Fourth Quarter and Full Year 2008 Results Teleconference Prepared Remarks

January 22, 2009 7:45 a.m. CST

Moderator: Good morning, I will be your conference facilitator today. At this time I would like to welcome everyone to the UnitedHealth Group Fourth Quarter and Full Year 2008 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press, “star” then the number 1 on your telephone keypad. If you would like to withdraw your question, press the “pound” key. We request you do not utilize a speaker phone or headset if you will be asking a question. This will aid in a better quality listening environment. For purposes of getting to as many participants as possible, we also ask those with questions to limit to one question per person. As a reminder, this conference is being recorded. This call and its contents are the property of UnitedHealth Group. Any use, copying or distribution without written permission from UnitedHealth Group is strictly prohibited. Here is some important introductory information. This call will reference non-GAAP amounts. A reconciliation of non-GAAP to GAAP amounts is available on the “Financial Reports & SEC Filings” section of the Company’s Investors page at www.unitedhealthgroup.com. This call contains “forward-looking” statements under U.S. federal securities laws. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from historical experience or present expectations. A description of some of the risks and uncertainties can be found in the reports that we filed with the Securities and Exchange Commission from time to time, including the cautionary statements included in our current and periodic filings. Information presented on this call is contained in the Earnings Release we issued this morning and in our Form 8-K dated January 22, 2009 which may be accessed from the Investors page of the Company’s website at www.unitedhealthgroup.com. I would now like to turn the conference over to the president and chief executive officer of UnitedHealth Group, Stephen Hemsley. Stephen Hemsley: Good morning and thank you for joining us.

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Today, we are pleased to report UnitedHealth Group’s fourth quarter and full year 2008 results. For the full year 2008 revenues increased $5.8 billion or 8 percent to $81.2 billion and our fourth quarter revenues increased 9% to $20.5 billion. In the fourth quarter we added nearly 100,000 people in our benefits businesses. Our adjusted fourth quarter operating margin of 7.9% was in line with our expectation, with some out-performance on the consolidated medical care ratio of 80.8%, offset by a slightly elevated operating cost ratio of 15.4% as adjusted. Earnings were $0.78 per share for the quarter and $2.95 per share for the full year, both adjusted for special items. I should mention up front that these earnings numbers do include $50 million or almost $0.03 per share in venture capital investment write-downs in the fourth quarter, which was not in our outlook. The adjusted results exclude an accrued $350 million or $0.18 per share in operating costs to resolve class action litigation related to out-of-network medical services from early 1994 to date, as we announced just last week. We believe it is clearly in the best interests of our company to resolve all these matters and move forward. Adjusted cash flows from operations were $4.8 billion for the year, including a strong $1.6 billion for the fourth quarter. And I am pleased to report that full year adjusted cash flows were a healthy 1.3 times adjusted net income, and in line with the range we provided last July. Stepping back – against the economic turbulence of the last year, these are encouraging results for our business overall. In 2008 we have seen advances in many important initiatives, including our efforts to improve fundamental execution and instill a strong service culture. And we have progressed in building deeper and richer market relationships with the people we serve and the physicians we work with in the health care community. On the benefits side of our enterprise, UnitedHealthcare’s business continues to strengthen internally against a challenging economic backdrop and is in line with our previously stated expectations.

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Ovations had a successful sales and marketing season during its fourth quarter enrollment period. And our AmeriChoice Medicaid business continues to grow in the markets we serve and is successfully expanding into new programs and geographies. As you might expect, some of our services businesses are feeling some effect from the broader economic pressures. However, the pressing interests in health care affordability, quality and information technology should also open up new opportunities for these businesses. As we look to the year ahead, we continue to project earnings per share between $2.90 and $3.15 for full year 2009, and cash flows from operations are expected to be approximately $5 billion. The ranges in our outlook remain wide, but the economic uncertainties of 2009 remain as well. Our financial position is strong. We have been careful stewards of our resources, and our operating cost and capital control efforts that started early in 2008 will continue in their intensity. And as we discussed at our Investor Conference in December, we are fully engaged participants in the health reform movement. We bring deep experience, broad industry expertise and diverse capabilities to this discussion. We have been meeting with a variety of stakeholders and emphasizing the need to reform all aspects of health and health care if we are to achieve affordable quality health care for all. Benefits Businesses We would like to begin the business review by giving you more detail for the quarter and full year for our benefits businesses, which include UnitedHealthcare, Ovations and AmeriChoice. Earnings from operations for these businesses were $1.3 billion for the fourth quarter and $5.1 billion for the full year 2008, all fully in line with our expectations. As expected, UnitedHealthcare risk-based enrollment decreased by 135,000 people in the fourth quarter, while our fee-based business again performed in a solid fashion, growing 10,000 people in a period where there are more limited growth opportunities and increasing attrition levels.

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We continue to expect UnitedHealthcare 2009 enrollment to decrease by 1 million to 1.5 million people in total, depending upon the severity of the recession, with decreases in both risk and fee-based benefit categories. First quarter fee-based enrollment is expected to decrease in the area of 500,000 people. While we are still gathering final January results, this should hold, supported by very strong growth from our expanded relationship with the State of Georgia. We continue to expect the first quarter 2009 organic decline in risk-based membership to be slightly better than 2008 but in the same general range, even as we work intently to strengthen our underwriting disciplines in the small group market and fully price to our expected medical cost trends. We are operating with stronger market relationships and greater agility at the local market. The economy remains a challenge and we have limited visibility today into January group terminations and employee participation levels. That said, we do have local markets where we are seeing growth for the first time in two years or more. And we are excited by the interest employers are showing for our innovation around health personalization and the concept of building “Communities of Health.” Turning to medical costs, we are in a solid position. Cost trends remain in line with our expectations. Our emphasis on regional leadership and rebuilding local relationships is helping us to work more effectively with physicians, hospitals and health care providers to keep costs under control for our customers. The UnitedHealthcare medical care ratio was 83.9 percent in the fourth quarter, slightly better than our most recent projections, and 20 basis points better than the fourth quarter of 2007. As we move forward in 2009, we can confidently tell you that UnitedHealthcare’s performance is strengthening on many dimensions. We will continue to dedicate resources and strong leadership to local markets, build better provider relationships market-by-market, and leverage the momentum in service improvements and fundamental execution established throughout 2008.

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This better balance of local engagement and focus in each market, combined with our national scale, clinically integrated networks and technology capabilities, we hope will continue to lead to profitable growth over the long term. Moving to our Public and Senior Markets Group, which includes Ovations and AmeriChoice, we added 220,000 people with medical benefits in the fourth quarter. This was sharply above our expectations due to strong Medicaid growth and consistent performance in senior products. We had total organic growth of 650,000 people in 2008, a growth rate of 12 percent. Our Ovations senior health benefits businesses are in the midst of a very successful selling season. Ovations Medicare Advantage is on course to exceed the upper end of the range of 100,000 to 135,000 net new seniors for full year 2009. We estimate we have gained more than 120,000 new members for January 1, net of terminations. And importantly, the mix of this growth by product type is clearly better than last year and in line with our 2009 plan. We are seeing steady interest in HMO/PPO products and a lift in Private Fee for Service versions driven by both significant corporate group sales and individual retail participation. These results also include a net reduction of 7,000 people for January 1 in chronic care special needs plans. Medicare supplement sales also continue to perform well. And finally, we are tracking to exceed our growth plan of 100,000 to 125,000 seniors in the standalone Part D drug benefit market this year. Very strong early performance in Ovations is driven by improvements in sales, marketing and distribution, product positioning and local market engagement. We are seeing improved balance and sizeable gains year-over-year from all principal distribution channels, including external brokers, affiliated representatives, telesales and internal sales professionals. While there may be some upside to our Medicare Advantage growth forecast, we will wait to receive additional data, including confirmation of our estimates of terminations, and to watch performance in the remaining open enrollment period before updating our outlook. The consolidation and integration of Ovations in-market care management with

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UnitedHealthcare’s local care management resources and programs is beginning to translate into stronger medical cost management for these businesses. We expect this to be an important element in Ovations performance improvements in 2009 and 2010. We have been very pleased with the strong advances AmeriChoice made throughout 2008, including their outstanding performance in the fourth quarter. Total Medicaid membership grew by 175,000 people this quarter, bringing total expansion for 2008, to more than 800,000 people. We continue to expect growth of 325,000 to 400,000 people in 2009, which is a mid-teens membership growth rate. This includes the last significant piece of the one quarter million new people that we are in the process of adding as part of the expansion of services in Tennessee. Unemployment pressures could potentially increase these AmeriChoice numbers as the year progresses. There has been a lot of market speculation about SCHIP expansion. This is now moving very quickly, and I believe no company is better positioned to serve an expanded SCHIP mandate. In AmeriChoice, we have a significant, dedicated and capable business that leverages the best of the entire UnitedHealth Group enterprise, and we offer on-the-ground services in 22 states and serve more Medicaid program participants today than any market competitor. So, summarizing across the benefits businesses, we have a meaningfully improved start in 2009, supported by solid and diversified organic growth and a higher quality business mix. Services Businesses Now, let’s turn to our services businesses, which include OptumHealth, Ingenix and Prescription Solutions. They all serve the health care marketplace broadly and are a consistent source of innovation and thought leadership inside and outside UnitedHealth Group. Their capabilities are a large part of our overall diversification and make us a more adaptable organization for a changing health care marketplace. For the full year, on a combined basis, these businesses generated $19.4 billion in aggregate revenues and $1.3 billion in total earnings from operations, with fourth quarter revenues of $4.9 billion and total earnings from operations of $333 million. This quarter we saw the continued impact of UnitedHealthcare’s unfavorable risk-based membership trends in OptumHealth. We also saw reduced demand at

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Ingenix for CRO, consulting services, and coding and reference materials. Operating margins for the year declined for both OptumHealth and Ingenix. On the other hand, Prescription Solutions’ margins strengthened, increasing 90 basis points year-over-year to 2.9%, driving 35% year-over-year growth in operating earnings in 2008, as Prescription Solutions continues to realize the benefits of larger scale and improved generic and mail-order fulfillment performance. The economic climate is presenting our services businesses with both opportunities and challenges. Pressures on both government sponsors and employer groups are creating new opportunities for Ingenix Consulting and Prescription Solutions to apply their technology and their innovative approaches to help control costs and manage care more effectively. We are seeing increased interest at OptumHealth in free-standing care management and wellness/prevention services, as market interest in more intensive cost management and affordability once more returns. While OptumHealth clearly continues to be impacted by membership losses at its largest customer, UnitedHealthcare, this impact will reverse as our benefits businesses strengthen. Furthermore, OptumHealth is meaningfully expanding its external revenues in its behavioral health, care solutions and specialty benefits businesses. A clear example of this is within the public sector marketplace. Two years ago we identified public sector services as an opportunity for growth and diversification. OptumHealth had distinctive capabilities to offer and we had local market relationships throughout our enterprise, but our market share was unimpressive. With a renewed focus, we have now sold new business representing more than 2 million people over the past year. We are implementing behavioral health benefits for the last piece of the more than ½ million participants we serve in TennCare. We were awarded the Empire behavioral health benefits in New York State, serving 1.1 million people. We recently received a mandate to finalize terms with the State of New Mexico to provide behavioral health benefits to another 400,000 people effective July 1, 2009. And just last week we were awarded a contract to provide services to 50,000 people in Pierce County, Washington. These market successes improve OptumHealth’s balance and business diversity while adding operating earnings at margins that are fair and appropriate for public sector business.

Ingenix is a significant supplier to the health care industry and is being impacted by economic and industry trends. Spending on discretionary products and

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services is under pressure across the health care industry, and challenges facing the pharmaceutical industry are affecting spending on new product development and creating challenges for the CRO industry. At the same time, there is increasing demand in the government sector, in international markets, and in the electronic medical records business. In total, Ingenix has experienced some weakness in demand, which has been partially mitigated by its broad product and market diversification. Many of its offerings are attractive in this environment because they provide strong and rapid financial pay-backs for clients. As I am sure you are aware, the federal stimulus package will have a strong health IT element and Ingenix should participate in that significant market expansion. Prescription Solutions continues to see growth in the demand for mail-order pharmacy fulfillment and its operations continue to mature. We are making significant progress in our work to in-source specialty pharma services for all of UnitedHealth Group. In 2008, organic membership growth outside the UnitedHealth businesses exceeded 400,000 people and in 2009 we expect Prescription Solutions will further develop its position in the industry as a full line, large scale national pharmacy benefits manager. Financial Outlook Bringing these trends and developments across the various businesses together, our outlook for 2009 remains in line with our most recent projections. We anticipate revenues of $85 to $86 billion this year. We see evidence of strengthening sales momentum, but we need further information on retention and business mix before we can make any changes to this forecast. We remain comfortable with our commercial medical cost trend outlook for 2009 at 8 percent plus or minus 50 basis points. We continue to forecast the consolidated medical care ratio in the range of 82.7 percent plus or minus 50 basis points. The year-over-year increase in this consolidated care ratio is due to anticipated changes in product and business mix favoring government markets. Adjusted operating costs at 15.4% of revenues, increased slightly from the third quarter. This included $80 million or 40 basis points of seasonal expenses, including marketing and new business installation costs, as well as some miscellaneous expense items, such as an increase in general legal costs. Since the first quarter of 2008 we have reduced our operating costs by an annual run rate of roughly $470 million. We have re-invested about $60 million of that run-rate reduction to strengthen our presence and responsiveness in local markets.

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We clearly have opportunities for further reductions, in areas such as better sharing of our administrative services across businesses. Operating cost management is critical to health care affordability and will continue to be a focus for us in 2009. While we no longer provide quarterly EPS guidance, we expect the first quarter of 2009 to reflect the seasonal declines for businesses such as Part D and Ingenix, as well as the effects of lower projected investment income on a year-over-year basis. One would logically expect a year-over-year increase in the first quarter medical care ratio, driven by business mix, and it appears a number of the more conservative first quarter earnings estimates on the Street are giving effect to these factors. Our balance sheet and investment portfolio remain strengths for our enterprise. We reported a full year net realized capital loss of only $6 million on a $21.6 billion cash and investment portfolio, which is a virtually unique accomplishment in 2008. Our full year, net realized loss of $6 million includes a fourth quarter realized $14 million net capital loss on our operating investments and a prudent $50 million write-down on our approximately $200 million corporate venture capital portfolio. Importantly, our net unrealized loss position on investments improved by $235 million in the quarter to a net unrealized loss of only $47 million at December 31. To put that number in context, that means we had a net unrealized loss of about two-tenths of one percent on our portfolio at year end. Our unrestricted cash position improved by $765 million from September 30 to a balance of $865 million at year end, even as we reduced our outstanding commercial paper to $101 million from $586 million. Looking over the past six months, we have decreased our leverage ratio by 230 basis points, from 40.4% at June 30 to 38.1% at year end. This more conservative leverage occurred even as we disbursed $900 million in the third quarter to fund the shareholder litigation settlement. In total, these results demonstrate UnitedHealth Group’s strong and consistent operating cash generation. We expect to have the capacity to repay the $900 million in term debt due this quarter without accessing the credit markets if need be. Our strong liquidity, capital position, cash flow and investment portfolio will support our businesses during these challenging times and give us financial flexibility and strength.

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Summary of Operating Trends To sum up our operating trends, UnitedHealth Group is continuing to improve fundamental execution, service responsiveness and in-market relationship dynamics for our customers, members and the health care community at large. Our improvements are gaining traction in the marketplace. We continue to focus on translating our evolving culture of service into trusting relationships that will help differentiate us and enrich our market position. We are determined to accelerate these improvement trends in 2009. We continue to steward our resources wisely. We are controlling costs and reducing non-essential spending, with a slower capital spending pace than last year overall. Innovation We have always been a leader in innovation and we intend to pick up the pace, with a concentration on bringing simpler consumer and provider innovations profitably to market – innovations that are cost-effective, that enhance the “personalization of health care,” and that are practical. That means innovations that change health care for the better, cost less to develop and can be introduced with less overall disruption. Let me give you some quick examples. We have pioneered a diabetes health plan for the commercial market. The plan is tailored to the unique needs of diabetics and, importantly, pre-diabetics, and links them to the best resources and best science, so they can control their condition and live healthier lives, while reducing employer costs. The diabetes health plan is just one example of our new family of personalized, condition-specific benefit offerings for the self funded market. We are also helping employers with our proprietary Consumer Activation Index. This index measures consumer decision-making across key decision points and helps employers specifically target opportunities to improve health, wellness, and cost in their employee base. For example, we can identify an issue with preventative screening rates for females in a specific age cohort employed specifically at an employer’s branch location in, say, Fresno, California, and give that employer the tools to improve health for that group, or a group that we would call a “health community.” This is a very granular, personalized approach, leveraging deep data and clinical resources.

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And, one final example. Our emergency room decision support service reaches out to frequent emergency room users and connects them to other resources such as primary care, urgent care or nurseline resources. Participants in these programs used nurseline 3 times more frequently, and over 40% now routinely choose a less intensive, less expensive setting for their care. Each of these examples is cost effective, personalized, practical and easily deployable. We also continue to attract and position exceptional new talent across our enterprise. These leaders are helping us build greater depth in our management teams, as well as bringing fresh perspectives along with new energy and new ideas to our businesses. I can quickly think of more than a dozen high profile people added in just the past six months or so, but let me address today’s developments: This morning we are announcing that Larry Renfro, a very senior executive from Fidelity Investments, will join UnitedHealth Group as an executive vice president. He will serve as chief executive of the Ovations business. Larry is a very senior and accomplished executive with diverse experience. He is clearly well grounded in individual product sales and distribution. His experience involves senior health and financial services businesses and markets, and large scale, highly regulated operations. This is another important move in developing the broad and deep executive leadership needed to advance UnitedHealth Group to its full potential. Larry inherits an Ovations business with maturing distribution and operations and improving overall performance consistency, as well as some nice growth momentum as it enters 2009. Simon Stevens will assume new duties, leading our overall health care reform undertakings across our enterprise. Simon will dedicate himself to the engagement, development and coordination of our health care reform efforts. He will also assume the overall operational leadership of our international business interests, with a goal of making this one of our next significant platforms for growth and diversification. Simon’s background as Tony Blair’s health policy director in the United Kingdom, as CEO of America’s largest seniors health care business and as an operating executive in the hospital sector make him ideally suited to these challenging tasks.

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We greatly appreciate Simon’s successful leadership of Ovations and that he will now broaden his role and help guide our constructive participation in health reform, while also leading our international growth. Let me add, our chief legal officer, Tom Strickland – who has served UnitedHealth Group with distinction – has recently accepted a senior position in the Obama Administration in the Department of the Interior. All of us appreciate Tom’s thoughtful leadership on matters of governance and his energies in resolving a number of challenging UnitedHealth Group matters. Tom helped us build stronger relationships with regulators and elected officials, and he substantially strengthened our legal team. We wish Tom the best in his new endeavors. Finally, we are continuing to add new and diversified leadership to our board of directors, including the additions in 2008 of Bob Darretta, Michele Hooper and Glenn Renwick. We recently announced that Dr. Ken Shine will join the board. Dr. Shine, who currently serves as Executive Vice Chancellor for Health Affairs for the University of Texas System, brings to UnitedHealth Group 30 years experience as a leader in health care, including 10 years as President of the Institute of Medicine for the National Academy of Sciences. And you can expect the addition of another independent director in 2009. In closing, I’d like to remind you of a few key points regarding our enterprise and the reasons we are optimistic about our continuing success, even while we continue to be cautious concerning the challenges our economy is currently confronting. We have spent significant efforts in 2008 refocusing back to fundamental execution – and we are starting to see the signs of improving visibility, reputation and results. We have a strong and diverse business model that reflects and responds to the national health care landscape. We are actively engaged in the dynamics of health care reform. We believe UnitedHealth Group can serve a broad-based reform agenda, while actually growing our businesses as we further diversify to meet the evolving needs of that reform. Our financial stewardship has positioned us exceptionally well. Change is inevitable. Some changes will be disruptive for us and for our industry.

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But leading companies take advantage of disruptive change and challenging markets – and that is our intent. There remains a huge opportunity to continue to advance care for people and create value for society through innovation, technology and service. When we execute on this agenda, our shareholders will prosper. Thank you. At this time I would like to open up for questions for our senior team. Moderator…

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