Good morning, and welcome to the UnitedHealth Group third quarter 2020 earnings conference call. A question and answer session will follow UnitedHealth Group's prepared remarks. As a reminder, this call is being recorded. Here is some important introductory information. This call contains forward-looking statements under U.S. federal securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from historical experience or present expectations. A description of some of the risks and uncertainties can be found in the reports that we file with the Securities and Exchange Commission, including the cautionary statements included in our current and periodic filings. This call will also reference non-GAAP amounts. A reconciliation of the non-GAAP to GAAP amounts is available on the financial and earnings reports section of the company's investor relations page at www.unitedhealthgroup.com.
Information presented on this call is contained in the earnings release we issued this morning in our Form 8-K, dated October 14, 2020, which may be accessed from the investor relations page of the company's website. I will now turn the conference over to the Chief Executive Officer of UnitedHealth Group, Mr. David Wichmann. Please go ahead, sir.
Good morning. Thank you for joining us today. The past nine months have hopefully provided you a window into both the values and capabilities of this organization and how they enable us to serve our customers, patients, care providers, team members, and their families, and you, our investors, in a period of unprecedented challenge. I'm fortunate to witness up close the exceptional work of our team every day, an innovative, growing, and highly adaptable enterprise driven by the compassion, expertise, and restless spirit of our 325,000 people, over 120,000 of them providing care on the front lines. Our collective experiences over this year have made us an even more deeply committed and energized organization about our potential to help advance the next-generation health system, one which is fair, affordable, simpler, and effective.
Our team combines the vision with sharp focus on day-to-day execution, delivering strong, well-balanced results across the enterprise. Third quarter adjusted earnings were $3.51 per share, with a decline from the year ago quarter reflecting the swift customer and consumer support actions we committed to from the very beginning of the COVID-19 pandemic. Based upon this performance and forward estimate of pandemic impacts, we are updating our full year 2020 adjusted earnings outlook to a range of $16.50-$16.75 per share. In this, we remain committed to ensuring any financial imbalances arising from the pandemic are addressed proactively and fairly for those we serve. We have done this consistently over this period, even as the ultimate outcomes remain unclear, as the timeliness of relief to our stakeholders is critical. Service, fairness, and performance with a long-term view. This is what you can continue to expect from us.
You should also expect this enterprise will apply its innovative spirit to contribute in new and different ways as our capabilities expand and circumstances require. We have partnered on and led clinical trials, helping resolve the nation's critical PPE and PCR supply chain issues and enabling more rapid testing at considerable scale while keeping the health workforce safe. We are supporting state testing operations in California, New Jersey, North Carolina, and Indiana, and contact tracing in New York City. We are supporting the Mayo Clinic's development of convalescent plasma and some of the most promising vaccine and antibody trials. We have helped enable workforce safety through the development of ProtectWell, a protocol, process, and technology to enable the safety of the health workforce as well as the safe opening of businesses, schools, and nursing homes.
We're working to assist with employees' health coverage transitions through our Get Covered campaign, now being offered by employers to assist people who have lost their jobs. We provided $2 billion in liquidity relief for the health system, and our customers and consumers will realize over $3 billion in premium and cost-sharing relief, including $1 billion in estimated rebates. We have contributed more than $100 million of financial support and 6 million pounds of meals for communities suffering from food insecurity, homelessness, and health disparities. These efforts are possible because we operate a capable set of businesses and capacities that are leading the development of the next-generation health system and expanding our opportunities to serve. Today, I'd like to give you a brief sense of this work.
Early in the pandemic, we quickly enabled Optum physicians and the physicians of UnitedHealthcare's most vulnerable patients to adapt and expand rapidly to meet the needs of millions of patients for care of chronic and emerging conditions. This included advancing telehealth by creating direct connections between patients and their own physicians, a critical element to highly effective digital health, ensuring adoption will extend well beyond this crisis. Far this year, Optum Care physicians have facilitated 1 million digital clinical visits directly with their patients, and we are rapidly developing a proprietary set of distinctive tools and aligning our clinical practices to further develop and amplify this capability. I'm sure you can see how advancing modern telehealth fits into our overall strategy to build high-performing systems of care. Our growing therapeutics capacities are positively impacting the management of chronic diseases.
With the introduction of Level2, a digital therapy developed to improve the lives of the 30 million people with Type 2 diabetes, we are helping patients move toward remission of the disease. Level2 uniquely measures signals and applies artificial intelligence, engaging people and producing better health outcomes. You can expect more digital therapeutics from us in the coming months and years. Our growing capacities are especially apparent within our Optum Care platform, where 53,000 physicians across 1,500 local patient-centered facilities serve nearly 20 million patients. Over 3.5 million of these in some form of risk arrangements, with 1.3 million Medicare Advantage or dually eligible members under global capitation.
Optum Care creates substantial value by building a deeper clinician-patient relationship and by leveraging data and artificial intelligence to enable our clinical model to intercept and treat disease early and proactively, leading to better health outcomes, value, and industry-leading patient experiences. Our patients experience safer, healthier, more fulfilling lifestyles, spending one-third fewer days per year on average in a hospital bed, and 40% fewer days in a skilled nursing facility than patients supported by traditional Medicare fee-for-service. Moreover, our most advanced care delivery practices deliver this high-quality care at upwards of a 40% lower cost than the equivalent traditional Medicare benefit, with the value fully reflected in improved benefits and lower costs for seniors, all at world-class NPS scores in the mid-70s.
The proven clinical success of Optum Senior Care offerings supports our considerable growth goals for Optum Care and also demonstrates the longer-term potential to greatly benefit consumers in commercial offerings. We have been building this platform for over a decade now and expect it to continue to grow at strong double-digit rates for years to come. Another aspect of a modern next-generation health system is managing the specialized and costly medications of the future in a way which works for patients, clinicians, employers, and payers. Our Optum Rx integrated specialty solution brings a total approach to managing complex conditions across both the medical and pharmacy benefit, where we are able to generate up to $37,000 in annual savings per patient by employing clinically appropriate care at more convenient, lower-cost sites.
This approach is enabled by Optum's growing footprint of integrated community pharmacies, which will grow by over 60 centers in 2020, and the number of patients served with our infusion services will grow at double-digit rates. We expect this to be another durable growth trend, given the much safer and clinically equivalent patient experience. We see Optum Rx as continuing to transform to be a leader in pharmacy care services. Put differently, we believe the value for people and the system from pharmacy care services resides in managing personal engagement in health, not just supply chain management. This plays to our strengths and will increasingly contribute to the growth of Optum Rx in the years ahead. UnitedHealthcare continues to focus on the varied needs of healthcare consumers.
In the next generation health system, we expect consumer benefits to become increasingly customized to meet these needs as people search for solutions which are simple, affordable, and help enable quality outcomes. UnitedHealthcare has seen strong reception to our expanding suite of highly tailored and affordable individual coverages. This year alone, the number of people we serve with individual health coverage has grown by 15%. Likewise, in employer-sponsored coverage, our growing set of consumer-centered, innovative, and flexible offerings such as Bind, All Savers, and physician-aligned plans such as Harmony in Southern California are gaining traction, with membership in these offerings having grown over 50% this year. We know many of you are interested in the annual Medicare Advantage enrollment period, which opens tomorrow. The 2021 benefit year will be UnitedHealthcare's largest Medicare Advantage footprint expansion in five years, reaching an additional 3.2 million people in nearly 300 additional counties.
We are emphasizing what we know seniors are looking for this year even more than ever, stability and value. Premiums for most people we serve will be flat or reduced, and nearly 2.5 million people will have no premium at all. We continue to innovate our product offerings with all Medicare Advantage plans featuring zero copay primary care digital health visits and the expansion of our personal support services, such as an annual clinical health assessment delivered in a senior's home and for many, the assignment of a dedicated UnitedHealthcare navigator. We expect strong growth in individual MA, and when combined with our group Medicare gains, 2021 is shaping up to be another year of market-leading growth.
We also expect continued growth in Medicaid due to transitions in coverage and net new market gains and are looking forward to a record RFP season as we seek to serve more people in more geographies. What I've described for you this morning is a sampling of the initiatives we are pursuing today to help lead in the development of the next generation health system, a health system that works better for everyone, those who experience care, those who provide care, and those who pay for care. I'll turn it over to Chief Financial Officer, John Rex.
Thank you, Dave. Broadly speaking, third quarter results continue to be impacted by disrupted care patterns, albeit to a much lesser extent than in the second quarter, as many regions of the country stabilize nearer to more normalized levels. Within the quarter, care deferral impacts were more than offset by the proactive consumer and customer assistance measures we voluntarily undertook earlier this year, as well as COVID-19 care and testing costs and broader economic effects. These factors resulted in a 10% year-over-year decline in adjusted earnings per share. We discussed last quarter, the deepest period of care deferral, which occurred in the second quarter, and the timing of GAAP recognition of our assistance actions don't entirely line up, which makes for a more pronounced adverse impact to earnings in the second half of 2020.
The measures we voluntarily undertook mostly impact our benefits businesses and contribute to UnitedHealthcare's third quarter operating earnings decline from a year ago. In the quarter, we saw total care activity now exceeding 95% of seasonal baselines, with certain categories even more closely approaching normal. This compares to an overall measure of about two-thirds at the lowest point in the second quarter. Each of the three Optum businesses continue to perform well, while affected in different ways by still recovering care patterns and economic effects. Optum Health's third quarter earnings increased 12% year-over-year, as fee-for-service practices and ambulatory surgery activity began to recover. While risk bearing practices still experienced some modest continuing effects from deferral of care. Our SCA ambulatory surgery centers operated at about 95% of seasonal baseline in the third quarter, compared to 55% in the second quarter.
Year-to-date, over 1,000 new surgeons have performed procedures at SCA as they seek a safe, convenient and efficient clinical partner. New surgeon affiliations for the nine-month period rose nearly 25% over last year. We continue to expand the complexity of procedures performed in these settings, having added over 40 new service lines, nearly double last year. Patients increasingly prefer these freestanding centers, with NPS measured at 92. These durable long-term trends will benefit our growth even more strongly in the future as elective care activity fully normalizes. OptumInsight third quarter earnings increased 24% year-over-year. The revenue backlog grew by half a billion dollars in the quarter to nearly $20 billion. Payer services and state government businesses performed strongly. We continue to see lower activity in the provider-facing businesses due to procedural volumes.
While still not fully normalized, business development activity has increased from the second quarter's much lower pacing. Optum Rx earnings declined 2% year-over-year in the third quarter, as script volumes were impacted by lower care activity and economic factors. First fill scripts, which are correlated to physician visit activity, greatly improved from the second quarter, which was down about 25%. While not yet fully back to prior year levels, revenues in our expanding pharmacy services businesses have grown nearly 30% year-to-date. Turning to UnitedHealthcare, third quarter operating results reflect a considerable moderation of the care deferral impact experienced in the second quarter, while still not at baseline levels. This was more than offset by our assistance measures, direct COVID-19 care costs, and economic factors. The number of people served in commercial products declined primarily due to employer actions.
Within this, for us, about 40% of the fee-based decline came from very large employers, primarily in the hospitality, transportation, and energy sectors. During the third quarter, growth in Medicaid membership accelerated, benefiting from the continued easing of state redetermination requirements. We have not yet seen material Medicaid enrollment activity due to job loss. Historically, these transitions lag loss of healthcare coverage by about six months. Our Medicaid business has seen strong year-to-date organic growth of over 500,000 people. Sales activity in Medicare Advantage has continued to move towards more normalized patterns after seeing some slowing in the second quarter due to the pandemic. Within this, we have seen considerably less plan switching than typical for existing Medicare Advantage enrollees. While selection of MA over fee-for-service for people new to Medicare is tracking well.
We continue to deepen our engagement with those seniors most in need, increasing the distribution of remote digital sensor kits to collect and monitor vital health data and address gaps in care generated by the pandemic. Seniors continue to highly value our house call program, with the number of home visits in the third quarter growing by nearly 30% over last year. Our liquidity and financial position remains strong. Third quarter cash flows of $3.1 billion, or 1x net income, reflect the extra federal tax payment in the quarter due to the deferral of payments typically paid in the second quarter. Year-to-date, cash flows from operations are $16.1 billion or 1.2x net earnings, and our debt to total capital ratio of 39.1% compares to 43.7% in the year-ago quarter.
As noted earlier, we have updated our full-year adjusted earnings outlook to a range of $16.50-$16.75 per share. This reflects third quarter performance, while anticipating the fourth quarter will reflect continued customer assistance measures, normalization in care patterns, and rising acuity as a result of missed and deferred treatment. We will continue to work proactively to help people obtain the care they need. Now I'll turn it back to Dave.
Thank you, John. With the third quarter earnings report, we have, at times, provided some early soundings on our growth outlook. Even as the current environment is anything but routine, I'll still try to offer some useful perspectives. We approach the future with continued conviction on our long-term 13%-16% earnings growth objective. Some of the factors giving us confidence include our rapidly expanding care delivery services, now benefiting from over a decade of building and investing in local value-based care systems, and extension into market-leading post-acute, home, and modern behavioral health intervention services. Our ability to support seniors across multiple channels and markets with increasingly innovative high-value offerings. The way we meet the growing needs of people with highly complex conditions with comprehensive personalized care, including people across commercial, federal, and state-based programs. The innovative and consumer-responsive products now being offered through the employer and individual market channels.
Our unmatched ability to support a more interoperable and intelligent health system as a result of significant investments over many years to improve performance, integrating data, analytics, and clinical information to provide essential insights to evidence-based next best care actions. Our restless drive to allocate capital and align with other innovative companies as we lead in the development of the next generation health system in a socially conscious way. These are just a few of the accelerating capabilities which will enable our enterprise to serve more people much more deeply as we look to the years ahead. As to early thoughts on 2021, we expect our underlying business performance to be strong and well supportive of our long-term growth objectives, including the tailwinds we have highlighted throughout this morning.
The pandemic and related economic impacts, of course, remain difficult to predict, and at this distance, likely represent a significant potential headwind. As a result, we envision stepping out initially with a more conservative all-in 2021 starting point to accommodate these still developing and unknown COVID-related impacts. In particular, the pacing of a return to more normal levels of care services and the condition of the economy. As the environment continues to evolve, we will also continue to evolve our thinking and perspectives. As is our custom, we look forward to providing you further perspectives on all aspects of our business at our investor conference on Tuesday, December 1st, which will be held virtually this year. Thank you for your time today. Operator, can you please open the line for questions?
Thank you. We'll take our first question from A.J. Rice with Credit Suisse. Please go ahead.
Hi, everybody. Maybe just to pursue a little bit further the comments that Dave just made about thinking about next year. I guess predicting the medical cost trend, you've got a lot of moving parts there, potential further deferrals, potential pent-up demand that could come back, costs of vaccines and therapies that could be there, a number of things in thinking about the cost trend for next year. How are you approaching that? How do you see a competitive environment that's changing as a result of that? Just maybe flesh that whole comment about how uncertain the ability to predict the medical cost trend is for next year.
Thank you, A.J. A very thoughtful question. Hopefully, you took away from the prepared remarks that we're optimistic about the performance of our business. That's pretty much universal across Optum and UnitedHealthcare. We didn't get into some of the smaller sized businesses, but we're optimistic in particular about our relative competitive position and the growth prospects for 2021. As also indicated, we remain deeply respectful of the environment, both the pandemic and related economic consequences. One thing I would underscore, A.J., is what you hit very well. There are a number of moving parts which are very difficult to predict. You should also know that we're extending our efforts to ensure that our chronic members and patients are getting the care that they need during this unprecedented time. We also still have a strong commitment towards correcting any imbalances that could occur.
At this distance, we do see our underlying business performing strongly and aligned to our long-term growth objectives, which are 13%-16% up per year, offset in part by these pandemic-related effects. The starting point, as we indicated in December, will likely represent a wider range given the possible outcomes and a more conservative all-in expectation than normal, that you would normally see from us, given all the elements that you just described. We're taking that into consideration as we develop our point of view about where our MLR might land, what the variability of that might be. We see it, generally speaking, that whole pandemic-related impacts as being an area, a headwind for the organization. Don't misread it. We are very bullish on the strong underlying growth performance of our business. Thank you. Next question, please.
Okay, thanks.
The next question is from Josh Raskin with Nephron Research. Please go ahead.
Hi. Thanks. Good morning. Just a question on Optum Care, I guess. You're seeing big growth in the PMPMs there on the consumers served. I just want to better understand, the relative performance sort of 3Q year-over-year versus 2Q, kind of what's driving that increase in revenue per member? Then if you could also talk about sort of the physician recruiting and how that's going, over the last six months.
Sure. Josh, great question. I think you're hitting on one of the strengths of the enterprise and one of the reasons why we're bullish on its growth for next year. Simply said, it would be more markets, more deeply penetrated into those markets, and a higher percentage of them having a risk-bearing arrangement. Wyatt, do you want to talk more fully?
Yeah, sure. Thanks, Josh, and thank you, Dave. I think, Dave, you captured it well. What we're seeing is as we grow, we not only have increased the number of members we serve to 98 million, but we've increased by 25% the revenue per member. That's being driven in part by the more extensive services that we would offer somebody through a risk-based arrangement in Optum Care versus the lighter touch that you might see through some of the other businesses within Optum Health. We expect that trend to continue, and frankly, are very excited about double-digit growth in our MA risk lives and related fully capitated lives that we serve.
The other piece I'd say, Josh, around your question about physician recruitment is, we have seen continued robust interest in both small tuck-in acquisitions as well as medium and large physician groups who are attracted to both the stability, the physician leadership, and the evidence-based approach that we've embraced in Optum Care. Thank you.
Good question, Josh. Thank you. Next question, please.
We'll go next to Justin Lake with Wolfe Research. Please go ahead.
Thanks. Good morning. I wanted to circle back to the comments on 2021. First, from a consensus around the 11% range for growth year-over-year. Dave, I know you said that the range is going to be wider than average this year. Wondering if you think consensus will fall within that range at any point. Dirk, can you point us to, given the breadth of the business-
Hey, Justin?
What specific segments that-
Justin? We're having a hard time hearing you. If you're on a headset, can you pick up a handset?
Sure. Is this better?
No.
No. Okay, hold on a second.
Okay.
Is that better?
It is. Thank you.
Sorry about that. What I wanted to do was circle back to the comments you made on 2021. First, consensus earnings growth, I think it appears to look like it's targeting around 11% year-over-year, so below your 13%-16%. Wondering if you think your wider than typical guidance still might include that consensus estimate within the range. Can you point us to the specific businesses where you're seeing the potential impact of the COVID and the recession concerns maybe beyond just the typical commercial membership? Thanks.
Sure. John?
Good morning, Justin. It's John Rex here. As Dave pointed out, I think we are quite confident in terms of the underlying growth of the organization as we look towards 2021. Kind of in a normal year, I would think kind of things like even kind of where that consensus range sits at this point would be kind of in a normal zone that one could expect or an area that we would think about stepping out with. We are very respectful of the fact how it's anything but a normal year, and we've learned so much every month, I got to tell you, during this period over the last six months, and in terms of how we operate, how our businesses perform, how we need to respond for the people we serve.
We continue to be in a respectful mode in terms of learning more, understanding the situation better, and realizing there could be significant impacts in certain businesses as we think about performance. We look at it in a world of excluding kind of this world we operate in today, with kind of COVID-19-related impacts, a good zone, but you should expect that we think that there are potential headwinds within there, whether those are economic headwinds, whether those are factors in terms of what we need to do from a customer assistance perspective, and really the pacing of direct COVID-19 care and treatment costs. Perhaps a long-winded way of getting at, we are in a mode still of really trying to be responsive to what we're seeing in the environment and evolve our thinking as that environment evolves.
Justin, I don't think I heard, picked up your second question. If you could repeat that one, it was just hard to hear.
Yeah. What I was asking is specifically around the segments that could be impacted. Most of all, I know COVID is a potential uncertainty, but I've heard in the market is a lot of companies are trying to price for that, so adding a little bit to trend. Is that something that you felt like you did for last year and you're just still being conservative, or do you feel like that's something that's tough to do in this environment? Thanks.
Justin, this is Dirk McMahon. How you doing? What I would say is, we're of course, going to price to our best estimates of forward trends. That's going to include COVID. You asked about the economic impact. As we sat back and we looked at the third quarter, actually, our membership was a little less impacted than we thought it was going to be because of things like the Paycheck Protection Program, as well as some furloughs that large employers did. Yes, there will be a little bit of a run-in problem, less than what we expected. From a membership standpoint, we're actually fairly optimistic about how we priced. We continue to look at how our block is priced for 1/1. As we look at that, we're more than competitive, and we monitor that every day. Thank you, Justin. Great questions. Next question, please.
We're next to Frank Morgan with RBC Capital Markets.
Good morning. John mentioned an expectation for a decline in plan switching this year in the MA market. Just curious, any color on why you expect that to be the case? Thanks.
Just to follow up, I think one of the things I commented on was actually, we are seeing less plan switching than normal, actually. What we're seeing is strong adoption of people new to Medicare coming into Medicare Advantage. Tim, do you want to add anything to Noel?
Yeah. Frank, thanks to Noel. Good morning. Yeah, what John alluded to is that what we've seen in the marketplace is a decline in people that are switching from one MA carrier to the next. However, a lot of strength in what we call the chooser market, which are folks that are newly eligible for Medicare or people that are choosing Medicare Advantage plans compared to other coverage types throughout the course of the year. We've seen really good, strong demand in those categories, but the plan switching activity was lighter, and in particular, in March and April, it's come back a little bit throughout the course of the year. Actually, we've seen some better activity recently.
The dynamic in the marketplace as we head into Annual Enrollment Period is one where we're trending back to an environment that's more normal compared to selling season in the past.
Okay. Thank you.
Thank you, Frank. Next question, please.
We're next to Ricky Goldwasser with Morgan Stanley. Please go ahead.
Yeah. Hi, good morning. Question on the Medicaid side of the enrollment impact from higher unemployment. Is it coming in lower than you expect? When do you expect the impact to peak? How do you think about the balance of going to Medicaid versus exchanges? On the Medicaid side, has the pandemic changed how states think about transitioning the higher acuity populations to managed care from fee-for-service, and what type of visibility do you have for Medicaid rates for next year at this point of time?
Pretty much covered the entire landscape, Ricky. Well done. We will try to be as responsive as possible on all of that. Tim Spilker is our Chief Executive for Community & State. Tim?
Yeah. Hey, thanks for the question. You are definitely hitting on a lot of the factors that we've been tracking. First up, just in terms of enrollment, and Dirk mentioned this, as did John in his opening comments. Far what we've seen just in terms of enrollment gains is really the result of the suspension of redeterminations as a result of the CARES Act. We really have not yet seen unemployment pull through, and I think that's reflective of some of the dynamics that we're seeing in the commercial market. That's been supported, I think, by a lot of external studies as well. We continue to watch this. I think we would expect that unemployment would pull through at some point, especially as the timeframe between loss of coverage increases. As for your second question, just around complex populations.
Yeah, we are actively monitoring states as they explore transitions to managed care. We believe there's a very strong value proposition, especially for complex populations, including those that receive long-term care services and HCBS services. We know based on our experience that managed care can deliver significant value, not just in terms of cost savings, but also in terms of helping individuals remain in their homes, helping people access social services and supports. We've been working with states and monitoring states' activity as they transition. I think we are seeing a very robust RFP pipeline, as Dave mentioned, and we're hopeful that many states include long-term care services and complex populations in those. Finally, I think your last question was on funding and rates. Yeah.
Just on that one, yes, this is something that we've also been working closely with our state customers on, really to ensure that funding is sustainable both now and into 2021, especially considering all the dynamics in play. States are really taking a rational approach to funding. They're leveraging the appropriate risk management mechanisms depending on their experience. That could include risk corridors and MLR structures. They're also benefiting from some of the additional federal funding through the CARES Act. Then, of course, just as a reminder, Medicaid funding must be actuarially sound, which our states really do continue to use as a guiding principle. This is certainly an area of focus for us. We have strong relationships with our customers, and we feel good about those conversations thus far.
Maybe just the last thing I'd say is sustainable funding and all of this work is really critical as it enables us to invest in programs that really do drive substantial social and health outcomes for our customers as well as for the people that we serve.
Ricky, I hope that was responsive, at least responsive enough. Thank you for the thorough question. Next question, please.
Next question is from Gary Taylor with JPMorgan. Please go ahead.
Hi, good morning. Two-part question, just in case I strike out on the first one. Was wondering if you could quantify the consumer and customer assistance, how that impacted the MLR this quarter. The second part of the question, just thinking about cost trend heading into 2021. I think by the time this year is all said and done, you might end up being on your core commercial group cost trend down a couple hundred basis points at least. When you're thinking about your guidance for 2021, are you thinking it could be a normal cost trend on top of that? Are you thinking deferrals would accelerate? It could be 200 basis points or more higher than normal. I'm just interested in your thought process on how you're going to comp what was an easier than expected all-in trend for 2020.
Well, I'll give you the strike on the first one, because I don't think we're going to quantify customer and consumer assistance in the quarter. The one thing I will tell you is it's extensive. In particular, this is one of the primary quarters where the Medicare business was offering full co-pay waivers on both primary care and specialist visits. The reason for that, Gary, is that we were deeply concerned, and remain deeply concerned that Medicare consumers access their physicians just as quickly as possible because they're obviously managing chronic disease. We saw a very nice response to that program. Much so that we're extending elements of it into the fourth quarter. That's where customer assistance will continue. In addition to that, we extended some other programs.
You probably saw that our $1.5 billion initial estimate went to $2 billion, and in part, that was because of additional premium waivers and adjustments that we had made that will extend through the balance of this year, and modestly into next as well. That gives you a color for the kind of volume and the quantity of things that were going on during that timeframe. With respect to cost trends in 2021, Dirk, you want to take that?
Yeah, I would say, Gary, this goes back to what Dave said originally. We do consider all those factors you described. We consider what we expect COVID to do with respect to testing, with respect to treatment, all things that are associated with abatement as well. We make an estimate of that. We try to make forecasts of when the vaccines would come available. All those things are considered as we price our business for next year. I'm not going to get into the exact number of basis points associated with each one of those. That's competitive.
I mentioned earlier, we do monitor what's going on in the market, what we see with ongoing trends in all three of those buckets, as well as all the underlying costs, and we make our best estimate as to where we should land to be competitive from a membership growth standpoint as well as an earnings standpoint. That's what we do, and we have actuaries, and we have our management teams that are pretty experienced with that.
Thank you for the question, Gary. Next question, please.
We'll go next to Scott Fidel with Stephens. Please go ahead.
Hi. Thanks. Good morning. Just wanted to follow up on Medicare Advantage for 2021 and the comments that Dave had made around industry-leading growth expectations. Guess really just a two-part question to this. Just one, we do have CMS projecting the at least 10% enrollment growth for individual MA for 2021. Just interested in terms of your commentary and industry-leading growth, how you take that into context and whether that would support double-digit enrollment growth in individual MA for 2021. Just secondly, sounded like the comments around group MA, it sounded pretty bullish in terms of sales. Just interested if you could maybe quantify for us the expected group MA lives that so far you think you've added for 2021. Thanks.
Just to clarify, Scott, from at least my standpoint, what I really look at is the number of people served and what our performance will be relative to the market overall. As has been pretty consistent over time, UnitedHealthcare Medicare & Retirement has outperformed on that metric in particular. What I like about this year in particular is not only the group MA component really coming off of what would be a disappointing year in 2020, meaning the 2021 actual policy year. Also the kind of the setup for individual MA and continuation with our dually eligible members and their growth. That's the essence of the backdrop of the comment that I made. Tim, do you want to add anything further?
Thanks, Scott. Selling obviously starts tomorrow for individual Medicare Advantage. We've been marketing our product since the beginning of October, receiving really positive feedback from the broker community about how we're positioned. Once again, as you know, our top priority is providing stability and benefits for the members that we serve. As we go to market, we are happy to have succeeded in providing that for our members. In fact, about 75% of our members will experience improving benefits in 2021 compared to 2020. We also made some additional investments in capabilities to support seniors. Given that backdrop, we do feel really good about our positioning to gain share in individual MA, group MA, as well as the dual special needs plans market.
We're not going to comment specifically on any point estimate for industry growth, we really like our positioning inside of the growth, whatever that might be. Today's comments, we're really excited about our group MA growth in 2021.
Great. Thank you, Scott. Next question, please.
Next we'll go to Robert Jones with Goldman Sachs. Please go ahead.
Great. Thanks for the question. Yeah, I guess maybe just wanted to get your latest thinking on participating in direct contracting next year, obviously through Optum Care. Was wondering if this would contribute at all to your projections around global cap-wide growth, or would that be incremental? Maybe just relatedly, how are you thinking about direct contracting relative to the opportunity, obviously around MA on the UHC side? Thanks.
Want to start with UHC?
Sure. Brian Thompson here. As it relates to Medicare Advantage, as you've known from us for a long time, we've had the enterprise perspective of modernizing fee-for-service, but we're certainly encouraged by any activities like this. We participate in things like bundled payment programs, et cetera, and I see direct contracting as a positive to try to modernize the overall fee-for-service system in total and Wyatt obviously is looking at direct contracting through the lens of Optum Care.
Yeah, thanks, BT, and Robert, thanks for the question. We are very encouraged by every effort to move from fee-for-service to value-based contracting, so view this as a positive trend. The direct contracting proposals are primarily geared towards smaller groups that are in fee-for-service, and we have been in risk-based arrangements for over 10 years. While we will embrace this where it's appropriate, we have relationships with over 80 payers, and we'll expect to see continued double-digit growth of our MA and dual risk lives that we care for. I don't anticipate that the direct contracting will be a major factor for us. Again, I don't mean to say that in any kind of a negative way. It's a good program, but we will embrace all vehicles to grow. Thank you.
Thanks for the question, Robert. Next question, please.
We'll go next to Sarah James with Piper. Please go ahead. Your line is open.
Thank you. I was hoping you could give us some context around corporate tax reform. Looking back to 2018, you sized the benefit around $2 billion. Wondering where that sits now and if there's a difference between product lines and how we should think about which lines benefited on a margin side versus was passed through for pricing changes or other items.
Sarah, good morning. It's John Rex here. I think if we go back to that former period that you were discussing in corporate tax reform, I think there were a number of things that we commented on during that period and in terms of impacts. If you recall, during that period, we also commented about investments that we were making as a result to build for future growth and how we were investing in the businesses for the longer term. Certainly, that was an element there. Clearly, since that period, a number of years ago now, the company is much, much larger. You would expect the kind of that impact, kind of much smaller from an effective tax rate impact than we would have had back in that time.
Among the other elements that you were talking to in corporate tax reform and impacts, I think it's tough, really, to then kind of get out ahead of anything in terms of potential impacts and even how those impact on specific businesses just because we just really don't want to get ahead of any kind of policy that might be out there. Probably would just leave it at that. Thank you.
Thank you, Sarah. Next question, please.
Next is David Windley with Jefferies. Please go ahead.
Hi. Good morning. Thanks for taking my question. I appreciate the comments, several kind of percentage of baseline utilization numbers offered in the prepared remarks. I'm curious how that has progressed, perhaps through the quarter. For example, by the end of the quarter, were some of those at or above 100%? Are you expecting that to get to above baseline in the fourth quarter? Based on your assessments of kind of pent-up underutilization and system capacity, how long might you expect that to last? Then just to tag on, the DCP for the first couple of quarters of the year had been pretty consistent year-over-year, but at the third quarter is down a couple days, two to three days. I'm wondering how that folds into that view of where utilization is going. Thank you.
Morning, David. John Rex. Let me answer, try to give out those. First of all, let me give you a little more color in terms of what we saw in utilization over the course of the quarter and how it fits to what we were seeing last quarter and such. I spoke to kind of baseline exceeding 95% across our businesses as we look at the utilization at this point here. Maybe give a little color, kind of context within that and different categories and how those would trend. I point out, if I look at physician services, that would be below that baseline. I'd put kind of outpatient surgery, that kind of the right, are kind of in that zone of baseline, and I'd put inpatient above that baseline zone.
As we look down at kind of various populations and such, maybe a little color commentary in terms of how that trends. Commercial, certainly kind of higher in terms of where we're seeing utilization and where we're seeing against baseline, and government program services lower. Within that, I would say kind of within the government programs, I'd say the Community & State business being the lower element of those, and the way it's trending. One important element here, what you referred to some of the commentary we had for our expectations for the fourth quarter. Among those were that care that had been deferred, that we are able to help facilitate that care incurs. That's kind of where we're making investments and what we want to see happen here.
The other element that we anticipate as we look towards the end of the year is, we have been anticipating to see rising acuity because of deferred and missed treatment, that we'd see a higher acuity population. I would tell you, we really haven't seen that yet. Where we see rising acuity on the overall book, it's because of the COVID-19 cases that come in at a higher acuity level. You see a higher acuity on that component. If you take that component out, we don't really see it across the full scope of the book of our business at this point. As to your comment over terms of over the course of the quarter, what we saw, well, it was an interesting quarter from that perspective because you saw different incidence rates in different parts of the country over the course of the quarter.
We really monitored that quite closely. You would see as a particular part of the country, as you saw infection rates begin to rise, you would see deferral come into that mix. Given our platform across the entire country, we have a viewpoint into that. You'd see deferral, and then you'd see it come back in. I think the last thing that I would just place, I would just point out is within kind of that baseline that we're talking about, so I said exceeding 95%, I'd put kind of in the zone of five points or so are probably COVID-19 driven in terms of within that mix, and that's inclusive in the baseline we're talking about.
Then DCP?
DCP, thank you for reminding me. DCP, the decline year-over-year, David. That is due to the really kind of acceleration in provider payments that we took on earlier in the year. As we really were trying to get liquidity injected into the healthcare system, and we accelerated our payment cycles very significantly, and that continues. The reason you wouldn't have seen that in the second quarter is because of the very significant deferral of medical care in the second quarter. Just kind of getting into the math of it, right? You get a denominator here where medical cost per day was declining very significantly in the second quarter. That more than offset the impact of those payments. As we saw care being restored much closer to normal levels this quarter, that comes up.
Now you're seeing the impact of that accelerated payment cycle show up in our DCP. That was the impact.
Just to remind you.
Got it. Thank you.
to give you a sense of that, as we indicated in the prepared remarks, as well as around a $2 billion advance to the market or acceleration in payment. Thank you, David. Next question, please.
Next is Charles Rhyee with Cowen. Please go ahead.
Yes, hey, thanks for taking the question. Maybe if I could follow up on that about utilization and then tie it back to sort of your comments around the outlook for 2021. If it sounds like inpatient volume is a little bit above normal, other areas are a little bit below, and overall, let's say we're kind of getting back to a normal baseline utilization. Given that kind of pace that we're on this year, and then we think about next year, what is it in your thinking that makes you think that we're going to see a really big uptick in utilization? It sounds like when we go back to the earlier part of the Q&A, in your comments, Dave and John, at the end was, next year, you're thinking about a more conservative starting point to think about the 2021 outlook.
I understand that we'd want to back out some of the one-time items that were positive for this year. Maybe help us understand a little bit, what is your underlying assumptions for utilization? It seems to me and the pace that we're going at, it doesn't strike me that we're going to really have over-utilization per se, next year. Maybe help us understand what maybe you're seeing here as we're now into part of the fourth quarter that kind of gives you that sense.
Yeah. My comments are really grounded in the unprecedented uncertainty as we look forward and the deep respect for the pandemic and its impact on the economic climate. That's why as you think about being at this distance, stepping out, recognizing that As the future expectation, you would normally widen your range, and you would probably take a more conservative posture. That's essentially what we were trying to communicate. John, do you have anything further to add?
Charles , the one thing in your comment, I think you said we've seen inpatient above normal. I wouldn't say that's where we are. I said on that exceeding 95% baseline, I was orienting those categories around how they orient around that exceeding 95%. Inpatient rides a little above that, physician below that, outpatient surgery is right in that zone. That's more the commentary that I was providing there, not that inpatient is running above baseline yet. Certainly, categories are progressing to that. I think it goes, in terms of your broader commentary into what to expect for utilization, we want to make sure people get the care they need. That's why we're here ultimately. We're going to do everything in our power to make sure that care occurs.
You heard some of the commentary offered earlier in the year even, in terms of what was going on in different categories, in terms of cancer diagnoses, different areas that were off significantly. Obviously, that's not good for people, that's not good for the system. We want to make sure that that care is getting delivered. There are areas of care that we're going to be very proactive in making sure that people are able to access that. In our business, we have both direct access in the Optum Care businesses. UnitedHealthcare is being very proactive with outreach to vulnerable populations and making sure that they're getting the treatment that they need. Our ambition is to make sure that that care is delivered. There's a lot of necessary care that's not happening also.
I come back to Dave's commentary as we look out to 2021 and some of the earlier themes of, we've been learning stuff all along the way over this past many months, and we continue to evolve that thinking. We continue to feel like we get better perspectives and why deeply respectful in terms of, we don't really know how this moves over the next several months also. I think that's what you hear in terms of our commentary, in terms of how we think about stepping out and why, that we want to be respectful of an environment, frankly, that no one has navigated before. I think that's just the way you'd expect us to approach it. Thank you.
We'll take this next 30, 45 days or so to accumulate more facts, understand even better, and then lay all this out for you in more detail to the best of our ability when we get together on December 1st. We have time for one more question with a quick question and answer, and then I'll close. Next question.
We'll take that question from Lance Wilkes with Bernstein. Please go ahead.
Just wanted to ask for employer enrollment. How's that progressing in October, and what's your outlook for 4Q and beyond? If you can give any clarification in Optum Rx on the real sharp increase in revenue per script and some of the compression in margin, that would be helpful too. Thanks.
Yeah, Lance, I don't think we'll be able to give you insights into October and the quarter specifically, but what we can give you insights into is what the progresses we're making across the board in the commercial market going forward. I'll give you some sense of that without quantifying it. Dirk?
Yeah, I would say that as you think about the fourth quarter, the sense should be is there's a good amount of stickiness with respect to the end of this year in terms of persistency that we're seeing with our groups. Further, I think as we look at next year, I think we talked about it in the script. We'll have a lot of good products coming off the assembly line that we're very enthused about. All Savers, our level-funded product, Bind, a good product, which basically is a scenario where you have a base level of coverage, and you buy up for care as needed in certain categories. We have what I would say, a bunch of provider-centric products where we're looking at really efficient, high-quality networks and having a low consumer out-of-pocket associated with those.
What I would say is we're optimistic about our product portfolio for next year. As you look at the fourth quarter specifically, we've had good stickiness in terms of our persistency.
Yeah, I think the commercial business is doing a nice job. Obviously, we're very dissatisfied with the start of this year, but I think they've come on stronger as the years progress with a wide array of product choices and offerings, but also getting their cost structures in line and being able to reflect that in more competitive price positions in the market overall. Again, appropriately indexed to the forward view of cost plus margin, which reflects the variability of the future marketplace. John, do you want to touch on the script?
Sure. Lance, John Prince. Talking about our revenue growth, we've had really strong growth in our specialty business, as well as infusion, our community pharmacies, which is Genoa. That has been a big driver, as well as our external client wins we had on the beginning of the year. You look at our services businesses, which is those services, as I mentioned, they're growing almost 30% inside that, really strong growth in that. In terms of our margin and why it's declined year-over-year, it's really two factors. One, on the earnings side is the impact of COVID-19. As you know, with the pandemic, we've had less first fills in Q2. That continued in Q3, as well as we've seen in Q3, less utilization per member, as well as some loss in unemployment. That's impacted our earnings.
On the denominator side, the retail co-payment, which was added to revenue in 2020, was added to denominator, which actually impacted the margin in Q3. Overall, we're quite pleased with our margin performance. As you see, between Q2 and Q3, our earnings grew sequentially by 16%, as well as continued to improve our margins. Overall, we're executing very well.
Good. Thanks, John. Thank you, Lance.
Great. Thanks.
Thank all of you for your interest and the very thoughtful and insightful questions that you offered today. As you know, this is an unprecedented time in our company's history, and as you've come to expect, we'll continue to respond and lead with full strength, compassion, and fortitude, restlessness for serving the unique needs of every one of the 140 million people we serve around the world. Despite the challenging times, the 325,000 people of UnitedHealth Group are deeply committed, and they're energized about our work to advance the next generation health system in a socially conscious way. It's a health system that'll be universal, affordable, simple, and effective. We look forward to engaging you in several weeks at our upcoming annual investor conference on Tuesday, December 1.
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