Good morning. My partner Brett Manderfeld is out here. It remains Brett and my privilege to represent UnitedHealth Group to you. Thank you for spending time coming here to spend the morning with us and perhaps more. Welcome to our investor conference.
I'm going to begin with a little of the necessary business. As you would imagine, we do intend to make some forward looking statements today. The results the actual results may differ. They may differ materially and we describe the risk factors associated with those forward looking projections regularly including in our filings with the SEC as well as in your investor book. The information is also for those of you who are listening online available on the website on the Investor page of unitedhealthgroup.com.
We have very little non GAAP. We're not big proponents of non GAAP, but there are some disclosures relative to debt service and by definition those are non GAAP. And so those are provided for you. They are in the other information page of this investor book. And the most useful thing about that is it allows me to mention the book.
There are updated answers here from our businesses. They have addressed about 100 questions, which should be of interest, may be of interest. And there are some descriptions of the business platforms UnitedHealthcare and Optum that have truly been reworked and give you a good sense of where those businesses are going. So I would invite you to spend some time with that at your leisure. With that, we are going to move to providing some context for the day and some context for our company and overall position in the health system.
And to do that I invite our President and Chief Executive Officer, Stephen Hemsley.
Thank you, John.
Good morning. Thank you for joining us this morning. We hope to make this a rewarding day for you. I'll begin with a few brief remarks around some long standing traits of UnitedHealth Group that really enable us to offer But my colleagues will really carry this day and focusing on our progress to date and our outlook for the coming year at Optum with Larry Renfro UnitedHealthcare with Gail Boudreaux and UnitedHealth Group with Dave Wittmann. And we will mix in some examples of our innovation efforts and conduct a separate UnitedHealthcare and Optum Q and A sessions to make this more of a discussion with you, keep it livelier and engage your direct participation.
And then this afternoon, we'll offer 7 seminars on key topics of the day and which really are not to be missed. They're really quite good and very deep. So as we begin, let me touch on 8 basic traits we believe make UnitedHealth Group distinctive and consistently valuable to the people we serve, to the health system as a whole and to our shareholders for the long term. You should actually find them familiar. We talk about them and refine them with you in one form or another every year.
They're characteristics that have cultivate that we've cultivated for many years and adaptability is a key concept that runs through these traits. Healthcare in our experience evolved through periods of stability and steady expansion, punctuated over time by periods of accelerated change, surges if you will, with greater growth and opportunity often lined in the aftermath of these surge periods. That's why our first important trait is a long standing adaptable business model built on core competencies. This model is engaged in everything we do, how we organize and focus our efforts around markets, how we allocate and invest capital, how we establish focus and hold to performance accountabilities. It leverages 3 sustaining core competencies.
1, clinical care insights, knowledge and experience in how health care can best be organized to serve specific local market needs and realities. 2, information unique skills and capabilities on how to collect, manage, analyze and deploy data to be translated into usable, actionable information to educate and inform participants across the system consumers, care providers, benefit sponsors for better decision making and better use of health care resources. And 3, technology to enable the system, modernize it, connect it, inform it, make it more consistent and productive for everyone from a single individual on a mobile application to the operations of the largest healthcare databases in the world. Today, we deploy our competencies through 2 principal platforms UnitedHealthcare, serving all the health benefit markets and Optum serving the health care system itself. Our operating business units fold in under these two platforms to serve specific addressable external markets like Medicare for UnitedHealthcare or the HIT Markets for Optum.
This business model is highly adaptable to market changes. It's built to serve regulated markets more through UnitedHealthcare and less regulated markets more through Optum. It's built to engage and serve locally, but to scale and support nationally and beyond. We are already well deployed in key addressable markets and a leader in almost every market we serve. We continue to simplify and refine this model.
It evolves and adapts, never static, never finished. We build our brands, market profiles and reputation around this model, where we've made some very positive advances in the last few years. UnitedHealthcare today is a considerably stronger brand both to consumers and the thought leaders in healthcare. And Optum is emerging as the services brand for the health system, a fresh new brand representing a uniquely informed, enabling and modernizing force in healthcare. The key emotional underpinning of any great brand is trust.
And for us the very non emotional building blocks of that trust, the only way to earn it is not in these taglines, but in hard performance realities, executional reliability and excellence innovation that actually works for the benefit of the consumer and care provider truly being the trusted information resource to consumers and physicians, emerging as a simplified enabler of a modern and efficient health care system, delivering more for less, better health care at lower cost. Part of earning trust also lies in the character of a company and its people. And over the last couple of years, we focused a great deal of energy on consciously developing a culture enterprise wide, building an institutional character, if you will, that we call our united culture. It is basic trait number 2. Our United culture is built on a simple system of beliefs, values and behaviors to keep our enterprise focused on the right goals.
This culture helps us understand on a day to day basis that our work serves vital social needs. It's highly public in socially sensitive areas, areas that must be served with respect and compassion. We understand that we work with everyone across health care and have to make it work for everyone, so relationships count. We know we serve governments on their terms respecting their unique needs that we must be agents of positive change productive innovators if you will who consistently deliver measurable value and that we must execute meet the commitments we make and that above all we serve people and families in one of the most sensitive aspects of their lives. And only with the right cultural compass and socially sensitive businesses such as ours will we ultimately achieve our full performance potential.
Basic trick number 3 is understanding and cultivating the vital role we play in advancing the health care system. We organize, connect, inform and support care delivery at the local community level and through national centers of excellence. We engage, educate and enable consumers to learn healthy behaviors to more effectively understand and use the health care resources within their local communities and to provide for and finance their health care needs through all stages and circumstances of their lives. We large scale clinical programs that can shape health care behaviors, outcomes and costs for millions of individuals. We enable all health benefit sponsors, both commercial and governmental, to provide quality health care in an impossibly complex world with an incredibly flexible configuration of benefits so they can achieve their goals or mandates as efficiently and frictionless as possible while helping provide greater access to better care.
No one is more dedicated to modernizing the health care system than Optum and UnitedHealthcare. We deliver more for less. More and better health care at lower cost to consumers on behalf of employers as the importance of quality health care access and affordability grows, so does our role in our business. The market rules change regularly, but the core role we play only seems to expand and deepen. The United Business Model and the United Culture align to the essential role we play in health care.
All the elements of health care reform can come through us and through us they can be applied at scale across the spectrum of health care. And so our 4th basic trait involves the conscious translation of market change into opportunity and growth through execution. Let me recount just the larger current opportunities on the list. Health exchanges are designed to bring subsidized health benefits to 15,000,000 to 18,000,000 more Americans starting in 2014. Medicaid expansions are designed to enlarge the universe of Medicaid beneficiaries by 10,000,000 to 17,000,000 people in the next few years.
Medicare's baby boom era officially began in 2011. And so for the next several years, we'll see some 3000000 to 4000000 more Americans access Medicare benefits each year with more clearly choosing Medicare Advantage or Medicare with supplemental benefits than traditional Medicare. The Medicare Advantage market share has grown to 27% over the last decade and the current administration predicts the private sector share of Medicare will exceed well over 40% over the next decade. Dual eligible MME initiatives are designed to bring more effective coordination of care to some 9,000,000 Americans who are in great need and whose health care resources are very poorly managed today. It's really through no fault of their own.
It's simply because they're caught between 2 well intentioned, but disconnected government sponsored programs. The health benefits marketplace continues to consolidate. More than 11,000,000 people or roughly 8% of private sector beneficiaries were affected by industry mergers in just the last 2 years. Forces for payment reform are stronger today than at any other time with a mandate to pay for improved health care outcomes over purely services rendered. This has set off an unprecedented level of investments, partnerships, alliances, pilots, demonstrations that will cause dramatic downstream change in Care Delivery.
Changes that enterprises like Optum will help design, support and serve. And as you'll see in Gail Boudreaux's comments today over the next 5 years UnitedHealthcare will lead the way in driving this fundamental payment reform. We can go further, but you've heard them all. Growth is not the challenge. The opportunities abound.
The mission is to deliver thoughtful execution to serve these markets, to participate in each developing opportunity and to grow profitably in the process. And as you'll see today, we're consciously engaging and leveraging powerful undercurrents of change that will reshape the health care markets over time, especially around consumers. Health care is clearly beginning to recognize that consumers are substantially more invested economically in their benefits and thus are becoming more invested intellectually in understanding their health care options. They're taking on a much greater role in health care decision making, which means need real and better information. And that information is delivered to them by us and through us on mobile device applications paired to consumerized benefit programs and designs that are built around consumer engagement.
And technology is the enabler of it all. Big technology to muscle big data and translate it down to digestible, actionable technology at the individual smartphone level or for the physician and hospitals at the tablets of each bedside in the ER, in the surgical theater and in the hands of administrators. These are all key Optum capabilities. Health care providers want to need the same data we see and that the consumer sees. And if they're going to get paid commensurate the value they provide more of their payments will be based on what the numbers say they achieve from a performance perspective in the eyes of the consumer and the benefit sponsor.
To do that, we are beginning to discuss and agree on the 1st generation of common data standards and the downstream measures of performance and compliance. And it should be no surprise that performance seems to improve the closer we collaborate and integrate across healthcare from the benefit demand side to the delivery supply side. These integration forces are in the early stages as well, which means there's enormous upside potential. These undercurrents of change are real and they align perfectly to our competencies and our business model and they're fueling our growth. Thus, writing these undercurrents of change is my fit basic trait.
And number 6 is our determination to become the best stewards of capital for sustaining growth and shareholder return. We're very deliberate around our capital disciplines. Every year we invest to improve our core capabilities to strengthen our competitive value year after year. Today we have established and invested platforms in UnitedHealthcare and Optum. We can scale efficiently from here on very reasonable and self generating capital reinvestment levels.
In fact, we are significant capital generators and you'll hear from Dave Witton. We have the capacity to continue to methodically invest in strategic capabilities in markets where we have a direct line of sight for growth that is strategically aligned, sustainable and accretive to earnings, to cash flows and to capital returns. And Emile would be a prime example of this. We have the capital generating capacity that allows us to grow and sustain cash dividends to market payout levels. We have the capacity to sustain and grow share buybacks to better leverage our capital base and drive improved returns to shareholders.
All this while maintaining the lowest level of debt leverage among the large health benefits and health services companies. We can remain flexible and take full advantage as fresh opportunities emerge. So fundamental execution is basic trait number 7. Having all the key elements in place isn't enough. Consistent fundamental execution is what it takes to tie them together and to succeed.
We're already well positioned and positively deployed in all key markets with real experience and capabilities in the key areas of market breeding the next generation of leaders for our enterprise. We maintain an exceptionally strong financial position. We have no integration distractions. Our recent international expansion represents an intellectual integration, not one that involves the complexities and disruptions of systems and process rationalizations at the market level. All our key capabilities are in sourced and controlled and those activities we have chosen to offshore are established, owned, scaled, diversified and controlled.
We can focus solely on next generation and higher level execution And we're driving this next generation execution through programs, disciplines and performance measures and we call them the new basics and 1 Optum. Holding a broad and long term perspective is our final key trait for this morning, particularly in a healthcare environment so clearly interdependent and yet so fragmented and vulnerable to short term tactics, stop gaps, narratives. We endeavor to think long and break our actions into sequence steps throughout the longer broader path to our goals. The best way to illustrate our long view might be by looking backwards. In the year 2000 time frame, a series of threats and uncertainties plagued Managed Care.
The economy was dealing with a broken technology bubble. The balanced budget amendment was targeted at the heart of private sector Medicare. And the plaintiff's bar fresh and well funded from its victory over tobacco had unleashed an industry wide class action litigation joined by the AMA, which was just drafting on an already well established and growing backlash on managed care. For the year 2000, our revenues were $22,000,000,000 Our earnings were $900,000,000 Cash flows were about 1,500,000,000
dollars Earnings per share
$0.41 No dividends to speak of. We served 14,000,000 people in commercial markets, 400,000 in Medicare and 500,000 in Medicaid. In that aftermath, government participation in Intervention increased significantly and the markets consolidated. Commercial insured benefits contracted overall as did their margins as self funded benefits grew. Managed care penetration in Medicare was roughly 17% in 2,000 and Medicaid was roughly 55%.
And Medicare Advantage for those who still offered it was beginning of 5% market share contraction caused by the balanced budget amendment. So what happened for UnitedHealth Group in the meantime? We diversified along natural market adjacencies. We participated in that market consolidation. We committed to better and more consistent execution, invested and reinvested in our core competencies of clinical care, information and technology.
We managed our capital in a balanced way and increased our dividend, methodically repurchased common shares and we endeavor to make strategic investments to build and diversify our businesses at rational values. 12 years later, UnitedHealth Group in 2012 will report revenues of roughly $110,000,000,000 earnings of $9,200,000,000 cash flows of $7,000,000,000 per share earnings in a range of $5.20 to $5.25 per share a dividend payout ratio today of roughly 15%. And we serve more than 40,000,000 people in comprehensive medical benefits over 80,000,000 individuals overall. That's a compound annual earnings per share growth rate of more than 20% over that period. And since the start of 2,001 shares of UnitedHealth Group have more than quadrupled in value.
So what do we see today? The prolonged effects of a 2,008 financial sector meltdown a prolonged global and domestic stagnation in economic growth and employment A far reaching 2010 health care reform law about to be implemented. And what is this aftermath period looking like? Well, government participation in Intervention will once more increase significantly. End markets are still consolidating.
Commercial insured benefits and margins continue to contract and self funded benefit versions continue to grow. But exchanges will add millions more consumers to coverage. Medicare and Medicaid will continue to grow at accelerated rates adding millions including duals, a new category. The private sector remains as the only vehicle for health care provision and management serving this country. What could that look like for UnitedHealth Group in 7 or 10 years?
Well, from this distance one could only guess, but my guess would put revenues approaching $250,000,000,000 with margins and cash flow productivity no less than what we are seeing today, given what would be our what we would project as our diverse mix of business to be over that period. Per share earnings in the 13% to 16% long term growth zone. Return on equity steadily near 20%. Total capital payout in the 60% to 70% zone was solid market level dividend payout rates. So if you think we're tapping out as many did in the 2000 time frame, as we faced adversity in that era, I might look again because this decade's menu of adversity looks much more appealing to me than last decade did.
And we are in a much better position in more ways than I can describe and much hungrier and hopefully smarter than we were in 2000. And the generation of leaders emerging from within this enterprise today is smarter, more experienced and better prepared. You'll be hearing and mixing with many of them throughout the day. So what you'll see as this morning program progresses will be the alignment of these traits within our enterprise and how they translate into consistent execution, superior value to the markets we serve, constantly improving performance and growth through both UnitedHealthcare and Optum. You'll see the manifestation of these traits in action in the demonstrations and seminars of the day.
And perhaps most significantly, you'll see the restless vibe of this enterprise as we stand on the threshold of another surge period, an opportunity for us to execute, to perform, engage our markets, profitably grow and provide distinctive capital returns to you for years to come. So thank you very much. And now it's my privilege to introduce you to 3 of my colleagues and our company leaders Doctor. Dick Migliore, Mike Matteo and Doctor. John Wilson.
They're going to offer some color on what I'll call trait number 5 how we use information to improve health care. Thank you.
Good morning, everybody. For those of you I haven't met, I'm Dick Nigliore and I'm joined by Mike Mateo and Doctor. John Wilson. And our job this morning as Steve has said is to help describe for you how we leverage our core competencies in data and technology to solve the needs of people who are an integral part of the health system, but in doing so show you how we can lead to better outcomes at lower costs by driving better performance out of that health system. As we look more detail at that health system, we at UnitedHealth Group have the privilege of serving a very large number of people who perform very different roles within the health system.
And though their jobs are very different, so too are their goals, their initiatives and their expectations of us. For our health plan sponsors, They want their people to be at the healthiest possible state, so that they are engaged and productive members of their workforce. They want to have a health system that operates in a cohesive and well coordinated manner. Most importantly, they want to have protection against health care cost trends brought about by increasing prevalence of chronic disease and other health cost related issues. Our consumers want to be healthier people and they want ways in which they can maintain that health.
They want to be able to have very simplified and hassle free access to the health system and from time to time help in navigating their way through it. They also want to have deeper and more credible information about transparency of quality and efficiency given the fact that they now bear more personal responsibility for financing health care. For our physicians and other allied care providers, they're looking for an opportunity to keep their patients healthy. They want access to information about their practice even beyond the walls of their health care setting. They're also looking for ways which they can preserve and even enhance their reputation and their financial viability as professionals.
What the 3 of us are going to do is to show how we leverage our technology assets to solve all of their needs. I'm going to take the role of showing what we do for the consumer. Doctor. Wilson is going to take the role of showing this and our capabilities through the lens of a physician and Mike's going to take the responsibilities of showing you how this operates on behalf of our plan sponsors. Our ability to be successful and our success comes from the fact that we have very deep and high quality data assets.
When you start thinking about having that many patients interacting with that many physicians in a health system, they throw an enormous amount of data. And as you can see from those statistics, it's our ability to manage those transactions that has allowed us to compile data into these sizable and fast warehouses, which represent the largest proprietary database of healthcare knowledge in the world. But what really makes UnitedHealthcare special is the way in which we leverage those knowledge assets on behalf of people in each of these groups. We now we leverage it as a single source of truth and we use it in a very disciplined manner, so that we methodically apply it in 3 applications that are strategically sequenced 1 after the other. First and foremost, we apply analytics to provide each of these groups with insights, insights about their current state, insights about their future risk and insights about what they can do about improving performance and reducing those risks.
The second thing we do is to use our technology to create for each of them enabling tools so that they can take action as informed and guided by those previous insights, doing things on a practical basis that improve their level of performance. Then we can add on the final layer, the ability to bring in reinforcing incentives. So that way we can keep each of these parties engaged in doing those actions as informed by those insights. So let's get into some specifics. And use as our first example, our ability to apply analytics to generate insights on behalf of our planned sponsors.
Mike?
Thanks Dick. Without exception, all plan sponsors want to know and have information about what's driving their health care cost trends. You'll see from an example here, the health plan manager is a tool used by UnitedHealth Group to help plan sponsors not just understand the data, but create strategies. It's pretty simple. We take many pieces of data and we boil it down to something that's simple.
The larger the boxes, the higher the per capita spend. NVue's heat mapping that shows the intensity of the color, which shows year over year changes. In this real life example from UnitedHealthcare customer, you can see here that diabetes not only has a substantially sized box, but in addition to that has a greater intensity for year over year changes. But I'd submit to you and say just telling a plan sponsor working with them and telling they have diabetes is an issue is somewhat like telling a patient that they have diabetes. It's useful information, but without strategies to really understand what's causing it or what to do about it, it's only part of the story.
What the health plan manager allows us to do with customers is to drill down and understand 57 different decision points that are made across their population. The example we have here around diabetes allows them to understand are the primary care visits being taken? What's the hemoglobin A1C levels? What's the diabetic retinal exams? And they can compare these to different populations.
So now that you know what key decisions are being made or in fact suboptimal, then you ask the question, is this occurring across my entire population for say a multi site employer? And you'll see that we can drill down on what geographic areas that this is happening in. What this allows for is a customized plan to help the plan sponsor attack a disease like diabetes. I encourage you to see this unique tool of the innovation experience shortly after this. But being a plan sponsor and just setting up this construct to help people, you've got to go one step further.
You've got to make it actionable and you've got to put tools and information in the hands of the consumers. And Vic will show us a little bit about that.
Thanks Mike. To bring our ability to apply analytics down to the level of the consumer, we really have to be able to look at every consumer, but to be able to drill down our analysis down to the individual. Let me introduce you to Arthur Johnson. What we know of Arthur Johnson comes from our ability to amass every piece of data we have about him within our system. His medical claims, his pharmacy claims, his laboratory claims and results and even recently the fact that his employer provided on-site biometric testing.
Our analytics allow us to recognize what conditions Arthur has. Likewise, it allows us to understand how he's been treated. If you look at that, we've essentially built a lightweight healthcare record on Arthur's behalf. But what our analytics further do is to allow us to examine the quality of the way in which those diseases have been treated. Have the treatments been sufficient?
Are there things in here that are inappropriate? Are there things here that are being immediate alert? For instance, gaps in care. Arthur hasn't been receiving his HbA1c testing or his eye exams, which are very important for his diabetes. He may be getting inappropriate imaging done for his pneumonia.
There's issues around his medication compliance and adherence. There are issues about the combination of medications that he's on and there may be monitoring issues that are coming along showing he's not making progress. Certainly, there may be issues about even the physician he has chosen. But by being able to take Arthur's record and to be able to look systematically at the quality of the care that's been rendered for each and every condition, we're able to provide for Arthur this personal treatment plan. What this plan does is provide Arthur and maybe Arthur's nurse with the listing of every action that Arthur should be focused on as he chooses his physician, as he applies his medications, as he follows a plan of care, even as he changes his lifestyle.
But what's important, it is that this information is granular and it's been rated so that we know which is the highest priority. More importantly, to get to Arthur, we realized that we have to publish these findings through a variety of different channels. Since Arthur is a high risk patient, he's going to be getting calls from our outbound nurses that go to the top 4% of our population. It also has mail, online portals and most recently the use of mobile applications to get the same insights into his hands. It's very powerful all at once and gives to him in the way in which he prefers.
Just as important though as this is for Arthur, this kind of information is also important for his physician. And to show you what that looks like, let me turn to John.
So as a physician moving into a world of fee for value from a world of fee for service, I now have to consider things which I previously never had to think about. I have to understand which patients in the population that I'm now managing are at high risk. Have to understand what conditions those patients have. I have to understand who's managing my patients across the care continuum. I want to make sure I get my bonus.
I want to make sure my incentives are aligned. I want to make sure I give good quality care.
And I want
to make sure my patients are engaged in their own care outside of my own four walls, so they can better take care of themselves when they're not seeing me. One of the new applications at Optum is called Optum Care Suite. It pulls data from claims, clinical and patient reported sources. It takes that those data sources, it runs them through Optum's cloud, It processes that data using Optum's analytics and makes that data into actionable information. Now there are 3 modules to CareSuite.
The population module gives me as a physician insights into my population that I'm now responsible for. The Care Coordination module gives me insights at the individual patient level. And the Reporting module me how I'm doing on my value based contract. In short, it gives me insights that historically I've never had. But let me try and bring that to life for you.
This just looks like a list of patients. It's what we call a registry. A registry is simply a list of patients that share a common attribute. All of these patients have diabetes. Now you may say, well look, there's nothing really remarkable about that.
It's just a list of patients that have got diabetes. Well, let me tell you what's special about this list. 2 things. The first is, we've built this list from both claims and clinical data. The clinical data comes out of my EMR, but it's only going to be telling me patients
it's going to be telling
me about patients that I've seen. It's going to be telling me about patients that my practice has seen. It's not going to be telling me about patients that I haven't seen. And it's the patients that I haven't seen that I worry most about. The patients that I haven't seen maybe in other parts of the system.
And the payer, the plan sponsor will be seeing those patients through the claims that they generate. So the ability for me to see those claims, to bring that claims data together with my clinical data means my population, my list here is much more comprehensive. And clearly the first thing to do as a physician if I'm now managing a population is to make sure my list of patients is comprehensive. And the second thing we've done is we've applied our analytics to this. We've listed and ranked these patients by the risk of admission into hospital in the next 90 days.
Why is that important? Well, it's all very well having a population, but I need to know where I want to focus my attention. The ability for me to say, hey, these patients are high risk. I need to get ahead of the curve. These patients are high risk of admission into hospital.
If I can proactively intervene, maybe I can avoid that admission, maybe I can avoid that cost, maybe I can improve patient care. So now we've flipped. We've taken Arthur Johnson and we're moving specifically into a view of Arthur who historically I've never had. Let's drill into this for a moment. Let's look at these encounters.
Look at this. So one of the things that's frustrating as a physician is your patients go to hospital, they go to the emergency room, they get discharged and you may never know about it. A recent study showed that only 23% of physicians ever receive all the discharge letters or the emergency room letters for all of their patients? It's not very many. So as a physician now taking risk, I worry about the patients and how they're using the system, because I'm now directly accountable for it.
With CareSuite, we can now see this information. We can see this information from the claims data we've got. So here we've got information about Arthur. We can see Arthur's recent admissions into the emergency room, his recent use of urgent care. We would never see that data if it wasn't for the fact we brought the clinical data and the claims data together.
It gives us better insight into how Arthur is using the system. But most excitingly, we've applied our analytics to give us insights in a way that historically we've never had. We've applied our analytics to say look to my earlier point, ARC is at a 21% risk of being admitted into hospital in the next few months. But also uniquely, we've applied our financial predictive models and said look Arthur's cost risk over the next 12 months is double that of a normal patient. So it's the ability to take this claims data, this clinical data, build a holistic view of my population, find patients I've never seen before, identify those patients, risk those patients and view an insight into those patients with their risk scores that gives me a call to action that says look I really need to go and treat Arthur proactively.
One of the things that's most exciting about Optum UnitedHealthcare is our analytics. And we've talked about that from a plan sponsor perspective, from a consumer perspective and from a provider perspective. Let's now look at some of the enabling tools about how we bring those analytics to life for those various entities inside the system.
Let's start off with the consumer and providing enabling tools to help the consumer now take action against insights that have come from our analytics. This is a platform that we have built called Optimize Me 2.0. It is a free application that goes on smartphones that automatically links the user with their eSync output, those personalized health messages about things that they can do to make healthcare better. But it also is a platform for the patient to be able to reach out to their nurse and to be able to have an ongoing exchange about that content. It also has been enabled with game gamification if you will, an ability to use social networking to get encouragement as the individual is addressing his healthcare issues from other friends and colleagues who may be going through the same thing.
And finally, to make it convenient, it has an ability to link up with other activity monitors so that you can automatically keep track of progress to a goal. The interesting thing is OptimizeMe 2.0 like other capabilities that we've given the consumer work because the messages are clear, because the data and content is easy to access And most importantly, it's available when people are trying to solve important problems on their perspective. Another case in point is when we use the following tool, Help for Me. This is a tool used exclusively for UnitedHealthcare beneficiaries to help them solve problems when they are accessing healthcare within the system. Using GPS localization, this smart phone application platform allows them to be able to find healthcare, whether it's an urgent care center, an emergency room or physician practices organized by specialty.
When it conducts the searches, it presents the results ordered by quality and efficiency ratings. It also provides with the contact information for finger touch dialing as well as Google mapping so that they can have directions. When the client shows up at the physician's office, it also presents an electronic ID card simplifying that administrative task, but it also provides the consumer with additional information including the benefit design, how much the deductible they may have as a residual, what the components of care are, as well as very recently the ability to look at a provider and procedure specific level estimates of our comparative cost. And Gail Boudreaux is going to get into that later on today and I invite you to take a look at this thing later on in the innovation experience. But both of these tools are ideal for the consumer because what they provide for them is an opportunity to solve problems right out of their pocket with our powerful content along their side.
But these kinds of enabling tools are also important for the physician in practice. And for that, let me turn things over to John.
So increasingly as a physician, I'm getting judged ranked on the quality of care that I deliver. But I'll share a story with you. It's tremendously frustrating, because whilst I may be judged and ranked on the quality of care that I deliver, I don't know which patients I'm being judged and ranked on. I don't know which patients have a gap in care. Let me share an analogy with you.
It's a little bit like the feeling where you go into an exam room and you sit down at the exam and you're nervous and you look you open the exam paper and you've got a list of answers and you've got a list of questions. You've got a list of answers and you've got a list of questions and you know you're going to get judged on this exam, but all the questions have got blanked out. You don't know what the questions are, but you've got to make up the answers. In a similar way, we don't know what the questions are for which patients have got gaps in care, which patients am I getting judged on, how do I improve the quality of care that I'm going to give to my patients, but how can I improve the quality of that care if I don't know which patients need my help? View360 is a tool that we provide to over 700,000 physicians.
It tells them what the questions are. It tells them what patients they need to see and it tells them what gaps in care those patients have. It tells them for example, this patient needs a colorectal screen, a piece of information I may not normally have. But what's unique about this tool, what's very special about this tool is that we use the same data in View 360 that we use in eSync that Doctor. Migliore talked about.
Why is that important? Because we know that when the physician and the patients have the same information about the same gap, our outcomes improved by over 20%.
I think that Doctor. Wilson and Doctor. Migliaro are some great examples of how we help enable the physician, how we enable the consumer. But plan sponsors also want fully integrated and competent programs. One of those is referred to as our Diabetes Prevention and Control Alliance that we spoke with you about before.
Before I go into the details of the program and some of its results, you have to ask the question, is it important to a plan sponsor? And just some statistics. If you're a plan sponsor sitting there and deciding what to do with your plan, you realize that over 45% of your population has either diabetes or pre diabetes. The other important fact to know is that those who have prediabetes which is an elevated blood sugar level 1 in 10 of those or 10% will convert from prediabetes to diabetes. There's also a human loss and a human toll that diabetics lose about 10 years to 15 years of your life.
So there's a health imperative here. You'll see from the next slide of the plan sponsor, there's also a cost imperative. The average cost of someone without diabetes in your population is about $4,400 per year. Someone with diabetes that's diagnosed and has it in control is about 11,000 almost 12,000 and a person with diabetes that has complications rises to about 20,000. So there's certainly an imperative here for plan sponsors.
The good news is the Diabetes Prevention and Control Alliance is a program that can help address this and attack it. Starting at the bottom of the slide, we take a look at the Control Program. It's a unique program that works with retail in store pharmacists to manage the disease. It's these in store pharmacists that are extending the health care system and helping to counsel patients, monitor the progression of the disease and probably most importantly adherence to solid medication practices has proved to be a very effective program. On the top of the slide, what about those who are pre diabetic?
What about the diabetes prevention program? A statistic to note here is that weight loss in the area as little as 5% to 7% can decrease the risk of moving into full diabetes by almost 58%, a reduction of almost 58% by moderate weight loss. So the program here that we've created we've talked about before along with the YMCA is to have a CDC endorsed weight loss and exercise control program and using community providers like the YMCA. The important part here which we've enabled across the system is we found a way to pay the YMCA on an outcome basis and make it very easy for a large employer or a plan sponsor. We pay them when they've worked in sessions and achieve the weight loss goals in those 5% areas.
Well, we've taken this program and we've expanded it to over 73 markets nationally. So there's great scale right now. In addition, the question is, are people using it? And they are. There's a dependable use of the program with people attending about 13 out of the 16 sessions.
And the next question are they losing weight? The answer is yes. They're achieving that magic number of over 5% weight loss and staying engaged in the programs. This is just a great example of how a program can work at scale, deliver to a plan sponsor that they can put in to help their population to not only increase the health of the population, the satisfaction of the population, but help them decrease costs throughout the process. So we've seen a little bit here around how analytics work.
We've talked about enabling tools, but that doesn't go far enough. What has to happen is we need reinforcing incentives that align the plan sponsors, the consumers and the care providers. And we'll discuss that with you a little bit right now.
Our reinforcing strategies for providers are effectively conveyed in our payment reform approaches. Now I urge you to spend time with Doctor. Sam Ho and Austin Pittman in their seminar this afternoon to learn a little bit more about this. In summary, we have a range of payment reform approaches to best align risk and opportunity with the provider's ability to be mature and to take that risk. This is also conveyed in our technology.
And one of the things we're excited about that will be coming in 2013 inside CareSuite will be the ability for us to show an individual physician how they're doing on the pay performance contract. We're taking those quality measures and we're turning them into financial tangible information for that physician to see in one holistic dashboard, really reinforcing the physician's engagement providers' engagement with the system.
Doctor. Wilson just suggested here financial incentives are very important and also important for plan sponsors. There are many programs out there that are labeled incentives and they've grown rapidly to actually over 3,500,000 people enrolled in some type of incentive program. While they vary by employer or payer, you can see they have core elements. 1 is biometric testing and you can see a little bit about that at the Innovation Experience.
If people have suboptimal outcomes, there is wellness and lifestyle programs. That's all wrapped up with financial incentives and integrated sequence and campaigns. Let's take an example. Let's take an example that I think is dear and dear to some people in this room and it's UnitedHealth Group and our own employee health care plan. We started a few years ago and we have everybody going through biometrics.
We've had our blood pressure taken, our blood sugar levels and we had our body mass index taken. Some of us were found to be more massive than others, right? But there are programs in place. The question is, is it working? And we've built multiple year successes around this.
71% of the people have earned points in some way shape or form. Over 7,000 diabetics identified in the population. 30% increase in primary care visits and people understanding what their health status is. And of course better outcomes that's a 10% reduction in heart attacks. I think you guys call those acute myocardial infarctions, sorry, Doctors?
All right. All right. But what we're doing is we're moving from an entitlement culture to an engagement culture. People really beginning to understand their health care and taking a very active role in it. But as Dick introduced in the beginning, one of the most important things for a planned sponsor is a healthy workforce and controlling health care trends.
While there's a lot of numbers on this slide, the thing to recognize is that with a program like this and without changing cost sharing at UnitedHealth Group, we've been able to have a trend at a level that's almost half the industry levels and in 2011 basically flat and achieving fantastic results of greater health, the right care at the right time for folks. So we'll get someone working on that right now. So as we pull that back up there, we make sure we have all our healthy employees back there helping us out right now. But it's a program called Rewards for Health and it's available to multiple plan sponsors all over the place and in driving trend. Dick, how does this affect the consumers and our own employees?
Well, if we thought that these types of incentive programs were important to the payers, they are more profoundly important to the consumers. Let's take Mike's example of UnitedHealth Group's own employees. What we're seeing here are 7 core measures of healthcare standards of quality. What's represented here is in the gray bar is our baseline year of performance. The orange bar shows our national book of business.
The green bar shows the 1st year of UnitedHealth Group's employees incentive wellness plan and the blue bar is the 2nd year of that plan. We have never seen engagement like this until we had these incentive programs. In fact, let me take call your attention to colorectal cancer screening in the middle. We are currently for colorectal cancer screening at 57%. That is 3 times our baseline performance in terms of having people get this important test.
It is almost 4 times what we are seeing in our general book of business. Our success here comes from the fact that what we are asking people to do is scientifically justified that we've effectively communicated the requirements for the incentives and that most importantly, we've been building a continuous and ongoing communication campaign that has helped us to recognize and build on a culture of wellness. John, Mike and I have enjoyed this opportunity to share with you with just a sampling of the examples we have in helping plan sponsors, consumers and providers of care take advantage of our assets to solve their problems. The basics of our program are pretty simple. Our recipe is to provide people with analytics to give them insights about their risks.
2nd is to give them enabling tools to address those insights. And finally, to layer on top of that, reinforces that help them sustain engagement in those capabilities. What it's done as Mike has shown you is to increase quality, to decrease cost, while helping UnitedHealth Group to have another platform for sustainable and profitable growth. But that's enough talk. It's time for you to be able to get to see and to touch these capabilities yourself.
And help you do that, I'm going to ask my dear friend and colleague, John Penshorn to come up and show you how to do that. John?
Thank you, Dick, John and Mike. I always count on Mike to bring down the house. I never seen him do it quite like that before. So a couple of years ago, we started thinking about how can we make the things that we talk about more real? How do we get our products and services easily relatable and understood?
How can we get your hands on them? And we came out and started doing an expo. We did an expo for a couple of years, but an expo is something that you observe. And so this year we wanted to try something different. You heard them refer to an innovation experience.
And the idea is to go one step further from observing to experiential. And so what we've done is surveyed about 3 dozen of business leaders in the back here And they are specialized in 3 areas, the 3 areas that were just spoken about: the care providers, the plan sponsors and consumers. And we've set up applications in these three areas, a rate like that and we've got self guided demonstrations. So instead of us talking at you, you can work through it at your pace. You can go where you're interested in from application to application.
You can go backwards and forwards however you want to engage with business story that we're going to talk about when we come back about business strategies and financial performance outlooks from our business platforms. I'd like to talk about the logistics of how we're going to do this. We're going to spend about an hour of time and we're actually going to use iPads. There are color coded iPads. This is a care provider iPad and you see the care provider applications listed here.
So one third of the space there dedicated to care providers. We've come up with a very sophisticated coding technique. The orange circle means it's an Optum application and the blue circle means it's the UnitedHealthcare application. We'd like to divide the group. There's not going to be a formal timed rotation, but we'd like people who have a last name between A and G to start in the care provider space.
If your last name begins between an H and an M, please start with plan sponsors and then end through the rest of Alphabet on the consumer side. The innovation experience will also be open over lunch. So if you feel like there's more that you want to get to, you will have that opportunity to do so. When you've finished with the color coded iPad, put it back in the rack in that section, move to the next section and get a new color coded iPad for that. By moving through the room that way, you'll be able to engage with our business leaders who are expert in one of the three areas.
As I mentioned, we'll come back in a little bit over an hour and they'll give you loudspeaker cues as well. We'll start promptly with Larry Renfro and Optum. Thank you. Thank you all. I hope you enjoyed your time at the Innovation Experience, something different.
We're going to come back up in altitude from the types of products and services that we deliver in the marketplace that help drive the business to more of a review of the businesses themselves. We're going to talk through our business platforms and their strategies and financial outlooks. The first will be Larry Renfro, who is the Chief Executive Officer of Optum. And as a start of Larry's presentation, we're going to take a look at a short video that helps provide some context for Optum overall as a business.
They thought all of our transplant was my only hope. But then all these people worked together, like statisticians and systems engineers and epidemiologists and data analysts. Make the system work better. The people of Optum, they're good for the system.
I hope you agree with me that is extremely powerful. Good morning. I'm Larry Renfro and I am pleased to be with you today. That story should give you a sense of how seriously we take to the work we do. And the passion our people bring to it and why I'm honored to be the CEO of Optum.
1 year ago at this conference, I introduced you to Optum. I talked about the 8 markets sized at more than $500,000,000,000 where our capabilities allow us to build and extend a strong competitive advantage. I described our commitment to deepen relationships with customers, helping them to solve their biggest problems with solutions that anticipate and meet their needs. I talked about our focus on simplification and fundamental execution and our goal of delivering 15% return on invested capital by 2015. That means doubling operating earnings from our base year 2011 and delivering an operating margin of over 6%.
I also said our performance in 2012 should give you confidence in our ability to meet these goals as we build the infrastructure for long term growth as we become one Optum. It has been a busy year and I am here to tell you that we are on track to achieve or exceed the high end of the plan we laid out for you a year ago. The people of Optum have delivered. Our plan is unchanged. We remain focused on our 8 markets.
We have organized our capabilities to deliver solutions against the drivers that we believe are shaping the future of health care, aligning care delivery, engaging the consumer and modernizing the system. Today, I would like to spend a little time showing you what we have done this year, starting with the PBM in sourcing, one of our big initiatives for 2012. We made significant investments this year to accomplish this goal and get it done on time, on budget and with the highest quality. This is a story of strong execution. The team has done a tremendous job.
We now have a more robust and scalable operating structure. We have hit our milestones each and every quarter. And we are well prepared for the initial January 1 implementation. While the in sourcing efforts have been significant, we have also had an eye towards organic growth. In fact, we sold nearly 50 new pieces of business that total approximately 1,000,000 new members.
We are well positioned in the marketplace. We have the unique ability to combine the traditional capabilities of OptumRx with Optum's clinical expertise, care management tools and the 3 60 degree consumer view that our unique data and analytics provide. We call this synchronization. The average person's most frequent interaction with the health care system is filling a prescription. OptumRx is often the first touch point.
This interaction gives us the opportunity to engage the consumer earlier with our broader service offerings and capabilities leading to better health outcomes and lower cost. For example, when a member calls to refill a prescription or to ask a general question about pharmacy benefits, we have the opportunity to connect that person to a clinician who can address the immediate question and initiate broader engagement on our members' health and health care. We do this by integrating and analyzing a consumer's medical and pharmacy claims as well as a variety of other data points such as lab results, benefit and preferred drug list information and self reported health information. When our nurses engage with these members, they are prompted with information that complements the clinically focused conversation with money saving tips, such as lower cost alternatives, including So while the PBM in sourcing opportunity does provide a very significant earnings lever over the next couple of years, There is much more to this story than that. It is about building more robust capabilities and an even more scaled and capable infrastructure to facilitate organic growth across Optum.
Over the next several years, growth at OptumRx will come from the UHC commercial business and also from growth in Medicare eligibles, execution in Part D, integrated care models serving duals and continued share gain of national and middle market employer based accounts. We are pleased with the market response we are already experiencing from consultants, brokers and employers. Now let's look at another area of focus for us, how we assist in modernizing the health system infrastructure. As you know, Optum plays a major role in supporting technology, compliance and the administrative process needs of clients across the healthcare industry. Let me give you 3 concrete examples of this work.
1st, Optum helps hospital systems respond to the explosion of activity in Medicare and Medicaid compliance, which significantly impacts the bottom line for hospitals as well as the experience they provide to their patients. Optum's medical necessity compliance business has become the gold standard in the industry in helping hospitals make good admissions decisions, maintain compliance with CMS and avoid audit risk. Optum has over 900 physician advisors on staff, working with 2,300 hospital clients every day to make real time decisions and support documentation for medical necessity. Our projected 2012 case volume of $2,700,000 is an increase of 42%. My second example is the transition to ICD-ten.
Even with the extension of the compliance deadline to 2014, hospitals and physician practices are already under increasing pressure to upgrade legacy technology, implement improved coding processes and improve clinical documentation. Optum helps clients address these notably with our computer assisted coding solutions, which turn clinical documentation into appropriate billing codes. This technology is gaining traction fast. Optum expects to have at least 200 hospital clients in the implementation queue by the end of this year. A final example is Optum Support of State Medicaid Agencies struggling with the massive amounts of data and other information needed to run the programs.
State Medicaid budgets are under pressure to reduce benefit and administrative expenses. Optum's data warehousing, program integrity and analytics solutions help states capture, manage and use their data to streamline administrative expenses, eliminate inaccurate claims and find better ways to manage the health populations, Occam Solutions are in all 50 states. We help effectively manage programs and services that cover 1 of every 3 Medicaid recipients and dollars spent. That's over 18,000,000 people $118,000,000,000 These tangible examples that I've just given you data analytics, process improvement and compliance tools represent just 3 of the emerging growth areas where Optum is uniquely positioned to enable a more modern effective system infrastructure. These are all areas where we offer strong services to the market today and earn good margins.
We are in the early innings with vast opportunity. One last area I would like to highlight is our integrated care delivery business, where we partner with physicians to improve health and outcomes in local communities. It is one of our fastest growing and most promising businesses and we are serving nearly 1,000,000 people. Through strategic partnerships and alliances, we assist physicians in adopting new approaches and technologies that improve collaboration and coordination for everyone involved in patient care. We enable care providers to move from the traditional fee for service model to performance based delivery that puts patients' health and outcomes first.
Our approach is multi payer, not exclusive. Let me say that again. Multi payer, not exclusive. That is an important distinction in the marketplace. Only by connecting the broader community to the best most effective care regardless of payer can we achieve the goal of better access and quality, greater affordability and higher patient satisfaction.
You are probably aware of some of our earlier investments in this market and our continued success in improving patient care. Last year, we talked about Southwest Medical and the impact we are having in the Las Vegas market. Today, we are pleased with the results of our related work in Texas, California and Florida. The key is not being tied to any single model for market entry. Here's a good illustration from this year.
In Arizona, we are building an integrated care business from the ground up, Lifeprint. Located in Phoenix is a new care system where physicians, specialists, data and care plans all connect together in ways they have never done before. We have achieved outcomes that clearly differentiate us in this market. Since start up in 2011, we have reduced admits per 1,000 members by 20% and inpatient bed days have declined by almost 150 days. Core trend for this member base during 2012 is running 5% favorable to the local market experience.
PMPM medical costs are actually declining from last year. Based upon this and other successes, we are increasing our start up market development capacity, evidence that we believe there are multiple ways to participate in and enhance the delivery of care. Looking ahead, we expect integrated care delivery will grow through increased share with local payers, driven by quality and cost execution and by leveraging technology and the broad capabilities of UnitedHealth Group. We will also expand by adding physicians organically through new affiliations and by acquisition. With this local market, multi payer and primary care orientation, we are well positioned to serve chronic populations like dual.
With all these drivers, we can build our very significant businesses over time in local communities. And we have positioned our footprint in markets with attractive demographics such as senior and other high cost and high use populations, leveraging opportunities to add value. I am pleased with the progress we have made, but I also believe that we have just begun. As I mentioned upfront, it has been a busy year. We have focused on simplification, both in how we organize ourselves and how we approach our markets.
We have reduced cost, strengthened our leadership team and made investments to leverage enterprise wide capabilities. We are leaner, more responsive than ever, a more disciplined organization executing against our plan and delivering on our commitment. This year, even with the substantial investments throughout the organization, we expect operating earnings to rise 12% over last year. And as I said, we are on track to achieve or exceed the high end of the plan we laid out for you a year ago. Last year, we characterized Optum's financial performance perspective as follows: 2011 as a base year 2012 as a build year and 2013 as a year that will show breakout performance.
We remain confident in the 15x15 target we laid out last year, a doubling of our operating earnings for the 2011 base year. We believe half of that will be driven by organic growth. The other half will be balanced between simplification and integration initiatives and the PBM migration opportunity. Our organic growth will be driven by our 5 core growth initiatives: the PBM, Business Services, Integrated Care Delivery, Consumer Relationship Management, and chronic population care management. So in 2013, we expect revenues to be up 23% to 26% to a range of $36,000,000,000 to $37,000,000,000 The top line increase is led by OptumRx and the benefit from the in sourcing efforts, which occurs over the course of the year.
We also expect double digit growth in both OptumHealth and Optum Insight. We project earnings will increase 37 percent to 44 percent to a range of $1,925,000,000
to $2,025,000,000
We expect operating margins to expand in each of our 3 segments driven by the PBM in sourcing, our simplification and integration activities and the mix of growth. And you can tell from my comments, we are already at work on the growth drivers for 2014 2015. Now let me recap. Our 2012 results demonstrate significant achievement against our objectives and we are very excited about the future. We grew our earnings 12% and saw top line growth as well, all while executing on an aggressive simplification and integration agenda.
I am tremendously proud of the people of Optum and what they have accomplished this year. We are well positioned in a rapidly growing $500,000,000,000 health services market. With just a 6% share, I believe we are only getting started. We are one Optum, a disciplined organization, highly focused, staying the course, executing, pivoting to growth and making the system work better for everyone. It has been a pleasure to share our progress with you this morning.
Thank you. Now I'd like to give you folks a chance to ask some questions. So I'd like to invite some of the Optum leadership team to come on stage John Rex, Chief Financial Officer John Prince, Chief of Operations Dirk McMahan, CEO of OptumRx Rick Jelnik, CEO of OptumHealth Bill Miller, CEO of Optum Insight and some of our other executives Andy Slavitt, Ellen Wilson, Karen Erickson and Kathy Hopkins. And John, please join us. All right.
I'd like to call by name, but I don't trust myself squinting into the lights. So yes, sir, Matthew, I can't help it. Just
a broad question. Can you tell us about how much of
So maybe I'll start and then I'm going to hand this off to John Rex to talk about it. It's one of the key, what I'd call indicators for us as we build the business and as we go down the road of really accomplishing what we're doing to be really a standalone organization with contracts and so forth. So just to let you know, we are very, very aware and working toward how that the split between the internal and external is going to work. So John? Yes.
So the way I'd characterize it is clearly within the PBM majority is coming from internal sources at this point. We think about kind of the split and we characterize it that way. Then the split when you move to the other businesses to help an insight become much more balanced between internal and external sources. Yes, Christine? Yes, they're bringing you on mic.
Great. Thanks. Recognizing that the PBM is building over the year that the membership and revenue and earnings are going to increase through the year. Can you give us a sense for the run rate kind of exiting 2013 with respect to the OptumRx business revenue and earnings? Yes.
So the our ongoing margins will be between 3% 4%. The revenue growth will be between 5% 8%. And if you're asking Christine specifically about what the in sourced business brings, it's about $6,500,000,000 to $7,000,000,000 in revenue a little over $200,000,000 in total operating earnings. We're here, Janice. Thanks.
Scott Fidel, Deutsche Bank. Can you talk about some of the longer term revenue synergies that you see for Optum through the EMEAL acquisition? And then if there's anything that's built into the 2013 plan in terms of contribution for Optum from O'Neill? So I'll take that John. I think we've talked about this a couple of times.
There's synergies that we are looking at that we're from a technology Emil as we go forward. But I wouldn't say that at this point in time, we have developed that enough to give you a specific answer, which would also give you the answer. It is not built into 2013. I think the other part of that is that there is a lot of cross sell opportunities that we will be developing. So what we've done, we have teams that are being formed and put together right now that will be looking at all these opportunities as we go forward.
The other key area that we will be participating in relate to the business in Brazil. But at this point in time, it's pretty early. We're putting our plans together. So there's nothing baked in 2013 at all with numbers. We expect some growth in members served in the meal in 2013 and Gil Boudreaux and Dave Wittmann will touch on that in a little bit.
Thanks. Could you talk a little bit about the conflict or the perception of a potential conflict between institutional providers and Optum serving as both a health plan UnitedHealth Group is serving as a health plan, Optum as a service provider. How have the attitudes changed amongst the hospitals? And then maybe if you could tie in some commentary around what you're thinking on ACOs and if that's going to be housed more within Optum going forward? Sure.
I'll start with that. And then Bill Miller, I'll ask you to comment on that. We've been working for a lot of years with what I'll call dedicated parts of the organization that are what we'll say firewalled off or have bright lines around them. So that with confidential information, proprietary information, we know how to manage that, so that we always protect our customer. So from an overall Optum standpoint, this is nothing new in terms of how we relate to multiple customers or multiple payers, multiple providers.
It's kind of the way we do business. We think we're pretty good at that. We think that we will continue to get better at that as we operate with better technologies and so forth. But to be sound process here, we're kind of like Switzerland. We just kind of play in that world.
I think there has been some change over the last year or so that people organizations like you mentioned have worked with us that they were a little skeptical a year or so ago when we started this. We've seen a lot of those attitudes start to really change. And they see that we really mean this when we talk about the bright lines and how we carve things out and how we work. I mean, we're customer centric, we're customer oriented and we're always there to protect, the confidentiality for our customer or we would be out of business from an Optima standpoint. So we feel very, very confident about that.
So Bill maybe you could talk about the ACL. Yes. So, aditudinally, what you see amongst hospitals particularly I think it's been acute this last year is the circumstances in which they're operating both from a regulatory standpoint, from an opportunity standpoint, many of them are viewing this as an opportunity to expand their relationships with physicians. Those pressures and crises have frankly I think led to a very open and interest in Optum's helping them because of our expertise and where we sit in the business, not only from a tools perspective and an analytics perspective as many of them go down the path of potentially taking on some sort of risk as it pertains to the patient's health. But also because of our experience on the delivery side and our experience we highlighted Life Print.
We come with a I think a very broad perspective that in spite of maybe some historical hesitancy that may have been there, we're largely seeing that dissipate by maybe just sheer force of the conditions in which they find themselves operating, the pressures they have from reimbursement to Medicaid, Medicare, how they're going to operate their clinics more efficiently, how they're going to tighten up their technology underpinnings between all their theaters of care. So I like our position relative our competition. I think we're positioned very well. And I think some of the engagements that we're in now represent and reflect that Optum is I think at the heart of the transition that's going to occur over the next decade? You've seen strong backlog performance for example Bill.
Right. Our backlog has grown dramatically. Some of that is related to just our standard fare of services and technology offerings, but it's also grown as a result of these larger engagements where we're taking on and working very closely with Rick Jelinek and some of the tools that come out of the traditional OptumHealth, having a very long and spectrum view about how you manage population, what's required to make a difference. You saw some examples earlier today. That's the power of OneOptim.
All of those tools are congealing together. And I think that's one of the reasons you see hospitals maybe drop that hesitation because there are many, many stovepipe I always call them the Boston startups. There's a lot of those around. But I don't know that you'll find companies that have the attitude about longitudinally how do you transform the way that we engage the consumer? How do you actually get at quality?
How you actually get at cost? Any on this side? Okay. Several in the center.
Okay. Thank you. Thanks for providing the 2013 guidance. So now the question is 2014. Thank you, Kevin.
With Healthcare Reform coming in a lot has been done on the health plan side of things. I was wondering if you could talk the three business lines and what opportunities and risks do you see healthcare reform presenting to the 3 Optum service lines?
Why don't I start and then I'll ask the 3 business heads to give their comments. I guess, take a step back from that and just look at kind of what's going on. Increased quality and access that's going to be part of this, affordability and engaging the consumer. So if you look at what we do across Optum and that's one of the areas where we've tried to become 1 Optum. And as I mentioned, we call something synchronization across the organization.
We believe it fits pretty well when it comes to what's going on with health care reform. And we believe that all of Optum is pretty well lined up to help during the implementation. And that's the that comes from whether it's our 8 core markets and how they work together or those individual markets as a standalone. So I'll ask each one of the heads to give you a brief description of their business and how they would look at it in there. But from an overall, we would look at it as a huge opportunity.
Okay.
I'll start. From an OptumHealth perspective maybe just to baseline the group, OptumHealth is basically 2 very large businesses, care management business that brings tools, services, data and transaction to help manage population health and to help consumers navigate health system. And the second is in our integrated care delivery that Larry spoke about earlier. I guess as we look forward over the next not just 2014, but 2014, 2015 and beyond that the marketplace is under dramatic change. Health plans are seeking new tools to engage consumers.
Plan sponsors as Mike Matteo mentioned earlier are looking for new capabilities to change behavior of the members that they're covering. And the provider markets are looking for new technology and capabilities to drive costs down and to measure demonstrable outcome changes from where they are today. And as we look at the business, I think you're going to see a pretty steady growth across our care management services, both in specialty areas like chronic conditions, behavioral, transplant services and otherwise. Our consumer tools which is an emerging area where we're bringing workflow and digital capabilities to consumers to help them navigate the system and we augment that with coaches and care managers to do that. And then lastly is the integrated care delivery where today we're in 5 states where we're providing primary care based services and we anticipate as Larry mentioned investing in more market development there and we'll add 1 to 2 new states and new markets each year and we anticipate we'll see accelerate growth in that market.
I think in my business, I go back to the synchronization value story bringing together all the pharmacy, lab, medical and behavioral data to one spot, ultimately have our clinicians intervene at the right spot to sort of optimize the health outcomes as well as minimize costs. I think our pharmacy offering fits right in with that story and I think that resonates well in a post healthcare reform world. And just to put a finer point on it, I think a lot of reform as we demonstrated earlier is targeted at there having to be data, the use of data, the strategic use of data, the real time use of data and there's going to have to be a modern infrastructure to do that. So Insight Optum Insight often deals with the lower half of this diagram here and that's there's a lot of drivers in reform that are going to feed into our business to create a modern infrastructure that analytics can be used not in the sort of very targeted labor intensive capacity that they are today, but in a more ubiquitous form and fashion that we envision in the future. And 2, I think most of our constituents customers are going to be dealing with huge pressures on cost.
And so their desire to offload what have otherwise been internal processes is going to continue to grow and that's where our scale should benefit our clients from a cost perspective kind of helping them compete in a new environment that reform is helping push along. All right. Thank you. One last question please Janice. There were a couple of hands right around you.
Thanks. Just on the you have a target I think of getting to $50,000,000,000 of value based contracting and I know that's on the healthcare side. The but you have the $18,000,000,000 you have now are you selling is there some correlation we can think about in terms of the value based contracting you're doing now? Is Optum selling products into that $18,000,000 Is there can we think about that tripling of contracting kind of fueling Optum's ability to kind of go in and sell these products to providers who are now going to care about their outcomes and get or I should say get incentivized for their outcomes financially?
Can I start that? So I appreciate you're ahead a little bit. Gail is going to talk about her Accountable Care platform and strategy here in a minute. And UnitedHealthcare has a broad Accountable Care platform. They are aggressively moving around value based contracting in support of UnitedHealthcare members.
And so that's their worldview. Optum is enabling a health system and that's a local operation. And so it's you have to start with a different worldview before you get to the question. So the answer to the question is, yes, sometimes we do that in concert with United, sometimes we'll do it in concert with another payer. But absolutely if someone who wants to start making that transition, we have a cadre of programs and services ranging from just pure stratification of population through care management, disease management platforms that can I think take a client through that progression as it goes?
And we're going to continue to strength those expertise as broadly as you can define it. It's going to be and continues to be one of our core strengths. I hope that answers your question. So Justin just let me add one thing. So if you looked at what Bill was talking about the continuum, we have all those tools that Bill just mentioned, but we also have a full service process that we're able to offer as well.
So it's just a matter of how we're working with UHC or other payers as he said.
All right. Thank you all.
We're going to transition here and I see the large number of people standing at the back. And I wanted to tell you if you'd like a chair, there's a number of them down here. There's probably more than a dozen open in this FAR section. And I'm pleased to introduce Gail Boudreaux, Executive Vice President, UnitedHealth Group and Chief Executive Officer of UnitedHealthcare.
Good morning. I'm Gail Boudreaux, CEO of UnitedHealthcare. Thanks for joining us this morning. Over the past several years, you've seen how UnitedHealthcare has delivered consistent performance and growth medical cost trends and service by focusing on practical innovation and fundamental execution. Today, I want to take you behind those results and highlight how we drive differentiated value by aligning and integrating 4 core capabilities across all of our businesses: modern benefit design, consumer empowerment, clinical engagement and delivery system modernization.
These foundational capabilities enable us to thrive amid market changes and they position us to succeed in 3 areas vital to modernizing health care, engaging consumers, working collaboratively with care providers and helping plan sponsors solve some of the toughest health care challenges that they face. As you're aware, the health care landscape continues to shift. With these changes, we see clear opportunities for growth in markets where UnitedHealthcare has a long track record of success. Demographic shifts are pressuring our nation's largest healthcare programs. Economic pressures are creating a demand for greater value, for higher quality care and for more people at a lower cost.
And a new healthcare consumer is emerging as individuals shoulder a greater cost burden. The market forces on this slide are significant, but we're not surprised by them. We successfully manage them every day. Our experience and the depth of our resources have us prepared for change, including reform. For the past several years, we've been positioning our business to implement new regulations, while executing on current reforms, fine tuning our business to manage through change.
We believe a company with our capabilities will find opportunities in a post health reform market. We recognize reform will place some pressure on margins in some segments as we adjust to the still undefined regulatory changes. But given our ability to improve care and its cost, the long term growth opportunity is compelling. With the Congressional Budget Office estimating an increase in Medicaid enrollment of 10,000,000 to 17,000,000 people as a result of health reform, states will seek solutions to manage their health care costs and improve quality at even greater scale. Our experience serving individuals in Medicaid and Medicare as well as the long term care in the aged, blind and disabled populations has us poised to effectively coordinate the care of dual eligibles, a $300,000,000,000 emerging market.
Our work managing special needs and long term care populations has already produced strong results. We've reduced inpatient utilization by over 50%, driven close to $10,000,000,000 in savings for the federal government and lowered emergency room visits by 60% in our institutional special needs offerings. And with more than 25,000,000 individuals expected to buy benefits on health exchanges by 2017, our decades of experience working directly with consumers in Medicare and our expertise developing affordable consumer centric products has UnitedHealthcare well positioned to grow market share. New fees and taxes will impact the marketplace, but similar to other industries, new taxes ultimately find their way into the system as a cost shared across the marketplace. We will endeavor to include taxes in our pricing and our benefit structures.
Community rating is a fundamental change, but again, we're well prepared. Where others may be disrupted, more than 40% of our small business members today are already part of a community rated methodology. This is highly relevant experience and we plan to
leverage it.
Thriving amid change isn't new for us. We have a long history of strong performance in the face of external pressures. In a challenging economy, we've grown by 2,000,000 people in 2012 and 4,500,000 people since 2,009 and added a meal this year. Our employer and individual business serves nearly 27,000,000 people and over a quarter of a 1000000 employers across every state. Through deep local relationships and a broad portfolio of innovative products, we work closely with employers and individuals to offer benefit plans that provide personalized solutions to help individuals live healthier lives and achieve meaningful cost savings for employers.
Since 2009, this business has grown by nearly 2,300,000 people. Our Medicare and Retirement Group serves nearly 1 in 5 seniors. We're the market leader in Part D, Medicare Advantage and Medicare Supplement plans and have the largest direct to consumer marketing capability in the industry. We'll leverage this asset in new ways in a post reform world. Community and state serves more children across more states than any competitor.
We manage some of the most medically complex populations across 26 diverse geographic markets and have over 30 years of experience coordinating care for the dual eligible population. And we're honored to have been entrusted by the Department of Defense to begin serving more than 2,700,000 active duty and retired military members and their families in the 21 state TRICARE West region beginning April of 2013. By aligning and integrating modern benefit design, consumer empowerment, clinical engagement and network strategy, we create unique value for consumers, care providers and plan sponsors, no matter what environment, pre reform, post reform and no matter what benefit marketplace, commercial, Medicare, Medicaid or military. So here's how we bring it all together. Our value based products are designed to connect individuals on their terms, whether face to face, on the telephone, on the Internet or using mobile devices.
Our clinical programs are embedded in all of our products. They're designed to bring consumers and physicians closer together to more effectively manage care. The consumer is armed with information about provider cost and quality and the physician is empowered with data to identify and close gaps in care. Importantly, incentives for both consumers and physicians are aligned, consumers through innovative engagement and reward programs and care providers through value based contracts. Together, these capabilities drive better health, favorable medical cost trends and overall affordability.
Today, over 9,500,000 people are enrolled in our health and wellness programs. We're the market leader in consumer driven products serving over 4,800,000 individuals and we're sharing data with over 12,000 medical groups nationwide to help them improve patient care. We believe better health care is only possible through better collaboration. What that means is that we're helping consumers, care providers and plan sponsors work better together by aligning incentives and empowering them in new and meaningful ways. Changing benefit designs or just paying physicians differently can have an impact, but only on a limited scale.
Sustainable solutions require benefit designs, consumer strategies, clinical engagement and value based payment to work together in an integrated way across constituents. Alignment and integration is what drives unique value and it's this approach to working with plan sponsors, care providers and consumers that differentiates UnitedHealthcare from our competitors. Let's take a closer look at how we're engaging with each of these important partners. In this morning's presentation on integrating information to Enable and Serve, we showed you how plan sponsors use Health Plan Manager to analyze data real time at a very granular level to optimize outcomes and reduce costs. But it has even broader applications with state Medicaid partners.
Maryland is a great example. Using Health Plan Manager, we showed Maryland officials that many people were using emergency rooms to treat common colds, strep throat and fevers, conditions that can be very effectively treated in non emergency facilities. We're able to show them consumer behavior at a very detailed level in real time, a very important breakthrough. This allowed us to partner with the Maryland Department of Health to implement a customized education campaign to curb unnecessary emergency room use and guide consumers to more effective settings, a great example of addressing a specific problem with a targeted solution. We can also use the insights of Health Plan Manager to develop broader more impactful programs as well.
The first I want to mention is Baby Blocks. Premature births and the high use of neonatal intensive care units can be a significant cost driver. Health Plan Manager helps us work with our state Medicaid partners to quickly pinpoint issues like these and deploy solutions to support healthier pregnancies. Baby Blocks is an online incentive program that simplifies care for pregnant women. It encourages mothers to be to keep doctors appointments during the pregnancy and through the 1st 15 months of their baby's life.
Women enroll in BabyBlox through an interactive website and e mail reminders are sent for each appointment. When they complete a visit, they go to the website and click on that appointment. As they reach different milestones, they earn rewards. For example, when a woman initially enrolls, she can choose a diaper changing pad or a gift card from Old Navy to purchase maternity clothes. As she keeps appointments, the rewards range from a first aid kit to feeding supplies and child proofing gear.
The bottom line, this program is working. The rate of completed prenatal appointments has increased 25% and preterm births have fallen by over a third. As we expand baby blocks, we see an opportunity to give newborns a healthier start in life and achieve cost savings of over $160,000,000 across our commercial and Medicaid populations. The second program is My Healthcare Cost Estimator, which empowers consumers and personalizes the healthcare experience. Today, it's available to over 17,000,000 UnitedHealthcare consumers, giving them the ability to compare quality and cost for nearly 600,000 care providers and over 4,000 hospitals.
Cost estimates for more than 80 markets and hundreds of treatments are covered. For consumers, there are meaningful opportunities for savings. By using this tool, they can easily find a premium designated physician and get accurate information on cost and quality specific to their benefit plan. Consumers are provided with a predictable experience because we use actual contracted rates not historical claims data. And that's what makes this tool unlike any other in the marketplace.
The figure produced by our cost estimator matches the figure on the doctor's bill. There are no surprises for consumers. My health care cost estimator brings together everything we've been talking about today. It makes health care simpler, more personal and more affordable. The 3rd example I want to highlight is House Calls.
House Calls brings a very personal approach to clinical engagement. It enables better care for individuals with complex medical needs across 24 states today. The power of this program lies in face to face interaction. We assess an individual's health right in their home. We perform physical exams, administer vaccinations and improve their physical environment.
Through annual and home visits with a nurse practitioner, we're able to identify and address gaps in care for a largely disabled and elderly population. Following a visit, we share 2 sets of data with a patient's doctor, data compiled before the visit and information collected during the visit, making it possible to detect undiagnosed conditions quickly and reduce hospitalizations. House calls provides access to relevant health data sooner and engages the primary care physician earlier before a condition becomes acute. And we educate patients about their condition and connect them to community based social services. This year, we will perform over 200,000 home visits for our Medicare members and we are rapidly scaling this program.
House calls has proven highly effective. Member satisfaction is 99%. The use of high risk medications has been cut by nearly half and harmful drug interactions have fallen by over 40%. House calls is a great example of how we're using personal connections and real time information to improve our understanding of individual health and strengthen the patient physician relationship. Helping to make care more effective and more accountable is a long standing characteristic of our enterprise.
UnitedHealthcare has been advancing accountable care for 35 years, embedding performance based incentives into our contracts across a broad platform that supports all types of care providers. We pioneered capitation on the West Coast over 2 decades ago for both commercial and Medicare products. Over time, we've refined it, aligning incentives for quality outcomes in addition of financial results. We also created the marketplace for bundle payments for transplants at Centers of Excellence nearly 25 years ago and have been rewarding premium designated physicians in our network for the last 7 years. These decades of experience enable us to drive shared value across health care and accelerate the adoption of value based products across our network.
By providing physicians with tools like View360 to help them identify gaps in care and by sharing data and clinical insights, we're partnering with care providers and enabling them to more fully support their patients and succeed in a more accountable care environment. Many of our in network physicians are no longer solely paid by procedure. They're awarded for quality outcomes, for keeping patients healthy and for managing chronic conditions effectively. Today, we manage over $18,000,000,000 in medical spending through value based contracts with care providers. That includes nearly 600 hospitals, 1200 medical groups and 75,000 physicians.
And we project that amount will grow to in their readiness to move towards risk based contracts. Yet, we believe each of them can assume more accountability for the care that they deliver. Our suite of value based products and incentive models enables us to offer care providers customized solutions to help them become more accountable for cost, quality and outcome. With our Accountable Care platform, we're creating a new integrated care model called Healthier Lives. Healthier Lives organizes care resources around an individual rather than a disease.
Supporting people with multiple chronic conditions, it takes a holistic approach to patient care and addresses the complexity of care that so many patients face. We become a partner with the patient and their family, coordinating care that integrates medical, behavioral and community based services. Healthier Lives expands the patient's health team beyond just the primary care physician. This deeper bench includes care managers, social services, pharmacists, coaches and telehealth providers. So what does this mean for patients?
It means they receive more comprehensive personalized care more compassionately from a team of experts that sees the whole picture, medical and pharmacy, behavioral and social of an individual's life. And for the health system, better care means cost savings and smarter use of valuable resources. Enduring competencies, distinctive capabilities, relentless collaboration consistently executed. As these examples illustrate, UnitedHealthcare is well positioned to serve the needs of an expanding marketplace, working collaboratively with consumers, physicians, employers and government to drive better outcomes at a lower cost and make health care simpler and more personal. Now let's turn to UnitedHealthcare's performance and outlook.
2012 results were strong, driven by growth in all of our businesses and effective management of medical expenses and operating costs. Medical expenditures were more modest than we had expected aided by favorable reserve development and our active clinical management and affordability programs. Our overall results were aided by over $900,000,000 of favorable true ups to medical reserves and rebate accruals at the corporate level, which we don't expect to continue. Our outlook for 2013 reflects strong underlying performance set against a challenging backdrop. UnitedHealthcare's business plan is built on record customer growth led by TRICARE, fee based employer business and strong performance in the public and senior sectors.
In the commercial marketplace, we're maintaining our pricing discipline, which will result in a modest risk based enrollment decline. We're also preparing our business for the future. By aligning and integrating benefit design, consumer empowerment, clinical engagement and network strategy, we're building a structural performance advantage to compete effectively in a post reform environment. In Medicare, we expect to build on our market leading positions in all of our products. Though reimbursement increases will again lag the growth in medical trend next year, we will more than offset this impact with balanced growth, strong clinical management and a continued focus on quality and star ratings.
State reimbursement rates for Medicaid were negative in the second half of twenty twelve, which will carry into 2013. We're working closely with our state partners to ensure the long term sustainability of these essential programs. Our continued success in expanding existing relationships and disciplined approach to new procurements including program wins in Ohio and Kansas will position us for long term value creation. In the face of these headwinds, we expect to produce operating margins in the upper 6% range, which is squarely in the middle of our long term outlook of 5% to 8%, generating attractive returns on capital. As we close out 2012, we expect revenue of $103,000,000,000 an increase in our total benefits enrollment of nearly 6,300,000 people, including 4,400,000 from our recent EMEAL acquisition and with all businesses showing positive growth.
We expect earnings of approximately $7,800,000,000 an 8% increase over 2011. These are all much better than the outlook we provided 1 year ago and the direct result of a continued focus on fundamental execution. In 2013, we will continue to expand and strengthen our businesses, increasing revenue $11,000,000,000 to approximately 114,000,000,000 dollars in total. For the full year 2013, we expect to grow medical enrollment by 3 point 7,000,000 people at the midpoint of our outlook, which represents solid, diversified and balanced growth and now includes TRICARE and international as 2 new markets. In addition to our medical enrollment, we also expect to add approximately 400,000 stand alone Medicare Part D Consumers due mostly to improve performance in the low income subsidy market.
Taken together, 2013 will mark the largest organic enrollment gain in the history of our enterprise. Turning to medical costs. We expect utilization trends to continue to be slightly below historical norms and relatively consistent with 2012. Dave Wichtman will cover medical cost trends in more detail in just a few minutes. Excluding the impact of prior year favorable true ups to medical reserves and rebate accruals, we're increasing gross margin dollars across UnitedHealthcare through the combination of enrollment growth, premium increases and strong clinical management.
Our operating cost ratio is declining year over year after adjusting for business mix changes associated with fee based enrollment growth and the Amneal acquisition. We continue to improve the quality and efficiency of our enterprise, while leveraging our operating structure as we grow. From this distance and considering all these factors, we expect 2013 Health Benefits earnings from operations to be in the range of 7.3 dollars to $7,700,000,000 We are optimistic about our business. The opportunities for long term growth are compelling. UnitedHealthcare is well positioned and well prepared with the capabilities needed to capitalize on reform driven and other market changes despite the short term pressures.
Exchanges represent an enormous opportunity with 25,000,000 individual consumers. While participation levels and the pace of enrollment are still unclear in the short run, over time this market will stabilize and we are well prepared to gain share with our broad portfolio of affordable consumer centric products. And as states expand Medicaid and look to more effectively serve the dual eligible population, they need proven partners who bring innovative solutions and have a track record of effectively managing costs and improving quality. UnitedHealthcare is that proven partner with our deep expertise serving complex populations in both Medicare and Medicaid through our healthier lives model of care. But the most powerful differentiator for UnitedHealthcare is the integrated way we are changing how healthcare is paid for.
Advancing new payment dynamics more than anything else will fuel our growth over the long term. We have more value based arrangements with more care providers covering more consumers than any competitor. And this is a critical advantage to sustaining and creating a path to a sustainable health care model. UnitedHealthcare is building a health benefits company unique in the marketplace. Our core capabilities, modern benefit design, consumer empowerment, clinical engagement and delivery system modernization are delivering distinctive value to everyone we serve.
These aligned capabilities continue to produce sustainable cost and performance advantages, consistent growth and deeper relationships with consumers, care providers, plan sponsors across all market segments. UnitedHealthcare is ready. We're prepared to solve the toughest healthcare challenges facing this generation and the next and we're poised to capitalize on the emerging opportunities to create a sustainable health model. In 2013 and beyond, we are confident our role in health care will grow deeper. Our contributions will grow stronger and the number of people we serve will grow larger.
Thank you very much for listening. Before we begin the Q and A, I'd also like to invite the UnitedHealthcare senior leadership team along with John Penscharin to join me
on the
stage. Joining me will be Dan Schumacher, our Chief Financial Officer for for UnitedHealthcare 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 Chief Executive Officer for Community and State Business Laurie MacDougall, Chief Executive Officer of Military and Retirement Doctor. Sam Ho, our Chief Clinical Officer UnitedHealthcare and Austin Pittman, our President of UnitedHealthcare Networks. With that, with everyone joining on the stage, let's open it up for questions. John, if you want to help guide us.
Right here, Janice. Thank you. Thanks. I just want to ask a question about the commercial risk declines that you're expecting in 2013. And maybe talk about how you those might break down between the just shifts to ASO that you're seeing either in your book of business or in the market as compared to price competition from competitors?
And then also just talk about what you're thinking about in group change for 2013. Are you expecting attrition from the economy? Or do you think that's going to be pretty stable in 2013?
So let me start and then I'll ask Jeff Alter, CEO of our Employer and Individual business. I think as you've heard us talk about over the last several quarters, we've seen the market as competitive on the insured risk side, rational but competitive. We have maintained our pricing discipline and so that's part of our forward projection. We also as we look to 2013 don't have some of the opportunity we had in 2012 which was growth here in the New York market as part of the Empire exit. So that has played into that.
But overall, we think we're extremely well positioned. We're doing extremely well in our value based products. As you think about some of the other attrition and what's happening in terms of self funded conversions.
So I think the quick answer is it's stable 12% into 13%. Losses in losses to ASO, we expect to kind of be a continuing pacing that we've been having over the last couple of years either up or down off that trend. As Gail said, our underlying performance against the pricing environment, which we see as kind of continuing competitive but rational throughout 2013 is about the same from 2012 if you exclude the 140 or so 1,000 members we picked up from the Empire exit. And I think the general sense is just stable on attrition as well. Unless there's a market shock, we believe that attrition is going to stay just about where it is today.
Thank you. Here's Susan. Thank you. Thanks. Hi.
Dave Windley with Jefferies. Gail in your prepared remarks you mentioned growing the seniors business in different ways post reform. I was hoping you could perhaps evaluate on that. And also in that comment on what your views are about the potential for regulatory change to the Med Supp market and changes perhaps in first dollar coverage and what that effect what effect that would have on MedSup?
Sure. I'll start and then I'll ask Jack Larson, our CEO of Medicare also to comment. In terms of the growth, we've had I think a very strong portfolio of Medicare products. If you look at our Part D offering, we'll be growing and have repositioned our offerings in Part D, very strong growth trajectory for next year. We feel good about Medicare Advantage.
I think we take a very specific look at each of the markets positioning our benefits appropriately. We think we have a very balanced offering in the marketplace and then MedSup has also been a strong book and we look at it as a portfolio of products across Medicare and have very consistently grown all of those products. In terms of some of the specifics on Med supp and Jack if you want to add to But I think our overall positioning is incredibly positive about Medicare and I wanted to leave you at that.
Yes. Just to build on Gail's comments, the beauty of our seniors business is that it is a portfolio of offerings and it meets individual seniors where they are, what their particular health care needs are. With respect to 1st dollar coverage and surtaxes on Med Sup programs and all that is certainly a current and hot topic today. If there is 1st dollar coverage in Med Sup, you might argue that that would perhaps increase the attractiveness of our Medicare Advantage product in some way. So I think whatever happens, we think we've got a good solution to offer our consumers almost under any circumstance.
Thank you. Let's go here Susan. Just wanted to come back to Medicare quickly. When you're sort of bullish tone on the business long term, is that primarily because you have such a balanced portfolio even skewed towards sup? So even with some of the challenges in Medicare Advantage you feel like you can grow it through that?
And I guess asked another way, do you feel with the minimum MLR for MA coupled with the bonus payment changes that business still grows long term and the margin is sustainable?
Thanks. So again, I'll start and ask my colleagues to provide input as well. And I think first of all, it's a big market and it's a growing market as you heard from our opening comments and Steve's comments as well. We also feel that as we look at the Medicare Advantage market, the clinical programs that we bring to bear, so I shared with you a little bit of our healthier lives model, the opportunity to really substantially change the cost curve in Medicare Advantage is a huge opportunity for us and we've been able to demonstrate that. We continue to evaluate our product opportunity to expand the things had an opportunity to expand the things we do across commercial Medicare and Medicaid and apply them to help us manage the cost curve on Medicare.
Clearly, very focused on improving quality and improving star ratings and other opportunities. So I think we're bullish about Medicare because we see it as a big opportunity. We also know that the things we do inside of our business around helping to manage costs effectively improve quality, the capabilities that Optum brings to the table are all important parts of that business for us. So from that perspective, that's one of the things that we're working on. And Jack?
I would just say if you heard a bullish attitude it's because we are bullish on our seniors business for a variety of reasons. 10,000 individuals aging into Medicare every day is not a trivial demographic tailwind. With respect to the MLR corridors and those things, those regulations are still on the drawing boards. We're waiting like everybody else to see the final product. They will provide I guess another variable that we're going to have to consider as we begin to do our strategizing around 2014 bids that and along with several other things in the mix should make it kind of a really interesting 2014 planning season.
Kathy up here please.
Thanks. Maybe Gail, if I could ask a question on the commercial side. There seems a little bit of a disconnect in your pricing to basically a flat, if I'm right, you're pricing to a flat view of trend and yet with a rational but competitive market, you're projecting a step down in your commercial risk enrollment. Is that partly because you think that others will be more aggressive than that? And I juxtapose that against it seems that some competitors are at least claiming that they're pricing for an increase in utilization next year.
I'm trying to parse through that.
Well, I guess I would frame it a little bit larger. I mean, as you think about the commercial market, I mean, there's been a historical trend to self funded. So that's embedded in that. So the market isn't growing. It's been shrinking.
And second, I think Jeff brought this up. We don't have the advantage of the Empire exit here in New York, which helped us in 2012. And again, we so I wouldn't read that into it. I would say we've been very consistent about staying disciplined on pricing. We know that the market has been declining.
And I mean those are the two factors I would say that more than anything a very disciplined approach to pricing and feel that we've got a very structured offering. Most of what we've been selling are value based products in those marketplaces have very good uptake in that market. So we think as we look at that, we see it as sort of a modest decline and really see the market kind of stable to what we've been talking about over the last couple of quarters.
Thank you. And if I could just ask a follow-up on Medicare Advantage. Could you share just a backyard of the a back of the envelope estimate on the value per member per year or per month. You estimate that you provide for the average Medicare recipient in Medicare Advantage versus whatever you compare it to traditional Medicare alone or traditional Medicare plus a Medigap premium? And would you agree that the industry fee impacts that by maybe about $20 PMPM?
Dan, you want to? Sure. So obviously there's a lot of variation Matt as you look market to market. But on average across the board it's about $75 of value absolutely, very big range around it. With respect to the Absolutely.
Very big range around it. With respect to the insurer's fee, that's generally in the ballpark somewhere in that $15 to $20 range. Back here in the far corner of Fran please. Thank you. On the commercial MLR, you're forecasting 120 basis point deterioration into 2013.
If I flip a little forward in the book for a consolidated basis, you're forecasting only a 50 basis point deterioration in MLR. How much of that differential is just mix versus how much is forecasting improving loss ratios in your other lines of business? Okay. It's really all mix. So if you look at the 2 primary drivers of that difference, the first is EMEAL running at a lower relative loss ratio.
And then the second is with respect to our intercompany and with the in sourcing of pharmacy, we're pulling in mail margin that then lowers the loss ratio for the group. So as we bring in that income that was previously outside of UnitedHealth Group, it lowers the UnitedHealth Group loss ratio in relation to the commercial. That's a simple mechanical effect of consolidating accounting entries at the end of a quarter. So in bringing in the PBM that's not changing the commercial loss ratio, it's changing the consolidated loss ratio? That's right.
That's right. Thank you.
Here? Thank you. Thanks very much. We've talked a lot about changing the behavior on the physician side and clearly since physician writes the script that's very important. But one of the issues obviously is the pricing and the behavior on the institutional on the hospital provider side.
So I ask the question I ask pretty much I think every year, which is can you update us on what are the innovations in dealing with your providers, your hospital based providers? In particular, are you seeing any additional I know from the Optum side, they're seeing a lot of business activity around how do we change our act. What are you seeing from the health plan side? And how do you change that conversation to move the model forward to something that works under an exchange scenario? Thanks.
So I'll start and I think Austin Pittman can add some color to this as well. As you think about the value based payment continuum that I shared with you a few moments ago, one of the biggest drivers and movers of that is we are moving our hospital increases to value based incentives as well. So that component of it instead of just giving a normal unit cost increase as part of inflation plus something, we're basically tying that to very specific measures. And so that really is the beginning I think very much of moving the dial and we've been at that now several years. And as you can see from the numbers of that I we shared with you on this chart and where we expect it to go, it becomes a big and increasing part of that.
And that's what has helped us also increase that incentive with the hospitals. So that's the first part of it. And I think that's when they're not in an integrated environment, not taking risks, truly just you're contracting with individual hospitals and trying to move the dial on cost, quality and outcomes. And we've got a repertoire of measures that we work with them. And that's pretty well accepted now.
Been doing that for a number of years and it is really a standard of what we put in our contracts going forward. I think the other opportunity is we look at taking more population risk. So accountable care as hospitals and some of the deals that have been in. So there is much more incentive around managing overall population risk, setting targets, setting budgets and And I think you want to think about UnitedHealthcare as really the contracting arm. When I think you want to think about UnitedHealthcare is really the contracting arm.
We have the membership between Medicare, Medicare, Medicaid and Commercial as well as military to bring to the table plus are working with them on the best way on clinical programs to Sam's organization. But I think the ultimate answer is it starts at its simplest with paying them on value based basis for their increases and then moving them to more accountable care with physicians.
That was a great description.
Thank you.
We gave you a lot of room there.
Back to the afternoon session and you'll get even more detail. Now, I think we're seeing really good uptake from hospitals, so specifically in that performance based contracting area. Again, the key for us is can we meet the delivery system where they are? What is their risk willingness capability, their level of integration? And then making sure that at least some portion, meaningful portion of what would be an increase is actually tied and earned through quality and efficiency metrics.
We also have a number of hospitals that participate in shared risk and capitation. So we've been at this for a long time and we're very, very committed to it. One last question here Janice and we're going to bring Gail back at the closing Q and A session. So if your question didn't come out, we'll have another shot on goal here. That's Justin.
Thanks. My question is around medical cost trends. Specifically, you're expecting a flat trend year over year and it looks like even the components utilization being flat juxtapose that versus your peers which are all at least guiding for and say their pricing for utilization to be up year over year. Your trend has been the best in the industry. What makes you comfortable that that level of trend will continue given the pace that it's been running in the last couple of years?
And then also what can you explain to us why not take the opportunity to build in a little bit of cushion year over year? Thanks.
So let me frame the issue. I think we shared with you as we think about trend two things. 1, as you know the largest driver still is unit costs. The majority of that's coming out of unit costs. We believe from the unit cost side, we have a very good line of sight to where our unit costs are coming in.
On the utilization side, we shared with you a number of the programs that we've been very successful year over year in reducing inpatient utilization through the work that Sam Ho is doing in his organization. Our affordability programs we think do have an impact on trends. So as we look at the roll up of overall trend, it's a lot it has to do with both our line of sight because we have very detailed information about our unit costs at a very granular level at a market. So we're projecting where we believe that will be. And also believe we're seeing an impact to the programs that we put in the marketplace around our affordability.
I think the third one and I know your question is only about trend, but the reality is a lot of the things we've put in the marketplace, My Healthcare Cost Estimator, which gives on
utilization
and where people choose to on utilization and where people choose to elect services. And we've also put in a ton of value based products in the market. So I think as we think about our overall trend guidance, we feel that we've got very good line of sight to that. And again, your issue of why would you not build something in, it is a competitive marketplace. We are absolutely balancing what we believe is the right competitive what the right competitive trend is as well as the overall pricing.
So, Dan, if you want to add anything or?
That's great. All right.
Great. Thank you very much. UnitedHealthcare. Thank you.
Last formal presentation is Executive Vice President and Chief Financial Officer, David Lichtman. Okay. A few numbers. Good morning. At the outset, let me take care of a couple of housekeeping items.
First, our 20122013 financial outlooks include the expected results from Emile from the date of acquisition, which is in very late October of 2012. In addition, as John referenced earlier, this presentation references non GAAP financial measures at times. These measures are reconciled to GAAP measures in the Investor Conference section at our Investor page at www.unitedhealthgroup.com and can be also found in your book behind the Other Materials tab. Today, I'll summarize our strong 2012 performance expectations, give an overview of our outlook for 2013, review the strength and flexibility offered by our balance sheet, capital structure and capital management programs and last, I will provide a longer term view on the growth and performance potential of our business. First, I'll begin with a summary of our current estimates for 2012 results.
2012 has been another strong year. Top line revenue growth is being driven by significant gains in enrollment, disciplined pricing, services growth and further diversification into new markets, new technologies, integrated care delivery and now international. These elements have further prepared our business for continued long term growth and returns. This growth has led to improved operating earnings, up 700,000,000 or around 8% in 2012. Similarly, earnings per share are expected to grow by around 11%.
Medical and operating cost management and capital management disciplines contributed to this strong result along with our diversified growth. This earnings capacity has been converted into strong cash flow now expected to be around $7,000,000,000 or 1.3 times net income. This is comparable to 2011 despite paying rebates for the first time in 2012. And we expect to exceed the top end of our growth, earnings and cash flow ranges we provided this time last year. Further, we have raised our quarterly dividend again this year by over 30%, while maintaining our robust share repurchase program.
We are achieving solid revenue growth and operating margins across both UnitedHealthcare and Optum. Both businesses should meet or exceed their original targeted range operating earnings despite significant spending on new growth opportunities. These included the transition of UnitedHealthcare's commercial PBM business to OptumRx and the implementation of the TRICARE West Region award at UnitedHealthcare. UnitedHealthcare's operating earnings are over 1,000,000,000 higher than the midpoint of the range we discussed with you last November, driven by over 5% growth in domestic medical enrollment and better medical and operating cost performance. Optum's operating earnings are slightly above the higher end of the range we discussed with you last November, driven by strategic repositioning and cost management activities in the business.
We now expect to be serving 83,000,000 people by the end of 2012 across our now global business. Over 40,000,000 of these are served with full medical benefits. We are achieving meaningful growth in every category except Medicare Part D, which suffered a short term setback when it did not meet the low income subsidy benchmark in 2012. We are back in that program in 2013. Our organic growth is led by our commercial fee based business, which will increase by over 1,200,000 people.
Commercial risk is projected to decline by 225,000 people partly due to funding conversions. Public and senior programs, we will increase by about 850,000 people, reflecting the strength of our Medicare and Medicaid offerings and market positions. In total, we project 2012 will end with UnitedHealthcare serving nearly 1,900,000 more people domestically with notable share gains in the self funded commercial and government programs. On top of that, we won the TRICARE West region contract, which will add 2,700,000 to 2,800,000 people in April 2013 and we took the leading market position in Latin America with our acquisition of Emil adding approximately 4,400,000 people. These strong results were achieved in a very difficult economy and health care environment, which highlights the relevance of our product positioning and approach and the strength of our cost structure, service and technologies.
This slide tells you a similar story. Again, we're up in all categories year over year in a relatively flat market. That translates to market share and strong revenue gains across our businesses. Optum is expected to grow revenues more modestly in 2012, while contributing exceptional earnings and margin improvements despite the impact on OptumRx, the loss of Part D lives at UnitedHealthcare. Optum Insights revenues, operating earnings and operating margins were notably strong with operating margins now nearing 17%, a significant advance over 20 eleven's performance.
This demonstrates the type of improvements we expect from Optum's businesses over time. Given market dynamics and the leading market positions of Optum, we see strong opportunities to improve each of its businesses in the coming years. Over the past 4 years, revenues and earnings per share have been growing at a compounded annual growth rate of 8% 17% respectively. That 4 year performance yielded $26,000,000,000 in cumulative operating cash flows. Of that, we returned one half to shareholders while investing the other half in the business.
Now let's move to an overview of 2013, beginning with a few key assumptions. First, we assume modest growth in employment with the unemployment rate hovering around 8% over the course of the year. We have not included the potential impact of a fiscal cliff or of sequestration net of related offsets. We assume interest rates will continue at current levels. Medical unit costs and utilization trends in 2013 are assumed to trend similar to 2012 and as always we do not forecast the development of in the estimates of our reserves.
Our claim reserves represent our best estimates consistently applied at any given point in time. Looking at consolidated results, we expect revenues to range between $123,000,000,000 $124,000,000,000 in 2013, a 12% increase over 2012. This reflects enrollment and revenue growth across all businesses within UnitedHealthcare including appropriate price increases exceptional revenue growth across Optum and the acquisition of Emile. Operating earnings are expected to be in the range of $9,250,000,000 $9,750,000,000 This is due to strong underlying earnings growth, partially offset by the absence of favorable development experienced in 2012. Net earnings are projected to be in the range of $5.25 to $5.50 per share aided in particular by Medicare Advantage membership growth and top line growth and margin expansion at Optum.
We expect operating cash flows to be in the range of $7,200,000,000 to $7,600,000,000 Again, this represents roughly 1.3 times net income. Looking at enrollment, we expect 2013 again to be characterized by very strong gains. The numbers in this table demonstrate solid, diversified and balanced growth and now include TRICARE and international as 2 new markets. We are projecting commercial growth for the full year with modest losses in risk based products offset by significant gains in fee based lives, which include 2,700,000 to 2,800,000 TRICARE lives. We again expect strong growth across our Medicare and Medicaid products.
Medicare Advantage and Medicare Supplement growth represents performance equal to or above current market share. Medicaid growth reflects in part known wins in Ohio and Kansas. A meal is expected to grow by 200,000 to 250,000 medical lives reflecting the strength of that very distinctive platform in Brazil. Standalone Part D growth is mostly due to our reentry into the low income subsidy market. And in total, we expect to serve the primary medical needs of approximately 3,500,000 to 4,000,000 new individuals by the end of 2013.
Let's look briefly at our growth over the past 4 years since 2,009. In total, we will have initiated service to a net new 13,000,000 people in 4 years, while attaining number 1 market positions in North and South America in nearly every market category. A combination of organic growth and strategic M and A positioned the business in this manner and it really didn't all happen in this period. It takes at least twice as long to establish the capabilities, the service reputation, the public private partnerships, the cost positions and brand to effectively compete at this level. While we're proud of our progress, we know we need to protect and extend these market positions relentlessly.
Here we profile 3 metrics important to each of the Optum platforms. Optum Health is expected to grow its top line by 16% to 19%. It is fueled primarily by growth in its integrated care delivery business, which is now positioned locally in Nevada, California, Arizona, Texas and Florida and nationally in institutional and home based settings through its EverCare and Inspiris platforms. Optum Insight continues to see strong growth in its backlog now in the mid-four billion dollars range and we expect OptumRx continue to significantly increase its volume of adjusted scripts as we begin to serve UnitedHealthcare's commercial pharmacy business and grow this business organically off of a very strong chassis. Here you can see the details revenue and operating earnings for 2013 by business.
All businesses are contributing meaningfully to our revenue growth and total earnings. Diversification continues to be our important business model and is beginning to accelerate and improve our results particularly at Optum. UnitedHealthcare's 2013 projections reflect the continued cost of reform, government reimbursement pressures and the absence of favorable development reported in 2012. Optum increases its revenues and operating margins reflecting the impact of the cost containment and growth initiatives Larry outlined earlier. Each Optum business is expected to grow at double digit levels led by OptumRx.
Our businesses produced strong operating cash flows again during 2012 and 2013 should see a similar result. Here you can see the major components of our 2013 projection of cash flows. In total, we're projecting operating cash flows to be in the $7,200,000,000 to $7,600,000,000 range and we continue to target cash flows in the area of 1.3 times net income. We expect our consolidated medical care ratio to end this year at around 80.5%. This result is about 150 basis points lower than our original estimates a year ago.
It includes prior year favorable development recorded through the Q3 and reflects more effective management of both utilization and unit costs. We project a range of 81% plus or minus 50 basis points in 2013. The increase of roughly 50 basis points is driven by the absence of favorable reserve development that we realized in 2012, a modest increase in the mix of higher ratio government business and continued government reimbursement pressures, all partially offset by a lower average medical care ratio percentage at Aneel. Switching to commercial market medical trends for 2012. We project our final commercial net medical trend will be around 5.5%.
This is better than our original estimate for 2012 due to better unit cost performance and the effectiveness of our clinical programs. Looking to 2013, we expect utilization trends and pricing to continue at levels experienced in 2012. As a result, we expect commercial net medical trend to be in the range of 5.5 percent plus or minus 50 basis points. In aggregate, we expect unit cost increases of around 4% to 4.5% and utilization growth of about 1% to 1.5% both of which are consistent with 2012. 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 2012 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 increase significantly in 2013, primarily due to unit cost pressures and the use of new specialty drugs in pipeline. OptumRx is particularly competent at managing specialty pharmacy and we believe is best positioned to administer UnitedHealthcare's pharmacy benefit. UnitedHealthcare prices its commercial business based on its forward view of costs. In this case, pricing includes our forward view of medical trend plus insurance taxes imposed in the Accountable Care Act to the extent policy periods extend into 2014.
Operating costs continue to be managed well. We now estimate the operating cost ratio for 2012 to be about 15.7%. That is above the original range we communicated a year ago and up from 2011 due almost entirely to business mix favoring Optum, UnitedHealthcare's stronger than expected fee based business growth and now the inclusion of a meal. In 2013, operating costs as a percentage of revenue are expected to increase 20 basis points to 15.9 percent plus or minus 30 basis points. We continue to mix our business more favorably towards fee based and services business.
We're implementing TRICARE and now include Emile, which carries a higher operating cost ratio. In addition, we expect continued heavy investments in compliance will be offset in part by benefits of our persistent productivity improvements. We have experienced higher regulatory and growth implementation costs over the past few years and we expect these investments to continue into 2013. Regulatory costs reflected here relate to implementation of HIPAA 5,010, ICD-ten and PACA. They are extensive and will consume well over $500,000,000 over the 3 years ended 2013.
Commercial PBM and TRICARE implementation expenses and capital are outlined here as well as unique long term investments. Our exchange investments while included in our forecast are not called out here because we need additional regulatory guidance to finalize our estimates. The costs embedded in our operating results will be around $355,000,000 or $0.22 per share in 2012. They will drop slightly to $275,000,000 in 20.13 before meaningfully subsiding in 2014. We've been able to combat these higher costs in part through our efforts to reduce administrative costs across our business.
One of the most successful of those has been our administrative cost reduction effort, which we named administrative competitiveness. This program has delivered run rate improvements of about $1,000,000,000 in its 1st 3 years. For 2013, we expect to contribute additional run rate administrative savings as just one component of our total productivity efforts, which are expected to Now let's shift to the balance sheet and capital management. We continue to work from a position of strength. Our credit ratings reflect this very strong position.
We had approximately $1,600,000,000 of available cash on hand at the end of the last quarter. We also have immediate additional flexibility in a $4,000,000,000 commercial paper program backed by 21 financial institutions. Power regulated entities are liquid with approximately $7,300,000,000 of capital in excess of required levels. We maintain this excess capital to ensure optimal financial flexibility and strong credit ratings. Our investment portfolio has high credit quality at 99% investment grade.
It is highly diversified and liquid with an average duration of approximately 2.2 years. And our portfolio had a net unrealized capital gain position of approximately 925,000,000 dollars at September 30. We expect to have $17,000,000,000 of total debt outstanding and a debt to debt plus equity ratio of approximately 35% at the end of this year. This is up temporarily due to the funding of a meal. We expect to drive that ratio below 35% before the end of the Q2 of 2013 even with tendering for Emil's remaining public shares during this time period.
Our strong financial position was reflected by the recent rating upgrade by S and P, the fact that we maintained our debt ratings after the announcement of Emil and in our recent debt offering, which was at the lowest rates in the history of the company. Just on the side, that offering was oversubscribed tenfold. We have very little refinancing risk over the next decade and beyond. In any given year, maturities are no more than 1 quarter of our current cash flows from operations, so we could easily meet our debt maturities from our cash flows. Our coverage ratios and debt to cash flow remain strong reflective of improved performance, strong cash flows and a flexible and conservative balance sheet posture.
We have been leveraging our strong cash flows and capital management policies for years taking a consistent and balanced approach to support business growth and shareholder returns. Just 13 years ago, UnitedHealth Group had less than $20,000,000,000 in revenues, a 4.4% operating margin and a 14% return on equity. Over a decade, we spent $24,000,000,000 in M and A, diversifying UnitedHealth Group from a regional health insurer to a national diversified health and well-being enterprise. By 2,009, we had grown the business to $87,000,000,000 in revenues, a higher operating margin at 7.3% and a higher return on equity at 17%. At this time, the market was beginning to see reform on the horizon and we were discussing how we had built the business to be adaptable to use change as an opportunity to grow and thrive.
Since then, we have built our diverse business to $110,000,000,000 in revenues, generating an even higher 8.3% operating margin, grown earnings by 17% per year and achieved an even higher 18% return on equity. We have increased our dividend each of the 3 years ended 2012, largely reallocating capital from share repurchase. However, because of our higher cash flow generation, the absolute value of share repurchase continues at a strong rate. We still invest M and A capital in our business, but we don't need to be as biased towards building a national benefits business like we did the decade before. Our investments are aimed mostly at the higher growth services and emerging international markets, ones that support the high growth rate and return profile our investors expect.
So here we highlight how we see the sources of cash for 2013 and how we could apply those strong cash flows again next year. Again, most of our cash flows comes from operations. Again, we have a disciplined and balanced approach to capital allocation. And again, after meeting regulatory requirements, we allocate cash based on the relative anticipated returns on investment. We fund CapEx including investments in technology and R and D.
We return capital to shareholders in the form of dividends and share repurchase. And we invest strategically in mergers and acquisitions. In 2010, we initiated a quarterly dividend of $0.125 a share. We raised that 30% in 2011 and another 31% earlier this year. Combined with share repurchase, we expect to return $3,900,000,000 to shareholders in 2012.
Looking at 2013, we expect a similar allocation to dividends, share repurchase and capital expenditures made possible by the improved cash flows and growth of the business. That leaves roughly $4,000,000,000 in cash and available debt capacity for strategic needs. Now I will touch on each of the 3 primary uses of our capital I just mentioned beginning with our CapEx. We organize capital expenditures around key strategic priorities. We use investments to differentiate our company through growth and innovation and ongoing improvement of our operating performance and cost structure, all while maintaining a modern infrastructure.
Growth in capital expenditures year over year is attributed to EMEAL. We returned a significant amount of our cash flow to shareholders. We plan to repurchase between $2,500,000,000 and 3 $1,000,000,000 of shares in 2013. Our weighted average fully diluted share count should then drop by approximately 3%. Overall, our share repurchase program has been an enormous success providing returns in excess of the S and P 500 whether you measure those returns over 3, 5 or 10 years.
Our Board approved share buyback approved a share buyback of 110,000,000 shares in June of this year. 94,000,000 shares remain authorized under that program as of September 30. And last, we believe our dividend represents the strongest payout ratio among our traditional industry peers. We also know it remains behind our Fortune 50 peers. For presentation purposes, we are assuming a quarterly dividend of $0.2125 per share throughout 2013.
This was the last Board approved quarterly dividend level. We are committed to reevaluating it periodically like we have each of the past 3 years. We continue to actively expand our business through a balanced buy, build and partner strategy. Acquisitions and the other investments we make must enhance existing businesses, provide a new platform for growth in adjacent markets or expand our capabilities. Here we show a limited subset as examples.
In Health Benefits, we bought XL Health in part for its house call capability. As Gail pointed out, house calls deliver compliance, risk adjustment and a menu that our doctors and nurses use to serve the health needs of the chronically ill. We also bought 2 plans in South Florida and attained the number 2 market position in that high profile Medicare Advantage region. For Optum, we have similarly built market presence in the integrated care delivery market. And we bought connections knowing that consumerism is emerging both as a macro opportunity and as a requirement in health care.
Last, we just bought a meal with an exceptional business model serving the fast growing Latin American market. AMEA maintains the number one market position in Brazil for all the right reasons business model, management, reputation, product value, service performance, innovation and market presence. At face value this merger makes sense. Amil gets our core capabilities around technology, data and the ability to organize delivery systems. We get a fast growing Brazilian health plan with strategic delivery operations.
As you look at these numbers, recall UnitedHealth Group back in 1999, less than $20,000,000,000 in revenues, a 4.4% operating margin. Does it look familiar to you? The opportunity presented with a meal in Latin America is similar to the opportunity we faced in the United States 15 to 20 years ago, Except the meal should yield even higher returns as we expect the Brazilian and Latin American markets to grow at an even faster rate than the U. S. Market did.
And when you look at the valuation on a PE to growth basis adjusted for the tax efficient deal structure, you quickly see that it's a better deal than most we've recently seen in the health plan space. And this one should deliver higher growth and value for decades to come. A meal in its own right will nearly double over the next 5 years. These market statistics demonstrate the low penetration of managed care and emerging middle class growing at 4% to 5% per annum, a country that has grown its GDP per capita nearly 15% per year over the last 10 years with health care spending growing at a rate of about 20%. Brazil's private market is characterized by a highly inefficient MCO footprint with some 1600 dental and medical plans.
That's about 4 times what exists in the United States. Selective positioning here could yield even stronger baseline growth. Likewise, we see an enormous specialty market opportunity around several highly inefficient markets like dental and pharmacy. And lastly, Brazil sits as many markets in Latin America in need of health care solutions. We believe those markets will emerge as strong supporters of private health system leading to even further growth.
I hope this view into the potential of the Emile transaction and how we approach market development gives you a sense of what could happen here. And I hope you take away from all of this that we continue to build in the right spots ahead of the market taking leading positions in the most important emerging health care markets. Here we highlight the key metrics from our 2013 outlook. We see a very strong revenue earnings and cash flow growth across the board. 2013 showed solid margins despite continuing funding of regulatory costs and strategic investments to further diversify our business.
With the planned reduction in share count, our earnings should be in the range of $5.25 to $5.50 per share. Before we close, I'd like to reflect back on our performance in the years leading up to this moment. Again, whether you look pre or post reform, you find a growing UnitedHealth Group, adapting to change and thriving on market opportunities to serve more people and achieve strong earnings growth and improve shareholder returns. Indeed despite headwinds over these time periods, we believe we have been able to demonstrate the strength of this enterprise, a durable strong foundation, diversified, capable, adaptable and innovative, operating in a health care market with expanding needs, a market that we recognize is not without challenges, but one in need of what underlies the mission of our business, a mission to help people live healthier lives, now aimed more globally to serve even more people. In this decade, we see consolidating markets where only the strongest and most adaptable companies will survive.
We plan to further diversify focused on the Americas and Optum globally while continuing to operate in market segments where we can earn returns in excess of our cost of capital. We expect to be advantaged operating at scale with efficiencies unseen in health care. We expect consumers will continue to prefer private market health care solutions due to their superior cost and quality positioning and we will continue to be good stewards of your investment in us through the deployment of balanced capital policies.
So what
could this next decade of growth ultimately achieve? We see a business responsive to market needs yielding revenue growth rates in the upper high single digits, earnings per share growth rates of 13% to 16% continued cash flow to 1.3 times net earnings returns on equity in the high teens and a continuation of a strong combined dividend and share repurchase payout ratio in the 65% to 70% range, recognizing fully that the total dollars of payout will grow as the earnings base grows and the allocation between share repurchase and dividends may further shift. We see a business not measured best by any quarter, but rather by its ability to sustain growth and returns for a very long period of time. Thank you. And with that, it is my pleasure to invite John Penchorin back to the stage.
Thank you, David. So we're going to close with Q and A. If Larry Renfro, Guilbeaudreau and Steve Hemsley could make their way back up. We've got extra chairs, if you want to slide down.
Okay.
Okay. Right here please. Just a quick question on the commercial cost trend. I think it will be now 4 straight years where utilization inflation has been sort of in that 1% to 1.5% range. And some of the providers would say that that's largely due to the economy.
And I guess I wanted to get your perspective. Is this sort of the new normal? And if sort of the unemployment level did decline, would you expect that 1% to 1.5% to be closer to the historical average of call it 2% to 2.5%
Thank you.
Gail? So we get this question quite a bit about what's the new normal. I'll go back to the response I gave earlier, which is I think it's a whole series of factors. I mean, we're in a very different marketplace now in terms of the products that are in the marketplace. Again, I would say that the tools out there are way more transparent.
People have much better real time information to make decisions about who they go to, which physician, which services they use. So it's not just an average. It's absolutely applied to their plan design. And then secondarily, I'd say on the utilization side, year over year we have done a nice job of managing inpatient utilization. Our focus turns to the outpatient side.
And I do think we have much better insight and better data to manage that. Clearly, the economy's had a small part of that or a part of that. How much that is different versus consumer behavior and the tools and programs that we put in place, I think it's a combination actually of both and we continue to evolve and advance the programs that we're putting as well. So I'm not going to project what I think a new normal is. We look at this and again I'd ask you to really focus on the unit cost side because I think that as you can see from our numbers is by far the biggest driver and has been consistently the biggest driver year over year.
All the way in the back please. Two real quick questions. The first, the cost trend on the commercial side for the back half of this year, is it lower than the average for the year? Dan, you want to add? No.
Go ahead. Okay. On the second one, if 7 years from now $250,000,000,000 in revenue, why are you buying back less shares in 2013 than 2012? Well, I think we set forth a range of share repurchase for 2013 in the $2,500,000,000 to $3,000,000,000 range, which overlaps the share repurchase for $12,000,000 As you know, we acquired a meal in October, which elevated our debt over debt plus equity to 35%. It was actually projected to be just slightly above that at 36%.
It's important for us as a priority to have our balance sheet maintain a very conservative posture. So we are bringing that down 1st and foremost. And all the while, we'll continue our share repurchase activity, but it that's the reason why we're providing a range as opposed to a specific targeted estimate. Brian, I appreciate the question because I've got a couple of e mails about those numbers. So I'll take that as well.
So I think Steve laid out a vision and talked about a 7 to 10 year range with the particular purpose of a broad construct as opposed to a precise model. I know there were a couple of questions on that, so just to clarify that. Yes, up here please. Yes. Two quick macro questions.
First, into next year, what are you expecting or looking for with respect to how providers might accelerate or change their claim submission patterns ahead of 2014? So are they looking to maybe clean up? Or as this magical date comes to us, is there something that could surprise the industry in terms of a bunch of claims kind of spilling in kind of the latter half of twenty thirteen? And then the second question I have relates more to how you as a company communicate with Washington D. C?
And each year, we see all this cool stuff that you guys have and providers and consumers and plan sponsors. I believe it works. How do you guys continually improve your discussions with DC that tends to do what it wants to do in the face of these solutions that you bring to bear? Who wants claims?
I'll take the claims and if Dave wants to share. I mean, I think the answer are we projecting a speed up? No. But I will tell you if you look at our history this year and how we manage 5010, we have very good sensing mechanisms across our business at a very deep level working directly with physicians' offices to understand their submission patterns, working with the clearinghouses, looking at our own volumes. So we have a very I would say very deep understanding of that.
And I think you would agree with me that we did a probably one of the best jobs in understanding that when we went into 2012 and will continue to monitor it at this stage. We don't have a projection that will change. But again, that's something we're going to be sensing in the marketplace on a real time basis and checking across the channels both inside of UnitedHealthcare and quite frankly with Optum as well.
I think on the second one, we are in very as we said before, very public, very social businesses and work with and those are affected by policymakers influence both the commercial marketplace there as well as their major customers and growing customers in this space. So for the last several years, we have dedicated serious resource in a very structured way to engage with the policymakers and regulators at both federal and state levels, particularly federal levels over the last few years increasingly now the state levels because we see more of the actual implementation and so forth going into at the state level. That level of engagement is we've dedicated resources that engage on a regular day to day basis. And then we have a significant amount of senior executive involvement, all the executives here, several of them in the audience, who will engage with legislators, thought leaders, policy formation types in Washington at the and the state level to discuss what would be a better and more progressive health care system, what could be better more effective policies around all the subjects you would expect Medicare and so forth. In addition, we have brought those same parties in the legislators, policymakers, thought leaders, White House, etcetera to Minneapolis and taken them through, I would say, things that many of you have seen maybe 2, 2.5 hours of the kinds of innovations that we think are getting traction.
Real things are getting traction in various markets and then how those could be translated to work for them. Gail showed you one of them in the health plan manager for Maryland. Very direct outgrowth of that engagement. And we are doing this now in Washington as well where we have established a facility in which to really continue to engage in that dialogue. So we are to give you an idea of the number of meetings, maybe I'll misquote this somewhere in the 80 to 90 meetings through the course of this year alone.
Corey, are you here? Corey Alexander? Yes. So very regular basis, very senior level engagement, showing them the kinds of things and the kind of impact that a more progressive private sector enabler in health care could achieve and they're responding. I mean, I would say that the level of engagement, the relationships have been have grown over the last couple of years and we will continue to stay at this.
We think it's a very basic now and fundamental part of our business responsibility. Yes. Bill here. My question really relates to Dave's slide 19. And I think when you looked at the significant business investments, I think I heard you correctly saying that those exclude any investments for exchange readiness?
That's right. We've included it in our forecast, but are not included on that page because it's not completely or entirely clear as to exactly what those requirements will be. Okay. So those investments are somewhere in your forecast, but not included in the $165,000,000 That's right. True.
Okay. Can you give us some sense of the range of those investments recognizing you don't yet know the full regulatory structure? Yes. I think I guess I'd expect those investments to be somewhere in the $50,000,000 to $100,000,000 over the per year over that time frame. Okay.
Thank you. Back here please. I don't think he's spoken yet.
So question again, I'll go back to 2014. I think a few people in this room doubt that if in a stable backdrop you guys would be able to grow quite nicely over a good period of time, but 2014 had a lot of uncertainties. Would love to hear in your mind what the kind of 3 biggest unknowns still are around what 2014 looks like? And then when you think you'll start to get clarity on those and be able to provide us more clarity on the 2014 uncertainties?
I'll take a couple. And so I think there's a lot of regulations that are still unknown and a lot of unknown exactly about how things are going to work terms of exchanges and so forth. So those are starting to happen now. So I think it's a little premature to speculate before you really fully know the rules. And then I would say the second one would be pacing because while we will engage to respond, it is not yet fully clear exactly how these changes will really ultimately practically pace themselves out into the market place.
And until there is more clarity around those two things those would be areas I might comment on. I'm not sure there are 3. I would say those 2 and then if you want to throw anyone you want to pile on there could be 4.
No. I think Steve hit them, but I guess I'd add there are 3 things we're doing, which is what we shared with you. 1, even though all the regulations aren't there, all things we're talking about building value based benefit designs, really transforming how we pay the delivery system, irregardless of how those, I think reforms and regulations come out, those are going to be structural advantages for us in the market. And we've had several years of doing it. So we're not starting from beginning of the starting line here.
We've actually been preparing the business over the last couple of years to be ready for a market that is much more consumer driven, much more transparent. And in some ways, we're getting an acceleration around the care delivery modernization side because now the conversation with others taking population risk and moving up the continuum and I think I answered a question in the Q and A about just removing our particularly our facility to these value based contracts. They see it coming and it's accelerating. And I think that part of it is part of preparedness regardless of the individual reform and exchanges of the underlying drivers of costs inside of the benefit business. So I guess I look at those while we are working with states and the government to understand those and make sure that we've got a sustainable market and looking at how that plays.
The work inside of our business is not stopping. I mean, we've been at this for a number of years and are continuing to accelerate it and we're testing a lot of these things already in the marketplace.
If I could just 0 into 2 maybe the questions that I get the most often. 1 is any thoughts about margins on exchanges? And 2 on the Medicare side of things, the impact of the minimum MLR, how you guys feel that will impact your business?
So, if think about the margins on exchanges, I think we've said over time so this gets to Steve's I think comments around pacing and scale. But we've said that we think those margins are more like government business in the 3% to 5% over the long term. Again pacing will matter. The rules in the specific markets will matter. So none of those are completely clear.
But that's sort of the range under which we see those operating again over the longer term. And I think we addressed the MLR question. I mean, it's still the rules are not defined completely yet around Medicare, but we would expect to manage within them.
Yes. Perhaps last question here. Thanks, John. So every year we hear more and more complaining about health care costs generally speaking accelerating. You've got employer groups complaining, states complaining, federal government complaining.
And now you've got health reform which sounds like an accelerant to health care costs. And you guys have talked about 2014 as being in some markets sticker shock and all sorts of growth there. So I certainly understand an 8% to 10% growth rate over a decade in a status quo environment. But do you think at some point we get a legislative response that's more focused on cost as opposed to coverage? And if so, does that help you and accelerate your growth?
Or do you think that just sort of reduces the growth rate broadly speaking in Healthcare? Well, I think when we as we said pretty clearly when this legislation first emerged as it did that we applaud the ambition around expanding coverage, but that this looked like the beginning of change in health care and that there wouldn't need to be a downstream implications in terms of how it will affect the delivery community and to get at cost and so forth. And you're exactly right. There are elements of this that will appear as cost increases the insurance tax, the change in the underwriting practices etcetera. I think that those who constructed these are well aware of this.
We are also well engaged to make sure that the market understands where those costs are coming from. But I think we said from the very beginning that this will begin a process putting downstream pressure in terms of addressing the more optimal use of resources in health care across the board just to meet the demand as well as to better fall in line to what this country can afford in health care costs. And I think that's where UnitedHealthcare plays a role in terms of how they're going to participate and how they for health care. And that represents to me an enormous business opportunity for us with the Optum platform because that is designed to be an enabler of a new more modern health care system largely around how health care resources are informed, aligned, used, etcetera. So the answer to your question is, yes, we do expect that.
Do we expect a legislative response? I think, practically speaking they're going to want to make this health care undertaking work. And so they're going to now begin a process of actually starting to work with states, work in local communities, work with the delivery system about how they can get better, more consistent outcomes, higher levels of coverage and lower costs. That is an agenda we can play into and participate with them. And I think they're going to be approaching it administratively.
I think they're going to be approaching it at state levels very clearly and allowing states freedoms to pursue that. And my expectation would not be that there would be a second kind of legislative if you're thinking about price controls on that basis. I would think they're going to try to work through the system and work with the assets in the system. They've dedicated themselves to a private health care sector, both on the benefit side and on the delivery side. So that's what I expect and those are the indications that we get.
We've been working with them on how these what I'll call health care undertakings, their reform could actually be implemented, how Medicare could actually be modernized and progressed. That's what the dialogue has been and that's what I expect our continued engagement to be. And I don't see where there has been much energy around further legislation along those lines. Corey is in the audience. Would you concur with that or?
Great. So this concludes the formal portion of the day. For those of you who are here, if you've got capacity, we would love to have you stay with us. And let me tell you what comes next. We have the innovation experience open over lunch.
There is a buffet lunch in the back. The so you will have about 45 minutes to partake of either or both of those. And then as Steve mentioned, there are 7 seminars this afternoon. Seminars are up 75% year over year. Here they are and let me just spotlight for your interests in the evolving PBM industry, Dirk McMahon, Bruce Mead and Kevin Host are going to talk about OptumRx and where it is specifically well positioned to grow the organic growth lever that Larry Renfro referred to, how it is differentiated in the marketplace.
John Rex and John Prince are going to talk about becoming 1 Optum. Steve Hemsley referred to in his remarks new basics and 1 Optum under fundamental execution. 1Optim is both inside and also external in terms of how we can bring capabilities together across the business segments and John are going to talk about that. Health benefit exchanges public and private with Jeff Luck, Liz Canis and Steve Auerbach is backed by popular demand from last year. As Steve said, there's much we don't know about exchanges, but we can give you an update on where things are at the federal level and the state level and also speak to where private exchanges sit and why that looks like a growth opportunity for Optum.
Integrated Care Delivery is Rick Jelinek and Doctor. Jay Cohen. Doctor. Cohen is one of our physician leaders in our collaborative care platform in California. He and Rick will talk about how we are building out an integrated care capability in multiple communities across the United States.
A seminar that is so all of these are offered 3 times back to back. You've got a schedule with which rooms they're in and you can see it here. So they are 45 minute sections back to back. But for the next seminar, Imagining the Future with Mobile Technology is just twice. That's John Santelli and Nick Martin.
And we talked a lot about current technology today. So if you rolled your mind forward and imagined 2020, how would the further development of the arc of technology affect the way health care is delivered and the types of offerings that you would have in the marketplace. Gail referred to Doctor. Sam Hall in Austin Pittman's section on payment and delivery system modernization and they will get into some of the nitty gritty on how that's playing out. There was a lot of questions on that this morning.
And finally, we referred to Emil a number of times and pleased to do a session on that. We mentioned that on the conference call about the merger. We promised we would do that. And Simon Stephens Kloizer from Emil will hold forth on the Brazilian market. These seminars are all down two levels.
So you came in the lobby level. There is a lower level below the lobby and that's where the rooms are. You can take the elevators. If you take the main stairs here, when you get to the base of the stairs, there is an additional stairs sideways through the left or right doesn't matter. There's 2 more flights 2 more staircases from the side walls that you're coming out of and it's open.
You don't have to go through a door or anything. But you got to get down 2 levels if you want to get down to the seminar level. Do you have further? Thank you for coming. And we'll work very hard for you in 2013 2014 and we will navigate through these waters as well as anyone.
So thanks.