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Article by DailyStocks_admin    (04-22-08 06:09 AM)

The Daily Warren Buffett Stock is UNH. Berkshire Hathaway owns 6,000,000 shares. As of Dec 31,2007, this represents 0.51 percent of portfolio.

BUSINESS OVERVIEW

Overview

UnitedHealth Group Incorporated is a diversified health and well-being company, serving approximately 70 million Americans (the terms “we,” “our,” “us” or the “Company” used in this report refer to UnitedHealth Group Incorporated and our subsidiaries). Our focus is on enhancing the performance of the health system and improving the overall health and well-being of the people we serve and their communities. We work with approximately 560,000 physicians and other health care professionals, approximately 4,800 hospitals and other key partners to expand access to high quality health care. We help people get the care they need at an affordable cost, support the physician/patient relationship, and empower people with the information, guidance and tools they need to make personal health choices and decisions.

During 2007, we managed approximately $100 billion in aggregate health care spending on behalf of the constituents and consumers we served. Our primary focus is on improving the 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 professionals, 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 information; and health care resource organization and care facilitation to improve access to health and well-being services, simplify the health care experience, promote quality and make health care more affordable.

Our revenues are derived from premium revenues on risk-based products; fees from management, administrative, technology and consulting services; sales of a wide variety of products and services related to the broad health and well-being industry; and investment and other income. Until the fourth quarter of 2007, we conducted our business primarily through operating groups in the following segments:


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Health Care Services, which included our UnitedHealthcare, Ovations and AmeriChoice businesses;


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Uniprise;


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OptumHealth, which reflects the rebranding of Specialized Care Services during the third quarter of 2007; and


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Ingenix.

During the fourth quarter of 2007, we completed the transition to our new segment reporting structure which reflects how our chief operating decision maker now manages our business. Our new reporting structure has four reporting segments:


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Health Care Services, which now includes our Commercial Markets (UnitedHealthcare and Uniprise), Ovations and AmeriChoice businesses;


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OptumHealth;


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Ingenix; and


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Prescription Solutions (formerly included in the Ovations business).

For a discussion of our financial results by segment, see Item 7 “— Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Additional Information

UnitedHealth Group Incorporated was incorporated in January 1977 in Minnesota. Our executive offices are located at UnitedHealth Group Center, 9900 Bren Road East, Minnetonka, Minnesota 55343; our telephone number is (952) 936-1300.

You can access our website at www.unitedhealthgroup.com to learn more about our Company. From 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. 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 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.

Our transfer agent, Wells Fargo Shareowner Services, can help you with a variety of shareholder-related services, including change of address, lost stock certificates, transfer of stock to another person and other administrative services. You can write to our transfer agent at: Wells Fargo Shareowner Services, P.O. Box 64854, St. Paul, Minnesota 55164-0854, email stocktransfer@wellsfargo.com , or telephone (800) 468-9716 or (651) 450-4064.

DESCRIPTION OF BUSINESS SEGMENTS

HEALTH CARE SERVICES

Our Health Care Services segment consists of the following businesses: Commercial Markets (UnitedHealthcare and Uniprise), Ovations and AmeriChoice. The financial results of Commercial Markets, Ovations and AmeriChoice have been aggregated in the Health Care Services reporting segment due to their similar economic characteristics, products and services, types of customers, distribution methods and operational processes, and regulatory environment. These businesses also share significant common assets, including our contracted networks of physicians, health care professionals, hospitals and other facilities, information technology infrastructure and other resources.

Commercial Markets

UnitedHealthcare. UnitedHealthcare offers a comprehensive array of consumer-oriented health benefit plans and services for public sector and small and mid-sized private sector employers, and individuals nationwide. UnitedHealthcare facilitated access to health care services on behalf of nearly 15 million Americans as of December 31, 2007. 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 fixed service fee per individual served. These customers retain the risk of financing medical benefits for their employees and their dependents, while UnitedHealthcare provides coordination and facilitation of medical services, customer and health care professional services and access to a contracted network of physicians, hospitals and other health care professionals. Small employer groups are more likely to purchase risk-based products because they are less willing to bear a greater potential liability for health care expenditures. UnitedHealthcare also offers a variety of non-employer based insurance options for purchase by individuals, which are designed to meet the health coverage needs of these consumers and their families.

UnitedHealthcare offers its products through affiliates that are usually licensed as insurance companies or as health maintenance organizations (HMOs). UnitedHealthcare’s product strategy centers on several principles: consumer choice, broad access to health professionals, use of data and science to promote better outcomes, quality service and affordability. Integrated wellness programs and services help individuals make informed decisions, maintain a healthy lifestyle and optimize health outcomes by coordinating access to care services and providing personalized, targeted education and information services.

UnitedHealthcare arranges for discounted access to care through approximately 560,000 physicians and other health care professionals, and 4,800 hospitals across the United States. The consolidated purchasing capacity represented by the individuals UnitedHealth Group serves makes it possible for UnitedHealthcare to contract for cost-effective access to a large number of conveniently located care professionals. Directly or through UnitedHealth Group’s family of companies, UnitedHealthcare offers:


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A comprehensive range of benefit plans integrating medical, ancillary and alternative care products so customers can choose benefits that are right for them;


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Affordability across a broad set of price points and a wide product line, from offerings covering essential needs to comprehensive benefit plans, all of which offer access to our broad-based proprietary network of contracted physicians, hospitals and other health care professionals with economic benefits reflective of the aggregate purchasing capacity of our organization;


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Innovative clinical programs — built around an extensive clinical data set and the principles of evidence-based medicine;


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Consumer access to information about physician and hospital claims-based performance assessment through the UnitedHealth Premium program;


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Physician and facility access to performance feedback information to support continuous quality improvement;


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Care facilitation services that use several identification tools, including proprietary predictive technology to identify individuals with significant gaps in care and unmet needs or risks for potential health problems, and then facilitate appropriate interventions;


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Disease and condition management programs to help individuals address significant, complex disease states; and


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Convenient self-service tools for health transactions and information.

UnitedHealthcare’s regional and national access to broad, affordable and quality networks of health care professionals has advanced over the past several years, with significant increases in access to services throughout the United States. UnitedHealthcare has also organized health care alliances with select regional not-for-profit health plans to facilitate greater customer access and affordability.

We believe that UnitedHealthcare’s innovation distinguishes its product offerings from its competition. Its consumer-oriented health benefits and services 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 and coordination of care for people with chronic conditions. Data-driven networks and clinical management are organized around clinical lines of service such as behavioral health; cardiology; congenital heart disease; kidney disease; oncology; neuroscience; orthopedics; spine; women’s health; primary care and transplantation to provide consumers with the necessary resources and information to make more informed choices when managing their health. UnitedHealthcare also offers comprehensive and integrated pharmaceutical management services that achieve lower costs by using formulary programs that drive better unit costs for drugs, benefit designs that encourage consumers to use drugs that offer the best value and outcomes, and physician and consumer programs that support the appropriate use of drugs based on clinical evidence.

UnitedHealthcare’s distribution system consists primarily of brokers and direct and Internet marketing sales in the individual market; brokers in the small employer group market; and brokers and other consultant-based or direct sales for large employer and public sector groups. UnitedHealthcare’s direct distribution efforts are generally limited to the individual market, portions of the large employer group and public sector markets, and cross-selling of specialty products to existing customers.

Uniprise. Uniprise delivers health care and well-being services nationwide to large national employers, individual consumers and other health care organizations through two related business units: Uniprise Strategic Solutions (USS) and Definity Health. Each business unit works with other UnitedHealth Group businesses to deliver a complementary and integrated array of services. USS delivers strategic health and well-being solutions to large national employers. Definity Health provides consumer-driven health plans and services to employers and their employees. As of December 31, 2007, USS and Definity Health served approximately 11.1 million individuals.

Uniprise provides innovative and customized benefit solutions — supported by clinically integrated care coordination services, customized care engagement programs, wellness and preventive care programs, broad and appropriate access to health care professionals, negotiated cost savings and simplified, efficient administration —that offer meaningful financial value and promote quality health outcomes. Uniprise has the ability to link disparate service and affordability solutions across the United States through a single and scalable system infrastructure, providing a unique competitive advantage in the national employer services business.

USS provides comprehensive and customized administrative, benefits and service solutions for large employers and other organizations with more than 5,000 full-time employees in multiple locations. USS customers generally retain the risk of financing the medical benefits of their employees and their dependents and USS provides coordination and facilitation of medical services; transaction processing; consumer and health care professional services; and access to contracted networks of physicians, hospitals and other health care professionals for a fixed service fee per individual served. As of December 31, 2007, USS served 415 employers, including 175 of the Fortune 500 companies.

Definity Health provides innovative consumer health care solutions that enable consumers to take ownership and control of their health care benefits. Definity Health’s products include high-deductible consumer-driven benefit plans coupled with Health Reimbursement Accounts (HRAs) or Health Savings Accounts (HSAs), and are offered on a self-funded and fully insured basis. Definity Health is a national leader in consumer-driven health benefit programs and, as of December 31, 2007, its products were provided to approximately 23,000 group health plans across the UnitedHealth Group enterprise, including approximately 170 employers in the large group USS self-funded market.

Ovations

Ovations provides health and well-being services for individuals age 50 and older, addressing their unique needs for preventive and acute health care services as well as for services dealing with chronic disease and other specialized issues for older individuals. Ovations is one of a few enterprises fully dedicated to this market segment, providing products and services in all 50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, and the Commonwealth of the Northern Mariana Islands. Ovations participates nationally in the Medicare program, offering a wide-ranging spectrum of Medicare products, including Medigap products that supplement traditional fee-for-service coverage, more traditional health-plan-type programs under Medicare Advantage, Medicare Part D prescription drug coverage, and special offerings for beneficiaries who are chronically ill and/or Medicare and Medicaid dual-eligible.

Ovations has extensive capabilities and experience with distribution, including direct marketing to consumers on behalf of its key clients — AARP, the nation’s largest membership organization dedicated to the needs of people age 50 and over, state and U.S. government agencies and employer groups. Ovations also has distinct pricing, underwriting and clinical program management, and marketing capabilities dedicated to risk-based health products and services in the senior and geriatric markets. We currently have a number of contracts with Centers for Medicare & Medicaid Services (CMS), which primarily relate to the Medicare health benefit programs authorized under the 2003 Medicare Modernization Act. Beginning January 1, 2006, we began serving as a plan sponsor offering Medicare Part D prescription drug insurance coverage. In total, consolidated premium revenues from CMS were approximately 25% of our total consolidated revenues for the year ended December 31, 2007, most of which were generated by Ovations.

Secure Horizons. Secure Horizons provides health care coverage for seniors and other eligible Medicare beneficiaries primarily through the Medicare Advantage program administered by CMS. Secure Horizons offers Medicare Advantage HMO, preferred provider organization (PPO), Special Needs Plans, Point-of-Service (POS) plans, and Private-Fee-for-Service plans. Under the Medicare Advantage programs, Secure Horizons provides health insurance coverage to eligible Medicare beneficiaries in exchange for a fixed monthly premium per member from CMS that varies based on the geographic areas in which members reside, demographic factors such as age, gender, and institutionalized status, and the health status of the individual. Most products are offered under the “AARP Medicare Complete provided through Secure Horizons” brand name. Secure Horizons offers Medicare Advantage products in all 50 states. As of December 31, 2007, Secure Horizons had approximately 1.3 million enrolled individuals in its Medicare Advantage products.

Ovations Part D. Ovations provides the Medicare prescription drug benefit (Part D) to beneficiaries throughout the United States and its territories. Among the several Part D plans it offers, Ovations provides Medicare Part D coverage plans with the AARP brand. Ovations provides Part D drug coverage through its Medicare Advantage program, Special Needs Plans (covering individuals who live in an institutional long-term care setting, dually eligible or individuals with severe or disabling chronic conditions) and stand-alone Part D plans. As of December 31, 2007, Ovations had enrolled approximately 6.0 million members in the Part D program, including approximately 4.7 million in the stand-alone Part D plans and approximately 1.3 million in Medicare Advantage plans incorporating Part D coverage.

Insurance Solutions. Insurance Solutions 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 provides standardized Medicare supplement and hospital indemnity insurance from its insurance company affiliates to approximately 3.8 million AARP members. Additional Ovations services include a nurse healthline service, a lower cost standardized Medicare supplement offering that provides consumers with a national hospital network, 24-hour access to health care information, and access to discounted health services from a network of physicians.

Evercare. Evercare is one of the nation’s leaders in offering complete, individualized care planning and care benefits for aging, disabled and chronically ill individuals. Evercare serves approximately 195,000 people (including 145,000 with Medicare Advantage) across the nation in long-term care settings including nursing homes, community-based settings and private homes, as well as through hospice and palliative care. Evercare offers services through innovative care management and clinical programs.

Evercare integrates federal, state and private funding through a continuum of products from Special Needs Plans and long-term care Medicaid programs to hospice care, and serves people in 38 markets in home, community and nursing home settings. These services are provided primarily through nurse practitioners, nurses and care managers. Evercare operated Special Needs Plans in 37 states as of December 31, 2007.

Evercare Solutions for Caregivers is a comprehensive eldercare service program providing service coordination, consultation, claim management and information resources nationwide. Proprietary, automated medical record software enables the Evercare clinical care teams to capture and track patient data and clinical encounters, creating a comprehensive set of coherent care information that bridges across home, hospital and nursing home care settings for high-risk populations. Evercare also operates hospice and palliative care programs in ten states (14 markets).

AmeriChoice

AmeriChoice provides network-based health and well-being services to beneficiaries of State Medicaid Children’s Health Insurance Programs (SCHIP), and other government-sponsored health care programs.

AmeriChoice provides health insurance coverage to eligible Medicaid beneficiaries in exchange for a fixed monthly premium per member from the applicable state. At December 31, 2007, AmeriChoice provided services to approximately 1.7 million individuals in 16 states. AmeriChoice also offers government agencies a number of diverse management service programs — including clinical care, consulting and management, pharmacy benefit services and administrative and technology services — to help them effectively administer their distinct health care delivery systems and benefits for individuals in their programs. AmeriChoice also contracts with CMS for the provision of Special Needs Plans serving individuals dually eligible for Medicaid and Medicare services. These programs are primarily organized toward enrolling individuals who dually qualify for Medicaid and Medicare coverage in states where AmeriChoice operates its Medicaid health plans.

AmeriChoice’s approach is grounded in its belief that health care cannot be provided effectively without considering all of the factors — social, economic, environmental, and physical — that affect a person’s life. AmeriChoice coordinates resources among family members, physicians, other health care professionals and government and community-based agencies and organizations to provide continuous and effective care. For members, this means that the AmeriChoice Personal Care Model offers them a holistic approach to health care, emphasizing practical programs to improve their living circumstances as well as quality medical care and treatment in accessible, culturally sensitive, community-oriented settings. For example, AmeriChoice’s disease management and outreach programs focus on high-prevalence and debilitating illnesses such as hypertension and cardiovascular disease, asthma, sickle cell disease, diabetes, Human Immunodeficiency Virus/Acquired Immune Deficiency Syndrome (HIV/AIDS), cancer and high-risk pregnancy. Several of these programs have been developed by AmeriChoice with the help of leading researchers and clinicians at academic medical centers and medical schools.

For physicians, the AmeriChoice Personal Care Model means assistance with coordination of their patients’ care. AmeriChoice utilizes sophisticated technology to monitor preventive care interventions and evidence-based treatment protocols to support care management. AmeriChoice operates advanced and unique pharmacy administrative services — including benefit design, generic drug programs, drug utilization review and preferred drug list development — to optimize the use of appropriate quality pharmaceuticals and concurrently manage pharmacy expenditures to levels appropriate to the specific clinical situations. For state customers, the AmeriChoice Personal Care Model means increased access to care and improved quality for their beneficiaries, in a measurable system that reduces their administrative burden and lowers their costs.

AmeriChoice considers a variety of factors in determining in which state programs to participate and on what basis, including the state’s experience and consistency of support for its Medicaid program in terms of service innovation and funding, the population base in the state, the willingness of the physician/provider community to participate with the AmeriChoice Personal Care Model, and the presence of community-based organizations that can partner with AmeriChoice to meet the needs of its members. Using these criteria, AmeriChoice entered three new markets in 2006, expanded in one existing market in 2007, and is examining several others. AmeriChoice is also a subcontractor for the Healthy Indiana Plan, a health care reform plan designed to increase access to health care benefits for Indiana residents.

OPTUMHEALTH

OptumHealth reaches approximately 58 million individuals with its diversified offering of health, financial and ancillary benefit services and products that assist consumers in navigating the health care system and accessing services, support their emotional health, provide ancillary insurance benefits and facilitate the financing of health care services through account-based programs. OptumHealth seeks to simplify the consumer health care experience and facilitate the efficient and effective delivery of care. Its capabilities can be deployed individually or integrated to provide comprehensive, consumer-focused health and financial well-being solutions.

OptumHealth’s simple, modular service designs can be easily integrated to meet varying health plan, employer and consumer needs at a wide range of price points. OptumHealth offers its products on an administrative fee basis where it manages and administers benefit claims for self-insured customers in exchange for a fixed fee per individual served, and on a risk basis, where OptumHealth assumes responsibility for health care and income replacement costs in exchange for a fixed monthly premium per individual served. For its financial services offerings, OptumHealth charges fees and earns investment income on managed funds.

During 2007, OptumHealth began marketing most of its products under a single brand. Its products are distributed through the three strategic markets that it serves: the employer market for both UnitedHealth Group customers and unaffiliated parties; the payer market for Health Care Services health plans, independent health plans, third-party administrators and reinsurers; and the public sector market for Medicare and state Medicaid offerings through partnerships with Ovations, AmeriChoice and other intermediaries. Approximately 50 percent of the consumers that OptumHealth serves receive their major medical health benefits from a source other than UnitedHealth Group.

OptumHealth is organized into four major groups: Care Solutions, Behavioral Solutions, Specialty Benefits and Financial Services (Exante).

Care Solutions

Care Solutions serves approximately 40 million consumers through tailored programs designed to improve health and well-being, and improve clinical outcomes. It delivers its services through the use of evidenced-based best practices, technology and specially trained nurses. Its clinically focused product portfolio includes programs focused on disease management, care advocacy, complex condition management, such as cancer, solid organ transplant, infertility and congenital heart disease, and wellness. To support its complex condition management programs, Care Solutions negotiates competitive rates with centers that have been designated as “Centers of Excellence” based on their satisfaction of clinical standards, including patient volumes and outcomes, medical team credentials and experience, and patient and family support services.

Care Solutions also provides benefit administration, and clinical and network management for chiropractic, physical therapy, occupational therapy and other complementary and alternative care services through its national network consisting of approximately 22,000 chiropractors, 15,000 physical and occupational therapists and 7,000 complementary and alternative health professionals. Care Solutions also offers treatment decision support, consumer health information, private health portals and consumer health marketing services to address daily living concerns and assist individuals in accessing the health care system.

Behavioral Solutions

Behavioral Solutions serves 35 million individuals with its employee assistance programs, work/life offerings, and clinically driven behavioral health, substance abuse and psychiatric disability management programs. Its consumer-focused programs employ predictive modeling, outcomes management, supportive coaching and evidenced-based best practices to assist individuals in managing stress, depression, substance abuse and other personal challenges while seeking to increase overall health, wellness and productivity. Its outreach programs promote timely detection and intervention to optimize the treatment for people struggling with both psychological and medical conditions. Behavioral Solutions customers have access to a national network of approximately 80,000 clinicians and counselors and 3,000 facilities.

Specialty Benefits

Specialty Benefits includes dental, vision, life, critical illness, short-term disability and stop loss product offerings delivered through an integrated platform that enhances efficiency and effectiveness. Approximately 13.5 million individuals receive their vision benefits through Specialty Benefits and its network of approximately 30,000 vision professionals in private and retail settings. Dental benefit management and related services are provided to six million consumers through a network of approximately 85,000 dentists. Stop-loss insurance is marketed throughout the United States through a network of third-party administrators, brokers and consultants.

Financial Services (Exante)

Financial services were provided through Exante Bank and Exante Financial Services in 2007. During the first half of 2008, we expect to change their name to OptumHealth Bank and OptumHealth Financial Services. Financial services provides health-based financial services for consumers, employers, payers and health care professionals. These financial services include HSAs, HRAs, and Flexible Spending Accounts offered through Exante Bank, a Utah-chartered industrial bank. Financial Services’ health benefit card programs include electronic systems for verification of benefit coverage and eligibility. Financial Services also provides electronic payment and statement services for health care professionals and payers.

INGENIX

Ingenix offers database and data management services, software products, publications, consulting services, outsourced services and pharmaceutical consulting and research services in conjunction with the development of pharmaceutical products on a nationwide and international basis. As of December 31, 2007, Ingenix’s customers include approximately 5,000 hospitals, 240,000 physicians, 1,500 payers and intermediaries, 245 Fortune 500 companies, 250 life sciences companies, and 150 government entities, as well as other UnitedHealth Group businesses.

Ingenix is engaged in the simplification of health care administration with information and technology. Ingenix helps customers accurately and efficiently document, code and bill for the delivery of care services. It also sells reference materials and coding guides that health care professionals use to bill payers for their services. Ingenix uses data to help advance transparency on cost and quality and help customers streamline their processes to make health care more efficient. Ingenix is a leader in contract research services, and pharmacoeconomics, outcomes, drug safety and epidemiology research through its i3 businesses.

Ingenix’s products and services are sold primarily through a direct sales force focused on specific customers and market segments across the pharmaceutical, biotechnology, employer, government, hospital, physician, payer and property and casualty insurance market segments. Ingenix’s products are also supported and distributed through an array of alliance and business partnerships with other technology vendors, who integrate and interface its products with their applications.

The Ingenix companies are divided into two groups: Information Services and i3.

Information Services

Information Services’ diverse product offerings help clients strengthen health care administration and advance health care outcomes. These products include health care utilization reporting and analytics, physician clinical performance benchmarking, clinical data warehousing, analysis and management responses for medical cost trend management, physician practice revenue cycle management, revenue cycle management for payer and health care professional organizations, decision-support portals for evaluation of health benefits and treatment options, and claims management tools for administrative error and cost reduction. Ingenix uses proprietary software applications that manage clinical and administrative data across diverse information technology environments. Ingenix also uses proprietary predictive algorithmic applications to help clients detect and act on repetitive health care patterns in large data sets. Ingenix offers comprehensive Electronic Data Interchange (EDI) services helping health care professionals and payers decrease costs of claims transmission, payment and reimbursement through both networked and direct connection services.

Information Services provides other services on an outsourced basis, such as verification of physician credentials, health care professional directories, Healthcare Effectiveness Data and Information Set reporting, and fraud and abuse detection and prevention services. Ingenix also offers consulting services, including actuarial and financial advisory work through its Ingenix Consulting division and health care policy research, implementation, strategy and management consulting through its subsidiary, The Lewin Group, as well as product development, health care professional contracting and medical policy management. Ingenix also provides health care IT consulting for health care professionals. Ingenix publishes print and electronic media products that provide customers with information regarding medical claims coding, reimbursement, billing and compliance issues.

i3

i3 helps to coordinate and manage clinical trials on a nationwide and international basis for products in development for pharmaceutical and biotechnology companies. i3’s focus is to help pharmaceutical and biotechnology customers effectively and efficiently get drug and medical device data to appropriate regulatory bodies and to improve health outcomes through integrated information, analysis and technology. i3’s capabilities and efforts focus on the entire range of product assessment, through commercialization of life-cycle management services — pipeline assessment, market access and product positioning, clinical trials, economic, epidemiology and safety and outcomes research. i3’s services include global contract research services, protocol development, investigator identification and training, regulatory assistance, project management, data management, biostatistical analysis, quality assurance, medical writing and staffing resource services. i3 delivers contract research services in 58 countries and is therapeutically focused on oncology, the central nervous system, respiratory and infectious diseases, and endocrinology. i3 uses comprehensive, science-based evaluation and analysis and benchmarking services to support pharmaceutical and biotechnology development.

PRESCRIPTION SOLUTIONS

Prescription Solutions was established as a reporting segment during the fourth quarter of 2007, and offers a comprehensive suite of integrated pharmacy benefit management (PBM) services to approximately 10.3 million people, through approximately 64,000 retail network pharmacies and two mail service facilities as of December 31, 2007. Prescription Solutions processed approximately 300 million retail and mail service claims during 2007. Prescriptions Solutions markets include Health Care Services health plans, external employer groups, union trusts, seniors (Part D, Secure Horizons and Evercare) and commercial health plans.

Prescription Solutions’ integrated PBM services include retail network pharmacy management, mail order pharmacy services, specialty pharmacy services, benefit design consultation, drug utilization review, formulary management programs, disease management and compliance and therapy management programs. Prescription Solutions’ products and services are designed to enhance clinical outcomes with appropriate financial results for those served. The fulfillment capabilities of Prescription Solutions are an important strategic component in serving commercial and senior business, including Part D members.

Prescription Solutions’ distribution system consists primarily of brokers and other consultant-based or direct sales. Effective January 1, 2007, Prescription Solutions began providing PBM services to an additional four million Ovations Medicare Advantage and stand-alone Part D members. Prescription Solutions’ growing Consumer Health Products business distributes diabetic testing supplies and other specialized medical supplies, over the counter items, vitamins, minerals and supplements directly to members homes.

Most of our health and well-being services are regulated by federal and state regulatory agencies that generally have discretion to issue regulations and interpret and enforce laws and rules. This regulation can vary significantly from jurisdiction to jurisdiction. Changes in applicable laws, regulations and rules are continually being considered, and the interpretation of existing laws and rules also may change periodically. New laws, regulations and rules, or changes in the interpretation of existing laws, regulations and rules, could negatively impact our business. We believe we are in compliance in all material respects with the applicable laws, regulations and rules.

Federal Regulation

We are subject to various levels of federal regulation. Ovations and AmeriChoice Medicare and Medicaid businesses are regulated by CMS. CMS has the right to audit performance to determine compliance with CMS contracts and regulations and the quality of care being given to Medicare beneficiaries. Our Health Care Services segment, through AmeriChoice and Ovations, also has Medicaid and SCHIP contracts that are subject to federal regulations regarding services to be provided to Medicaid enrollees, payment for those services, and other aspects of these programs. There are many regulations surrounding Medicare and Medicaid compliance. In addition, the portion of Ingenix’s business that includes clinical research is subject to regulation by the U.S. Food and Drug Administration.

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. HIPAA requires guaranteed health care coverage for small employers and certain eligible individuals. It also requires guaranteed renewability for employers and individuals and limits exclusions based on preexisting conditions. Federal regulations promulgated pursuant to HIPAA include minimum standards for electronic transactions and code sets, and for the privacy and security of protected health information. Standards for national health care provider identifiers are currently being implemented by regulators.

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 set of laws and regulations subject to periodic interpretation by the U.S. 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. Regulations established by the U.S. Department of Labor provide additional rules for claims payment and member appeals under health care plans governed by ERISA. Additionally, some states require licensure or registration of companies providing third-party claims administration services for health care plans.

FDIC. The Federal Deposit Insurance Corporation (FDIC) has federal regulatory and supervisory authority over Exante Bank and performs annual examinations to ensure that the bank is operating in accordance with federal safety and soundness requirements. In addition to such annual examinations, the FDIC performs periodic examinations of the bank’s compliance with applicable federal banking statutes, regulations and agency guidelines. In the event of unfavorable examination results, the bank could be subjected to increased operational expenses, governmental oversight and monetary penalties.

COMPENSATION

Elements of the Compensation Program

The elements of our executive compensation program are base salary, annual cash incentive awards, long-term cash incentive awards, long-term equity awards, standard benefits and post-employment compensation (in the event of a triggering event under the applicable employment agreement). In considering and determining the amount, the form, and the balance among the elements, the Company considered the following guidelines in 2006:


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Combined base pay and annual cash incentive targets will generally be positioned at or slightly above the median at peer group companies. Because annual cash incentive payments are specifically tied to earnings performance, exceptional performance for our shareholders will result in incentive payments that are above targeted levels.

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Long-term incentives consisting of cash and equity will result in a targeted total compensation opportunity that is above the median at peer group companies in order to further promote a performance-based culture in stronger alignment with shareholders.


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The differential between the cash compensation of the CEO and the other most senior officers of the Company should be reduced.


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Stock-settled SARs are now our preferred, but not exclusive, form of equity compensation because they closely align our executives’ interests with those of our shareholders.


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Traditional employee benefits remain at the lower range of our peer group companies for senior executives.


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Perquisites will be provided sparingly, if at all.

The Compensation Committee believes that the substantial majority of the total compensation opportunity of executive officers should be at-risk and payable only in the event of performance by executives that benefits the Company’s shareholders and other constituents. In 2006, annual and long-term cash incentive opportunities and equity-based compensation constituted approximately 80% of the total compensation opportunity of our executive officers.

Base Salary

Base salary is provided to recognize individual performance and competence. The base salary level for each senior executive, including the named executive officers, is determined by reference to market comparisons, internal comparability with salaries of other executives, and the executive’s level of responsibility, experience and knowledge. Base salary decreases as a percentage of total compensation as an executive’s responsibilities increase. The employment agreements entered into with our current named executive officers generally reflect base salary levels that approximate the median level at our peer group companies.

The Compensation Committee approves base salary for the CEO (and did so for the COO when Mr. Hemsley served in that capacity) and approves base salaries for the other executive officers after considering recommendations made by the CEO.

Annual Cash Incentive Awards

The Compensation Committee makes annual cash incentive awards to executive officers, including the named executive officers, under our shareholder-approved Executive Incentive Plan. Annual cash bonuses are paid if and to the extent our Company meets the financial performance goals approved by the Compensation Committee for that year. The amount of annual cash bonuses is determined by means of an annual incentive target percentage that is approved by the Compensation Committee at the beginning of each year. This element is included in the executive compensation program because it focuses the leadership of our Company on achieving annual financial goals that are indicative of improved year-over-year performance, constitutes at-risk compensation payable only if the goals are achieved, and represents common market practice.

The Executive Incentive Plan specifies that the performance goal to be satisfied each year shall be expressed in terms of our earnings per share (EPS), reflecting the Compensation Committee’s belief that growth in EPS closely correlates to growth in shareholder value and is the gating factor that must be met before any annual cash incentive award is payable. As discussed in greater detail below, the Compensation Committee uses other performance metrics to determine the actual annual cash incentive amounts payable to our executive officers.

At the beginning of each year, management recommends, and the Compensation Committee approves, an initial EPS goal that must be achieved before any bonus amount is paid to a named executive officer, and a second EPS goal that must be achieved for a bonus of up to the maximum amount to be payable. For EPS performance between the two EPS goals, a bonus of up to the individual target amount may be paid. For EPS performance above the second EPS goal, an award of up to the maximum annual cash incentive target amount is payable. In recent years, the Compensation Committee has approved the second EPS goal at an amount equal to the EPS guidance our Company provides to investors at the beginning of the year, and an initial EPS goal at 90% of the second EPS goal.

Although the Executive Incentive Plan permits a theoretical maximum individual annual cash incentive payout equal to 1% of our Company’s net earnings (as defined in the plan), the Compensation Committee has generally used its discretion to limit the maximum bonus amount for each executive officer to 200% of his or her target bonus amount. The Compensation Committee routinely, exercises discretion to reduce (but not increase) the amount of any annual incentive otherwise payable under the terms of the Executive Incentive Plan. In exercising this discretion for executive officers, the Compensation Committee typically considers a variety of factors, including financial metrics such as revenue growth or operating income at either enterprise-wide or business unit levels, return on assets employed, progress against strategic initiatives, individual performance measures and, for executive officers other than the CEO, the CEO’s recommendations. The Compensation Committee does not assign specific weightings to these factors. The discretionary adjustments allow the Compensation Committee to factor individual performance into its annual cash incentive payout decisions and thereby reward individual performance that furthers our Company’s stated mission.

Long-Term Cash Incentive Awards

The Compensation Committee makes long-term cash incentive awards to a select group of senior executives, including the named executive officers. These awards are also made under the Executive Incentive Plan. Only those senior executives designated by the Compensation Committee whose positions and responsibilities enable them to have the greatest impact on the long-term performance of our Company are eligible for these long-term cash incentive awards. We include a long-term cash incentive component in the executive compensation program because it directly links the compensation of the senior leadership of our Company with long-term Company financial performance, motivates the most senior executives to sustain superior levels of performance, and constitutes additional at-risk compensation payable only if the specified goals are achieved.

The Executive Incentive Plan specifies that the performance goal or goals to be satisfied during any multi-year performance period shall be expressed in terms of one or more financial measures such as revenue growth, return on equity, operating cash flows, EPS and operating margin, each of which may be expressed either as an absolute standard or a comparative measure with respect to other companies, and applied at enterprise-wide or business unit levels. For these purposes, the Compensation Committee has elected to use a three-year performance period and a financial measure of total Company EPS over each three-year period.

This plan provides that the Compensation Committee shall adjust the Company’s reported EPS for the impact of changes in accounting principles, extraordinary items and unusual or non-recurring losses.

Since the adoption of the plan in 2002, such an adjustment has only occurred once, in connection with the Company’s adoption in 2006 of Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (FAS 123R), to provide comparability over the periods.

At the beginning of each year, upon recommendation by management, the Compensation Committee approves the participants for the upcoming performance period and an EPS goal that must be achieved before any long-term cash incentive amount is paid. For the 2004-2006 performance period (incentives paid in 2007), in addition to approving an initial EPS goal that had to be achieved before any long-term cash incentive amount could be paid, the Compensation Committee also approved a second EPS goal that had to be achieved for the maximum long-term cash incentive amount to be payable. For EPS performance between the two EPS goals, an award of up to the target long-term cash incentive amount could be paid. For EPS performance above the second EPS goal, an award of generally up to 200% of the executive’s long-term cash incentive target amount could be paid.

The Compensation Committee’s practice has been to set the long-term cash incentive target for each participating executive at 50% of that individual’s average base compensation over the three-year performance period. Although the Executive Incentive Plan permits a maximum individual long-term cash incentive payout in any given year equal to the lesser of 300% of a participant’s average base compensation or $10,000,000, the Compensation Committee’s practice generally has been to limit the maximum long-term individual incentive amount payable to 200% of the long-term cash incentive target amount payable. The Compensation Committee may also exercise discretion to reduce, but not increase, the amount of any long-term cash incentive amount otherwise payable under the terms of the Executive Incentive Plan. The Compensation Committee typically exercises this discretion in the same manner as described above under “Annual Cash Incentive Awards.”

Long-Term Equity Awards

All outstanding equity-based compensation awards to employees (other than equity awards assumed in connection with certain acquisitions) have been awarded under one of three equity-based compensation plans, the most recent of which, the 2002 Stock Incentive Plan, is the source of current awards. As compared to peer group companies, we have historically ascribed a significantly higher portion of the total compensation opportunity of our executives to equity-based compensation. By doing so, we provide to our executives a direct and substantial interest in the long-term performance of our Company’s stock, which we believe establishes the strongest and most direct alignment between the interests of our executives and our shareholders. We also believe that our emphasis on equity-based compensation has contributed to an entrepreneurial Company culture that has served our shareholders well in a highly competitive and rapidly evolving industry. We believe that the forms of equity-based compensation we have emphasized, stock options and stock-settled SARs, when combined with our stock ownership guidelines, align our executives’ interest with those of our shareholders. First, stock options and SARs deliver value to an executive only to the extent that our stock price increases after the date of grant. Then, our stock ownership guidelines serve to motivate our executives to maintain that value and further the long-term return to shareholders.

With the elimination at the beginning of 2006 of favorable accounting treatment that had been accorded to stock options, we have begun to favor stock-settled SARs over stock options because a SAR that is comparable in value to a stock option will ultimately result in a smaller number of shares being issued under our equity-based compensation plans. In addition to stock options and SARs, we have occasionally made awards of restricted stock, but typically only in situations where we are hiring an executive who is forfeiting significant amounts of equity-based incentives as a result of leaving his or her former employer. We favor the use of stock options or SARs over time-vested restricted stock because of their pay for performance features.

We generally grant stock options and SARs with a term of 10 years with typically 25% of the covered shares vesting and becoming exercisable on each of the first four anniversaries of the date of grant. The Compensation Committee believes the four-year vesting terms together with grants made in successive years helps create a long-term incentive and strikes an appropriate balance between the interests of the Company, our shareholders and the individual employee in terms of the incentive, value creation and compensatory aspects of these equity awards.

Employment Benefits

Subject to the exceptions discussed below, our executive officers receive the same welfare and retirement benefits that are generally made available to our employees. Consistent with our philosophy that the substantial majority of compensation should be performance-based, benefits provided have been limited and are below the median level of benefits provided at peer group companies. These benefits include a 401(k) retirement plan, an employee stock purchase plan, short- and long-term disability plans, term life insurance coverage, dental coverage and a health insurance plan. Our executive officers are required to pay higher premiums for their health insurance so that premiums will be more affordable for lesser paid employees. These benefits are provided to be competitive in the marketplace and are consistent with the philosophy of our broad-based benefit program.

In addition to the Company’s generally available benefits, commencing in 2007, the Company also provides each current named executive officer other than Mr. Hemsley and Ms. Quam a $2 million face value term life insurance policy and a long-term disability policy which covers 60% of his base salary in the event of a qualifying long-term disability, subject to the terms of the policy.

Executive officers may also participate in our Executive Savings Plan, which is a non-qualified, unfunded deferred compensation plan that permits an executive to defer receipt of up to 80% (100% prior to 2007) of his or her base salary and up to 100% of his or her annual and/or long-term cash incentives. This plan enables executives whose contributions to the Company’s 401(k) Plan are limited under applicable tax law to save additional amounts on a tax-deferred basis. We provide this plan to be consistent with competitive market practices. In addition, consistent with market practice, we provide a matching credit of up to 50% of amounts deferred at the time of each deferral, but this matching credit applies only to the first 6% of the executive’s base salary and annual cash incentive awards deferrals, and does not apply to deferrals of long-term performance awards or other special incentive awards. See the “2006 Nonqualified Deferred Compensation” table below for additional information regarding contributions, earnings and distributions for each named executive officer under the Executive Savings Plan.

During 2006, we terminated a self-insured executive catastrophic medical plan available to senior executives under which no benefits had ever been paid to any executive officer.

Perquisites

We do not provide perquisites such as security services, private jet services, financial planning services, club memberships, apartments, vacation homes, automobiles or drivers for personal travel to our executive officers. We had historically reimbursed executives for financial planning expenses, but eliminated that perquisite at the end of 2006. In October 2006, our Board adopted a corporate aircraft use policy which was amended in April 2007 to prohibit personal use of corporate aircraft by any executive. As a result of these changes, we have essentially eliminated most of the traditional corporate perquisites that are common in the market for senior executives at large public companies.

Post-Employment Payments and Benefits

The employment agreements with our current named executive officers provide for severance payments in connection with their termination of employment under various circumstances, typically termination by the Company without “cause” or in some cases by the executive for a “good reason.” Accordingly, our current named executive officers are not entitled to any cash payments upon a change in control of the Company, unless the change in control also results in termination of employment by the Company without “cause” or by the executive officer for a “good reason.” As discussed elsewhere in this Compensation Discussion and Analysis, during 2006, we made a number of changes in our policies applicable to post-employment payments and benefits, including the elimination of enhanced cash severance payments that were previously payable upon termination by the Company without “cause” or in some cases by the executive for “good reason” in connection with a change in control of the Company and elimination of excise tax gross up payments payable in connection with a change in control. We also reduced the amount and circumstances under which severance payments and benefits would be provided to Mr. Hemsley under his CEO employment agreement.

In April 2004, Mr. Hemsley and the Company entered into a supplemental executive retirement pay (SERP) agreement that provides him a lump sum payment upon his retirement. Although the provision and amount of this SERP benefit to Mr. Hemsley were consistent with comparable arrangements of senior executives of peer group companies, in light of the value conferred to Mr. Hemsley from previously granted stock options, the Company and Mr. Hemsley agreed, pursuant to the terms of his November 7, 2006 CEO employment agreement, to cap the amount of the SERP lump sum payment at $10.7 million, the amount vested and accrued as of May 1, 2006. Although common in the market for senior executives, our other current named executive officers do not have SERP benefits and, with the exception of pre-existing supplemental executive retirement plan obligations that we may assume as a result of acquisitions, we do not provide such benefits.

Our stock option, SAR and other equity-based incentive award agreements typically provide that the awards will become fully vested and exercisable if the executive’s employment ends due to death or disability, or if a change in control of the Company occurs. We adopted acceleration of the vesting of equity awards upon a change in control in 1994 to offer our executives greater protection in the context of a corporate restructuring. Our equity-award agreements also generally provide for continued vesting and exercisability during any period in which an executive receives severance and for continued exercisability of an award for a limited period of time after termination of employment for other reasons. In addition, certain equity awards granted from 2002 to 2005 also provide for continued vesting and exercisability for up to five years after retirement.

The circumstances under which severance and other post-employment payments and benefits will be made or provided and the amount of such payments and benefits are described in greater detail under “Potential Payments Upon Termination or Change-in-Control” below. We have provided these post-employment payments and benefits and severance payment triggers because they have enabled us to obtain specific post-employment non-competition, non-solicitation and non-disclosure obligations that we believe are of value to the Company and our shareholders.

MANAGEMENT DISCUSSION FROM LATEST 10K

Business Overview

UnitedHealth Group is a diversified health and well-being company, serving approximately 70 million Americans. Our focus is on enhancing the performance of the health system and improving the overall health and well-being of the people we serve and their communities. We work with health care professionals and other key partners to expand access to high quality health care. We help people get the care they need at an affordable cost, support the physician/patient relationship, and empower people with the information, guidance and tools they need to make personal health choices and decisions.

Through our diversified family of businesses, we leverage core competencies in advanced technology-based transactional capabilities; health care data, knowledge and information; and health care resource organization and care facilitation to make health care work better. We provide individuals with access to quality, cost-effective health care services and resources. We provide employers and consumers with excellent 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.

Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our Consolidated Financial Statements and Notes thereto included elsewhere in this Form 10-K.

2007 Financial Performance Highlights

UnitedHealth Group had strong results in 2007. The Company achieved growth across each of its reporting segments and generated net earnings of $4.7 billion, representing an increase of 12% over 2006. Other financial performance highlights include:


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Diluted net earnings per common share of $3.42, an increase of 15% over 2006.


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Consolidated revenues of $75.4 billion, an increase of 5% over 2006.


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Earnings from operations of $7.8 billion, up $865 million, or 12%, over 2006.


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Operating margin of 10.4%, up from 9.8% in 2006.


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Cash flows from operations of $5.9 billion, representing 126% of 2007 net earnings.

2007 Results Compared to 2006 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; product revenues; 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. Through our pharmacy benefit management (PBM) business, Prescription Solutions, revenues are derived from products sold and from administrative services. Product revenues also include sales of Ingenix syndicated content products.

Consolidated revenues in 2007 of $75.4 billion increased by $3.9 billion, or 5%, over 2006 driven primarily by rate increases on premium-based and fee-based services and growth in the total number of individuals served by Health Care Services.

Premium Revenues. Consolidated premium revenues totaled $68.8 billion in 2007, an increase of $3.1 billion, or 5%, over 2006. This increase was primarily driven by premium rate increases, partially offset by a decrease in the number of individuals served by our commercial risk-based products.

Premium revenues for Commercial Markets (UnitedHealthcare and Uniprise) in 2007 totaled $36.2 billion, an increase of $623 million, or 2%, over 2006. This increase was primarily due to average net premium rate increases of 7% to 8% on UnitedHealthcare’s renewing commercial risk-based products and due to premiums from businesses acquired since the beginning of 2006. This was partially offset by a 4% decrease in the number of individuals served by commercial risk-based products in 2007 primarily due to the Company’s internal pricing decisions in a competitive commercial risk-based pricing environment and the conversion of certain groups to commercial fee-based products. Ovations premium revenues in 2007 totaled $26.0 billion, an increase of $1.7 billion, or 7%, over 2006. The increase was driven primarily by an increase in individuals served by standardized Medicare supplement and Evercare products, and rate increases on Medicare Advantage products as well as continued growth in our Medicare Part D program. AmeriChoice premium revenues increased by $732 million, or 20%, over 2006 primarily due to an increase in the number of individuals served by Medicaid products as well as rate increases. The remaining premium revenue increase resulted primarily from membership growth and rate increases at OptumHealth, which contributed a premium revenue increase of 11% over 2006.

Service Revenues. Consolidated service revenues in 2007 totaled $4.6 billion, an increase of $340 million, or 8%, over 2006. This was driven primarily by a 38% increase in Ingenix service revenues due to new business growth in the health information and contract research businesses and from businesses acquired since the beginning of 2006. In addition, Commercial Markets service revenues increased due to a 3% increase in the number of individuals served under commercial fee-based arrangements during 2007, as well as annual rate increases.

Product Revenues. Consolidated product revenues in 2007 totaled $898 million, an increase of $161 million, or 22%, over 2006. The increase was driven by pharmacy sales growth at Prescription Solutions primarily due to providing prescription drug benefit services to an additional four million Ovations Medicare Advantage and Part D members.

Investment and Other Income. Investment and other income during 2007 totaled $1.1 billion, representing an increase of $273 million, or 31%, over 2006. Interest income increased by $239 million in 2007, driven by increased levels of cash and fixed-income investments, due in part to deposits held for certain government-sponsored programs during 2007 and the lack of share repurchase activity in the first two and a half months of 2007. Net realized gains on sales of investments were $38 million in 2007 and $4 million in 2006. We expect a slight decline in investment income in 2008 due to the declining interest rate environment in early 2008, as well as a comparatively lower level of invested asset balances expected in 2008.

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 81.2% in 2006 to 80.6% in 2007. This was primarily due to a decrease in the medical care ratio relating to Ovations which was partially offset by an increase in the commercial medical care ratio resulting from the Company’s internal pricing decisions in a competitive commercial risk-based pricing environment, as well as a shift from favorable medical cost development for UnitedHealthcare during 2006 to unfavorable medical cost development during 2007.

For 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, resulting from more complete claim information and other facts and circumstances, that are identified in the current year are included in total medical costs reported for the current fiscal year. Medical costs for 2007 included approximately $420 million of favorable medical cost development related to prior fiscal years. Medical costs for 2006 included approximately $430 million of favorable medical cost development related to prior fiscal years.

Medical costs for 2007 increased $2.1 billion, or 4%, to $55.4 billion, primarily due to an annual medical cost trend of 7% to 8% on commercial risk-based business due to medical cost inflation and increased utilization, as well as growth in Ovations Medicare programs, partially offset by a decrease in the number of individuals served by commercial risk-based products.

Operating Costs

The operating cost ratio (operating costs as a percentage of total revenues) for 2007 of 14.0% was consistent with 2006. The operating cost ratio reflected productivity gains from technology deployment and other cost management initiatives, offset by the effect of business mix change as fee-based businesses such as Ingenix increase in size and impact, as well as increased investment in technology, service and product enhancements; incremental marketing and advertising costs for Medicare Advantage products; and expenses in the first quarter of 2007 associated with the application of deferred compensation rules under Section 409A of the Internal Revenue Code (Section 409A) to our historical stock option practices, as described below.

Operating costs in 2007 totaled $10.6 billion, an increase of $602 million, or 6%, over 2006. This increase was primarily due to general operating cost inflation and was also impacted by the items discussed above.

Included in the operating costs for 2007 is $176 million ($112 million net of tax benefit) of expenses recorded in the first quarter of 2007 related to application of deferred compensation rules under Section 409A to our historical stock option practices. As part of our review of the Company’s historical stock option practices, we determined that certain stock options granted to individuals who were nonexecutive officer employees at the time of grant were granted with an exercise price that was lower than the closing price of our common stock on the applicable accounting measurement date, subjecting these individuals to additional tax under Section 409A. The Company elected to pay these individuals for the additional tax costs relating to such stock options exercised in 2006 and early 2007. For any outstanding stock options subject to additional tax under Section 409A that were granted to nonexecutive officer employees, the Company increased the exercise price and committed to make cash payments to these optionholders for their vested options based on the difference between the original stock option exercise price and the revised increased stock option exercise price. The payments will be made on a quarterly basis upon vesting of the applicable awards. The first payment of $110 million was made to optionholders in January 2008 for options vested through December 31, 2007. Aggregate future payments will be $38 million, assuming all applicable options vest during 2008 and 2009. If the modified stock options are subsequently exercised, the Company will recover these cash payments at that time from exercise proceeds at the revised increased stock option exercise prices.

The $176 million Section 409A charge includes $87 million of expense ($55 million net of tax benefit) for the payment of certain optionholders’ tax obligations for stock options exercised in 2006 and early 2007 and $89 million of expense ($57 million net of tax benefit) for the modification related to increasing the exercise price of unexercised stock options granted to nonexecutive officer employees and the related cash payments. These amounts have been recorded as corporate expenses and have not been allocated to individual business segments.

As previously disclosed, in December 2006, the Company entered into agreements with individuals who were executive officers of the Company at the time of grant of an applicable stock option to increase the exercise price of certain outstanding stock options. No compensation was payable to any of those individuals as a result of the increase in the exercise price of their stock options.

Cost of Products Sold

Cost of products sold in 2007 totaled $768 million, an increase of $169 million, or 28%, over 2006. This was primarily due to costs associated with increased pharmacy sales at Prescription Solutions as a result of providing prescription drug benefit services to an additional four million Ovations Medicare Advantage and Part D members in 2007.

Depreciation and Amortization

Depreciation and amortization in 2007 was $796 million, an increase of $126 million, or 19%, over 2006. This increase was primarily related to higher levels of computer equipment and capitalized software as a result of technology enhancements, business growth and businesses acquired since the beginning of 2006, as well as separately identifiable intangible assets acquired in business acquisitions since the beginning of 2006.

Income Taxes

Our effective income tax rate was 36.3% in both 2007 and 2006.

Business Segments

During the fourth quarter of 2007, we completed the transition to our new segment reporting structure which reflects how our chief operating decision maker now manages our business. Our new reporting structure has four reporting segments:


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Health Care Services, which now includes our Commercial Markets (UnitedHealthcare and Uniprise), Ovations and AmeriChoice businesses;


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OptumHealth;


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Ingenix; and


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Prescription Solutions (formerly included in the Ovations business).

Historical financial data as of and for the years ended December 31, 2006 and 2005 was revised to reflect our new segment operating and financial reporting structure.

Health Care Services

The Health Care Services segment is composed of the Commercial Markets, Ovations and AmeriChoice businesses. Commercial Markets is comprised of UnitedHealthcare, which offers a comprehensive array of consumer-oriented health benefit plans and services for local, small and mid-sized employers and individuals nationwide, and Uniprise, which provides these services on a dedicated basis to large, multi-site employers. Ovations provides health and well-being services to individuals age 50 and older and AmeriChoice provides network-based health and well-being services to state Medicaid programs and the beneficiaries of those programs. The financial results of Commercial Markets, Ovations and AmeriChoice have been aggregated in the Health Care Services segment due to the similar economic characteristics, products and services, types of customers, distribution methods and operational processes, and regulatory environment. These businesses also share significant common assets, including our contracted networks of physicians, health care professionals, hospitals and other facilities, information technology infrastructure and other resources.

Health Care Services had revenues of $71.2 billion in 2007, representing an increase of $3.4 billion, or 5%, over 2006. Commercial Markets revenues of $40.3 billion in 2007 increased by $821 million, or 2%, over 2006. This increase was driven mainly by average net premium rate increases of 7% to 8% on UnitedHealthcare’s renewing commercial risk-based products, an increase in the number of individuals served by commercial fee-based products and businesses acquired since the beginning of 2006. This was partially offset by a 4% decrease in the number of individuals served by commercial risk-based products in 2007 primarily due to the Company’s internal pricing decisions in a competitive commercial risk-based pricing environment and the conversion of certain groups to commercial fee-based products. Ovations revenues of $26.5 billion in 2007 increased by approximately $1.8 billion, or 7%, over 2006. The increase was primarily driven by an increase in individuals served by standardized Medicare supplement and Evercare products, and rate increases on Medicare Advantage products as well as continued growth in our Medicare Part D program. The remaining Health Care Services revenue increase resulted from an increase in AmeriChoice revenues of $750 million, or 20%, over 2006 primarily due to an increase in the number of individuals served by Medicaid products as well as rate increases.

Health Care Services earnings from operations in 2007 were $6.6 billion, representing an increase of $735 million, or 13%, over 2006. This increase was principally driven by a decrease in the medical care ratio for Ovations primarily due to favorable medical cost trends and an increase in the number of individuals served by certain Medicare products and related rate increases discussed above, partially offset by a decrease in individuals served by commercial risk-based products and an increase in the related medical care ratio. The Commercial Markets medical care ratio increased to 82.6% in 2007 from 80.5% in 2006 and the UnitedHealthcare medical care ratio increased to 82.1% in 2007 from 79.8% in 2006. These increases were mainly due to the Company’s internal pricing decisions in a competitive commercial risk-based pricing environment as well as a shift from favorable medical cost development for UnitedHealthcare during 2006 to unfavorable medical cost development during 2007, which was partially driven by costs from higher benefit utilization in December 2006 primarily relating to high-deductible risk-based products. The Health Care Services operating margin for 2007 was 9.3%, an increase from 8.6% in 2006, which reflected productivity gains from technology deployment and disciplined operating cost management as well as the factors discussed above.

The number of individuals served with commercial products as of December 31, 2007 decreased by 175,000, or 1%, from the prior year. The number of individuals served with commercial fee-based products as of December 31, 2007 increased by 305,000, or 2%, over 2006 driven by new customer relationships and customers converting from risk-based products to fee-based products, partially offset by employment attrition at continuing customers. The number of individuals served with commercial risk-based products decreased by 480,000, or 4%, primarily due to a competitive pricing environment and the conversion of individuals to fee-based products.

The number of individuals served by Medicare Advantage products as of December 31, 2007 decreased by 75,000, or 5%, from 2006, primarily due to a decline in participation in private-fee-for-service offerings, while individuals served by standardized Medicare supplement products increased by 125,000, or 5%, due to new customer relationships. Medicaid enrollment increased 245,000, or 17%, in 2007 primarily due to new customer gains, including 180,000 individuals served under the TennCare program in Tennessee.

OptumHealth

OptumHealth provides health, well-being and financial services to people and organizations nationwide through personalized health advocacy and engagement, specialized benefits such as behavioral, dental and vision offerings, and health-based financial services. OptumHealth revenues of $4.9 billion increased by $579 million, or 13%, over 2006. This increase was principally driven by an increase in the number of individuals served by several of its specialty benefit businesses and rate increases related to these businesses.

OptumHealth earnings from operations in 2007 of $895 million increased $86 million, or 11%, over 2006 primarily due to the membership growth and rate increases discussed above. The OptumHealth operating margin declined from 18.6% in 2006 to 18.2% in 2007 due to a continued business mix shift toward higher revenue, lower margin products, partially offset by effective operating cost management.

Ingenix

Ingenix offers solutions to a spectrum of health care market participants on a national and international basis, including data management services, software products, publications, consulting and actuarial services, business process outsourcing services, clinical research outsourcing, pharmaceutical data and consulting services, and revenue cycle management solutions. Ingenix revenues for 2007 of $1.3 billion increased by $348 million, or 36%, over 2006. This was primarily driven by new business growth in the health information and contract research businesses as well as from businesses acquired since the beginning of 2006.

Ingenix earnings from operations in 2007 were $266 million, up $90 million, or 51%, from 2006. This increase in earnings from operations was primarily due to growth in the health information and contract research businesses, businesses acquired since the beginning of 2006 and effective operating cost management. The operating margin

was 20.4% in 2007, up from 18.4% in 2006. This increase in operating margin was largely driven by business growth and operating cost management described above.

Prescription Solutions

Prescription Solutions offers a comprehensive array of PBM and specialty pharmacy management services to employer groups, union trusts, seniors through Medicare prescription drug plans, and commercial health plans. Prescription Solutions revenues for 2007 of $13.2 billion increased by $9.2 billion, or 224%, over 2006. This was primarily driven by providing prescription drug benefit services to an additional four million Ovations Medicare Advantage and stand-alone Part D members. Intersegment revenues were eliminated in consolidation and amounted to $12.4 billion and $3.4 billion for 2007 and 2006, respectively.

Prescription Solutions earnings from operations in 2007 of $269 million increased $130 million, or 94%, from 2006 due largely to the expansion of services to Medicare Part D members discussed above. The operating margin was 2.0% in 2007, a decrease from 3.4% in 2006. The decrease in operating margin reflected the comparatively lower margin earned in the high volume Ovations Medicare Part D prescription drug service contract.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

Results of Operations

Consolidated Financial Results

Revenues

Revenues consist of premium revenues from risk-based products; service revenues, which primarily include fees for management, administrative and consulting services; product revenues; 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. Through our Prescription Solutions pharmacy benefit management (PBM) business, revenues are derived from both products sold and administrative services. Product revenues are recognized upon sale or shipment because the price is fixed and the member cannot return the drugs or receive a refund. Service revenues are recognized when prescription claims are adjudicated. Product revenues also include sales of Ingenix syndicated content products, which are recognized as revenue upon shipment.

Consolidated revenues for the three and nine months ended September 30, 2007 of $18.7 billion and $56.7 billion, respectively, increased by $709 million, or 4%, and $3.3 billion, or 6%, over the comparable 2006 periods driven primarily by rate increases on premium-based and fee-based services, growth in the total number of individuals served during the respective periods in our Medicare Part D program and at AmeriChoice, and new business growth at Ingenix. The following is a discussion of consolidated revenue trends for each of our revenue components.

Premium Revenues

Consolidated premium revenues for the three and nine months ended September 30, 2007 of $17.0 billion and $51.8 billion, respectively, increased by $501 million, or 3%, and $2.7 billion, or 6%, over the comparable 2006 periods.

UnitedHealthcare premium revenues for the three and nine months ended September 30, 2007 of $8.5 billion and $25.5 billion, respectively, increased by $140 million, or 2%, and $433 million, or 2%, over the comparable 2006 periods. These increases were primarily driven by average net premium rate increases of 7% to 8% on UnitedHealthcare’s renewing commercial risk-based products and by premiums from businesses acquired since the beginning of 2006, partially offset by a decrease in the number of individuals served by UnitedHealthcare’s commercial risk-based products. Ovations premium revenues for the three and nine months ended September 30, 2007 of $6.3 billion and $19.9 billion, respectively, increased by $102 million, or 2%, and $1.6 billion, or 9%, over the comparable 2006 periods. The increase for the three months ended September 30, 2007 was primarily due to rate increases on the Medicare Advantage and Medicare supplement products, partially offset by the seasonal revenue timing caused by the Medicare Part D product benefit design. The increase for the nine months ended September 30, 2007 was driven primarily by rate increases on the Medicare Advantage and Medicare supplement products, resolution of certain matters pertaining to Medicare population risk status and eligibility and continued growth in our Medicare Part D program. AmeriChoice premium revenues for the three and nine months ended September 30, 2007 of $1.1 billion and $3.2 billion, respectively, increased by $200 million, or 22%, and $508 million, or 19%, over the comparable 2006 periods due primarily to an increase in the number of individuals served by Medicaid products as well as rate increases. OptumHealth premium revenues for the three and nine months ended September 30, 2007 of $892 million and $2.6 billion, respectively, increased by $95 million, or 12%, and $262 million, or 11%, over the comparable 2006 periods. These increases were primarily due to strong growth in the number of individuals served by several OptumHealth businesses under premium-based arrangements as well as rate increases.

Service Revenues

Service revenues for the three and nine months ended September 30, 2007 totaled $1.2 billion and $3.4 billion, respectively, an increase of $79 million, or 7%, and $228 million, or 7%, over the comparable 2006 periods. This was driven primarily by increases in Ingenix service revenues due to new business growth in the health information and contract research businesses and from businesses acquired since the beginning of 2006. In addition, UnitedHealthcare and Uniprise service revenues increased due to an increase in the number of individuals served under fee-based arrangements since the third quarter of 2006 of approximately 2%, as well as annual increases in rates.

Product Revenues

Product revenues for the three and nine months ended September 30, 2007 totaled $239 million and $638 million, respectively, an increase of $53 million, or 28%, and $122 million, or 24%, over the comparable periods of 2006. This was primarily due to increased pharmacy sales at our PBM business.

Investment and Other Income

Investment and other income for the three and nine months ended September 30, 2007 totaled $302 million and $865 million, respectively, representing an increase of $76 million, or 34%, and $246 million, or 40%, from the comparable periods in 2006. Interest income increased for the three and nine months ended September 30, 2007 by $55 million and $221 million, respectively, from the comparable periods in 2006, driven by increased levels of cash and fixed-income investments as well as higher yields on the investments. Net capital gains on sales of investments were $12 million in the third quarter of 2007 compared with net capital losses of $9 million in the third quarter of 2006. For the nine months ended September 30, 2007 and 2006, net capital gains from sales of investments were $36 million and $11 million, respectively.

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 for the three and nine months ended September 30, 2007 of 79.5% and 80.8%, respectively, decreased from 81.1% and 81.6% in the comparable 2006 periods. These medical care ratios decreased primarily as a result of a decrease in the medical care ratio relating to Ovations. This was partially offset by an increase in UnitedHealthcare’s commercial medical care ratio, which was partially the result of a shift from favorable medical cost development during 2006 to unfavorable medical cost development during 2007.

For 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 periods, resulting from more complete claim information identified in the current period, are included in total medical costs reported for the current period. Medical costs for the three months ended September 30, 2007 included approximately $70 million of favorable medical cost development related to prior fiscal years and approximately $70 million of favorable medical cost development related to the first and second quarters of 2007. Medical costs for the three months ended September 30, 2006 included approximately $10 million in favorable medical cost development related to prior fiscal years and approximately $70 million of favorable medical cost development related to the first and second quarters of 2006. For the nine months ended September 30, 2007 and 2006, medical costs included approximately $350 million and $380 million, respectively, of favorable medical cost development related to prior fiscal years.

Medical costs for the three months ended September 30, 2007 of $13.5 billion increased $131 million, or 1%, over the comparable 2006 period due primarily to an annual medical cost trend of 7% to 8% on commercial risk-based business due to medical cost inflation and increased utilization, partially offset by a decrease in the number of individuals served by UnitedHealthcare’s commercial risk-based products. Medical costs for the nine months
ended September 30, 2007 of $41.9 billion increased $1.8 billion, or 5%, over the comparable 2006 period due primarily to the 7% to 8% annual medical cost trend on commercial risk-based business discussed above and growth in Ovations Medicare programs, partially offset by a decrease in the number of individuals served by UnitedHealthcare’s commercial risk-based products.

Operating Costs

The operating cost ratio (operating costs as a percentage of total revenues) for the three months ended September 30, 2007 was 14.0%, up from 13.5% in the comparable 2006 period, driven by the effect of business mix change as fee-based businesses such as Ingenix increase in size and impact, and increased investment in technology, service and product enhancements. The operating cost ratio for the nine months ended September 30, 2007 of 13.9%, was the same as in the comparable 2006 period. This was primarily driven by productivity gains from technology deployment and other cost management initiatives, offset by the effect of the business mix changes and increased investments discussed above, and expenses in the first quarter of 2007 associated with application of deferred compensation rules under Section 409A to our historic stock option practices, as described below.

Operating costs for the three and nine months ended September 30, 2007 totaled $2.6 billion and $7.9 billion, respectively, an increase of $197 million, or 8%, and $460 million, or 6%, over the comparable 2006 periods. These increases were primarily due to general operating cost inflation, and were also impacted by the items discussed above.

Included in the operating costs for the nine months ended September 30, 2007, is $176 million ($112 million net of tax benefit) of expenses recorded in the first quarter of 2007 related to application of deferred compensation rules under Section 409A to our historic stock option practices. As part of our review of the Company’s historic stock option practices, we determined that certain stock options granted to nonexecutive officer employees were granted with an exercise price that was lower than the closing price of our common stock on the applicable accounting measurement date, subjecting these individuals to additional tax under Section 409A. The Company elected to pay these individuals for the additional tax costs relating to such stock options exercised in 2006 and early 2007. For any outstanding stock options subject to additional tax under Section 409A that were granted to nonexecutive officer employees, the Company increased the exercise price and committed to make cash payments to these optionholders for their vested options based on the difference between the original stock option price and the revised increased stock option price. The payments will be made on a quarterly basis upon vesting of the applicable awards, beginning in January 2008. Aggregate payments, assuming all applicable options vest, will be approximately $150 million. If the modified stock options are subsequently exercised, the Company will recover these cash payments from exercise proceeds at the revised increased stock option exercise prices.

The $176 million charge includes $87 million of expense ($55 million net of tax benefit) for the payment of certain optionholders’ tax obligations for stock options exercised in 2006 and early 2007 and $89 million of expense ($57 million net of tax benefit) for the modification related to increasing the exercise price of unexercised stock options granted to nonexecutive officer employees and the related cash payments. These amounts have been recorded as corporate expenses and have not been allocated to individual business segments.

As previously disclosed, on December 29, 2006, the Company entered into agreements to increase the exercise price of outstanding stock options with individuals who were executive officers of the Company at the time of grant of an applicable stock option. No compensation was payable to any of those individuals as a result of the increase in the exercise price of their stock options.

Cost of Products Sold

Cost of products sold for the three and nine months ended September 30, 2007 totaled $206 million and $557 million, respectively, an increase of $55 million, or 36%, and $126 million, or 29%, over the comparable periods of 2006. This was primarily due to costs associated with increased pharmacy sales at our PBM business.

Depreciation and Amortization

Depreciation and amortization for the three and nine months ended September 30, 2007 of $202 million and $589 million, respectively, increased from $168 million and $493 million for the comparable 2006 periods. The increases were primarily related to higher levels of computer equipment and capitalized software as a result of technology enhancements, business growth and businesses acquired since the beginning of 2006, as well as separately identifiable intangible assets acquired in business acquisitions since the beginning of 2006.

Income Taxes

Our effective income tax rate for the three months ended September 30, 2007 was 36.3% compared to 35.9% for the comparable 2006 period. Our effective income tax rate for the nine months ended September 30, 2007 was 36.6% compared to 36.2%, for the comparable 2006 period. These rates reflect changes in business and income mix in states with differing income tax rates, as well as a decrease in the benefit related to tax-exempt interest.

Business Segments

Health Care Services

The Health Care Services segment, comprised of the UnitedHealthcare, Ovations and AmeriChoice businesses, had revenues for the three and nine months ended September 30, 2007 of $16.7 billion and $50.8 billion, respectively, representing increases of $570 million, or 4%, and $2.9 billion, or 6%, over the comparable 2006 periods.

UnitedHealthcare revenues for the three and nine months ended September 30, 2007 increased over the comparable 2006 periods by $169 million, or 2%, and $511 million, or 2%, to $9.0 billion and $26.8 billion, respectively. These increases were driven mainly by average net premium rate increases of 7% to 8% on UnitedHealthcare’s renewing commercial risk-based products, an increase in the number of individuals served by UnitedHealthcare’s fee-based products and business acquired since the beginning of 2006, partially offset by a decrease in the number of individuals served by UnitedHealthcare’s commercial risk-based products. Ovations revenues for the three and nine months ended September 30, 2007 increased over the comparable 2006 periods by $196 million, or 3%, and $1.8 billion, or 10%, to $6.6 billion and $20.8 billion, respectively. The increase for the three months ended September 30, 2007 was primarily due to rate increases on the Medicare Advantage and Medicare supplement products, partially offset by the seasonal revenue timing caused by the Medicare Part D product benefit design. The increase for the nine months ended September 30, 2007 was driven primarily by rate increases on the Medicare Advantage and Medicare supplement products, resolution of certain matters pertaining to Medicare population risk status and eligibility and continued growth in our Medicare Part D program. The remaining increase in Health Care Services revenues was attributable to an increase of $205 million, or 22%, and $523 million, or 19%, for the three and nine months ended September 30, 2007, respectively, over the comparable 2006 periods for AmeriChoice, which was due primarily to an increase in the number of individuals served by Medicaid plans as well as rate increases.

The Health Care Services segment had earnings from operations of $1.6 billion and $4.6 billion for the three and nine months ended September 30, 2007, respectively, representing increases of $268 million, or 19%, and $900 million, or 25%, over the comparable periods of 2006. These increases were principally driven by a decrease in the medical care ratio for Ovations due primarily to favorable medical cost trends and an increase in the number of individuals served by Medicare Part D, partially offset by a decrease in individuals served by UnitedHealthcare’s commercial risk-based products and an increase in the related medical care ratio. UnitedHealthcare’s commercial medical care ratio increased to 81.6% in the third quarter of 2007 from 79.4% in the third quarter of 2006, and to 81.6% for the nine months ended September 30, 2007 from 79.6% over the comparable period of 2006. These increases were mainly due to the Company’s internal pricing decisions in a competitive commercial risk-based pricing environment as well as a shift from favorable medical cost development for UnitedHealthcare during 2006 versus unfavorable medical cost development during 2007, partially driven by costs from higher benefit utilization in December 2006 relating primarily to our high-deductible risk-based products. Health Care Services’ operating margin for the three and nine months ended September 30, 2007 was 9.9% and 9.0%, respectively, representing an increase of 140 basis points over each of the comparable periods of 2006, which reflected productivity gains from technology deployment and disciplined operating cost management as well as the factors discussed above.

The number of individuals served by UnitedHealthcare’s commercial business as of September 30, 2007 decreased 15,000 from the third quarter of 2006. This included an increase of 210,000 in the number of individuals served with commercial fee-based products, driven by new customer relationships and customers converting from risk-based products to fee-based products, which was more than offset by a decrease of approximately 225,000 in the number of individuals served with commercial risk-based products due primarily to a competitive pricing environment and the conversion of individuals to fee-based products.

The number of individuals served by Ovations’ Medicare Advantage products decreased by 75,000 from the third quarter of 2006 due primarily to a decline in participation in private-fee-for-service offerings. The number of individuals served by Medicare Part D on a stand-alone basis increased by 200,000 from the third quarter of 2006 to the third quarter of 2007 due to new customer relationships gained in the program. AmeriChoice’s Medicaid enrollment increased by 245,000 due to new customer gains, including 175,000 individuals served under the TennCare program in Tennessee.

Uniprise

Uniprise revenues for the three and nine months ended September 30, 2007 of $1.4 billion and $4.3 billion, respectively, represent an increase of $46 million, or 3%, and $210 million, or 5%, over the comparable periods of 2006. The increases in revenue were driven primarily by growth of 1% in the number of individuals served by Uniprise at September 30, 2007 over the comparable period in 2006 and annual rate increases related to both risk-based and fee-based arrangements. Uniprise served 11.1 million and 11.0 million individuals as of September 30, 2007 and 2006, respectively, with the year-over-year growth reflecting new customer relationships partially offset by employment attrition at continuing customers.

Uniprise earnings from operations for the three and nine months ended September 30, 2007 of $217 million and $633 million, respectively, decreased $18 million, or 8%, and $32 million, or 5%, over the comparable periods of 2006. Operating margin decreased to 15.3% and 14.8% for the three and nine months ended September 30, 2007, respectively, from 17.2% and 16.4% in the comparable periods of 2006. These decreases were driven primarily by an increase in operating costs aimed at advancing service levels and supporting strategic growth initiatives on an enterprise-wide basis as well as higher non-capitalizable technology development costs.

OptumHealth

OptumHealth had revenues for the three and nine months ended September 30, 2007 of $1.2 billion and $3.4 billion, respectively, an increase of $167 million, or 17%, and $471 million, or 16%, over the comparable periods of 2006. These increases were principally driven by strong growth in the number of individuals served as well as rate increases.

Earnings from operations for the three and nine months ended September 30, 2007 of $222 million and $640 million, respectively, increased $24 million, or 12%, and $76 million, or 13%, over the comparable periods of 2006 primarily due to strong growth in the number of individuals served and operational and productivity improvements within OptumHealth’s businesses. OptumHealth’s operating margin of 19.1% and 18.6% for the three and nine months ended September 30, 2007, respectively, decreased from 19.8% and 19.0% in the comparable periods of 2006. The decrease in operating margin reflected a continued business mix shift toward higher revenue, lower margin products.

Ingenix

Ingenix revenues for the three and nine months ended September 30, 2007 of $347 million and $896 million, respectively, increased by $100 million, or 40%, and $225 million, or 34%, over the comparable periods of 2006 due primarily to new business growth in the health information and contract research businesses as well as revenue from businesses acquired since the beginning of 2006. Ingenix typically generates higher revenues in the second half of the year due to seasonally strong demand for higher margin health information products.

Earnings from operations for the three and nine months ended September 30, 2007 of $70 million and $152 million, respectively, were up $18 million, or 35%, and $40 million, or 36%, over the comparable periods of 2006 due primarily to new growth in the health information and contract research businesses, earnings from businesses acquired since the beginning of 2006 and effective operating cost management.

The operating margin for the three months ended September 30, 2007 of 20.2% decreased from 21.1% in the comparable 2006 period due primarily to newly acquired businesses with lower margins as well as additional investments in technology in the third quarter of 2007. The operating margin for the nine months ended September 30, 2007 of 17.0% increased from 16.7% in the comparable 2006 period due primarily to effective operating cost management, partially offset by newly acquired businesses with lower margins as well as additional investments in technology.

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