The following discussion should be read together with the accompanying Condensed Consolidated Financial Statements and Notes. References to the terms "we", "our" or "us" used throughout this Management's Discussion and Analysis of Financial Condition and Results of Operations refer to UnitedHealth Group Incorporated and its subsidiaries.

EXECUTIVE OVERVIEW

General

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

Through our diversified family of businesses, we leverage core competencies in advanced technology-based transactional capabilities; health care data, knowledge and information; and health care resource organization and care facilitation to make health care work better. These core competencies are focused in two market areas, health benefits and health services. Health benefits are offered in the individual and employer markets and the public and senior markets through our UnitedHealthcare, Ovations and AmeriChoice businesses. Health services are provided to the participants in the health system itself, ranging from employers and health plans to physicians and life sciences companies through our OptumHealth, Ingenix and Prescription Solutions businesses. In aggregate, these businesses have more than two dozen distinct business units that address specific end markets. Each of these business units focuses on the key goals in health and well-being: access, affordability, quality and simplicity as they apply to their specific market.

Revenues

Our revenues are primarily comprised of premiums derived from risk-based health insurance arrangements in which the premium is fixed, typically for a one-year period, and we assume the economic risk of funding our customers' health care benefits and related administrative costs. We also generate revenues from services performed for customers that self-insure the medical costs of their employees and employees' dependants. For both risk-based and fee-based health care benefit arrangements, we provide coordination and facilitation of medical services; transaction processing; health care professional services; and access to contracted networks of physicians, hospitals and other health care professionals. We also generate service revenues from Ingenix health intelligence and contract research businesses. Product revenues are mainly comprised of products sold by our Prescription Solutions pharmacy benefit management business and sales of Ingenix publishing and software products. We derive investment income primarily from interest earned on our investments in fixed income and debt securities. Our investment income also includes gains or losses when the securities are sold, or other-than-temporarily impaired.

Operating Costs

Medical Costs. Our operating results depend in large part on our ability to effectively estimate, price for and manage our medical costs through underwriting criteria, product design, negotiation of favorable provider contracts and medical management programs. Controlling medical costs requires a comprehensive and integrated approach to organize and advance the full range of interrelationships among patients/consumers, health professionals, hospitals, pharmaceutical/technology manufacturers and other key stakeholders.

Medical costs include estimates of our obligations for medical care services rendered on behalf of insured consumers for which we neither have received nor processed claims, and for liabilities for physician, hospital and other medical cost disputes. In every reporting period, our operating results include the effects of more completely developed medical costs payable estimates associated with previously reported periods.

Our medical care ratio, calculated as medical costs as a percentage of premium revenues, reflects the combination of pricing, benefit designs, consumer health care utilization and comprehensive care facilitation efforts. We seek to sustain a stable medical care ratio for an equivalent mix of business, however, changes in business mix, such as expanding participation in comparatively higher medical care ratio government-sponsored public sector programs, will change the dynamics of our results.

Operating Costs. Operating costs are primarily comprised of costs related to employee compensation and benefits, agent and broker commissions, premium taxes and assessments, professional fees, advertising and occupancy costs.

Cash Flows

We generate cash primarily from premiums and investment income, as well as proceeds from the sale or maturity of our investments. Our primary uses of cash are for payments of medical claims, purchases of investments and common stock repurchases. For more information on our cash flows, see "Liquidity and Financial Condition" below.

Business Trends

Our businesses participate in the U.S. health economy, which comprises approximately 16% of U.S. gross domestic product and which has grown consistently for many years. We expect overall spending on health care in the U.S. to continue to rise in the future, based on inflation, demographic trends in the U.S. population and national interest in health and well-being. The rate of market growth may be affected by a variety of factors, including macro-economic conditions and proposed health care reforms, which could also impact our results of operations.

Adverse Economic Conditions. The current U.S. recessionary economic environment has impacted demand for certain of our products and services. For example, decreases in employment have reduced the number of workers and dependants offered health care benefits by our employer customers, putting pressure on top line growth for our UnitedHealthcare and OptumHealth businesses. This workplace attrition contributed nearly 50% of the 6% decrease in UnitedHealthcare's commercial membership in the first nine months of 2009, and this attrition trend is expected to continue at a generally elevated level until national employment stabilizes. In contrast, our AmeriChoice business is experiencing increased participation in its state Medicaid offerings as employment rates fall. If the recessionary economic environment continues for a prolonged period, federal and state governments may decrease funding for various health care government programs in which we participate and/or impose new or higher levels of taxes or assessments. Our revenues are also impacted by U.S. monetary and fiscal policy. In response to recessionary conditions, the U.S. Federal Reserve has maintained the target federal funds rate at a range of zero to 25 basis points. As of September 30, 2009, our $23.7 billion portfolio of cash and investments is generally composed of high quality securities and cash, and has a relatively short aggregate duration. Changes in federal monetary policy have reduced the level of investment income received from this portfolio on a year-over-year basis.

In total, we believe that economic recessions will slow our revenue growth rate and could impact our operating profitability. We also believe that government funding pressure, coupled with recessionary economic conditions, will impact the financial positions of hospitals, physicians and other care providers and could therefore increase medical cost trends experienced by our businesses. For additional discussions regarding how a prolonged economic downturn could affect our business, see "Item 1A. Risk Factors" in Part I of our 2008 10-K, as amended, for the year ended December 31, 2008 as filed with the U.S. Securities and Exchange Commission (SEC) (2008 10-K).

American Recovery and Reinvestment Act. Our businesses may benefit from elements of the federal economic stimulus package that was enacted in response to the current recession. These elements include expansion of funding to state programs, which could mitigate funding pressure for AmeriChoice Medicaid offerings at the state level, and funding for health care information technology, which could expand market opportunities for Ingenix.

Proposed Health Care Reforms and Reimbursement Changes. There is regular discussion of health care reforms at both state and national levels, due to the size of and national interest in the health economy. Currently, the administration and numerous members of the U.S. Congress have proposed substantive changes to the U.S. health care system and expressed their intention to pass health care reform in 2009. Examples of health care reform proposals include policy changes that would change the dynamics of the health care industry, including having the federal or one or more state governments assume a larger role in the health care system such as competing with private health insurers, imposing new and potentially significant taxes on health insurers and health care benefits, guaranteed coverage requirements combined with restrictions on our ability to price products based on our underwriting standards, or restructuring the Medicare or Medicaid programs. It is not yet clear what the final proposed legislative changes will be or whether a bill will ultimately pass both houses of Congress and be signed into law. Any health care reforms enacted may be phased in over a number of years, but, if enacted, could increase our costs, expose us to expanded liability and require us to revise the ways in which we conduct business or put us at risk for loss of business. In addition, our operating results, financial position and cash flows could be materially adversely affected by such changes.

The administration and various congressional leaders have advanced proposals to reduce payments to private plans offering Medicare Advantage over the intermediate term. Further, Centers for Medicare and Medicaid Services (CMS) implemented a reduction in Medicare Advantage reimbursements of approximately 5% for 2010. We have made a number of operating adjustments in response to these rate reductions. For 2010, we have adjusted members' benefits and premiums on a selective basis, terminated benefit plans in certain counties, and intensified both our medical and operating cost management. There can be no assurance that we will be able to execute successfully on these or other strategies to address changes in the Medicare Advantage program. The reduction of payments to private plans may also cause declines in the number of seniors participating in Medicare Advantage and the industry-wide revenues and earnings derived from these plans. Our operating results, financial position and cash flows could be materially adversely affected by such declines. If industry-wide Medicare Advantage membership declines, there is likely to be increased demand for Medicare Supplemental insurance and Part D prescription drug coverage, and in both categories Ovations is a market leader.

We operate a diversified set of health care focused businesses; this business model has been intentionally designed to address a multitude of market sectors. Therefore, we could see simultaneous increases and decreases in demand for our various products and services, depending on the scope, shape and timing of health care reforms. It is difficult to predict the outcome of reform discussions with precision over the mid- to long-term time horizon. For additional discussions regarding our risks related to health care reforms and Medicare Advantage reimbursement changes, see "Item 1A. Risk Factors" in Part I of our 2008 10-K.

RESULTS SUMMARY



                                                      Three Months Ended September 30,                            Nine Months Ended September 30,
                                                                                  Increase                                                   Increase
(in millions, except percentages and                                             (Decrease)                                                 (Decrease)
per share data)                                2009            2008             2009 vs. 2008             2009            2008             2009 vs. 2008
Revenues:
Premiums                                     $  19,729       $  18,294       $  1,435          8 %      $  59,586       $  55,027       $  4,559          8 %
Services                                         1,336           1,287             49          4            3,939           3,857             82          2
Products                                           490             432             58         13            1,378           1,186            192         16
Investment and other income                        140             143             (3 )       (2 )            451             662           (211 )      (32 )

Total revenues                                  21,695          20,156          1,539          8           65,354          60,732          4,622          8

Operating costs:
Medical costs                                   16,171          14,943          1,228          8           49,248          45,344          3,904          9
Medical care ratio                                82.0 %          81.7 %                     0.3             82.7 %          82.4 %                     0.3
Operating costs                                  3,156           2,974            182          6            9,321           9,617           (296 )       (3 )
Operating cost ratio                              14.5 %          14.8 %                    (0.3 )           14.3 %          15.8 %                    (1.5 )
Cost of products sold                              442             387             55         14            1,268           1,065            203         19
Depreciation and amortization                      250             254             (4 )       (2 )            733             722             11          2

Total operating costs                           20,019          18,558          1,461          8           60,570          56,748          3,822          7

Earnings from operations                         1,676           1,598             78          5            4,784           3,984            800         20
Operating margin                                   7.7 %           7.9 %                    (0.2 )            7.3 %           6.6 %                     0.7
Interest expense                                  (137 )          (166 )          (29 )      (17 )           (407 )          (484 )          (77 )      (16 )

Earnings before income taxes                     1,539           1,432            107          7            4,377           3,500            877         25
Provision for income taxes                        (504 )          (512 )           (8 )       (2 )         (1,499 )        (1,249 )          250         20
Tax rate                                          32.7 %          35.8 %                    (3.1 )           34.2 %          35.7 %                    (1.5 )

Net earnings                                 $   1,035       $     920       $    115         13 %      $   2,878       $   2,251       $    627         28 %

Diluted net earnings per common share        $    0.89       $    0.75       $   0.14         19 %      $    2.43       $    1.80       $   0.63         35 %
Return on equity                                  18.6 %          18.7 %                    (0.1 )%          17.7 %          15.2 %                     2.5 %
Total people served                                 70              73             (3 )       (4 )%

2009 RESULTS OF OPERATIONS COMPARED TO 2008 RESULTS

Consolidated Financial Results

Revenues

Consolidated revenues for the three and nine months ended September 30, 2009 increased primarily due to the increase in premium revenues in the Health Care Services reporting segment.

Premium Revenues. The increases in premium revenues for both the three and nine months ended September 30, 2009 were primarily due to strong organic growth in risk-based offerings in our public and senior markets businesses and premium rate increases in response to growth in underlying medical costs. The effect of 2008 Health Care Services acquisitions also contributed to the increase in premium revenues in the nine months ended September 30, 2009.

Investment and Other Income. The decrease in investment and other income for the nine months ended September 30, 2009 was primarily due to capital market conditions causing lower investment yields and a decrease in net realized gains.

Medical Costs

Medical costs for the three and nine months ended September 30, 2009 increased primarily due to growth in public and senior markets risk-based businesses, elevated medical costs due to the H1N1 influenza virus, medical cost inflation and increased utilization of medical services, which was partially offset by net favorable development in prior period medical costs.

For each period, our operating results include the effects of revisions in medical cost estimates related to all prior periods. Changes in medical cost estimates related to prior periods, resulting from more complete claim information identified in the current period, are included in total medical costs reported for the current period. For the three months ended September 30, 2009, there was $100 million of net favorable medical cost development related to prior fiscal years and $90 million of net favorable medical cost development related to the first half of 2009. For the three months ended September 30, 2008, there was $10 million of net favorable medical cost development related to prior fiscal years and $120 million related to the first half of 2008. For the nine months ended September 30, 2009 and 2008, medical costs included $300 and $210 million, respectively, of net favorable medical cost development related to prior fiscal years.

Operating Costs

Operating costs increased for the three months ended September 30, 2009 primarily due to acquired and organic business growth and the increased costs from state insurance assessments levied against premiums, a portion of which is in lieu of state income taxes in one of the states in which we operate. These costs were partially offset by productivity improvements in our underlying cost structure. Operating costs decreased for the nine months ended September 30, 2009 due to certain expenses incurred in 2008 as discussed below, partially offset by the aforementioned items that increased third quarter operating costs and the impact of 2008 acquisitions.

Operating costs for the nine months ended September 30, 2008 included $882 million for settlement of two class action lawsuits related to our historical stock option practices and related legal costs, $50 million related to estimated costs to conclude a legal matter and $46 million for employee severance related to operating cost reduction initiatives and other items, partially offset by a $185 million reduction in operating costs for proceeds from the sale of certain assets and membership in the individual Medicare Advantage business in Nevada in May 2008.

Interest Expense

Interest expense for the three and nine months ended September 30, 2009 decreased primarily due to reduced levels in our debt outstanding and lower market interest rates on our floating-rate debt.

Income Tax Rate

Our income tax rates for the three and nine months ended September 30, 2009 decreased primarily due to the favorable resolution of various historical state income tax matters and the change to a premium tax in lieu of an income tax in one of the states in which we operate, which increased operating costs and decreased income taxes.

Reporting Segments

We have four reporting segments:

• Health Care Services, which includes UnitedHealthcare, Ovations and AmeriChoice;

• OptumHealth;

• Prescription Solutions.

See Note 13 of Notes to the Condensed Consolidated Financial Statements for a description of the types and services from which each of these reporting segments derives its revenues.

Transactions between reporting segments principally consist of sales of pharmacy benefit products and services to Health Care Services customers by Prescription Solutions, certain product offerings sold to Health Care Services customers by OptumHealth, and consulting and other services sold to Health Care Services by Ingenix. These transactions are recorded at management's estimate of fair value. Intersegment transactions are eliminated in consolidation.

The following summarizes the operating results of our reporting segments:

                                                      Three Months Ended September 30,                              Nine Months Ended September 30,
                                                                                   Increase                                                      Increase
                                                                                  (Decrease)                                                    (Decrease)
(in millions, except percentages)             2009             2008             2009 vs. 2008               2009             2008             2009 vs. 2008
Revenues
Health Care Services                       $   20,190       $   18,815       $   1,375          7 %      $   61,144       $   56,777       $   4,367          8 %
OptumHealth                                     1,415            1,294             121          9             4,103            3,919             184          5
Ingenix                                           481              383              98         26             1,287            1,126             161         14
Prescription Solutions                          3,575            3,071             504         16            10,670            9,450           1,220         13
Eliminations                                   (3,966 )         (3,407 )          (559 )       nm           (11,850 )        (10,540 )        (1,310 )       nm

Consolidated revenues                      $   21,695       $   20,156       $   1,539          8 %      $   65,354       $   60,732       $   4,622          8 %

Earnings from operations
Health Care Services                       $    1,244       $    1,285       $     (41 )       (3 )%     $    3,638       $    3,800       $    (162 )       (4 )%
OptumHealth                                       172              175              (3 )       (2 )             472              541             (69 )      (13 )
Ingenix                                            64               57               7         12               172              153              19         12
Prescription Solutions                            196               91             105        115               502              283             219         77
Corporate                                          -               (10 )            10         nm                -              (793 )           793         nm

Consolidated earnings from operations      $    1,676       $    1,598       $      78          5 %      $    4,784       $    3,984       $     800         20 %

Operating margin
Health Care Services                              6.2 %            6.8 %                     (0.6 )%            5.9 %            6.7 %                     (0.8 )%
OptumHealth                                      12.2             13.5                       (1.3 )            11.5             13.8                       (2.3 )
Ingenix                                          13.3             14.9                       (1.6 )            13.4             13.6                       (0.2 )
Prescription Solutions                            5.5              3.0                        2.5               4.7              3.0                        1.7

Consolidated operating margin                     7.7 %            7.9 %                     (0.2 )%            7.3 %            6.6 %                      0.7 %

nm = not meaningful

The following summarizes the number of individuals served, by major market segment and funding arrangement, as of September 30, 2009 and 2008:

                                                                       Increase
                                                                      (Decrease)
   (in thousands, except percentages)             2009     2008     2009 vs. 2008
   Commercial risk-based                          9,460   10,495    (1,035 )    (10 )%
   Commercial fee-based                          15,295   15,975      (680 )     (4 )

   Total commercial                              24,755   26,470    (1,715 )     (6 )

   Medicare Advantage                             1,770    1,480       290       20
   Medicaid                                       2,795    2,340       455       19
   Standardized Medicare supplement               2,660    2,510       150        6

   Total Public and Senior                        7,225    6,330       895       14

   Total Health Care Services medical benefits   31,980   32,800      (820 )     (3 )%

Health Care Services

The revenue growth in Health Care Services for the three and nine months ended September 30, 2009 was primarily due to premium rate increases and growth in the number of individuals served by our public and senior markets businesses, partially offset by a decline in individuals served through commercial products and a decrease in investment and other income. UnitedHealthcare revenues of $10.1 billion and $30.7 billion for the three and nine months ended September 30, 2009, respectively, were slightly lower than the comparable 2008 periods as the reduction in individuals served was partially offset by premium rate increases. Ovations revenues of $7.9 billion and $24.4 billion for the three and nine months ended September 30, 2009, respectively, increased by $1.2 billion, or 19%, and $3.1 billion, or 15%, respectively. The increases were primarily due to an increase in individuals served through Medicare Part D, Medicare Advantage and standardized Medicare Supplement offerings, as well as premium rate increases. AmeriChoice generated revenues of $2.1 billion and $6.1 billion for the three and nine months ended September 30, 2009, respectively, an increase of $475 million, or 29%, and $1.8 billion, or 43%, respectively over the comparable 2008 periods, primarily due to an increase in the number of individuals served by Medicaid plans and premium rate increases. The year-over-year increase in revenue also includes the full nine-month impact from the Unison acquisition.

The decreases in Health Care Services earnings from operations for the three and nine months ended September 30, 2009 were primarily due to a decrease in commercial business partially offset by the growth in lower margin public and senior markets businesses. The year-over-year decrease in the nine-month earnings from operations was also impacted by the $194 million reduction in investment and other income for this reporting segment. The UnitedHealthcare . . .