Executives: Stephen J. Hemsley - CEO David S. Wichmann - President Larry C. Renfro - VC, UnitedHealth Group and CEO, Optum John Rex - EVP and CFO Andrew Hayek - CEO, OptumHealth Tim Wicks - EVP and CFO of Optum Eric Murphy - CEO, OptumInsight John Prince - CEO, OptumRx Steve Nelson - CEO, UnitedHealthcare, Medicare & Retirement Brian Thompson - CFO UnitedHealthcare Medicare & Retirement Jeff Alter - CEO, UnitedHealthcare Employer & Individual Dan Schumacher - CFO, UnitedHealthcare Austin Pittman - CEO, UnitedHealthcare Community &

State
Analysts: Justin Lake - Wolfe Research David Windley - Jefferies Kevin Fischbeck - Bank of America Merrill Lynch Chris Rigg - Deutsche Bank Peter Costa - Wells Fargo Securities Scott Fidel - Credit Suisse A.J. Rice - UBS Joshua Raskin - Barclays Ralph Giacobbe - Citigroup Sarah James - Piper Jaffray Matthew Borsch - BMO Capital Markets Ana Gupte - Leerink Partners Sheryl Skolnick - Mizuho Zack Sopcak - Morgan

Stanley
Operator: Good morning.

And I'll be your conference operator today. Welcome to the UnitedHealth Group Second Quarter 2017 Earnings Conference Call. A question-and-answer session will follow UnitedHealth Group's prepared remarks. As a reminder, this call is being recorded. Here is 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 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 file with the Securities and Exchange Commission, including the cautionary statements included in our current and periodic filings. This call will also reference non-GAAP amounts.

A reconciliation of the non-GAAP to GAAP amounts is available on the financial reports and SEC filings section of the Company's Investor page, at www.unitedhealthgroup.com. Information presented on this call is contained in the earnings release we issued this morning and in our Form 8-K dated July 18, 2017, which may be accessed from the investors’ page of the Company's website. I would now like to turn the conference over to the Chief Executive Officer of UnitedHealth Group, Mr. Stephen Hemsley. Stephen J.

Hemsley: Good morning and thank you for joining us today. As we reach the halfway point of 2017, UnitedHealth Group, Optum, and UnitedHealthcare continued to grow and perform strongly and we expect our performance momentum to carry forward through the balance of this year into 2018 and beyond. UnitedHealthcare has been a distinctive organic growth leader over the last seven years. During that same time Optum has emerged as the leading force for broadly enabling the healthcare industry with market leading data analytics and practical and innovative approaches to longstanding market challenges. These businesses are strong, stable, and exceptionally complementary to each other, growing and operating effectively while continuing to diversify naturally into adjacent healthcare markets.

With a socially sensitive global healthcare market constantly challenged and changing we see UnitedHealth Group, Optum, and UnitedHealthcare built for that environment. Adaptable and creative, focused on the people and customers we serve, working with others and playing our role in leading and supporting progressive change across health systems. One important constant is our commitment to mission and the quality of our work, the positive experience and value we drive on behalf of consumers and customers, and their cultural bonds of integrity, compassion, relationships, innovation, and accountable performance we seek to bring to everything we do. We are at home in the current environment. UnitedHealth Group is a different organization than we were just 10 years ago and you should expect us to be different still a decade from now.

Society will continue to need and drive change in healthcare, we will continue to adapt and evolve with it and on behalf of it. We are committed to reaching the full potential that UnitedHealth Group has to offer, knowing the next 10 years hold more opportunity than the last 10, those who are committed to keep evolving, perform consistently, and deliver value. To guide our progress we have a strong, deep, and restless leadership team in place which will continue to positively evolve and change as well. I'll turn to three of those leaders Dave Wichmann, Larry Renfro, and John Rex to take us through our second quarter earnings report. Dave?
David S.

Wichmann: Thank you, Steve. We enter the second half of 2017 in a strong position. UnitedHealth Group is serving more people more consistently with greater levels of measurable satisfaction than ever. We are reaching, helping, and staying connected to the people we are privileged to serve in more ways and through more channels both digitally and physically in the communities where we work. We are caring for more people, closing more gaps in care, and producing more savings and value for consumers and sponsors.

We are partnering more deeply and impactfully with care providers in part because our nearly 25,000 OptumCare doctors are dedicated to serving patients affiliated with more than 80 payers across the nation including UnitedHealthcare. That experience helps us to think more broadly than most about topics like the application of technology to enhance the consumer experience, the use of data, analytics and data exchange, effective management of healthcare resources and evidence based protocols, and healthcare quality, consistency and payment models that better serve people and plan sponsors. Today we serve 139 million people globally including 126 million people in the United States. And we see UnitedHealth Group's U.S. and global market potential as with all practical limit at this early stage in the evolution of our company.

Second quarter results followed things from our first quarter performance. In the second quarter the company produced strong and balanced revenue growth pacing to exceed the $200 billion mark this year. Medical costs were in line with expectations. Operating costs continued to be well contained. The company generated strong cash flows up 29% year-over-year as adjusted net earnings grew 26% over last year's second quarter to $2.46 per share.

For the first half of 2017 adjusted net earnings grew 28% year-over-year to $4.83 per share. UnitedHealthCare continued to deliver exceptional results in the second quarter. Excluding the individual market, UnitedHealthCare grew to serve 2.5 million more people year-over-year including 1.7 million more in the first half of 2017. This continues our consistent, multiyear organic growth performance across all three major businesses. This growth has been fueled by a long history of restless products and service innovation responding to and even sometimes driving market evolution.

This focus towards innovation has advanced the data, information, and tools to support both individual efforts to achieve better health and system wide efforts to deliver better healthcare. A business model increasingly centered on serving the unique healthcare needs of consumers, we are performing in serving new populations such as group Medicare Advantage, people with complex conditions served by Medicaid programs in emerging markets like Brazil as well as in longstanding well established markets. Healthcare is essential to everyone, individually and to the quality and productivity of societies and we aim to serve it all in one way or another, one person at a time to the best of our abilities. A dedicated compassionate workforce of 260,000 people serving in local communities built on UnitedHealth Group values and singularly aimed at helping people live healthier lives and helping make our health system work better for everyone. They are led by a deep and stable UnitedHealthcare leadership team that has worked together for more than a decade.

And finally our commitment to quality in everything we do, in advancing net promoter scores both strengthening customer and consumer retention and care provider relationships across all of our businesses. In many ways we are still just getting started but you can see the momentum in our results. In the employer market our local group commercial business continues to grow organically month in and month out, virtually every month for almost three years. In the past 12 months we have grown to serve nearly 600,000 more people through full risk products in the employer group market. We are growing by consistently serving the health needs of this population at more affordable levels and with greater consistency in the quality of their experiences and the cost of their coverages.

Across Medicare Advantage and Supplement UnitedHealthcare has grown to serve 935,000 more people in the past year with balanced growth in the individual senior market and the corporate retiree market. Our Medicare Advantage business continues to benefit from strong consumer retention reflecting senior's positive experience and the clear economic value of our offerings. In 2018 our distinctive product value and consumer experience should allow us to continue to grow as we expect to increase our overall Medicare Advantage market share in a growing Medicare Advantage market again next year. States continued to turn to the private sector to strengthen and modernize their Medicaid programs. We are implementing four new State awards this year in California, Missouri, Nebraska, and Virginia.

We discussed dual special needs plans with you in our first quarter call and our revenues serving people through these plans grew 33% year-over-year in the second quarter. In total our community and state business served over 700,000 more people at June 30. Taken as a whole the UnitedHealthcare businesses grew revenues this quarter by $3.2 billion or nearly 9% to $40.8 billion despite forgoing over $1.8 billion in revenues from the ACA individual insurance market withdrawals and the health insurance tax moratorium. Earnings from operations exceeded $2.2 billion in the quarter growing 13.9% consistent with our top line growth rate in the quarter after considering the ACA items. Let me now turn it to Larry for his perspective on UnitedHealth Group's enterprise growth and an update on Optum.

Larry?
Larry C. Renfro: Thank you, Dave. Yesterday evening UnitedHealth Group was honored to announce the early renewal and extension of our distinctive and longstanding relationship serving seniors together with AARP. Our two organizations have a 20 year history of working together to serve seniors greatest needs and to advance health and healthcare in practical ways. Each of us believes there is no better collaborator for the work we do on behalf of those we serve.

We expect the value of this relationship to grow further in the years ahead as we continue to implement shared ideas and innovations, to better serve Americans over age 50 as the growth of that population accelerates meaningfully. The AARP relationship is a good example of our leaders working at the enterprise level to develop broader, deeper relationships, strengthen customer experience through NPS disciplines, and drive strong sustained multi-year growth. Other examples abound receiving new awards as well as contract renewals and expansions serving State Medicaid programs, corporate Medicare Advantage awards, new and renewing pharmacy care services awards, and the Department of Defense engaging us to provide NurseLine and digital clinical support services to military health system beneficiaries. Or the work we are now doing for Merck and others in the life sciences domain to help understand the impact of their medicines in a value based contracting world. The breadth of that list should give you a sense of why this team shows a high level of optimism as we look ahead to the next decade.

We serve deep end markets with significant unmet needs and we are working to better serve these customers by improving the economic value of our services consistently raising quality and innovating in ways that solve problems. These efforts are steadily driving net promoter scores higher. Turning specifically to Optum, second quarter revenues increased by $2 billion or 10% to $22.7 billion driven by strong organic growth even as OptumRx revenue growth rate was affected by its delivery of significant channel savings to customers and consumers. Optum’s earnings from operations grew 20.5% to $1.5 billion as operating margins expanded 60 basis points over last year to 6.7%. All segments grew earnings by double-digit percentage rates in the second quarter.

At OptumHealth we grew to serve 9 million more people in the past 12 months with per capita revenues growing about 13%. This is an important metric as we look towards future deepening our relationships with the consumer. Growth continues to be led by OptumCare business which grew revenues by more than 40% through the combination of strong organic growth and strategic business expansion. At OptumCare our goal is to create and operate the leading high value ambulatory care delivery system in the nation offering high quality, cost effective care to a full spectrum of payers and patients. We do this by empowering clinicians with data, insight, and workflow protocols that bring the best of Optum analytics to bare in settings where strong analytics directly impact people's lives for the better.

By improving patient value and satisfaction at the best sites of service for care delivery, helping people access care that is convenient, high quality and affordable, and by serving physician employees and partners giving them the tools and support they need to be great medical practitioners focused on the clinical needs of their patients and on growing their practices to serve more health plans and people. The second quarter was our first full quarter with surgical care affiliates included in OptumCare's results. SCAs performance is slightly ahead of our expectations at this point. The SCA team continues to expand their business establishing six surgical outpatient facilities so far this year. We are working and accelerating pipeline of opportunities on aligning future development priorities with our overall OptumCare geographic market strategy.

And the needs of consumers in our health plan customers. Like SCA the MedExpress portion of OptumCare continues to grow steadily. MedExpress opened 20 new neighborhood care centers in the first half of 2017 and is on pace to produce record growth while experimenting with alternative formats and approaches that could deliver even greater convenience and value to consumers. In the local market primary care business we were privileged this past quarter to expand with two exceptional market leading group practices in Indianapolis and Denver. We continue to align with the leading local medical groups who are committed to the idea that patients benefit significantly from deeper investment in proactive primary care services.

Our doctors help patients achieve a healthier state and to do so with a favorable cost profile. We are more than five years into the OptumCare build out but we are still in the early stages. We remain focused on its steady development and see this business as a significant source of growth for the next 10 years and more. At OptumRx the revenue growth rate of 5% was well in line with expectations for 2017. Revenue yield per script was flat as we effectively passed supply chain improvements on to our customers.

We continued to experience strong customer retention as large sophisticated buyers who value transparency are attracted to our data driven clinically integrated approach. These organizations are represented in a strong pipeline stemming from our healthcare transformation alliance relationship discussed in our last earnings call and our recent award to provide pharmacy care services to the State of New Jersey beginning next year. OptumRx fulfilled 322 million adjusted scripts in the second quarter, an increase of 5% over the last year. In 2018 we again expect to grow our adjusted script volume above the industry growth rate. OptumInsight continues its strong growth pace particularly in the payer and care provider markets with recent awards or late stage RFPs in the areas of data analytics, payment integrity, business services, revenue management, and clinical best practices.

OptumInsight's revenue backlog grew 18.6% or $2.1 billion in the past 12 months with $800 million added in the first half of 2017 included $300 million in the second quarter. Stepping back Optum is positioned on the front edge of the major growth trends in the market helping the health system perform better for everyone. We use advanced technology, market leading health analytics, modern care delivery, data driven population health approaches, and distinctive pharmacy care services as a portfolio of capabilities that help our clients reduce cost and solve complex operational challenges on behalf of the people they serve. This unique position gives Optum a long runway for continued growth and we are further focusing our growth efforts to take advantage of the opportunities. Now let me turn it over to John Rex.

John Rex: Thank you Larry. The strength of our two business platforms drove strong, consistent, well balanced results in the quarter. Five of the seven reporting businesses had revenue growth rates above 10% as consolidated revenues grew 7.7% surpassing 50 billion in a single quarter for the first time. Our consolidated earnings from operations exceeded 3.7 billion and our net earnings to shareholders grew 30% year-over-year to 2.3 billion in the quarter. Second quarter adjusted EPS rose 26% to $2.46 per share.

The second quarter medical care ratio of 82.2% brought our year-to-date care ratios to 82.3% putting us on track to be at or below the midpoint of our full year 2017 outlook of 82.5% plus or minus 50 basis points. Medical costs have been well managed and continue within our established outlook and market pricing across segments and products remains disciplined and rational. The operating cost ratio was 14.6% in the second quarter and 14.5% through the first six months. For the full year we expect to be at or slightly above the midpoint of our 2017 full year outlook of 14.5% plus or minus 30 basis points. Due to the mixed impact of care provider expansions which carry disproportionately higher operating costs and which added about 80 basis points year-over-year to our consolidated operating cost ratio in the quarter.

These mix changes signaled the continuing diversification of our revenues. Touching on capital for a moment, our Board increased our dividend payment rate by 20% to $3 per share annually at our June Board meet. And we expect to achieve a debt to total capital ratio of approximately 40% by the end of this current quarter, three months sooner than our previous outlook. Cash flows from operations through the first half of 2017 are solidly in line with our outlook and we continue to expect approximately 12 billion for the full year, an increase of 22.5% over last year. This morning we've increased our outlook for 2017 adjusted net earnings to a more narrow and higher range of $9.75 to $9.90 per share, prudently recognizing the strength in this quarter.

We remain comfortable with the existing Street consensus view of third quarter adjusted net earnings per share. With full year 2017 adjusted EPS now expected to grow in the area of 22% of the midpoint we feel this is an appropriate stance at this point of the year. Steve.
Stephen J. Hemsley: Thank you, John.

We recognize at this point in the year thoughts begin to shift to the year ahead. Consistent with our past practices we are not going to discuss 2018 in any depth this morning, it's simply too soon, and there is too much unknown at this point. But we can offer directionally suggests the fundamentals of our businesses remain strong and we feel positively about our ability to perform and grow in 2018. Like any year 2018 will have its share of headwinds and tailwinds. The tailwinds are largely organic and company specific.

Among them we would include continuing growth momentum and performance particularly with customer retention as our focus on NPS improves, increasingly effective capabilities to manage and contain medical costs, the improving leverage of our operating infrastructure, and our continuing efforts to optimizing capital management, investment income, tax cost, and other areas. The headwinds are largely around externalities. National and state healthcare policies, funding trends, and taxes which we and you are all following closely. We respect the complexity of the social, economic, and political matters that are intertwined here and certainly at this stage in the national conversation speculation about any outcome here would just be that. So we approach each year determined to overcome headwinds and grow to our best potential given the diverse and complementary portfolio of businesses and capabilities we can deploy.

For 2018 and beyond themes for us will center around continued broad based and diverse organic growth across our portfolio. Steady substantive advances in quality and NPS that will gain further momentum in 2018 and position us well for the future. But first focus on costs, to drive better product price points continued evolution of our products and services toward more consumer centric and market response of designs particularly in healthcare delivery and pharmacy care services, deeper larger relationships, market alliances, and other channel partnerships. Advancements in the application of next generation technologies to drive better health outcomes, value and consumer experience at lower cost. And with capital capacities at full strength continued focus on thoughtful deployment of capital including expansion and diversification both domestically and globally and return of capital to shareholders through market rate dividends and measured levels of share repurchase.

We will give you some initial direction on 2018 in our third quarter earnings call and the full review at our November 28th Investor Conference. We remain positive and constructive with respect to our organizations potential to better serve the health and well being of individuals and improve the health system overall. As we respond to these needs we will realize the remarkable growth potential of this enterprise and we thank you today for your interest. Our executive team is here in the room with us to answer your questions and please only one question per person, thank you.

Operator: [Operator Instructions].

We'll take our first question from Justin Lake with Wolfe Research. Please go ahead.

Justin Lake: Thanks, good morning. I wanted to ask about the OptumCare business but first let me congratulate Andrew on the new role and then given the optimism on future growth here that was discussed, hoping you could put some numbers around the opportunity, maybe share with us the current revenue profile for 2017 that’s expected here? And then where do you see the ultimate business opportunity in terms of the TAM as you continue to roll out your 75 target MSAs and then maybe share where you think is the sustainable growth rate for this segment of the business going forward? Thanks. Stephen J.

Hemsley: Justin you seem to have captured all the appropriate themes maybe we'll have Larry start and then Andrew pick that up. Larry C. Renfro: Sure. Justin that's a good question and it’s an appropriate question but I thought I might since we're going to talk about growth and maybe give you kind of a general view of growth across Optum for a second and then we’ll get to Andrew but I'm going to ask some other people to talk about growth as well. I'm probably going to bring in Tim Wicks from a financial standpoint.

And John Prince from a PBM standpoint and Eric from Optum360. But we’ll lead off with Andrew in a second. There's really just some three areas of what I'd call metrics that we pay attention to when we are looking at our growth across Optum. Number one is are our sales pipeline and I think you hit that and again I'm talking about Optum in general. And our pipeline today is greater than $40 billion and it's a strong, strong pipeline and that's not including what I would call mega deals.

This is excluding them but we have a very robust pipeline of about $40 billion. Our sales year-to-date is around 23 billion and that 23 billion would compare to last year's sales in 2016 in total of about 30 billion. The year before at about 10 billion so you can see the growth that's taken place from an overall sales perspective. The third area on the metrics would be how we look at our backlog and Eric Murphy will talk about that in a second but it's up and I think I mentioned it in the script 19% and year-over-year about $2.1 billion. So as we have really kicked this year off and what we've done through the first six months has been very robust in all three of those areas.

So let me switch over to Andrew and let Andrew talk specifically about what the question that you asked and then we're going to walk through some of the other growth areas as well. Andrew?

Andrew Hayek: Thanks Larry, good morning Justin. So as you know we have a belief that there's a significant opportunity to improve the quality, the experience, and the cost of healthcare on a national basis creating value for patients and the marketplace. And the experience over the past several years has been that physicians can achieve outstanding results when empowered with the right analytics, tools, and support. And the market is asking for these kinds of models to improve the cost, quality of care.

So our approach is to tailor our market presence based on the local factors in each market that we serve, leveraging primary care, urgent care, surgery centers, and house calls, leveraging technology and tools from across Optum to create value for our patients and for our care providers. We are building this in a multi payer manner serving all payers in the markets that we serve and we believe your question that the market potential is very significant, the depth of the issues resolving, the value we can create for patients into the marketplace is very significant, and we look forward to creating a business multiples of our current size.

Tim Wicks: Justin, it is Tim Wicks, let me jump in as well and talk about overall Optum revenues. So, overall total revenue and unaffiliated revenue growth were both in line with our expectations on the quarter. OptumHealth and OptumInsight together had double-digit unaffiliated revenue growth for the quarter as well.

I would point also then to OptumRx and just want to clarify this work in the supply chain that we've been doing is translating into lower drug costs for consumers and customers and that really would translate then into lower external revenue for this quarter even though external scripts were up year-over-year. As you know we never apologized UHC's growth and UHC grew faster in the quarter which is obviously a positive impact to our revenue as well. So as we look at the quarter our revenue and product mix are on plan for yield. Total revenue and external revenue both in line with our expectations.

John Prince: Justin, this is John Prince, CEO of OptumRx.

I just wanted to talk a little about OptumRx and how we are doing. We're halfway through the year. We are hitting our new business targets and we remain very confident about hitting our full year target. Our retention is very strong, we have renewal rates in the high 90's. As Larry mentioned in the script we're very honored about the award from the State of New Jersey.

That deal actually brings us more than 700,000 new members. We see a broad trend that large, sophisticated buyers are very attracted to our pharmacy care services model, it is very differentiated in the market. We've had some other normal wins and we have a health plan wins and also we have renewed our health plan clients who are out too this year. We have several new wins through the healthcare transformation alliance which we announced last quarter. I would say overall we are very optimistic about OptumRx's compelling buyer proposition in the market, it is resonating well and we are seeing very good results.

Eric Murphy: Thanks John. Justin, Eric Murphy with OptumInsight. To Larry's point around regarding Optum360 as well as our backlog, regarding Optum360 we are in late stage assessments with four major delivery systems. Our qualified pipeline for Optum360 is up 60% year-over-year. The sales cycles in this side of the market as we've shared in the past are elongated and we're working diligently right now to improve the assessments that we do with our clients and prospects in this area to be able to get to value proposition discovery in the shorter period of time to generate results for these delivery systems.

And then finally I would share we’re bullish on where we land for the year regarding backlog of between $15 billion and $16 billion for 2017.
Stephen J. Hemsley: So that was more than you asked for Justin but a very fulsome answer so the next question please.

Operator: We'll go next to David Windley with Jefferies. Please go ahead.

David Windley: Hi, thanks for taking my question. I will switch over to OptumRx, some recent comments that you made quantified the channel savings that you're making reference to this morning at savings I think on a PMP wide basis of about $1300. I also quantified $200 of medical, what I might call mock on savings or what I believe to be your evidence of the value of synchronization and I wondered if you could maybe elaborate on that and talk about where you think that $200 can go?
Stephen J. Hemsley: Sure. John, do you want to respond to that.

John Prince: Sure. David, this is John Prince. I am not sure I followed all the math that you're doing but let me take it at a high level. I think you know I see at the high level happening and if you just look at our external client market is that our number of clients we serve is up, our number of scripts is up but actually the revenue is sort of flat on a per script basis and I think that is really what you see is that the value that we're doing really looking at net best cost for clients as we are delivering that. And I think that is also why our story is resonating in the market in terms of the value that we bring to our clients.

What we're also seeing is that even though we're delivering that value our external product gross margin actually is up year-over-year. So actually we're getting the margin online business was driven by that more volume. So we're actually getting greater margin on it but we're actually delivering that value back to the client. When we're going out into the market we're actually talking about not just the pharmacy cost but we're talking about total cost of care. So what you are seeing in the revenue here that’s our story of the market around pharmacy cost but our real value story as you go to market is people looking at total cost of care.

And so we actually have a story in the market which we're talking to that actually talks about how we save a client $11 to $16 per month as they talk about our full synchronized solution. And that is what our clients are receiving. In our UHC book about 30% of the clients have that synchronized value. We also do that on a direct basis and also with other partners in terms of other health plans that we served in the market. So, clearly we are seeing a very differentiated value that our clients are seeing in their trend.

David Windley: So if I could just clarify so the point to the question was where can the $11 to $16 per member per month go?

John Prince: Well the $11 to $16 goes back in terms of their total cost of healthcare, so it actually went forward to our number, actually the client would see that and the return it would give to them.
Stephen J. Hemsley: It was to the benefit of the client, our benefit is the retention of customers and the growth that we get.

David Windley: Thank you. Stephen J.

Hemsley: Next question please.

Operator: We’ll go next to Kevin Fischbeck with Bank of America Merrill Lynch.

Kevin Fischbeck: Hey great, thanks. I wanted to ask a question on MA actually, maybe a two part question. First, given all the growth that you have there just want to make sure that the performance from margin across expectation is coming in line with how you had expected it this year? And I guess secondly you mentioned that you expect to gain share again next year, wanted to get a little more color on the purpose behind that because group MA went so far, is there anything you don't have that your competitors bids up for next year so I just want to know what gave you confidence in saying that you are going to gain share this early in the process?
Stephen J.

Hemsley: Why don’t we ask Steve Nelson kind of give you the broader themes and then Brian Thompson will fill in the rest.

Steve Nelson: Thanks, Steve. Hey Kevin, this is Steve Nelson. Let me just talk a little bit about how we're thinking about growth and the positioning of UnitedHealthcare overall and because I think the themes are pretty consistent as we move to a specific Medicare Advantage conversation. But we've been very focused on a specific agenda trying to drive value, improve our quality, very focused on costs both medical and administrative that are really driving an agenda of what we call distinction, trying to innovate around our both our clinical experience and our service experience, driving improved NPS.

We see that actually across our businesses but particularly in our MAPD business as well, driving more attention which I think is significantly contributing to the growth and also the inline performance we've seen this year on that growth. But also you just heard the Optum team talk about their robust capabilities as we bring those things into UnitedHealthcare. We continue to see that really resonating in the market across all of our businesses. And so we're really bringing this agenda of distinction to new populations whether we are talking about bringing populations into more populations with complex care, complex conditions into managed Medicaid or some of the emerging populations that we continue to see grow whether it's a D-SNP or group Medicare Advantages as you referenced. So really well positioned across all of these businesses but MA is a tremendous story so with that maybe just have Brian give some color about what we are seeing there early in this year.

Brian Thompson: Steve, thank you. Kevin, good morning, this is Brian Thompson. For 2017 we are off to a very strong first half of the year on both service and support as well as our engagement with our new seniors that have chosen UnitedHealthcare. What we are seeing is aligning to our expectations, so we are not only pleased with what we're seeing in 2017 year-to-date but also our positioning as we look forward to 2018 and we have a very positive long-term outlook for the industry and for us specifically. We expect as you heard to continue to outperform the market in 2018 overall on MA balanced both in group and individual just as we did this year and the two years prior.

The return of the insurance fee will be the single largest headwind in 2018, it's return was assumed that our 2018 bid submissions but despite the return of the tax and program funding pressure there, we do intend to keep our benefit offerings as stable as possible and we intend to compliment our 2018 growth and product stability with advances in both quality and satisfaction. So our products will again be designed for high levels of retention. So on balance we are very optimistic, we are optimistic about our positioning both group and individual against the backdrop of an advancing very positive industry growth outlook for 2018. Stephen J. Hemsley: Thank you next question.

Operator: The next question is from Chris Rigg with Deutsche Bank, please go ahead.

Chris Rigg: Good morning. I just wanted to ask or get a little more color on the operating cost ratio and just to better understand the mix dynamics there and I guess most importantly I'm trying to determine whether is there an incremental investment spending in the number related to the provider side or is that all just mix at this point? Thanks.
Stephen J. Hemsley: John?

John Rex: Yes, thanks.

John Rex here, so when I talked about the 80 basis points of impact, that was truly just the mix impact, a higher proportion of really care delivery businesses in our revenue base and that's the impact that we're seeing in the business. So that is straight up the care delivery business expanding and growing and care delivery business somewhere now in kind of two thirds of the range of all of OptumHealth. There are always investments we're making across the businesses and certainly within our OCR this quarter there were plenty but our commitment to you is to always balance those and as we deliver our results by that point of segment the 80 basis points does not include investments that we make. Stephen J. Hemsley: Excellent, next question please.

Operator: We will go next to Peter Costa with Wells Fargo.

Peter Costa: Hi, thanks. You mentioned the impact of the health insurance will be coming back next year, if it does come back next year that turns into quite a price increase for the commercial planned staff to pay, more than most businesses are growing these days. So can you talk about what you're seeing employers do right now that counteract that rising cost in terms of what cost cutting measures are they putting in place and what cost cutting measures are you putting in place to help ameliorate the rate increase?
Stephen J. Hemsley: So, maybe Jeff Alter and Dan Schumacher can you kind of combine on that.

Jeff Alter: Sure, thanks Peter. Its Jeff Alter. You know a few years ago we put forth a very purposeful initiative to expand our portfolio of fully insured products which included broadening that portfolio to reach many different price points and then connecting those products with varying network structures. So we have a very robust product portfolio that allows our clients to adjust to increasing medical costs whether that’s driven by pharmacy or driven by medical costs or driven by legislative and regulatory actions. So our clients have the ability to create five down opportunities or to change in complimenting their benefit strategies without having to change their carrier because of the proactive work we've done in our product portfolio particularly in our fully insured product portfolio.

Dan Schumacher: So I think variety of products and offerings and really focus on broad range of price points.

Peter Costa: Is there anything in particular that's being picked up more than not.

Jeff Alter: You know I would say that there's far more interest in varying network constructs. One of the more popular choice has been the leveraging of our more than a decade old premium designation program where we use lot of the OptumInsight in analytics to determine the best providers, those that practice both first and foremost always quality but then efficiency. And so we've created network and product structures that drive people to those top tier doctors using either co-pay or co-insurance variations.

It has become very popular because it helps our clients achieve the price points that are affordable for them but also given the comfort that people are getting better outcomes at a lower cost. And I think that's a real story of the integration of the UnitedHealthcare and in Optum to deliver meaningful value to a marketplace that first and foremost drives people to the best performing physicians. But overall achieves a price point for their sponsors.

Peter Costa: Thanks, that’s helpful. Thank you.

Stephen J. Hemsley: Next question please.

Operator: We’ll go next to Scott Fidel with Credit Suisse. Please go ahead. Scott Fidel : Thanks, just had a question just on the tax rate.

I know there's been a few discrete items this year so first, just if you have just an updated guidance for the tax rate this year and then what you would view as sort of a good sort of run rate, tax rate, looking out that we should be modeling for next year excluding obviously the return of the industry?
Stephen J. Hemsley: We're so we're going to not actually get into 2018 too much but John, do you want to respond?

John Rex: Thanks Scott, John Rex here. I will speak to this year. So we're not updating our tax rate outlook for the year here. Let me just talk a little bit about within the quarter because we did speak about it last quarter also.

So there is nothing unusual that I would spike out in the 2Q effective tax rate beyond normal exercise activity. So typically with the share purchase -- with stock based compensation accounting we're going to see more impact in the first half and the second half in terms of lowering that tax rate. So we’d expect that to increase in the second half. In the first quarter we had really talked about half of the impact that we expected to be nonrecurring and that was really due to just an unusually large amount of stock option exercises. It was related in part to an older acquisition and so that was the piece we spiked out there.

But I wouldn't spike out anything as unusual in this quarter's rate and we'd be at the still in that 32.5% zone. We’d always try to do a little bit better than we can and that would be my aspiration but that’s what it would be. Scott Fidel : Okay, thanks. Stephen J. Hemsley: Next question please.

Operator: Next to A.J. Rice with UBS. Please go ahead. A.J. Rice: Hello everybody, I just maybe ask about capital deployment John, I think in your prepared remarks you're saying that you guys will hit your yearend target by the end of the third quarter for where you were hoping debt to cap would be.

There's been a lot of discussion in the press about your potentially being involved in various M&A type of transactions supporting Optum, Reliant, Advisory Board, etc. I guess conceptually as you guys get to your debt to cap target do you -- is the M&A environment just so robust what you're seeing out there that your capital is going to continue to be mainly focus there, do you see an opportunity to maybe reestablish more actively the buyback program, give us some flavor for where you guys are thinking on capital deployment?
Stephen J. Hemsley: I think maybe Dave Wichmann would respond.
David S. Wichmann: Sure A.J.

Thank you for the question. Very thoughtful. So you're right that our ambitions are to achieve our 40% leverage ratio by the end of the third quarter and we think we stand a really good shot at getting there which should be one quarter early. John has done a very nice job in managing our capital structure and getting us into that position along with our team. As you know we don't discuss rumors and speculation about our M&A activity and we're certainly not going to start today.

But I think as you know A.J. that M&A has been a critical part of the way in which this organization has identified new opportunities to serve more people and more market broadly. And those ambitions continue as Steve lined out in his concluding remarks in the opening remarks around those ambitions being both domestic as well as global. And really focused in the services category really continuing to support Optum's growth and diversification, establishing platforms like you saw with OptumCare which we believe will be strong growth performers for us for the next decade. And I could go on and list many more but I think you get the idea.

So it is a core part of our emphasis. As relates to share repurchase we continue with a consistent policy at this time whereby we are just trying to keep our share count level. And as I believe you saw in June we increased our dividend again to a rate of $3 per share which is a 20% increase in continuing with our ambitions of advancing our dividend to a market rate level. Thank you.
Stephen J.

Hemsley: Next question please.

Operator: We will go next to Josh Raskin with Barclays. Please go ahead.

Joshua Raskin: Hi, thanks and good morning. I wanted to ask about potential changes in tax rate and I understand it's very premature, we don't even have necessarily a real proposal from the Republicans but to the extent that you guys have thought about it, I'm curious what the impact on your tax rate is from the non-deductibility of the excess compensation, how you would think about the introduction add back? And then as I look about your tax rate sort of before the ACA, your tax rate today is running 400 to 500 basis points below where you were so, just trying to sort of level set the opportunity were there to be changes and maybe specifically on those two items that we know have the potential to change?
Stephen J.

Hemsley: You know Josh we are really not going to try to get into themes that could affect 2018 outlook but we would really prefer to do that not in a peaceful way but in a more fulsome way when we can really talk about all the elements. The insurance tax is clearly if it has sustained a headwind influencing 2018 and its progress of data really effects the cost for consumers in both -- across the commercial Medicare and Medicaid markets, etc. And it's a factor in terms of market -- it is stabilizing factor in the marketplace both in its cost. So the return of the tax making would further destabilize the market which is already fragile. And make that market less affordable.

So we are we would clearly think that either repealing or deferring that would be a positive thing but as it relates to our actual workings with our 2018 outlook or tax rate and so forth we're just going to save those so that we can actually go through them with you in a more thoughtful way, in a more complete way, maybe to some extent in the third quarter but for sure at our Investor Conference.

Joshua Raskin: Do I get a mulligan then Steve.
Stephen J. Hemsley: You do. Alright do you want a another.

Joshua Raskin: I will pretend that didn’t happen. So my next question would just be, we're talking about OptumHealth and OptumCare specifically. We're seeing a lot of discussion among competitors around growth in urgent care in ASC's, how would you describe the competitive landscape, are you seeing more and more supply of like services in the market and is that impacting OptumCare at all.
Stephen J. Hemsley: You know, I think we are but I think others are better qualified to respond to that.

So, maybe Larry to begin and then Andrew. Larry C. Renfro: Okay, Josh the -- as you know when we put our program together, when we started OptumCare it was probably about 2012 when we brought the Optum business plan and so I would say we got out early in terms of how we were going to approach the market and how we were going to look at it from an investing standpoint or we would partner, we would contract, buy, build. So we had a lot of different strategies in terms of how we were going to really attack and put together our OptumCare program. So urgent care, care delivery, the surgery care, house calls, behavioral we have all of those programs in place and they are actually functioning extremely well.

And I'm going to let Andrew talk about it but, the one thing I would say is we are early but we have an established platform. We didn't miss any boat here. We are out and we understand the marketplace and we are in the process of a evaluating many different organizations on how we say that they fit with us and we have a very robust opportunity that we are seeing in the marketplace. So with that I will turn it over to Andrew.

Andrew Hayek: Thanks Larry and good morning Josh.

So I would say the local markets remain competitive in different ways, in unique ways depending on the market structure. But as we look across our OptumCare platforms in physician groups, the SCA, MedExpress, house calls the distinctive capabilities that we have really created demand for what we have to offer in improving the quality, the cost, the experience, the care and improving the provider experience. And so I'd say is the market force has continued to push towards higher quality at more cost effective price points. The demand for a distinctive platform that can enable physicians and care providers to achieve better results, leveraging tools, and insight and other components of our platform the need for what we have to offer is growing. And we remain very bullish and optimistic around the opportunity to expand across the 75 markets to deepen our presence in the markets we currently serve.

As Larry referenced we believe we’re in the very early stages of this opportunity and again in many respects the increasing competition increases the demand for a distinctive platform which we have.
Stephen J. Hemsley: So maybe we could then give it to Dan because that really kind of the voice of demand in there.

Dan Schumacher: Sure, so Josh one thing I would just highlight is obviously when you look at our spend and the composition of it and how much of it orients to the acute setting. We've got so many surgical procedures and so forth that are happening in inpatient and outpatient hospital settings and the reality is we've seen for a long time an opportunity to really focus on the side of service, get them into places where we can drive better quality, frankly a better patient experience at a lower cost as Andrew has been talking about.

And we do it in a couple of ways. Certainly we do it in terms of our approach to medical management, so looking at prior authorization and making sure that we're getting it into the right side of service on the front end before procedures are happening. We are also building it into the product designs as well so that we're putting incentives in there to make some of the transition from acute to ambulatory to really drive the kind of outcomes that we're looking for. And more recently with the acquisition of SCA and our partnership there we are really leaning into that and investing in quality incentives for surgeons so that we can drive greater volumes into these less intensive settings and we're able to do frankly more acute procedures and more complicated procedures in that setting as well. So we see a lot of opportunity in it.

We've got it in place in select markets today and we will be looking to expand that meaningfully over the course of this year and into next. So those are some of the things that we're doing around both the plan design, the medical management, as well as the incentives to put those three things together in alignment to drive those transitions from acute settings to ambulatory settings to drive better cost, value, and experience. Larry. Larry C. Renfro: I’d just like to add one other aspect of the Optum business and that would be Optum360.

Sometimes we forget that on the primary care side, the urgent care, and now what we're doing with surgery care across the board we have strategic relationships with a lot of the Optum360 clients that are actually involved with us in using those programs. And so we get caught up in terms of talking about how we're looking at our different programs in OptumCare mainly from a health plan standpoint when the Optum360 organizations are actively engaged with how we tie into them as well. So that's a whole other avenue of our business there. Stephen J. Hemsley: Thank you.

Next question please.

Operator: We’ll go next to Ralph Giacobbe with Citigroup. Please go ahead.

Ralph Giacobbe: Thanks, good morning. You know, there has been headlines around States potentially tying Medicaid contracts to exchange participation.

So just want to get your thoughts on that and then with procurements coming up, how concerned are you that States consider exchange participation even if not explicitly and how could that influence your views around reentering the exchange? Thanks.
Stephen J. Hemsley: Maybe, we'll have Austin begin to comment with respect to safe base to dead end.

Austin Pittman: So I guess first and foremost these are really State by State discussions and not something that we're really going to comment broadly here and not going to speculate about that. I would say with regard to your second question we are constantly in conversations with our States on how to expand coverage for more people, particularly those with complex needs.

A lot of the activity that we see both in renewal activity as well as new business certainly surrounds that which as we talked about before is a real area of distinction for the combination of Optum and UnitedHealthcare. So we're very positive, we look forward to continue to serve our States and find solutions, particularly get around these populations with very complex needs. Stephen J. Hemsley: So we'll continue to work with State and so forth but I don't see anything that establishes what might be a trend with respect to tying these kinds of programs together. States have been I think very thoughtful about this to date so I think that's the best response we can offer at the moment.

Next question.

Operator: Our next question is from Sarah James with Piper Jaffrey. Please go ahead.

Sarah James: Thank you. Stephen what we know now about Medicare market [indiscernible] could the market see a continuation of the 2% and then penetration increase that we saw in 2017 and long-term given the inherent value proposition at Medicare Advantage where do you think penetration is heading, with the potential market that is 50% MA?
Stephen J.

Hemsley: Maybe I will have Steve respond to that but I think we've been pretty consistent in the past that we do expect that penetration to go forward and we do expect the MA market to mature and grow.

Steve Nelson: Good morning Sarah, Steve Nelson. I agree with Steve's high level comments there. I have seen clearly in our experience we have seen tremendous growth in our Medicare Advantage and while that clearly we think is driven by some of the things that we uniquely bring to the market whether it's the stability or benefits, the product designs, the service, and the clinical models. But also in addition to that there's just a real strong overall value proposition with Medicare Advantage and we're seeing that not only just with the folks that we serve but as we talk to policy makers too there's really strong support for it.

So you see a population that needs it, it serves them well. It drives down cost, the satisfaction is up, it's definitely growing, and so we think that's going to continue. And so we do think there's an opportunity to further advance the penetration of the Medicare Advantage, where it can go hard to tell but I don't think it's unreasonable to think about something north of -- considerably north of where we are, about 40% approaching 50%. It doesn't seem like a unreasonable idea to us, no. I would think that we would think that it could go 50% or better.

Stephen J. Hemsley: Next question please.

Operator: We go next to Matthew Borsch with BMO Capital Markets.

Matthew Borsch: Yes, thank you and I'm going to ask a question that sort of asked before but just as you know had started with your comment but you've added 600,000 group commercial risk lives year-over-year I just wanted to understand I mean, you're obviously doing better than almost all your competitors, most of whom are seeing attrition on the group commercial risks. And I guess the question you described your pricing, I think John did as disciplined and rational which I'm not disputing, my question is, is this really just that you are producing a better medical cost outcome and so you can price lower than the market because a lot of this business you can correct me if I am wrong, it moves unpriced, sorry for the long question?
Stephen J.

Hemsley: So I think that we started to get into this a little bit before when Jeff Alter was commenting, it is I think a function of many things of which cost structure is clearly part of it but its spectrum of products, the design, etc. So Jeff do you want to respond?

Jeff Alter: Sure, hey Matt. I guess I would try in my response to kind of a discussion of what's here. So I would say the market moves on value, it doesn't necessarily move on price. And we have been very purposeful across our product, our services, the focus on NPS has I think brought a much stronger value proposition to particularly the fully insured small growth market.

Long-term disciplined pricing is a good thing and I think you're seeing the discipline that we had in the early stages of the ACA now coming back to us as a value play. Couple that with a very purposeful decision a number of years ago to broaden our product portfolio and to offer a much broader spectrum of network opportunities or choice for particularly our fully insured small group clients. We also have undertaken a different view with our distribution community, our brokers and consultants, a more disciplined approach with them narrowing some of that distribution network to more favorite partners and giving them some added services. So one of the things that we've learned over the years that our brokers and our consultants in that marketplace seek to do business with those that make it easier for them to do business with. We've created again with the assistance of rally and our Optum partners a much easier way for our small business brokers to onboard clients with us, to make plan changes, to recommend using some of the OptumInsight analytics.

The next logical moves for buy down so, you really have to look at the value we bring as opposed to the price of our product. I think it maps the answer to why our particularly our small group fully insured business has done well over the last few years.

Matthew Borsch: Thank you.
Stephen J. Hemsley: Thank you, next question please?

Operator: We go next to Ana Gupte with Leerink Partners.

Please go ahead.

Ana Gupte: Yes, thanks, good morning. On Optum you saw some really nice margin expansion on OptumHealth and OptumRx despite the mix shifting pressures you talked about on providers. I was just wondering if this is an area of focus for the organization or this is one off and where could the margins shake out by business line and overall?
Stephen J. Hemsley: Larry, maybe you want to respond to that, clearly an area of focus right.

Larry C. Renfro: It is an area of focus and Ana we’re obviously you're looking at both from a financial perspective as well from a margin perspective and all that is in line with our expectations. I am going to ask Tim to Tim Wicks to comment on this.

Tim Wicks: Sure, thanks Ana. First, as we think about the margin growth that we're seeing since we had -- we’re pleased to start a very strong start to the year 2017.

The earnings are in line with our expectations June year-to-date and comprise about 40% of the full year expectations and so right in line with both our prior several years of experience in the first half of the year as well as our 2017 guidance. I think it's also important to understand that there's seasonality in our businesses and maybe I'll just point two examples where there's some seasonality. One, is in OptumInsight, as you know the second half of the year is typically pretty strong and in terms of the relative distribution of earnings growth in the year and it's really driven by several other businesses in OptumInsight quality and the risk businesses, the Optum360 content sales as well as technology data and software sales. The second example I would use is in OptumHealth as well is when we look at OptumHealth SCA volume is characteristically also stronger in the second half of the year. And then typically we expect fourth quarter overall for Optum to be stronger than the third quarter as well as we go through the year.

Stephen J. Hemsley: Thank you. We’ll do two more questions and then we'll have to close it. So, we will do two more questions first.

Operator: We'll go to Sheryl Skolnick with Mizuho.

Please go ahead.

Sheryl Skolnick: Thank you very much for keeping me in. So I'll just observe that if this is early stage growth for $200 billion revenue run rate company to produce what you're producing I'd like to see what late stage looks like. So thank you for that but, the real question I have here is that I've learned overtime to pay close attention to what is said on this call and one of the things that you mentioned Steve early on in your remarks was that words to the effect of it is now time to turn our attention to cost. In the past when you've turned the organization's attention to something its resulted in significant advances for the business enterprise as a whole and I'm wondering if this is one of those things that we should be paying attention to, and if so if you can quantify it in any way or qualify it in any way to give us a sense of where the opportunities are, I know we've discussed it from the OptumCare perspective but, more broadly across the enterprise would be helpful? Thank you.

Stephen J. Hemsley: I'm not sure I can offer you too much specifics but that was intentional. I think that in general if you take a look at our organization we have grown well over the last couple of years. We've been able to add some and introduce some strong companies into our portfolio. And I think that if you see the growth and in essence the net productivity out of that you’d sit back and say there's an opportunity to strengthen the enterprise, continue to lead the enterprise focused on the things that are most important.

And if you recognize the value equation as its played out in the marketplace many of today's themes were around retention of customers, value to customers, and so forth. As one of the questioners pointed out, the price point is a very important part of this. We have to challenge ourselves to deliver value all the time. We're in a very strong position, this is a great time to be taking that challenge up and that is what we're focused on. We think we can deliver more value, we think we can drive more innovation, fresh approaches, and I think this enterprises folks who are ready to do that.

The alignment of new technologies to that effort, use of more advanced data analytics produce a lot of opportunity for us particularly just given the set up of our businesses. So those are the themes around that and we are focused on our marketplace that's going to be looking for value and think that we can anticipate that. I think NPS is a big part of that effort as well. Thank you for the question. Next, last question please

Operator: And we'll go to Zack Sopcak with Morgan Stanley.

Please go ahead.

Zack Sopcak: Hey good morning, thank you. I wanted to ask about CMS’s proposal to remove knee arthroplasty from the in-patient only list. Was that something that you considered happening in the near term when you are in the stages of acquiring SCA and how do you think about the impact of that business over a longer term, is it meaningful and does that have any impact on your MA strategy going forward?

Andrew Hayek: It’s Andrew. I'd offer a couple comments here.

From an SCA perspective the team there has been focusing on higher acuity procedures for several years in orthopedics, in spine, in cardiovascular and that includes total joint replacements which the SCA team has been performing on a commercial basis for a number of years with outstanding results. Very consistent with the AAA in terms of the quality outcomes, the patient experience, and of course material cost savings. So we've been applying that in the commercial environment and there's been discussion for a number of years at the CMS level around the potential to allow total joint replacement in the surgery center setting which we of course would embrace allowing us to extend the benefits of that platform in terms of quality experience and obviously reducing total cost and extend that to the Medicare population. So in many ways we have been anticipating this. This is something on a commercial basis we've been doing.

We can obviously speculate as to how -- what the outcome will be but this is a positive and consistent with the strategy we've been pursuing. Stephen J. Hemsley: So thank you. Thank you once again for your interest in our progress today. Kind of midway through the year our performance and momentum remain strong.

We expect to continue to deliver higher quality and value in healthcare and sustainable growth throughout 2017, 2018 and the years to come. Our thanks to our people who through their commitment to our mission and culture are helping to drive our enterprise to reach its full potential. Thank you and that concludes our call today.

Operator: This will conclude today's program. Thanks for your participation.

You may now disconnect and have a great day.