Executives: Stephen Hemsley - CEO Larry Renfro - Vice Chairman; CEO, Optum Dave Wichmann - President, CFO Dan Schumacher - CFO, UnitedHealthcare Jeff Alter - CEO, UnitedHealthcare Employer & Individual Steve Nelson - CEO, UnitedHealthcare Community & State Bill Miller - CEO, OptumInsight Dirk McMahon - EVP, Enterprise Operations UnitedHealth

Group
Analysts: Peter Costa - Wells Fargo Matthew Borsch - Goldman Sachs Josh Raskin - Barclays Sarah James - Wedbush Sheryl Skolnick - Mizuho Michael Baker - Raymond James David Windley - Jefferies Andy Schenker - Morgan Stanley Chris Ray - Susquehanna Financial Group A.J. Rice - UBS Kevin Fischbeck - Bank of America Sean Wieland - Piper Jaffray Gary Taylor - JPMorgan Ralph Jacoby - Citi Ana Gupte - Leerink Partners Christine Arnold - Cowen Tom Carroll -

Stifel
Operator: Good Morning, I will be your conference operator today. Welcome to UnitedHealth Group Third Quarter 2015 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 the 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 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 October 15, 2015, 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, Stephen Hemsley. Please go ahead.

Stephen Hemsley: Good morning, and thank you for joining us to review UnitedHealth Group's third quarter results. Our business continues to grow as we develop in respond to large and emerging market opportunities across both the healthcare benefits and services sectors.

Healthcare markets worldwide continued to evolve with nations and market participants of all types seeking to build better healthcare systems that are more informed and modern, lower cost simpler and more responsive to consumers. Organizations throughout healthcare are searching for ways to improve by leveraging data and information to more effectively deliver quality care that is measurable and delivered with greater precision and consistency in response to ever increasing pressures around costs, access in transparency. We have consciously positioned UnitedHeathcare, Optum and UnitedHealth Group to deliver practical innovation and significant value in this environment. UnitedHealth Group's third quarter revenues grew 26.6% year-over-year to $41.5 billion, including strong 10% organic revenue growth across our businesses. Consolidated net earnings of $1.65 per share were in line with our expectations as was the net earnings margin which decreased by just over 1% year-over-year reflecting the greater mix of pharmacy care services as well as early stage lower margin individual exchange business, lower levels of reserve development and accelerated investments and improving medicare stars quality principally closing gaps in care for the seniors we serve.

Year-to-date, we have grown net earnings per share by 14% on revenue growth of 17%. Our return on equity of 19% reflects the balance sheets of capital and organic initiatives to build our business. Quarter end days claims payable increased two days sequentially and one day year-over-year. And cash flows from operations continued to be strong at more than 170% of net income this quarter. Year-to-date, cash flows of $6.2 billion have grown by 11% and represented a strong 135% of [indiscernible] income for the nine-month period.

I'll ask Larry Renfro to provide a review of Optum and then Dave Wichmann will cover UnitedHealthcare and from UnitedHealth Group Enterprise comments. Larry, you want to take?

Larry Renfro: Thanks, Steve. Optum continues to innovate, to address rising market needs particularly those of larger more sophisticated organization which have complex health, care service deliver and management challenges. Our businesses are producing strong sustainable growth across the board. Optum's revenues of $19.3 billion, grew 61% year-over-year this quarter.

Our results include Catamaran within OptumRx results for the first time and reflect exceptional overall organic revenue growth of 15%. OptumHealth and OptumInsight together grew revenues by more than $1 billion or 25% year-over-year to more than $5 billion this quarter. Third quarter operating margin of 5.9% reflects the increased mix of pharmacy care services revenues as well as integration in intangible amortization costs related to Catamaran. Both OptumHealth and OptumInsight delivered double-digit percentage operating margins in the [indiscernible]. We continue to focus on the opportunities to dramatically elevate value for customers in five large growth markets.

Clinical care, pharmacy care services, information and technology solutions, government services, and international. Our one Optum approach means we build strong, strategic and senior enterprise-level relationships that transcend individual product categories and point solutions. We start by listening closely to our clients, so we understand the issues from their perspectives. We then bring deep experience, creativity strategic partnerships in our own differentiated capabilities in healthcare combined with responsive and practical operational solutions. This can lead to working sessions which often lead to pipeline, backlog in revenue and earnings.

Optum360 is a good case in point. It has grown to 7500 employees, serving 1600 hospitals, and is helping manage more than $50 billion of their billings. Just last week, customers surveyed by the Black Book a leading research organization ranked Optum360 offerings as the best in the three key product categories for the sector, and we are still in the early stages as hospitals and health systems shift to professionally managed revenue approaches. Domestically and in other nations, we are in discussions with high profile healthcare organizations regarding our wide range of technology and information enabled services. We are exploring significant opportunities to serve the healthcare needs of U.S.

Federal Government program and talking with prominent healthcare organizations about innovative technology infrastructure and application services and a comprehensive suite of technology enabled payor services. Any one or more of these has potential to develop into a multiyear multibillion-dollar strategic relationship. Across Optum, this type of proactive approach is driving positive results. Third quarter backlog OptumInsight exceeds $10 billion in value and grew 34% year-over-year on an external basis. Our pipeline is continuing to grow at an exceptional rate as well.

The median deal size for OptumHealth is doubled over the past three years. We are delivering more care to more people, to the more payors at Optum Care. We now deliver care to more than 7 million people annually through our Optum Care businesses. Market interest in OptumRX continues to grow in response to the value we can drive through more integrated downstream drug benefit and care management efforts, especially around the growing specialty and pharmaceutical segment. The U.S.

Department of Health and Human Services has authorized agencies under its purview to conduct innovative healthcare research with Optum Labs, using Optum Labs big data resources. These indicators should help give you a sense of both our continuing progress and the meaningful opportunities we're developing. We will continue to execute on the details for our clients, with a focus on quality and service and further build our growing reputation for being the trusted partner that gets the job done. We are optimistic about the prospects for Optum in 2016, 2017 and beyond. Now let me turn it over to Dave.

Dave Wichmann: Thank you, Larry. United healthcare continues to differentiate its products on the foundations of distinctive quality, service, innovation and value. As a result, UnitedHealthcare has grown domestically to serve nearly 300,000 more people in the third quarter, 1.5 million more people this year, and nearly 1.7 million more people over the past 12 months. We'll enter 2016 with even more distinctive products, capabilities and relationships, and we expect to continue to deliver impressive levels of growth next year as well. UnitedHealthcare's third quarter revenues of $32.8 billion grew year-over-year by $2.8 billion or 9.2%, all organic.

The UnitedHealthcare operating margin of 5.7% decreased as expected, declining just over 1% year-over-year due to lower levels of reserve development, solid growth in early-stage, lower margin public insurance exchange products, and increased investments in Medicare Stars quality. We continue to expect a full year consolidated care ratio of 80.8% plus or minus 50 basis points likely above the mid-point of that range based on our year-to-date experience. The annual care ratio is being modestly affected by the performance of our new public exchange benefit programs which now served nearly 550,000 people. Like others we observe market-wide data this past spring that suggested the risk pool served by public exchanges would require more medical services than original expectations. Rather than wait for our own experience with our new members to fully developed, we increased rates and repositioned certain products market by market for 2016, and we expect improved performance next year.

We will expand to 11 new markets in 2016, and we continue to expect exchanges to develop and mature over time into a strong viable growth market for us. We've accelerated the uptake of our medical care quality programs to achieve star ratings beyond the strongly improved levels that the CMS recently published for payment year 2017. Our Medicare stars improvement does come with a related increase in medical costs. We are confident. We have implemented the necessary steps to achieve our goal of 80% or more of our members in four-star or greater programs by payment year 2018.

Star quality improvements will strengthen our reimbursement rates in 2016, 2017, and 2018, in which are Medicare advantage program's benefit offerings and further our growth and financial position. Our 2015 commercial medical cost trend outlook continues to be biased towards the lower portion of our 5.5% to 6.5% full year forecast. In total, UnitedHealthcare has maintained nearly 6% operating margin year-to-date in 2015, identical to the year-to-date margin at this point in 2014. [Driven] by year-to-date organic revenue growth of more than $9 billion UnitedHealthcare has advanced earnings from operations by $540 million which is a growth rate of more than 10%. All three of our benefits businesses are producing strong results.

Let's turn a review of a couple examples that illustrate how we worked locally and use technology to serve the two most important participants in healthcare, the doctor and the patients. We are increasingly aligned with physicians and hospitals, and we continue on our course to deliver $65 billion or more in care annually by 2018 through value-based care contracts. Today these programs touch as many of 13 million of our consumers delivered in part through more than 650 accountable care arrangements. This includes growth of more than 160 new accountable care arrangements so far this year alone. In many instances, these care providers and UnitedHealthcare bring in Optum to help and manage population risk and improve operational performance on a more systematic organization-wide basis.

Larry has given you a feel for how this trend positively affects demand for Optum's services. Let me give you a few more examples. Together with Optum, we are also supporting physicians' operational needs with Link which we have discussed before. Link is a cloud based digital platform that provides secure workspace and connectivity between physician offices and health plans, enabling them to efficiently communicate and transact business. By year-end 2015, Link will be serving more than 600,000 physicians nationwide.

We offer them connectivity to 75 distinct dedicated applications relevant to their operations. We continue to grow both the installed customer base and the portfolio of applications and capabilities. Our ability to fully serve physicians practices with core transactions and information exchange as well as scheduling referral processes, transparency, and other services. On the patient side with Optum, we increasingly focus on the local community and deliver care and services in people's homes. You have heard about our house call program in Medicare, and we have begun using it in targeted commercial and Medicaid patient situations as well.

The more than 1 million house calls, our physicians and nurse practitioners will execute this year increases our medical spend upfront. They encourage people to get annual care visits with our physician, appropriate vaccinations, and so on. The benefits are substantial. We have more satisfied consumers with better healthcare quality, and we protect them from potentially higher medical costs down the road. Consumer satisfaction and retention are significantly strengthened by the house calls experience.

At the community level, we have hundreds of community health workers on the ground, helping address the root causes of healthcare issues for Medicaid members with complex medical conditions. We meet with them in their homes and help them access the health and social services they need to better manage their health. This includes addressing housing, employment, access to healthy food and nutrition as well as transportation and other public support services. Again UnitedHealthcare is improving the quality and consumer satisfaction while helping to reduce exposure to potentially higher costs from untreated or undertreated conditions. Our people are also on-site in hospitals, helping with discharge and follow-up care planning.

They are in physicians' offices helping address gaps in care and documenting Medicare quality compliance. And they are on the phone and on the web treating every interaction as an opportunity to add value for the consumer by helping them understand the actions they need to take to improve their health. You can see the benefit programs in approaches like these in our results. Growth in local commercial markets, where our efforts to be more local are having a positive effect, distinguished and ongoing growth in service to large self-funded employers who are among the most informed and discriminating in assessing service, quality, innovation and total value. Consistent Medicaid awards from States which focused on elements of quality, service, and total value in their valuation process.

In just the past few weeks, we have been honored to be selected by the State of Michigan and the State of Texas for program expansions, and we recently finalized our commitments to serve the [state of IOLA] as a culmination of their award process. And our Medicare stars quality is sharply higher for 2016 and 2017. Thanks to our employees and the strong performance of the care providers who have worked collaboratively with us to better serve seniors. We believe UnitedHealthcare will continue to grow at a strong pace, profitably improving its market share as a direct result of the quality, consumer satisfaction, and total value we deliver. Before Steve sums up, let me touch on the outlook for UnitedHealth Group as a whole.

Considering together both the positives and pressures of the first nine months of this year, we continued to expect our full year 2015 results will fall within the range of $6.25 to $6.35 per share, and we would remind you that that range absorbs $0.10 per share for Catamaran and compares favorably with our original outlook of $6 to $6.25 per share. We continue to expect a further lift in the rate of earnings per share growth in 2016. The range of street estimates for the next year it's quite wide and we expect to be within that range, but not surprisingly, we would begin in a more conservative posture or range as we have in prior years. We were the first specific questions on 2016 financial performance to December 1, when we host our Annual Investor Conference in New York. Let me turn it back to Steve.

Stephen Hemsley: Thank you, Dave. So Larry and Dave had given some sense for why we continue to be optimistic about our potential to deliver value, throughout the broad healthcare system and to grow. You heard some of our touch tones in their comments, relationships, built around for us collaboration and mutual respect for the challenges in delivering healthcare improving it, and making it simpler for the people involved. Innovation, developing products and processes that truly help people solve real problems, and then embedding and driving these ideas to scale quickly to improve the overall system. Quality measured by health consumers, physicians and other customers to find it and feel it.

Responsive and compassionate service which goes in hand-in-hand with quality and defines peoples' healthcare experience, our aspiration is to serve others on their terms not ours. Satisfaction and value which together capture how well you bring all these elements together to help people in differentiated ways. We believe executing well on these elements at scale with nearly 200,000 dedicated people pulling in the same direction will make a difference for those we serve and drive distinctive sustaining growth across our enterprise. Thank you for your interest this morning. And now operator, can we now take some questions.

Operator: [Operator Instructions]. We ask you to limit to one question per person, so we can get to as many participants as possible. Thank you. And we'll take our first question from Peter Costa with Wells Fargo. Please go ahead.

Peter Costa: Thanks. Good morning everyone. Can you clarify a couple things, you said about the cost trend, that you said, cost trend would be at the lower end of the guidance range of 5% to 6%, then you said MLR would be above the mid-point of the guidance range. I assume that the difference there is the spend on Medicare star scores, can you talk about how much you're spending on Medicare star scores in the MLR component, and what exactly the impact there is to you guys?

Stephen Hemsley: Well, I don't think we're going to get quite that granular, but I think we can respond to that as kind of in themes and maybe between Dave and Dan.

Dave Wichmann: Sure.

Pete, I think you are right that the cost trend commentary around the commercial cost trend to be on the lower end of the 5.5% to 6.5% range. The MLR is expected to be about the mid-point, and you're right it's because of the impact of spending more on Medicare stars, which is substantive in the quarter as well as for the full year. I think you saw the results of some of our earlier efforts in our 2017 funding year, and what we're really focused on right now is, making sure that we continue to improve upon that, so that the 2018 funding year is at that 80% four star or higher level across the board if not higher. We also have -- as you know, we have gone our government services mix quite a bit in our business, and that is across Medicaid, Medicare as we kind of group in the insurance exchange into that as well, and those things have a tendency based upon based mix to biased that MLR up just a bit as well.

Peter Costa: And how should we think about that going forward into 2016?

Dave Wichmann: Going forward in 2016, we continue to expect strong growth across all components of the UnitedHealthcare business as well as Optum, influencing the MLR, I think we'll see strikingly better performance on the insurance exchange business, not only because of expansion, but also because improvements in the overall MLR and operating cost structure of that program, so it's about both.

I think you'll continue to see strong growth in both Medicare and Medicaid which will put some pressure on that as well, but I would expect this to continue to go nicely in those two categories as well. Stephen Hemsley : But growth in those categories, so growth in government programs, exchanges and so forth, even middle-market tend to come at slightly lower margin, so you're seeing that blend effect in these results.

Larry Renfro: And we'll spend more time with you on that at Investor Conference, Peter.

Peter Costa: Great. And just, did the underpayment of this quarter's impact this quarter at all?

Stephen Hemsley: No, they do not.

Peter Costa: Thank you.

Stephen Hemsley: Next question, please.

Operator: And we'll take the next question from Matthew Borsch with Goldman Sachs. Please go ahead.

Matthew Borsch: Yes, maybe if I can just continue of the discussion on the ACA exchanges.

Can you help us understand the elements make you confident that you're going get strikingly better? I think you said, performance on the ACA exchanges next year. I mean -- and maybe there is a good, maybe this is bad, I don't know, but you have these co-ops sailing the largest in the New York market, I assume that. You may take up a lot or you may want to take up a lot of membership from that and you have price increases. But it's unclear what the mix of membership is going to be next year with regard to health status. So can you just talk to that?

Stephen Hemsley: Sure.

Okay, I'll let Dan and Jeff kind of comment on it, Dan.

Dan Schumacher: Sure, Matt. Good morning.

Matthew Borsch: Good morning.

Dan Schumacher: So, with regard to the exchanges and some of the Dave's earlier comments, so in the first half year, this year, we got industry data that suggested that the underlying use of medical services in that population was high and higher than we thought, and the good news is we use that information as the foundation for our 2016 pricing.

So we put in strong price increases. Average increases across the country are in the double-digits, and we also took steps to eliminate some products and reposition other products. So as we look at our exchange business for 2016, that really speaks to Dave's comments about why we expect to see very nice improvement year-over-year. As it relates to our 2015 experience and our own block of business and what we're seeing, in the first half of this year, we did not see much in the way of medical use, so we had much less used as members rolled on for the first four months of the year, and they started to connected to coverage and care and so forth, and we've seen an increase in that, and so why we're calling it out, we called it out in the context of mixed in the second quarter, in the third quarter we're calling it out more specifically because on the year we expect the individual exchange business to put pressure on the consolidated care ratio. However as Dave mentioned, we fully expect to perform within the range of the guidance we provided last December at the Investor Conference.

Matthew Borsch: Dan, thank you. That was great. I'll get off now, I know you have a lot of people.

Dan Schumacher: Thanks, Matt.

Stephen Hemsley: Thank you.

Next question, please.

Operator: And we'll go next to Josh Raskin with Barclays. Please go ahead.

Josh Raskin: Thanks. Just a follow-up on the MA star investments.

You know, talking about an overall MLR of this year is going to be above the mid-point. Every 10 basis points, as I know, $130 million, $140 million of investment on the full year, so I don't know, what that implies, but that seems like pretty big investment. So the two questions, one, are these sort of temporary in nature, are they just impacting '15, are we going to see this continue into 2016, i.e. could this be a possible tailwind for next year? And then, how do you think about the ROI? What are you measuring? Are you just measuring simply the bonus? You have the reimbursement improvements and how do we think about sort of the cost versus -- the investment versus the upside from these investments?

Larry Renfro: Sure. So I guess somewhat globally, I'd offer that the investments are significant and we have made that clear in the past, and our goal to really get 80% or better of our overall Medicare at four stars and above.

There is also benefits associated with that because when you're achieving that level you have flexibility with benefits and the reimbursements are better, so there is a -- and we're probably fund any more of the investments and we're getting the benefits at this point in time given the fact we were somewhat coming from behind if you will in terms of the overall star performance. Dan or Steve, do you want to comment further.

Dan Schumacher: Josh to your question around, do we expect levels to maintain, yes, we do. We expect to make comfortable investments forward in our stars and quality performance. And as you saw in the '17 payment data, we saw nice progress.

In the year, our performance for '15 is improving which will carry forward to improvement in 2018 performance, but beyond the stars outcome, we also have outcomes in terms of quality and performance underneath that, as you look at medical cost and so forth that contribute. So those are some of things living that play in and how we look at the balance between the cost and the return.

Stephen Hemsley: And given the look back nature of this market hasn't really seen our best performance in terms stars so we really haven't gotten the benefit part of that yet, Steve.

Steve Nelson: Okay. Josh, it's Steve Nelson.

Good morning. Hey, just a little more color on the investments, so when people talk about the medical cost, you can think about things like provider incentives, annual care visits, impact of very specific programs like diabetic navigators, and in terms of diabetic programs for that population. In terms of administrative investment, it's around things like that embedded practice support. We have 2,000 clinicians that are focused on closing gaps of care locally, and then we aren't orienting our organization like call centers to facilitate closure of gaps and getting people to the right care. So these are all paying great dividends for our members.

We have 1.7 million members that are in improved plans of -- it's a great progress, but as Steve and Dave have both noted, we're not done. With the progress, we're not satisfied and look to improve on that, our 2018 theme here to at least 80% of the members in the four star plans or higher.

Josh Raskin: And just a follow-up, does that translate into above market level MA growth rates for you guys? You've been growing sort of -- let's call it in line with market this year. Should we think '16 and maybe more or so in '17 and '18 that you start growing faster than the overall MA market?

Stephen Hemsley: I think that would our hope. If you sit back and send a return on investment, I think this is a vital program.

We think it has great growth potential in terms of the demographics as well as the orientation of Medicare itself to be more towards Medicare advantage, so this gives us opportunities with respect to benefits and I think it should translate to greater growth and that's why we're making those investments here.

Josh Raskin: Alright, thanks.

Stephen Hemsley: Next question, please.

Operator: And we'll go next to Sarah James with Wedbush. Please go ahead.

Sarah James: Thank you. SG&A was a bright point in the quarter came in better than consensus expectation. And now that Catamaran is closed, how should we think about run rate SG&A, I think guidance was pre-Catamaran at 17% plus or minus 30 basis points?

Larry Renfro: Well, we are always managing our SG&A as tightly and appropriately as possible, but we're also making investments that are often embedded in SG&A investments in terms of some integration of the businesses as well as things that Dave mentioned such as Link and elements such as [indiscernible]. Do you want to start?

Dave Wichmann: Sure. Sarah, you're right that the Catamaran was probably the most significant influence on the care ratio in the quarter.

We also had to increase productivity impacts on that as well, and then it's offset somewhat by the business mix as you can see from the growth from Optum as well as in our fee base programs, and there is a little bit of an insurer fee offset as well. We do expect Catamaran overall had pulled down that ratio by somewhere around 180 basis points or so in the quarter, so we would expect that kind of a trend to continue as it relates to Catamaran, but we would continue to expect some offset of that related to continued high growth in our services business over time.

Sarah James: Thank you.

Stephen Hemsley: Next question, please.

Operator: And we'll go next to Sheryl Skolnick with Mizuho Securities U.S.

Sheryl Skolnick: Thanks very much. And once again nice, very nice job on navigating through the various sundry challenges. One of the things that intrigued me was the commentary about the opportunity being both domestic and international. And if I read your press release correctly, it looks like your healthcare global which we don't focus on all that much has actually a nice year-over-year growth rate. So in the context of great change occurring not only U.S.

in terms of payment methods and industry structure, but also overseas in Europe for example. I'm wondering, if we'd likely to see some renewed interest in that given that your [mill] experiment has now got some time under it. And your thoughts on the potential for international to be a new growth area or expanded growth area for United.

Stephen Hemsley: It's a great question and we clearly are focused on international and the opportunities to really bring principally services to [bear] there. Larry, do you want to take it?

Larry Renfro: Hey, Sheryl.

Let me start by saying, if you look to add the way that we're positioning ourselves and -- I think I mentioned this earlier the five, what I'll call future growth area as you'd find international, and you will also find that international pretty much wrap around most of the products that we offer in the state. We obviously are working in Brazil to support a mill, and we have people on the ground, and we're building the Optum presence there, and that's going extremely well. We're starting to really take a look, and I think I can talk about it somewhat at the U.K. We've been there for a while, but at this point time, we're trying to look at some of the things that we've done with Optum360, and how that is working in the States, and a lot of the challenges that are being experienced in the U.K., we seem to be setting a pretty good spot to at least assess and have conversations and try to determine you know if we fit, so it's early innings in terms of these discussions and what we're trying to do, but we do see a future there. And we think that some of the experience we had in healthcare.gov will actually apply, and so we're kind of off and running at this point in time.

Stephen Hemsley: I think it's fair to say that even the best healthcare systems are interested in using information, developing better measures to improve quality and performance in those really are a sweet spot for Optum. Next question, please.

Operator: We'll go next to Michael Baker with Raymond James.

Michael Baker: Yes, thanks a lot. Given that we're in unprecedented time on the M&A front, I was wondering, if you could point to any tangible benefits that you've seen so far or what you would expect to see as the process of review continues?

Stephen Hemsley: As we kind of intimated in our last teleconference with you, we really are not going to comment on the transactions of others.

I would say, they're going through, I'm presenting, a regulatory review process, and so we haven't really seen any real activity in the marketplace that we could offer any commentary on.

Michael Baker: Alright, thanks.

Stephen Hemsley: Thank you. Next question.

Operator: And we'll next to David Windley with Jefferies.

David Windley: Hey, good morning. Thanks for taking the question. I wondered if you would be willing to comment on the client reaction that you have observed or experienced since the Catamaran closure or in and around the Catamaran closure. What has been your retention rate or just kind of sense of retention there? And then secondly, also with Catamaran are you commenting or willing to comment on the reset to your long-term margin goals with the change in mix that Catamaran brings into Optum? Thanks.

Stephen Hemsley: Sure.

I think it's a pretty positive story. Do you want to start, Larry?

Larry Renfro: Sure. Well, I thought that I'll start and then I'm going to hand it off to Mark too because he is dealing with this on a day-to-day. What I would say is, we believe that -- our message is resonating with our client. Now we do have very sophisticated knowledgeable and successful clients, and that's actually a positive, and as we have really gone out discussed our value proposition, really talking about enhanced services, talking about operational efficiency, purchasing scale as well as synchronization.

I think across the board, we're really feeling pretty good and think we have started off with a solid, solid start. So Mark maybe some comments?
Unidentified

Company Representative: Yeah. Thanks Larry. David, good morning. Well, we spent the last 90 days on an airplane.

And as Larry and I've visited really all our largest clients as you'd expect, and that includes health plans, employers. We visited the consultant marketplace. And I have to tell you the reaction has been universally positive. I mean our clients like the scale of this combination. They like the fact that we've had a 10-year relationship and that really basically represent no conversion risk in terms of platform conversion.

They especially liked the fact that we've got a very expanded service offering with the full suite of Optum services and many of them have been looking at and in fact buying those services along the way anyway, and so I like the fact that we've got a good team and the same teams in place and we continue to take care of them and obviously they are liking our value proposition, so we're feeling pretty good about client reactions. And I'd say overall my early read is things are looking good. I'll just go on to say that, the integration work is off and running, and the first 90 days have been very [crisp], we're off to a good start in bolting these businesses together.

David Windley: Very good. Thank you.

And does this change your margin, Larry, your margin goal long-term?

Larry Renfro: Maybe I could offer a perspective on that. With a portfolio of margins across the expanse of our total business, and so different products and services will actually drive different margins and appropriately. So we have some businesses that are strong double-digits and we have businesses that are low single-digits and we're looking to drive and expand margin, but do it in appropriate ways -- appropriate ways meaning, we're driving value and consistency, we're driving productivity that doesn't really compromise service and so forth. So as these elements come into our total portfolio across UnitedHealth Group, they are certainly going to change the mix of that margin, but in total, we're driving towards appropriately expanding margins, and so as these elements come in they are just going to change the mix, they are not really going to influence the performance of the business.

David Windley: Okay, thank you.

Stephen Hemsley: Next please.

Operator: We'll go to Andy Schenker with Morgan Stanley. Please go ahead.

Andy Schenker: Thanks. So I appreciate you on the first specifics on 2016 financial performance at the Analyst Day, but you've already mentioned several, sounds like to, tailwinds including Medicare and exchanges for next year, so maybe if you could just discuss in summary of these broad headwinds and any tailwinds for 2016.

That would be helpful. Thank you.

Dave Wichmann: Sure. We look at some things that we sit back and -- when you really do the pluses and minuses of it, some of the things that are headwinds now turned to be tailwinds, and new of versions of them appears headwinds. So for example, I think, our year one market -- for our year one markets for exchanges will actually be a positive for next year, but we are moving them to 11 new markets, and so we will have to see how those markets will play out.

I think our advances in stars is a positive, but as Steve indicated, we have clear aspirations, ambitions to improve our stars performance, so that we will continue to be working on that level as well.

Stephen Hemsley: I think OptumRx will have integration benefits, but they will also have integration costs, so I think those kinds of things start to play out. I think our Brazil performance is strengthening, but that markets stability is something we're watching closely. I think there will be some -- we are getting nice growth in List and Medicaid and we have some new successes there, but we are going to have to implement them and just given the total performance, we seeing rate pressures across Medicaid. So we try to take somewhat measured look as we kind of set our outlook for next year that we have a portfolio of these pluses and minuses, but in total we very much like where our business is in the growing capabilities.

The deployment across the expanse of the markets tend to even out these pluses and minuses, so we're pretty optimistic about next year, and as Dave indicated, we're looking to accelerate our earnings growth rate.

Andy Schenker: Thank you.

Stephen Hemsley: Next.

Operator: And we'll go to Chris Ray with Susquehanna Financial Group.

Chris Ray: Hey, good morning.

Just wondering, can you give us a sense for how Catamaran impacted the quarter whether it was dilutive, accretive, neutral, and then just some specifics around the integration costs in what the intangible amortization related to the [indiscernible] in the quarter? Thanks.

Dave Wichmann: So Catamaran contributed nicely to the quarter to achieve what expectations we had for it and similarly the cost associated with initial integration activities were consistent with what our expectations were as well. Maybe I can give you specifics about how it contributed, the one thing that we did do, is we suspended our share repurchase, so that had a negative effect, and for the full year as we indicated earlier, we expect that would cost us about $0.10 a share all in, but we were able to manage to overcome that and retain -- and continue to advance our guidance as well. In terms of the increased levels of amortization, it's about somewhere around $0.20 a year, think about it in that context, and we're on a base of about a run rate of UnitedHealth Group somewhere around $0.34 a year, so combined, maybe thinking after 2016, our run rate basis around $0.54 of amortization for year.

Chris Ray: Okay.

Thanks a lot.

Stephen Hemsley: Next question, please.

Operator: Next we'll go to A.J. Rice with UBS. Please go ahead.

A.J. Rice: Yes, thanks. Maybe following up on a little bit on that last question. Two things on the buyback upfront obviously, you'd laid out a plant with Catamaran, is there any update on that plant [indiscernible] related to next year and there is a volatility of the markets sway that in any way you think is better opportunities, so there may be a quick way to come back and buy stock more aggressively, and then just with the comment on the amortization, there will be a bigger disparity with these pending deals complete on the year reporting GAAP, EPS and everyone else reporting cash EPS, any thoughts about that and maybe changing that?

Dave Wichmann: Sure. So, Dan, maybe you want to take the first one, I'll take second.

Dan Schumacher: Sure. On the buyback front, what we'd indicated is that that would reduce the level of buybacks for about 18 months or so, and we expect to continue to maintain that reduced level through the end of next year, think about it. And our target is to get somewhere around 40% liquidity ratio, that's not hard and fast, of course, we're going to continue to pursue M&A opportunities and of course if we would need to step up our share repurchase activities because of some kind of market events or otherwise, I think we have the flexibility to do so. So there is nothing kind of hard and fast about the way in which we operate that we manage our capital structure effectively over time.

Stephen Hemsley: But we're generally on a course towards a 40% total debt to total cap rate.

Dan Schumacher: And then in terms of the kind of supplemental [indiscernible] earnings, I think will address that at the Investor Conference coming up and we'll likely begin to provide the supplemental information with respect to how we would perform on both basis.
A.J. Rice: Okay, great. Thanks.

Stephen Hemsley: Thank you.

Next question, please.

Operator: And we'll go next to Kevin Fischbeck with Bank of America. Please go ahead.

Kevin Fischbeck: Okay. Great, thanks.

So I don't know whether I'm just spoiled or what, but you guys mentioned how you beat number and [raise] guidance a few times earlier this year. So I was a little bit surprised that there wasn't more upside in the quarter or around the guidance? And I understand the dynamics around high exchange MLR and stars investment, but these are things that you largely would have anticipated probably at the beginning of the year in a very least, when you reported Q2 results and provided a guidance back then, so I'm just trying to figure out, if there is something that you would point to that didn't quite work out the way that you were thinking heading into Q3 report or some of that, that you're worried about into Q4? I personally keep coming back to trend because you start out with -- I know you guys provided guidance, [I assume] kind of rise back to normal, so you startup providing guidance, then you are at the lower end of the range and now you're reiterating at the lower end of the range, so does that imply that trend is in fact rising, has it gone through the year because that combined with the lack of it into your development makes me wonder if there is something underneath there. So I guess answer that specifically and if I'm embarking up the longer tree, if there is anything else you might highlight as a headwind.

Stephen Hemsley: Well, again I might respond fanatically. First of all, I think if you take a look at our year-to-date performance, it actually is a pretty solid performance, [indiscernible] top line growth and strong translation of that to bottom-line performance.

I think we maintain a healthy respect for medical cost trends, and I think as we indicated before, the medical costs within our expectations. Our patient continues to be strong and robust and growing. Specialty pharma continues to be strong. We haven't really talked much about that this morning, but none of those things have gone away, so we remain respectful of medical costs, and also the fact that they have been moderate for quite some time, and I don't know if you can assume, we do not assume for pricing that they will stay that way. I think as Dan indicated, as we got into the exchanges have we were thoughtful about making sure that as we price for next year that we used kind of the broader industry experience as opposed to our own because we really had a pretty favorable experience in the first half of the year in terms of the exchanges and they have matured kind of more in line with the industry.

Is that right, Dan?

Dan Schumacher: Yes. I think that's fair.

Stephen Hemsley: Because you might point to that and you know continuing to be watchful of that. We continue to make investments in -- so Medicare stars is a look back process, so really the results that you're seeing are really the results of prior periods and we have intensified our efforts to make sure that we are really going to be a market leader with respect to stars, that's what we had indicated before, so we continue to make investments there in things like that, and we're going to continue that. Things like that, we mentioned, Medicaid and Medicaid expansions, continued rate pressures there, so I think we have to be respectful of all those elements in and the strong performance we're achieving, and then I think that's why we're kind of measured with respect to keeping our outlook the same and being serious about a range when we do, but also being very optimistic about where we see our business in the fact that we expect to grow even more strongly than we did this year.

So I just think it's being measured and trying to be responsible about all the elements that play into our business

Kevin Fischbeck: Okay, so that makes sense. You're being conservative, you're still optimistic. I guess, one, I don't know, way to clarification. So I think last quarter, you talked about, how you thought the United's earnings might accelerate on a core basis. Is that still the message, that you're giving now? You'd mentioned a lot of puts and takes earlier on.

I just wasn't sure if they all sum up to the core business is accelerating over the last changed at all?

Dave Wichmann: Yeah, we did and we basically very much said that and said that in terms as we're expecting our earnings per share and so forth to grow at a fast rate next year than this year.

Kevin Fischbeck: Okay, great. Thanks.

Stephen Hemsley: Next question, please.

Operator: And we'll go next to Sean Wieland with Piper Jaffray.

Sean Wieland: Thank you very much. So my question is on ICD10, was it a headwind or a tailwind in the quarter for Optum? And over the past couple weeks, have you seen any changes in denial rates? And then on a go forward basis what is ICD10 doing to your business in Optum?

Stephen Hemsley: So, Bill, do you want to comment that Bill Miller.

Bill Miller: Yeah, Sean. I'll talk to you on behalf for Optum. Particularly where a lot of those services sit in terms of helping health systems, payors go through the changes with respect ICD10 particularly on and understand we're in this for a few weeks here, but already we're seeing a certain uptake in a lot of our services and a lot of our products and a lot of our content as the market is preparing and now acting in response to the changes, and so there is some seasonality in the back half of our business, and it's being enhanced.

I think we can see that in the numbers in terms of the uptake of our content in the back half of the year. So overall, from a services perspective, delivering value to the clients, ICD10 has been a lift for Optum across the board.

Stephen Hemsley: Dirk, do you want to comment on the [indiscernible] question?

Dirk McMahon: Yeah, sure. You know from an operational standpoint, overall the implementation is going pretty smoothly, but what I caution is they were only 15 days into that. Having said that, we spend years, getting our systems ready, working them with the provider community to ensure success.

The overwhelming majority providers in the marketplace are submitting claims consistent with the ICD10 requirements. Our claim submission rate so far consistent with expectations, and for those limited number of providers we're having difficulty. We're able to identify [them] and get after them quickly, so that they submit consistent with requirements, so far so good.

Stephen Hemsley: Thank you. Next question, please.

Sean Wieland: Thank you.

Operator: And next one would be Gary Taylor with JPMorgan. Please go ahead.

Gary Taylor: Hey, good morning. Thank you.

Actually, just two quick ones. First, would you guys quantify where you health exchange enrolment is today?

Stephen Hemsley: Sure. Dan?

Dan Schumacher: 550,000 lives.

Gary Taylor: Okay. And the 11 new markets for next year, I guess we don't know what markets those are or the size.

Can you give us a sense of magnitude of -- you get the same sort of share, what type of growth that might have on the 550,000?

Dan Schumacher: We're not really giving guidance out for next year until our Investor Conference, so I really wouldn't want to kind of shoot from the hip on this. We do expect -- we'll grow and we've taken some of the learning from this year as we have kind of entered those markets, but I think we're going to save guidance with respect to specifics on next year for our Investor Conference.

Gary Taylor: Okay, great. One more quick one, if I could. When we look at your statutory filings through the first half and understanding all the vagaries and nuances, we do see a very compelling trend in the commercial business, that I think ties with your comments around the commercial cost trend expecting to be lower end of that trend, but it did look like Medicare and Medicaid MLRs deteriorated somewhat in the 2Q.

So I don't know if you'd be willing to offer any specific commentary on the product basis?

Stephen Hemsley: Dan, I don't know, if you can comment on it.

Dan Schumacher: I would tell you that, there are meaningful differences between our GAAP financials and our statutory financials and now how those get reported and how they flow through over time. So from my perspective, I wouldn't read through anything on statutory statements specifically.

Stephen Hemsley: Thank you. Next question.

Operator: Next will be [Ralph Jacoby with Citi].

Ralph Jacoby: Thanks. Good morning. I just want to go back to the stars spending, I guess when did that spending star, was it disproportionate and I guess to the third quarter. And your commentary about it sort of sustaining, I guess, into next year.

Is it sort of the level off or could it be lower where the initial spend is higher in this quarter, having more sort of magnified impact. And then I guess, why not quantify this spend in that area to sort of help on kind of understanding more of 'core', and then similar sort of your last answer to the question, maybe even directionally, can you help us think about MLR trends by end market? Thanks.

Stephen Hemsley: Dan, do you want to comment?

Dan Schumacher: Sure, Ralph. On the star spend, I would tell you that we have been making investments. We really started in the 2014 timeframe in the middle of that year, and then we have increased that in 2015.

And I would tell you, in the relationship between the second and the third quarter as an example. So we put programs in place and what we had mentioned is that, we've seen an acceleration in the take up, so we had the programs in place, we had an expected outcome for it, and frankly we're having more people that are accepting house calls that are getting annual care business as Steve Nelson mentioned. And part of that's due to our service model, so we've been taking that interaction point and really trying to leverage it and help facilitate connecting people to care, and that's showing up, and also we have member and provider incentives and those burn into the market, we're seeing the take up rates on those increase. So we have spending in '14, we increased it in '15 and we have seen an acceleration in the take up rate as we moved from the first half into the second half of the year. In terms of the sizing maybe one way to help orient your thinking around it, as you'd looked at our consolidated medical care ratio on a year-over-year basis.

There is a couple of things that contributed to that. You can obviously see the change in development as one element, stars and quality investment is another element, and mix as a third is kind of the three principal drivers. And in terms of the share in contribution to it within a reasonable range on each of those, so that gives you some sense for the kind of sizing on it. And we expect the investments to carry into 2016 and we're seeing nice progress on our performance in 2015 which will lend itself to better star outcomes for 2018 payment year. And on exchange steps your blunt commentary.

Stephen Hemsley: Thank you. Next question.

Operator: And we'll next to Ana Gupte with Leerink.

Ana Gupte: Thanks for taking my question, good morning. I was wondering what the directional trends were for the commercial [launch] ratio this quarter? I know you see utilization [indiscernible] which is great, but when you combine that with the overall pricing environment and then the balancing out with mixture of things small group exchanges and the likes?

Stephen Hemsley: Dan, Jeff?

Dan Schumacher: Sure.

As you look at care ratios, Ana, in the quarter, we saw an increase in our care ratios, in our principle health benefits businesses, so our Medicare, Medicaid and commercial, and then offsetting that as we talked about kind of the full year theme in the Investor Conference. We're seeing improvement in international offsetting that sound, so directionally up.

Ana Gupte: And then going into 2016, as you say, some of the headwinds [get turned] and become tailwinds. What does this look like from a pricing perspective specifically overall? And then in the New York market, their small group definition is now being changed to only 50 and below, how does that impacted? And also finally with [indiscernible] not being fully reimbursed, [indiscernible], do you see a better pricing environment with plans that could have lost money like the blues or [lots of profit]?

Stephen Hemsley: I think it's a couple minutes to sort out that four dimensional question, but Jeff, do you want it?

Jeff Alter: Hey, Ana, it's Jeff Alter, good morning. I'll try to answer it in a sort of general term.

We said last quarter, and I think we see it continuing, the market is firming a little bit on pricing. For our pricing in '16 as Steve said, we are respectful of the slow trend environment, perhaps changing. I think we took very prudent actions in the pricing that we have for our individual exchanges for '16 as Dan mentioned. We have not changed our forward pricing philosophy. We are very discipline about that, but also respectful of trending outpatient, specialty drugs, new drugs coming to market.

So our pricing, I think is strong for '16. New York market, kind of your question around 2250 to 299 New York will be a 2299 market as well a couple other states. We have assumed, our thoughts for our growing growth for the rest of this year and for next year that there would be some transitional relief, so that the change last week really isn't much of the surprise to us because we're already preparing for a large part to that market to go through some transitional [relief], so our pricing in '16 is in alignment with the change in the law last week.

Ana Gupte: Alright. Thanks so much.

Stephen Hemsley: Next question, please. We'll take maybe two more.

Operator: And we'll take the next question from Christine Arnold with Cowen. Please go ahead.

Christine Arnold: Hey there.

I'd like to put the focus a little bit to Optum. You said that you were seeing some interest in innovative services by Federal Government, and this seems like a pretty big opportunity as well as in some international markets. It's always struck me that the fee-for-service Medicare program doesn't have a lot and we have care coordination and from the other things that Optum provides, might there be an interest in that in terms of the Optum capabilities, the fee-for-service Medicare population. And if not, I'm thinking about that incorrectly, how should I be thinking about that?

Stephen Hemsley: Larry, you want to comment?

Larry Renfro: Christine, I think you're spot on in terms of what we're trying to do with the Federal Government. And as you know, we've had some involvement with CMS in previous programs and so forth with where Optum has been involved on healthcare.gov.

And as we are putting our programs together, we're constantly working with them and talking about the different services, the different data analytics, and it really pretty much everything that Optum has to offer. So your suggestion is a good one, one we know about and one that we're actually working on. You know these are large RFPs as you can imagine. We're pretty much aware of how they work and when they're going to be coming down the road, but I think we're fully engaged and understand what we need to do, and we're better positioned today than we might have been in the past because of the situation that we had with healthcare.gov, we kind of stepped out of that now, and that was one of the reasons that we did it, so we would play in more of the RFPs.

Stephen Hemsley: But Medicare would be a department of the Federal Employee Benefit Plan, State Programs, and then Larry commented on kind of the international versions of all of the above.

I think all those are going to the areas that are going to try to improve performance, and that Optum is perfectly positioned for that.

Christine Arnold: And with respect to timing, should we be thinking about that as something we see in the next year or is this something that takes five years? I just don't have good sense for your workings of the government.

Dave Wichmann: I think that some of the areas that Steve just talked about, there is different timing, there is some that's deal within the next, I would six months, but some of them could go out two years, so it's a variety of situations. When the RFPs are [due], but as I would comment on it, I think I kind of said is, we have a lot of people, we don't have an organization, it's dedicated to the government business Dr. Steve said, whether it would be state or federal, and it could also include the VA and what we're doing DoD, so it's not just like a set time that I could give you, but I would say that, if we looked at our qualified pipeline in terms of how we're looking at the business that is somewhere we're staying around $20 billion and a substantial piece of that would fall in the government business.

Christine Arnold: Great. Thanks.

Stephen Hemsley: One last question please.

Operator: And our final question comes from Tom Carroll with Stifel. Please go ahead.

Tom Carroll: Hey guys, good morning. So do you believe that the market and particularly large self-insured employers perhaps will give United a stronger look than usual if there is such a thing in 2016 as your large competitors are involved in some pretty sizable M&A?

Stephen Hemsley: Well, I would hope they would give us a look because of the values that we deliver and the quality and consistency of our services and the breadth of the things that we bring. And I would say also the innovative dynamic, we are well-known for being in the forefront of innovation. And we have really compelling cost structures and probably deeper into in more diverse and care management to the commentary this morning. So I would hope that they would be looking at us for those elements, and then good if they're concerned about other dynamics in the marketplace I can't comment on that, but I would hope it is for the former and so I would kind of leave it at that.

I do think the marketplace will be strong and robust in the next couple years. Jeff, do you agree?

Jeff Alter: Yes, Steve. Just reminder, we already served an overwhelming majority of that marketplace and I think the value that Steve described is seen by those clients today and we hope that that reputation continues to help us grow into the marketplace that we don't currently in.

Dave Wichmann: I think we're looking at a strong national outlook for next year.

Stephen Hemsley: As we mentioned in the last call, our '16 national account season has progressed very nicely towards the end right now, and we'd see a better '16 season in '15, which was better than '14, so the momentum and trajectory is something that we're very pleased with.

Tom Carroll: Great. Thank you.

Stephen Hemsley: So thank you. We are pleased to have delivered good performance year-to-date. We'll continue to improve the quality of our products and services as our last commentary.

And we remain optimistic about 2016, and look forward to sharing more information with you about the future of UnitedHealth Group, Optum and UnitedHealthcare at our Investor Conference on December 1. So thank you for your attention today.

Operator: And this does conclude today's program. Thanks for your participation. You may now disconnect.

Have a great day.