Jan 22, 2009
Operator
Good morning! My name is Dennis, and I will be your conference facilitator today.
At this time I would like to welcome everyone to the UnitedHealth Group fourth quarter and full year 2008 earnings conference call. (Operator Instructions).
As a reminder, this conference is being recorded. This call and its contents are the property of UnitedHealth Group.
Any use, copying, or distribution without written permission from UnitedHealth Group is strictly prohibited. Here is some important introductory information.
This call will reference non-GAAP amounts. A reconciliation of non-GAAP to GAAP amounts is available on the financial reports in the SEC filing section of the company’s investor information page at www.unitedhealthgroup.com.
This call contains forward-looking statements under US federal securities laws. The 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 from time to time, including the cautionary statements included in our current and periodic filings. Information presented on this call is contained in the earnings release we issued this morning and in our Form 8K dated January 22, 2009, which may be accessed from the investors’ page of the company’s website at www.unitedhealthgroup.com.
I would now like to turn the conference over to the President and CEO of UnitedHealth Group, Stephen Hemsley.
Stephen J. Hemsley
Good morning and thank you for joining us. Today, we are pleased to report United Health Group’s fourth quarter and full year 2008 results.
For the full year 2008, revenues increased $5.8 billion or 8% to $81.2 billion, and our fourth quarter revenues increased 9% to $20.5 billion. In the fourth quarter, we added nearly 100,000 people in our benefits businesses.
Our adjusted fourth quarter operating margin of 7.9% was in line with our expectations with some out-performance on the consolidated medical care ratio of 80.8%, offset by a slightly elevated operating cost ratio of 15.4% as adjusted. Earnings were $0.78 per share for the quarter and $2.95 per share for the full year, both adjusted for special items.
I should mention upfront that these earnings numbers do not include $50 million, or almost $0.03 per share, in venture capital investment writedowns in the fourth quarter which was not in our outlook. The adjusted results exclude an accrued $350 million or $0.18 per share in operating costs to resolve class action litigation related to out of network medical services from early 1994 to date as we announced just last week.
We believe it is clearly in the best interest of our company to resolve these matters and move forward. Adjusted cash flow from operations was $4.8 billion for the year, including a strong $1.6 billion for the fourth quarter, and I’m pleased to report that full year adjusted cash flows were a healthy 1.3 times adjusted net income and in line with the range we provided last July.
Stepping back, against the economic turbulence of the last year, these are encouraging results for our business overall. In 2008, we have seen advanced in many important initiatives including our efforts to improve fundamental execution and instill a strong service culture, and we progressed in building deeper and richer market relationships with the people we serve and the physicians we work with in the healthcare community.
On the benefits side of our enterprise, United HealthCare’s business continues to strengthen internally against the challenging economic backdrop and is in line with our previously stated expectations. Ovations had a successful sales and marketing season during this fourth quarter enrollment period, and our AmeriChoice Medicaid business continues to grow in the markets we serve, and is successfully expanding into new programs and geographies.
As you might expect, some of our services businesses are feeling some effects from the broader economic pressures; however, the pressing interest in healthcare affordability, quality, and information technology should also open up new opportunities for these businesses. As we look to the year ahead, we continue to project earnings per share between $2.90 and $3.15 for full year 2009, and cash flow from operations are expected to be approximately $5 billion.
The ranges in our outlook remain wide, but the economic uncertainties of 2009 remain as well. Our financial position is strong.
We have been careful stewards of our resources, and our operating costs and capital control efforts that started early in 2008 will continue in their intensity. As we discussed at our investor conference in December, we are fully engaged participants in the health reform movement.
We bring deep experience, broad industry expertise, and diverse capabilities to this discussion. We have been meeting with a variety of stakeholders and emphasizing the need to reform all aspect of health and healthcare if we were to achieve affordable, quality healthcare for all.
We’d like to begin the business review by giving you more detail for the quarter and full year for our benefits businesses, which include United Healthcare, Ovations, and AmeriChoice. Earnings from operations for these businesses were $1.3 billion for the fourth quarter and $5.1 billion for the full year 2008, all fully in line with our expectations.
As expected, United Healthcare risk-based enrollment decreased by 135,000 people in the fourth quarter, while our fee-based business again performed in a solid fashion, growing 10,000 people in period where there is more limited growth opportunities and a creeping attrition level. We continue to expect United Healthcare 2009 enrollment to decrease by 1 million to 1.5 million people in total, depending upon the severity of the recession, with decreased in both risk and fee-based benefit categories.
First quarter fee-based enrollment is expected to decrease in the area of 500,000. While we are still gathering final January results, this should hold, supported by very strong growth from our expanded relationships with the state of Georgia.
We continue to expect the first quarter 2009 organic defined and risk-based membership to be slightly better than 2008, but in the same general range even as we work intently to strengthen our underwriting disciplines in the small group market and fully price for expected medical cost trends. We are operating with stronger market relationships and greater agility at the local market.
The economy remains a challenge, and we have limited visibility today into January group terminations and employee participation levels. That said, we do have local markets where we are seeing growth for the first time in two years or more, and we are excited by the interest employers are showing for our innovation around health personalization and the concept of building communities of health.
Turning to medical costs, we are in a solid position. Cost trends remain in line with our expectation, on emphasis on regional leadership and rebuilding local relationship is helping us to work more effectively with physicians, hospitals, and healthcare providers to keep costs under control for our customers.
The United Healthcare medical care ratio was 83.9% in the fourth quarter, slightly better than our most recent projection and 20 basis points better than the fourth quarter of 2007. As we moved forward in 2009, we can confidently tell you that United Healthcare’s performance is strengthening on many dimensions.
We will continue to dedicate resources and strong leadership to local markets, build better provider relationships market by market, and leverage the momentum in service improvements and fundamental execution established throughout 2008. This better balance of local engagement and focus in each market combined with our national scale clinically integrated network and technology capabilities we hope will continue to lead the profitable growth over the long-term.
Moving to our public and senior markets group which includes Ovations and AmeriChoice, we added 220,000 people with medical benefits in the fourth quarter. This was sharply above our expectations due to Medicaid growth and consistent performance in senior products.
We had total organic growth of 650,000 people in 2008, a growth rate of 12%. Our Ovations senior health benefits businesses are in the midst of a very successful selling season.
Ovations Medicare Advantage is on course to exceed the upper end of the range of 100,000 to 135,000 net new seniors for full year 2009. We estimate we have gained more than 120,000 new members for January 1, net of terminations, and importantly the mix of this growth by product type is clearly better than last year and in line with our 2009 plan.
We are seeing steady interest in HMO and PPO products and a lift in private fee-for-service versions driven by both significant corporate group sales and individual retail participation. These results also include a net reduction of 7000 people for January 1 in chronic care special needs plans.
Medicare supplement sales also continue to perform well, and finally we are tracking to exceed our growth plan of 100,000 to 125,000 seniors in the standalone part-fee drug benefit market this year. Very strong early performance in Ovations is driven by improvement in sales, marketing and distribution, product positioning, and local market engagements.
We’re seeing improved balance and sizable gains year-over-year from all principal distribution channels including external brokers, affiliated representatives, teller sales, and internal sales professionals. While there may be some upside to our Medicare advantage growth forecast, we will wait to receive additional data including confirmation of our estimates of termination and to watch performance in the remaining open enrolment period before updating our outlook.
The consolidation and integration of Ovations in market care management with United Healthcare’s local care management resources and programs is beginning to translate into stronger medical cost management for these businesses. We expect it to be an important element in Ovations’ performance improvements in 2009 and for 2010.
We’ve been very pleased with the strong advances AmeriChoice made throughout 2008, including our outstanding performance in the fourth quarter. Although Medicaid membership grew by 175,000 people this quarter bringing total expansion for 2008 of more than 800,000 people.
We continue to expect growth of 325,000 to 400,000 people in 2009 which is the mid-teens membership growth rate. This includes the last significant piece of the one-quarter million new people that we are in the process of adding as part of the expansion of services in Tennessee, and unemployment pressures could potentially increase these AmeriChoice numbers as the year progresses.
There has been a lot of market speculation about SCHIP expansion. This is now moving very quickly, and I believe no company is better positioned to serve an expanded SCHIP mandate.
In AmeriChoice, we have a significant, dedicated, and capable business that leverages the best of the entire UnitedHealth Group enterprise, and we offer on the ground services in 22 states and serve more Medicaid program participants today than any market competitor. Summarizing, across the benefits businesses, we have a meaningfully improved start in 2009 supported by solid and diversified organic growth and a higher quality business mix.
Now let’s turn to our services businesses which include OptumHealth, Ingenix, and Prescription Solutions. They all serve the healthcare marketplace broadly and are consistent sources of innovation and thought leadership inside and outside UnitedHealth Group.
Their capabilities are a large part of our overall diversification and make us a more adaptable organization for a changing healthcare marketplace. For the full year on a combined basis, these businesses generated $19.4 billion in aggregate revenues and $1.3 billion in total earnings from operations, with revenues of $4.9 billion and total earnings from operations of $333 million.
This quarter, we saw the continued impact of United Healthcare unfavorable risk-based membership trends in OptumHealth. We also saw reduced demand at Ingenix for CRO consulting services and coding and reference material.
Operating margins for the year declined for both OptumHealth and Ingenix. On the other end, Prescription Solutions margins strengthened increasing 90 basis points year over year to 2.9%, driving 35% year over year growth in operating earnings in 2008, as Prescription Solutions continues to realize the benefits of larger scale and improved generic and mail order fulfillment performance.
The economic climate is presenting our services businesses with both opportunities and challenges. Pressures are on both government sponsors and employer groups are creating new opportunities for Ingenix consulting and Prescription Solutions, will apply their technology and their innovative approaches to help control costs and manage care more effectively.
We’re seeing increased interest at OptumHealth in free-standing care management and wellness prevention services as market interest in more intensive cost management and affordability once more returns. Our OptumHealth clearly continues to be impacted by membership losses at its largest customer, UnitedHealth care.
This impact reverses our benefit businesses. Furthermore, OptumHealth is meaningfully expanding its external revenues in his behavioral health, care solutions, and specialty benefit businesses.
A clear example of this is within the public sector marketplace. Two years ago we identified public sector services as an opportunity for growth and diversification.
OptumHealth had distinctive capabilities to offer and we had local market relationship throughout our enterprise, but our market share was unimpressive. With a renewed focus, we have now sold new business representing more than 2 million people over the past year.
We are implementing behavioral health benefits for the last piece with more than one-half million participants we serve in Ten Care. We were awarded the Empire Behavioral Health benefits in New York State serving 1.1 million people.
We recently received a mandate to finalize terms in Mexico to provide behavioral health benefits to another 400,000 people effective July 1, 2009. And just last week, we were awarded the contract to provide services to 50,000 people in Pierce County, Washington.
These market successes improve OptumHealth balance and business diversity while adding operating earnings and margins that are fair and appropriate for public sector business. Ingenix is a significant supplier to the healthcare industry and is being impacted by economic and industry trends.
Spending on discretionary products and services is under pressure across the healthcare industry and challenges facing the pharmaceutical industry are affecting spending on new product development and creating challenges for the CRO industry. At the same time, there is increasing demand in the government sector in the international market and in the electronic medical records business.
In total, Ingenix has experienced some weakness in demand, which has been partially mitigated by its broad product and market diversification. Many of its offerings are attractive in this environment because it provides strong and rapid financial payback for clients.
As I am sure you are aware, the federal stimulus package will have a strong health IT element and Ingenix should participate in that significant market expansion. Prescription Solutions continues to see growth in demand from mail order pharmacy fulfillment and its operations continue to mature.
We’re making significant progress in our work to insource specialty pharma services for all of UnitedHealth Group. In 2008, organic membership growth outside the UnitedHealth businesses exceeded 400,000 people, and in 2009, we expect Prescription Solutions will further develop its position in the industry as a full line, large scale national pharmacy benefit manager.
When you need trends and developments across the various businesses together, our outlook for 2009 remains in line with our most recent projection. We anticipate revenues of $85 to $86 billion this year.
We see evidence of strengthening sales momentum but we need further information on retention business mix before we can make any changes to this forecast. We remain comfortable with our commercial medical cost trend outlook for 2009 at 8% plus or minus 50 basis points.
We continue to forecast the consolidated medical care ratio in the range of 82.7% plus or minus 50 basis points. The year-over-year increase in this consolidated care ratio is due to anticipated changes in product and business mix favoring government markets.
Adjusted operating costs at 15.4% of revenues increased slightly from the third quarter. This included $80 million or 40 basis points of seasonal expenses including marketing and new business installation cost, as well as some miscellaneous expense items such as an increase in general legal cost.
Since the first quarter of 2008, we have reduced our operating cost by an annual run rate of roughly $470 million. We have reinvested about $60 million of that run rate reduction to strengthen our presence and responsiveness in local markets.
We clearly have opportunities for further reductions in areas such as better sharing of our administrative services across our businesses. Operating cost management is critical to health care affordability and will continue to be a focus for us in 2009.
While we no longer provide quarterly EPS guidance, we expect the first quarter of 2009 to reflect the seasonal declines for businesses such as Part D and Ingenix as well as the effects of lower projected investment income on the year-over-year basis. One would logically expect a year-over-year increase in the first quarter medical care ratio driven by business mix, and it appears the number of the more conservative first quarter earnings estimates on the street are giving a fact to these factors.
The balance sheet and investment portfolio remain strength for our enterprise. We reported a full year net realized capital loss of only $6 million on a $21.6 billion cash and investment portfolio which is a virtual unique accomplishment in 2008.
Our full year net realized loss of $6 million includes the fourth quarter realized $14 million net capital loss on our operating investment and a prudent $50 million write-down on our approximately $200 corporate venture capital portfolio. Importantly, our net realized loss position on investment improved by $235 million in the quarter to a net unrealized loss of only $47 million at December 31st.
To put that number in context, that means we had a net unrealized loss of about two-tenth or 1% on our portfolio at year end. Our unrestricted cash position improved by $765 million from September 30th to a balance of $865 million at year end even as we reduced our outstanding commercial paper to $101 million from $586 million.
Looking over the past 6 months, we’ve decreased our leverage ratio by 230 basis points from 40.4% at June 30th to 38.1% at year end. This more concerted leverage occurred even as we dispersed $900 million in the third quarter from the shareholder litigation settlement.
In total, these results demonstrate UnitedHealth Group’s strong and consistent operating cash generation. We expect to have the capacity to repay the $900 million in term debt due this quarter without accepting the credit market if need be.
Our strong liquidity, cash position, cash flow, and investment portfolio will support our businesses during these challenging times and give us financial flexibility and strength. To sum-up our operating trends, UnitedHealth Group is continuing to improve fundamental execution, service responsiveness and in market relationship dynamics for our customers, members, and the healthcare community at large.
Our improvements are gaining traction in the marketplace. We continue to focus on translating our evolving culture of service into trusting relationships that will help differentiate us and enrich our market position.
We have determined to accelerate these improvement trends in 2009. We continue to steward our resources wisely.
We are controlling costs and reducing non-essential spending with a slower capital spending pace than last year overall. We’ve always been a leader in innovation and we intend to pick up the pace with the concentration on bringing simpler consumer and provider innovation profitably to market, innovations that are cost effective that enhance the personalization of health care and that are practical.
That means innovations that change health care for the better, cost less to develop, and can be introduced with less overall disruption. Let me give you some quick examples.
We pioneered a diabetes health plan for the commercial market. The plan is tailored to the unique needs of diabetics and importantly pre-diabetics and leaves them to the best resources, best science, so they can control their condition and live healthier lives while reducing employer cost.
The diabetes health plan is just one example of our new family of personalized condition specific benefit offerings for the self-funded market. We are also helping employers with our proprietary consumer activation index.
This index measures consumer decision making across key decision points and helps employers specifically target opportunities to improve health, wellness, and cost in their employee bay. For example, we can identify an issue with preventative screening rates for females in a specific age core or employed specifically at an employer’s branch location in say Fresno, California and give that employer the tools to improve health for that group or a group that we would call a health community.
This is a very granular personalized approach leveraging deep data in clinical resources. And one final example, our emergency room decision support service reaches out to frequent emergency room users and connect them to other resources such as primary care, urgent care, or nurse line resources.
Participants in these programs use nurse line three times more frequently and over 40% now routinely choose the less intensive, less expensive setting for their care. Each of these examples is cost effective, personalized, practical, and easily deployable.
We also continue to attract and position exceptional new talent across our enterprise. These leaders are helping us build greater depth in our management team as well as bringing fresh perspectives along with new energy and new ideas to our businesses.
I can quickly pick more than a dozen high profile people added in just the past 6 months or so. But let me address today’s development.
This morning, we are announcing that Larry Renfro, a very senior executive from Fidelity Investments will join the UnitedHealth Group as an executive vice president. He will serve as chief executive of the Ovations business.
Larry is a very senior and accomplished executive with diverse experience. He is clearly well-grounded in individual product sales and distribution.
His experience involves senior health and financial services businesses and markets, and large scale highly regulated operations. This is another important move in developing the broad and deep executive leadership needed to advance UnitedHealth Group to its full potential.
Larry inherits in Ovations business with maturing distribution and operations and improving overall performance consistency as well as a nice growth momentum as it enters 2009. Simon Stevens will assume new duties leading our overall healthcare reform undertakings across our enterprise.
Simon will dedicate himself to the engagement, development, and coordination of our healthcare reform efforts. He will also assume the overall operational leadership of our international businesses with a goal of making this one of our next significant platforms for growth and diversification.
Simon’s background as Tony Blair’s health policy director in the United Kingdom, as CEO of America’s largest seniors’ health business, and as an operating executive in the hospital sector makes him really suited for these challenging tasks. We greatly appreciate Simon’s successful leadership of Ovations, and that he will now broaden his role and help guide our constructive participation while also leading our international growth.
Let me add our chief legal officer, Tom Strickland, who has served UnitedHealth Group with distinction has recently accepted a senior position in the Obama administration in the department of the interior. All of us appreciate Tom’s thoughtful leadership on matters of governing and his energy in resolving a number of challenging UnitedHealth Group matters.
Tom helped us build stronger relationship with regulators and elected officials and he substantially strengthened our legal scene. We wish Tom the best in his new endeavors.
Finally, we are continuing to add new and diversified leadership to our board of directors including the additions in 2008 of Bob Darretta, Michele Hooper, and Glenn Renwick. We recently announced that Dr.
Ken Shine will join the board. Dr.
Shine currently serves as Executive Vice Chancellor for Health Affairs for the University of Texas systems, brings to UnitedHealth Group 30 years’ experience as a leader in healthcare including 10 years as President of the Institute of Medicine and The National Academy Of Sciences, and you can expect the addition of another independent director in 2009. In closing, I’d like to remind you of the few key points regarding our enterprise and the reasons we’re optimistic about our continuing facets even while we continue to be cautious concerning the challenges our economy is currently confronting.
We have spent significant efforts in 2008 re-focusing back to fundamental execution, and we’re starting to see the signs of improving visibility, reputation, and results. We have a strong and diverse business model that reflects and responds to the national health care landscape.
We are actively engaged in the dynamics of health care reform. We believe UnitedHealth Group can serve a broad base agenda while actually growing our businesses as we further diversify to meet the evolving needs of that reform.
Our financial stewardship has positioned us exceptionally well. Change is inevitable.
Some changes will be disruptive for us and for our industry, but leading companies take advantage of disruptive change in challenging markets and that is our intent. There remains a huge opportunity to continue to advance care for people and create value for society through innovation, technology, and service.
When we execute on this agenda, our shareholders will prosper. I thank you, and at this time I’d like to open up for questions for our senior team, and I’ll turn it back to the moderator.
Operator
(Operator Instructions). Your first question will come from the line of Scott Fidel with Deutsche Bank.
Scott Fidel
First question, just if you can give us an update on how your medical cost trends are looking in the west, particularly in California, and just on the hospital contracting, how that progressed for 2009? Just at the investor day you did spike that as an outlier and just wondering how the actual contracting is progressing for ’09?
Stephen J. Hemsley
Gail I ask you to start it off and then may be Mike can add color.
Gail K. Boudreaux
In terms of our medical cost trends, let me just start with California marketplace; it remains the continuing challenging market for us. Our overall trends are where we expected them to be and we certainly continue to see some pressure on unit cost, and Mike will spend a little bit of time on that, but we have seen and made some changes obviously in that marketplace, leadership changes, and have a pretty robust focus on our affordability agenda.
So, we’re seeing some traction in the market, but again, we have a long-term view on the competitiveness of the California market, and I’ll ask Mike to comment directly on the medical cost ratio and our view on trend there.
George L. (Mike) Mikan III
I want to clarify Scott we didn’t spike out directly the west coast per se, but unit cost in inpatient, I think we’ve been talking about pressure on the west coast as well as the east coast, but we anticipate that there is going to be continued pressure on unit cost in inpatient next year. So, I want to make sure we’re clear on that, and I think that’s reflected in the guidance that we gave.
You will note in Steve’s comment favorable reserve true-ups, there was again favorable true-ups on the west coast. I would indicate that that’s from our actual real models I think reconciling or truing-up to the operational performance improvement that we’ve made.
So, overall, the reserves have trued-up favorably in the west coast, but nothing has changed in terms specifically in hospital contract and we still continue to see strong unit cost pressure on the west cost, and then I think we mentioned that on the investor day or on the last call that our efforts after coming into the year, around mid year to manage bad days and implement our clinical models from Legacy UnitedHealth care have taken root in California, and that’s part of the improvement that we’re seeing in the California marketplace today.
Scott Fidel
Okay, and then if I could just ask a quick followup question on statistical stimulus package, do you have any details yet on how the formula will be developed in terms of how Medicaid relief will be allocated across the states, and then just also interested in your views on the COBRA relief and whether you think this will actually play out to benefit commercial enrollment in terms of potentially establishing some type of downside floor and where commercial enrollment would trend relative to the economy?
Stephen J. Hemsley
Scott, we will have Rick Jelinek respond to this one.
Rick Jelinek
On the federal match component of the stimulus it’s still a little early to predict exactly what’s going to happen, but as you know, the ranges are in the $800 to $100 billion range that would end up at the state level to increase temporary matching, and what it looks like right now is that there will be somewhere in the 5% to 8% increase of match that would hit each of the states for the period of time, and more matching dollars would be going to states with the higher unemployment rate.
Scott Fidel
Rick, just to clarify the numbers; that was $80 billion to $100 billion.
Operator
Your next question will come from the line of Joshua Raskin with Barclays Capital.
Joshua Raskin
My question also relates to cost trends, I just want to make sure I understand what is going on here; in the fourth quarter, it sounds like you guys had cost trends were well within the range and I think it sounded like not at the high end which to me sounded incrementally lower than what we were thinking last quarter, and then combine that with $300 million or so of intra-year development in the second half maybe suggesting slightly better than we thought, at least in the first nine months, probably the first half of the year as well. So, I am curious, still talking about 8% plus or minus 50 for 2009; what’s the expected acceleration in cost trend from here, if we’re still sort of not paying at this point?
George L. (Mike) Mikan III
Thanks Josh, that’s a lot of questions in one. I hope that we were clear; we’d provided guidance of 7.5% plus or minus 50 basis points coming into 2008; that remained firm throughout the year.
We did see, Josh, as you may recall, significant pressure in unit cost on the inpatient side, and that drove us, as we were looking to the investor conference, our best estimate for the year took us to a range of 7.5% to 8%, and I would tell you, we were at that point in time viewing our trend to be closer to the higher end of the range for the year. Clearly, the development that has transpired as we closed out the fourth quarter, we did see improvement.
If you go back to the Q1 guidance that I gave you by category which clarified the year versus our year ago investor conference, we improved in position, inpatient was in the zone of what I said, and outpatient was slightly higher than what we said. So, as the year trued up with the development from the west coast that I previously mentioned, we would be on the lower end of that range of 7.5% to 8% for 2008.
For 2009, we continue to expect that our trends will be in the 8% plus or minus 50 basis points. As you know, that doesn’t include the favorable contract from the PDM change that we mentioned at the Investor Day conference, but for now we’re very comfortable with the range of 8% plus or minus 50 basis points.
Joshua Raskin
I guess Mike, maybe I asked this poorly, last quarter it sounded like you were sinking more around 8% for ’08 and now you are saying close to 7.5% and yet we’re still thinking 8% for 2009. So, I’m curious why some of the progress or improvement this year does not translate to next year.
George L. (Mike) Mikan III
I think the answer is, Josh, first of all I want to make sure we’re clear, we put out the range of guidance for 2008 at 7.5% to 8% at the investor conference, and after I indicated, but if I didn’t, at that point in time at the higher end of that range. It is coming down obviously as a result of the favorable true ups that we had that the total doesn’t include all commercial; it’s split between commercial and other businesses, and if you look at by category, you can see that we are expecting continued pressure on the inpatient side as a result of unit cost.
So, that is what is driving the ultimate change, give or take, and we’ll update you as the year goes along. I would say, Josh, that while we’re pleased with the performance in the quarter and what it suggests, it is certainly not enough to change our view of what we see the overall trends to be, the pressure in the marketplace, and how we should be guiding our business and our pricing.
So, I would just leave it at that. While we’re certainly pleased with the quarter, I don’t think it establishes anything which would pick us off our trends at this point.
Operator
Your next question comes from the line of Gregory Nersessian with Credit Suisse.
Gregory Nersessian
My question is just on the commercial risk business; I was wondering if, maybe Gail, you could give us a sense for on the commercial risk membership that you’re losing, maybe, compare the MLR on the business that you are losing on January 1st versus the business that you’re keeping; I know it’s probably early, but if you could just give us a little bit of directional take there, and then if I could just sneak in a second one, a clarification, did you just say that you actually won the New Mexico Behavioral RFP or that you’ve been asked to bid on it?
Gail K. Boudreaux
Let me take the first part of the question. The essence from your question is really a question about our risk pool.
Let me say, based on the business that we’re keeping; we clearly have favorable medical cost ratios through the business that we’re losing, and that has not changed. As we think about our risk pool in total, we really haven’t observed any noticeable overall changes to the risk pool, and we track that base in our financial book on health status indicators, and those have remained very stable.
As we look ahead to 2009, obviously 2009 for January is not completely mature; we’ve got thorough indicators, obviously are standing on the range that Steve said in his opening comments, but I do want to comment again, we’ve been very disciplined; we made a number of changes and under-writing processes in 2008, and we are seeing actually in a positive sense, our first year benefit cost ratios as far as small group cases are coming in more favorably than they did a year ago. So, while those are early indicators and again, given the timing of this conference call, it’s positive relative to the risk of the health group.
So we will continue to watch as we look ahead to 2009, any case attrition which we expect obviously to be higher in 2009 and also continue to be very disciplined on our processes on benefit buy-down.
Stephen J. Hemsley
I’ll answer the second part of your question, but I’ll have Dawn do it because it was her success.
Dawn Owens
We are please to say we were selected by the New Mexico Collaborative for Healthcare to administer the behavioral health benefits for their Medicaid participants. We are finalizing the contracting process right now and expect to be implementing it this year.
So, yes, we were awarded the business.
Stephen J. Hemsley
I caught an offline question for something and I just wanted to clarify which was about the venture capital loss; a reported earnings per share of $0.78 does include $50 million on venture capital write-downs.
Operator
Your next question comes from the line of Matthew Borsch with Goldman Sachs.
Matthew Borsch
Maybe if I could just ask for a little bit more about something you touched on where you said that you’re seeing local market growth for the first time in a while; I am curious if you can spike out any geographies where you’re seeing that and what factors you attribute that growth to?
Stephen J. Hemsley
I am not sure that we’d like to get into the specific geographies, but I think Gail can speak to the trends we’re seeing.
Gail K. Boudreaux
No, we’re not going to comment specifically on the space, but what I’ll say to you is that the growth is across a multitude of different regions and going back again to our focus on balancing within our regions and a lot more sales discipline locally, we see the growth as a result of our stronger market relationships with our distribution partners in particular, and also more effective positioning of our products, which we think offer very affordable solutions for consumers especially in the environment they’re facing. Steve also touched on something else that’s taking hold in the marketplace which is our focus on personalization, and those products we’re seeing some good traction and as we look to help integrate this system and they can work more effectively for consumers.
Finally, I just want to touch on the State of Georgia open enrollment which I think is a great example of how our focus on local execution is paying dividends in translating into growth at the market level. In this case, consumers have the option of health plans rates and have just completed open enrollment, and based on our local deployment, our strong member service skills, they overwhelmingly chose UnitedHealthcare as their plan of choice.
I think that gives you a little bit of flavor about how we see the market turning for us and increment in both our service and our satisfaction, in our ability to deploy our resources locally.
Stephen J. Hemsley
One of the key points is that it’s across a number of markets and is not necessarily intensely concentrated even to a region.
Matthew Borsch
Okay, but you attribute it more to your own actions as opposed to change in the industry environment?
Stephen J. Hemsley
Very much so; and a variety of factors including, in some instances, network access; in some instances, much better product position; the factors that Gail talked on.
Operator
Your next question comes from the line of Justin Lake with UBS.
Justin Lake
Questions around pricing; given the timing issues of having perfect visibility on January 1, renewals at this point, specially on some of the smaller ends of the business, just wondering if you could tell us what percentage of your one-one renewals you feel like you have good visibility on pricing on at this point? And then, can you also tell us if buy-downs have been in line with the 150 to 200 basis points you discussed on Investor Day?
Gail K. Boudreaux
First, I think you commented, and I would agree, it is too early to declare on 2009 pricing yields because our data is still developing; however, based on what we know, in our data we do believe that we’re tracking to the expectations that we outlined at the investor conference. Our first quarter results were in line with the expectations we laid out.
I just want to again reiterate that we’re staying very disciplined to our pricing and under-writings, and are starting to see some traction, particularly, when we talk about some of those processes, we mentioned them before, we’re starting to see the reduction in our new business discounting, and also, I think, very tight management of the benefit buy-down process in terms of the premium credit we give. In terms of overall buy-downs, at this stage, our buy-downs are tracking pretty consistently to our expectations, but given what we’re seeing in terms of the focus on affordability we would expect certainly a small group for that to see some additional focus, but again, those are tracking in line to what our expectations are at this stage.
Justin Lake
I know you weren’t there last year, but is there any way you can compare or contrast how ’09 is tracking from a pricing standpoint at this time versus where you were looking back to ’08?
George L. (Mike) Mikan III
Justin, it varies by product. I think I’ll echo what Gail said, and I think we’re seeing it in the numbers.
We are tighter in our pricing this year than we were last year, and so we’re seeing that in our underwriting models in terms of what we target to get in loss ratio for new business and retained business, and that’s just better on a year-over-year basis.
Operator
Your next question comes from the line of Charles Boorady with Citigroup.
Charles Boorady
When you look at the prescription trends for the first three weeks of ’09 for your Medicare population, which I understand you have fairly real-time robust data on this; does that data on prescribing patterns tell you anything about the health status of the PDP and Medicare Advantage populations that are using Prescription Solutions, and how the health status of those lives compare with your expectations. In other words, is the average risk of your population in line with what you expected; a little worse or a little bit better, based on the first three weeks of data?
Simon Stevens
We got two data points around the element of part B lives. For the 120,000 new part B auto-assigned low-income members, we’ve now got their individual risk scores and these according to our factors they don’t of themselves suggest that there’s an issue there.
We’ll obviously be able to track their actual experience very closely. Secondly, we’ve got, as you say, the first few weeks worth of the utilization data and that appears to be showing the same sort of pattern that we would expect based on what happened last January.
So, again, nothing there suggestive of an issue at this point.
Charles Boorady
Okay. And Simon, any way to articulate with three weeks of data how good a predictor that is or roughly how many weeks of data you might need to get 90% confident that your expectation are going to be met in terms of the average risk of your population this year.
Simon Stevens
If you look at not just individual part B members, but you will also think about the part B predictor called the MAPD members; the MAPD population as a whole, what we can say in summary is that we’ve seen very strong new sales across the Medicare Advantage portfolio, double what they were in last year’s annualized period, and that very well diversified geographically and across products. So we don’t have a concentration of risk in particular markets.
George L. (Mike) Mikan III
I want to make sure we’re getting your answer. If you look at the PDM volume for the lives that we have, the actual prescription volume that we’re seeing are in line with the expectations and the mix is in line with our expectation.
So, we’re not seeing anything out of the normal, out of the prescription data today.
Charles Boorady
And that data, how good a predictor is that data of overall health status of your members?
George L. (Mike) Mikan III
I think that data, Charles, is reasonable, sort of good for it, but I actually think that Simon’s comments about the profiling of his population and the risk attributes of it is actually most constructive. When they actually go in and evaluate the risk status of the membership they have and conclude that that status is not unfavorable, and then as you are suggesting, it also reflects in some of the operating results, that you’re not seeing any of that, recognizing it this early.
I think that that reaffirms that conclusion.
Operator
Your next question comes from the line of Carl McDonald with Oppenheimer & Co.
Carl McDonald
With regard to fixed costs versus variable administrative costs, I think in the context of rising unemployment, when you lose a risk member, how much of the admin costs are totally variable, things like commissions that go away immediately versus more fixed costs like systems which you can’t get rid of?
Stephen J. Hemsley
I don’t know if I can give you a formula response to that. Obviously, we have a meaningful fixed cost infrastructure in our business, but the variable elements you talk about are, if you’ve got your finger on them…
George L. (Mike) Mikan III
There’s a lot to that question, and obviously, it varies by product, and I think between John, Brett, and I, we can spend time with you to get into more clarity on the question that you’re asking, but it would be too much explanation to try to give it on a call like this.
Operator
Your next question comes from the line of Michael Baker with Raymond James.
Michael Baker
With respect to the Ingenix settlement, can you give us a sense of timing as well as any potential or degree of potential or potential cost pressure push on that as a result of that?
Stephen J. Hemsley
In terms of timing of this, maybe, I’ll have Mitch Zamoff talk about the timing of actually the settlement itself.
Mitchell Zamoff
The settlement is complete with the New York Attorney General in that the documents are signed. The amount of time it’s going to take for the new database to get up and running is an open question.
The Attorney General predicted that it might take six months, but he said that that was possibly an optimistic estimate, and with respect to the settlement of the class action lawsuits, again, that settlement has been signed and remains subject to court approval.
Michael Baker
So, the actual funding of the damages in that?
Mitchell Zamoff
Well, the funding components of that, the AG settlement, the funding components will be dictated by the Attorney General, and we would fund our $50 million commitment on a schedule that he determines and with respect to the funding of the class action settlement, that would not take place until after the settlement is finally approved by the court, sometime mid to late ’09.
Michael Baker
In terms of any potential impact on cost trend as you revalidate break to usual and customary through that process.
Stephen J. Hemsley
Right. That’s the second part of your question and I think Mike can respond to that.
George L. (Mike) Mikan III
There’s a lot of things that go into autonetwork pricing with shared savings programs and other things, but when you get to billed charges outside of that, there’s really two ways that we apply our reimbursement; one is obviously using the UNC rates that we talk about and we’ll continue to use the database as we have in the past, and then second, several years ago we moved to a reimbursement formula that was indexed to pay at a set percentage above Medicare rather than UNC. So when you blend the two either way we don’t believe that there’s going to be a cost issue going forward.
Operator
Your next question comes from the line of Ana Gupte with Sanford Bernstein & Co.
Ana Gupte
My question is about your recent growth in Medicare Advantage privacy for service; it’s sort of a departure from your usual strategy of growing in network products, and I was wondering how much of it is coming from group relative to individual. Secondly, how are you planning to manage cost on that population which are largely unmanaged, and are you looking to actually convert these at some point to network products as teaming gets eliminated and further late cuts maybe coming down the pipe?
Stephen J. Hemsley
I think that’s generally a yes to all of those, but Simon will answer in detail.
Simon Stevens
The first point to make of course is that we’ve grown across the board which is not the privacy for service growth given the annual period; new sales are about double what they were last year, and the majority of our new sale for January 1st in our network based HMO PDO product designs, not in privacy for service and the individual market. Although privacy for service growth, as you know, about half of that was strong, and the rationale for that is I think we said about it on Investor Day is that given the strength of our provider network, we are willing to see some growth in privacy for service this year, seeing the opportunity to then migrate membership to other plans designed to get very strong in the run-up to 2011.
And of course even with this growth, privacy for service will still comprise less than 13% of our total Medicare Advantage membership where we continue deliberately to be on the rate.
Operator
Your next question comes from the line of John Rex with J.P. Morgan.
John Rex
I was wondering if you could get into a little more details specifically on commercial utilization trends against, obviously this looking to see what you’re seeing versus what the vendor community is speaking to out there in terms of some decline; so maybe, getting in, breaking into the form pockets of cost, if you could just speak specifically to the utilization components in each of those?
Stephen J. Hemsley
John, I don’t want to get into each of the pockets with respect to utilization and the impact to the economy. What I can tell you is, broadly speaking, utilization continues to track to our expectations with what we’ve been talking about for several periods now; we’re not seeing significant change.
Areas that typically get focused on are bed day utilization and we continue to see that tracking down. That is a lot to do with the clinical programs and a lot of the efforts that we put at the local markets taking root.
So, we continue to see that. We’ve not seen any real change in utilization directly related to the economic downturn.
We recognize that hospitals and clinics have talked about reduced volumes and increase in bad debt. We think that is more related to uncompensated care or those without coverage.
For those members that have insurance coverage at least with us we’re seeing utilization very typical of what we expected. I will note, I think there were several reports that mention that in October and November utilization seemed to appear to be slightly down.
We saw that as well. We can surmise what that was related to; again, within the range of what we anticipated, but it did bounce back in December as we expected as a result of the deductible wear-offs.
So, utilization from our perspective, currently we’re not seeing any real impact from the economy. Looking forward we believe that the downturn in the economy, the shock, will impact health benefits offered by employer groups, buy-downs will increase, and we ultimately believe that beginning in 2010, maybe a year earlier than historical patterns, you will see utilization directly related to the economic impact of 2008.
John Rex
So when you speak to declining, you are modestly declining bed day still. Can you put a number around that as percentage just so that we can get the broad side of the barn?
Stephen J. Hemsley
1%, somewhere in that zone.
John Rex
On pharma, script trends in particular in the commercial book, is that flat or has that come down at all?
Stephen J. Hemsley
Well, I don’t have it specifically in front of me, but I would say pharma utilization is generally up every year, but I don’t see any significant change in what we have seen.
John Rex
I meant the pace of change.
Stephen J. Hemsley
We haven’t seen any real change in pace.
Operator
Your next question comes from Peter Costa from FTN Midwest Securities.
Peter Costa
My question comes on the commercial side and when you expect to see the improvement show up on the commercial side. Do you believe your balance sheet and your out performance from the industry on the balance sheet is going to help you win more accounts on the national account level going into next year?
Are you using that as a marking tool at this point in time?
Stephen J. Hemsley
We will use everything possible as a marketing device. I can assure you of that.
There certainly is interest in making sure companies will want to make sure that they are doing business with enterprises that have strong stability and so forth, but there are so many other factors that lead to what is valued in those kinds of relationships.
Gail Boudreaux
What I would say to Steve’s comments is that in the national account phase, we touched a little bit on some of the areas that they are focused on, and they are focused on affordability and quality-based network. We are still seeing a lot of interest in health and wellness program and activating their employees to make better decisions so that they can get better total outcome, so I think if we look at the national account selling season in particular, I think the significant improvements we have seen in our service model and our focus on building a culture of service plus the affordability and value that we bring to that market place, around personalization, that’s going to be our value proposition in the market, so I think it’s a combination of all those things.
George L. (Mike) Mikan III
Yes, also I just want to mention that one of the things we do, and I think Steven and Gail both said this, is continue to demonstrate strong financial stability. In our largest license, UHIC continues to be rated A+, so we feel very good about that.
Stephen J. Hemsley
I’d say that this also has positive things when we think about state business and relationships like ARP and so forth that the general conduct of the business and the positioning of the business aligns favorably in terms of how we have been positioned through these difficult times, so a good question, and as I said we will certainly use that and any other device we can to grow and advance our business.
Peter Costa
Should we expect to see more financial-type products coming towards the senior population with (inaudible) being added which is a P services background?
Stephen J. Hemsley
I would offer that we have for years thought about the senior marketplaces and marketplace unto itself, and I think there is in many respects health product is a financial product itself. I think the key in that is that that business is sold very much in a individual distribution kind of a pattern like financial products are often sold, so I think that would be kind of the first line of step-off I would take, and then clearly there is a perspective about how health plays into an individual’s overall security and sense of financial security, so to that extend it crosses over, but I would think it’s very very premature to suggest that there is a financial product agenda itself here.
Operator
Your next question comes from Sheryl Skolnick with CRT Capital Group.
Sheryl Skolnick
I’m looking at the $865 million in cash available at the parent at the moment, and that seems to me to be a little lighter than I would have thought at this time of year. Is there the ability to dividend up additional cash to meet maturity needs or any other cash needs that you might have, if for example, the timing of the court settlement or the schedule of payments for (inaudible) or any other settlements or issues that might happen sooner rather than later and including the debt repayments that you have coming up, especially say your Medicare premium payments timing is a little bit off, so I’m a little concerned about there being a little cash at the parent, and if perhaps you can give me some comfort on that?
George L. (Mike) Mikan III
What I told you at the investor conference is I think right before the investor day, we had about a billion and a half dollars of available cash. That’s a timing thing.
There are inter-company settlements that occur. We ended the year in a very strong cash position given the fact that we paid down significant commercial paper and ended with roughly $850 million of available cash.
Today as we sit, we’ve got the same balance as we did back at the investor day of about billion and a half dollars, so period over period, we continue to pay down commercial paper, and we continue to have significant liquidity on our balance sheet, so that number today would be a billion and a half, and I think that is the response.
Stephen J. Hemsley
That concludes the Q&A segment. I’ll just leave you with a brief summary of our financial performance for the fourth quarter and 2008 net expectation.
We continue to improve in fundamental execution, and we see very early signs of that improving visibility on reputation and results. We’ve a strong and diverse business model that reflects in response to the national healthcare landscape, and we going to use that actively to engage in the dynamics of health reform.
Our financial position remains exceptionally strong, and we continue to be careful stewards, and while we recognize that there is broad economic challenge and that 2009 clearly represents that, at the same time, we feel very positive momentum across our businesses, and we are anxious to perform, so I thank you for your attention today.
Operator
Ladies and gentlemen, this does conclude the UnitedHealth Group fourth quarter and the full year 2008 earnings conference call. You may now disconnect.