||||
Short-term investments | 2,418 | 1,988 | ||||||
Accounts receivable, net | 7,777 | 6,523 | ||||||
Other current receivables, net | 6,865 | 6,801 | ||||||
Assets under management | 2,878 | 2,998 | ||||||
Prepaid expenses and other current assets | 3,211 | 2,406 | ||||||
Total current assets | 33,745 | 31,639 | ||||||
Long-term investments | 20,895 | 18,792 | ||||||
Property, equipment and capitalized software, net | 4,976 | 4,861 | ||||||
Goodwill | 46,294 | 44,453 | ||||||
Other intangible assets, net | 8,861 | 8,391 | ||||||
Other assets | 3,084 | 3,118 | ||||||
Total assets | $ | 117,855 | $ | 111,254 | ||||
Liabilities, redeemable noncontrolling interests and equity | ||||||||
Current liabilities: | ||||||||
Medical costs payable | $ | 15,823 | $ | 14,330 | ||||
Accounts payable and accrued liabilities | 13,740 | 11,994 | ||||||
Other policy liabilities | 8,317 | 7,798 | ||||||
Commercial paper and current maturities of long-term debt | 6,504 | 6,634 | ||||||
Unearned revenues | 1,901 | 2,142 | ||||||
Total current liabilities | 46,285 | 42,898 | ||||||
Long-term debt, less current maturities | 27,218 | 25,331 | ||||||
Future policy benefits | 2,508 | 2,496 | ||||||
Deferred income taxes | 3,066 | 3,587 | ||||||
Other liabilities | 1,887 | 1,481 | ||||||
Total liabilities | 80,964 | 75,793 | ||||||
Commitments and contingencies (Note 8) | ||||||||
Redeemable noncontrolling interests | 1,824 | 1,736 | ||||||
Equity: | ||||||||
Preferred stock, $0.001 par value - 10 shares authorized; no shares issued or outstanding | — | — | ||||||
Common stock, $0.01 par value - 3,000 shares authorized; 954 and 953 issued and outstanding | 10 | 10 | ||||||
Additional paid-in capital | — | 29 | ||||||
Retained earnings | 37,963 | 37,125 | ||||||
Accumulated other comprehensive loss | (2,804 | ) | (3,334 | ) | ||||
Nonredeemable noncontrolling interest | (102 | ) | (105 | ) | ||||
Total equity | 35,067 | 33,725 | ||||||
Total liabilities, redeemable noncontrolling interests and equity | $ | 117,855 | $ | 111,254 | ||||
See Notes to the Condensed Consolidated Financial Statements
1
UnitedHealth Group
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended March 31, | ||||||||
(in millions, except per share data) | 2016 | 2015 | ||||||
Revenues: | ||||||||
Premiums | $ | 34,811 | $ | 31,674 | ||||
Products | 6,393 | 1,230 | ||||||
Services | 3,140 | 2,706 | ||||||
Investment and other income | 183 | 146 | ||||||
Total revenues | 44,527 | 35,756 | ||||||
Operating costs: | ||||||||
Medical costs | 28,430 | 25,790 | ||||||
Operating costs | 6,758 | 5,834 | ||||||
Cost of products sold | 5,877 | 1,114 | ||||||
Depreciation and amortization | 502 | 378 | ||||||
Total operating costs | 41,567 | 33,116 | ||||||
Earnings from operations | 2,960 | 2,640 | ||||||
Interest expense | (259 | ) | (150 | ) | ||||
Earnings before income taxes | 2,701 | 2,490 | ||||||
Provision for income taxes | (1,074 | ) | (1,077 | ) | ||||
Net earnings | 1,627 | 1,413 | ||||||
Earnings attributable to noncontrolling interests | (16 | ) | — | |||||
Net earnings attributable to UnitedHealth Group common shareholders | $ | 1,611 | $ | 1,413 | ||||
Earnings per share attributable to UnitedHealth Group common shareholders: | ||||||||
Basic | $ | 1.69 | $ | 1.48 | ||||
Diluted | $ | 1.67 | $ | 1.46 | ||||
Basic weighted-average number of common shares outstanding | 953 | 954 | ||||||
Dilutive effect of common share equivalents | 14 | 15 | ||||||
Diluted weighted-average number of common shares outstanding | 967 | 969 | ||||||
Anti-dilutive shares excluded from the calculation of dilutive effect of common share equivalents | 7 | 9 | ||||||
Cash dividends declared per common share | $ | 0.500 | $ | 0.375 | ||||
See Notes to the Condensed Consolidated Financial Statements
2
UnitedHealth Group
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
Three Months Ended March 31, | ||||||||
(in millions) | 2016 | 2015 | ||||||
Net earnings | $ | 1,627 | $ | 1,413 | ||||
Other comprehensive income (loss): | ||||||||
Gross unrealized gains on investment securities during the period | 260 | 105 | ||||||
Income tax effect | (96 | ) | (37 | ) | ||||
Total unrealized gains, net of tax | 164 | 68 | ||||||
Gross reclassification adjustment for net realized gains included in net earnings | (35 | ) | (3 | ) | ||||
Income tax effect | 13 | 1 | ||||||
Total reclassification adjustment, net of tax | (22 | ) | (2 | ) | ||||
Total foreign currency translation gains (losses) | 388 | (959 | ) | |||||
Other comprehensive income (loss) | 530 | (893 | ) | |||||
Comprehensive income | 2,157 | 520 | ||||||
Comprehensive income attributable to noncontrolling interests | (16 | ) | — | |||||
Comprehensive income attributable to UnitedHealth Group common shareholders | $ | 2,141 | $ | 520 | ||||
See Notes to the Condensed Consolidated Financial Statements
3
UnitedHealth Group
Condensed Consolidated Statements of Changes in Equity
(Unaudited)
Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Nonredeemable Noncontrolling Interest | Total Equity | ||||||||||||||||||||||||||
(in millions) | Shares | Amount | Net Unrealized Gains on Investments | Foreign Currency Translation (Losses) Gains | |||||||||||||||||||||||||||
Balance at January 1, 2016 | 953 | $ | 10 | $ | 29 | $ | 37,125 | $ | 56 | $ | (3,390 | ) | $ | (105 | ) | $ | 33,725 | ||||||||||||||
Adjustment to adopt ASU 2016-09 | 28 | 28 | |||||||||||||||||||||||||||||
Net earnings | 1,611 | 11 | 1,622 | ||||||||||||||||||||||||||||
Other comprehensive income | 142 | 388 | 530 | ||||||||||||||||||||||||||||
Issuances of common stock, and related tax effects | 5 | — | 56 | 56 | |||||||||||||||||||||||||||
Share-based compensation | 150 | 150 | |||||||||||||||||||||||||||||
Common share repurchases | (4 | ) | — | (176 | ) | (324 | ) | (500 | ) | ||||||||||||||||||||||
Cash dividends paid on common shares | (477 | ) | (477 | ) | |||||||||||||||||||||||||||
Redeemable noncontrolling interests fair value and other adjustments | (59 | ) | (59 | ) | |||||||||||||||||||||||||||
Distribution to nonredeemable noncontrolling interest | (8 | ) | (8 | ) | |||||||||||||||||||||||||||
Balance at March 31, 2016 | 954 | $ | 10 | $ | — | $ | 37,963 | $ | 198 | $ | (3,002 | ) | $ | (102 | ) | $ | 35,067 | ||||||||||||||
Balance at January 1, 2015 | 954 | $ | 10 | $ | — | $ | 33,836 | $ | 223 | $ | (1,615 | ) | $ | — | $ | 32,454 | |||||||||||||||
Net earnings | 1,413 | 1,413 | |||||||||||||||||||||||||||||
Other comprehensive income (loss) | 66 | (959 | ) | (893 | ) | ||||||||||||||||||||||||||
Issuances of common stock, and related tax effects | 6 | — | — | — | |||||||||||||||||||||||||||
Share-based compensation, and related tax benefits | 206 | 206 | |||||||||||||||||||||||||||||
Common share repurchases | (8 | ) | — | (157 | ) | (739 | ) | (896 | ) | ||||||||||||||||||||||
Cash dividends paid on common shares | (357 | ) | (357 | ) | |||||||||||||||||||||||||||
Redeemable noncontrolling interests fair value and other adjustments | (49 | ) | (49 | ) | |||||||||||||||||||||||||||
Balance at March 31, 2015 | 952 | $ | 10 | $ | — | $ | 34,153 | $ | 289 | $ | (2,574 | ) | $ | — | $ | 31,878 | |||||||||||||||
See Notes to the Condensed Consolidated Financial Statements
4
UnitedHealth Group
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended March 31, | ||||||||
(in millions) | 2016 | 2015 | ||||||
Operating activities | ||||||||
Net earnings | $ | 1,627 | $ | 1,413 | ||||
Noncash items: | ||||||||
Depreciation and amortization | 502 | 378 | ||||||
Deferred income taxes | 145 | 122 | ||||||
Share-based compensation | 157 | 125 | ||||||
Other, net | 6 | (44 | ) | |||||
Net change in other operating items, net of effects from acquisitions and changes in AARP balances: | ||||||||
Accounts receivable | (1,110 | ) | (758 | ) | ||||
Other assets | (2,162 | ) | (2,162 | ) | ||||
Medical costs payable | 1,368 | 1,610 | ||||||
Accounts payable and other liabilities | 1,770 | 1,648 | ||||||
Other policy liabilities | 266 | 154 | ||||||
Unearned revenues | (251 | ) | (217 | ) | ||||
Cash flows from operating activities | 2,318 | 2,269 | ||||||
Investing activities | ||||||||
Purchases of investments | (5,173 | ) | (1,891 | ) | ||||
Sales of investments | 2,122 | 503 | ||||||
Maturities of investments | 978 | 843 | ||||||
Cash paid for acquisitions, net of cash assumed | (1,697 | ) | (575 | ) | ||||
Purchases of property, equipment and capitalized software | (425 | ) | (373 | ) | ||||
Other, net | 14 | (32 | ) | |||||
Cash flows used for investing activities | (4,181 | ) | (1,525 | ) | ||||
Financing activities | ||||||||
Common share repurchases | (500 | ) | (896 | ) | ||||
Cash dividends paid | (477 | ) | (357 | ) | ||||
Proceeds from common stock issuances | 198 | 192 | ||||||
Proceeds from issuance of long-term debt | 2,485 | — | ||||||
Repayments of long-term debt | (601 | ) | (416 | ) | ||||
(Repayments of) proceeds from commercial paper, net | (285 | ) | 1,194 | |||||
Customer funds administered | 1,067 | 1,049 | ||||||
Other, net | (385 | ) | (270 | ) | ||||
Cash flows from financing activities | 1,502 | 496 | ||||||
Effect of exchange rate changes on cash and cash equivalents | 34 | (85 | ) | |||||
(Decrease) increase in cash and cash equivalents | (327 | ) | 1,155 | |||||
Cash and cash equivalents, beginning of period | 10,923 | 7,495 | ||||||
Cash and cash equivalents, end of period | $ | 10,596 | $ | 8,650 | ||||
See Notes to the Condensed Consolidated Financial Statements
5
UnitedHealth Group
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
UnitedHealth Group Incorporated (individually and together with its subsidiaries, “UnitedHealth Group” and “the Company”) is a diversified health and well-being company dedicated to helping people live healthier lives and making the health system work better for everyone. Through its diversified family of businesses, the Company leverages core competencies in advanced, enabling technology; health care data, information and intelligence; and clinical care management and coordination to help meet the demands of the health system. The Company offers a broad spectrum of products and services through two distinct platforms: UnitedHealthcare, which provides health care coverage and benefits services; and Optum, which provides pharmacy care services and information and technology-enabled health services.
The Company has prepared the Condensed Consolidated Financial Statements according to U.S. Generally Accepted Accounting Principles (GAAP) and has included the accounts of UnitedHealth Group and its subsidiaries. The year-end condensed consolidated balance sheet was derived from audited financial statements, but does not include all disclosures required by GAAP. In accordance with the rules and regulations of the U.S. Securities and Exchange Commission (SEC), the Company has omitted certain footnote disclosures that would substantially duplicate the disclosures contained in its annual audited Consolidated Financial Statements. Therefore, these Condensed Consolidated Financial Statements should be read together with the Consolidated Financial Statements and the Notes included in Part II, Item 8, “Financial Statements” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 as filed with the SEC (2015 10-K). The accompanying Condensed Consolidated Financial Statements include all normal recurring adjustments necessary to present the interim financial statements fairly.
Use of Estimates
These Consolidated Financial Statements include certain amounts based on the Company’s best estimates and judgments. The Company’s most significant estimates relate to estimates and judgments for medical costs payable and revenues, valuation and impairment analysis of goodwill and other intangible assets and valuations of certain investments. Certain of these estimates require the application of complex assumptions and judgments, often because they involve matters that are inherently uncertain and will likely change in subsequent periods. The impact of any change in estimates is included in earnings in the period in which the estimate is adjusted.
The accounting policies disclosed in Note 2 of Notes to the Consolidated Financial Statements in Part II, Item 8, “Financial Statements” in the 2015 10-K remain unchanged.
Reclassification
During the fourth quarter of 2015, the Company aligned its accounting policy to conform the presentation of certain pharmacy fulfillment costs related to an acquired OptumRx business. These costs are now included in medical costs and cost of products sold, whereas they were previously included in operating costs. Prior periods have been reclassified to conform to the current period presentation. The reclassification increased medical expenses by $101 million, decreased operating costs by $115 million and increased cost of products sold by $14 million for the three months ended March 31, 2015. The reclassification had no impact on total operating costs, earnings from operations, net earnings, earnings per share or total equity.
Recently Issued Accounting Standards
In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) No. 2016-02, “Leases (Topic 842)” (ASU 2016-02). Under ASU 2016-02, an entity will be required to recognize assets and liabilities for the rights and obligations created by leases on the entity’s balance sheet for both finance and operating leases. For leases with a term of 12 months or less, an entity can elect to not recognize lease assets and lease liabilities and expense the lease over a straight-line basis for the term of the lease. ASU 2016-02 will require new disclosures that depict the amount, timing, and uncertainty of cash flows pertaining to an entity’s leases. Companies are required to adopt the new standard using a modified retrospective approach for annual and interim periods beginning after December 15, 2018. Early adoption of ASU 2016-02 is permitted. The Company is currently evaluating the effect of the new leasing guidance.
In January 2016, the FASB issued ASU 2016-01, “Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities” (ASU 2016-01). The new guidance changes the current accounting related to (i) the classification and measurement of certain equity investments, (ii) the presentation of changes in the fair value of financial liabilities measured under the fair value option that are due to instrument-specific credit risk, and (iii) certain disclosures associated with the fair value of financial instruments. Most notably, ASU 2016-01 requires that equity investments, with certain exemptions, be measured at fair value with changes in fair value recognized in net income as opposed to other
6
comprehensive income. The new guidance is effective for annual and interim reporting periods beginning after December 15, 2017. The Company is currently evaluating the effect of the new financial instruments guidance.
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (ASU 2014-09) as modified by ASU No. 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date,” ASU 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)” and ASU No. 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing.” ASU 2014-09 will supersede existing revenue recognition standards with a single model unless those contracts are within the scope of other standards (e.g., an insurance entity’s insurance contracts). The revenue recognition principle in ASU 2014-09 is that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, new and enhanced disclosures will be required. Companies may adopt the new standard either using the full retrospective approach, a modified retrospective approach with practical expedients, or a cumulative effect upon adoption approach. ASU 2014-09 is effective for annual and interim reporting periods beginning after December 15, 2017. Early adoption at the original effective date, interim and annual periods beginning after December 15, 2016, will be permitted. The Company is currently evaluating the effect of the new revenue recognition guidance.
Recently Adopted Accounting Standards
In March 2016, the FASB issued ASU No. 2016-09, “Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” (ASU 2016-09). ASU 2016-09 modifies several aspects of the accounting for share-based payment awards, including income tax consequences, and classification on the statement of cash flows. The Company early adopted ASU 2016-09 in the first quarter of 2016. The provisions of ASU 2016-09 related to the timing of when excess tax benefits are recognized, minimum statutory withholding requirements and forfeitures were adopted using a modified retrospective transition method by means of a cumulative-effect adjustment to equity as of January 1, 2016. The provisions of ASU 2016-09 related to the recognition of excess tax benefits in the income statement and classification in the statement of cash flows were adopted prospectively and the prior periods were not retrospectively adjusted. The adoption of ASU 2016-09 did not materially impact the Company’s consolidated financial position, results of operations, equity or cash flows.
In November 2015, the FASB issued ASU No. 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes” (ASU 2015-17). ASU 2015-17 requires entities to present deferred tax assets and deferred tax liabilities as noncurrent on the balance sheet. Prior to the issuance of ASU 2015-17, deferred taxes were required to be presented as a net current asset or liability and a net noncurrent asset or liability. The Company adopted ASU 2015-17 on a prospective basis in the first quarter of 2016 and the prior period was not retrospectively adjusted. The adoption of ASU 2015-17 did not impact the Company’s consolidated financial position, results of operations, equity or cash flows.
In April 2015, the FASB issued ASU No. 2015-03, “Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs” (ASU 2015-03). ASU 2015-03 requires debt issuance costs to be presented as a reduction of the carrying amount of the related debt liability. Prior to the issuance of ASU 2015-03, debt issuance costs were required to be presented as an asset in the balance sheet. The Company adopted ASU 2015-03 on a retrospective basis, as required, in the first quarter of 2016. The Company reclassified $129 million in debt issuance costs that were recorded in other assets on the Consolidated Balance Sheet as of December 31, 2015 to long-term debt, less current maturities.
The Company has determined that there have been no other recently adopted or issued accounting standards that had, or will have, a material impact on its Condensed Consolidated Financial Statements.
7
2. Investments
A summary of short-term and long-term investments by major security type is as follows:
(in millions) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||
March 31, 2016 | ||||||||||||||||
Debt securities - available-for-sale: | ||||||||||||||||
U.S. government and agency obligations | $ | 2,318 | $ | 13 | $ | (1 | ) | $ | 2,330 | |||||||
State and municipal obligations | 6,233 | 180 | (2 | ) | 6,411 | |||||||||||
Corporate obligations | 8,751 | 110 | (30 | ) | 8,831 | |||||||||||
U.S. agency mortgage-backed securities | 2,488 | 28 | (3 | ) | 2,513 | |||||||||||
Non-U.S. agency mortgage-backed securities | 958 | 17 | (4 | ) | 971 | |||||||||||
Total debt securities - available-for-sale | 20,748 | 348 | (40 | ) | 21,056 | |||||||||||
Equity securities - available-for-sale | 1,739 | 63 | (53 | ) | 1,749 | |||||||||||
Debt securities - held-to-maturity: | ||||||||||||||||
U.S. government and agency obligations | 175 | 3 | — | 178 | ||||||||||||
State and municipal obligations | 7 | — | — | 7 | ||||||||||||
Corporate obligations | 326 | — | — | 326 | ||||||||||||
Total debt securities - held-to-maturity | 508 | 3 | — | 511 | ||||||||||||
Total investments | $ | 22,995 | $ | 414 | $ | (93 | ) | $ | 23,316 | |||||||
December 31, 2015 | ||||||||||||||||
Debt securities - available-for-sale: | ||||||||||||||||
U.S. government and agency obligations | $ | 1,982 | $ | 1 | $ | (6 | ) | $ | 1,977 | |||||||
State and municipal obligations | 6,022 | 149 | (3 | ) | 6,168 | |||||||||||
Corporate obligations | 7,446 | 41 | (81 | ) | 7,406 | |||||||||||
U.S. agency mortgage-backed securities | 2,127 | 13 | (16 | ) | 2,124 | |||||||||||
Non-U.S. agency mortgage-backed securities | 962 | 5 | (11 | ) | 956 | |||||||||||
Total debt securities - available-for-sale | 18,539 | 209 | (117 | ) | 18,631 | |||||||||||
Equity securities - available-for-sale | 1,638 | 58 | (57 | ) | 1,639 | |||||||||||
Debt securities - held-to-maturity: | ||||||||||||||||
U.S. government and agency obligations | 163 | 1 | — | 164 | ||||||||||||
State and municipal obligations | 8 | — | — | 8 | ||||||||||||
Corporate obligations | 339 | — | — | 339 | ||||||||||||
Total debt securities - held-to-maturity | 510 | 1 | — | 511 | ||||||||||||
Total investments | $ | 20,687 | $ | 268 | $ | (174 | ) | $ | 20,781 | |||||||
The amortized cost and fair value of debt securities as of March 31, 2016, by contractual maturity, were as follows:
Available-for-Sale | Held-to-Maturity | |||||||||||||||
(in millions) | Amortized Cost | Fair Value | Amortized Cost | Fair Value | ||||||||||||
Due in one year or less | $ | 2,534 | $ | 2,539 | $ | 128 | $ | 128 | ||||||||
Due after one year through five years | 7,944 | 8,019 | 184 | 186 | ||||||||||||
Due after five years through ten years | 4,841 | 4,968 | 114 | 114 | ||||||||||||
Due after ten years | 1,983 | 2,046 | 82 | 83 | ||||||||||||
U.S. agency mortgage-backed securities | 2,488 | 2,513 | — | — | ||||||||||||
Non-U.S. agency mortgage-backed securities | 958 | 971 | — | — | ||||||||||||
Total debt securities | $ | 20,748 | $ | 21,056 | $ | 508 | $ | 511 | ||||||||
8
The fair value of available-for-sale investments with gross unrealized losses by major security type and length of time that individual securities have been in a continuous unrealized loss position were as follows:
Less Than 12 Months | 12 Months or Greater | Total | ||||||||||||||||||||||
(in millions) | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | ||||||||||||||||||
March 31, 2016 | ||||||||||||||||||||||||
Debt securities - available-for-sale: | ||||||||||||||||||||||||
U.S. government and agency obligations | $ | 507 | $ | (1 | ) | $ | — | $ | — | $ | 507 | $ | (1 | ) | ||||||||||
State and municipal obligations | 488 | (2 | ) | — | — | 488 | (2 | ) | ||||||||||||||||
Corporate obligations | 2,107 | (22 | ) | 337 | (8 | ) | 2,444 | (30 | ) | |||||||||||||||
U.S. agency mortgage-backed securities | — | — | 214 | (3 | ) | 214 | (3 | ) | ||||||||||||||||
Non-U.S. agency mortgage-backed securities | 203 | (1 | ) | 145 | (3 | ) | 348 | (4 | ) | |||||||||||||||
Total debt securities - available-for-sale | $ | 3,305 | $ | (26 | ) | $ | 696 | $ | (14 | ) | $ | 4,001 | $ | (40 | ) | |||||||||
Equity securities - available-for-sale | $ | 98 | $ | (8 | ) | $ | 94 | $ | (45 | ) | $ | 192 | $ | (53 | ) | |||||||||
December 31, 2015 | ||||||||||||||||||||||||
Debt securities - available-for-sale: | ||||||||||||||||||||||||
U.S. government and agency obligations | $ | 1,473 | $ | (6 | ) | $ | — | $ | — | $ | 1,473 | $ | (6 | ) | ||||||||||
State and municipal obligations | 650 | (3 | ) | — | — | 650 | (3 | ) | ||||||||||||||||
Corporate obligations | 4,629 | (63 | ) | 339 | (18 | ) | 4,968 | (81 | ) | |||||||||||||||
U.S. agency mortgage-backed securities | 1,304 | (12 | ) | 116 | (4 | ) | 1,420 | (16 | ) | |||||||||||||||
Non-U.S. agency mortgage-backed securities | 593 | (7 | ) | 127 | (4 | ) | 720 | (11 | ) | |||||||||||||||
Total debt securities - available-for-sale | $ | 8,649 | $ | (91 | ) | $ | 582 | $ | (26 | ) | $ | 9,231 | $ | (117 | ) | |||||||||
Equity securities - available-for-sale | $ | 112 | $ | (11 | ) | $ | 89 | $ | (46 | ) | $ | 201 | $ | (57 | ) | |||||||||
The Company’s unrealized losses from all securities as of March 31, 2016 were generated from approximately 5,000 positions out of a total of 26,000 positions. The Company believes that it will collect the principal and interest due on its debt securities that have an amortized cost in excess of fair value. The unrealized losses were primarily caused by interest rate increases and not by unfavorable changes in the credit quality associated with these securities. As of March 31, 2016, the Company did not have the intent to sell any of the securities in an unrealized loss position. Therefore, the Company believes these losses to be temporary.
Net realized gains reclassified out of accumulated other comprehensive income were from the following sources:
Three Months Ended March 31, | ||||||||
(in millions) | 2016 | 2015 | ||||||
Total other than temporary impairments recognized in earnings | $ | (21 | ) | $ | (1 | ) | ||
Gross realized losses from sales | (31 | ) | (6 | ) | ||||
Gross realized gains from sales | 87 | 10 | ||||||
Net realized gains (included in investment and other income on the Condensed Consolidated Statements of Operations) | 35 | 3 | ||||||
Income tax effect (included in provision for income taxes on the Condensed Consolidated Statements of Operations) | (13 | ) | (1 | ) | ||||
Realized gains, net of taxes | $ | 22 | $ | 2 | ||||
3. Fair Value
Certain assets and liabilities are measured at fair value in the Condensed Consolidated Financial Statements or have fair values disclosed in the Notes to the Condensed Consolidated Financial Statements. These assets and liabilities are classified into one of three levels of a hierarchy defined by GAAP.
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For a description of the methods and assumptions that are used to estimate the fair value and determine the fair value hierarchy classification of each class of financial instrument, see Note 5 of Notes to the Consolidated Financial Statements in Part II, Item 8, “Financial Statements” in the 2015 10-K.
The Company elected to measure the entirety of the Supplemental Health Insurance Program (AARP Program) assets under management at fair value pursuant to the fair value option. See Note 2 of Notes to the Consolidated Financial Statements in Part II, Item 8, “Financial Statements” in the 2015 10-K for further detail on the AARP Program.
The following table presents a summary of fair value measurements by level and carrying values for items measured at fair value on a recurring basis in the Condensed Consolidated Balance Sheets, excluding assets and liabilities related to the AARP Program:
(in millions) | Quoted Prices in Active Markets (Level 1) | Other Observable Inputs (Level 2) | Unobservable Inputs (Level 3) | Total Fair and Carrying Value | ||||||||||||
March 31, 2016 | ||||||||||||||||
Cash and cash equivalents | $ | 10,590 | $ | 6 | $ | — | $ | 10,596 | ||||||||
Debt securities - available-for-sale: | ||||||||||||||||
U.S. government and agency obligations | 2,159 | 171 | — | 2,330 | ||||||||||||
State and municipal obligations | — | 6,411 | — | 6,411 | ||||||||||||
Corporate obligations | 8 | 8,725 | 98 | 8,831 | ||||||||||||
U.S. agency mortgage-backed securities | — | 2,513 | — | 2,513 | ||||||||||||
Non-U.S. agency mortgage-backed securities | — | 971 | — | 971 | ||||||||||||
Total debt securities - available-for-sale | 2,167 | 18,791 | 98 | 21,056 | ||||||||||||
Equity securities - available-for-sale | 1,344 | 15 | 390 | 1,749 | ||||||||||||
Interest rate swap assets | — | 245 | — | 245 | ||||||||||||
Total assets at fair value | $ | 14,101 | $ | 19,057 | $ | 488 | $ | 33,646 | ||||||||
Percentage of total assets at fair value | 42 | % | 57 | % | 1 | % | 100 | % | ||||||||
December 31, 2015 | ||||||||||||||||
Cash and cash equivalents | $ | 10,906 | $ | 17 | $ | — | $ | 10,923 | ||||||||
Debt securities - available-for-sale: | ||||||||||||||||
U.S. government and agency obligations | 1,779 | 198 | — | 1,977 | ||||||||||||
State and municipal obligations | — | 6,168 | — | 6,168 | ||||||||||||
Corporate obligations | 5 | 7,308 | 93 | 7,406 | ||||||||||||
U.S. agency mortgage-backed securities | — | 2,124 | — | 2,124 | ||||||||||||
Non-U.S. agency mortgage-backed securities | — | 951 | 5 | 956 | ||||||||||||
Total debt securities - available-for-sale | 1,784 | 16,749 | 98 | 18,631 | ||||||||||||
Equity securities - available-for-sale | 1,223 | 14 | 402 | 1,639 | ||||||||||||
Interest rate swap assets | — | 93 | — | 93 | ||||||||||||
Total assets at fair value | $ | 13,913 | $ | 16,873 | $ | 500 | $ | 31,286 | ||||||||
Percentage of total assets at fair value | 44 | % | 54 | % | 2 | % | 100 | % | ||||||||
Interest rate swap liabilities | $ | — | $ | 11 | $ | — | $ | 11 | ||||||||
Transfers between levels, if any, are recorded as of the beginning of the reporting period in which the transfer occurs; there were no transfers between Levels 1, 2 or 3 of any financial assets or liabilities during the three months ended March 31, 2016 or 2015.
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The following table presents a summary of fair value measurements by level and carrying values for certain financial instruments not measured at fair value on a recurring basis in the Condensed Consolidated Balance Sheets:
(in millions) | Quoted Prices in Active Markets (Level 1) | Other Observable Inputs (Level 2) | Unobservable Inputs (Level 3) | Total Fair Value | Total Carrying Value | |||||||||||||||
March 31, 2016 | ||||||||||||||||||||
Debt securities - held-to-maturity: | ||||||||||||||||||||
U.S. government and agency obligations | $ | 178 | $ | — | $ | — | $ | 178 | $ | 175 | ||||||||||
State and municipal obligations | — | — | 7 | 7 | 7 | |||||||||||||||
Corporate obligations | 87 | 11 | 228 | 326 | 326 | |||||||||||||||
Total debt securities - held-to-maturity | $ | 265 | $ | 11 | $ | 235 | $ | 511 | $ | 508 | ||||||||||
Other assets | $ | — | $ | 477 | $ | — | $ | 477 | $ | 478 | ||||||||||
Long-term debt and other financing obligations | $ | — | $ | 32,605 | $ | — | $ | 32,605 | $ | 30,020 | ||||||||||
December 31, 2015 | ||||||||||||||||||||
Debt securities - held-to-maturity: | ||||||||||||||||||||
U.S. government and agency obligations | $ | 164 | $ | — | $ | — | $ | 164 | $ | 163 | ||||||||||
State and municipal obligations | — | — | 8 | 8 | 8 | |||||||||||||||
Corporate obligations | 91 | 10 | 238 | 339 | 339 | |||||||||||||||
Total debt securities - held-to-maturity | $ | 255 | $ | 10 | $ | 246 | $ | 511 | $ | 510 | ||||||||||
Other assets | $ | — | $ | 493 | $ | — | $ | 493 | $ | 500 | ||||||||||
Long-term debt and other financing obligations | $ | — | $ | 29,455 | $ | — | $ | 29,455 | $ | 27,978 | ||||||||||
Nonfinancial assets and liabilities or financial assets and liabilities that are measured at fair value on a nonrecurring basis are subject to fair value adjustments only in certain circumstances, such as when the Company records an impairment. There were no significant fair value adjustments for these assets and liabilities recorded during the three months ended March 31, 2016 or 2015.
A reconciliation of the beginning and ending balances of assets measured at fair value on a recurring basis using Level 3 inputs is as follows:
March 31, 2016 | March 31, 2015 | |||||||||||||||||||||||
(in millions) | Debt Securities | Equity Securities | Total | Debt Securities | Equity Securities | Total | ||||||||||||||||||
Balance at beginning of period | $ | 98 | $ | 402 | $ | 500 | $ | 74 | $ | 310 | $ | 384 | ||||||||||||
Purchases | 4 | 12 | 16 | 4 | 4 | 8 | ||||||||||||||||||
Sales | (7 | ) | (2 | ) | (9 | ) | — | (1 | ) | (1 | ) | |||||||||||||
Net unrealized gains (losses) in accumulated other comprehensive income | 3 | (6 | ) | (3 | ) | 1 | (5 | ) | (4 | ) | ||||||||||||||
Net realized (losses) gains in investment and other income | — | (16 | ) | (16 | ) | — | 1 | 1 | ||||||||||||||||
Balance at end of period | $ | 98 | $ | 390 | $ | 488 | $ | 79 | $ | 309 | $ | 388 | ||||||||||||
4. Medicare Part D Pharmacy Benefits
The Condensed Consolidated Balance Sheets include the following amounts associated with the Medicare Part D program:
March 31, 2016 | December 31, 2015 | |||||||||||||||||||||||
(in millions) | Subsidies | Drug Discount | Risk-Share | Subsidies | Drug Discount | Risk-Share | ||||||||||||||||||
Other current receivables | $ | 1,356 | $ | 242 | $ | — | $ | 1,703 | $ | 423 | $ | — | ||||||||||||
Other policy liabilities | — | 34 | 527 | — | 58 | 496 | ||||||||||||||||||
See Note 2 of Notes to the Consolidated Financial Statements in Part II, Item 8, “Financial Statements” in the 2015 10-K for further detail on Medicare Part D.
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5. Other Current Receivables
The Company’s pharmacy care services businesses contract with pharmaceutical manufacturers, some of which provide rebates based on use of the manufacturers’ products by its affiliated and non-affiliated clients. As of March 31, 2016 and December 31, 2015, total pharmaceutical manufacturer rebates receivable included in other receivables in the Condensed Consolidated Balance Sheets amounted to $2.8 billion and $2.6 billion, respectively. See Note 2 of Notes to the Consolidated Financial Statements in Part II, Item 8, “Financial Statements” in the 2015 10-K for more information on the Company’s pharmaceutical manufacturer rebates.
6. Medical Costs Reserve Development
Favorable medical cost reserve development was $360 million and $140 million for the three months ended March 31, 2016 and 2015, respectively. In both periods, favorable development was driven by a number of individual factors that were not material.
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7. Commercial Paper and Long-Term Debt
Commercial paper, term loan and senior unsecured long-term debt consisted of the following:
March 31, 2016 | December 31, 2015 | |||||||||||||||||||||||
(in millions, except percentages) | Par Value | Carrying Value | Fair Value | Par Value | Carrying Value (a) | Fair Value | ||||||||||||||||||
Commercial paper | $ | 3,702 | $ | 3,702 | $ | 3,702 | $ | 3,987 | $ | 3,987 | $ | 3,987 | ||||||||||||
Floating rate term loan due July 2016 | 1,500 | 1,500 | 1,500 | 1,500 | 1,500 | 1,500 | ||||||||||||||||||
5.375% notes due March 2016 | — | — | — | 601 | 605 | 606 | ||||||||||||||||||
1.875% notes due November 2016 | 400 | 400 | 403 | 400 | 400 | 403 | ||||||||||||||||||
5.360% notes due November 2016 | 95 | 95 | 97 | 95 | 95 | 98 | ||||||||||||||||||
Floating rate notes due January 2017 | 750 | 749 | 751 | 750 | 749 | 751 | ||||||||||||||||||
6.000% notes due June 2017 | 441 | 455 | 467 | 441 | 458 | 469 | ||||||||||||||||||
1.450% notes due July 2017 | 750 | 749 | 754 | 750 | 749 | 750 | ||||||||||||||||||
1.400% notes due October 2017 | 625 | 624 | 627 | 625 | 624 | 624 | ||||||||||||||||||
6.000% notes due November 2017 | 156 | 162 | 168 | 156 | 162 | 168 | ||||||||||||||||||
1.400% notes due December 2017 | 750 | 751 | 753 | 750 | 751 | 748 | ||||||||||||||||||
6.000% notes due February 2018 | 1,100 | 1,112 | 1,194 | 1,100 | 1,114 | 1,196 | ||||||||||||||||||
1.900% notes due July 2018 | 1,500 | 1,495 | 1,523 | 1,500 | 1,494 | 1,505 | ||||||||||||||||||
1.700% notes due February 2019 | 750 | 747 | 756 | — | — | — | ||||||||||||||||||
1.625% notes due March 2019 | 500 | 502 | 504 | 500 | 502 | 494 | ||||||||||||||||||
2.300% notes due December 2019 | 500 | 509 | 508 | 500 | 499 | 502 | ||||||||||||||||||
2.700% notes due July 2020 | 1,500 | 1,494 | 1,558 | 1,500 | 1,493 | 1,516 | ||||||||||||||||||
3.875% notes due October 2020 | 450 | 464 | 487 | 450 | 452 | 476 | ||||||||||||||||||
4.700% notes due February 2021 | 400 | 424 | 452 | 400 | 413 | 438 | ||||||||||||||||||
2.125% notes due March 2021 | 750 | 744 | 757 | — | — | — | ||||||||||||||||||
3.375% notes due November 2021 | 500 | 516 | 534 | 500 | 500 | 517 | ||||||||||||||||||
2.875% notes due December 2021 | 750 | 778 | 779 | 750 | 753 | 760 | ||||||||||||||||||
2.875% notes due March 2022 | 1,100 | 1,097 | 1,140 | 1,100 | 1,059 | 1,099 | ||||||||||||||||||
3.350% notes due July 2022 | 1,000 | 994 | 1,064 | 1,000 | 994 | 1,023 | ||||||||||||||||||
0.000% notes due November 2022 | 15 | 11 | 12 | 15 | 10 | 11 | ||||||||||||||||||
2.750% notes due February 2023 | 625 | 635 | 636 | 625 | 611 | 613 | ||||||||||||||||||
2.875% notes due March 2023 | 750 | 810 | 770 | 750 | 781 | 742 | ||||||||||||||||||
3.750% notes due July 2025 | 2,000 | 1,985 | 2,155 | 2,000 | 1,985 | 2,062 | ||||||||||||||||||
3.100% notes due March 2026 | 1,000 | 994 | 1,023 | — | — | — | ||||||||||||||||||
4.625% notes due July 2035 | 1,000 | 991 | 1,116 | 1,000 | 991 | 1,038 | ||||||||||||||||||
5.800% notes due March 2036 | 850 | 837 | 1,081 | 850 | 838 | 1,003 | ||||||||||||||||||
6.500% notes due June 2037 | 500 | 491 | 674 | 500 | 492 | 628 | ||||||||||||||||||
6.625% notes due November 2037 | 650 | 640 | 896 | 650 | 641 | 829 | ||||||||||||||||||
6.875% notes due February 2038 | 1,100 | 1,074 | 1,544 | 1,100 | 1,076 | 1,439 | ||||||||||||||||||
5.700% notes due October 2040 | 300 | 295 | 377 | 300 | 296 | 348 | ||||||||||||||||||
5.950% notes due February 2041 | 350 | 345 | 454 | 350 | 345 | 416 | ||||||||||||||||||
4.625% notes due November 2041 | 600 | 588 | 669 | 600 | 588 | 609 | ||||||||||||||||||
4.375% notes due March 2042 | 502 | 483 | 540 | 502 | 483 | 493 | ||||||||||||||||||
3.950% notes due October 2042 | 625 | 606 | 629 | 625 | 606 | 582 | ||||||||||||||||||
4.250% notes due March 2043 | 750 | 733 | 790 | 750 | 734 | 728 | ||||||||||||||||||
4.750% notes due July 2045 | 2,000 | 1,971 | 2,293 | 2,000 | 1,971 | 2,107 | ||||||||||||||||||
Total commercial paper, term loan and long-term debt | $ | 33,586 | $ | 33,552 | $ | 36,137 | $ | 31,972 | $ | 31,801 | $ | 33,278 | ||||||||||||
(a) | In the first quarter of 2016, the Company adopted ASU 2015-03, retrospectively as required. See Note 1 of Notes to the Condensed Consolidated Financial Statements for more information on the adoption of ASU 2015-03. |
The Company’s long-term debt obligations also included $170 million and $164 million of other financing obligations, of which $58 million and $47 million were current as of March 31, 2016 and December 31, 2015, respectively.
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Commercial Paper and Bank Credit Facilities
Commercial paper consists of short-duration, senior unsecured debt privately placed on a discount basis through broker-dealers. As of March 31, 2016, the Company’s outstanding commercial paper had a weighted-average annual interest rate of 0.7%.
The Company has $3.0 billion five-year, $2.0 billion three-year and $1.0 billion 364-day revolving bank credit facilities with 23 banks, which mature in December 2020, December 2018, and November 2016, respectively. These facilities provide liquidity support for the Company’s commercial paper program and are available for general corporate purposes. As of March 31, 2016, no amounts had been drawn on any of the bank credit facilities. The annual interest rates, which are variable based on term, are calculated based on the London Interbank Offered Rate (LIBOR) plus a credit spread based on the Company’s senior unsecured credit ratings. If amounts had been drawn on the bank credit facilities as of March 31, 2016, annual interest rates would have ranged from 1.2% to 1.7%.
Debt Covenants
The Company’s bank credit facilities contain various covenants, including covenants requiring the Company to maintain a defined debt to debt-plus-shareholders’ equity ratio of not more than 55%. The Company was in compliance with its debt covenants as of March 31, 2016.
8. Commitments and Contingencies
Legal Matters
Because of the nature of its businesses, the Company is frequently made party to a variety of legal actions and regulatory inquiries, including class actions and suits brought by members, care providers, consumer advocacy organizations, customers and regulators, relating to the Company’s businesses, including management and administration of health benefit plans and other services. These matters include medical malpractice, employment, intellectual property, antitrust, privacy and contract claims and claims related to health care benefits coverage and other business practices.
The Company records liabilities for its estimates of probable costs resulting from these matters where appropriate. Estimates of costs resulting from legal and regulatory matters involving the Company are inherently difficult to predict, particularly where the matters: involve indeterminate claims for monetary damages or may involve fines, penalties or punitive damages; present novel legal theories or represent a shift in regulatory policy; involve a large number of claimants or regulatory bodies; are in the early stages of the proceedings; or could result in a change in business practices. Accordingly, the Company is often unable to estimate the losses or ranges of losses for those matters where there is a reasonable possibility or it is probable that a loss may be incurred.
Litigation Matters
California Claims Processing Matter. On January 25, 2008, the California Department of Insurance (CDI) issued an Order to Show Cause to PacifiCare Life and Health Insurance Company, a subsidiary of the Company, alleging violations of certain insurance statutes and regulations related to an alleged failure to include certain language in standard claims correspondence, timeliness and accuracy of claims processing, interest payments, care provider contract implementation, care provider dispute resolution and other related matters. Although the Company believes that CDI had never before issued a fine in excess of $8 million, CDI advocated a fine of approximately $325 million in this matter. The matter was the subject of an administrative hearing before a California administrative law judge beginning in December 2009, and in August 2013, the administrative law judge issued a nonbinding proposed decision recommending a fine of $11.5 million. The California Insurance Commissioner rejected the administrative law judge’s recommendation and on June 9, 2014, issued his own decision imposing a fine of approximately $174 million. On July 10, 2014, the Company filed a lawsuit in California state court challenging the Commissioner’s decision. On September 8, 2015, in the first phase of that lawsuit, the California state court issued an order invalidating certain of the regulations the Commissioner had relied upon in issuing his decision and penalty. The Company cannot reasonably estimate the range of loss, if any, that may result from this matter given the procedural status of the dispute, the wide range of possible outcomes, the legal issues presented (including the legal basis for the majority of the alleged violations), the inherent difficulty in predicting a regulatory fine in the event of a remand, and the various remedies and levels of judicial review that remain available to the Company.
Government Investigations, Audits and Reviews
The Company has been involved or is currently involved in various governmental investigations, audits and reviews. These include routine, regular and special investigations, audits and reviews by the Centers for Medicare and Medicaid Services (CMS), state insurance and health and welfare departments, the Brazilian national regulatory agency for private health insurance and plans (the Agência Nacional de Saúde Suplementar), state attorneys general, the Office of the Inspector General, the Office of Personnel Management, the Office of Civil Rights, the Government Accountability Office, the Federal Trade
14
Commission, U.S. Congressional committees, the U.S. Department of Justice, the SEC, the Internal Revenue Service, the U.S. Drug Enforcement Administration, the Brazilian federal revenue service (the Secretaria da Receita Federal), the U.S. Department of Labor, the Federal Deposit Insurance Corporation, the Defense Contract Audit Agency and other governmental authorities. Certain of the Company’s businesses have been reviewed or are currently under review, including for, among other matters, compliance with coding and other requirements under the Medicare risk-adjustment model. The Company has produced documents, information and witnesses to the Department of Justice in cooperation with a current review of the Company’s risk-adjustment processes, including the Company’s patient chart review and related programs. CMS has selected certain of the Company’s local plans for risk adjustment data validation (RADV) audits to validate the coding practices of and supporting documentation maintained by health care providers and such audits may result in retrospective adjustments to payments made to the Company’s health plans.
The Company cannot reasonably estimate the range of loss, if any, that may result from any material government investigations, audits and reviews in which it is currently involved given the status of the reviews, the wide range of possible outcomes and inherent difficulty in predicting regulatory action, fines and penalties, if any, the Company’s legal and factual defenses and the various remedies and levels of judicial review available to the Company in the event of an adverse finding.
Guaranty Fund Assessments
Under state guaranty association laws, certain insurance companies can be assessed (up to prescribed limits) for certain obligations to the policyholders and claimants of impaired or insolvent insurance companies (including state health insurance cooperatives) that write the same line or similar lines of business. In 2009, the Pennsylvania Insurance Commissioner placed long term care insurer Penn Treaty Network America Insurance Company and its subsidiary (Penn Treaty), neither of which is affiliated with the Company, in rehabilitation and petitioned a state court for approval to liquidate Penn Treaty. In 2012, the court denied the liquidation petition and ordered the Insurance Commissioner to submit a rehabilitation plan. The court held a hearing in July 2015 to begin its consideration of the latest proposed rehabilitation plan. The hearing is scheduled to continue in 2016.
If the current proposed rehabilitation plan, which contemplates the partial liquidation of Penn Treaty, is approved by the court, the Company’s insurance entities and other insurers may be required to pay a portion of Penn Treaty’s policyholder claims through state guaranty association assessments. The Company continues to vigorously challenge the proposed rehabilitation plan. The Company is currently unable to estimate losses or ranges of losses because the Company cannot predict when or to what extent Penn Treaty will ultimately be liquidated, the amount of the insolvency, the amount and timing of any associated guaranty fund assessments or the availability and amount of any premium tax and other potential offsets.
9. Segment Financial Information
The Company’s four reportable segments are UnitedHealthcare, OptumHealth, OptumInsight and OptumRx. For more information on the Company’s segments see Part I, Item I, “Business” and Note 14 of Notes to the Consolidated Financial Statements in Part II, Item 8, “Financial Statements” in the 2015 10-K.
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The following table presents the reportable segment financial information:
Optum | ||||||||||||||||||||||||||||||||
(in millions) | UnitedHealthcare | OptumHealth | OptumInsight | OptumRx | Optum Eliminations | Optum | Corporate and Eliminations | Consolidated | ||||||||||||||||||||||||
Three Months Ended March 31, 2016 | ||||||||||||||||||||||||||||||||
Revenues - external customers: | ||||||||||||||||||||||||||||||||
Premiums | $ | 33,963 | $ | 848 | $ | — | ||||||||||||||||||||||||||