Welcome to the 2013 UnitedHealth Group Investor Conference. We are pleased to introduce Senior Vice President, UnitedHealth Group, John Penshorn.
Good morning. Good morning. Thank you for coming. Welcome. On behalf of myself, the UnitedHealth Group leadership team and my partner and colleague, Brett Manderfeld.
We appreciate your time today. And I've got a couple of comments here just to open things up, help orient you to what's happening. The first thing I'd like you to do is to go to the back of your new investor book and there's a pocket in the back. And in the pocket is a brochure that looks like this. It says Innovation 2013 on the cover.
I'll talk about this more later, but I wanted to give you a head start on doing some shopping in honor of Cyber Monday. We're going to be taking a look at some exhibits in about a half an hour. And it turns out that there's 12 exhibits, but there's only time to see 4. And so if you want to take a look at there's a table of contents here in the front and then there are 1 page write ups. And there's a paragraph at the top of each of those pages that says what is like what is the house calls program under in home assessments.
So you could take a look at those and try to get an idea of what things you'd like to see during the time that we have. I'll talk more about how this is going to work after we get into things and get to that point in the program. Our book also is familiar to many of you. It has updated answers. There's about 100 frequently asked questions in here.
The answers are written by the businesses, not by communications or Investor Relations. Business descriptions, which have been updated in there and give you a sense of where we see our businesses positioned, those businesses' strengths, the markets that they operate in and so forth. There's a page in there with the outlook. I'm sure you've all found that and an innovation with notes to the outlook across from it, which gives some context on healthcare reform. Our plan for the day is that Steve Hemsley is going to open.
He's got some thoughts he wants to share before we really get into things. After that, we will spend about an hour and a half going through these exhibits. We'll come back. Larry Renfro is going to lead a discussion of Optum, why it's growing and growing so well. Gail Boudreaux is going to come up and with her team, she's going to discuss UnitedHealthcare and how it is very productively dealing with some of the headwinds from reform and why UnitedHealthcare is so well positioned for the market trends and growth prospects of the future.
We're going to be doing Qs and As with each of these sessions. Dave Wittmann will come and pull things together from a financial perspective and discuss some of the corporate initiatives around strategy as well. And we're going to close then with some Q and A and be done formally about noon. I hope you can stay for the afternoon. We will have lunch from noon to 1 and then there are a half a dozen seminars.
I'll talk about that also later when we get closer to it. But if you really want to spend some time researching healthcare, we've got a great forum with these seminars and you'll have opportunity to attend up to 3 of those. We have again this year record sign up. I appreciate the investment that you all are making in time with us. And I want to promise to you that you're going to find it to be time very well spent.
We are very interested in helping you with the stewardship responsibilities that you execute with your capital every day. As a closing piece of business here, I wanted to take a moment to remind you that today's presentations will include forward looking statements it turns out. Those are subject to risks and uncertainties. Actual results may differ materially. These risks and uncertainties can be found in cautionary statements in our SEC filings and are summarized in our posted presentation.
The posted presentation on the web also and in the book also contains a reconciliation of non GAAP financial measures referred to in our remarks with reference to the most comparable GAAP measures. I'm pleased to introduce our Chief Executive Officer, Steve Hemsley. Thank you, John.
Good morning. Just as I got up, whatever this contraction is fell off. So let me readjust that. And I'd also like to extend my thanks for you all for joining us this morning. We hope it's a productive day for all of you and really an opportunity to review our 2013 performance, our 2014 expectations and to engage in discussions of topics which we hope are relevant and of interest to you through the course of the day.
We hope it's a productive day. The tradition at this moment dictates that we start the day kind of with the classic formal remarks usually providing a kind of higher order strategic context to frame the day. But honestly, given the changes about to take place across the healthcare system and near term impact of these changes, we thought it might be more relevant to you, more useful if we went right to addressing a few of the near term questions at this point. And perhaps this will allow a longer term and more strategic perspective to emerge over the course of the day. So my intent in these first few minutes is to forego the formal remarks and go straight to my own Q and A segment, during which I hope to address more immediate questions on the minds of many of you.
I wouldn't worry. We still have time to engage in any question that I miss. It's not my intention to interfere in any way with the traditions in terms of questions. So question 1, how should we meaning you think about our 20 14 earnings outlook? Well, we begin 2014 at a revenue range of $128,000,000,000 to 129,000,000,000 dollars and an EPS range of $5.40 to $5.60 per share with cash flows in a range of $8,000,000,000 or more.
And Gil Boudreaux, Larry Renfro, Dave Whitman will provide considerable detail through the course of this morning. So let me just set down the headlines. We expect our performance in the commercial benefit market to be constrained in 2014. Under the ACA, we no longer sell individual benefits as we did in the past. We estimate this will cost us some membership in 2014 before we once more carefully consider our approach to and level of participation in the public exchanges and therefore the individual market at large for 2015.
The self funded benefit market was considerably less active for January 2014 as the market took a wait and see posture to observe the implications of the new ACA provisions. And we expect to be down more than 750,000 in fee based membership and that includes one account that represents well more than half that balance. Medicare Advantage will see 2014 growth more muted by market exits, network actions and benefit reductions. These are all in response to the severe underfunding of the Medicare Advantage Program we've discussed with you throughout the course of this year. Medicaid will grow robustly.
Optum is expecting 2014 to be another exceptional growth year. Our international businesses are expected to grow strongly and continue to perform well in 2014. So despite the headwinds to our 2 largest businesses, we will still grow revenues in the 5% to 6% range for 2014, essentially all organic growth. Our 20.14 per share earnings are even more profoundly impacted by government funding actions and the new healthcare law. Somewhere in the range of $1 to $1.10 per share.
Of that, dollars 0.65 or more is largely for non deductible insurance related to individual market and other insurance reforms. The separate 2014 annual Medicare Advantage rate setting action effectively represents a further reduction of another $0.50 per share on top of these factors, coming nowhere close to the fundamental baseline cost trend for 2014. So the $5.40 to $5.60 EPS range for 2014 actually belies an incredibly strong core earnings advance of nearly 30% or roughly $7 per share, absent the imposition of the factors I just discussed. The notion that we can even be in that $5.40 to $5.60 earnings growth range for 2014 covering in 1 year and nearly 30% EPS hit is a testament to the resourcefulness and commitment of our enterprise and to the diversity of our business. It suggests the future growth and earnings power this enterprise can and will produce once these reform impacts run their course.
So maybe the next logical question is, do you see earnings growth in 2015? And we do. Again, we see that growth at more modest levels than our recent past for all the same reasons I just reviewed with you and that's not within our 13% to 16% range of our long term growth rate. But given the organic revenue and earnings growth capacities, the growing presence of Optum, steadily growing international contributions, intense cost management efforts and the year over year share repurchase disciplines, we expect to modestly grow net earnings per share in 2014 and see at this considerable distance a stronger EPS growth rate in 2015 than in 20 14. But as you all recognize, the 2015 Medicare Advantage rate actions will significantly impact whether or not we can sustain that view.
Then in 2016, we expect to see accelerated earnings growth and gain momentum steadily from thereon. This question came up frequently last night. So what is the outlook for Medicare Advantage? Medicare Advantage is a couple of difficult years ahead, kind of on the most meaningful human level that's kind of an extraordinary phenomenon. After all, this program has performed so strongly for American seniors, has consistently grown in popularity, now nearly 30% market share and embodies all the quality and payment reform effects CMS has sought to propagate.
And it's designed to and actually serves very diverse and lower income seniors. Medicare Advantage outperforms fee for service on the same benefits basis precisely because it is a managed care effort. And it is now pressured by significant underfunding starting with the ACA statutory rate reductions, burdened by the non deductible insurance tax, the cuts made in the last fiscal cliff deal and then sequestration. And it has been regularly underfunded through the annual fee setting process with 2014 rates representing 1 of the severest underfunding actions in the nearly 30 year history of the MA program. These actions will slow the growth and in many cases curtail or eliminate access to the Medicare Advantage Program for seniors in certain markets.
We will seek to sustain the vitality and differentiated performance of UnitedHealthcare's Medicare Advantage offerings by balanced and thoughtful actions, including focusing towards member concentration and higher performance care networks, accelerating more intense and sophisticated paper performance network arrangements, thoughtful benefit and premium management, intense and focused care management at the local market level using programs such as our house calls and our own collaborative care practices, more productive and lower cost direct to consumer marketing and intense grassroots funding advocacy. In 2015, our Medicare Advantage pressures will also reflect our own unsatisfactory performance in the star rating program. We expect to see stronger performance in Medicare in 2016 and clearly accelerating from there in 2017 beyond. We actually have very powerful upside for us in the out years on this. Question 4.
So why has UnitedHealthcare struggled in the STARS program? And I will spare you all the excuses and simply offer
that we failed to really
understand this program and
more elegant discussion, but the bottom line for our approach today breaks down like this. Our networks are being refocused towards membership concentrations and outcome performance. We will better focus and collaborate with care providers and outcomes, performance and including SARS compliance. We're devoting more resources that's people and money on the ground in local markets in both practice offices and patient house calls to establish, manage and document care protocol compliance. We're paying more care providers to specifically allow us to do this work for them or to do it with us.
We will execute at a solid 5 star level in 2014 on the dozen or so operational measures that are fully in our own control and we'll then nail the 8 annual wellness measures providing an annual care visit that addresses these measures. There are nearly 20 diabetes, cardiovascular and special needs measures and we have to methodically manage, pay for and document our response to these needs and measures. And then 10 or so member experience measures, which are more subjective, randomly selected and tested and we're responding with intense year round high touch service model both inbound and outbound. We've dedicated leadership, money and resources in the markets to nail these at the individual plan levels and we will be unrelenting in these efforts. To change gears a little bit, why are we making further realignment changes between UnitedHealth Group and Optum, as you can see in your materials?
Well, for us, this really isn't a new subject. We have made regular realignment adjustments to our basic business model as far back as 1998. We see it as being part of an evolving and adaptable enterprise. And remember, as we've said before, more than $1,500,000,000 of our 2013 operating earnings come from business areas where we weren't even in just 7 years ago. Effective in January, a substantial portion of UnitedHealth Group Technology operations and all of our global service operations will move to reside in Optum and this is purposeful.
We believe these capabilities have become distinctive in the market and they are extremely scalable. We believe there are commercial opportunities we can pursue serving governments, federal, state, international, both military and civilian, outsourcing opportunities to help systems and plans, cloud based product and service distribution and we support entire exchanges public, private, military, civilian and both benefit exchanges and health information exchanges. And this is just to mention several of the obvious opportunities. These capabilities and opportunities are clearly in Optum's sweet spot, are far less regulated in nature and it's a very natural easy realignment for us. We've already become active in the market in all the above areas.
Today, most of the work these business activities actually serve our internal needs and represent just over $1,100,000,000 in revenues roughly $185,000,000 in pre tax earnings, which are fully eliminated in consolidation. Another question we get regularly is do you foresee an Optum spin And as we've said before, whenever this question comes up, we see UnitedHealthcare and Optum as very complementary and truly better together, a term we use internally, better together. The question itself is understandable given the strong emergence and growth potential of Optum along with the policy and regulatory pressures health benefit It
does
It does remain an option if and when it becomes compelling. The very design of our enterprise has always been about optionality, but we don't view that as just about facilitating a potential separation. More fundamentally, it's also about optionality in how we approach markets and customers and how we nurture and develop market leading capabilities. But this is just the beginning of a new era in healthcare. And while regulatory influence has certainly asserted itself in the benefits sector, it has done so because healthcare in large part will remain a private sector marketplace.
And long term demographic and economic should be positive for the health benefits sector. And given the strength, the scale, the diversity and positioning of UnitedHealthcare's benefit portfolio, we see UnitedHealthcare as a shared gainer over the long term as it has been in the past decade or more. The 2 distinct business platforms of UnitedHealthcare and Optum benefit from their complementary relationships. Both UnitedHealthcare and Optum are proven innovators. There's a very positive and creative dynamic between the 2 in this regard.
You will see that again as the day unfolds as we break into the morning's activities. They create an amazing market pilot lab for healthcare advancement. UnitedHealthcare offers immediate scale and return potential on deployment of new approaches and investments. For that reason and others, they use capital more efficiently together. Together, they strike an ideal regulated and non regulated balance.
And their combined competencies and experience are attractive and valued in international venues. Even if we were to contemplate a separation, we believe the real value of Optum in whole or in part has yet to emerge and the real value of UnitedHealthcare will not be fully recognized until the ACA market changes have run their course. All of that said, we have clearly positioned all of our businesses, both to work together as an effective, integrated and strategically aligned operating portfolio as well as to be fully freestanding. We have full adaptability and optionality available to us in every way. How do you think about capital use over the next 5 years?
Well, let me say we are sensitive to and respect the different perspectives investors have on this subject. Our approach has been to strike a balance in our capital allocation as we have recognized kind of 3 key points. We have an exceptionally strong balance sheet and strong and consistent cash flows. We can afford to pay dividends without compromising our financial position or growth agenda. We can also commit cash flows to share repurchase significantly and consistently improving investor returns.
But investing capital grows earnings, helps us build market positions and diversification, provides greater scale and capability to build a more sustainable and growing enterprise. And capital should be allocated to these purposes to ensure the vitality, advancement and diversity of our earnings. Today, we allocate roughly 16% of our cash to running the business, 13% to growing to paying a growing dividend, just over 40% to share repurchase, leaving about 30% to invest in growth opportunities. And we have meaningful balance sheet capacity to access capital if we see compelling investment opportunities that will significantly expand or advance the enterprise. Over the last few years, the allocations to running the business and share buyback have been stable.
The dividend allocation has risen significantly and we expect to continue to grow our dividends. We think this is a prudent, balanced and thoughtful approach to capital stewardship. We believe the market positions we have taken across health benefits and services and internationally will offer compelling opportunities to deploy capital strategically and create strong, growing and sustainable earnings based returns for years to come. Do we still believe in our 13% to 16% long term growth rate? We absolutely do.
UnitedHealth Group has grown earnings per share within or above that 13% to 16% long term growth rate in 12 of the last 15 years. That's an 80% batting average over that time. 1 year, the infamous 2,008 was negative and we felt we were in good company with the rest of the world. And in 2012, we came in just under 13%. For 2014, absent the ACA taxes and impacts, we would be well above our long term growth rate somewhere in the range of 30% and would remain within our traditional growth rate posture going forward.
Given the sheer size of the U. S. Markets we serve currently and our future share opportunities within these markets, we do not see any shortage of growth real estate. And historically, either near term or long term, we've demonstrated we have the core capacities to grow and to diversify. For now, we have to digest the market changes, the costs and the ACA pay fors and policies imposed on the private sector.
And we have to advocate effectively for fair and sustained funding for the public sector programs that serve American seniors and those less advantaged and in need. No one can serve these needs better or engage healthcare resources more effectively, innovatively, efficiently and consistently to address these critical social needs. We believe that difference will be recognized over time by federal sponsors just as it has increasingly been recognized by state based sponsors today. And political cycles, if they are a factor are just that, cycles. Economic conditions will strengthen, employment will steadily recover and state and federal budgets will then gradually recover.
At the same time, Optum is simply an early stage company, even though it's roughly the same size today in earnings as UnitedHealthcare was in 2004. And Emil is the largest health benefit and care provider in Brazil, the 2nd largest economy in the Americas. It has a market share under 10% in a country 2 thirds the size of the United States with a managed care penetration of less than 25%. I believe with these assets aligned to these markets with the people we have inside this enterprise and our committed use of capital that we can sustain 13% to 16% EPS growth rate over the long term. So how should we think about UNH over the next 7 to 10 years?
And I think that question really gets at the heart of the investment proposition for UnitedHealth Group. It doesn't exactly take a genius to discern that the healthcare sector, particularly in the benefit side of it, we will have to work through the market changes, the government budget pressures and the new taxes arising from the ACA. And while the ACA brought considerable new regulations, it did not seek to cut into or nationalize the private sector for healthcare. So what could the years beyond the ACA market transitions look like? We've actually covered a lot of this ground with you before.
Medicaid expansion is happening now. That part of the ACA is working and as many as 13,000,000 beneficiaries are coming to the market over the next several quarters. Medicare will see more than 25,000,000 seniors become eligible over the next 7 years and Medicare Advantage remains the most popular and compelling option seniors can choose. Both the federal and state benefit sponsors need to address those dually eligible for these programs, more than 9,000,000 people and long term care needs for non duals and other 1,200,000. These are markets measured by some at well over $300,000,000,000 annually and the vast majority are spending must shift from fever service to managed care.
The ACA will ultimately be shaped to serve the 12,000,000 to 15,000,000 consumers who fall between the Medicaid and the commercial markets today. We believe it will ultimately find its way to the state level with some states approaching it more from the Medicaid side and others more from the commercial benefit side. But if your company is deployed, comfortable and a market leader in both as we are, then either direction looks good to you. The economy will steadily and gradually recover and grow, unemployment levels will eventually follow and commercial health benefits are tethered to these trends. The political climate around private sector engagement in healthcare will normalize and likely gravitate to large scale, innovative, well capitalized suppliers, firms that represent safe hands for those benefit sponsors and their regulators.
And a next generation market consolidation period would be expected. People will continue the journey from being insulated health benefit beneficiaries to becoming intelligent healthcare consumers with predictable pressures on price points, service, simplicity, convenience, choice and variety. And UnitedHealthcare was built to thrive in that landscape and we have determined to optimize each of these market opportunities. The downstream pressure from all this has already begun to flow into the health services markets. We see it from direct care provision across all acuity levels to the business and practice systems they use, the databases, the analytical tools, the care processes and protocols, chronic care programs as well as pharmacy device and supply chain.
We see infrastructure supporting the entire healthcare economy will ultimately need to become more consistent in its performance, more efficient, more connected and interoperable, better aligned and informed and ultimately more accountable for its resource use and performance. And that in a nutshell defines the Optum business imperative and opportunity. And the pressures in Healthcare in developed countries are very similar
to those in the United States.
Rising costs, aging populations, pressure on sponsor budgets, desire for higher more consistent performance from the healthcare sector and better more responsible engagement of consumers. We intend to evolve Emile as a fully diversified, fully market penetrated company, somewhat like UnitedHealth Group shaped to their specific market realities and culture, a simply amazing growth and business opportunity. And they should sequence like waves with Optumint kind of in a rising position as it emerges to lead the healthcare services market. UnitedHealthcare is forming as a formidable wave that will crest over the opportunities of expanding coverage and government sponsor needs for affordable modern health benefits for consumers. And our 3rd wave of growth and rolling in on the resilient beaches, which should ultimately lead to broader international efforts.
That's what we see in the out years. I believe over time we will grow to be an enterprise of 2 $50,000,000,000 or more in revenues, one committed to being a growing and important social asset in every country we operate in, bringing out the best in the healthcare system, making it work better for its participants, delivering more value at less cost for consumers and benefit sponsors and providing distinctive return to investors who position their capital uniquely in the long term opportunity to improve healthcare performance. And now what I'm sure you'll find as a relief, the last question. What should we take away from today's conference about UnitedHealth Group? Well, personally, mostly I'd like you to see it's a considerate look around at my colleagues that you see through the course of the day as well as the other 130,000 people who work in this enterprise and who they represent.
I'd like that you would recognize that that group of leaders understand and recognize they're working in highly sensitive social space and that we have the cultural values matched to that high profile responsibility. That this group of people are grounded in the reality of their markets, both their opportunities and their challenges. They're well positioned, but take nothing for granted. They know we have work to do and that it's urgent. They're committed to innovation and value like no other.
They've been committed and remain committed to intelligent diversification like no other and has long differentiated our performance potential. They have good people and a deep leadership group around them, strong board governance and commitment to 20 and they're well positioned and focused on navigating through the challenges of 2014 2015. And that beyond that, they will continue to grow, evolve, perform and provide exceptional return to investors. So I thank you for being here this morning. I hope it is a productive day.
We are looking forward to engaging with you throughout the course of the day and we'll be at several venues for questions and engagement along those lines and we very much appreciate you being here. Thank you.
Thank you, Steve. We may be the 1st company ever to execute an annual conference beginning with a Q and A session. We want to go to the Innovation Forum here. Steve talked about a company committed to innovation like no other and he talked about the type of leadership and the qualities of the leaders of the company that he expects from all of us and many of them are gathered here in the Innovation Forum. We're going to do this a little differently this year, so I want to give a little instruction.
We have 12 presentations and we have 8 stations. We're going to have to rotate presentations in order to get them all in. The idea behind the presentation is to allow you to step a little bit further into a particular innovation than what you're able to do when we did iPads or back in the days of kiosks. In order to do this, we had to create the presentation stations. And so you'll see carpet areas where you stand in order to hear the sound.
If you're not in the carpet area, you're just going to hear kind of all kinds of crazy background noise. If you get onto the carpet area, the sound is directed and so you'll be able to hear the presenters very clearly. And so you'll be able to hear the presenters very clearly. They are set up to do presentations of approximately 10 minutes in length and then to take a couple of questions after their presentation. There'll be overhead time direction that will tell us it's time to rotate.
And you have on the back of your schedule something that looks like this. This is basically a map of the forum and you see these colored bars, the Optum stations and the UnitedHealthcare stations are laid out and you can see which presentations are going in what order. I guess times are approximate, but we would like to wrap this up and be back in here. If you're listening on the web, we should be back about 10 Eastern Time beginning with Optum's presentation. So if you want to take some time away from the PC, that's when to step back.
I mentioned the brochure and the descriptions. I will just come off the table of contents and give you really quick sound bites, so you have a sense of what the materials are that we've got staged back here. Population Health Management Optum 1 is a discussion of the merger of administrative and clinical data into a single It's that merger of the clinical and claims data that's really interesting. Comparative effectiveness research gives you a sense of OptumLabs. In this, they will take 2 popular heart medications and compare their performance over a large population of people over time to see which pharmaceutical compound is performing better.
Provider extension technologies gives a sense of how you can use technology such as remote examinations, remote skills, etcetera, etcetera to gather more clinical data faster, more simply, more easily for the patient and integrate that in better leverage the primary care physician at a time when there's going to be high demand for primary care physicians. Big data for government will give you some insight on the relationships that we have with state Medicaid leaders. We bring big data to them and help them understand trends and dynamics within their state and we'll give you a sense of some of the things that we share with them, so you know how those conversations go. Pre service patient engagement is about literally engaging patients before they have service. And so using data that we have to reach out to somebody and help them to make better care decisions before they ever even go to see the doctor.
It's a really interesting application. Clinical synchronization brings together pharmacy data and medical data through a PBM lens, talks about how we can add value in that process getting people to the best decisions and the best care. In home assessments is house calls. These are on-site visits with senior members in their homes for purposes of clinical documentation and care plans. In private exchange services, Optum operates a private exchange.
It also serves a public exchange and we'll take you through the process by which a consumer would engage with that exchange. In business services for hospitals, you get a chance to see Optum 360 and the partnership between Optum and Dignity Health and how that is going to revolutionize the patient experience in a revenue cycle management world. The consumer physician connection is my easy book application. This is I'll front run our speakers there because the best description I can think of it. So it's open table for doctors appointments and we'll show you how we're piloting that in markets today.
Modern consumer plans gives an example of a 20 something person in a modern health care plan and how those benefit designs work and then aligns that to the type of mobile applications that are available to manage one's health care and health benefits. And finally, next generation digital connectivity takes you to a post portal world. It's a platform by which a consumer is able to manage their entire healthcare world and also a parallel side on the physician side working out of the cloud for the physician and the patient to be transacting. So those are the demonstrations and you see the various time slots. I hope you enjoy it.
Let me know what you think of it and we'll see you back here at 10 Well, welcome back. We're going to start the actual formal participation piece of the investor conference with prepared remarks and Qs and As. And we're going to begin with Larry Renfro from Optum and his team. Thank you.
Good morning. I hope you enjoyed the last hour. Hope you had a good time in there. So I get to now kick off the next session. So good morning again.
My name is Larry Renfro and I am the CEO of Optum. Thank you for joining us today. I am pleased to have this opportunity to share my thoughts on Optum's strong progress and solid growth. I have the honor of representing the outstanding people of Optum and all they do to make the healthcare system work better for everyone, for those who provide care, for those who pay for care, and most importantly, those who need care. I am proud of the progress our people have achieved and the positive impact Optum is having.
I've organized my comments into 4 areas today. 1, I will start off with some general comments. 2, I will take you through Chapter 1 in the brief and early history of becoming 1 Optum. 3, I will cover what you can expect as the 1 Optum story continues in Chapter 2 and beyond. And 4, I will offer our financial outlook.
It was only 2 short years ago that we introduced you to our one Optum story. We said we should be simpler, more collaborative and more impactful. We discussed how we are bringing together unmatched capabilities to help all the key participants in healthcare adapt to new market forces and solve their biggest challenges. Our story today remains consistent with what we laid out 2 years ago. And let me be clear, we are still in Optum's early days.
We continue to see a dynamic fast changing health marketplace and major pressures impacting those we serve across 8 primary markets. Our strong relationships with payers, providers, employers, consumers and governments give us a unique perspective and a competitive advantage in addressing challenges across the system. Let me recap Chapter 1 of our One Optum story. Recall that we started with a focus on 5 priorities: business integration and alignment execution, simplification and cost management deepening customer relationships a focus on growth and strengthening our leadership. Effective ongoing execution on these priorities has been the driving force behind our development and growth as 1 Optum.
Let's take a closer look at what we have accomplished. In late 2011, which we described as a base year, we painted a picture of tremendous growth opportunity and discussed our ability to seize it. We said that by 2015, we would achieve a 6% operating margin, 15% return on invested capital and double our operating earnings. We called it 15x15. It became our daily prayer.
It was an aggressive pledge. Fast forward to last year, the build year that was 2012, we more rigorously defined our 8 markets and the specific needs we could target. We better aligned our solutions to meet those markets and customers' needs. We strengthened our leadership team and we invested in creating a more integrated, responsive and disciplined organization. And because our team continued to deliver with commitment and urgency, we were able to support report to you last year that we were firmly on track with our financial goals and strongly positioned to accelerate growth in 2013.
As we will discuss in more detail later, 2013 is looking strong with good performance from every part of our business. The hard work of the last 3 years has positioned us not only to become 1 Optum, but also to deliver as 1 Optum by providing the capabilities and solutions our customers need. Our success has opened doors to relationships and opportunities simply not available to us in the past. We operate where doctors and patients make treatment decisions, where communities work to balance quality health services and sustainable costs, and where consumers make benefit choices and manage their healthcare dollars. Our customers' needs have become more complex.
They are challenging long entrenched business models and practices. As an enabler, Optum thrives on this kind of change because we are uniquely positioned to help our customers through it. We remain focused on 8 core markets aligned to 3 organizing themes: aligning care delivery, engaging the consumer and modernizing system infrastructure. The key difference today is that we have become more strongly aligned and integrated during our first chapter. Perhaps this integration was most visible in 2013 in the seamless transition of about 12,000,000 members to OptumRx platform.
Now let me share a few more examples of how as 1 Optum, our impact is growing across the system. Today, our collaborative care network is the largest of its kind. We are in 33 states, employ or have contracted with nearly 17,000 providers and have relationships with nearly 40 payers. The early results are encouraging. Cost trends are heading in the right direction.
Higher performing provider networks are delivering better and more consistent quality care and the consumer experience is improving. Optum provides excellent support to many different populations. For example, we provide more than 1,000,000 health exams per year to our military servicemen and servicewomen. 7,000,000 Medicaid and Medicare beneficiaries have access to our behavioral care services and nearly 6,000,000 people are enrolled in our wellness coaching programs. You can learn more about collaborative care from Stan Dennis and team at a seminar this afternoon.
They will tell you how our care delivery model is flexible and adaptable for local markets how we are targeting expansion into an additional 75 strategic geographic markets holding 60% of the U. S. Population. Included in our expansion plans are Optum branded urgent care clinics, including new openings in the Kansas City and Houston markets. Collaborative care is about providing the right care at the right time in the right place at the right cost.
Our customers, employers, payers and healthcare providers know that engaging with the consumer is more important than ever before. It is a critical part of achieving better outcomes in managing costs. 2013 as one Optum, we continue to integrate and grow our capabilities to really help consumers better understand and manage every aspect of their health and their health spending. We help consumers better understand and navigate the health system, get and stay healthy and find the right care when they need it. And we help them evaluate and select the best health benefits for themselves and their families.
We are seeing strong results from these efforts. We will provide nearly 1,000,000 biometric screenings at employer worksites this year. During 2013, we made the 1 millionth at home visit through our house calls service. And Occam Bank manages more than $2,000,000,000 in assets with more than 1,000,000 health savings accounts making us number 1 in the industry on both As the consumers role in healthcare grows, we aim to be their informed and trusted advisor. We are working to make their experiences more satisfying and convenient on par with what they have come to expect from other consumer industries such as financial services.
I hope you had a chance to see Dirk McMann and his team describe how our clinical synchronization focus is delivering better consumer experiences and cost control. By helping people make the best care decisions, we drive better health not just for individuals, but across communities and populations. Mike Weisel, who leads our Consumer Solutions Group, will share more about these capabilities in his seminar this afternoon. The third theme we pursue as 1 Optum is modernizing the health system infrastructure, making systems and processes work together more effectively, better connected, better aligned and better informed. Our data management solutions continue to set the standard when it comes to securing, storing and sharing clinical and administrative data.
Our population health analytics and predictive modeling solutions support better informed clinical and business decisions. Care providers, employers and payers count on us to execute millions of efficient and accurate transactions. We are excited about the potential of integrating combinations of administrative, clinical, pharmacy and behavioral data to improve quality care and help reduce cost. And our strong presence and partnerships throughout the health system provide us with unique insights, access and opportunities. Our impact is growing.
We are truly big data. We manage and analyze health information on approximately 150,000,000 lives spanning 2 decades. We facilitate more than 1,500,000,000 claims transaction across the system each year. Our program integrity solutions help state Medicaid programs save 100 of 1,000,000 of dollars annually in fraudulent payments. As Steve indicated earlier, we are transitioning UnitedHealth Group's unrivaled Health IT capabilities to Optum.
We are excited about the opportunities we expect to emerge. We are aligning our IT hosting, business processing and global sourcing capabilities so we can bring full scale of our enterprise technology to the market. This will provide more growth opportunities as Optum continues to play a larger role in developing more expansive and long term service relationships for the entire enterprise. We are turning to the next chapter of the 1 Optum story with a strong foundation in place and a growing impact. We continue to simplify and align our business for growth.
We are bringing our capabilities to our customers in ways to help them solve their biggest problems. And we are managing in a way to stay lean and focused. As Chapter 2 opens, we are focused on cultivating relationships with customers that are far larger, much deeper and significantly more comprehensive than those in the past. With our capabilities and scale, we are able to forge relationships that no other organization can even contemplate. As we look ahead, expanding our customer relationships creates a focus for our enterprise, much like 15x15 did for us back in 2011.
Some concrete and promising examples of these larger relationships were evident in 2013. In October, we announced the launch of Optum 360, a progressive new venture dedicated to simplifying and modernizing key strategic administrative functions for hospitals, care providers, payers and most importantly patients. Optum 360 is a result of a partnership with Dignity Health, one of the largest care systems in the country. It brings Dignity's highly regarded operations and service capabilities together with Optum's market leading technology. We can meet the needs of the largest hospitals and health systems and support new models of care.
This combination holds great promise to drive efficiency and cost savings for health systems across the country. You may also have seen an announcement earlier this fall about a new agreement with AARP that includes both UnitedHealthcare and Optum. For the past 15 years, United has offered a range of AARP branded benefit programs for seniors. Our new agreement extends this important relationship through 2020. Optum has new opportunities to serve AARP and its more than 40,000,000 members.
Another significant relationship we have developed this year is with our sister company, Amil. Brazil is a fast growing emerging health services market. We are excited about opportunities to both accelerate Amil's growth by deploying Optum's distinctive capabilities into its business and to establish a commercial health services business in Brazil. We are already working side by side in areas of health, data management and clinical analytics, health economics, payment integrity, consumer engagement and care management. We are also honored to be partnering with CMS, who as you may know recently asked us to assist in improving the performance of healthcare dotgov.
As governments take on greater roles in healthcare and transforming the system, they're going to need better capabilities, expertise and technology. We can help them engage consumers, modernize systems and operations and ensure public dollars are spent on the best, most cost effective care. Now let me also point out OptumLab, our distinctive research platform and potential new product concept incubator. It is a natural setting to nurture important relationships like the one we have developed with Mayo Clinic, our founding partner. These are just a few examples of how we are cultivating larger, deeper and more comprehensive relationships across all of healthcare, creating even more opportunities to improve care and build business together.
I hope that we have been able to give you a strong sense of where we have been, what we have accomplished and where we are going in the first couple of
chapters of
ONEOKEM. Now let's take a look at the numbers. Our 2013 results have exceeded our initial outlook and we are tracking well ahead of our 15 by 15 commitments. Our projected revenues of $37,000,000,000 grew 26% with each business segment posting double digit percentage gains. Our earnings this year will exceed $2,200,000,000 up nearly 55% from last year and nearly 75 percent since the 2011 base year.
We not only hit the earnings target we set last year at this time, we will exceed the high end of that range by 10%. We expect to continue this momentum into 2014 and beyond. In 2014, we expect top line growth to be between 18% 21%. We expect operating earnings to be in the range of $3,100,000,000 to $3,200,000,000 an increase of 29 percent to 33 percent over 2013. So going back to the 15x15 commitments we made in 2011, here's how we're stacking up.
We will hit our 6% margin in 2013, a full 2 years early. We will double our operating earnings 1 year ahead of schedule and we will reach our 15% return on invested capital target in 2014 a year early. In short, we will have achieved all of our 15x15 commitments, not in 2015, but in 2014 or earlier. So now it is time to raise the bar to a still higher commitment. I call it 8x16.
That is we target an 8% operating margin by 2016 versus our original 6% by 2015. Over the longer term, you should expect Optum to continue to post double digit growth each year. Also by 2016, you should expect to see us establish 10 or more significant new customer relationship of the size and scope I have discussed today. Optum is off to a great start, but it is still early in our story. There are many more chapters to come.
We expect continued growth from our ongoing focus on the 5 key priorities at the core of our OneOptim story. And to remind you, those five priorities are business integration and alignment, execution, simplification and cost management, deepening customer relationships, a focus on growth and strengthening leadership. I want to thank you for spending your morning with us. We look forward to continuing this important conversation with you and to providing more insight into our progress as one Optum, relentlessly focused on helping make
the
I would like to invite John Pinchorin back up to the stage as well as Dave Wickman and members of the leadership team. John Rex, Dirk McMahon, Bill Miller, Stan Dennis, Doctor. Lisa Singh.
All right. Let's start with questions upfront.
I was just curious, Larry, what percentage of the Optum business is really UnitedHealthcare
related, integrated, involved versus external?
Good question. I'll ask John to comment as well, but I'll probably answer the question. But if you look at the PBM, then that's predominantly going to be UHC. And I think if you look across the other businesses, it's a pretty balanced approach at that point in time. I don't know John.
Yes. Larry really said it. So if anything, take the PBM aside, so that would have become even more predominantly united this year as we in sourced 12,000,000 lives obviously. So when you look at Insight and Health, it's a balanced split internal, external. The growth in those businesses would be primarily external.
Thank you. Peter, please. Thanks. A question on OptumRx and on the top line outlook for 2014. Can you talk about the traction on external sales?
And as we look at the revenue growth that you've targeted for OptumRx, how the mix looks in terms just annualizing out the in sourcing of the Medco contract as compared to new sales externally that you're adding?
So I'm going to flip it over to Dirk, but I'll make a couple of comments. I mean, I think everyone knows that this year was a challenging year, but done flawlessly by Dirk and his team in terms of this transition and what we were able to achieve. And the other part of what he's been balancing at the same time has been his focus on the consumer as well as starting to build pipelines and really putting together programs for external growth. And we're real pleased with where we're at and our expectations are from that point of view. But Dirk, do you want to Yes.
Let me give you the
if you look at our top line revenue, it's like $5,300,000,000 at the top line, dollars 13,000,000 versus $14,000,000 About half of that $2,700,000,000 is related to the integration on the revenue side. If you look at the on the earnings piece, it's about $300,000,000 in earnings, about $150,000,000 is related to the full year effect of the Medco transition being in 20 14. So I mean, as far as momentum in external sales, if you look at the previous question, we had about 20% of our membership at the end of the 3rd quarter was an external was an external book of business. If you look at what we sold and carve out opportunities, the amount of carve out external business that we're selling is actually greater than that 20%.
Over here please. Tom? Thank you. Would you put Optum's revenue number in the context of Stephens $250,000,000,000 outlook in total revenues going forward? And I can't remember what time period that was.
Was that dovetailing with the 7 to 10 years? It looks like it might be sooner than that. But are we still looking at a 30% of total consolidated revs numbers or perhaps a bit higher? Let me start with what I think the company had said historically was that Optum's contribution to the total of UnitedHealth Group's earnings was going to increase over time and we could see above 30% of the combined earnings coming from the services platform. And that goes all the way back to the days the beginnings of Chapter 1, I think.
Right. So I would say I'd also put it in earnings perspective as we don't expect to have a similar profile of risk business. So that'd be certainly from a revenue perspective that would look different. But I would expect that percentage that you've discussed to be growing that period. As we said, we expect to be a long term double digit grower.
And so we'd expect to be growing at a rate that would increase that share.
Back here, please. On Optum, can you talk a
little bit about the margins by business segment? When you gave us that 15x15, Larry, you talked about a target margin in each segment. Obviously, the 14 numbers are showing better margins than you even targeted back then. What's the new mature margins in each segment in your mind?
So I think you probably know these margins that we kind of look at the 3% to 4% in the PBM and 8% to 10% in Optum Health and probably 16% to 20% on the Optum Insight business. I think what's changing is that we are now as we talked about today starting to really get broader and deeper relationships with our customers. And so we're getting into some pieces of that business that have different margins. I wouldn't say at this point, Justin, that we've kind of figured that out in each one of the margin categories, but something that we'll be working toward. We are seeing in some of the things that we're doing much more scale.
Obviously, we've had some programs that we put together on the cost management side to balance things with. I don't know, John? Yes. And if you were just to take Larry's comments on our new target, our 8x16, that would bias you to the higher end of those margin ranges that we've typically provided for the 3 segments. Just as you think about those, we'd be expecting that.
And you have to keep in mind also for the last several years, we will continue to do that in the year ahead, we've been investing in some of these elements that Larry was discussing in the larger, deeper, more comprehensive relationships. Those are in the early years, those aren't accretive necessarily as we make those investments. So we'd expect to start seeing impact from that. And what I would also say is that we're still balancing growth with investments cost management. And we are staying with nothing's really changed in terms of our core operating.
So we'll stick with that as well.
Any on this side? All right. There's more hands over here. Thanks, Brian. I was wondering if you would be willing to give any more insight into what's actually driving or the biggest contributors to revenue or earnings within the health business or the insight business.
So we can see the contribution from the PBM. But other than that saying what's the biggest driver of the health business? Is it behavioral health? Is it care some of the capitated networks, really no visibility there.
Yes. So maybe and health in particular? Health and Insight. Okay. So let's start with the health business in terms of some of the areas you'd be seeing in the growth.
So certainly, we referenced this in the presentation. So certainly our collaborative care business has been a significant growing business for us. That is a platform business that didn't exist just a few years ago. So that would be certainly new and very significant to that particular business. I would say also though within that within Health, the Consumer Solutions business, Mike's business has been a very significant grower over the last 3 years also.
If I were to look at the and then you referred to things that obviously more legacy businesses that we've had for a while in health such as the behavioral health business. But those would be kind of elements where I'd say where we benefited from a lot of growth recently. If you look at Insight, 2 of the big businesses I would say where you've seen significant traction in the last couple of years, I could have been in 2 major buckets. So our payer based businesses, those are payment integrity businesses and others and then our provider businesses. Certainly in bills where a lot of growth in some of our computer assisted coding businesses, our compliance businesses, a lot of elements within that would be that have been a big driver within Insight.
Bill, Mike?
Yes. And I think going forward, the relationship with Dignity and those large complex relationships carry with them a lot of growth from a revenue perspective. So I think in the future you're going to see the contribution of these sizable agreements that we've done pile into the revenues. I think that's part of what's forecasted going forward is there's a growing backlog there associated with our large and sizable integrated offerings that we've established with some key clients here lately. Stan, can you comment?
I know you're front running your seminar when I asked you to do that.
No, I've been happy to talk about
the growth. On the care delivery side of the equation, in each market that we're in, we're experiencing very strong organic growth. And if you think about it, the business that we're in is to drive meaningful and sustainable improvements in affordability, clinical outcomes and the patient experience. So as we're teeing up those business models in local marketplaces and the health plans are looking to shift to more affordable options in those marketplaces, they're looking to shift business to high performing networks. And that's ultimately what we do and our results prove out that we do it well.
And we believe that we're on the beginning cycle of that and that will continue to accelerate over the course of the next several years.
Thank you. Hand here in the middle, please.
Can you maybe talk about how you're breaking down the barriers between providers and insurers wanting to maybe partner with NH or Optum versus sort of the idea of conflict there? And then second piece would be you mentioned 10 or more, I think new customer relationships. Any more detail around that in terms of what signifies you calling out those 10? Is there a certain size or specific area within those relationships? Thanks.
Sure. So let's start with the barriers and I'll ask a lot of these guys appear to deal with that every day. With the past couple of years, there's been a dramatic change. I mean, there was this whole issue of us getting involved with physician groups, medical groups and so forth and how payers would react to that, how hospitals would react to that. And what our relationship would be around UHC and how we would manage our way through that.
I would tell you that's changed. I think the downstream pressure that has been put on the industry has caused a real change there. I think that as people organizations got to know us, they realized that the firewalls are strong. They realized that we have very, very bright lines and we manage the process that way or we would be out of business. And I think that some of the things that we're doing with the government right now would definitely show you that because we've had to stand up to a lot of policy decisions around our bright lines and people have asked us those questions and we stood up extremely well.
So I know that Bill has experienced a lot of this. So maybe you just give a comment.
Yes. And I think Austin and I have a seminar this afternoon downstairs, which I'd invite you to and we'll talk about how we're breaking down some of those barriers. And I think it's an influence of not only our willingness to come to the table together, but I think more importantly a lot of the industry is looking for us to come together with solutions. There's a level of trust and maybe it's the environment that's changed, competitive pressures that's changed, the move to more risk based movements in a particular geography that forces behavior that may not have been there a few years ago. But we're highly encouraged by what we see in terms of they're willing to trust both of us to come together and break down those barriers.
I'd also add the 360 level. That platform, that revenue cycle platform, I think the attraction that we're seeing to that is given our legacy of working with multiple payers, not just UnitedHealthcare and understanding that there's a lot of waste and inefficiencies in the system has not only attracted payers to say how could I be a part of that? How can I eliminate some of my own costs? But also providers are looking for those answers too. The status quo is just not going to work anymore.
And I think that's what's changing attitudes have changed. There's a more openness. And as Larry said, we watch and are very watchful about not breaching any of that trust. And if we did, we wouldn't have a business. And I think we've got a strong legacy of being diverse, working with multiple payers, but also thinking about the problem from the beginning to the end and what is the right solution to drive out cost, increase quality.
And I think here as you're hearing a lot today, what's better for the patient, putting them at the center of a lot of our thinking, our philosophy and the
way that we work together.
So the second part of your question, I think that and Bill again could talk about this, but we kind of look at the health systems and what we're doing in Optum 3 60 and we've kind of broken that market down and understand it fairly well. And believe that we're taking a regionalized approach as well as a local approach. So there'll be some more what I'll call the large relationships like what we're talking about with Dignity Health and that will develop over the next 12 months to 18 months. I think there are also organizations below that kind of that large level that will be not as broad and as deep, but tools and services and so forth. So Bill, I don't know if you
Yes. I think there's a lot of room, a lot of headroom for us to grow in that marketplace. When we talk about those 10 established targets, if you will, most of them have decisions to make about who they're going to partner with and grow with through these challenges. We're engaged in conversations with all of them. It will evolve over time, but there's a lot of room for us to grow.
And as consolidation occurs, it's going to create I think more opportunities for us. The pressures on your average health system, we talked about it out in the Innovation Forum are large. They don't allow you to sit still. And so and I think as we've built our brand and become trusted, we're getting I would say the best thing I could say right now is people don't make decisions until they talk to us.
And I think that's
a true statement more often than it was maybe a couple of years ago. They know they have to do their homework on Optum and that's a good position for us to be in.
So I think relationships are great question to end on. It was a major theme in the speech. So thank you Optum team for your time here this morning. We're going to transition to Gail Boudreaux and her team.
Good morning and thanks for joining us. I'm Gail Boudreaux, CEO of UnitedHealthcare. Today, UnitedHealthcare is the fastest growing health benefits provider in the industry, serving nearly 50,000,000 people, both domestically and internationally. We set out to build a company that reflects and serves a dynamic and diverse health benefits marketplace and we've done just that. UnitedHealthcare's businesses span all segments, geographies and populations.
Growth has been consistent and sustained. We built an industry leading position in each of the businesses by serving the distinct needs of these markets, combining tremendous scale with local market know how. Bold, practical innovations, including our work on payment reform, consumer enablement and patient centered medical care models, distinguish UnitedHealthcare as a valued healthcare partner. In 2013, we took on a challenging agenda and executed in important areas that position us very well for the future. We partnered with our Optum colleagues to transition 12,000,000 consumers to OptumRx.
This was the largest and most successful PBM transition in history. We took on major responsibilities with TRICARE. After we experienced some issues during the transition, we redoubled our efforts to solve these problems and today we're successfully helping the government modernize its military health care system. And our relationship with ARP, arguably the strongest brand in the senior market has been solidified through 2020. Looking to 2014, our industry faces significant challenges with the introduction of new taxes and fees and continued funding cuts to Medicare.
Despite these pressures, looking forward, we see opportunities significantly to grow at exceptional levels by bringing greater value to the healthcare system. Our patient centric clinical capabilities help states more effectively serve their most complex populations and increase our share of an expanding Medicaid market. We have the leading Medicare franchise with an opportunity to deliver even greater value by increasing our star ratings through intense focus on clinical and operational performance. Our deep consumer insights position us to grow thoughtfully and deliberately in the exchanges. And we're aggressively expanding our market leading value based partnerships with care providers to improve care delivery, quality and cost.
We're confident about the future because we've prepared for this future. Today, no one is better positioned than UnitedHealthcare. No other company has the assets, the resources, experience or people needed to address the challenges and take full advantage of the opportunities ahead. That's the story that I'll share with you today. We deliver distinctive value to our customers by aligning 4 core capabilities across our businesses: modern benefit design, consumer empowerment, targeted clinical management and wellness programs and delivery system modernization.
If you followed us for some time, this should sound very familiar. We deploy these foundational capabilities where care is delivered
at the local
level to enhance the most important relationship in health care, the consumer and the care provider. We incent consumers to be proactive about their health and are demonstrating results in both our government sponsored and our commercial programs. In Medicaid, we've seen a 15% increase in preventive screenings for people who participate in our community rewards program, resulting in a 12% lower medical cost for these individuals. In the employer market, value based plans are driving greater personal health ownership by empowering individuals with the information and tools to help them make better health decisions. UnitedHealthcare's consumer shopping tool, My Healthcare Cost Estimator is integrated into these plans, giving people easy access to cost and quality information on physicians and facilities for over 500 services across 220 procedures.
When consumers are actively engaged in their health and incentives for care providers are aligned to support this engagement, we can help individuals live healthier lives and achieve meaningful cost savings. Our value based arrangements with physicians are central to these efforts. Last year at this conference, we committed to reaching $50,000,000,000 in value based partnerships with care providers by 2017. We've already reached $26,000,000,000 We now project that amount will grow to $65,000,000,000 by 2018. Over 8,000,000 UnitedHealthcare members use physicians and health systems that participate in one of our value based payment arrangements.
That number should grow dramatically over the next several years. We serve over 2,000,000 of these 8,000,000 consumers through accountable care relationships and the early results are very encouraging. For example, this year we completed the 1st year of an ACO relationship with WestMed, a multi specialty medical group in Westchester County, New York. With our support, WestMed lowered their total cost of care by nearly 3%. They reduced acute hospital admissions by 5% and improved across 9 quality measures, including breast and cervical cancer screening.
This and other settings show that when we align consumer and physician incentives and fully integrate them with modern benefit designs and targeted patient centered clinical programs, we can reduce medical costs by as much as 24% for our commercial customers. Let's take a look now at each of our businesses and how our focus on growth, cost and quality has us on the path of sustained performance in each one. The commercial market is shifting with the emergence of public and private exchanges and a more direct role for the consumer in purchasing health benefits, a shift we've been preparing for and are leading. Our employer and individual businesses' intense local market focus gives us deep insights into our customers' unique needs market by market. Over the past 2 years, we've grown by more than 1,200,000 people and now serve over 27,000,000 people in all 50 states.
We're extremely positive about the long term growth potential even as short term reform pressures impact the industry. In 2014, our commercial enrollment will decline due to a loss of a 450,000 member state account, and an estimated decrease of 250,000 consumers from our individual business due to the combination of state market exits and the transition of subsidy eligible consumers to public exchanges. Our national accounts enrollment is also down after several very strong years of growth due to a lower pipeline of opportunities and over 350,000 members moving to private exchanges. We intend to recapture more than half of that population moving to exchanges in our fully insured membership either in commercial or through senior products for retirees. The emergence of exchanges represents a significant shift to a more consumer focused commercial marketplace, which we have long expected.
Whether the exchanges are public or private, our consumer product experience, disciplined pricing and strong execution has us well positioned. We consciously entered the public exchange market with a modest footprint. We're watching the market closely and expect to pace our exchange participation in 2015 with the way the market develops. The private exchange marketplace has been maturing over the past several years. We currently participate in 33 exchanges serving over 700,000 active employees and retirees.
Our share of the private exchange market for active employees is about 30%. Critical to winning in the exchanges is understanding consumers. With 6,000,000 individuals in our consumer directed health plans, we have deep experience in incentive plans and consumer engagement. Our next generation service model, Advocate for Me, is an important component of our consumer focused approach. It provides personalized service and drives better patient outcomes by seamlessly integrating all of the key elements of the consumer experience.
It does so by combining UnitedHealthcare's claims and benefits knowledge with Optum's data and clinical expertise. Individuals receive high touch full service tailored to their entire family's health needs. Again, early results are very encouraging with a 20% increase in clinical program engagement and satisfaction rates greater than 96%. You can see how our newest approaches match well to the emerging demands of the new marketplace both on and off the exchange. As the Medicaid market grows, so will our Medicaid business.
Over the past 4 years, we won a total of 29 RFPs and re procurements, adding over 1,000,000 new Medicaid members. Today, we serve 4,000,000 people in 24 states. By 2018, 10,000,000 to 17,000,000 more people are expected to become eligible, creating a significant growth opportunity. You may have seen the big data for government exhibit. It showed how we use localized data to help state Medicaid directors better understand the on the ground dynamics in their states.
By sharing data, we help the states improve health outcomes and reduce costs. This positions us to capture a significant share of the expansion population by 2016. And that's in addition to our strong procurement pipeline of more than $80,000,000,000 over the next 3 years. The opportunity to serve individuals with complex healthcare needs is increasing as states' appetite for managed care grows. The medical costs for individuals with complex healthcare needs is substantial.
An estimated $360,000,000,000 is spent on the long term care and dual eligible populations. But the current penetration of managed care is only 15%. These individuals have the highest needs of any population and we have over 2.5 decades of experience delivering strong results. UnitedHealthcare leads the way in serving more individuals with more complex needs than any company. Our patient centered clinical model focuses on improving whole person health by meeting behavioral and social needs as well as medical needs.
We leverage the unique span of resources from relationships with local physicians and social service providers to care coordinators armed with analytical tools to improve the health of our members. We've reduced inpatient utilization by over 50%, driven close to $10,000,000,000 in savings to the federal government and lowered emergency room visits by 60% in our institutional special needs offerings. As you'll see in this afternoon's seminar, UnitedHealthcare's clinical model has demonstrated the potential to deliver up to a 500 basis point improvement in medical spending over fee for service Medicaid for the most intensive portion of this population. As states lead the government transition to managed care, extraordinary opportunities emerge to improve cost, quality and outcome. For the past 30 years, UnitedHealthcare has developed a deep detailed understanding of seniors and how to meet their needs.
Today, we serve 10,000,000 seniors and lead the market in every Medicare product, Medicare Advantage, Part D and Medicare Supplement. With over 10,000 Americans aging into Medicare every day, Our direct to consumer distribution platform, trusted brand and long term partnerships like AARP position us to capitalize on an unprecedented growth opportunity. But challenges do exist. Medicare funding levels are being reduced even as more seniors enter the program. In particular, further Medicare rate cuts, sequestration and the insurer's tax are constraining the Medicare Advantage Program.
Underfunding has and will continue to pressure our Medicare results in both 20142015. We are responding aggressively. 1st, we're building smaller, more tightly integrated networks to drive better cost and health outcomes for senior consumers by strengthening collaboration with care providers. Around 40% of UnitedHealthcare's Medicare Advantage Medical Spend is currently tied to value based compensation arrangements. We will grow this over the next several years to 70% or more.
Next, UnitedHealthcare's clinical efforts are increasingly patient centric and differentiating. For example, this morning we showed you an exhibit on our house call program where our nurse practitioners do in home care assessments. This is a key component of our strategy to improve individual health and accelerate our Medicare Star Ratings performance. Executing on these operation and clinical disciplines will help us realize the upside in our Medicare business. UnitedHealthcare has historically driven a 15 percent to 20% medical cost advantage over fee for service Medicare.
Our Medicare Advantage plans averaged 35% fewer outpatient surgeries, 21% fewer specialist office visits and 4% fewer inpatient admissions versus fee for service. Our long term outlook remains strong in this market. We recognize that pressures exist in 2014 2015 and we are intensely focused on overcoming them. We expect earnings improvement in 2016 and further strength in 2017 2018. As Steve discussed, our Medicare star ratings are not where we want them to be.
UnitedHealthcare's average star rating is 3.5 compared to an industry average of 3.9. 2014 star ratings are a function of over 50 individual measures. These measures fall into 3 main areas health plan operations, clinical quality and member satisfaction. Our most urgent priority is an intensified focus on health plan operations, areas that we directly control. We're taking several immediate actions to drive 5 star performance across these measures, including reengineering our appeals and grievances processes for Medicare Part C and Part D, strengthening internal processes and investing in new technology to drive more sophisticated tracking and resolution of appeals, setting a 0 defect standard and solving claims issues earlier and targeting inbound service efforts and outbound call initiatives to reduce complaints to Medicare and increase member satisfaction.
Further, we're engaging more closely with care providers in local markets to raise specific clinical quality measures. The work we're doing to tailor our networks along with an intensified focus on providing physicians actionable and meaningful data will help improve patient outcomes. Our house call nurse practitioners have visited nearly 700,000 homes this year. Next year, we expect them to visit 800,000 homes and we'll be offering more in home services, including flu shots and simple blood draws. The 3rd group of measures, member satisfaction, will follow as we address clinical quality, customer service and access to GIVE.
Together, these targeted actions will impact our star ratings, drive better outcomes and satisfaction and lift our Medicare results. Our 2014 outlook reflects strong underlying performance. It's set against a challenging backdrop of reform fees, continued Medicare reimbursement cuts and a competitive commercial pricing environment. We've been preparing for 2014 for a long time and we continue to focus on our clinical model, applying it to increasingly complex populations in Medicaid and extending its reach through house calls and Medicare. Provider networks, tailoring them to better align to the specific needs of the groups of people we serve.
Growth, finishing the Medicare open enrollment period strong, readying for Medicaid expansion and procurement wins and delivering more affordable offerings in the commercial marketplace pricing, to recover reform related rolling out our enhanced advocate for me service, strengthening performance in TRICARE and EMEAL and improving health outcomes. Turning to enrollment, we expect to close the year serving nearly 50,000,000 people. We added 4,400,000 consumers over the course of 2013, once again substantially more than any others in the market. Growth is well balanced across our businesses from Medicare Advantage to TRICARE to Medicaid to International. 2013 will mark the largest organic enrollment gain in the history of our enterprise.
With it, we've added more than 10,000,000 people over the past 10 years. Looking to 2014, we expect medical enrollment to remain roughly flat at the midpoint of our estimated range. We expect losses in our commercial business of about 1,000,000 people. The vast majority of those will be concentrated in the self funded customer segment. Our fully insured losses largely relate to the individual market exits driven by reform.
Offsetting the commercial losses are strong gains in our international and government sponsored businesses, where we expect to add approximately 1,000,000 people. Government growth is fueled by Medicaid expansion in 12 states, plus new contract and product expansions in 6 markets, along with solid performance in Medicare Supplement. We expect strong growth in Brazil led by our expansion into new markets and continued market share gains in Rio de Janeiro and Sao Paulo. Simon Stevens and Erwin Kleuser will provide you with more color and context on our successful international growth in a seminar this afternoon. In addition to medical enrollment, we expect to add nearly 300,000 stand alone Medicare Part D Consumers in 2014.
Turning to operating results. We expect to close 2013 with revenue approaching $114,000,000,000 and earnings of $7,300,000,000 both within the ranges we provided you a year ago. In 2014, we will expand and strengthen our businesses, increasing revenue by more than $4,000,000,000 to approximately $118,000,000,000 We will continue to drive positive clinical outcomes through our affordability programs. We expect underlying trends in health system use to remain relatively consistent in 2014. Prior to consideration of reform mandated benefits, which will put upward pressure on trends.
Looking across UnitedHealthcare, we expect our medical care ratio to decrease, driven by pricing for the new reform fees and taxes. These items will increase both revenue and operating earnings and lower our medical care ratios. The impact of these items on the medical care ratio more than offsets the effects of favorable reserve development we experienced in 2013, which we don't expect to continue going forward, as well as the funding pressure in federal and state programs and the challenging commercial pricing environment. Dave Wickman will cover medical cost trends in more detail in a few minutes. Beyond medical costs, we will continue to deliver strong operating cost performance.
Considering all of these factors, we expect 2014 UnitedHealthcare earnings from operations to be in the range of 6.8 dollars to $7,100,000,000 roughly in line with 2013 levels. However, in 2014, operating earnings will not be a comparable measure to 2013 due to the non deductible nature of the insurance tax. To better see the full impact of the non deductible income tax, we look to after tax operating profit, which we expect to decline by $500,000,000 to $700,000,000 in 2014 as compared to 2013. It's also instructive to look at our underlying results after stripping out legislated and regulatory fees and funding shortfalls. With these items removed from the top and bottom lines on a year over year basis, we are increasing our after tax operating profit by roughly $1,000,000,000 or 20% to 24% profit growth.
UnitedHealthcare is growing, but it's how we're growing that defines our position in the market. Our core strengths have been built in a deliberate fashion to meet the needs of select markets. Over the next 5 years, we're committed to expanding by 4000000 to 5000000 new consumers domestically with further growth internationally. Accelerating earnings growth after 2015 with the potential to more than double our current results over the next 7 to 10 years leading the nation in value based care provider arrangements, setting the standard for consumer service through our advocate for me service model advancing a meaningful cost structure advantage on both medical and operating costs focusing relentlessly on 5 star quality performance and helping consumers actually become health consumers with 90% participation in incentive and reward programs across UnitedHealthcare. Over the past decade, during a time of market change, UnitedHealthcare increased its market share fourfold.
We started at 3% and today serve 13% of Americans and we emerged as a diversified market leader. We had a vision, executed on it and today UnitedHealthcare is where we want it to be, uniquely positioned to deliver greater value to the health system. We will approach the next 5 years with the same intensity, purposely building towards the future to seize the opportunities ahead and continue on a trajectory of long term growth. Thank you for listening. Before we begin the Q and A, I'd like to ask some of UnitedHealthcare's senior leaders to join me up here on the stage along with Dave Wittmann and John Penshern.
Joining me will be Dan Schumacher, our Chief Financial Officer Jeff Alter, our Chief Executive Officer for the Employer and Individual Business Jack Larson, our Chief Executive Officer for Medicare and Retirement Steve Nelson, our CEO of the Community and State Business and Doctor. Sam Ho, Chief Medical Officer and Austin Pittman, President of UnitedHealthcare Networks. With that, we'll open it up for questions.
Okay, please. Thank you. You projected Medicare Advantage enrollment to be up 50 or down 50. At this point, you probably know how gross enrollments are from the selling season. How has that gone right now?
What's the gross enrollment that you're seeing in Medicare?
So we're still in the middle of our open enrollment period, but we feel positive about the application volume. As I think you've said, we won't know the terminations until we get the final falls from CMS, but we think had a strong open enrollment season. As you think about our Medicare Advantage enrollment, there are a couple of things. We shared this with you, I think, on the second and third quarter calls that roughly we have 150,000 lives that in markets that we are taking certain product offerings out. And while many of those individuals have an opportunity, about 80% to rejoin us, that will be one factor.
And then also the state of Georgia had a Medicare Advantage offering in it too that an impact.
Can you at least give us your gross enrollment target?
We'll give you our plus or minus 50,000 as our range on the enrollment, stay with that.
Thank you. Go to A. J. Now. Just might swing over to Medicaid.
Can you just give us an update on where you stand in terms of getting states to give you credit for the tax and the non deductibility? And then also what assumptions are you making regarding the expansion population and what the medical cost trend on that is going to look like?
Sure. I'll ask Steve Nelson to address that as our CEO of Medicaid.
Sure. Of course, I'll start with the conversations that we have with states. We refer to rate advocacy. It's a very robust and continuous process and it covers a lot of topics. But recently there's been a
lot of
very positive conversations around both those topics. So let me just break it down. The first on in terms of getting the fee and the tax impact of that as part of our rates, we consider a part of our costs. That's how we talk about and that's how we talk to our states. We have now had about a quarter of our states give us formal commitments and with the vast majority remaining strong verbal commitments.
So we like our position. There's still a lot of conversation and work to be done, but and then also in terms of how they pass that on to us is going to differ by states, some will include it in our regular capitation and others will use some kind of a lump sum kind of arrangement. So we like our position and we have strong indication from the vast majority of states that they will include both the fee and the tax impact. On the expansion population, we assume that that population at first will have a slightly higher utilization. There's probably some pent up demand there.
And that's again the conversation we're having with states. They acknowledge that as well. Exactly how that's going to come out still a lot of conversation to be had there, but we are consistently gaining momentum in our advocacy effort to have a distinct rate conversation around that population and I would say that is making good progress as well.
Up here please, Matthew.
Maybe building on some of that discussion. Could you maybe help us to understand on Slide 11 where you show the, I guess, the bridge between 13 and 14 for UnitedHealthcare. How much of the $700,000,000 impact from reform fees net of pricing offsets? How does that break down? Maybe not exact, but if you can give us some idea how it breaks down in terms of the impact across commercial Medicaid, Medicare Advantage.
And then the same question in terms of breakdown on what you expect from business performance improvement, the $900,000,000 to $1,100,000,000
I hesitate on the stage, the amount of math involved here, but let's what we can do with it.
I'll ask Dan to talk about the bridge.
Sure, Matt. As you think about that $700,000,000 the vast majority of it is in Medicare, right? We can't price for the there's no mechanism to price for the insurance fee in the Medicare space. So the vast majority of it is that. The residual portion relates to the commercial business and it's that timing differential on 12 month policies between revenue recognized this year and expense next year.
So, vast majority of its Medicare.
What about for the business improvement? Can you give us a sense of how that portions out between commercial Medicaid and Medicare?
Well, I'll give you a sense overall level, which is, as Steve said in his opening comments, strong growth in Medicaid, strong international growth and we've got some pressures in Medicare that given the significant underfunding. And you've heard about our individual market. So those would be the themes, but we expect strong performance across all of our businesses.
Back here please.
What's been the core cost trend in Medicare this year?
We don't disclose the Medicare trends.
Is it positive or negative?
When you take in on the core basis, it's positive. And when you affect it for the changing mix, the younger demographic as the agents come, it actually depending on your mix of business. So it varies significantly across the country based on your mix of agents, you can actually get to negative.
Okay. Thanks.
Kevin, please.
Yes. So question about 2015 for Medicare. I mean, do you guys view that the issues facing you in 2015 has more of a headwind or less of a headwind than what you're seeing in 2014, assuming that the core inflationary update matches your trend and just only assuming the rate cuts that we know about. And obviously, the rate cut itself is going to be a little bit less, but you just wonder if there's some cumulative buildup where you say at some point it's harder to cut benefits and you have to bear more of the costs. How do you think about the 2015 headwind versus the 14 headwind?
So as we think about 2015 and as I shared in my comments, we see certainly some challenges in 2014 2015. 1, you mentioned STARS demonstration, Project Coast way we know our STAR ratings, sequestration and the continued last year of cuts in the Medicare Advantage program. Offsetting that though are the actions that we've been taking around network. We think a very strong result of our clinical programs. We'll see the full year impact of those certainly starting in 2014.
Continue to see growth. It's the demographics of the market are growing very strongly. Some from an overall perspective, we have still have opportunity and benefits and we also have opportunities because we have the largest 0 premium offerings in the marketplace. So those are all important levers for us as we think about the headwinds in 2015. And just as we said in 2014, we'll be working aggressively to overcome that.
We will know our Medicare rates sometime in February when CMS releases them. Can you comment on the outlook for commercial in 2015? You talked about pricing remaining very firm in 2014 and a better medical loss ratio. Would that continue into 2015? And then on small group employers, are you likely to see attrition into exchanges and that accelerating in 'fifteen?
Well, there's a lot in there. So I'll take the first crack and ask Jeff to comment just about what we know. Certainly, the public exchange market, we will be making our decisions as I shared into the 1st part of this year as we watch how the market matures. Public exchanges are an opportunity. We have a significant market share already and quite frankly the trade off of those going from self insured to fully insured is a very positive trade off for us and we do expect continued growth in the private exchange marketplace.
The other thing about as we look at medical costs and underlying stability of the market, we see 14 in the commercial market as a more stable market on the group side when you think about the specific groups because employers will be renewing, they can keep their policies and with the extension, just given that's an opportunity for more stability in current carriers. I don't know Jeff if you want to add any more context to that.
Yes. Just on the small group, just a reminder that SHOP for the most part is going to be an initial year in 2015. It's not. So we don't believe that there'll be a large swing into those shop exchanges probably until 2015. Growing pains get worked out as well.
I think the point on pricing, there's a lot to be played out between now and 2015 particularly around competitors who may have made a choice to be a broader player in some of the early phase of the exchanges and what they'll have to do with pricing to make up for perhaps having a broader footprint in that marketplace.
When you put it together on a commercial basis though, I mean, we have an expectation of growing earnings in 2015 in the commercial business. We'll have the wear off of the ACA related impacts in the individual business. We'll be getting into the exchange marketplace perhaps more fully and we would expect earnings growth in 2015 in the commercial business and beyond.
We'll move to the center section right here, Josh.
Back, it sounds like the reimbursement for Medicare is moving to 100% of fee for service, right? And so that's the ultimate goal of PPACA. And you guys are talking about a 15% to 20% cost advantage and that's just on the medical side relative to fee for service. So I guess my question is, is that 15% to 20%, is that just not enough to grow membership? Just in context of you maintaining flat membership and probably ceding margin in 2014 and the outlook for 2015 not being dramatically better.
I'm just curious is that the issue there? Is that just not enough? Or do you think CMS is understating what fee for service costs really are? So I think there's 2 separate stating what fee for service costs really are?
So I think there's 2 separate questions in there. The one about our enrollment guidance for 2014. I'll go back to I mean we started with the $150,000 and then $90,000 was included as part of the state of Georgia. So those 2 are overcoming. We actually and then the network changes that we're making have some impact as well.
So outside of that, quite frankly, we still think it's a very robust market and a 15% to 20% differential fee for service is still very attractive and our benefit offerings are still very attractive to the marketplace. So I'll ask maybe Jack to comment a little bit too about some of the other stuff.
So I think the 15% to 20% over the long term should be enough. But I would say the way we're going to about going to go about positioning our business is a little different than we've done I think in past years where before we would build our networks and build our footprint really almost nationally. And I think we have matured in our perspective around not every market is going to be able to sustain a Medicare Advantage plan the way we would like to operate it. So I think you'll see over the next couple of years our growth be a little more selective. We know our markets where we want to really build and grow share and we know those markets that perhaps long term may not be able to sustain that 15% to 20% differential of fee for service.
Fran, do
you have any on that side?
Thank you very much. Steve has mentioned the M and A opportunities. And while it might be a little early given how much your markets are in transition, we certainly have seen United take advantage of that in the past. I'm wondering if you could talk to that opportunity, not specific names. I understand you're not going to tell me which next company you're going to buy.
But what areas might United see being better bought than built?
I'll start. Thanks for the question. As you've seen for us over the last couple of years, even certainly last year, we had some unique opportunities with Excel, Medica preferred to increase our footprint. So we will be opportunistic as the market consolidates and we do expect continued consolidation in the market over time. I think the breadth of our scale, our ability to leverage the kind of clinical investments we're making and also have a deeply local market presence is really important across all three benefits businesses.
And now to be able to also share some of that internationally and leverage the Optum capability. So while not naming names, we think that there will be opportunities for consolidation as people come to terms with some of the different investments they have to make for reform. And we think we're incredibly well positioned. As I said in my comments, we are we built a very purposeful company across all sectors of the benefits industry and feel extremely well positioned and we'll be opportunistic as those things occur.
Mind just adding to that what percentage of that doubling over the next multiple years not to be specified or holding you to, but if you expect your operating income to double, how much of that do you think will be the business platform as it exists today versus growth from the outside to M and A?
So we won't break it out yet. We'll share that more as we come along. But I think we're looking at, as I said, in the next 10 years being able to through our core businesses and growth opportunities in the markets. If you look at these markets between the Medicare growth and the Medicaid growth and quite frankly the opportunities in commercial, we see an opportunity to do that organically.
Yes. As we close-up this session, I want to borrow from your speech because there was a lot of data points that came flying through and that I want to pull out one data point that I just find remarkable. UnitedHealthcare has grown 10,000,000 people organically in the past decade. That's a remarkable record to come into the period of question here on how much can you grow your earnings organically. All right.
Thank you, UnitedHealthcare. And we'll move to the final presentation, Dave Lickland.
Finding it on these bottle up here is a challenge. Good morning. At the outset, let me take care of a couple of housekeeping items. First, this presentation references non GAAP financial measures at times. These measures are reconciled to GAAP measures in the Investor Conference section of our Investors page at www.unitedhealthgroup.com and can also be found in your book behind the Other Materials tab.
In addition, 2014 performance metrics and metrics are heavily impacted by the ACA and then further impacted by a couple of small realignments. These impacts were outlined in the narrative accompanying the data elements page found in your book. I will discuss these further as we get into 20 fourteen's numbers. Today, I'll summarize our solid 2013 performance and expected results, give you an overview of our outlook for 2014 and review the strength and flexibility offered by our capital management programs. Growth is the story for 2013.
Top line revenue growth is being driven by significant growth at Optum, gains in enrollment, discipline pricing and further diversification into new markets in particular through EMEAL in Brazil. This growth has led to improved operating earnings, earnings per share and cash flows despite intense reimbursement pressure in Medicare Advantage. Medical and operating cost management and capital management disciplines also contributed to this strong result, but growth is the story for 2013. Diversified, less regulated services and product growth, leveraging data, technology and care delivery and expansions into Brazil and across fee based markets. As a result, we expect to be nearer to the top end of the growth, earnings and cash flow ranges we provided you at this time last year.
Further, we raised our quarterly dividend for the 3rd year in a row by over 30%, continued our robust share repurchase program, completed the tender offer for Emile's public equity and extinguished its debt. We are delivering solid revenue growth and operating margins across UnitedHealth Group. Both UnitedHealthcare and Optum should meet or exceed their original targeted range for operating earnings despite the unplanned impacts of sequestration on both organizations. UnitedHealthcare's revenues grew nearly 10% fueled by significant gains in enrollment including organic growth and new entry into the TRICARE program and into Brazil through The main reason for the expected decline is lower expected reimbursements in government programs and the realization of lower levels of favorable reserve development as compared to 2012. Optum's revenues were at the high end and operating earnings were well ahead of the high end of the ranges we set last November, driven by the strategic repositioning and cost management activities Larry discussed with you earlier today, as we set last November, driven by the strategic repositioning and cost management activities Larry discussed with you earlier today.
In 2013, we expect Optum to produce revenue and operating earnings growth rates of 26% 55% respectively. A closer look under the surface of our 2013 earnings shows the true strength of our growth. After removing just the net effect of sequestration and normalizing for out of period favorable adjustments to reserves, our business will grow in earnings in the 10% to 12% range in 2013. UnitedHealthcare felt most of the impact year over year. Excluding these effects, which total approximately $700,000,000 UnitedHealthcare's earnings would have grown, a strong result in the face of the significant reimbursement headwinds of the Medicare Advantage program.
We expect to be serving 90,000,000 people globally by the end of 2013. Over 45,000,000 people are served with medical benefits and 11% growth rate year over year and nearly 5,000,000 more are served as standalone Part D beneficiaries, a 17% growth rate year over year. The level of growth is unprecedented. Over the past 2 years, we have grown to serve 11,000,000 more people with medical benefits. That's 30% more.
This growth is a product of the distinctive service and value proposition we have cultivated for years, yielding leading market positions in each major market segment in healthcare. These same attributes will serve us well into the future, particularly as the market becomes more and more consumer driven. Commercial fee membership is projected to increase by about 1,450,000 people due to organic growth and proactive funding conversion by a single customer representing 1,100,000 people, saving this client tens of 1,000,000 of dollars in insurers fees. In the public and senior programs this year, we will increase the number of people served by nearly 900,000 reflecting the strength of our Medicare and Medicaid offerings and market positions as well as market growth in these segments, particularly Medicare. And EMEAL grew nicely in its 1st year with us as well, adding nearly 500,000 more people.
In total, we project 2013 will end with UnitedHealthcare serving over 4,400,000 more people. And we expect notable market share gains in the commercial fee based business, government programs, TRICARE and international. This slide tells you a similar story, again, up in all categories year over year. That translates to market share and strong revenue gains in our benefits businesses. Optum is expected to grow revenue strongly in 2013, while contributing exceptional earnings and margin improvements.
OptumHealth's revenues will grow to nearly $10,000,000,000 on the strength of its clinical offerings now serving over 1,000,000 patients. Operating earnings are expected to grow 63% and operating margins are expected to be 9.3%, more than 1 third higher than 2012 results. OptumRx should deliver top line growth of over 30% and operating earnings growth of 85%. Disciplined cost management and the conversion of UnitedHealthcare's business from Medco both contributed to these increases. Optum Insights revenues, operating earnings and operating margins are also notably strong.
Operating margins are now in excess of 18 point percent, a significant advance over 20 twelve's performance, demonstrating the value of Optum Insights data and technology products and associated cost management, compliance and healthcare management services. Given market dynamics and the leading market positions of Optum, we see significant opportunities to continue to improve each of its businesses in the coming years. Over the past 4 years, UnitedHealth Group's revenues and earnings per share have been growing at a compounded annual growth rates of 9% and 14% respectively. The EPS growth rate has been in line with our long term forecast of 13% to 16% even as we offered a much higher dividend over this time period. This 4 year performance yielded nearly $28,000,000,000 in cumulative operating cash flows.
Of that, we returned over 1 half or nearly $15,000,000,000 to shareholders while investing the other half in the enterprise. Our dividend advanced from $0.03 per share in 2,009 to $1.12 per share in 2013. And by the end of 2013, we will have repurchased nearly 250,000,000 of our shares during this time period at an average price of $47 to $48 per share. Our peer share count now is now below 1,000,000,000 shares outstanding and our stock price as of the close of yesterday's business was $74 per share. 2014 will be one of the more challenging years for our business due to the intense impact of the ACA on top of the Medicare Advantage final rate notice for 2014 and the full year effects of sequestration.
Taken together, the insurers and reinsurers fee, the impact of commercial underwriting changes and ACA rate cuts reduced 20 fourteen's earnings by $0.90 to $1 per share and reduced year over year earnings by $1 to $1.10 per share. As indicated, the ACA is expected to reduce year over year earnings by $1 to 1 $0.10 per share. Our underlying business is expected to grow 18% 22% even after absorbing the significant impacts of the 2014 MA final rate notice and one last quarter of sequestration that Gail overviewed with you earlier today. If we were to exclude all of these, the growth rates would be nearer to the 30% that Steve referenced earlier today. Certain components of the reform change, the comparability of our metrics in 2014 and beyond.
If you'll bear with me, I'll take you through a brief description of how we see these changes. First, our portion of reform fees, that's the reinsurance and insurers fees is estimated to be $1,800,000,000 to $1,900,000,000 The larger element of the 2, the insurers fee is not deductible for tax purposes. The insurance fee applies to all domestic medical insurance policies except Medicare Supplement. The reinsurance fee applies only to the commercial markets, but applies to both risk and fee based funding types. Both will be classified as operating costs.
Our best estimate at this distance is that our billing for reform fees should increase our 20 14 revenues by 1.4 dollars to $1,600,000,000 increasing increased our operating costs by $1,800,000,000 to $1,900,000,000 reduce operating earnings by $200,000,000 to $500,000,000 and reduce net earnings by $600,000,000 to $700,000,000 and EPS by $0.60 to $0.70 Additionally, our medical care ratio dropped by 100 to 120 basis points. The operating cost ratio increases by 120 to 130 basis points and our tax rate increases by 500 basis points. I'll take you through bridges of the MCR and OCR in just a minute. As Gail said, operating earnings as a metric becomes much less relevant when comparing performance at UnitedHealthcare's businesses, because of the fees and associated pricing and tax implications. Instead, we now look at these businesses on an after tax operating profit basis and continue to review and manage their returns against their business specific cost of capital.
As we have with other hardened capabilities in the past, we are offering new services to the broader market in 2014. Over the past 5 years, our global resources have become among the highest quality processors of healthcare transactions and developers of healthcare technologies worldwide. We have combined these operations with 20 megawatts of Tier 3 data center capacity capable of housing 1,000,000,000 of dollars in technology assets, all managed at industrial scale to achieve highly available and secure processing of protected information. We are now offering these formerly internal capabilities to the broader market. So it makes sense to move this portion of our business to report to Optum.
To give you a sense of how these capabilities have evolved, in 2008, we had approximately 1600 people in 2 locations in our global operations and operated 2 megawatts of Tier 3 capacity. Today, only 5 years later, we have nearly 15,000 people in 8 locations and 20 megawatts of Tier 3 data center capacity. We believe it to be one of if not the largest most diverse outsourcing operations exclusively serving the global healthcare market. The operations run best in class in both quality and cost performance and are ready to serve the estimated $100,000,000,000 global business services market for healthcare. We have also decided to move our house calls competency to Optum in 2014, so it can serve others as well.
As a result of these realignments, we expect Optum's 2013 revenues to increase by $1,100,000,000 to $1,200,000,000 and we expect approximately $185,000,000 in earnings to change hands effective January 1, 2014. These realignments will have no impact on our consolidated results. Now let's look at those consolidated results. We expect revenues to range between $128,000,000,000 $129,000,000,000 in 2014, a 5% increase over 2013. This reflects exceptional revenue growth across Optum.
Enrollment and revenue growth in our Medicaid, Medicare Supplement and Medicare Part D offerings and at a meal. And appropriate price increases including the impact of the insurance fee wherever possible offset by the full year impact of sequestration, other reductions in reimbursements affecting MA rates in 2014 and the impact of the ACA on the commercial risk market, particularly individual. Net earnings per share in 20 14 are projected to grow to a range of $5.40 to $5.60 per share. We expect our quarterly earnings progression in 2014 to be similar to 20 thirteen's progression before development with a slight further bias towards the last half of the year as we bear the final installment of sequestration in Q1 and as our growth and cost containment efforts mature. We expect operating cash flows to be in the range of $7,800,000,000 to $8,200,000,000 This represents roughly 1.4 times net income.
This growth is in part aided by the timing of payment of the reinsurance fee in 2015. On the side, Optum is now expected to contribute approximately 1 third of our total 2014 operating cash flows. Here you can see the details of revenue and earnings for 2014 by business. Diversification continues to be an important aspect of our business model. It is accelerating and further improving our results, particularly at Optum with the meal and in our commercial and Medicaid businesses.
UnitedHealthcare's 2014 projections reflect continued costs of reform, government reimbursement pressures and the absence of favorable development reported in 2013. Reform alone will reduce UnitedHealthcare's after tax operating earnings by $1,100,000,000 year over year. Optum increases its revenues and operating margins reflecting the impact of the 1 Optum initiatives Larry outlined earlier. Each of the Optum businesses is expected to grow at double digit levels led by OptumRx. I will speak to that more in just a moment.
We expect to sustain our leading market enrollment positions in 2014. We project commercial losses for the full year. Losses in risk based products are driven by ACA provisions to be partially offset by the growth in private exchanges. As Gail showed you, we expect the enrollment reduction to be driven by a decline in a decline in our individual membership. And fee based enrollment is expected to decline primarily due to the loss of 1 large public sector account and the impact of private exchanges.
We again expect strong growth in our Medicare Supplement, Medicare Part D and Medicaid products. Medicaid growth includes the effects of eligibility expansion under the ACA. While growth is strong, we don't expect much in the way of earnings from these additions in 2014. Medicare Advantage growth expectations are tempered by market exits and reductions in benefits and network size. Medicare Supplement and Part D growth both reflect expansion in the market for Medicare as well as the strong competitive positioning and value proposition of these 2 UnitedHealthcare products.
Expected to grow by 300,000 to 400,000 more people reflecting the strength of that distinctive platform in Brazil. In total, we expect to serve the primary medical needs of approximately 45,000,000 to 46,000,000 individuals in 2014. Since 2,009, we expect to have initiated service to a net new 14,000,000 people, 40% more people, while attaining number 1 market positions in every category in the United States and Brazil. While our progress is striking, we know we need to protect and extend these market positions relentlessly in order to advance our mission and continue to build the business. Turning to Optum.
We expect double digit revenue growth in each of its three businesses to lift total revenues to $45,000,000,000 to $46,000,000,000 Operating earnings improved to $3,100,000,000 to $3,200,000,000 with growth and cost containment efforts driving margin expansions. Strong 30% operating earnings growth will be led by OptumRx, which will benefit from the full year effects of the Medco conversion. In all, Optum leverages the momentum built in 2013 as it pivots to growth and drives deeper strategic client relationships. Here we profile several of the metrics important to each of the Optum businesses. We show these measured against 2012 to give you a better sense of the magnitude of movement we expect in just 2 years.
40% growth in OptumHealth's revenues, now serving over 1,000,000 local care delivery members. OptumInsight continues to see growth in its backlogs. Adjusted scripts grow 60% giving OptumRx competitive scale and our bank assets are now $3,600,000,000 primarily reflecting the investments being made by Americans in their health savings accounts. These are just a few of the metrics that give you a deeper view behind the growth drivers in the Optum businesses. We expect our consolidated medical care ratio to end this year at around 81.3%.
It includes prior year favorable reserve development recorded through the Q3, the impact of sequestration and reflects continued market leading 2014. The decrease of roughly 80 basis points is driven by the favorable impact of billing for reform fees, offset by the absence of favorable reserve development realized in 2013 and a modest increase in the mix of higher ratio government business. For 2013, we project our final commercial net medical trend will be around 5%. This is better than our original estimates due to improved unit cost performance and the effectiveness of our clinical programs. Looking to 2014, we expect utilization trends and pricing to generally continue at the lower levels experienced in 2013, except for the reform impacts, which will drive utilization higher.
As a result, we expect the commercial net medical trend to be in a range of 6% plus or minus 50 basis points. In aggregate, we expect unit cost increases of around 4% and utilization growth of about 2%. Facility unit costs continue to be the primary driver of cost increases. However, we expect utilization primarily in the outpatient setting to be up again from 2013 as treatments continue to shift from inpatient to outpatient. Physician trends reflect modest increases in office visits and fee schedules and pharmacy trends are expected to reflect unit cost pressures and the use of new specialty drugs in the pipeline.
Operating costs continue to be managed very well. We now estimate the operating cost ratio for 2013 to be about 16%, in line with the original range we communicated a year ago. Strong productivity gains helped slow the increase of this ratio stemming from our robust growth from our fee based benefits business and our Optum and EMEAL businesses. In 2014, operating costs as a percentage of revenue are expected to increase 70 basis points to 16.7 percent plus or minus 30 basis points. The largest driver is the 120 basis points to 130 basis point increase from reform fees.
In addition, we continue to mix our business more towards fee based and services business and EMEAL, all of which carry higher operating cost ratios. Offsetting these are our extensive productivity efforts, which are expected to yield very strong results again in 2014. Our businesses produced strong operating cash flows again in 2013 and 2014 should see a similar result. Here you can see the major components of our projected 2014 cash flows. In total, we are projecting operating cash flows to be in the $7,800,000,000 to 8 $200,000,000 range or 1.4 times net income.
Here we highlight the key metrics from our 2014 outlook. We see very solid revenue, earnings and cash flow growth across the board. 2014 shows solid margins despite the various impacts of the ACA. With the planned reduction in share count, we expect our earnings per share will range in the $5.40 to $5.60 per share range. Let's shift to Strategic Capital Management.
We continue to work from a position of strength. Our strong financial position is reflected in the recent outlook upgrades by both S and P to positive and Moody's to stable on the anniversary of the O'Neill acquisition. Both also reaffirm their ratings in addition to the outlook upgrades. We maintain approximately $1,000,000,000 of available cash on hand. We have immediate additional flexibility in a $4,000,000,000 commercial paper program backed by 23 financial institutions.
Our regulated entities are liquid with approximately $7,200,000,000 of capital in excess of required levels. We maintain this excess capital to ensure optimal financial flexibility and strong credit ratings. 98% of our investment portfolio is investment grade. It is highly diversified in liquid with an average duration of approximately 3 years excluding cash. It had a net unrealized capital gain position of approximately $200,000,000 at September 30.
That's down from this time last year due to rising interest rates. Our coverage ratios remain strong reflecting steadily improving performance, strong cash flows and a flexible and conservative balance sheet. Here we highlight how we see the sources of cash for 2014 and how we could apply those strong cash flows again next year. Looking at 2014, we expect a similar allocation to dividends, share repurchase and capital expenditures. Our steadily improving cash flows and growth of the business leave ample capacity for our strategic growth capital needs.
We returned a significant amount of cash to shareholders. Overall, our share repurchase program has been an enormous success, providing returns ahead of the S and P 500 over most time periods presented. Our Board approved a share buyback of 110,000,000 shares in June of this year and 95,000,000 shares remain authorized under that program as of September 30. We believe our dividend represents the strongest payout ratio among our traditional industry peers. Our quarterly dividend stands at $0.28 per share.
As before, we are committed to reevaluating it periodically as we have each of the past 3 years. On a combined total payout basis, our ratio at 76% for 2013 and 75% to 85% estimated for 2014 is on par with or above the average of the Fortune 50. We continue to actively expand our business through a balanced buy, build and partner strategy. Our approach over time has been to build foundational capabilities across diverse markets and bring them to scale by leveraging 3 core competencies data, technology and local care delivery management. We started that in earnest in the mid-90s and have carried on through the last decade in the benefits business, starting by serving select markets and eventually establishing leading market positions geographically and by line of business and major product in the United States.
You have seen the value of establishing this presence in our growth over the past 2 years in particular. Similarly, from the late '90s through the last decade, we have planted seeds in strategic markets in the services business, again leveraging our 3 core competencies to serve the entire healthcare system. And more recently, we have broadened our reach internationally, applying our capabilities in new markets, while continuing to diversify Optum and leveraging our U. S. Scale and experience for organic growth in UnitedHealthcare.
We have now begun to serve people's healthcare needs across the globe. So where does that leave us? Optum arguably is the largest healthcare services company, yet now serves just 7% to 8% of the addressable market. We have plenty of room to grow and many new platforms and partnerships to establish, while driving growth from existing businesses and the markets they are currently serving. For UnitedHealthcare, we see the benefits markets continuing to consolidate naturally.
With rate reimbursement pressure on margins and government sponsored business, capital deployment needs to be judicious to ensure acceptable returns. This is easier for us as compared to others given the scale advantages that we bear. The other area of primary focus for development is international, in particular key markets in Brazil, where we have the leading market position in a high growth yet relatively immature market. Our emphasis is to build a meal in contiguous markets, while establishing a more significant presence in other less established Brazilian states. We also expect to introduce Optum to the Brazilian market, improving Emile's competitiveness while establishing its own distinct presence.
We will continue to explore opportunities in Brazil and the rest of the world leading more with our Optum platform. From there, we can consider risk based services and other methods to capitalize on and monetize our key data, technology and local care delivery assets.
I've thrown a lot of
data at you. So let's step back for some perspective. I joined the company at the end of the Q1 in 1998. That was nearly 16 years ago. At that time Optum Insight was merely a database.
Optum Health was a nurse line and transplant management company. OptumRx didn't exist. UnitedHealthcare served 13,100,000 people, 12,200,000 in the commercial markets, dollars 350,000 in Medicare and $525,000 in Medicaid. And it wasn't meaningfully operating in most states, let alone thinking of expanding internationally. We didn't offer ancillary or supplemental insurance coverages like vision, dental, life or Medicare supplement.
We lost $0.14 a share that year and the stock a split adjusted low of approximately $4 per share. Since then, we have had year over year EPS gains in excess of 20% in 10 of the last 15 years and 15% or more in an additional 2%. Last year was nearly 12% and this year underneath sequestration and out of period items should come in at 10% to 12% as I showed you earlier. We are virtually everywhere in the United States and maintain leading market positions in commercial, Medicaid, Medicare Advantage, Medicare Supplement, Medicare Part D and many leading positions in healthcare services, population health, analytics, health banking, health technology, institutional and home based care, house calls and compliance. We have an emerging PBM and emerging clinical delivery businesses among others and we have the top market position in Brazil.
In 2012, we were the 17th largest public company in the United States. That ranking should improve further in 2013. Based on our estimates, our revenue growth rate currently ranks 10th among the Fortune 50. The business consistently provides cash flows at 1.3 times net income and isn't as capital intensive as many Fortune 50 businesses. Our return on invested capital is well in excess of our cost of capital and ranks 14th among the Fortune 50.
We have strong dividend momentum with 30 plus percent increases in each of the last 3 years and our total return ranks near the median of the other well established Fortune 50 companies and ahead of the median for the Dow. We have come a long way. As we sit here today, we see UnitedHealth Group as a company with a strong foundation. It's diversified, capable, adaptable and innovative. Operating in the healthcare market in need of the diversified health products and services that underpin the mission of our business.
A mission to help people live healthier lives now aimed more globally to serve even more people. As we look ahead to the end of this decade, we see our business playing an even more significant role in the nation's health system, a system that relies on an enhanced relationship between consumers and their doctors, a system that is more connected, informed, accountable and incentivized to improve health care quality and reduce its costs. We see a market that provides strong growth through public and private exchanges, expanded Medicaid eligibility and compelling demographics for the expansion of Medicare. We expect market consolidation to accelerate under the weight of reform provisions where only the strongest and most adaptable companies will prosper. We see a significant need for Optum's technology, analytics and population health services and we see ourselves continuing to diversify focused on North and South America and Optum globally.
Over the next couple of years, we will focus on a tactical agenda that will leverage Optum's assets to advance strategic growth, lay the foundation to achieve leading market positions in Brazil, begin to harvest reform growth opportunities, work to preserve benefits for the nation's elderly and poor maintain the highest levels of compliance and service quality to yield distinguished performance and tightly manage costs to improve affordability and mitigate reform impacts. At the same time, we will strategically positioning UnitedHealth Group for the future by deploying capital more towards high growth opportunities in the healthcare services and select international markets, aligning incentives with healthcare providers and consumers to reward quality and healthy behavior achieving further scale efficiencies and benefits to optimize the next decade of consolidation innovating to advance consumer and care provider engagement and improve healthcare quality and value hardening service levels to a near zero defect standard and we will continue to drive strong shareholder returns. Thank you for the opportunity you have given us to engage in this mission and for your attention today. And with that, it's my pleasure to invite John Penschwerm back to the stage.
If we could have Steve and Gail and Larry come up as well, please. We're down to 4 chairs, so we must be coming to the end. Back here, please. First question.
Hey, there. I'm struggling with your Medicaid assumptions a bit. It looks like you're looking for maybe 350,000 incremental members. I'm kind of getting double. If you think 350,000 expansion, 300 contracts, 110 duals and the expansion population is supposed to be pretty healthy like they're like the veil lift operators, they're male, they're single.
Can you let us think about some of your assumptions that they're not going to be as healthy? Thanks.
Let me ask.
You go right to it.
Wow. So in terms of growth, 1st of all, the growth is in the expansion population. That's a significant part of the growth in addition to the re procurements we have. So we think that's a healthy and robust growth rate. In terms of the healthiness of the population, I think Steve Nelson addressed that when we were on stage.
I mean, we I don't know that necessarily the assumption of they'll be the most healthiest. There is pent up demand coming from that population. So that's the conversation we're having with the states. We would be looking to have distinct rate cells for that population on the expansion. And again, as it's in a market that we already serve, we've got the infrastructure built, the clinical programs.
We feel very positively about that. In markets where it's a new procurement and expansion is coming to, we have to build the infrastructure. So I think your question, Christine, I'm not I think generally the industry recognizes the pent up demand issue of the folks that are coming in through expansion. So I wouldn't say that they're necessarily healthier than the existing Medicaid population.
Up here, we'll see if
this question can top Vale lift operators.
Unfortunately, I don't think so. With regard to the investment spending for STAR scores, how much do you intend to allocate next year to get the ratings up? And can you give us a sense for what
you spent this year in 2012? Thanks.
Let me go to?
Okay. So we don't necessarily break out the individual spending because there's 2 areas of spending around Starz focus. 1 is, operational investments that we're making and I sort of walked through those, so getting to 0 defect standards. And one of the things I want to remind you about STARS. So we're finishing this year's work through the rest of this year on the operational metrics that will have an impact on 16 stars.
So there is a long lead time on starts and I think everyone recognizes that. But there's fundamentally 2 areas of investment that we're making significant investments in the provider incentive side. Today, I shared with you 40% roughly of our incentives in Medicare on a pay for performance measure, we're going to move that $70,000,000 a significant amount of dollars are moving to incenting appropriate outcomes in care. So that's one piece. And then the other piece is the operational guide.
So while we don't break out the actual dollars on both, it goes to both sides and I'll tell you they're both significant investments for
us. Janice?
Question about the cost trend assumption. I think you guys excluding the impact of reform, I think Dave you said it would be flat 2014 versus 2013. So I'm curious how much of that is United specific or maybe how is that relative to what you think an industry trend looks like? And then could you give us a little more information as to maybe the background on inpatient days going down again? Is that just a shift to outpatient or is there more to it?
So I think it's a couple of things, Josh. First, as indicated, the trend increases by about 1 percentage point. That's all utilization and it's primarily related to the reform provisions. I would suggest you similar to at least the past decade probably before that that I would expect our rate of trend as managed to be less than what the industry trend ultimately ends up being for that category. And sorry, what was the
The second on inpatient days.
Oh, inpatient days, yes. I'd say it's a combination of things, Josh. It's both our ability to direct care more to the appropriate setting and outpatient setting, but are also significant emphasis on managing readmission rates as well. So I'd say it's a net down in terms of total utilization, but then also a redistribution to place the care more to the outpatient setting.
Thank you. Let's come here in the front. I was just wondering on the tax rate you talked about a 500 basis point increase in the tax rate. What portion of that is Medicare Advantage and what portion of that is Medicaid in terms of your ability to pass on those Medicaid tax increases? There was a discussion earlier from the gentleman who was involved and in fact he thought he could pass most of it through.
So I was wondering if you could shed some light
on that. Thanks. Yes. So both do
you want to No, I was
going to say Dan answered that before.
Yes. Dan answered it before. But so our strategy has been for both the commercial and Medicaid markets to pass along the fee as well as the tax implications of the fee. In Medicare, you can't do that. Now in Medicaid, there's also Medicare reimbursement and so you can't pass along the fee to that either.
So the vast majority of that fee, the non reimbursed fee as well as the tax implications of it really relate to the Medicare market. There are some other items that Dan referenced with respect to the commercial market, which really has more of a timing issue year over year, but the vast majority of its Medicare.
All of those taxes are non deductible. So they all raise mathematically the tax rate, which is a mechanical item as opposed to the substantive item Dave referred to. Upfrontier please.
I have a quick question before my main question. The 1% increase in trend from LCAR reform, what is that? Is that inpatient? Is it outpatient? Is it drug?
Where does that 1% come from?
It's really more characterized as the impact of minimum essential benefits. Essential health benefits.
So it's broadly across all?
Yes. Okay.
And then
I guess the main question is you spent a lot of time talking about how diversified the portfolio is and how well Optum is growing and how well Medicaid is growing and a lot of momentum in a lot of businesses. But at the end of the day, it feels like your guidance is very much and your expectations for company overall growth is very much tied to your expectations about Medicare profitability. You're talking about flat in '14, the biggest rate cut growth, but not great growth in 'fifteen when the rate cuts big, but not as big. And then getting back to normal growth in 'sixteen and beyond. I mean, how much I mean, how is there a way for you to grow well when Medicare is not growing well if you see a rate cut in 2016, are we going to be talking about a below average growth rate again in 2016?
Yes. I think you as you there's really two things that are confounding our earnings for 2014 and carry on to a certain extent into 2015. The first I would characterize broadly is the ACA, which is almost a sentinel event in the 2014 2015 time period. So I wouldn't just attribute that just Medicare, if you will. It has to do more with earnings progression in those 2 years really related to the impact of the ACA.
But if you look at our business broadly, we talk about growth drivers in our business. You have very strong and robust growth top and bottom line at Optum. You have an Emile business, which is emerging as fast or faster than what we had expected after we acquired that business, leading market positions in Brazil. We have an exceptionally strong Medicaid business, well positioned in the market. And while not all markets have adopted Medicaid expansion, we would expect eventually they probably will and we'd expect growth in that business for years to come.
Very, very strong market positions in Part D and Medicare Supplement as well. So what we really have is an ACA implication and then we have a Medicare Advantage rate reimbursement issue across the business as well. And I think what we've done in this past year is we've invoked a lot of tactics and strategies as we have in years past as well to really mitigate the effects of that pullback. But I'd say more so than anything it was really the implementation of the ACA that caused our earnings progression to be lighter in 2014 than anything else.
Back there please, Fran.
Steve, during your prepared remarks, you discussed accelerating earnings growth in 2015 from 2014. Given that the 2014 is flat top slightly, I think there's a you can look at that pretty broadly in terms of what acceleration could mean. So I'm hoping you can narrow it down a little bit for us. Would 0 to 2 is 14 in the low Are
you looking for specific guidance?
He'd like some membership tables to go with it too.
Just a point specific number would be great.
So I think if you put this in context
and maybe a title little bit to the last question. Given the impact of these ACA actions, which are really hitting the business really for the first time, combined with the Medicare funding posture that is a lot for a business regardless of what diversification has absorb. And the business has actually absorbed that and we're projecting a growth posture for 2014. We have really not had what I would call the full extent of what I would say real time to really get maybe to a more optimal position coming off the MA rate actions last year. So there's a lot of activity going on, a lot of urgency
and I think you've seen it through
the course of the day's actions, not only in getting at our cost structures and really getting lean and focused in the markets and the businesses, but also in the new things, the values, the things that are going to continue to stimulate growth and differentiation. We expect to actually see some of that evidence itself in 2015 performance. We expected to see it really across the board in our businesses. If Medicare Advantage Funding is as we said about the 2015, if that funding posture is significantly continues to be significantly negative that will impact just given the significance of that business on our outlook in 2015. We think and maybe this is that there will be a kind of responsible response to MA funding and that we will also have the But I do think that MA funding is a But I do think that MA funding is a major factor in that because it is not something that it is fully within our
control. Okay.
Up here please, Shelly.
I wanted to ask about the outlook for impact from private exchange adoption. I know you've addressed this, but when I look at the 14 enrollment projections, you're looking at a material impact on your fee based enrollment from exchange exchange adoption. If we think about private exchanges accelerating, is that is a reason that we shouldn't think about that being a negative impact like it is going into 2014 on enrollment going forward? How is that going to change?
So I think as you think about the guidance we outlined around exchanges, first of all, the trade off is a positive one for us now, particularly as it moves from the self funded sphere into the fully insured sphere. So that net even with the enrollment, decline in enrollment, it's been a negative. One of the things, we have the largest national account footprint in the industry. So some of the early entrants into the exchanges were more of our 2014 in our guidance. As we look to the growth of that, there's a huge opportunity for us not just in the large account clients, but as you go down market where we as you can see have a 13% overall market share and that opens up markets to us that historically have not been as open.
And so we see it as an opportunity. It's hard for us to declare where 15% is going to go on the exchanges. We think it's a robust offering. But I would say net overall, we think it's a positive for our overall business and feel it's going to be determined by the positioning of your products, your brand and your consumer service and that's why we've invested heavily in it.
Take one last question. I'm hoping it's one that at least brushes Optum.
Only slightly. Thinking about the operating cost ratio, you guys highlight 70 basis points to 80 basis points of decline for next year. I mean, how much of that would you highlight as scale and productivity improvement versus maybe the runoff of some of the investments you guys had highlighted in the past, including Optum as well as the
PrimeCare etcetera,
I had to throw it in. And then are there any other investments that you've either increased or lagging that are worth highlighting going forward that might even benefit 2015 or negatively impact 2014?
Yes. So it's a first of all, I'd say it's a I think you'll agree it's a pretty striking result. It's almost about 2 times what we would expect on the high end of the range of our productivity efforts year over year. So clearly a strong result. And inside there, is some runoff of costs associated with the implementation of the TRICARE program and the our Rx implementation.
But as you might suspect those things began to wind down this year as well. So year over year it's not as big of an impact as you might think. In terms of things that are ongoing, as you could see many of the reform provisions continue on or have been delayed. And our positioning on the exchanges in 2015 and a number of other investments will cause us to continue to invest disproportionately in what I'll characterize as compliance or reform based activities through 2014. And then I would expect those to level off into a more repeatable pattern, if you will, in 2015 and beyond.
So probably about $180,000,000 or so in 2014 in terms of investment in just those items and then probably more of a run rate of somewhere around $80,000,000 on a go forward basis $15,000,000 and beyond.
All right. Thank you, guys. So I'm going to close with some more logistics. This will conclude the formal piece of the day and I thank you for those of you who joined us this morning. For those who would like to spend more time researching healthcare, we have lunch, which is going to be served on the other side of the Innovation Forum.
We have about 45 minutes for lunch and then we are going to have 6 seminar sessions. Those seminars are on your schedule at the bottom and I'll just quickly preview those. Consumer enabled population health refers to one of Larry Renfro's Optum themes engaging the consumer and looks at how population health moves forward to its next generation as you get much higher consumer engagement in that process. Care delivery, Stan Dennis profiled for you on stage and our ambitious look at the care delivery markets and how we can build a significant business taking care of people there. Steve talked about the waves of growth and one of those I believe was on the shores of Brazil and international growth is going to be presented as well.
Public and private exchanges is self explanatory. Accountable Care was mentioned. This is an interesting presentation that looks at both the enablement side from Optum and the contracting and delivery side from the UnitedHealthcare side on the benefits piece. And so that's co presented by the 2 business platforms. And then the patient centered care model for Medicaid dives down into one of the points Gail made where she talked about a program patient centered that could take 500 basis points out of the cost of providing care for the most intensive people in the Medicaid population.
To go to the seminars, those are in the lower level. So if you take the elevator, it's LL is the button that you need. If you take the stairs, there's a wide staircase. You have to go down 2 flights of stairs to get to where the seminar rooms are. There are signs along the way.
The rooms are clearly marked with signs. We've got people and so it should be fairly easy for you to find. So thank you for your time and I hope you enjoy your lunch.