Good morning. Come on in. There's a bunch of chairs over on this side. You see a lot of spots open. There are chairs open here in the middle. Just about all of these chairs are going to be full when we're all in. Come on in. Before we actually begin, I've got some public service announcements. Our presentations today are going to contain forward-looking statements under federal securities laws. These statements are subject to risks and uncertainties, and actual results may differ materially from historical experience or present expectations. A description of the risks and uncertainties can be found in our reports on file with the SEC. I encourage you to look at those, including our Form 10-K and quarterly reports on Form 10-Q. Our 2011 and 2012 financial outlooks discussed this morning do not consider the pro rata share of costs related to the Penn Treaty matter.
We will be required to accrue costs related to that matter at such time as a court declares Penn Treaty insolvent. It is not affiliated with UnitedHealth Group. If you have questions about that, we can talk more about it offline. Our presentations today will contain non-GAAP amounts. There is a reconciliation of non-GAAP amounts that is contained in the back of the booklet you received, a number of materials there. Our theme today, next slide, please, is engaging people across health care. We look forward to engaging with you today. That began last night. Dinners, I understand, were very, very successful. We had a lot of good conversation. We had some good laughter. I got great reports on the dinners we held around town. Thank you for your engagement on that. We're going to engage in different ways today. We've got formal presentations. We've got an expo afternoon.
We've had seminars. I'll talk more about the logistics of that later this morning. We're going to start our engaging people across health care with a video. I'm not going to introduce it. We'll take a look at the video, and then our first speaker, who's our Executive Officer, Hemsley, will talk a little bit about the video after we watch it.
The world is constantly evolving, whether it be technology, politics, or our own lives. Change is all around us. Sometimes it's earth-shattering. Other times, it's earth-friendly, both permanent solutions and temporary fixes. Change is how we live at UnitedHealth Group. We embrace it. We use it for inspiration, to fuel our determination, and to help us find motivation. We use it to connect with people, our customers, in new ways, to make the health care system work better for everyone. We use it to serve the greater good and simply to do good and support people's condition. We use it to fight new epidemics, to inspire and equip people for better health, to harness the power and efficiency of data. We use it all together to improve the lives of these 75 million people we serve and to help the 14 million people who work in the U.S. health system do their jobs better. We're delivering a system that is much more efficient, much more quality-oriented, and much more affordable. We're responsible for our patients' care. Without a proactive insurance company, we'd be limited on what we could do. I finally lowered my blood glucose level. When I found out I had cancer, I didn't have much time. The quick response saved my life. My son suffers from asthma, not bad health care. He's finally getting the attention he needs. From the health and numbers screening, I found out I was only months away from a heart attack. Now I'm out doing double black diamonds again. If Kari hadn't told us to send our son, Brooks, into the emergency room, he wouldn't be with us today. These people rely on our actionable innovation to improve their health care system. That's why we embrace change, to understand how it can help us and our customers of every kind. If we're going to help shape the future of health care, we simply can't evolve at the same pace as everyone else. We have to passionately lead the evolution and improve the lives of the people and partners we serve today, tomorrow, and well into the future. Every day, across the country, around the world, we are asking the important question. How can I meet the future needs of our customers? How will our values meaningfully impact the people we serve? H ow can I help our partners confidently navigate reform? Motivate my employees to innovate. Evolve health care. Truly help people live healthier lives.
Good morning. Before we get started, there's a good hundred people sitting or standing in the back. If you're interested in filling in, now would be a great time to do that. Not interested? We'll just keep going. The video you just saw is a version of the one we showed to 500 of our senior leaders. Our purpose was to keep our focus on the people we serve and the way we impact their lives. It was the right way to begin that leadership meeting. We think it was the right way to. Today, as John said, we'll be a new format. We're hoping to do a couple of new things. We're looking to have more of a conversation with simpler narratives, simpler presentations, and much shorter formal remarks, more question-answer conversations.
We also hope to engage you a little more, move you around a little, and bring to life what we're teaching impact we can have across the health care system. We'll come back with the team to close the day. Before we turn you loose for the next 60 minutes or so, I could very briefly kind of once again set the context for UnitedHealth Group. First, we see ourselves as a participant in both free market health care system, a system that resides within a very vital social and economic environment. The importance of that recognition is what it means about our attitude on change, adaptability, and responsibility. We have endeavored to build ourselves into that changing health care system as an enterprise that is highly adaptable, evolving health care environment, committed to taking responsible positions for driving positive change across health care.
We engage that health care system through two distinct but strategically aligned business platforms that also align to very natural market boundaries. They fit the way people in institutions purchase products and services, as well as following the regulatory boundaries of health care. They are UnitedHealthcare for health benefits and Optum for health services. This model has evolved, formed by over three decades serving the markets of health care. We focus on three things we do well. UnitedHealthcare and Optum hold these three competencies. They leverage them in different ways, meet the needs, and solve one, domain knowledge around care management and coordination, how to best organize and deploy health care resources in local communities, which include both clinical knowledge and behavioral knowledge.
Second, actionable health care information and knowledge, extraordinary data from an increasingly broad range of sources, and the unique political science that converts data to actionable information for better decision-making processes for clinicians. Finally, enabling technology, complex proprietary applications that are simple and practical for the sector, connected at scale across the health system, open and flexible so they're more adaptive, and increasingly supported and delivered through our own infrastructure. As we have discussed with you during these conferences for a number of years, we remain sharply focused on fundamental exits. Our health benefits platform, UnitedHealthcare, is an exceptionally capable, well-established, more than 30 years service, an increasingly responsive and resourceful enterprise with a growing culture of service, passion, and innovation, an ever-expansive approach to the market.
UnitedHealthcare is a responsible market leader, free market-facing business, integrated in a balanced way to optimize local market dynamics, serve the needs of the people at every stage of their lives, flexible, consistent, and responsive services, perform at scale and selling economic value to. These businesses are UnitedHealthcare Employer and Individuals, UnitedHealthcare Medicare & Retirement, and UnitedHealthcare Community. UnitedHealthcare is emerging as a strong American team. With health in numbers, it's our first step. It is intensely focused on meeting the challenges of a national health reform agenda, seeing it as an opportunity for long-term growth. The markets UnitedHealthcare operates within are heavily regulated, poor markets that require a delicate balance between pricing discipline and membership. These markets have been consolidating for more than a decade, with the road ahead for UnitedHealthcare largely built on organic growth driven by innovation.
Gail Boudreaux will cover all of this in more detail later today. We're pleased to share with you that since we last met, Gail has been recognized by Fortune magazine as a powerful woman. To switch to Optum, our health care services business platform is also exceptionally innovative, with a growing commitment to practical offers that enable the system to perform better as a system, what we call goodness. Optum's businesses are national in scope, more solution-oriented in their alignment to the marketplace. Like UnitedHealthcare, they're pursued and sold through local market relations. Optum's markets are far less regulated. They're more immature in emergence. There is a dominant player as you know. The market is asking for more and more products and services that draw on the distinctive we have cultivated and delivered through Optum.
Today, Optum sells services to hundreds of health plans, hundreds of thousands of hospitals, hundreds of thousands of physicians, and a large portion of governments, employee benefits, global leaders in lifetimes. Optum is an emerging, high-growth, $30 billion services. Its three businesses have great capabilities, are growing steadily stronger, and are moving quickly to become more firmly established. Optum has been inquisitive and will continue to build and expand both internally and externally, so maturing integration and consistent execution are our keys. Larry Renfro will offer his insights on Optum in a little more than an hour from now. Larry took over the reins of Optum earlier this year, brings to that enormous opportunity more than 30 years of proven operating experience, technology, health care, services industries, investment.
In our final segment of prepared comments, Dave Wichmann will pull it all together in numbers and in several critical operating areas where we can show you the continued progress we're making across UnitedHealthcare. They bring the broad and deep perspective to our leadership team, having worked in virtually every aspect of our team. The health care system and environment is changing soon. I mean, ever more integrated. For us, more integrated means more connected, more aligned, more informed, intelligent, ultimately simpler to access, simpler to use, and more often accessible. As we all know too well, no one specifically is in charge of managing these systems. They rely more on natural market forces. There are a few aspects we believe will be certain. Health care will remain in open markets, private sector systems, simply because too much financial capital is required to do otherwise.
As health care remains private sector, it will continue to be highly regulated because it's too essential socially. Government will be both the leading participants and change engineers. The key overseer of the private sector and as a critical distributor. Given those realities, we are exceptionally well positioned, main focus, enabling change across the health system. I offer you a few. We're enabling positive change forces, improving the way the health care system performs for them and how effectively it can be done. UnitedHealthcare serves more than 35 million patients. Personalized approaches, innovative benefit design, educating and better health care, change their behaviors around health, better use of health resources, better care, better use of resources, and lower costs.
Optum provides the tools, providing better information for consumers to support their education, along with the technology that can drive the engagement and incentives for health, relevance, and content to help consumers change their behavior. We're enabling health care providers. UnitedHealthcare works to improve performance incentives for the delivery of health care and to enrich vital care provider relationships by helping them adapt operationally, economically, to an evolving health care landscape. One built on the same elements that are driving us: better information, better collaboration, accountable performance, and significantly greater cost effectiveness. Optum, again, has the critical tools to enable this process. Help care providers, help inform them, help them better understand their own costs, understand misaligned processes, technology, managing entire revenue cycles, targeting compliance, challenges, and competitive advantage, improving performance and resource use, ultimately lowering costs in an appropriate way.
We align Optum's data, technology, care delivery experience with UnitedHealthcare's innovative benefit approaches, membership, community presence, build more open, affordable, and sustainable health communities, collaboration with others. Lastly, we're enabling government. Governments who are hugely challenged, drowning in vast amounts of money, with high social expectations, burdensome responsibilities, and very antiquated approaches to health care. They're exposed to cost trends that are hard to control. They've taken cost shifting when uncertain, acting beneficiary actions. They know they must change. They want to change, but they don't always know how to change, how to improve them. Optum has deep competencies in the science of managing data, turning it into actionable intelligence. Optum designs incentives and processes for change, offering ideas that are drawn from proven commercial research on how to efficiently modernize government programs. UnitedHealthcare serves as the ideal partner to help implement more modern government benefits.
As we look forward, UnitedHealthcare holds the potential to disrupt health benefits, becoming ever simpler, cost efficient, and a trusted benefits integrator, growing organically as millions of people enter the market for benefits and health care. The rise of the consumer and the need to interact and engage with individuals as both consumers and patients, when, where, and how they wish to engage, opens new markets and challenges for UnitedHealthcare benefits offerings. Optum has the opportunity to define the health service sector, claiming its role as health care's prime innovator and enabler. As we move forward in time, the care delivery market will change and care providers will change. Care providers are getting paid based more on good health maintenance, cost-effective approaches, and high-quality care. That shift will compel new management processes, new technologies, and service requirements. Care providers also know they must change and adapt.
Most lack the tools, information, and resources. Optum will help physicians, hospitals, and other care providers adapt. Our goal is for Optum to lead in execution, service, and emerge with iconic health systems. Together, UnitedHealthcare and Optum have the opportunity to be the most positive enabling force in health care today. We are determined to seize that opportunity. No other company has our depth of capabilities. All three are enabling how care is managed, how information shapes and drives change, and how technology enables that change. Nor do they have our distinctive range in the marketplace for benefits and health care. As we move into 2012 and beyond, we will continue to drive the fundamental execution moments that we've achieved in this enterprise and accelerate it. We see it as our license to innovate, our path to growth.
We'll be disciplined in the capital we deploy and the resources that we use. As our opening video suggests, our eyes will remain fixed on our customers, their emerging needs, and market demand. We'll continue to develop our united culture of integrity, passion, relationships, innovation, and performance that guides our more responsible fit. We're talking about an enterprise with revenues of a couple hundred billion dollars or more over time, one that touches and engages millions more people and does so across a whole construct of services, information systems, and scalable processes that will benefit from investing more than $1 billion a year into our core competencies, year after year after year. Our products and services will be distributed through retail channels, government channels, over the internet, and through computer cloud.
We will reach and engage and incentivize people through benefit designs, through coaching and concierge service, integrated care organizations inside and outside UnitedHealthcare. We'll help build out and connect modern care delivery systems at the local level and with the consumer, patient, care provider front end. As we accomplish these things in a capital-efficient manner, growing consistently, sustaining an upper teens percentage return on equity, steadily building our dividend and doing the things you expect of good capital stewards, we think this will be an extraordinarily valuable enterprise. Some of the innovations and building blocks are on display here today, along with our senior leaders who can describe for you how those offerings work together in a practical way, how they provide differentiated value to the people we serve and drive our growth. Let's shift over to those exhibits for an hour or so.
If we could arrange to be back in this setting, let's say around 9:20, 9:25, we'll resume with Optum's opening presentation. Thank you very much for being here today. I hope you have a great day. Thank you.
Ladies and gentlemen, our program will resume in five minutes. Please make your way back to your seats at this time. Ladies and gentlemen, please take your seats. Our program is about to resume.
Good morning. I'm Larry Renfro, CEO of Optum. Thank you for participating in today's investor conference. Glad you had a chance to see our expo. These exhibits really help to illustrate where we're headed at Optum. I want to tell you how proud I am to be representing the 35,000 men and women of the company. We are focused on making the health care system work better for everyone. We are building a very strong foundation. Optum leverages the same core competencies shared by all of UnitedHealth Group: care coordination and delivery, information and analytics, and enabling technology. For the past 15 years, the Optum businesses have continued to evolve to tailor these capabilities to the service needs of the health care system. Unique solutions are being developed to serve a wide spectrum of customers with diverse and complex needs.
Using these core competencies, we serve everyone across the health care system: people, doctors, hospitals, governments, insurers, distributors, pharmaceutical companies, quite literally everyone. The diversity of the people and customers we serve has many benefits. One of the most important advantages is that we are able to learn from every part of the health system. We use this unique vantage point to design products and services that make the system work better for a broad range of customers. The scope of our offerings, along with the fact that we serve the entire health care system, positions us well ahead of our competition. It puts us in a unique position to grow by enabling and advancing change. You should expect to see us deepening our relationships with our diverse client rosters. We help them solve their biggest problems.
We think about the marketplace as a specific market where our distinguishing capabilities allow us to build and extend a strong competitive advantage leadership position. The eight markets are integrated care delivery, care management, consumer engagement and support, distribution of benefits and services, health financial services, operational services and support, health care IT, and pharmacy. These markets are sized at more than $500 billion and are already growing at a 9% rate per year. We hold a leadership position in most of these eight markets and have participated in nearly all of them for a decade or more. These markets remain highly fragmented, which is why in aggregate, we only have a 6% market. That is why there is ample room to establish a clear market-defining health care services brand. We will continue to deepen our offerings in each of these markets and expand our position.
Now, I'd like to give you an overview of our approach to each of these eight markets. Integrated care delivery is one of our fastest growing markets, one we have been participating in for several years. Our role varies. We serve local systems. We participate, partner, and invest in them. We enable them with tools, technology, and health care know-how. We have decades of experience and deep relationships with hospitals and physicians that we can foster to build partnerships. At our Southwest Medical Associates in Las Vegas, for example, we provide integrated care for more than 220,000 members. Our 260 physicians and other health professionals are equipped with market-leading technologies and tools such as electronic medical records, telehealth, e-visits, all to improve quality, access, and clinical outcomes.
By segmenting our patient population on acuity, we deliver top-quality care at the right point of access, whether at clinics and local area Walmart stores or at Southern Nevada's largest ambulatory surgery centers. Our providers' compensation is tied to outcomes for their patient populations, optimizing care quality, cost, and patient experience. More broadly, our participation in integrated care delivery is tailored to local market and delivery system needs. We are not tied to any single model of how we handle direct delivery of care. We've operated in the care management market for 20 years, and the need for innovation and value we bring is greater than ever. Historically, care management products have been purchased by large employers and payers wanting to better manage the cost and quality of the care for their people.
Today, state governments and even care provider groups are also purchasing care management programs, campaigns, tools and services, diagnostics, clinical segmentation, and analytics products. We continue to harness our data, technology, and know-how to help customers. Consumers are being asked to take a greater role in their health and health care. They don't always have the information they need to make important decisions or the understanding to make long-term behavior changes. We provide consumers with online decision support and information, choosing quality health care providers by sharing information covering over 100 diseases and conditions, 100 surgeries and procedures, 500 individual services, and 3,000 medications. Our eHealth portal and Optimize Me mobile app use the latest social media and other techniques to engage consumers in taking a more active role in their health. Our tools are integrated directly with the consumer's health folks, helping people meet their personal health goals.
We are active in the growing market for the distribution of benefits and services. Health reform legislation means millions of previously uninsured people may enter the benefits market. We expect steady, significant expansion of health benefits. More than ever before, consumers will need to be reached with information to make decisions about coverage. Employers will need help understanding their employee base and available options. States will be building health insurance exchanges. Insurers need to understand the changing dynamics of consumer movement in their plans. Focus on developing stronger relationships with their members. Optum provides data-rich tools and processes to help all of them get the information they need. Health care financial services is becoming a distinct marketplace. Consumers are more aware of the financial implications of health decisions, including the impact on their retirement. The linkage between health and finances is only growing stronger.
We like our leading position in this market. Optum established the first health bank, which today offers financial tools like HSAs and HRAs to help them save for medical costs and plan for future medical expenditures. Assets under management in HealthLink's savings and investment accounts are now almost $1.5 billion. An increasing number of baby boomers are headed towards retirement with significant long-term health savings needs. We see tremendous opportunities in this area. We also offer services to hospitals and physicians. Our payment networks feed electronic transfer of funds and reduce administrative costs for care providers. We handle more than $50 billion in medical payments annually, and we lend funds to health care providers for medical equipment, modern digital infrastructure. New legislation means massive new regulations to comply with, as well as overall cost pressures hitting everyone in health care. They all need better information, analytics, and insights.
We offer operational services and support such as outsourcing, consulting, and compliance management. At the expo, I hope you saw how our physician advisor teams provide hospitals and health systems with dedicated technology-supported services to manage state-level medical necessity regulations and CMS compliance. We also offer a product with patented natural language processing to decipher electronically transcribed patient encounters. It interprets meaning and medical context and provides a significantly better, more accurate way to code patient encounters. To truly be a system, the health care system needs to be better connected, meaning information delivered more quickly and accurately to the point of decision-making. We are continuing to lead health care IT transformation. We've introduced Physician Pilot Office in partnership with the American Medical Association. It is a blueprint to accelerate health IT adoption and medical practices, making it faster, easier, and less disruptive for physicians.
I hope you got a chance to see Care Tracker, our web-based practice management and electronic health record system. It's a key component of Physician Pilot Office. Importantly, CareTracker saves time and money for physicians by helping them access, enter, and correlate important clinical knowledge and information at the point of care. It also helps simplify administrative tasks like billing, claims management, scheduling, prescriptions, lab, and hospital interaction. Our health information exchange solutions already drive collaboration and real-time data exchange for more than 350 hospitals, 26 regional and hospital HIEs, and 9 statewide HIEs. With our hospital technology products, we're able to increase care quality, provide up-to-the-second patient information, and help hospitals with their two key areas of investment and cost: the ICU and the emergency room.
In the market for pharmacy, Optum offers a full-service PBM, including claims management, formulary administration, retail pharmacy network contracting, drug procurement, specialty pharmacy products, mail-order fulfillment of prescriptions, and sales of over-the-counter drugs. As you saw at the expo, we are making it easier for consumers to manage their prescriptions so they are less likely to skip a dose or confuse medications. One example is a mobile device called My Medication Reminder. It alerts people with text messages to take their medication, refill, or transfer a prescription to mail service. As you are well aware, we are busy right now expanding this business to take our current Medco PBM contracts in-house. In 2012, we will be investing an additional $115 million to continue to increase the scale of our platforms and operations. We have already begun to hear about our increasing competitiveness with the Big Three.
We think it is because of our offering of PBM basics, coupled with significant tie-ins to the much broader service capabilities we've been discussing here this morning. We expect our investments to begin yielding significant returns in 2013. To be a leader in these markets requires that we fully leverage the power of Optum. Simpler to understand, more collaborative, more impactful, able to innovate at a faster pace, able to leverage our collective culture to solve the biggest issues in the markets we serve, able to respond to a global market in need of higher quality care and lower cost. This past year, we started building and investing in our brand to elevate our market profile. Today, you may have seen the start of new Optum advertising. It's simple, straightforward, and the beginning of a campaign that will be evolving over the coming months.
This campaign introduces our new Optum tagline, Good for the System. It is a great distillation of how we want to be perceived. The work we are doing, the solutions we are creating, the partnerships we are establishing, they are all good for the system. Now, let me review the eight markets and line them up to our externally reported businesses. Aligning under Optum Health, Integrated Care Delivery, Care Management, Consumer Engagement and Support, Distribution of Benefits and Services, and Health Financials. Under Optum Insight, Operational Services and Support, Health Care IT, and Pharmacy, of course, aligns to Optum Rx. In 2012, we will continue to focus on simplification, our brand and reputation, and providing the solutions that meet our customers' needs to changing health systems. We will continue to focus on strong fundamental execution day in and day out.
We will be investing time, capital, and talent in preparing for the huge growth of our pharmacy business in 2016. A year ago, we discussed with you our vision of what services could be. We characterized 2011 as a baseline year. We have met and even exceeded our expectations for performance. I would characterize 2012 as a build-out year, moderate yet meaningful goals for revenue and earnings growth expansion. We expect revenues will be in the range of $29.6 billion- $30.4 billion, an increase of 4%- 7%. Earnings are expected to be in the range of $1.3 billion- $1.4 billion, an increase of 4%- 12%. These increases are primarily due to organic growth. We are expecting double-digit operating earnings growth in both Optum Health and Optum Insight. Earnings also include that investment of $115 million for PBM insourcing.
Optum's earnings growth would be nearly 20% if the PBM insourcing cost was excluded. By the time we get to 2014, and the transition is fully implemented, we expect it to contribute a couple hundred million dollars of earnings annually. What will Optum look like in 2013 and beyond? It will have a reputation of leveraging our core competencies to make the health care system work better for everyone, experts at anticipating, understanding, and responding to the needs and goals of the markets we serve, executing on our promises on time, on budget, and with the highest quality. Optum will be the health care services brand.
Our financial expectations are just as straightforward: strong organic growth, supplemented by acquisitions, which increase our capabilities; strategic investments from 2010 and 2011, supporting solid cash flow in future years; double-digit revenue and earnings growth; margin expansion; and returns exceeding 15% by 2015, 15% by 2015 as our strategic investments mature. To summarize, while our company does many complex things, Optum is basically quite simple, built on three core competencies, serving eight markets, offering integrated health services in a way customers want and no other company can do, committed to helping the health care system work better for everyone, and focused on being a leader in the markets we serve.
Thanks very much, and we look forward to your questions. I'd like to welcome our leadership team to the stage. That would be John Prince, Dawn Owens, Andy Slavitt, Dirk McMahon.
Moment where we discover that we have tall stools. Who did that? All right. Thank you, guys. Open for questions related to health services. About 25 minutes left for our next formal remarks. This is the part of the engaging people across health care programs. I'm just going to say, "Yes, sir," and "Yes, ma'am," because I don't want to mess anybody's names up as I saw hands here. There'll be a microphone coming up for you. Up here in the center, please. Bear with me. We're still getting the bugs out. Yes, sir, in the back.
John, thank you. I just want to clarify a comment on maybe I heard you, burns about $200 million at stake starting in 2000. Is that correct?
With the 2014 number, that's what we expect after the transition. That would be the incremental contribution to earnings above what the rest of the [audio distortion].
Find a microphone for the center section .
Thanks. Can you talk about some of the expected key growth drivers for the Optum Health segment, maybe splicing out the digital business, market segments?
Sure. We are fortunate to serve a broad range of market segments in Optum Health and are experiencing good growth in most of them, if not all of them. In the payer market, where we have specialty health networks being beefed through health, we're seeing a nice uptick of activity as plans are looking to drive solutions that are greater affordability within their programs and where we help them manage especially carve-out risk and other risk-based. We are continuing to thrive and grow in the employer marketplace where, as Larry pointed out, we have a strength of consumer engagement wellness programs, where the theme there is sponsors are looking for integration, support, good traction in that.
We are seeing meaningful growth in our work within the care delivery system, both in the way that we're serving systems as they transition to models of reimbursement and prepare themselves for the shift from pay for, as well as more of our direct purchasing as well highlighted by Larry's comments around. I would say broad-based balanced growth across Optum Health with increasing both levels of activity, close ratios, and organic growth performance about all of them. Let me not forget the states are also nicely growing and are contributing to that growth.
John, could you touch a little bit on some of the...
Sure. We've had really nice success working with states both at the level overall as well as within specific counties, looking at behavioral health care costs and how we both improve system access, improve quality of care, and improve the overall cost profile of the programs. We've had really nice successful models in county. Washington State just implemented a new program within Salt Lake County. There's nice interest in looking at how those models and especially risk-based models can move into other environments, again expanding counties or being introduced programs. States wrestle with costs and participants coming into Medicaid.
My question is about the integrated care delivery. It's pretty meaningful. We have a $70 billion total market size and $2.5 billion, I think, right now. Can you split that out for us on how much of it is coming from your in-home membership, how much is standalone, and then what your growth rates anticipated are on that business one to three years? Giving us a flavor of your strategy on how you plan to build that out.
Our participation in the integrated care delivery, I think, has some really important points I want to make away from our conversation. One, it's integrated around the patient in a way that kind of simplifies their clinical care and their experience. Two, it's very local. The work that we do is selective on local market partnerships successfully with those support models that provide better value, better costs, better quality, better satisfaction. It supports all cares in the market. Oftentimes, we have great relationships with UnitedHealthcare that allow us to initiate, start those programs, but that kind of migration around patient value will need to involve a large breadth of participants in the marketplace. We work with multiple players in that environment.
Finally, I would say we should remember that our work is both as a service provider to the market, how we serve hospitals, integrated networks, physicians, as well as a direct participant. Our participation cuts across both of those areas and is very specific to market communities. John, I don't know if you want to talk about the growth...
We have strong expectations, double digits. Seven is some. That market is [audio distortion]. UnitedHealthcare is one of multiple markets. Healthcare is a customer of the [audio distortion]. It's just one of our customers. That's more than 30. Absolutely. Hold on. That's positive. Holding on that. How we're doing in the market. Business has five, five, five, four and one. I think it's definitely a competitive day in that market and it' [audio distortion]. I'll open the dollars, profits, numbers, cost right now. That's okay. That's the cost next. Cost 2011 is $20. Profit versus 2012, would you like to keep it? Have you looked at that were probably approximately? I see. Right. Just secondly, last year at the margin target. Hoping you might be able to err in timing. Thanks.
I'll add. [audio distortion] That's still our expectation.
What Larry said is that those are expectations. We do look at our financial models out a couple of years. We still feel very comfortable with those expectations. We have two businesses, Optum Insight, who's over 40 in the lower end of that range. They already are at 14, lower 14 this year. You have Optum Health, who is actually doing better from their baselining in terms of their performance, even though they're in the mid-low six. They're actually progressing nicely. Optum Rx has really absorbed the PBM insourcing. We feel comfortable as we look out a couple of years that they would be in the 3% or 4% range.
Let's go here.
Thanks. Could you just give us a sense for where do you see the level of coordination and integration across all these different markets? How pleased are you with how well patient and the integration across all these different [audio distortion].
Let me start. I might ask Andy and Dawn, maybe even Dirk as well, to talk a little bit about that. If you look at the marketplace and the way that we are participating in the marketplace today, I think we're finding a lot of traction. We're finding a lot of organizations that are coming to us to try to find out what kind of tools and services. We have this whole continuum of products and services from point products all the way to an integrated model. The people are somewhere in between or all the way on one end or the other. We're seeing a lot of traction. Maybe Andy could talk about what we're seeing on his side of the business.
Sure. I think there's two things we paid attention to, particularly as we've rolled out Optum and the way Larry described it. First is the predominant way that we are perceived in the market is through our 35,000 people. The most important thing as we've brought our businesses together was to see who our 35,000 people understand and believe in this mission, this mission of being good for the system, improving the way the health care system works. We've seen extraordinary results in our employee engagement. We've seen extraordinary results. Over 80% of our people tell us they get the strategy and they're excited about the strategy. That's the first piece.
The second piece is as we phase out to the market, what we are finding is that all the message that the market's getting over and over again, whether you're a hospital system or a payer, is you need to integrate, you need to bring capabilities together, you need to become more seamless to the patient. Yet the majority of their vendors are vendors that help them with a spot problem, but often create problems upstream or downstream because they're themselves not fully integrated and connected. What I think our clients are most excited about is as we come together, we're able to bring a breadth of capabilities and link them together in ways that they're not able to find in other parts of the market.
I think what I would add is I kind of had a front row seat as I was in my formal role at running the operation at UnitedHealth Group. We'd go out and we talked to customers. One of the big value propositions is better information, better decisions, better health. A lot of that information comes from Optum Insight. A lot of the wellness programs come from Optum Health. A lot of the value proposition really is an integrated offering to them all.
As you're dealing with the customers, I mean, how much education does there have to be because they're used to looking at these spot answers to spot problems where you're offering this more comprehensive solution? I mean, talk a little bit about that process with the customer.
I think one of the things Larry emphasized that I'd emphasize now is it actually makes those conversations easier. We're actually easier to understand because we're not talking about a narrow sliver of what's happening in health care, but we're talking about those themes that occupy a big portion of the mindshare of the clients that we're serving as they anticipate the future. We're able to talk to them about how we leverage the power of the tools, the analytics, the insight, and translate them into service offerings that can support and drive change around health care cost, affordability, quality, and the like at the physician level, at the consumer level, at the hospital system level on behalf of any payer type that exists.
I would say that, again, as Andy said, our focus first was on our employee population because they are our voice and our manifestation of who we are out into the marketplace. The conversation with our customers has actually been simplified, and it allows us to actually work with them to solve, I would say, those things that are most important to them and to pivot based upon what's happening and what they're focused on at that moment in time. It's a lot of heavy lifting to make all that happen and work well, and we're still on that journey. I would say from the client perspective, yes, there's education, but it actually has simplified our relationships.
Just one comment. You know, we always talk internally about Optum and UnitedHealthcare that we're better together. Because of UnitedHealthcare's size and scale and our position with them, we're working day in, day out on pilots and different programs where we're learning. That helps us to commercialize and take things to the market. When we go to the market, we're not doing it in the dark. We've been able to kind of pilot this thing in a [audio distortion].
It's just a couple in the front here, and then I'll try to change sections. Oh, somebody, okay?
Thank you. You talked a lot about state-based customers, county-based customers. I guess there's also been some discussion lately about, you know, at the federal level, sort of traditional Medicare, unmanaged Medicare, fee-for-service, you know, health and wellness programs, things to sort of reduce costs. When I think about the $500 billion market opportunity, is there an assumption in there about greater use of the private sector and the unmanaged Medicare model and just a general sense for how you could see that market evolve over time?
Let me start, and then Dawn, I'll let you. When we put together the plan and we really wanted to sit down and look at the market size and we got to that $500 billion number, it was really coming at it from a services standpoint, not necessarily a benefit standpoint. Obviously, there is a play in there off of one and the other, but this is more geared towards strictly services and the Optum products. It's a little bit, there's a whole other market that is not included in that. That market we believe is going to grow at about 9% per year. That's what it has been growing as. We think that's obviously as numbers go, we believe it's a pretty solid number at this point in time. Even if it's not, we're at 6%. It's still a big market for us to go after. We're pretty confident.
Dawn, I don't know if you had any comments for me.
You know, I think as you look at the services that we provide around care intervention, care management, clinical delivery, whether that be those individuals who are institutionalized like in nursing homes or at home but high-risk individuals, we have a lot of value that we provide to the sponsors and the payers that we support in really looking at that top 2%- 5% of a population and managing that clinical care through primary care-based models and so forth in a meaningful way. Certainly, we've had discussions with CMMI and others about the opportunity to move that model into a fee-for-service environment. We can see how those discussions evolve.
Under any scenario, we believe there is strong market opportunity for us to work with payers, UnitedHealthcare being one of our more larger clients, but others as well, to bring those types of services, those clinical management services, delivery services to bear to impact much better quality of care, cost efficiency of care, and higher satisfaction because people don't want to be institutionalized in the hospital if they're not in a nursing home and they want to stay out and so forth. Tremendous value can be delivered and growth opportunity.
Let me just add one more thing. Some of the highest level of innovation in the market today occurs in the Medicare Advantage population. We see the kind of techniques and payment structures and care management capabilities and risk management capabilities that exist there as a great model, not just for the rest of Medicare, but for Medicaid and for other parts of the population. We think that's a significant growth driver for Optum. It's obviously a significant growth driver for UnitedHealthcare and UnitedHealth Group as a whole.
There are just a couple in the front rows here. If there are people patiently waiting on the sides, I'll change sections. Yes, sir.
Thanks. A quick numbers question and then a strategic one. First, the numbers question on approximately how much are you spending as an organization on responding to health care reform, ICD, and then related to because one time was [audio distortion].
I think Dave Wichmann is going to cover that here in a few minutes. If you can hold that thought, and it's a good thing you've got two questions, Charles. We'll go to the second one.
Actually, I have more in there, but I'll keep it to two. The strategic question, you know, I've seen, thanks for hosting all your capabilities outside, and we've seen many years you've had tremendous capabilities. I'm wondering, you know, what's changing that's making us more optimistic about the growth potential right now? You know, how much has changed in your sales organization? Were you underselling these products previously? How much was products weren't fully evolved and now they're there? How much was just the customer appetite not having been there and now the customer's appetite is there?
I'll let Andy handle this in terms of he's had a lot of experience with some of our new products and how the acquisitions and so forth have gone and how they've been integrated and so forth. I think that I could just make one comment that I believe that what we're trying to do right now is simplify. You know, we talked about the eight markets. We're trying to get focused on executing in those eight markets. I think there is a very, very sense of focus today. Not that there hasn't been focus in the past, but we're at a different timing, different maturity. We also are in a situation with everything that's going on with regulatory changes and so forth. We feel like we're well positioned at this point in time. It's up to us now to execute.
You'll hear us talk about executing day in, day out. It's an everyday business to execute. I think that's the strategy that we're under at this point in time is to get to that execution. Now, Andy's had, and Dawn is doing some at this point in time, but Andy's had a lot that he's been building on from a capability standpoint. Maybe you could comment.
Sure. I think the first thing, Charles, is if you look at the eight markets that Larry described, those are just coming into, I think, a clear picture and evolving into marketplaces that have more fulfilled needs. It has been a market for health care services. I think you can look at it at an early stage. I think you, for one, can look at these markets and the needs around those markets coming into clarity, coming into needs, coming into more crispness. The trends that drive those needs we see across all the customers we serve basically put them into four categories. One is a need to reset cost structure. Second is a need to comply with all the new rules of health care reform that exist that you all know about. Third is the ability and the need to measure quality and demonstrate qualities across the system.
Fourth, these companies need to innovate themselves and recast their relationships with their hospital systems, with their payers, and with the physician groups or otherwise. There is a tremendous amount of change and disruption, which gives us the opportunity, as Larry said, if we execute against those needs based upon both a broader service offering, the ability to solve the problem more completely, but also continue our sharp focus in each of our market spaces as the best answer in the market. We can't just be the broadest. We have to continue in each of these spaces to execute as the best solution in the marketplace. That's where we think the growth that Larry pointed to, early market, low amount of share, high growth, and our ability to drive that up.
I think you've seen in 2011, I think you're seeing what we're looking at in 2012, whether it's backlogs, whether it's transactions, whether it's any of the kind of leading indicator metrics that would tell us that we're heading in the right direction.
Thank you. Right here.
Thanks. I guess my question revolves a little bit around. Sort of the financial attractiveness of Optum relative to other opportunities at its health group. We talked about what sounds like a blended margin target that's probably in the mid to high single digits, bigger than the others. That seems commensurate with the overall organization. You talked about an ROE target of 15% in 2015, and I think you said earlier high teens overall organization. I'm just curious why this massive focus and growth and acquisition-driven strategy over the last couple of years to grow Optum so dramatically when it does sound like the financial characteristics are much better than the overall, even relative to, say, buying back stock. Is it just the growth? Is it just this market share penetration of 6% can go dramatically higher, whereas benefits businesses do better? I'm just trying to understand relative to your alternatives, why Optum is so much more financially attractive.
Sure. I think the way you got to look at this, and I think we were talking a little bit about this earlier, is we're trying to position Optum for the future. We're looking at all of these markets, and we are getting ourselves lined up, from the standpoint of Optum Insight, Optum Health, and Optum Rx. As we build towards really making this work, we have to put the building blocks in place, and that's what we're doing. I think in terms of where we'll be in a few years, I think we have expectations that, you know, we were talking about the, I think the returns would be 15% by 2015. Obviously, we have numbers that run longer than that, and we look at the returns at a distant time that kind of line up with the organization.
I think there's a strategy here that we believe that these markets are going to get larger. They're going to be able to be very attractive, and that the margins are going to get better as we get better in doing the job we're trying to do.
Just one further thought on that, is the 15% a return on invested capital, which includes the debt leverage effect?
That's return on invested capital.
Return on invested capital. Our enterprise balances our total cost of capital with the use of debt, about a 30% debt to total capital ratio. You have to factor that into the equation as well.
Back here, please.
I'd like to go back to the PBM integration for a minute here. Can you talk about what the risks and perhaps opportunities are relative to your cost and earnings targets? What are the things you're most concerned about? Are there opportunities or questions you're hoping to make co-merger?
I'll let John and Dirk talk about that. You know, this transition is just not a new transition. We've been working on this for a couple of years. We've had people in place, looking at obviously our core business, and that was more of the government business that we had in the PBM. We've been looking at how we were going to grow and how we were going to move from an external standpoint. I think a lot of times people think that we just started this, and that's not necessarily the case. We've been putting these plans together to move forward in the market and really laying down all the rules and looking at our operations as well as our platforms. It's not new.
The risk side of this in terms of getting the job done or laying it out or having timeframes, I think we're very comfortable that that plan is in play and executing fairly well. Maybe Dirk could talk about it from an ops standpoint and you from the financials.
Yeah, from an ops standpoint, 2011, a lot of what happened this year was basically data center build and hardware acquisition to be able to support the incremental business. 2012 is largely going to be around systems development to administer. 2013 will be the migration. You asked a further question about, you know, what about the Medco ESI? I think, you know, if there's disruption associated with that combination, disruption with competitors is always a good thing. There's opportunity in that respect.
I was looking back to the financial. I think when you look at financial opportunities, you always invest in potentially a future market, and you don't know if that market's going to come. What's unique about this investment is that you're investing a dollar amount, and you know you're going to insource the business. I think it's a very different risk profile when you look at the financial return is that we're going to invest $115 million with incremental next year in terms of insourcing the business, but we know we're going to bring in 12 million additional lives as part of that. We're also building a platform to leverage off for external markets. I think it's a much different risk profile as you were actually investing and trying to compete for that business and the market and how to win each life.
All right, one more on this side, please. Then we're going to go to the next section.
Thank you very much. A couple of questions. First of all, we talked about this last night, but I want to hear also from the pharmacy folks. How different is the insourcing, apart from the risk profile that you just so eloquently described? How different is the insourcing of the Medco business from any other strategic platform acquisition that you would make to grow Part D, Medicare Advantage, XL Health, any of the others? Why should we think of it any differently? The second question is, as I understand it from our conversations last night, each one of the investments that's made in a business and each of the capital allocation decisions made at Optum in its various tiny verticals or larger ones has to stand on its own. If there's benefits created in UnitedHealthcare, where do we count that?
How do we from the outside see that return coming in? How does that, or does it not get counted and is that the upside? I'll stop there. I have more, but I'll give that.
Can I take the first part?
Yes, go ahead.
As far as it being different, if you take a step back and look at what UnitedHealth Group's done integration-wise, the Mid-Atlantic Health Plan, Neighborhood Health Plan, what you do when you move business from one platform to another is you figure out how it was administered on the previous platform. You do the systems development that's required on whatever platform is the destination platform. We've done that very effectively with the Medco benefits. We'll be able to basically build a lot of those administration capabilities on our platform. In terms of moving membership, building the benefits on a different platform, moving the membership is not very different at all.
Before you go to that, let me just make one comment. We've been doing a lot of conversions, integrations. I mean, we do a lot of that. We do a lot of big operations. We make a lot of platform changes, operational changes, and so forth. This is not something that's new to us. It's something that we pretty much had to do, not necessarily daily, but it's a lot of work and we do it all the time. It's not something that scares us or something that makes us feel worried that we can't sleep at night about. It's a program I think that we have the right people on. Dirk just joined us in a leadership role of Optum Rx, and his background is running obviously all of the benefits operations at UnitedHealthcare, but he's run very large scale operations and systems projects and so forth.
I think you can rest assured that we have the right focus and attention on that part of it.
Your second part had to do with return on invested capital. I frame it in a broader context in that when we make a business decision around are we going to build a new business or buy a business, we go through analysis first and say build, partner, buy. We do a strategic investment case to say what is the best alternative based on strategic factors and financial factors. We build out a financial business case that supports that underlying investment thesis. When we acquire, it usually sits on a legal entity. When we talk about return on invested capital, it's that invested capital that acquisition then sits often within one of the businesses here. If Optum Insight did a transaction or Optum Health did the transaction, they would actually be burdened by that investment capital, still the full piece.
From an internal standpoint, we are quarterly going back and looking at, and a look back, and we've done that, we're looking back over the last several years and saying, are we getting the, are we meeting or exceeding that investment thesis in terms of the business case and supporting that? We look at it as a whole about what's the full return for that transaction. How you'd see it in the external market is that you'd see that in terms of the return within that specific business, or if it was part of the business case, then you'd see the operating earnings if there was a benefit somewhere else to that full business. We actually look at it internally in terms of continuing to evaluate and make sure the return happens.
When our company does an acquisition, we look at the synergy that comes from that acquisition outside of the evaluation of the business that we're looking at. That synergy exists because you all have sponsored the creation of that synergy over time. We're not going to pay that out in an evaluation basis. We look at it on a standalone basis and look at what are the hurdle rates that are required, what additional investments are required, et cetera, and determine if it's a good investment standalone. That is an acquisition decision which is separate from what the total gain to the operations are.
Okay, very good. Thank you all. I'm pleased to introduce our next formal presentation. Gail Boudreaux is Executive Vice President, UnitedHealth Group, and Chief Executive Officer of UnitedHealthcare.
Good morning. I'm Gail Boudreaux, CEO of UnitedHealthcare, and thank you very much for joining us this morning. We meet at an exciting time in our industry. Changes in the benefits environment are creating new opportunities to grow, to serve more people, and to modernize the healthcare system. UnitedHealthcare is advancing strategies and deploying resources to steadily transform the way healthcare is delivered and financed. We're offering customers a simpler, more affordable healthcare experience. Our strength lies in the diversity of the markets we serve and the products and services we offer, enabling us to maintain a relationship with an individual over their entire lifetime. I'd like to begin this morning by discussing the defining characteristics of this evolving environment and then highlight the value that UnitedHealthcare brings to the marketplace and why we are best positioned to capitalize on this change. Healthcare is a market in transition.
Employers, states, and the federal government are confronting enormous fiscal challenges. They're demanding new benefit solutions that more effectively manage their costs while improving health outcomes. Care providers feel reimbursement pressure from all payers. This is driving a much more clinically integrated and innovative payment and care delivery model that aligns incentives to deliver greater quality and affordability. The market is also becoming more consumer-oriented. Individuals are assuming more personal and financial responsibility and demanding more affordable products, greater transparency, and personalized help in navigating a very complex system. Over the next decade, the individual market is expected to double in size from 15 to 33 million people as states implement health insurance exchanges. Baby boomers are expanding the senior benefits market at the rate of 10,000 individuals a day. The Medicaid market is expected to grow over 28% to 77 million people by 2021.
UnitedHealthcare has over two decades of experience working across the commercial, Medicare, and Medicaid markets. This enables us to tailor our programs, our clinical programs, and our customer service models to meet the diverse needs of individuals in these very distinct markets. In Medicare, it leads to an industry-leading direct-to-consumer marketing platform and a broad portfolio of products across a very wide geographic footprint. With only 25% of Medicare recipients in managed care, the opportunity to serve more seniors in this growing market is substantial. In Medicaid, our appeal to state governments is built on managing the needs of medically complex underserved populations, social support services, and creating access to quality community-based care. Medicaid presents meaningful growth opportunities for UnitedHealthcare. We're well positioned to increase our penetration in the existing markets and expand thoughtfully into new geographies and product offerings where managed care penetration is low.
Let me share a few examples. About 7% of Medicaid recipients require long-term care, but they account for 35% of Medicaid expenditures. With less than 15% of these individuals in managed care, there is considerable opportunity to help states improve quality and lower costs in long-term care. About 9 million people, often the sickest and the poorest, rely on both Medicare and Medicaid. They're referred to as the dual eligibles. The cost of their care is estimated to be $300 billion annually, and it's the fastest growing segment of Medicare and Medicaid. Their care is fragmented and it's unaligned. UnitedHealthcare's experience working extensively with both Medicare and Medicaid positions us to serve these people and meet their complex clinical and behavioral needs with integrated solutions. Finally, in 2014, health exchanges will open up a new $60 billion market, which could triple to $200 billion by 2019.
This is a further opportunity to combine our expertise in Medicare, Medicaid, and the commercial business. We can tap our extensive experience selling directly to consumers in Medicare, our expertise managing diverse populations, and our intimate understanding of local markets to tailor products for the new exchange marketplace. This broad experience positions us to provide innovative healthcare solutions to individuals at every stage of their life. We have relationships with 250,000 employers, serve one in five Medicare recipients, and manage the care of over 3 million individuals in Medicaid. We know the services and interventions individuals will need in every stage of their healthcare journey. We turn that knowledge into meaningful interactions with consumers and innovative ways to work more collaboratively with care providers to align incentives based on health value and outcomes.
We can do this because we're executing on the four fundamentals of our business: growth, affordability and quality, relationships, and innovation. It's driving consistent performance. As a result, we've increased enrollment in every major product category every quarter this year, bringing our total number of new members added for the year to 1.4 million individuals. This growth is on top of the nearly 1 million members we added in 2010. To continue this momentum, we're encouraging consumers to take advantage of information and decision-making tools to make smarter choices, engage in healthier behaviors, and become more financially savvy. We're also nurturing a culture of compassion and service among our own employees to meet the expectations of the people that we serve. Our quality and satisfaction scores are at an all-time high, and we continue to improve, and they're making a difference for us in the marketplace.
To strengthen our relationships with care providers, we have over 250 physician advocates and 115 hospital advocates based in our local markets. They're making UnitedHealthcare easier to do business with, providing education and administrative assistance to providers' offices. Our most important relationship is the one that we have with an individual and how we can get them to engage more actively in their own health and make more informed decisions. Let me illustrate with a few examples of how we're doing that. I'll start with Medicaid. Our Medicaid business has grown by 165,000 members so far this year. In 2010, we grew by another 420,000 people. New business wins and service expansions in Louisiana, Texas, Arizona, and Pennsylvania speak to our ability to leverage UnitedHealthcare's national scale with customized clinical and member engagement programs to help states address their urgent financial and social challenges.
We see significant opportunities to pursue thoughtful expansion and growth of our existing platform as we work with our state partners on their key priorities. Let's take a closer look at how we work to help our Medicaid members navigate the healthcare systems and access the care that they need. Samantha is like many young women we serve in Medicaid. She's 24, works part-time, and is pregnant. Because of her low income and pregnancy, she's eligible for Medicaid. 41% of children born in America receive Medicaid benefits. Of those babies, one in ten suffers from severe complications at birth, and is admitted to the neonatal intensive care unit, costing an average of $32,000 per admission. Our top priority is serving Samantha, helping her to access the care and services that she needs to have a healthy pregnancy and a healthy baby. We do this through our Healthy First Steps Initiative.
We help Samantha keep her medical appointments, eat healthier, and understand the risks that drugs and alcohol pose to her and her unborn child. Our nurse practitioner calls her regularly, monitors her progress, and even arranges transportation to the doctor. The results are compelling. Among our Medicaid members, we've been able to reduce preterm birth by 36%, saving our state customers more than $100 million. Our relationship with Samantha doesn't end there. We stay connected with her by providing important information about immunizations, preventative care, and nutrition to help her develop healthy habits for herself and her child. One way we connect with her in a meaningful way is our partnership with Sesame Street. We sponsor the Food for Thought, A is for Asthma, and Lead Away programs. To date, over 1 million bilingual kits have been given to low-income families to help them eat healthier on a budget.
Samantha's story is an example of how we tailor our programs to improve the health of our members and reduce costs for our state Medicaid customers. Now let's turn to Medicare, one of our fastest growing markets. In 2010, we had a total of 370,000 senior members, and in the first nine months of this year, 270,000 individuals have joined a UnitedHealthcare Medicare Advantage or Medicare supplement plan. UnitedHealthcare is consistently the choice for the largest share of newly eligible beneficiaries who choose a private Medicare plan. Our success serving 9 million seniors in Medicare is built on a distinct knowledge of the older consumer. Using some of the best predictive analytics and practical experience in the industry, we know what they want and how to reach them.
As the first wave of baby boomers enters the market, we'll turn this knowledge into meaningful opportunities to increase customer satisfaction at every touchpoint. I'd like to showcase one of our typical Medicare consumers. Peter is like many of the seniors we serve. He struggles with the complexity of healthcare and managing his multiple conditions. Peter turned to our Medicare Made Clear program, created in partnership with the National Council on Aging, to better understand how Medicare works. It helps Peter make better choices about his care by providing clear and concise information about Medicare. Each year, when Peter assesses his Medicare options, he turns to UnitedHealthcare. Through our decision support tool, he determines the right product for him. He factors in the medications he takes, the doctors he sees, and his financial situation.
The product that makes the most sense for Peter is our AARP Medicare Advantage plan with prescription drug coverage. It will give Peter access to our new low-cost hearing aid benefit and discounts on prescriptions through our Pharmacy Saver program. Since January, the Pharmacy Saver program has provided members with more than $150 million in saving opportunities at over 64,000 neighborhood pharmacies. Peter recently had bypass surgery and is working closely with one of UnitedHealthcare's nurses to help him manage his condition. He's enrolled in our Advanced Coronary Case Management program specifically designed to address his needs. Through this program, Peter has been able to stay well and out of the hospital. Peter's story highlights the important role that focused clinical support programs have in reducing costs while helping seniors more effectively manage their health conditions.
More broadly, we've helped our members like Peter avoid unnecessary hospital stays, cutting our overall Medicare readmission rate by 27%. Now let's turn to the commercial market. Our employer and individual business grew by nearly 1 million people over the first nine months of the year and has grown in each of the last six quarters. We work very closely with employers and individuals to offer benefit plans that provide personalized solutions to help members live healthier lives and achieve meaningful cost savings for employers. Mary, a newly diagnosed diabetic, illustrates how we're improving affordability and quality. Her employer, a UnitedHealthcare customer, recently added our Diabetes Prevention and Control Alliance to its benefit program. This program is a partnership between us, the YMCA, the Centers for Disease Control, and retail pharmacies like Walgreens. The CDC develops the clinical guidelines. The Y offers coaching sessions. Local pharmacists provide additional support.
UnitedHealthcare brings these capabilities together with our technology, data, and financing capabilities. There are 26 million Americans living with diabetes today, and another 79 million Americans are considered pre-diabetic. The cost impact of this chronic disease is huge, about $194 billion annually. The potential for savings across the entire healthcare system is enormous for a disease that is largely preventable. When Mary didn't fill a prescription considered essential for a new diabetic, our clinical system identified this gap in her care. A personal health nurse proactively called Mary to reinforce the importance of taking her medication. Since Mary enrolled in our Diabetes Prevention and Control Alliance, she's lost 15 pounds, walks daily, and is eating better. Her diabetes is controlled with medication, and she tracks her blood sugar daily. She's developed a relationship with her personal health nurse and is actively managing her condition.
This program is an example of practical innovation impacting both cost and quality. To date, more than 24,000 employers representing over 2 million employees have added the Diabetes Prevention and Control Alliance to their benefit program. When individuals are engaged in their health, quality of life is improved, and employers gain a more productive, healthier workforce at a lower cost. As the stories of Samantha, Peter, and Mary demonstrate, we're making healthcare work better one member at a time. We know targeted personal engagement is effective because we're applying these same principles to our own employees, to our UnitedHealth Group benefits plan, and the results are compelling. Through a combination of consumer-directed health plans, support services, and personal rewards programs, the cost trend for our own employee health benefits plan is 2.3% versus the industry average of 7%, a difference of almost 5%.
A driving force behind these numbers is our innovative personal rewards for health program. This is a program we also sell to large employers. In less than a year, it's grown to almost 1 million members, and it's a simple concept. If individuals engage in healthier behaviors, they earn financial discounts on their premiums. To earn a discount, they need to hit a target number on blood pressure, weight, and cholesterol, or enroll in health coaching sessions. The program has been a huge success with our employees. Over 79% of employees and eligible family members participate and are actively engaged in their health, and the impact is real. 45% of planned participants have lost weight, with an average of more than nine pounds lost per individual. Engagement with a wellness program coach has increased fivefold in the past year, and it's fueling our growth.
Our innovation around consumer incentives, cost transparency, and new payment models are driving value across the healthcare systems, and they're making a difference in differentiating us in the marketplace. In the commercial market, our competitively priced products offer consumers and benefit sponsors more value, more choice, and more control. Our premium designation program empowers members to choose their doctor based on cost and quality. Premium designated cardiovascular surgeons have a 50% lower complication rate and 18% lower surgery costs than those outside the program. MyHealth Sherpa is an innovative service model that connects cancer patients with a dedicated customer service agent to help resolve claims and understand coverage. The program is simplifying the member experience, significantly reducing the level of effort members have to spend navigating the healthcare system.
Our Community Services Connect program with Walmart is an in-store program that connects eligible Walmart customers to community and Medicaid services using an iPad. We're also applying the effectiveness of our modern commercial program to Medicare and Medicaid. Now, Clinic makes it possible for doctors and patients to have a secure live chat over a webcam. It originated in our employer plans, but it's now available to our Medicaid members. This commitment to practical innovation is earning external recognition. This year, we were named Outstanding Corporate Innovator by the Product Development and Management Association. This award places us among previous winners like PepsiCo, BMW, and Apple. Following our presentation, the expo will reopen, and I encourage you to see these innovations in action. Our innovation mindset has us well positioned for the future. That future is changing, but we know what we're facing, and we're managing it.
First, we've prepared our business operationally and financially for both the new minimum MLR and rate review requirements. Second, we're focused on quality. In Medicare, the CMS STAR ratings, which now place a greater emphasis on clinical outcomes, represent a significant focus for our organization. For 2012, 94% of our members are in plans that will receive quality-based bonuses. On the exchanges, our direct-to-consumer marketing experience, combined with national scale, local depth, and government program expertise, gives us the opportunity to capture and retain members across life stages. In all our markets, we're applying a disciplined approach to payment reform. We're collaborating closely with care providers to help modernize the delivery system, drawing on our years of work building incentive-based payment models. We offer market-ready solutions that are helping care providers move toward more integrated care models, such as accountable care organizations and patient-centered medical homes.
In fact, we're involved in nine medical home pilot projects right now. Now let's review UnitedHealthcare's results. We had significant success growing our business in 2011, with more year-to-date growth than any other publicly traded competitor, adding more than 1.4 million members so far and an additional 300,000 standalone Part D lives. Medical cost trends continue to be restrained due to the combination of our focused clinical efforts and the broader economy. Although we are starting to see evidence of increased utilization trends, particularly in physician and outpatient settings, we have been able to leverage our scale as we grow, driving greater productivity and a lower operating cost ratio, even after absorbing the costs associated with reform compliance and considering the strong growth in commercial fee-based offerings that have higher operating cost ratios. These successes were the direct result of a continued focus on fundamental execution.
Taken together, we expect to close the year with revenue of more than $95 billion, an increase in our total benefits enrollment of over 1.5 million people, with all businesses and lines of business showing positive growth, and earnings of approximately $6.9 billion. These are all much better than the outlook we provided just one year ago. In 2012, we intend to build on these achievements, as our affordable solutions and innovative offerings continue to resonate in the markets, despite expectations of an even more challenging environment in 2012. Building on our positive momentum, we expect revenue around $100 billion. For the full year, we expect to grow enrollment by nearly 1 million people at the midpoint of our guidance. This includes very positive momentum in the fee-based national employer segment and continued strong growth across our Medicare Advantage and Medicaid offerings.
Dave Wichmann will cover medical cost trends in more detail in just a few minutes. Looking across UnitedHealthcare, we expect our medical care ratio to increase, returning to more historic levels. Specifically, our 2011 care ratio benefited from significant favorable prior year reserve development, which we don't expect to continue going forward. In 2012, we expect increased health system use and a more challenging commercial pricing environment. Beyond medical costs, we will continue to demonstrate strong operating cost performance, driving quality and efficiency as we grow. Considering all of these factors, we expect 2012 health benefits earnings from operations to be in the range of $6.6 to $6.9 billion. Overall, 2012 is about continuing our strong fundamental execution while at the same time preparing our business for significant growth opportunities on the horizon. The momentum is with us.
The value we offer to healthcare is in demand like never before, and our capabilities are leveraged to deliver greater value to all the constituents we serve. We are intensely focused on serving the needs of the consumer at every life stage, creating a simpler, more personal, and more affordable healthcare experience and establishing lifelong relationships built on trust. UnitedHealthcare is confident about the future, ready to lead through this period of intense change and poised to capitalize on the unprecedented growth opportunities that lie ahead in 2012 and beyond. I'd like to leave you with a short video. I want to share with you the vision we share with our employees to inspire them to make healthcare work better for everyone. Following the video, I'll be joined on stage by the rest of the UnitedHealthcare senior leadership team to take your questions. Thank you very much for listening.
Before we get started on the question and answer, I want to introduce our senior leadership team. To my right is Tom Paul. He's our CEO of our Medicare and Retirement business. Next to him is Jack Larsen. Jack is our CEO of our Community & State business. Dan Schumacher, our Chief Financial Officer for UnitedHealthcare. Jeff Alter, our CEO for the Individual and Employer business.
Thank you, Gail. We are going to take questions out of this section to start off.
We're getting towards the end of the Medicare enrollment. Please talk about how that's gone on an individual basis and what you expect to see. Has that been a little slower this year than what's been happening in the past couple of years?
I'll start, and then I'll ask Tom Paul to comment specifically. Let me frame it a little bit more broadly. We feel we have a very strong offering in Medicare Advantage. As you've seen in the SEP enrollment numbers, we have done extremely well this year. As you also know, open enrollment started a bit earlier, rather, for seniors. It's a bit off cycle for them. We think from the early results, we've got a very compelling story, and I'll let Tom talk a little bit about the early results we're seeing.
Yeah, I think the key phrase that I would categorize this year's AEP is that whereas the timeframe changed, consumers' behavior did not. They spent the month of October, which this year included enrollment, last year did not, but they spent the month of October really shopping and making sure that they were getting their choices lined up and their information gathered in order for them to make the best decision. Oddly enough, when November 15th hit, shopping turned into buying, and we saw the consumer behavior change similar to patterns we saw last year in the AEP. It is progressing well for us. As Gail said, we have strong expectations for growth in 2012 and believe the AEP will set us up well to achieve those goals.
How much of that growth in 2012 are you projecting is group Medicare versus individual?
If you compare what we see in 2012- 2011, I think 2011 was a fairly flat year for group retiree products. We today in UnitedHealthcare serve a large population in the retiree space, both in the Medicare products as well as in the commercial business, mainly in our ASO business. In 2011, I think employers were waiting for the outcome of the health reform discussions, and the timeliness of that basically prevented them from making decisions going into 2011. In 2012, we see that much more active. We would predict over the next three to five years, continued change and continued choices being made by employers. Our growth in 2012 will reflect that return to more normal or active group retiree business, and we will expect growth in our group lives in 2012.
Let me add too, you saw our guidance is 250,000- 300,000 member growth in Medicare Advantage. One of the advantages we have, as you heard from my comments, is our ability to leverage our national book of business as well as our very strong public sector. We think we have a very compelling offer as employers begin to migrate to that, both if they're going to go into a group product or as well as an individual MA, which some are doing as well.
All right, Janice, there's one here. Fran, I think I had seen a hand in the back. We'll get next.
Thank you. It's in the commercial. Talk about growth rate, employers, customers, on members, and roughly how much cheaper are they than the...
I'll start, and then I'll ask Jeff Alter, our CEO in the individual and employer sector, to add some commentary. There is a strong growth rate in value-based products, and I would consider that very broadly, not just from tiered networks, but also consumer-based products. We have seen very, very strong growth this year in 2011, particularly in the smaller end of the market. Small employers are very compelled by that. In the larger end of the market, we are seeing increased interest in it, but not full-scale movement over to it. We are seeing a lot of interest in the personal rewards program, which, as I mentioned, will be at almost 1 million members in less than a year. There's a combination of adding incentive-based reward systems to the large employers to incent both personal and financial accountability.
On the small end, to look at networks that drive value, add things like our premium designation network where you can actually go onto the treatment cost estimator, which we're demonstrating in the exhibit hall, and see where you can make real decisions based on cost and quality at the member level. I'll ask Jeff to add a little more to that.
I'll just add that our narrower network or more affordable option programs and products are probably our best new selling for our growth, where we're selling brand new business for UnitedHealthcare through those in many markets. The acceptance level is gaining traction across the entire spectrum from the smallest of groups looking for more affordable options. As networks have grown over the years, even some of the narrow networks are not very narrow if you go back to the early 2000s. People are re-engaging into the closed network, narrow network HMO models in a different way. We're also seeing some interest, as Gail mentioned, in the national account base in certain geographies. If we have an option now available of a narrow network for the national account employers to look at that in a different way than they have in the past.
Thank you.
Yes. I have a question about the new group market. You are, according to your risk profilings, quite dominant, about three times the size of WellPoint. WellPoint recently announced that they are basically going to partially exit the market in April, discontinue about two-thirds of their membership. Their reason, and according to the filings, is their loss ratio is in the low 90%, you're in the mid 80%, and they think they have a very poor book of business and they want to start over. My question is, in a guarantee issue state, how do you manage that potential flow of potentially thicker all group members? Thank you.
Again, I'll start and then I'll ask Jeff. Actually, who was our before-take role as CEO of UnitedHealthcare, also ran our New York region, so knows that well. I think as you look at our New York footprint in particular, we have had a very consistent and disciplined approach in terms of the cost structure that we drive, the underlying way we contract, as well as the product portfolio that we've brought to the market. That process is very consistent. I think we have an incredibly competitive portfolio of products, as well as a very good underlying cost structure that has obviously resulted in a competitive loss ratio. In terms of our migration strategy relative to those members, I'll let Jeff comment directly.
We've read the statements as well. As Gail said, we've had more than a couple of decades of disciplined pricing and a different platform than UnitedHealthcare in the legacy Oxford, which was known for and still is known for a tighter medical management. We believe that part of our competitors' struggles in New York is more about their economic base and their ability to manage chronic conditions and some of the thicker population. We feel as we bring in that business through their exit, the combination of our economics and our ability to manage that population in a different way will yield the same mid 80s loss ratio.
Thank you. Others on this side? Okay, come over here. There's a hand in the back. Thank you, Susan.
Thank you. Talk about how you think about the potential risk, commercial margin going into 2012, as you talk about increased price compensation and somewhat higher underlying medical cost trend. I recognize that your track record is pricing differently along my history of that. When we go through a cycle of margin inflection, it's everybody. My question is both specific to H and O about where the...
Let me start and I'll ask Dan Schumacher, our CFO, to add his commentaries. I think you started with the right premise, which is we have had a very consistent and disciplined pricing approach over the last two years, and that hasn't changed. We've talked about this on the last few calls around the competitive pricing environment. I guess I would continue to characterize it as it's been a very rational market, and I think people are making decisions based on their forward view of costs, their current position relative to how they see rebates playing. It has, you know, that's been very either case or geographically specific, which is very consistent to what we've said in the past.
I think from the commentary that where you started around the nature of the environment, we think that that's very consistent, but we do see some, you know, places geographically where the pricing competition has increased. You can see from our guidance even on the commercial book that we're going to stay extremely disciplined to find that absolutely right balance.
Matt, I would just add that, as you look at our earnings guidance, I think where we've staked that out, we've fully accommodated what we're seeing from a competitive standpoint, and it's reflected in there. As you look at what our expectations are for 2012 and think about where we're at in the pricing cycle, we have more than two-thirds of our enrollment base, or member months if you will, for 2012 priced at this point. We know well what our revenue looks like for 2012 and feel very comfortable that our guidance accommodates this.
Great. If I could just ask one more follow-up, which is on your commercial member composition. It looks like in looking at the member figures that you gave in this book versus a year ago book, that maybe your individual lives grew by about 100,000 and your small group lives in the 2 to 99 category declined by a couple hundred thousand. Is that correct or a misread book, if you talk to that chance?
That's for 2011?
For 2011, because I'm comparing book to book.
For 2011, that would be a misread. It grew across our individual, our small business, as well as our middle market and large group.
Individual.
Yes.
We grew.
We grew, positive growth.
All right, thank you.
Anna, up here, please. We'll do two more questions.
Yeah, two questions on the government program business. The first one is to focus on the XL Health acquisition for your businesses. I feel like there may be a cross to Optum here too, but what capability that's bringing into your business that you didn't have before in terms of leapfrogging serving your broader population and beyond XL what you didn't have internally and how this is. I just wanted to do a similar walk-up on the Medicaid 12 enrollment outlooks.
Why don't you comment on the XL Health?
Sure. I think one of the things that was interesting to us on XL Health was their model in primarily serving individuals with chronic illness. I think we all know that, especially within the Medicare population, and inclusive of the dual eligible population, chronic illness is a key contributor to medical spend and a significant population that suffers from chronic illness. I think 90% of individuals in Medicare have at least one chronic illness, 50% have multiple chronic illnesses. The platform that we looked at at XL Health, which is what piqued our interest on this entity, was really the integration of clinical program activity that they have. They've got a very solid platform that enables them to clinically address these individuals. They virtually see 100% of their membership in home, which allows them to basically get a very comprehensive record and look at individuals.
They're able to address gaps in care very early on. They're able to have a very comprehensive and accurate medical record documentation that enables them to encourage better care and better outcomes for individuals, as well as better documentation for purposes of revenue management with the government. They applied it in such a way that we think is leverageable across our individuals with chronic illness and our individuals with the dual eligible population.
Versus what you had in-house already, you had a business book already. Was it completely new capabilities and protocols you were getting in-house, or is it more about the scale?
I think it's both the scale and kind of the integration of the capabilities that we have. We had components of those capabilities within the organization, but I think the way that their platform and their technology enables the integration of those capabilities was a real benefit for us in the chronic population.
We do think that will be very complementary.
Sure. What's going on in Medicaid for a membership buildup for 2012? A couple of things going on. Some significant new wins will contribute to our growth rate in 2012, specifically Texas expansion in the Valley, as well as some other smaller geographies. Louisiana will be a large contributor to our growth. We will be withdrawing from the state of Connecticut sometime early in 2012, given their move towards more of a managed fee-for-service approach rather than full managed Connecticut.
Yes, sir. Last question, please.
Okay, I guess kind of two questions if I can. The first point, we started off with the Medicaid or the dual eligible opportunity, and I wanted to think about, get your thoughts about how you're going to attack that opportunity. Is it mostly, you have a Medicaid and a Medicare side to it? Is it mostly going to be Medicaid since that's where the state relationships are, or is there a federal angle to that membership? Also, on the exchange, as you kind of quantified it, I think it's a dollar opportunity. How are you thinking about doing this? Is it mostly going to be a commercial business, or is it going to be something like the dual eligibles where there's a quasi-Medicaid state relationship angle too?
We'll touch on it briefly, but I'll pitch, we've got a seminar that's going to talk about both of those in great detail. I would also encourage you to attend that on both duals and the exchanges. Maybe you can touch on duals, and I'll touch on exchanges.
For duals, I don't think it's necessarily one or the other. I think CMS has done really yeoman's work getting this issue to the front, funding pilot programs, getting states engaged, going the extra mile to offer two forms of contracts that they would be open to for a fully integrated comprehensive approach to managing what is now the MMEs, which is the Medicare Medicaid duals. I think the focus for a while was on really a federal mandate with a supercommittee that seems to have fizzled in a formal way. However, there's been a lot of interest built at the federal level to really do something. In parallel, states have been talking about this for a long time. I think the way this will play out, certainly CMS will look at all of the demonstration pilot submissions, determine which of those states they want to support and move ahead.
States themselves, I'd say particularly Michigan, are moving ahead fairly quickly with their own design program. At this point, I'm not willing to call a ball whether it's primarily state or primarily federal. I think for now they're working really very well together to move the whole idea of comprehension.
Quickly, in terms of your question on the exchanges, we have a lot that's still unknown about the structure of each of the individual state exchanges that are still in their formation. We have a dedicated team of people focused at both the national level as well as the state level, working in each of the markets to determine the right market structure, what we think the right levers will be, how we'll participate in the exchange, maybe outside of the exchange. I think our approach to the exchanges, we see them as a significant opportunity, but we also are going to leverage our deep market local expertise. Quite frankly, our expertise in managing in the Medicaid market for many of these eligibles we know will potentially come, have not been in the market before, probably less educated from the statistics we've seen, and quite frankly, probably have multiple conditions.
They may move in and out of eligibility for Medicaid and the commercial market. A lot of the skills that we've built around managing some of these more complex markets, I think, will be important to us. We're going to assess that in each of the states based on the structure, and we're doing that now, working with the states, providing them guidance on how we think an appropriate, helpful structure would be to sustainable long-term markets.
All right, thank you very much. Our closing formal remarks will be from Executive Vice President, President of UnitedHealth Group Operations, and Chief Financial Officer, Dave Wichmann. He's going to take an in-depth look at both operations and financial performance and outlook.
Hi, how are you? Morning. John said I'm Dave Wichmann, oversee operations and technology for UnitedHealth Group, and I also serve as your Chief Financial Officer. The bad news behind that is there'll be no video here in this section. There will be plenty of numbers and lots of slides. Obligatory, before giving you an overview of our financial results and forecasts, I'd like to first remind you that this presentation contains forward-looking information and statements. Those statements contain risks and uncertainty, and actual results may differ materially from those statements. Factors that could cause actual results to differ materially can be found in the cautionary statements on our Form 10-K and Form 10-Q. Second, our 2011 and 2012 financial outlooks do not consider any potential assessment or future recovery of UnitedHealth Group's pro-rata share of costs for the policyholder claims of Penn Treaty, which, as you well know, is not affiliated with UnitedHealth Group.
In addition, our 2011 and 2012 financial outlooks do not anticipate the results of operations of the pending XL Health transaction announced just one week ago today. Third, this presentation references non-GAAP financial measures at times. These metrics are reconciled to GAAP measures on the investor conference section of our investors page at www.unitedhealthgroup.com and can also be found in your book behind the other materials tab. Today, I'll summarize our strong 2011 performance expectations, give you an overview of our consolidated and segment financial outlooks for 2012. I will also dip into operations and technology and review the strength and flexibility offered by our balance sheet, capital structure, and capital management programs. First, I'll begin with a summary of our current estimates of 2011 results. As we sit here in November, I believe it's fair to say that we have performed well in 2011, the first full post-reform year.
Top line revenue growth is being driven by gains in enrollment, discipline pricing, services growth, and further services diversification in technology, delivery, consumer acquisition, international assistance, and military health. These elements have also further prepared our business for distinguished long-term growth and returns. We expect 2011 earnings per share to grow around 11%. Contributors include our overall growth, medical cost management, continued more moderate levels of utilization, exceptional service quality, and operating costs and capital management disciplines. This earnings capacity has, in turn, been converted into strong cash flow, now expected to be around $6.2 billion, or 1.3x net income. If we review the original financial targets we set for these 2011 metrics at this time last year, we expect to exceed the top end of our growth, earnings, and cash flow ranges we provided.
Further, we have improved our quarterly dividend by 30% and expanded our share repurchase program this year. As you can see, we increased operating earnings by approximately $600 million, or around 8%, and earnings per share by around 13% from core operating performance in 2011. These charts best demonstrate the adaptation of our business to early reform provisions, specifically the implementation costs, which should begin to fade in 2013, and the impact of the minimum MLR provisions in the commercial markets. We are achieving solid revenue growth and operating margins across all reporting segments in 2011. All businesses but one are meeting or exceeding their original targeted range for operating earnings. Optum Rx, which is investing in its core platforms and positioning itself to be a major player in the PBM market, is the exception here.
UnitedHealthcare earnings in 2011 are being driven by nearly 5% growth in medical members served and ongoing medical and operating cost management. They are also significantly aided by a general moderation in utilizations and favorable true-ups in the medical reserves established in 2010. The earnings are significantly offset by reform costs and many MLR.
Rebates first experienced in 2011. Optum Health's operating earnings are well above the range we discussed with you last November, even with the investments made to further diversify its offerings. Optum Insight's revenues, operating earnings, and operating margins were very strong, with operating margins near the upper end of the broad range we provided you a year ago. We now expect to be serving approximately 78 million people by the end of 2011 across our businesses. Looking at UnitedHealthcare, we are achieving meaningful growth in every category. This growth is led by our commercial fee-based business, which will increase by 875,000 people in total. The commercial risk-based category is projected to increase by 125,000 people, reflecting continued strong momentum developed in early 2010. In government programs, we increased by about 530,000 members, with growth in both Medicare and Medicaid products.
In total, we project 2011 will end with a gain in market share and growth of over 1.5 million people receiving medical benefits and an additional 345,000 people receiving standalone Part D prescription drug plans. These strong results were achieved in a very difficult economy, which highlights the relevance of our product positioning and approach and the strength of our supporting cost structure, service, and technologies. This tells you a similar story. Again, up in all categories year over year in a relatively flat market. That translates to market share and strong revenue gains across our business. Matching and exceeding that performance is Optum, which is expected to grow revenues by 21% in 2011, while contributing rebaselined earnings and margins during this period. Given market dynamics and the leading market positions of Optum, we see strong opportunities to advance these platforms in the coming years.
A quick look at the past three years' performance shows revenues have been advancing at an 8% compounded annual growth rate, and earnings per share have grown 40% since 2009. That three-year performance yielded $18 billion in cumulative operating cash flows. Of that, we returned over $8 billion to shareholders, while investing $7 billion in the business. The remainder was held as additional capital in the business. Now let's move on to an overview of 2012, beginning with a few key assumptions. First, we are assuming employment growth will be flat, with the unemployment rate hovering around 9% over the course of the year. We are assuming interest rates generally continue at current levels, with a modest uptick later in the year. Utilization levels in 2012 are presumed to return toward normal throughout the year, a progression we've seen since the middle of 2011.
As always, we do not forecast for the development in the estimates of our reserves, both as a matter of policy and because our claim reserves represent our best estimates consistently applied at any given point in time. Further, should we experience developments in our commercial reserves, they will become part of the rebate calculation and will, in part, be returned to policyholders. Looking at consolidated results, we expect revenues to range between $107 billion and $108 billion in 2012, a 5%- 6% increase over 2011. This reflects enrollment and revenue growth across all businesses within UnitedHealthcare, including appropriate price increases across the businesses and solid revenue growth across Optum. Operating earnings are expected to be in the range of $7.9 billion- $8.3 billion.
This is primarily due to strong earnings growth offset by the absence of the significant amount of favorable development we experienced in 2011, the impact of government reimbursement pressures, and continued investments in compliance and our PBM insourcing. Net earnings are projected to be in the range of $4.55- $4.75 per share, aided in particular by Medicare Advantage membership growth and top-line growth and margin expansion at Optum Health and Optum Insight. We expect operating cash flows to be in the range of $6 billion- 6.4 billion, in line with 2011, despite payment of commercial rebates. This represents roughly 1.3 times net income. Looking at enrollment, we expect 2012 to again be characterized by strong gains in the range of approximately 800,000- 1.1 million medical lives. The numbers in this table demonstrate solid, diversified, and balanced growth.
We are projecting commercial growth for the full year, with modest losses in risk-based products offset by gains in fee-based lives, and we again expect strong growth across our Medicare and Medicaid products. Medicare Advantage growth is projected to be between 250,000 and 300,000 people, which represents very strong performance despite the shorter selling season. Medicaid enrollment is expected to increase by 250,000- 325,000 individuals, with fairly even gains in both risk and fee-based categories. We expect net losses of $250,000- $350,000 in standalone Part D due to the loss of about 450,000- 550,000 Part D LIS auto-assigned lives. These losses are similar to those we took in 2008, when our bids were similarly above the benchmark. In total, we are aiming to serve the primary medical needs of nearly 1 million more new individuals by the end of 2012.
Here we profile three metrics important to each of the Optum platforms. Optum Health is expected to grow its top line by 16% to 19%, fueled by new platforms it established in 2011, as well as organic growth of its base. Optum Insight has seen strong growth in its backlog, which improves revenue and earnings visibility over the long term. It also gives us confidence that the rebaselined business is beginning to advance at the pace we expect. While smaller in 2012, we expect Optum Rx to continue to advance its volume of adjusted scripts, keeping in mind these are expected to advance to over 500 million in 2013 as we insource our commercial pharmacy benefit management. Here you can see the details for 2012 by reporting segment. All businesses are contributing meaningfully to our revenue growth and total earnings.
Diversification continues to be important to our business model and is beginning to accelerate and improve our results, particularly at Optum. As I mentioned, the UnitedHealthcare projections reflect continued cost of reform, government reimbursement pressures, and the absence of favorable development reported in 2011. Optum Health begins to increase its revenues and operating margins, reflecting diversification of its business offset by the absence of favorable development in 2011 as well. Optum Insight shows more modest revenue growth due to having had the i3 business for five months of 2011. Operating earnings are forecast to expand around 20%. These year-over-year increases come from strong organic growth and market repositioning of our capabilities, as evidenced from the backlog I just reviewed.
Optum Rx's margin is expected to decrease year over year, reflecting an increase in level of investment as we expand capacity and fortify our operations for the migration of up to 12.4 million commercial lives in 2013. These investments will subside by 2014. Our businesses produced strong operating cash flows again during 2011, and next year should see a similar result. Here you can see the major components of our 2012 projection of cash flows, which includes a modest net working capital impact due primarily to rebate payments. In total, we are projecting operating cash flows to be in the $6 billion- $6.4 billion range, similar to 2011. Looking forward, we continue to target cash flows in the area of 1.3 times net incomes. As previously mentioned, we are expecting our consolidated medical care ratio to end this year at around 81.1%.
This result is slightly higher than 2010, reflecting the impact of minimum MLR provisions on our commercial business. It is also about 160 basis points better than our original estimates a year ago. This includes approximately $650 million of prior year favorable development recorded through the third quarter and also reflects more effective medical cost management and moderate utilization across the board. We are projecting a range of 82% plus or minus 50 basis points in 2012. The increase of roughly 90 basis points is driven by the absence of favorable reserve development we realized in 2011, a modest increase in the mix of higher ratio government business, continued government reimbursement pressures, and higher utilization trend recovery. Switching to commercial market medical trends, we project our final commercial net medical trend to be around 5.5% for 2011.
This is somewhat below our original estimates due to lighter utilization across all healthcare cost categories. Looking to 2012, we expect utilization to continue to return towards more normal patterns. As a result, we expect the commercial net medical trend to increase to a range of 6% plus or minus 50 basis points. In aggregate, we expect unit cost increases of around 4.5% to 5% and utilization growth of about 1% to 1.5%. Facility unit costs continue to be the primary driver of cost increases. However, we expect utilization, primarily in the outpatient setting, to be up from 2011. We expect physician trends to increase somewhat due to both an increase in office visits and higher fee schedules. Finally, pharmacy trends are expected to increase strongly in 2012, due primarily to the introduction of two new hepatitis C drugs. Operating costs continue to be managed well.
We now estimate the operating cost ratio for 2011 to be at 15.3%, within the original range we communicated a year ago and up slightly from 2010 due to business mix favoring services and fee-based business. Operating costs as a percentage of revenue are expected to decline 30 basis points to 15% plus or minus 30 basis points in 2012. Continued heavy investments in compliance will be offset in part by the benefits of our productivity efforts, which have been underway for some time now. Now I'd like to shift gears a bit and drill into three areas. First, the cost of compliance and when we see these subsiding. Second, how we have been improving quality and productivity across our business. Third, a quick review of our service performance and how we have been preparing our business for growth.
Here we mapped out the increase in our cost structure related to compliance activities. The costs embedded in our operating results are in the $195 million range in 2011, increasing to $215 million in 2012, before beginning to subside in 2013 and dropping off even more so in 2014 to what we would consider to be a more normalized level. We have not included investments to build out healthcare exchanges because we see that as a business expansion opportunity, not as a pure compliance exercise. In addition to subsiding costs of compliance, we expect to continue to advance efficiencies across our business. One of the most successful of those has been our $1 billion run rate administrative cost reduction effort, which I outlined a couple of years ago. We refer to this as our administrative competitiveness program.
It essentially started with four points: better quality, which means reducing defects; higher automation, which means driving our business to get paperless; more integrated, simple, and modern, which means to simplify and modernize our technology; and sourcing, which is all about improving the sourcing of our labor. Since then, we have added two additional areas, including procurement, which means buying non-medical services better, and payment integrity, which means editing claims better as part of our adjudication process to reduce claim leakage. The administrative component of this program has been an enormous success, delivering run rate improvements of about $700 million over its first two years. For 2012, we would expect to contribute an additional $250 to $300 million in run rate savings, achieving the original $1 billion run rate goal in three years versus five. Our efforts are not over.
They will continue on well past 2012 and will broaden out to other administrative areas across UnitedHealth Group. Our efforts around payment integrity and other medical cost reduction initiatives stemming from improved processing and automation have produced meaningful results, reducing run rate medical costs by $400 million over the past two years. We expect these programs to deliver an additional $350 million in run rate benefits over the next couple of years. In total, we now project this program to achieve in excess of $2 billion in run rate savings, now including some $750 million in run rate medical cost savings over the five-year time periods that commenced in 2010. I hope that helped. It should have shown you that we are moving ahead on the operating and technology front and proactively adapting our business to offset the effects of industry headwinds.
You can see that in the process of reducing our cost structure, we are improving quality meaningfully, driving our core operations and technology to the highest level of operating integrity, availability, and reliability in the history of the company. The defect rate reductions over this time period have been enormous, well above 80% in most cases, and that has significantly increased satisfaction among those we serve. We much prefer to measure ourselves by what others say about us versus our own internal metrics. You can see that we received positive feedback in several areas in 2011. That said, we know we have more to do to elevate our reputation to the levels we truly believe will truly distinguish our business and contribute to even more meaningful growth in the future healthcare consumer marketplace.
Speaking of growth and capability, I thought I'd use this moment to update you on some of our operating volumes. As you well know, breadth and scale are increasingly important in healthcare. We have been preparing for this trend for some time. We process over $300 billion in billed healthcare claims annually. We handle over 80 billion transactions in our core operating systems. We administer 2 million claims and over 1 million calls per day across our businesses. We maintain extensive data around consumers and transform it into information to help people live healthier lives. We operate at massive scale. We own virtually all of our own assets and operate them at best-in-class levels as benchmarked against comparably sized processors from a variety of industries. With the simplification changes we've made over the past three years, we are nimble and adaptable and can respond to almost any change in healthcare.
Two years ago, we began to expand our capacities to respond to growth opportunities. This was well before PIPACA became law. Through the beginning of next year, we will commission 12 megawatts of additional Tier 3 data center capacities. Tier 3 simply means that there is no single point of failure, and every component in the data center can be replaced without downtime, a feature necessary to serve the future healthcare consumer markets. With this addition, we will have 20 megawatts of Tier 3 capacity, or 2.5 times more capacity than we have today. What do we hope to do with this capacity? We will operate the most private and trusted health system in the world, including distinguished disaster recovery and business continuity services. We hope to respond to the consolidation of the benefits market and the growth offered by PIPACA.
We hope to serve the needs of a more diverse set of fast-growing UnitedHealth Group businesses, especially on the services front. We will insource our commercial PBM and then hope to grow it to be a top competitor. We hope to establish a trusted hub for cloud computing, SaaS hosting, and interoperability. We hope to maintain our number one share position in the health information exchange and be the nation's largest and most trusted source for clinical data exchange. Last, we see this as an opportunity to advance a core competency of managed technology services as a service to the broad healthcare marketplace. There are any number of opportunities for growth, and we are well situated and well prepared with our long lead-time investments completed. Last, I'd like to take this opportunity to point out a few of our service priorities for 2012.
First, cleanly establishing the operating platform to repatriate our commercial PBMs. Second, continued execution around reducing our costs and improving our quality. Third, working with our delivery partners to demonstrate distinctive operating and clinical quality, thereby improving our star ratings. Fourth, improving loyalty among those we serve in an increasingly intensive consumer marketplace. I want to thank you for tolerating that digression. I don't know about you, but I feel a little bit better now having put a few data centers up. Let's shift to the balance sheet and capital management. Here are our balance sheet items for 2010 and as estimated for the end of this year. We continue to work from a position of strength. Our ratings have begun to reflect this very strong position. Almost half of our assets are in cash and investments, and our business is clearly not hard asset intensive.
We had approximately $1.3 billion of available cash on hand at the end of the last quarter. We also have a $2.5 billion revolving credit facility with 23 financial institutions. This expires in May 2012, but later today we are launching the refinancing of this facility. We also have strong liquidity in our regulated entities with approximately $5 billion of capital in excess of required levels. We maintain this excess capital to ensure optimal financial flexibility and strong credit ratings. Through October, we had received approximately $2.6 billion in dividends from our regulated entities in 2011. We expect this will be approximately $3.5 billion by the end of the year. We expect another $3.5 billion or so in dividends in 2012. Our investment portfolio has high credit quality at over 99% investment grade, and it remains highly diversified and liquid and has an average duration of approximately 2.2 years.
Our portfolio has a net unrealized capital gain position of approximately $650 million as of September 30. We expect to maintain our risk-based capital position at a targeted 250% of company action level. We have $12 billion in total debt outstanding and a debt-to-debt plus equity ratio of approximately 30%, which is down from around 40% in mid-2008 prior to the financial crisis. Our strong financial position was reflected in our most recent debt offering, where we issued $1.5 billion of 5, 10, and 30-year bonds at the lowest rates in the history of the company. We have very little bond refinancing risk over the next decade and beyond. In any given year, maturities are no more than one quarter of our cash flows from operations, so we could easily meet our debt maturities with cash flows.
Our coverage ratios are strong in the high teens, as are our debt ratings, with an upgrade from Moody's to A3 and a change in the outlook by S&P from stable to positive, both in 2011. This slide highlights how we see the sources of cash for 2012 and how we could apply those strong cash flows next year. Most of our cash flows continue to come from operations. We continue to have a disciplined and balanced approach to capital allocation. After meeting regulatory requirements, we allocate cash in a balanced fashion based on the relative anticipated return on investments. We fund capital expenditures, including investments in technology and research and development. We return capital to shareholders in the form of dividends and share repurchase. Finally, we invest strategically in mergers and acquisitions.
In 2010, we initiated a quarterly dividend of $12.50 a share and raised that to $16.25 per share per quarter earlier this year. With share repurchase, we expect to return over $3.5 billion to shareholders in 2011. Looking at 2012, we expect a similar allocation to dividends, share repurchase, and capital expenditures. That leaves roughly $5 billion in cash and available debt capacity for strategic needs, assuming flexibility to move to a hypothetical 35% debt-to-total capital position. Now I will speak to each of the three primary uses of our capital, as I just mentioned, beginning with our capital expenditures. As we have noted over the years, our business is not hard asset intensive. We organize capital expenditures around key strategic priorities. We use investments to differentiate our company through innovation and to improve our ongoing performance and cost structure.
We continue to be active participants in building our business through a balanced buy, build, and partner strategy. The acquisitions and other investments we make must enhance existing businesses, provide a new platform for growth in adjacent markets, or expand our capabilities. Here we outline seven markets in which we have been building or added to over the past two years. Health information technology. These investments are primarily focused in health information exchange, revenue cycle management, payment integrity, and quality. These were established in 2010 and extended in 2011 to serve emerging markets. Consumer acquisition. Imperative for the future will be the establishment of best-in-breed consumer competencies. We have now combined connections with the strong consumer population health management competencies of Optum Health and are offering both industry-wide to a broad range of partnerships. Tools.
You saw recently our announcement of the acquisition of XL Health, which has a very unique and effective house call capability that we plan to apply to our dual and chronic population of some 400,000 plus and other populations with more intensive healthcare use patterns. These are markets with great needs. As I'm sure you are aware, we already have extensive institutional and home-based competencies in Evercare and Inspiris to address this population. Expect us to take a leading position here. Delivery. Our market-based care delivery business is called Collaborative Care. This business model is centered around establishing high-performing local market care delivery operations across the most Medicare-intensive markets in the South and the West and enabling them with the many technological, analytical, and population health competencies across Optum. Monarch was our latest addition, closing just before Thanksgiving. Military and veterans.
We were determined to advance our position here and have done so through a subcontract arrangement to serve Tricare in the Northeast, the acquisition of a leading health assessment company for the military in LHI, and, hopefully—underscore hopefully—a future award for the Tricare West region. International. We have built a nice international assistance business and have organically paired it with an insured expat product for large multinational corporations and our broad-based services offerings at Optum. We view these as a strong set of initial steps to serve the global market. Last, we will soon release the first healthcare clouds in six ACO markets in collaboration with Cisco and EMC. We believe the cloud will become the way technology services and products are procured in the future and also believe our cloud could become the fabric for secure communications among healthcare professionals in the future. This was a fully organic initiative.
Let me introduce two other game-changing innovations, which are now new products in market as we speak. These serve huge underserved populations of prediabetics, diabetics, and those with hearing loss. We developed the Diabetes Prevention and Control Alliance, which operates under the brand name Not Me, starting in 2010, to help improve individuals' health and to curtail the growing epidemic of diabetes in this country. It starts by working to slow the conversion of prediabetes to diabetes and then to control complications of those with diabetes. We are now in 50 markets available to 2.2 million people using adjunct providers like the Y and retail pharmacists to deliver programs and care. Two weeks ago, we received the prestigious U.S. Chamber of Commerce Award for Best U.S. Neighbor as a result of our company-wide efforts to address the diabetes epidemic.
We are pleased to be having a positive impact on this disease. The hearing market has many shortcomings, including barriers to access, high costs, and availability of simple-to-use devices. This year, we have offered hearing aids at a highly discounted rate to anyone in need. Participants simply take an online hearing test and receive their self-administered hearing aids in the mail. The process eliminates many of the cumbersome steps and sharply reduces the cost of these devices. These two innovations have common features, all considered essential elements to a modern healthcare system. First, the use of adjunct providers, freeing primary care and specialists to work with their most acute patients. Second, the use of outcomes-based reimbursement and direct procurement, reducing waste and excessive costs. Third, paperless processing, reducing the percentage of premium dollars used for administration.
Both programs significantly reduce the cost of healthcare, and both are secured by UnitedHealth Group through proprietary technology and proprietary relationships and contracts. One other that was announced this summer is insourcing our commercial PBM from Medco. This is a $350 million multi-year investment in capital and operating costs to insource some 12.4 million commercial members to Optum Rx. We expect to achieve a strong internal rate of returns from this initiative. We are not bound by a single approach to growth. We build, we buy, we partner, we innovate, and we insource. I hope you take away from all of this that we are building in the right spots and are taking leading positions in the most important emerging healthcare markets. As I mentioned, we return a significant amount of our cash flow to shareholders.
Our 2012 plans call for us to repurchase between $2.5 and $3 billion of shares. Our weighted average fully diluted share count should then drop by approximately 4% in 2012. Overall, our share repurchase program has been an enormous success, providing returns since inception of roughly 8%, whereas the S&P 500 returns were negative over that same time period. Similar results hold true whether you measure over a 3, 5, or 10-year period. Because of the significant success of this program, our board approved a share buyback of 110 million shares in May of this year. 84 million shares remain authorized under that program as of September 30. As to our higher dividend, we believe that represented the strongest payout ratio among traditional industry participants on announcement. At the same time, we know it is slightly behind our Fortune 50 peers.
As such, we are committed to reevaluating it periodically, like we did earlier this year. For modeling purposes, we are assuming a quarterly dividend of $16.25 per share throughout 2012. In closing, this slide highlights the key metrics from our outlook. We see very strong cash flows and revenue growth across the board. 2012 shows solid margins that include the impact of minimum MLR requirements, the cost of compliance, and some strategic investments to further diversify our business. With the planned reduction in share count, our earnings should be in the range of $4.55- $4.75 per share. Looking beyond 2012, we are very well positioned and expect both top and bottom line growth.
By that time, we will have fully absorbed the impact of the commercial MLR regulations, experienced another year of solid organic growth and business diversification, and further reduced our costs and modernized our business, including leveraging our capabilities to address new market spaces. This all leads to an even stronger foundation for the future. Indeed, momentum is advancing at UnitedHealth Group on all fronts, and we are very optimistic about the future. With that, it's my pleasure to invite John Penshorn back on stage.
Thank you, Dave. As we bring people up for our final Q&A session, I think Gail and Steve and Larry are going to come up. They're going to be joined by Dr. Reid Tuckson, Executive Vice President and Chief of Clinical Affairs. As they come up on stage, I want to hit a couple of logistical items. This is continuing engaging people across healthcare. We're going to have the expos open again here from noon to 1:15 P.M. I thank all of the business leadership that's assembled at the back, that's spending time with us today to do this. These are very serious executives who, as you found this morning, can give you a lot of construct about what you're looking at. If there was something that piqued your interest in the presentations Larry referred to, Gail referred to, please spend some more time there.
We're also going to have a little lunch set up out there. We've got seminars this afternoon. Let me just hit that for a minute. We've got four sessions. They're going to run concurrently, and you've got opportunity for two topics. They are from 12:30 P.M to 1:15 P.M. and 1:15 P.M to 2:00 P.M. Across the hall, we've got accountable care. We did not call it accountable care organizations. Accountable care is a broader construct. It's an opportunity for UnitedHealthcare around the cost management and quality side. It is also a revenue opportunity for Optum. As you go down the hallway, we've got dual eligibles and managing care. It's obviously a very large-scale opportunity and one that we're well positioned for, which we were well positioned for. The XL Health pending acquisition referred to this morning further expands that. We've also got exchanges. Exchanges are going to be a market.
How does that set up? How does that function? What are the capabilities that you need to have to be successful in an exchange market? Finally, all the way down at the back of the hall is consumerism. Consumerism is a revenue topic when you think about the growth of the markets that are coming. Also, relative to quality stars, consumerism is a medical topic. Consumers are patients. We coordinate about $135 billion of spending on behalf of consumers per year. We're going to cover both sides of that in the consumer session, all of these sessions being led by senior business executives. I'm not going to go through the roster of that, but any one of those four is going to be well worth your time. Lunch, expos, seminar, seminar. Thank you for your engagement this morning.
We will move to a final question and answer session here across the enterprise.
You know, maybe before we start, I'll do some replays from this morning, pick out some of my favorites. They had a time to go do some research while you were all listening to this. I thought some of those questions were really quite good and kind of worthy of revisiting. I'll use one that came up about how much membership is in the Collaborative Care platform. A good question. If you think about it, it's a multi-payer platform, so it is not just our membership, but the membership of those other payers who participate with us in that, about 675,000 members. About 60% of them, about 60% of them would be ours, and that would be pretty heavily weighted towards Southwest Medical. The balance would be other payers. Charles Brady asked a question I can't resist. Is Optum getting traction because of product, people, or market reception?
The answer to that is yes, yes, and yes. The return on invested capital, if you think about it, UnitedHealthcare has a return on invested capital, so that's the gross number of return on equity of about 14% today in a very well-established, well-running business with a lot of forward momentum.
For Optum to get to 15% in a five-year period of time, starting at about an 8% return on capital, given the freshness of the layers of capital in them compared to the more established layers in UnitedHealthcare, I think is a good answer to Josh's question about why would we, what do we see in terms of the financial opportunity and the growth potential of that, the ability to take established competencies that we already have and deploy them effectively into new adjacencies that offer, I think, the prospects of that kind of performance and return is pretty compelling.
That's before you get to Cheryl's comments about it doesn't really factor in, nor would we, the upsides in terms of what it could mean for the cost structure of UnitedHealthcare, for the innovation, for the compliance, for the star ratings, any number of spectrums where we can bring value to our other businesses and grow. I thought those were really good questions and align very much into how we see the opportunities between the two businesses. That's why we say better together, particularly if you think about that kind of broad environment that we're going to be dealing with in the next few years of changing healthcare landscape.
Thank you. The next question, Fran, if you could take one here, and we're just going to go across and back, I think, just to give everybody an opportunity. Is there somebody on this side? Okay, up front, please.
Sure. If I can ask a second one. I guess the question, and by the way, Dave, that was really, really helpful to understand where all of these, how all of these financial pieces and parts are coming together to get to the great division. The question I have is about leadership. One of the concerns that has been raised in healthcare historically is, especially on the provider side following the hospital street, is that we're an industry of, let's call it backward looking at best, but very rarely forward looking to leaders among at least the publicly traded companies. One might say, you know, nationally across all the not-for-profits. I think that's changed somewhat. I think that everyone's been forced to evolve into better managers and better leaders by the times and circumstances.
What you're describing, the evolution and innovation, I realize you're not saying revolution, but even if it's evolutionary, one of your risks you've identified is that you might go too fast for the market. One of the areas where you might go too fast is you might go faster than the ability of your partners and leaders of those partnership organizations to actually execute on vision if they see it. What can UnitedHealth Group do to create the generation of leaders that it needs that shares the vision and talents of the people resident in UnitedHealth Group that are executing on this strategy?
I'll start with that. Maybe I'm a little more optimistic about the opportunities ahead. I agree with you that we're seeing executives and leaders and those in the public sector who I think are committed to making the healthcare system a simpler, more effective, more modern kind of system. Those tend to be the kind of partners we're looking for and working with. We are very invested in our own organization to make sure that we have the kind of leader, kind of culture, and sense of responsibility about taking the performance and advancing the agenda of healthcare in a meaningful way. That's why we often get to things and remind ourselves about fundamental execution. We have kind of responsibilities to do a certain set of things, to do them well, and to do them increasingly better and more precise. That gives us license to go further and go beyond.
I see others picking that up. This has historically been an industry, a sector that has been dominated by relatively small businesses. Even though they're counted in the billions, they're actually a relatively small business, often very local in nature. I think you're just seeing a renaissance across the board of where they are becoming more mature, becoming more responsible, including us, and performing more consistently. One of the things I think you've not seen in this sector is consistent positive performance across a broad spectrum of levels. That's what we're committed to. I think we are part of setting the pace with the rest of the community. I think we participate with the rest of the system. We see others like mine.
I take your point about aging and sequencing this in an inappropriate way, not only because of the readiness in the marketplace to adopt, but also the amount of capital that it requires. You have to be thoughtful about the fact that you have to be layering your capital investments in and your changes in in ways that work for others. I think one of the reasons we are very invested in Optum is the enabling capability it brings to others. Take a look at a lot of the applications in the back. They're built around a consumer agenda to begin. There is a strong appetite for versions of that, just exactly that, the same construct, the same chassis of some of those products into the provider community because they want the same information. They want the same connectivity. They want the same use of the system itself.
We see we're optimistic in terms of seeing people, changes, and encouraging behaviors and reception in the marketplace. I think we're seeing it clinical and the Optum businesses united. Go.
I think that first of all, it's a great thought-provoking question. I think there's an operative term now that applies here, and it's called servant leadership. Steve has spent a lot of energy talking about mission and values. We have engaged in a very intense effort across the enterprise around six values that we all come to share across all of our businesses. I think those values, one of which, and the one that I find to be the most important, is compassion. We are walking in the shoes of our customer. That means whether we're in the technology division or the clinical division. Finally, what I would say is it also informs our sense of leadership is a steady engagement with other stakeholders who are our partners in healthcare: physicians, hospitals. We spend an inordinate amount of our time with physicians listening to their problems, listening to their challenges.
The we that are doing this listening are not just clinicians. They're the technologists. They are the data and analytic people. I think just in a nutshell, we understand the meaning of this sense of humble servant leadership. It is a value that is throughout this enterprise and one that we get sharper the more we engage with our stakeholders to move things forward in a shared partnership. That's our key to our business success.
Let me just add one part from the business perspective. I guess I would say I'm not pessimistic at all. I'm actually incredibly optimistic. As you see the leaders who are assembled here and have a chance to meet and talk to them, that really is a bench that we have in the future. I think there's two things. We operate under a very broad platform that allows our leaders to get experiences across different businesses, different opportunities. That's a very unique building opportunity for them. My point of view is I'm incredibly encouraged. We have a very deep bench, and I would say probably one of the deepest certainly in our industry, plus our willingness to partner with others. We learn. We also share knowledge, I think, across those platforms.
I'm quite encouraged, and I would encourage you to meet our leaders and talk to them and get a real sense for their energy, for their excitement around the innovation.
I agree with that completely. I think your question also got to the rest of the marketplace. I'm very pleased with where we stand. We are looking to make sure that we're doing our part with the rest of the market.
Safely, you talked broadly about your expectations for health reform. Like in a couple of the slides, you have explicit spending expectations, et cetera. Is it embedded in your belief that we're going to continue on this path that health reform that's passed through the ACA is going to continue? Maybe a comment specifically what would happen if the individual mandate were to be struck down at the support level?
I will be happy to start. If we have about 300 with us today, then we have at least 300 views of where health reform might be going. As an organization, and given our responsibilities in the marketplace, we are going to respond and comply and enable health reform as it's established and embedded in the law, and then work with the governments and the administrations to make sure that that gets enabled in thoughtful ways as it plays out both on the federal level and across individual markets. We are compelled in the capital to get into a state of readiness and to be watchful about, in doing it, how it might practically play out and be shaped going forward and engage with those who are setting the rules and trying to accomplish those goals. We will make those investments. We will be ready. We will engage.
We'll not necessarily do it universally, and we'll pick and choose what markets we think we can add value. What I would say is that I think, as all of you can observe, that the intent and goals of that legislation are going to have to play itself out. They will be shaped and delivered into the marketplace in different forms. Different markets are going to take different approaches. We'll engage and be flexible about working around all of them. We expect and have seen, as you have seen in the waivers and the delays, that there is an interest in not creating great market disruption. We are anticipating that kind of pattern will continue. We are working with the markets and staying very close, while at the same time making the investments to comply.
As you'll see, and you can see, I think, very readily in the seminars that we're going to have later today, just how effective our leaders have been in thinking through all the permutations of exchanges, how dual eligibles may play into the marketplace, accountable care organizations. I can't tell you that we know how it will ultimately play out. I can tell you that we will be ready. We'll be adaptable. We'll be instructive in terms of offering out ways to accomplish those goals, even if they're not the ones that are in the strict legislation today. In terms of the individual mandate in the Supreme Court, we're not going to speculate on where the Supreme Court is coming out on that. We have been proponents of full participation in the marketplace, that if you want a robust and fair and balanced marketplace, you need all the citizens participating.
Individual mandates may not be the only way to accomplish that. There are other tactics to achieve that or get close to that. We're not going to comment on the Supreme Court. We will comment perhaps on reform readiness or others down the road. I'll take a look.
No, I'll just add. I mean, I think Steve covered it. We are preparing our business across the continuum to be ready, regardless of what ultimately occurs. Quite frankly, we are operating under the premise of the current rules, continuing to advocate for what we think will make this a long-term market nation. What you saw in the capital is during our systems, be able to do gates and other things like that, and the approach that we're taking.
Look at the construct of our business. Cover all the markets. As we said earlier in prepared remarks, I think in almost every one of them, we view this ultimately as an opportunity to gauge change the market.
All the way up front, Bill here.
One slide I don't recall seeing addressed the question of the long-term earnings growth rate, 13% to 16%, if I recall correctly. Maybe you can talk about how we as investors should think about the components of that long-term earnings growth, if in fact you are reconfirming it today.
We are reconfirming it. I'll have Dave pick up the pieces. In essence, there's a portion in terms of high single-digit top line growth, a capital piece that represents perhaps about a third of it, productivity gains with respect to our operating costs, as well as approaches in terms of managing medical costs. What am I missing?
You did a spectacular job. I think the key thing is it's 45% due to share repurchase, and the balance is from operations. There is a more detailed explanation in the Q&A section.
Yes, actually really unchanged from last year.
I have two quick questions. One on vertical integration. You showed us a lot of the pieces of the healthcare village of the future, and you talked about some of what you're doing in Optum, including floating clouds above those villages that connect everything. Are there any, can you tell us, you know, what your vision is putting all these pieces together and where the red lines are? Will you own an acute care hospital one day? Will you own a lab one day? That's question one. Question two relates to your programs on wellness. You talked about success stories in bringing down levels of obesity. I think Reid mentioned that for every 1.4 million people who stop smoking, you get another 1 million obese people. It seems like, you know, wellness and prevention is this huge opportunity out there.
Do you get paid for it when your risk lives turn over so fast? Is this something you're focused more on selling to the self-funded employers who have a stickier customer base and get the payback for it?
That's about a dozen questions in that. We should maybe open up with a little bit that we do see payback in those wellness programs. We see, as we move into consumerism, that consumers will stay and be stickier. You're right, we get the most traction on the national platform. I think you have really caught the theme. We really think about ourselves as being an enabler and integrator across communities. I will end my comments with this one, that labs and hospitals are not in our path at the moment. The moment is quite long term. I don't want to use it.
Beyond that, Larry, you want to?
In Optum Health, obviously, we have an extensive number of programs that are addressing this from what we're doing on our core business. That would be the whole care management side, as well as the consumer engagement. We also are now on the care delivery side, looking at this market by market. Dawn Owens, who heads that area, is working at what I'll call the local levels in order to put all these programs in place. You know we're doing things with physician groups on the West Coast, and we're at that local level, really looking for what we're going to head.
Let me just quickly say that not only is it the right thing to do in terms of these wellness issues, but there are, as your question supposes, a business opportunity. Just think about it, that 8.7% of the population is now diabetic. That's up from 8.3% just a year ago. Now, 27.5% of the population is obese. That's up from 26.9%. These are huge crises facing America. The cost implications of just those two conditions alone are overwhelming. It will be important for people to have the chance to turn it around. Those who purchase healthcare are going to be very focused on those who have solutions to help turn that around.
Not only is this important for us to do from a mission point of view, it's what we are, it's what we do and who we are, but just think about all the opportunities in that chain of events that are necessary to turn those statistics around. Each one of those is what Larry's business is aimed at being able to address.
I'd add one more point to Steve's comment about where this is resonating. It absolutely starts in the large employer market. It is very prominent now in the small employer market. There's a huge opportunity to leverage this, as I mentioned in my prepared remarks, in the government sector. Medicaid, great opportunity, particularly when many of the individuals we serve are children, get them to eat healthier. That's why we partner with Sesame Street. We're doing programs that outreach into the home and the family to connect them with services. I think there's a much broader footprint around many of the commercial applications into the government space.
The more you do for consumers, the stickier they'll get. If you take a look at the durations that consumers stay with some of the organizations that we've been investing in, we're learning something about investing and establishing a relationship with a consumer and a patient, using the technology effectively. That migration down market, we're hoping will continue.
Is there a last question on this side before Steve gives us some closing thoughts? All right. Otherwise, there was one more right here, center section.
A question on M&A trends. If we look over the last year, on the benefit side, it looks like most of the activity has been on the Medicare part of the market. There has been a lot of activity in terms of increasing exposure to services businesses. As we look out over the next, let's say, 12 to 24 months, do you think those two trends continue to dominate the M&A landscape? Do you think we see some increased activity in the commercial and Medicaid markets relative to consolidation of health plans, those markets?
You know, I'm not interested in creating any greater speculation or interest than might otherwise be. I'd say I'll answer this somewhat benignly, saying I think we have two investable platforms. Part of what we very much like about that, we have interest in growing both of them organically and by way of adding things that bring either advances quickly into a marketplace we have an interest or where we're acquiring a capability that we can integrate and use more extensively across either one of those platforms. Our interests remain unchanged. You know, that's kind of the response. There is no area, one area or another, that I would like to provide any leanings to one way or the other.
All right. Thank you. Do you have any closing thoughts you want to share?
Sure. First of all, very much appreciate you being with us, staying with us. I would really like to invite you to make sure that you spend, you do have to spend a little time to get a sense and feeling for some of the capabilities that we've arrayed in the back and through the seminars. I think you'll find some of the materials and so forth in those seminars really good. I want to just kind of offer some closing themes. It would be around, I think you've seen, if you've watched these venues from year to year, I think you're seeing an organization that is advancing and continuing to perform on a broader spectrum of both financial and non-financial metrics. Fundamental execution has been at the heart of that.
If there are things that, as you walk away, you can rely on, we'll stay committed to, it'll be around fundamental execution and driving that to a broader spectrum of areas. I think we've also been getting simpler. Two business platforms, two market images, tighter businesses, more tightly integrated, that theme is going to continue. Reputations and brands are vital in today's world and will get increasingly so, we think, in healthcare. We have been building ours carefully, both in how we operate our business and as how we present ourselves to the marketplace. That orientation and responsibility to a reputation and a brand will also continue. It kind of leads me to our united culture. I think that has been a key element in making us a better organization to engage, better market relationships, better approaches, better collaboration both inside and outside our organization.
Innovation is and will be one of the hallmarks of this enterprise, improving both our ability to understand as well as to serve the needs of the marketplace and driving our growth. We've been growing, we think, for a lot of the reasons I just mentioned. That growth orientation will continue. We are committed to growing across the spectrum of our businesses and doing the work, the fundamental execution, understanding the markets, the innovation to make sure that growth continues. We have been careful and respectful in setting financial expectations with you. We are understandably cautious in a changing landscape, and we have been for the last couple of years. We always endeavor to outperform. That posturing of setting a baseline that is careful and respectful of your needs, respectful of the marketplace, and then endeavoring to perform to the maximum extent, that notion is continuing.
We have extremely strong leaders, as Gail mentioned, people who work as a team, people who are mobile. We have been very mobile around leadership. You've seen elements of that, where we can take very gifted people and move them into different roles. They can make great contributions to our organization, and our organization gets enriched by what they learn, how they work with each other, how they collaborate. The mix of experiences is one thing that I think has been distinctive of our organization, and that will continue. I think going forward, you can think of us as being increasingly characterized by more service, less hubris, more listening, more flexibility, more understanding the market's needs, and less about just doing things our way. More innovation, more value, less cost, more growth, more to do. Thank you for joining us. Please stay for the afternoon.
We have lunch, and we have kind of a little playground for the afternoon. We encourage you to be here, and our executives will be here. Thank you very much.