UnitedHealth Group Incorporated (UNH) Q1 2014 Earnings Report, Transcript and Summary

Good morning. I'll be your conference facilitator today. Welcome to the UnitedHealth Group First Quarter 2014 Earnings Conference Call. (Operator Instructions) As a reminder, this call is being recorded. Here's some important introductory information. This call contains forward-looking statements under U.S. Federal Securities laws. These statements are subject to risks and uncertainties that could cause actual result 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 file with the Securities and Exchange Commission, 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 April 17, 2014, which may be accessed from the Investors page of the company's website. (Operator Instructions) I would now like to turn the conference over to the President and Chief Executive Officer of UnitedHealth Group, Stephen Hemsley.

Good morning and thank you for joining us today. This morning we will review the first quarter results in the context of our full year objectives for 2014. Objectives that include continuing to diversify our services and product offering, continuing to develop and expand our capabilities and relationships and further strengthened and consistent fundamental execution and services to customers and consumers. And we are working towards all these while new national healthcare policies begin to come into the place and new baselines for market behaviors and new market dynamics become realities. We plan to deliver revenues in a range of $128 billion to $129 billion for the year produce earnings in the range $5.40 to $5.60 per share and generate cash flows from operations between $7.8 billion and $8.2 billion. UnitedHealth Group, UnitedHealthcare and Optum performed largely as we expected in the first quarter. We remained in our plans for 2014 and as usual continue to work through more challenges and benefits for the moment. Longer term, we continue to more clearly see evidence for the growth opportunities for both UnitedHealthcare and Optum as we knew beyond the more negative immediate term impacts of the ACA and its implementation. This is was really the first quarter a full scale operation under the ACA. Everything else in the past three years has been more of a preamble. The ACA's impacts on 2014 had been immediate and significant as we described at our Investor's conference. Nondeductible insurance taxes, ACA prescribed Medicare Advantage funding pull backs, commercial underwriting changes and various other provisions cumulatively reduced our per share, net earnings by nearly $0.30 for this quarter and sequestration cut an additional $0.05 in this quarter. On a full year basis 2014 Medicare funding actions will cut roughly $0.45 per share beyond that. This…

The floor is now open for questions at this time. (Operator Instructions). Our first question is from Matthew Borsch from Goldman Sachs. Your line is open. Matthew Borsch – Goldman Sachs Group Inc: Yes, hi good morning. Could you talk about the outlook for Medicare Advantage for 2015? I realized we have to get through this year firs but, in light of the various changes that were made in finalization of the rate. I know one of your competitors has put out a point estimate for the all in rate impact and was wondering, if there was a range that you could offer on a similar basis?

Yes, sure I think in terms of a range. First of all, we would comment that the final rate notice did mitigate some of the originally proposed cuts for 2015, but in fact when that results is that rates were once again taken down somewhere in the order of maybe slightly over 3% and that really comes on the heels of overall funding decline of over 6% in the prior year and that's against arising overall medical cost trend. So we would bracket that around, let's say the 3.5% kind of range and honestly, if that is somewhat disappointing, we were hoping for and we are positive all in response and so we will be focused on working through and trying to mitigate that as we approach 2015, but I would bracket it in let's say 3% to 3.5% range. Matthew Borsch – Goldman Sachs Group Inc: If I could just ask for one clarification on that? Is that inclusive of the because it's not a rate factor the impact of the increase in the industry fee, at least under the ACA provisions to-date?

Yes, that is an all in kind of what we see funding deficiency to Medicare for 2015. Matthew Borsch – Goldman Sachs Group Inc: Okay. Thank you.

Our next question is from Justin Lake from JP Morgan. Your line is open. Justin Lake – JP Morgan Chase & Co: Thanks, good morning. Wanted to follow-up on the comments around 14 commercial MLR specifically, if those coming toward the higher-end of the range? Can you tell us whether, you think that would likely drive ETF to the lower end of what, being your full year guidance or if you think there are other businesses that could were to offset that and what they might and then just quickly on the MLR side. You mentioned the $100 million of hep C cost in the quarter. Can you tell us what your original expectations were for hep C in Q1 and how you're currently expecting this cost to trend for the rest of the year, thanks?

It was a little gobbled on that second one. Your second question is a $100 million related to what? Justin Lake – JP Morgan Chase & Co: I'm sorry, $100 million of hep C cost, I think you mentioned up on them.

I got it, okay. Justin Lake – JP Morgan Chase & Co: For the quarter, how your expectations were for the end of the year for that versus $100 million and how you expect the trend for the rest of the year?

I got it. Well, maybe the way to frame the care ratio and I will let Gail to drill and Dan Schumacher address this in more specifics but, we saw pressure in the first quarter. It is the first quarter those pressures are coming from a variety of sources. We will endeavor and try to mitigate against that over the course of the year, but we think it's appropriate to alert you to the fact that care ratio will feel pressure because of these factors. And as you point out, we have a very diverse business not only within the UnitedHealthcare platform but in the Optum platform and we have a number of ways to fight back against those pressures and we are endeavoring to do that is early in the year and so we are staying largely within the ranges and kind of giving you a color around, where we see the pressure points. And then in terms of hepatitis C, Gail, Dan?

Sure, good morning. Justin. On hepatitis C as Steve mentioned. We saw $100 million of cost in the first quarter little more than that and that was across all of our benefits business. So Medicare, Medicaid and Commercial and I think what we are seeing in not in consistent with what folks are seeing across the industry, which is higher pent up demand, as there was more patients that were warehoused leading up to the launch hepatitis C vaccines. And so we would expect that there would be some moderation and new patient volume as that initial pent up demand starts to wear off, but I would tell you that obviously these are 12 week and 24 week treatment regimen. So those folks that were introduced in the first quarter, will carry forward into the second. In terms of its relation to our expectation. I won't say that's specifically other than to say that it's a multiple of what we had expected. Justin Lake – JP Morgan Chase & Co: Thanks for the color.

Next question, please?

Our next question is from Peter Costa from Wells Fargo. Your line is open. Peter Heinz Costa – Wells Fargo Securities, LLC: Yes, I would like to understand a little bit more about what you expect to do about the rising cost of hep C going forward, as you mentioned moderating but you know when it becomes perhaps all [oral] towards to the end of the year. You would to expect to reaccelerate again and in particular for next year. So how you're going to price that into your businesses for next year, do you expect States to reimburse this year or carve it out? So can you build on that a little bit and the other cost item, that you talked about was in New York, can you tell us? How you're going to respond in New York to the pricing pressure there?

Sure, as you point out. How hep C is addressed really does vary across the businesses based upon the segment of business that we are in, so we will try to respond to several of those and maybe we will start out with Gail.

Sure, good morning. Let me first address the hep C, then we will talk about the issue in New York. I think as you mentioned first the hep C therapies as you know are very effective and one of the things that we are doing is working to ensure that appropriate clinical protocols and standards are in place, but as noted the price is exceptionally high and as Steve said in his opening comments that controversial and it's putting a lot of pressure on States, CMS and in terms of our day as well as our employer sponsor, so the cost has to be addressed. As we think about actions. In the Medicaid space particularly. First and foremost, we are working with each of our states to ensure that we are aligned with their expectations on their PDL and how they want to handle that and also giving them ideas on risk mitigation from a cost perspective, what we are paying for the Medicaid it is the cost to the program that wasn't priced in. So we are working with our States to figure out that funding gap. We do expect it as a cost of delivering service in that space and would expect that will be reimbursed but the timing is what is uncertain now because accelerated very quickly and as Dan said, in his opening remarks about this because warehousing and the rapid launch, this is something everyone's dealing with across the States right now. In terms of the issue on New York. Let me open up a few comments, I'll just Jeff Alter, our CEO of our Commercial Business to comment. I think Steve highlighted in New York, we have a somewhat I think unique situation in the small group market in particular, where there are new entrants as well as existing competitors pricing below what we believe is the sustainable cost structure and pricing below, what we believe our cost. We've always maintained pricing discipline. We're a market share leader in New York, we've had a long history of several decades of consistent performance in that market, but we do think that there is a market correction needed. We are going to stay very disciplined in our pricing but again because of the dynamic that's going on there. It's something that, Steve and we highlighted in our opening comments.

Hi, Peter. Good morning, it's Jeff Alter. Just add a little color to that. As most people are probably aware, we've served that market place successfully for couple of decades. We know that marketplace really well. We've got leading economics, we understand the pricing and we really believe at this point that market has got to come back to a more sustainable level. We are comfortable with our pricing in that marketplace. It's just that others, I'm chosen to well below our pricing and that's going to create an issue in that market place. We will talk to the regulator about it. But in the short run, we are going to maintain our disciple like we have on that discipline that serve just well on that market place, but it will put pressure as we think about '14 as we pace into the other quarters in '14. It will put some pressure on risk-based, our membership.

Thank you. Next question.

Our next question is from Dave Windley from Jefferies. Your line is open. Dave Windley – Jefferies LLC: Hi, thanks for taking the question. I wanted to shift over to Optum. Curious how you see, your margins progressing in Optum through the year. You mentioned ramping Optum360 making investments there. I know, you clearly need to see a pretty substantial ramp up over the course of the year to get to that margin guidance range. So interested in progression there please.

We do expect that, Optum is performing exceptionally well and doing it while balancing investments and the assimilation of new business. So it's impressive performance John, Larry?

John, can start and then I'll [indiscernible].

Yes, so just Dave to lead off, I'd say both overall Optum in the individual segment results were in line with the expectations. I think kind of part of what you're alluding to that Dave, is within OptumHealth and OptumInsight earnings were down year-over-year about 4%, 5% respectively here. And what we are doing here is really investing for the future. I would say it's centerpiece of one Optum chapter two. It's all about investing for our future growth. Well I can, draw the parallels to OptumRx and what we did there over couple last few years investing several hundred million dollars into that business and you can now see the results as we are kicking off into 2014. As we look at '14 for ourselves here in OptumInsight and OptumHealth. We'd be looking to invest over $200 million in those businesses this year. All about next generation clinical, administrative, data analytics, collaborative care. Our Optum360 business. We are consistent with kind of look we provided at Investor Day and back to your direct question on progression looking for 40-60 split in terms of earnings progression first half, second half. So get direct to that.

So Dave, it's Larry Renfro but let me make a couple of comments. As John said, Steve said we are investing obviously in future growth. This is all part of the one Optum plan that we put in place three years ago. Where we are continuing to balance growth, investments and cost management. I won't go back over what John was talking about in terms of the some of the examples, but I will mention the PBM because that is the perfect example of something we invested in for a couple of years and we are now starting to see the pay off of that. I'd also tell you, that you could refer to healthcare.gov and the way that we've been working the Federal Government as well as the State as we are starting to partner that's part of one of our disciplines of larger and deeper relationship and we believe that's going to pan out, but the most important thing probably is that $60 million of expense in the first quarter was a planned expense. We haven't [DDA] from our plan and we will reset at this point in time. I think you can look at both business segments and see that the revenues are up. I would tell you that OI or the OptumInsight backlog is up 18% to $7.2 billion and I can also tell you that OptumHealth and OptumInsight's pipeline is 58%. So all this is planned, we are pretty comfortable where we are set with a solid start to the year and believe that will be strong for the rest of the year. Dave Windley – Jefferies LLC: Thank you.

Your next question is from Sarah James from Wedbush. Your line is open. Sarah James – Wedbush Securities Inc: Thank you. I wanted to follow-up here on [ZUBSOLV]. First if you could kind of frame it, so the $100 million is about 1,200 cases. Could you split that between the three segments then to follow-up on pricing? Is it currently priced into your commercial product for this year? How does factoring it into Part D work and then Gail said that, she expected [ZUBSOLV] to be reimbursed for Medicaid does that retracted to the drug launch or more going forward?

I think we will respond kind of in more general terms. We are certainly not going to get into case specific across segments. So absent that, I think we can give you a response.

Good morning, Sarah. Dan Schumacher again, with respect to the new patient volume that we're seeing. We are seeing the highest volume on a percentage basis in Medicaid lock as you would expect as well as in Medicare and then follow-up by commercial, but when you translate that through to the impact obviously Medicare is lower because of the reinsurance aspects of Part D. So that gives you a sense of where the volume is coming from, with regard to the reimbursement. I'd ask Austin Pittman to provide some perspective.

Sure. Thanks Dan. So again as Gail mentioned, we are working diligently with all of our States first to get in alignment with their coverage decisions. Second on risk mitigations strategies, where we are covering again. We do expect it to that is a funding gap that will be solved certain issue of timing and we would expect that to be solved for the contract period. Sarah James – Wedbush Securities Inc: Does that mean retroactive?

Yes. Sarah James – Wedbush Securities Inc: Yes, okay. Thank you.

Sarah, it's John Penshorn. Just I ought for caution on estimating number of people because as Steve mentioned the Federal Government is also covering some of this cost through their funding for the Part D program catastrophic coverage. Sarah James – Wedbush Securities Inc: Got it. Thank you.

Next question, please?

Our next question is from Christine Arnold from Cowen. Your line is open. Christine Arnold – Cowen and Company, LLC: Hi, there. At your Investor Day you mentioned that you were targeting 10 or more really large customer relationships by 2016 within Optum and I hear you about the backlog and the pipeline. Could you talk about, where you see those large relationships progressing in and when we might see some of those?

Sure. We will respond in general terms obviously it's sensitive in terms of these things are active in the market today. So we don't comment ever on specific clients or opportunities but in broader terms. Larry, do you want to?

Sure, I will start and I might ask Dirk and I might ask Andy and [Bill Miller] all three to comment on this. We obviously are talking a lot about what we are doing with Optum360 and that marketplace that is a growth market place for us. The pipeline as Steve said, we from competitive standpoint would not really want to talk about right now. Especially what we are doing on the revenue cycle management side. So I will ask Bill in a second to talk about that. I would tell you on the PBM side. We continue to grow, we continue to see a large number of our RSP's that we are participating in and I ask Dirk to speak to that and on the government side. Obviously what we were doing with the States, what we were doing with the Federal Government and some of the programs that we are involved in, our deals. But also, we are concentrating in the, what I call our collaborative care area that's our care delivery organization. We are going to beat that up bit, so I might ask Jack Larsen to start with that and just give a little feel for what we are doing there.

Thanks, Larry. Good morning, Christine. Jack Larsen. We would view the opportunity to investing our line with some of the better performing primary care physician oriented physician groups and other specialty groups around the country as really central to Optum taking on the mission of some of the toughest challenges of the healthcare system. For example today, in our local care delivery organization. We shouldn't think about as our broadly speaking our physician groups. We serve in 19 markets today and we serve just a little over 1 million people as patients. I would expect this to continue to grow, through some of those larger more comprehensive relationships that your questions sort of pointing at as well as grow it organically and at the continued use of M&A which I think, we're pretty good at there.

Well, maybe Andy you could talk about the government.

Sure, hi Christine. Very quickly, we've been pleased to have the opportunity to serve both Federal and State Government. I think what they've seen is something that's [indiscernible] of the answer to your question is, they've hopefully seen the technology the general healthcare and the execution capability that an organization like Optum can provide. I think that, we will build relationships both at the State level as well as take our technology out commercially in a bigger and bigger way really substantial relationship where we become a more embedded part of our clients.

So maybe Dirk on the PBM?

Yes on the PBM, hi Christine. Our pipeline's up a big year-over-year and this really on top of a nice strong sales showing last year. If you look at final [spinings], we've attended. We are certainly getting our ad backs with a big customers. For example this year, I've already attended two final [spinings] where opportunities where in the 0.5 million member range. We are certainly getting our opportunities. We are excited about our pipeline, although I will tell you we are really still early in the season at lot [TBD].

Two more areas, I'll ask Mike [indiscernible] and this goes back to Steven's comment in his opening remark about the 700 organizations that we do not do business with today. Obviously on our consumer solution side, we are starting to really target. So Mike, maybe you might want to comment on those?

Sure, this is Mike [indiscernible]. So from a employer perspective there's 700 of the Fortune 1,000 that Optum doesn't serve in any way today. We think there is a large opportunity out there for us to take a lot of our consumer solutions directly to those and wrap those services around them. So we are in ramping up the sales force. We are in conversations, starting those conversations with the number of these large employers. We are also starting conversations with a number of associations and other places to try to get to consumers with product and services that we think will really empower them to take ownership at their healthcare in new ways.

So I'll end with [Bill Miller]. Bill, could you talk a little bit about our hospital market.

Yes, so Christine. Thanks a lot. There's three things that I'll touch on and where these big relationships will continue to grow and foster and our three basic areas as we mentioned. Optum360 and we are in several negotiations with the next phase of clients, we obviously aren't going to expose those right now, but I'd also remind you that business platform is adding clients every day. They may not be the big large multi-year arrangements and many of their if you look at our backlog going 18% to $7.2 billion that's a function of those tools that we have out in the marketplace of subsets of a full blown and the [NDL] being absorbed by many, many clients on a quarterly basis. And those set the stage for large arrangements down the line and some of those are measured in the $10 million to $15 million arrangements over the course of three years to five years, but we will see other very large ones added over the year and then I think we are doing far more work on the ACO side helping hospitals, reengineer themselves to become ready for fee-for-value. So we've had several large transactions in that space and we will continue to see those through the year and then finally, the other area emphasis for us both in our payer, provider. Andy touched on it in the government market is our continue ability to impact the market place from a BPO standpoint. With our technology scale, with our state-of-the-art technology and ready to go technology along with our consulting services. We are finding acceptance in the marketplace whether it be amongst payers or providers to slide in the positions, where we are really managing large chunks of there, if you will core business so that they can focus on taking care of their members. And with our backgrounds both on the payer and provider side. We end up being a pretty suitable partner in those really game changing decisions that governments, payers and providers are making and more consistent basis as margin pressures and talent pressures continue to mount the market place. Christine Arnold – Cowen and Company, LLC: Great. Thank you.

So I might complete that very comprehensive response, by saying if you listen Optum's challenges are out more around abundance. There are significant opportunities getting those relationships started right, recognizing. They're going to be substantially larger than the relationships we've had in the past that they're going to engage a broader spectrum of services and that they're much longer term. We are trying to be thoughtful about these approaches in each of our businesses there as well as continuing to make sure that we are investing. So that we are delivering ever better value. So they're navigating in that those kind of waters right now which are really great waters to be in at the moment. So next question.

Your next question is from A.J. Rice from UBS. Your line is open. A. J. Rice – UBS Investment Bank: Thanks a lot everybody. I guess I was thinking, you hadn't really said much about your views about, with how the whole public exchange for share process played out and now that. We are done with the open enrollment. You got to think fairly quickly about what you're going to do with respect to 2015, give us any updated thoughts and assessments of how it played out and what your posture will be for next year?

Sure. I'll have Gail and others to respond principally to that. We were involved from the Optum side, so we do have some perspectives from that. it is still very, very early in the life of the exchanges and second year in terms of how they will evolve, will be effectively somewhat by what I call, a lot of spontaneous change over the course of the first year implementation, which we understand that does require some consideration and calibration as we go, but Gail do you want to start?

Sure. Good morning. As you know, we had a very modest footprint in 2014 and as we've said and still believe, we do have buyers to increase that participation in 2015. There's a lot happening in that, we are in the process of doing our evaluation. Obviously, we are looking at how the markets and products are regulated. The networks that we would put in place, but there are some things that we did learn in the first part of the market for us that the size of the overall market is positive and that the configuration of products around sober, is also positive for the market and that there is now some experience and a desire to be, to keep the exchanges stable. So we don't know much about second year pricing. We do enough first year pricing still again, at this stage just reiterate that our [bias] is to increase our participation to '15 and we will share more with you as those decisions are made over the coming months. A. J. Rice – UBS Investment Bank: Okay and great thanks.

You know, I'd also observe that while we will, if we engaged in readiness. You really don't have to commit until September I think. So we have time to see how this plays out a bit. A. J. Rice – UBS Investment Bank: Okay.

Next question, please.

Your next question is from Ralph Giacobbe from Crédit Suisse. Your line is open. Ralph Giacobbe – Crédit Suisse AG: Thanks, good morning. Just wanted to go back to the comments on intensified pricing. I guess ones, where I make sure is it just in New York or you're seeing it. Your startup in other markets and then second did you say that, in New York it was coming from new entrants and existing competitors and then just the last piece. You're just trying to sort of tying in on how related it is to, the public exchanges plans, maybe pricing that would encourage dumping or is it or are you saying it's just sort of head-to-head off exchange sort of land grab. Thanks.

I think that Gail and Jeff are perfectly prepared for this.

Good morning, Ralph. A couple of things because there is number of questions embedded in there. Let me start first with your questions around exchanges in early renewals. One of the first things, is that we've had a very successful early renewals of our small group customers in the fourth quarter that clearly is a big positive for us going forward. In terms of the New York issue, I'm going to let Jeff specifically address it. We talked about it, but it is a unique to New York issue and yes it is both existing competitors well as new entrants, but there is some unique dynamics in that market. You brought a question around what's happening in the competitiveness of the overall market. As Steve said in his opening comments, we have seen in the first quarter again after very successful early renewals of small groups and intensified pricing in some slack markets that is having an impact on our fully insured risk because we have stayed very disciplined in our pricing. So that's really the dynamic that's going on it is select market. And there is dynamic of the early renewal that occurred that having impact on that. New York has some unique characteristics and we wanted to point that up because of those in your characteristics and I'll ask Jeff again to comment on that.

Good morning, Ralph. Yes actually, when you think of that New York market place it was probably one of the least affected by the ACA as it is been community rated. Some fairly stable from '13 going into '14 but there were some new entrants into that market place that in our opinion clearly are underpriced what the cost structure is in New York, not only our cost structure but certainly their cost structure. And then over the last few years, we've had competitors that have left the New York market place that chose to reenter the market place in January '14 and we see those competitors also under priced for what the economics would call for it.

So next question, please.

Our next question is from Scott Fidel from Deutsche Bank. Your line is open. Scott Fidel – Deutsche Bank: Thanks, I know it's clearly very early here but just wanted to get your thoughts on expectations for the 2016 MA rates, just sort of thinking about some of the factors that benefited the 2015 rates at CMS, said that they may revisit for example freezing the move to the risk adjustment model, then also delaying their proposal one on the HRA proposals. You know I there was hope and expectations at the 2016 MA rates, we can see the sky sort of clear there, but given some of those factors that I mentioned, just interested in your thoughts here on, 2016 MA rates?

You know, I'm not sure that we offer kind of public perspective on future rate settings that we don't really have any control over. We are aware of the factors and many others that go into thinking in terms of rate setting. We are still digesting 2015 and I really am not going to comment about that rate setting process. If you look back, our [batting] average on that would be pretty poor. So I don't think we are going to set into that, I would just speculate that there is been pretty steady funding pressure in terms of the Medicare Advantage program that it is been hit severely by the insurance taxes. It's been effected by the funding posture in various ways that CMS develops the rates each year and this is now been several years against a moderate but still rising overall cost trend. So we will be very watchful and careful with respect to continuing to advocate for fair funding to the Medicare Advantage segment. It's a segment that serves 15 million seniors, it continues to grow. It continues to perform exceptionally well particularly in comparison to the fee-for-service program. So we would be advocates of thinking that programs really should be more the future of Medicare and funded appropriately for that purpose and that it affects seniors. Our posture there hasn't really changed and it won't change in '16 and we will be hopeful that, to you know the funding perspectives take that into consideration going forward. Beyond that, I really can't really respond to your question. Scott Fidel – Deutsche Bank: Okay, thanks.

Your next question is from Christian Rigg from Susquehanna. Your line is open. Christian Rigg – Susquehanna Financial Group, LLLP: Good morning, thanks for taking my question. Just want to make sure, I understand the messaging on the Hep C sorry to come back to that, but you know Dan I know you said percentage wise you're seeing the most volume in the government segments. But in the press release, the only area where you're specifically highlighted is in the commercial side. So is it fair to assume that, sort of the greatest area of surprise has occurred in commercial or there is been across the board. Thanks.

Good morning, Chris. It's Dan. We've been surprised on the volume, the pent up demand across all three businesses and maybe I'll step through the Commercial Care ratio and how that goes into the consolidated and how you think about Medicare and Medicaid to put it into context around the pieces. So from, as you look at the Commercial Care ratio it was higher this quarter than we had expected and there's really two pieces two it. One obviously Hep C and the other element is the early renewals. So we saw greater volume of early renewals and so customers choosing to stay with their existing plan typically healthier and younger and that led to less premium. So those are two factors that were really influencing the commercial outcome and then when you blend that together with Medicare and Medicaid which had pressure from Hep C but overall are performing well in line with our expectations that meets the impact at a consolidated level. So hopefully that provides greater color on the implications inside each for the businesses. Christian Rigg – Susquehanna Financial Group, LLLP: Understood. Thanks.

And I wouldn't take any undue significance to the order. We just merely talked about commercial first and got it in there first, there was no intent there. Next question, please?

Our next question is from Sheryl Skolnick from CRT Capital Group. Your line is open. Sheryl Skolnick – CRT Capital Group LLC: Good morning. I have to say to put this in context $0.35 worth of earnings pressure to come up with this decent quarter with hard work on a big organization and it's appreciated and I respect it very much. The question I have to get away from the important detail of Hep C and some of the other items is, to step back and perhaps take a look at the bigger picture of the company for a second. I noticed that for example you spent $345 million, if my numbers are correct this quarter on acquisition. You're spending another $200 million on investments in the two Optum businesses Health and Insight in order to create platforms in structure and opportunity for further growth, but what I'm really I'm trying to get at it is, what else can you tell us or share with us about your thoughts on capital deployment. Whether it be acquisitions or investment in the business or indeed dividend policy and share repurchase that we should be looking for as not so much offset but positioning the company for growth this year as well as in the out years.

I offer a response that probably won't be very surprising and then ask Dave, if he has any comments. I would – our capital postures have been changed and in the broadest sense and they're all oriented towards balance of building for the future in continuing to grow and diversify and enterprise in a thoughtful and logical way and then making sure that we are returning capital to shareholders in a efficient as well as balanced way. So we will continue to invest organically actually first and foremost and you can see those investments play out in our Optum business and there are also investments in the UnitedHealthcare business and I would also offer that a lot of our internal capital spending as you set in the financials are particularly related to technology in continuing to advance in a refine, a better and more modern health system that we can propagate across the country. We continue to balance that with external growth and we continue to maintain a disciplined appetite to continue to grow and expand our business, where we see opportunities to either expand or position a market share that we are looking to pursue market position or secondly cultivate a capability and much of our investment is around bringing capabilities into [bear] and adding them to our portfolio. Optum is a great example of this and our technology is its wealth. And then lastly to return capital by way of a balance between dividends which we have been advancing strongly and will continue to take an orientation to make sure that we are advancing them to a market pay out position and share buyback. Those have served us well and they've been very consistently applied and it provides a nice balance in terms of being able to continue to advance, expand and diversify the business and capture that growth, which is really the sustaining longer term growth and opportunity as well as maintaining a discipline over capital efficiency and maintain appropriate and hopefully accretive capital returns and earning returns.

Having that be, virtually impossible to say anything in addition to our shareholders. Dave Wichmann [indiscernible] for a couple of additional comments. First probably as you've seen in this quarter. We had a nice cash flow in the quarter particularly compared to last year and we are managing cash flows and our returns on invested capital very hard and in very disciplined way. The increase in cash flows for this year to the $7.8 billion to $8.2 billion level be invested as Steve discussed. I think you've seen that, we had a very strong repurchase period in the first quarter here. Set 3 billion and 3.5 billion in shares repurchase through 2014 but clearly we are on track towards the upper end of that range at this stage. In the spirit of continuing to return capital to shareholders. As you know, each of the last three years we've increased our dividend by 30% or more that is something that we are committed to reevaluate in periodically. We really look at the outlook of our business, the capital requirements of our business and then also what our peer benchmarks are I don't think it's news to anybody that we have some room to improve there. On the M&A front, you notice there's a relatively modest investments but I think strategically important because they're aligned to, what we said at our investor day. They're really oriented more towards our Optum businesses where we see a stronger growth prospects turn these growth prospects and in that case. We think, we've acquired the leading consumer digital health platform in the country, but in addition to that. We continue to extend our reach internationally with relatively modest but strategically important investments particularly in South America, where we think there's a wonderful opportunity long-term to grow. So with that, I'll end. Thank you.

Thank you for the question. Next question, please

Our next question is from Josh Raskin from Barclays. Your line is open. Josh Raskin – Barclays Capital: Hi, thanks appreciate you guys taking the question here at the end. So I really just want to drill in to this commercial MLR ratio and make sure we are not overreacting to New York and a couple of things. The good guys in the quarter to me would be the ACA fee. So it would be helpful if you could tell what the actual ACA fee was and maybe by segment that would be particularly helpful and then the impact of whether, it looks as though with your payables up four times as much as your premium sequentially. You're probably just assuming that utilization comes back and we will figure that out, when we get to see March, April claims. And then on the bad side, hep C is $100 million of 36 basis points. Obviously not all of that is commercial and so I'm assuming maybe that's 10 basis points. So that certainly is not getting above your range and New York State I calculated you know about 7% your overall premium. So you know every 100 basis points there is seven bip. So I'm struggling to figure out, what's going to drive you above the 80.5% plus or minus 50 basis point range in Commercial and really want to just make sure that New York is not bigger than sort of 7% impact or something that I'm calculating. Well, we'll respond I think more in general terms and I agree there shouldn't be an overreaction and I would also agree that it is a portfolio of issues and pressures and we are kind of alerting you to that portfolio. So that is kind of context. Dan, do you want to respond?

Sure. Good morning, Josh. It's Dan. You add a lot a pieces to that. First I want to clarify, you talked about the commercial loss ratio. The commercial loss ratio guidance is 79.2% plus or minus 50 basis point. The consolidated loss ratio guidance is 80.5% plus or minus 50 basis points. And so as we look inside the Commercial business. We have two principal pressures, the bigger of which is the early renewal impact and having less premium. Good long-term thing, it impacts our premium in near term and then the second in the order of impact is, the Hepatitis C impact and when you put that together that gets muted on the Medicare and Medicaid side because they don't have those other dimensions we are talking about other than the Hep C. And our consolidated basis, that might suggest that a loss ratio may lean towards the higher end of the range. That's about, also I think ACA fees. Our fees in the quarter, we're in the range of about $450 million on an expense basis and then obviously from a reimbursement standpoint, we have reimbursement in the commercial business, which is higher because it has insurer fees and the reinsurer's fees. We have less in Medicaid because it's just the insurer's fee and then there isn't a mechanism in Medicare in premium to recover that. So hopefully that gives you some more context around the pieces. Josh Raskin – Barclays Capital: Okay, so you didn't even mention as a pressure in commercial overall now. Is that because it's not big enough in terms of magnitude.

That's more of an impact on the enrollment. So you look at a risk based enrollment and some of the pressure we are seeing there and potential forward, that's more a commentary on the enrollment and less on the loss ratio. Joshua Raskin – Barclays Capital: Okay. So I guess I'm still struggling to understand the commercial ratios 79.2% plus or minus 50 basis point seeing impact of more than 50 basis points. Again I know hep C is small of the early renewals, I assume have to be a huge impact then much bigger than you guys were expecting.

It's a very meaningful impact on the early renewal side, we saw more than two times the volume, we had expected. Joshua Raskin – Barclays Capital, Research Division: Okay.

But again, also a good thing in terms of it positions us and how it sustains that members and does it for a good period. So I think, while there is resulting pressure. The reality is, I think a very good business decision and a good outcome for us. Right. Joshua Raskin – Barclays Capital, Research Division: Right and no impact from weather then because that wasn't mentioned.

I would tell you, as we look at weather in the quarter. It was a very smallish impact. As you look which days were the heaviest in relation to what we see a normal patterns as you look at where our densities are from a population perspective. It wasn't particularly meaningful. Joshua Raskin – Barclays Capital, Research Division: Okay. Thanks.

But you've a very good list, Josh. You were listening very attentively and but I think we will conclude our Q&A session for this morning as always. There an opportunity for you to talk to John and Beth and so forth through the course of the day. I just might sum up by saying UnitedHealth Group, Optum and UnitedHealthcare are tracking to the plans, we shared with you. As we told you in December. We fully expect the challenging conditions throughout 2014 and we are working through the headwinds of ACA implementations, the Medicare cuts, comparative market dynamics etc. we would have had an underlying growth rate of more than 20% absent the impact of ACA taxes in the regulatory provision. We believe we have the right plans and plays to deliver on our commitments and we know the people of this company have the talent, the experience, the innovation and the drive and are determined to succeed. So we thank you again for joining us. We will see you next quarter and this concludes this morning's call. Thank you.

That concludes today's program. You may now disconnect at any time and have a wonderful day.