David Wichmann - Chief Executive Officer Larry Renfro - Vice Chairman and Chief Executive Officer, Optum Steve Nelson - Chief Executive Officer, UnitedHealthcare John Rex - Executive Vice President and Chief Financial Officer Brian Thompson - Chief Financial Officer, UnitedHealthcare Medicare & Retirement Tim Wicks - Executive Vice President and Chief Financial Officer, Optum Eric Murphy - Chief Executive Officer, OptumInsight Jeff Putnam - Chief Financial Officer, UnitedHealthcare Jeff Alter - Chief Executive Officer, UnitedHealthcare Employer & Individual John Prince - Chief Executive Officer, OptumRx Dan Schumacher - Chief Financial Officer, UnitedHealthcare Austin Pittman - Chief Executive Officer, UnitedHealthcare Community & State Andrew Hayek - Chief Executive Officer, OptumHealth Patty Horoho - Chief Executive Officer, OptumServe

Peter Costa - Wells Fargo Justin Lake - Wolfe Research Dave Windley - Jefferies Kevin Fischbeck - Bank of America/Merrill Lynch Matt Borsch - BMO Capital Markets Michael Baker - Raymond James Gary Taylor - JPMorgan Chris Rigg - Deutsche Bank Sarah James - Piper Jaffray Sheryl Skolnick - Mizuho Ana Gupte - Leerink Partners Ralph Giacobbe - Citigroup Zack Sopcak - Morgan Stanley Christine Arnold - Cowen

Good morning. I will be your conference operator today. Welcome to the UnitedHealth Group Third Quarter 2017 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 reports and SEC filings section of the Company’s Investors page, at www.unitedhealthgroup.com. Information presented on this call is contained in the earnings release we issued this morning and in our Form 8-K dated October 17, 2017, which maybe accessed from the investors’ page of the company’s website. I would now like to turn the conference over to the Chief Executive Officer of UnitedHealth Group, Mr. David Wichmann. Please go ahead, sir.

Thank you. Good morning and thank you for joining us. This quarter, we are pleased to report continued broad-based growth and forward momentum for our diverse healthcare enterprise. In our sessions with you each quarter, it is both humbling and an honor particularly from this chair to represent the dedication, energy and work of the 260,000 women and men who comprised this company today. I have the privilege of witnessing their efforts up close as I work with our people across the globe and it is inspiring. Each day, our people leverage clinical insights, data and information, advanced technologies and a service minded culture to help people live healthier lives and to help make the health system work better for everyone. Having the opportunity to live this mission and witness its impact drives all of us. Over the past few decades, we have evolved as we have grown to serve more people and expanded our capabilities, but to us it often feels like we are just getting started. We see more opportunities to serve and to grow further in the next 10 years than ever before. We are focused on diversifying our business applying analytics and advanced technology to improve the use of information and better engage people and to improve the effectiveness of our businesses and ultimately the broad health system. We are raising our quality through rigorous net promoter disciplines leading to greater trust and loyalty. We are reducing healthcare costs to make healthcare more affordable advancing market leading innovations and simplifying the healthcare experience for consumers and care providers. The pace of growth of our organization that is achieved will be determined by how well we work with, perform for and serve others. The more we effectively serve the healthcare market’s true needs, the more we will realize our full potential leading to predictable and consistent growth in revenues, earnings, cash flows and enterprise value. To that end, this morning we reported strong performance in the third quarter of 2017. We grew revenues by 9% to $50.3 billion and grew adjusted earnings by 23% to $2.66 per share. And we reported $7.5 billion in cash flows from operations and annualized return on shareholders’ equity of 22.5% and a debt to total capital ratio of 38.2%, down nearly 900 basis points over last year. We now expect full year 2017 adjusted earnings to approach $10 per share. We expect this strong business momentum and performance to continue into 2018, 2019 and beyond driven by growth and service to our customers. In light, we will walk you through recent business trends in more detail beginning with Larry Renfro, our UnitedHealth Group Vice Chairman and Chief Executive Officer of Optum.

Thank you, Dave. Optum’s third quarter included continued growth, strong margin than earnings and further strategic advantage. Third quarter revenues grew nearly $2 billion to approach $23 billion, an 8.4% advance over last year. Optum’s earnings from operations of $1.7 billion were again well-balanced with each segment producing double-digit percentage growth in operating earnings. A nearly 16% increase in Optum’s earnings was driven by the combination of strong revenue growth, business expansion and strengthened operating margins for both OptumHealth and OptumRx and a steady 20% operating margin at OptumInsight. Overall, Optum’s operating margin of 7.4% increased 70 basis points sequentially and 50 basis points from last year’s third quarter. OptumHealth grew revenues over 21% year-over-year as it expanded to serve approximately 9 million more consumers over the past year. OptumHealth has among the broadest reaches in healthcare directly serving 90 million consumers. Per capita revenue growth was again strong in the third quarter rising more than 9% versus last year as earnings from operations increased 27%. OptumHealth is supporting the U.S. Departments of Defense and Veteran Affairs by providing healthcare services and expertise. Earlier this year, the Defense Health Agency awarded Optum a 5-year agreement to support Military Health System’s global advice service. Beginning in March 2018, our registered nursing staff will provide triage services, self-care advice, care coordination and general health advice to active members of military and their families, 24/7 via secure phone videoconference or web chat. In August, the Advisory Board and OptumInsight agreed to merge in a transaction we expect to close by the end of 2017. The Advisory Board has long been a distinctive leading provider of research, consulting and technology serving about 4,000 hospitals and health systems across the nation. We believe their outstanding team of independent healthcare experts can extend their work into…

Thank you, Larry. Like the Optum team, UnitedHealthcare is pleased to report strong performance across the business this quarter. At UnitedHealthcare, we continue to focus on a few critical priorities. The first is quality, which includes both clinical quality and the experience consumers and care providers have with us. We are gratified to see our NPS core is advancing with consumers and clients across our product lines and with providers. Next is our relentless focus on managing costs. As customers expect us to be good stewards of their financial resources, one example, 2017 is tracking to be the ninth consecutive year UnitedHealthcare’s customers will experience fewer, inpatient hospital admissions per 1,000 people. Third is our partnership with Optum. We are further leveraging capabilities to improve performance and innovate for our customers and care providers, nowhere does our clinical engagement performed better than where it combines with the clinical delivery capabilities of OptumCare’s local market ambulatory care practices. Consumers regularly give OptumCare practices NPS scores in the 70 to 90 range and for 2018, 100% of OptumCare Medicare Advantage patients will be in plans rated four stars or higher. Together, we are able to better serve the clinical needs of UnitedHealthcare patients with the higher quality, lower cost and improved customer experience. In turn, we strengthened Optum’s practices through market leading growth, innovation and clinical insights all aimed at better serving people one at a time everyday. The fourth priority is what we refer to internally is distinction. It is how we describe the truly compelling experience we are creating for people across a variety of dimensions. This includes creating distinctive relationships with care delivery system partners and driving simplicity for consumers. On Rally, our consumer digital platform we added additional private health insurance plan selection capabilities this past quarter to…

Thank you, Steve. Across UnitedHealth Group in the third quarter, we delivered strong, well-balanced performance, with most principal businesses again posting revenue growth rate, up 10% or higher. Consolidated revenues of $50.3 billion for the quarter grew 8.7% over last year despite the ACA effects at UnitedHealthcare. Our consolidated earnings from operations exceeded $4 billion and our net earnings to shareholders of nearly $2.5 billion rose 26% year-over-year. Third quarter adjusted EPS rose nearly 23% to $2.66 per share. Medical costs have been well managed within our established outlook range, while trending modestly lower. The third quarter medical care ratio of 81.4% brought the year-to-date ratio to 82% would suggest we will be closer to the lower side of our full year 2017 outlook of 82.5% plus or minus 50 basis points. The operating cost ratio ticked up 10 basis points sequentially to 14.7% in the third quarter due to the typical seasonally higher levels of operating expense as we prepare for on-boarding new growth in January. Overall, operating costs remain within the range of our expectations even as we see meaningful opportunities to improve our performance in this area. Cash flows from operations were $7.5 billion in the third quarter or 2.9x net income bringing the year-to-date adjusted figure to 1.6x net income. Third quarter cash flow was driven by strong underlying business performance, working capital management, the absence of an annual insurance tax payment in the quarter, and the annual receipt of payments from CMS that adjust rates to reflect member’s medical conditions. Our strong performance enabled us to reduce our debt to total capital ratio to 38.2% at September 30. Since we acquired Catamaran 2 years ago, we have reduced this ratio by 11 percentage points even as we continue to expand our business portfolio and enhance shareholder value. Over that time, we created a unique, diverse and fully capable pharmacy care service business, continue to build on our OptumCare platform through the acquisition of urgent care, ambulatory surgical and local market physician practices, and distributed nearly $5 billion in dividends repurchasing $2.5 billion in stock. We have increased our outlook for 2017 adjusted net earnings and now expect to approach $10 per share. This would be a full year growth of 24% and strongly ahead of the original range of $9.30 to $9.60 per share as we communicated at last year’s investor conference. Dave?

Thank you, John. Before I give a first look at 2018, let me touch briefly on the federal executive order from last week. We have a great deal of experience in the area covered in the order, short-term policies, association plans and expanded use of HRAs. We will be engaging with policymakers as the regulatory frameworks in these areas are developed over the next 60 to 120 days and hope to elaborate once the process has concluded. With regard to cost sharing reductions, you will recall that we have a very limited exchange presence, about 30,000 people in four states who are CSR eligible and we submitted plans for 2018 both with and without the CSR payments. Thus, we expect any impact to be extremely small. Now, to 2018 as you look at next year, it is important to keep several tailwinds and headwinds front of mind, themes, we have been consistent about over the last several quarters, continued growth, momentum and performance, particularly with customer retention as our NPS disciplines improve, increasingly effective capacities to manage and contain both medical and operating costs, the improving performance and capabilities of our modern operating technology and data analytics infrastructure and ongoing efforts to be strategic investors and thoughtful stewards of the capital you have entrusted to us. With regard to the headwinds, these remain largely around externalities centering on government programs, funding trends and taxes. On the latter, the return of the health insurance tax is the most meaningful. We and others have advocated strongly for the repeal or continued deferral of this tax. It ultimately increases cost to consumers through either increased premiums or benefit reductions and thus affects Medicare beneficiaries, individual policyholders, large and small businesses and Medicaid recipients. Absent the insurance tax reinstatement, we see our 2008 per…

[Operator Instructions] We will take our first question from Peter Costa with Wells Fargo. Please go ahead.

Good morning. I would like to ask you about 2019 Medicare Advantage plans we have seen good growth in your earnings from Medicare over the last few years. It looks like going into 2019, there is a lot more plans for pricing a little more competitively as well as growing geographically. You had great growth in 2018. Can you talk a little more specifically about what you are thinking having seen everybody else’s plans now for growth in 2019?

Thank you, Peter. And I appreciate you acknowledging our past growth, I think our team has done a very nice job in building this business and really setting the stage for our continued success in that area. Obviously, we are not commenting on the specifics of 2019, but we will give you some general sense of things. So, I will give it to Steve Nelson.

Sure. I assume that question is about 2018.

Yes, benefits plan probably.

Peter, you said 2018.

2018, sorry about that.

Making sure, okay. A lot of work to do between now and ‘19 benefit plan because we are about two days into the selling season for Medicare Advantage and yes, tremendous growth. We have been really focused at UnitedHealthcare across all the businesses to really advance the idea that I mentioned earlier in my comments around distinction and with very key focus on some fundamental areas, substantial growth, advances in quality leveraging our Optum capabilities, managing our costs both administrative and clinical and nowhere has that, I think, shine through more brightly than our Medicare Advantage. So, I think it’s great to have Brian Thompson, our CEO of Medicare shed some light on 2017 and kind of outlook for ‘18 as you kind of see things shaping up.

Sure. Thanks, Steve. Peter, good morning. As far as 2017 goes, our performance continues to be very strong, what we are seeing aligns to our expectation. So that really sets the foundation for a robust optimistic outlook both for the industry at large as well as our performance inside 2018. I think what we are seeing as we look at the marketplace for 2018 is very stable benefits broadly, very few exits, very few closures, really great for this team here. I think that will enable continued advances in both popularity as well as the penetration for Medicare Advantage at large. Competitively, no big changes, generally speaking with respect to the competitive landscape, what we are seeing large, it aligns with our expectations. Our offerings in particular remain very strong, very stable, well-positioned for continued growth inside 2018 and we do expect to outpace the industry and growth in 2018.

I was hoping you give a little color on the group business versus the retail business as well as how you are getting past the health insurance fee?

Sure. Peter, with respect to group, obviously 2017 was one of our strongest years ever both in terms of retention and strong growth. I think it can be considered a bit of an anomaly, but certainly don’t want to diminish what is setting up to be a very strong year inside 2018 as well, great growth again in terms of new customers as well as strong retention.

Okay. Thank you, Peter. Next question please.

Thanks.

And we will take our next question from Justin Lake with Wolfe Research. Please go ahead.

Thanks. Good morning. First, Dave, congrats on the new role. Secondly, just appreciate the commentary on 2018 very helpful. I think what I would like to try to delineate here is 2017 when they have one away you talked about it, I think your Investor Day, $0.25 tailwind, this year you are talking about it coming back is being a $0.75 headwind. I am just curious if there was a change in the way you passed it through in ‘17 versus as it came back in ‘18. And if you did, for instance, take lower net income target margins than any of your businesses, can you kind of flush that out for us a little bit and little color to background there? Thanks.

Thanks for the question, Justin and appreciate your acknowledgment of the new role and our guidance on 2018. I will ask John Rex to respond to your question.

Good morning, Justin. Maybe let me give a little more color on that. So, first when we talk about the $0.75 that’s the sizing of the year-over-year earnings growth headwind that’s created from the tax coming back in, I’d say it’s somewhat over two-thirds of that is the explicit 2018 earnings reduction impact that we feel from that, while really the remainder of that. So they are somewhat under one-third derives from that really the tail impact that we saw from our 2017 earnings. If I think about kind of the composition of that and how that breaks down on the 2018 end year I would say more than half of that derives from Medicare Advantage and the non-deductibility of the fee and the restroom commercial risk products. And then as you mentioned really the other part of that $0.75 is just the other side of the tail of the 2017 tailwind. So, that’s really the way it breaks down and overview as we think about the ‘18 impact.

So, hopefully, that’s helpful. Justin, we’ll break this down greater at our upcoming investor conference, but we did recognize you would like to get some visibility on its components.

Thanks.

Next question, please.

We will take the next question from Dave Windley with Jefferies. Please go ahead.

Hi, good morning. Thanks for taking my question. I wanted to flip over to Optum. On OptumInsight, backlog grew nicely, I think previously the target there had been in the $15 billion to $16 billion range to end the year you will need a pretty strong fourth quarter to get there. I wondered if that’s still the view and then OptumInsight has also been running at very attractive margins kind of above the long-term target. Is that sustainable or maybe asked a different way? Are we looking for a kind of higher target range? Are you revising the range up or is there some reason why that might moderate back down into the 16% to 20% range? Thanks.

Thanks, Dave. Larry Renfro?

Dave, it’s Larry. Couple of comments and then I am going to ask Tim Wicks to talk a little bit about this from a financial standpoint and how he sees it in the CFO role and I will ask Eric Murphy to talk about it as the business lead on OptumInsight, but as I know you know the third quarter finished slightly ahead and I would say going into the fourth quarter this is historical for us in terms of what we expect OptumInsight to actually how they will perform in the fourth quarter and they are right in line with our expectation. I think Tim will probably talk a little bit about that we had a pretty large account that came in at the end of the third quarter last year that may have a little bit of impact on the number the way that you are looking at it, but overall I would say that the momentum is very strong and we feel confident in our expectations. So, Tim?

Great. Thank, Larry. Dave thanks for the questions. It’s Tim Wicks. Good to talk to you. The question around backlog, I think it’s really important to know that as we hit $13.9 billion this year, it was a really great, strong quarter of sequential growth of $500 million and was led by revenue cycle management, BPL and government businesses. And also I am just noting that number has grown $1.3 billion year-to-date. I would also want to note that it’s important to understand that late in Q3 of 2016, we had a very large end-to-end sale that’s now in implementation. So, a portion of that’s rolled off, but since that time as I mentioned earlier, we have also added $1.3 billion of new sales into that number and the backlog number is now up 11% year-over-year. And I will turn it to Eric to talk about the pipeline.

Yes, thanks, Tim. Good morning, Dave. Eric Murphy with OptumInsight. In terms of the specific question you asked about our backlog and our expectations regarding Q4 and for the year, first I will start with – Q3 was absolutely in line with our expectations relative to our contribution to backlog. We come into Q4 with a very strong pipeline of active pursuits. So, we are very bullish on our ability to be able to achieve our objective as you stated a $15 billion to $16 billion of total backlog for 2017. We anticipate the contributions of that backlog in Q4 being concentrated around our inventory and acute revenue cycle management, where our pipeline is up 60% year-on-year. So, we anticipate a strong finish to Q4 into 2017.

So, Dave, it’s Larry, I want to take this back to Tim, because I don’t believe he answered the margin question.

Great. Dave, first just to note, you had mentioned the margin at 20.7% for Q3. I think it’s important to note, it’s up 40 basis points from Q3 of 2016, so year-over-year a 40 basis point margin expansion than the same amount September year-to-date. Sequential margin expansion over just the last quarter has been 200 basis points, but as you think about that margin expansion just consistent with prior years, we anticipate being continued sequential margin expansion in Q4 and that’s really driven by seasonality in the business whether it’s perpetual sales or additional performance and incentive fee payments that we expect to see at the end of the year as well as Optum360 content sales and other technology and data and software sales. So, we expect this seasonality and we see it each year as we roll through the year and would expect the kind of Q4 seasonality that we have had previously, but not a real expectation to change our overall outlook to anything higher than what it is right now.

Okay, thank you.

Thank you. Next question, please.

The next question comes from Kevin Fischbeck with Bank of America/Merrill Lynch. Please go ahead.

Great. Thanks. Just wanted to share your comments around trend so far this year, how it’s coming in what’s been maybe you think that it’s coming in towards the lower end of what you are looking for and if there is any impact of the hurricanes in Q3 and potentially in Q4?

Thank you, Kevin. As in our prepared remarks, we said that our trend is expect to be less than 6%, so within the lower end of the 6% plus or minus 50 basis point range that we had provided at the investor conference last year. Overall, it’s looking strong. Our team does a very nice job of containing healthcare costs, but let me ask Jeff Putnam, our Chief Financial Officer of UnitedHealthcare to add some details and then maybe I will make a few comments on the hurricanes.

Thanks, Dave. Good morning, Kevin. I’d like to start our medical cost trend reflects our efforts everyday that we do to manage costs and improve clinical quality on behalf of our customers and we are driving this in several ways through traditional focus on medical cost management initiatives, getting at the right level of care at the right place of service. We are also increasing the effectiveness of our clinical model with additional focus on those with the greatest need and getting them connected to the right care. And we are increasing the alignment of our provider partnerships leveraging data and aligning incentives. As Dave mentioned, we are talking about our – looking at our 2017 trend to be below 6%, but that’s still within the lower half of our original range from a year ago and you have to defer a little color on where we are seeing it, overall unit cost continues to be the primary driver and we look at it by category. It’s really broad-based. We are seeing trend shift slightly downward across all categories and then there isn’t anything specific that I call out around that.

And then Kevin, as for the hurricanes, obviously it’s been an unprecedented time period and it’s been a really powerful and inspiring time to see how our employees have pulled together to help people that we serve and frankly their fellow employees as well in the communities broadly. I just wanted to take this opportunity to thank the countless women and men of our organization that gave so selflessly during this timeframe and continue to do so today. We invested heavily in the aftermath of these storms we provided financial relief for employees. We helped our customers get back on their feet. We worked with state leadership and we provided all kinds of financial assistance and in-kind services for the relief efforts in Texas, Florida and Puerto Rico. So, there is typically some level of utilization offset, but I want to remind you that in the case of Optum, there is also lost revenue from reduced utilization. These are significant markets for our OptumCare businesses and then we had of course a fair amount of direct damage to our business as well as the financial effects of all these relief efforts. So in the end, we didn’t really pay a whole lot of attention to the financial impact if you will, but because that wasn’t what was most important at the time, but in the end it ended up being not material to our overall performance.

I guess, regarding the Q4 potential implications, I mean, if you are pointing to a lot of instructions going on and I think a lot of people are expecting how did that plan to accelerate costs Q4 volumes just to be seasonally stronger every year. Do you feel like you have got good visibility into that trend in Q4 that there is any disruption as far as claims processing or anything like that, that might create an issue for you one way or the other?

We believe we have good visibility to our business and we don’t see disruption is affecting our Q4 results.

Okay, thanks.

Thank you, Kevin. Next question please.

We will go next to Matt Borsch with BMO Capital Markets. Please go ahead.

Yes, thank you. Could you just talk to not necessarily looking for more numbers here on the question from Justin earlier regarding the…

Matt, it’s very difficult to hear you. You are breaking up, are you on…?

I am sorry, how about that? Is that better?

Much, much, thank you very much.

Thank you. So, my question was picking up on the health insurer fee resumption. I am not necessarily looking for more numbers, but just sort of qualitatively you talked about more than – sorry more than half from MA and the two-thirds of the $0.75, so the rest of it presumably on the commercial side. Is that getting to the fact that in the small group market or where is it the commercial was not entirely a pass-through at least with respect perhaps to the tax grows up and has there been any change in the pricing environment that you are reflecting in the way that you are handling the health insurer fee relative to what you have done in the last few years?

I’ll let John to respond.

Yes. Matt, on the commercial side of that, that has to do just with the accounting convention on the commercial business in terms of the periods that one collects the tax and recognizes that and the period that one expenses it. So for any piece of business that’s other than the January 1 renewal date, there is going to be some gap in the timing that occur. So, we had called out that one of the tailwinds in 2017 was the result of that.

Right.

That flips into a headwind for us in 2018, because we get the full expense recognition in 2018. So, that smoothes out over a few years, but it creates the thing or the 2-year variability.

Got it. Thank you. If I could just sneak in one other question here, is there anything to read into the – or maybe you can just talk to any circumstances around the loss of that the 500,000 public sector account and does that reflect anything in the competitive environment for a self-funded business?

No, I will ask Jeff Alter to touch on it. It was a single account. There is nothing particularly unique about it other than we happen to lose this one and unfortunately so for, Jeff.

Yes, good morning Matt. As Dave said, I think you have to think of this account as a very unique circumstances extremely large account. We were honored to serve them well through a number of renewals. We see very disciplined in our pricing on both admin and the projection of that client’s healthcare costs during this renewal. And unfortunately, we weren’t chosen to continue to work with that client. I would say we remain focused in serving that client and their members really well during this run-out period and we hope to be in position to compete again the next time that client puts their business out for bid.

Alright. Thank you.

Thank you, Matt. Next question please.

The next question comes from Michael Baker with Raymond James. Please go ahead.

Yes, thanks. Just want to get some your perspective on the potential opportunity for more active management of state Medicaid formularies in light of the Massachusetts waiver that was filed?

I will ask John Prince to comment.

Good morning. This is John Prince, CEO of OptumRx. Michael, in terms of the question around state Medicaid formularies, I am probably going to get into detail the specific Medicaid plan overall. We are very pleased to be very involved with Dave’s. It’s a very large business for us. We actually support state from fee-for-service Medicaid in terms of their design and plan. We also support a variety of managed care Medicaid plans in their design. I think most states are looking at different strategies to create more affordability for their customers. We have been very successful in that market working with states around designs that get out of affordability further ongoing plans beneficiaries as well as trying to become more consumer-oriented. I am not going to get into specifics on a given state, but overall, it’s a very solid market, where people are very focused on value and experience.

Good question, Michael. Thank you. Next question please.

The next question comes from Gary Taylor with JPMorgan. Please go ahead.

Actually, at this point, my important questions have been answered. So, I will just let you proceed. Thanks.

Thank you, Gary. Next question please.

And we can go next to Chris Rigg with Deutsche Bank. Please go ahead.

Good morning. I was just hoping to get a little more color on the increase in the favorable reserve development year-to-year? And then if you could give us any color on the relative performance in the business lines, commercial, Medicare and Medicaid? That will be great. Thanks.

Well, I think our development is indicative of the cost containment efforts across our enterprise and we have – I will ask Jeff Putnam to comment on its components.

Yes, thanks for the question, Chris. Yes, as Dave mentioned, we are working to control medical costs and improve quality. And our development this quarter reflects that as well as a modest change in claims processing timelines and both these, they take some time to mature and get their way into our claims data and reserving as we maintain a very consistent and tightly controlled process. And with this, when you step up and look at this, we are pleased with the overall accuracy and consistency of our reserving over time, especially when you look at $117 billion in medical spend last year and approaching $130 billion this year. By business as you know we don’t break that out specifically, but I would offer that both our commercial and government businesses recorded favorable development this quarter.

And then maybe Steve Nelson can touch on overall performance.

Sure. Hi, Chris. So, as I mentioned in my earlier comments really excited about the performance across all of our businesses. We are really well-positioned and we see a lot of opportunity. So, maybe I will just ask Dan Schumacher to comment broadly on, I think particularly of note is the strong performance we have had in fully insured and then maybe Austin Pittman could just share a little perspective on the Medicaid – managed Medicaid opportunity continues to be a strong growth opportunity for us.

Sure. Thanks, Steve. Chris, to your question around performance in each of our businesses, we are performing from an earnings perspective in line with or better than our expectations. And probably within that, I would highlight to Steve Nelson’s point, our commercial business is standing out a little bit. And that really is built on very strong growth foundations. So, we are doing well on the fully insured side. We have grown that over the last 3 years as we mentioned in the prepared remarks by 1.1 million lives and inside the year, we are doing better than what we had expected when we got together a year ago at the investor conference. So, really strong growth and underpinning that is some really potential efforts that we have made over the last several years to broaden our product portfolio so that we could pair that with highest performing positions and be able to create price points in our offering that can appeal to a broader spectrum all the way from our largest clients down to our smaller clients. And then I think also worth mentioning is some of the advances we have made in not only our clinical model and medical management, but our innovations around the consumer both our advocates on the phone as well as in our digital experiences and a lot of that is in partnership with very strong partnership with Optum. So, those are some of the things that are contributing to the strong commercial performance.

Yes, thanks, Dan. I will just comment on the Medicaid market overall. It continues to be a very strong marketplace, very active. We are honored with recent new market wins in Virginia as well as in Missouri. We have had important renewals recently with Louisiana and Colorado, Arizona LTSS, so again really strong performance across the board I think in recognition of the value that we are bringing to our state partners. Because we look forward, we have got a very strong pipeline over 20 RFPs in-house. That pipeline is shaping up pretty heavily with a turn towards populations of very complex needs, which really plays to the strength of Optum and UnitedHealthcare. We have carved out a very distinctive capability in serving those populations. So, again, it’s a strong marketplace. I think states continue to look to manage Medicaid that deliver value in predictability and cost as well as importantly increasing the quality to the individuals that we serve. So, we are very, very bullish about the future of that marketplace. So, hopefully, you are getting a good sense of the consistency of the performance of the business across the board that we are referring to in our prepared remarks. I might add to that, that our international business, our global business has performed nicely year-over-year as well. Nice progression in particular coming from our colleagues down in the meal.

Thanks a lot.

Yes, thanks. Next question please.

And we will go next to Sarah James with Piper Jaffray. Please go ahead.

Thank you. The theme of consumers on high deductible plans has been having an increasing impact on the industry in cost terms and I think United has the most work here understanding the dynamics….

Sarah, we are struggling to hear your question as well.

Sorry. So, the theme of consumers on the high deductible plans has been having an increasing impact on the industry in cost terms. And I think United has done the most work in understanding the dynamics of consumer behavior, deductibles and HFA balances. So, can you talk big picture where do you see high deductible plans going as a percent of the commercial market, what’s the growth profile there and can you give us an idea of the cost trend differential or initial headwind to cost trends experience when a consumer moves to high deductible plans from a traditional commercial plan?

So, these plan designs have been heavily sought after and have been a key contributor to our growth in part because of our ability to offer an account like an HSA alongside them are in HRA as well. So, it’s been a considerable growth category for us and it’s expected to continue to rise, but evolve and become more modern with greater focus on tailoring products and networks to individual consumer needs whether they be individual policies or in the case of a group A’s policies, the individuals inside those groups, but maybe I will have Jeff Alter provide some additional color on or Dan Schumacher.

Sure. Thanks, Dave. Good morning, Sarah. Just for context as you look at our portfolio across our self-funded and fully insured clients just a shade under 30% of our enrollment base is in consumer-directed offerings, a little less so in our fully insured offerings and a little more so inside of our self-funded offerings. And so we have seen some very nice take up in that over time as employers increasingly look to that as a vehicle to help continue to offer high-value benefits at a more reasonable price. In terms of sizing the delta as people step into initially into consumer directed and then what it does over time, I think obviously if that varies considerably based on where people set those attachment points and deductibles, but needless to say that there is a very, very meaningful first year benefit depending on how you structure it and we have seen improved performance on a trend basis relatively speaking over time in our high deductible offerings.

Thank you for your questions, Sarah. Next question please.

And we will go next to Sheryl Skolnick with Mizuho. Please go ahead.

Thank you very much. So, forgive me, but I am going to make an observation here on, it is both comforting and remarkable in a positive way to note the consistency not only of the very strong results across the enterprise, but also the presentation and commentary and guidance and a brilliant debut, David and I don’t say that for any reason other than must not be easy to come in front of all of us asking out the questions on your first earnings call and this is certainly a good way to start, but that consistency is important and the way I look at the company both in terms of the growth and in terms of the de-leveraging in the capital deployment which is where my question is going here. So, you have now returned to stellar ROE performance 22% plus, you’ve got your debt to total capital under 30% at 38% presumably with the kind of growth you are talking about this year and next year there is more room and you have from what I see a multitude of opportunities, David is the keeper of the keys has been involved in so many of the acquisitions that the company has made and you are now sitting on top of the organization what’s the next strategic direction in terms of capital deployment. I know the basic formula, but where are the interesting things that United needs to go and do whether it’s internally or externally to take the company beyond where it is today?

Thank you for your kind remarks, Sheryl. I appreciate that. As you might suspect this transition was architected by Steve Hemsley in our board and they have done a fantastic job and I guess that should be no surprise to anyone. And thank you for your acknowledgment of the performance of the business. It does continue to advance quite nicely. All that said, we are not yet performing at our full potential and there is a lot of opportunity for this organization to continue to improve to better serve people to grow organically as well as deploy capital in ways that it has in the past with maybe a slight tilt in direction overall. As you know, we haven’t invested in a significant health plan in nearly 8 years. We do, do some small plug-in acquisitions here and there and largely for the purpose to enter into a new market and/or to gain some kind of competency that allows us to better serve people more nationally. So, the vast majority of what you have seen from us in terms of focus on the UnitedHealthcare front has been to drive an organic growth agenda and then to push more globally. And when I talk about globally I mean selectively globally, we entered into Brazil, we felt that, that was a good market. It is turning out to – as it continues to evolve to in fact be a good market and we look forward to the day when the political climate and regulatory and economic climates of Brazil shape up. We think that, that will be a nice growth category for the middle class and as a result will lead to nice growth in our business. You probably saw that we extended that into some initial activities in Chile, Colombia and…

Perfect. Thank you so much.

Thank you for your questions. Next question, please.

We will go next to Ana Gupte with Leerink Partners. Please go ahead.

Yes, thanks for squeezing me in. I wanted to ask you about OptumRx and the clinical synchronization model that you have tied to medical membership up-sale and margins relative to what you are seeing now with the standalone providers like expressed having pressure retail same-store sales down and your thoughts about potential entry and your response to maybe Amazon coming in which is being speculated?

Okay, there is a lot there, Ana. I will ask John Prince to respond and maybe I will give you a few comments on Amazon at the end.

Sure. Thank you, Ana. It’s John Prince, CEO of OptumRx. I will cover a couple of parts. So, I think the first part was around sync and the second one is just sort of the broader market and then lastly is entrance to Amazon and others. So, in terms of sync, our strategy hasn’t changed. Our focus is around how you solve fundamental issues in healthcare, one is driving and that’s the best net cost and pharmacy cost for our customers. The second one is how we improve the total cost in healthcare. And I think that is where we are differentiated in the market where with our capabilities at Optum, we are able to actually solve that total cost of healthcare. We had a earlier version of that in the market, the last 2 years. We have done with UnitedHealthcare with other health plans direct from markets. It’s actually created a great value in the market. We are now pivoting that to a broader solution. So, we have a new version of sync which we are out in the market selling. It actually not only leverages the touch point of the phone call, how you actually saw borders in the healthcare, but we are actually very focused on what happens with the prescribing physicians, what happens in the doctor’s office and how it can influence that. We are focused on our digital assets, which is where a lot of transactions happen in healthcare. And we are very focused on what happens in retail setting and have a lot of partnerships in that retail setting. So, we are taking things to the next level. In terms of the second question, which is on market pressure, at a broader level, I think the market is very active. I think it is…

I think you addressed any commentary. I might say, I was really just going to talk broadly about partnerships. The business has done a nice job of partnering with the marketplace broadly in the past and in no time will that become more important than the future as well. So, we will continue to engage with innovative and thought leading organizations and seek to serve consumers better managing their healthcare needs in helping make health systems work better for everyone. Next question please.

The next question comes from Ralph Giacobbe with Citigroup. Please go ahead.

Thanks. I wanted to go back to MA. Can you help us think about typical margin profile in year one at MA versus rapid improvement, you have historically seen kind of into year two, when do you get that to sort of full mature margins and then help us think about any difference between that ramp for individual versus group? Thanks.

Brian?

Hi, Ralph. Yes, this is Brian Thompson. I won’t get into the specifics. What I can share with you is obviously as we approach 2018, the return of the tax is the biggest headwind. The good news for us is our own internal advancements are really meaningfully helping us reduce that tax impact to those that we serve first and foremost is our quality advance, secondarily is the productivity and scale that we get from that growth. And then to your point, perhaps the biggest tailwind for us is that strong clinical engagement that we did in year one that we see come to fruition in year two. So, it’s certainly the biggest momentum driver for us as we prepare for the return of the tax in 2018.

And what about group versus individual?

It’s very comparable.

Okay. Thank you.

Thank you, Ralph. Next question please.

And we’ll go next to Zack Sopcak with Morgan Stanley. Please go ahead.

Thanks for the question. So, Dave in your opening comments, you touched briefly on the capital plans covered in the executive order. I was just wondering if you could give a little bit of color on the experience you had with those, were they meaningful and maybe it’s hard to say at this point, but how margins may have historically been in those businesses versus those were typically accustomed to?

Yes, thank you Zack, good question. I am going to ask – we do have considerable experience with short-term plans. I am going to ask Dan Schumacher to comment.

Sure, thanks, Zack. Good morning. So, probably addressed the association as well as the short duration plan, so on the association front, the reality is we have got decades long experience in that. Actually, our individual business was founded on an association and we likewise support associations in our group business. All told, we have got about 300,000 members in association plans today. So we have got a lot of experience, the performance is strong and I would say generally in keeping with our broader portfolio. And so we will look forward to engaging the dialogue around how they could shape going forward. On the short duration policies, obviously, the regulation that came in on April 1 that reduced the amount of links of the plans has been challenging for the marketplace. And so we are excited to see that extended to the full year, because the reality is it provides a bridge for people in between coverage. It’s a lot more affordable option. It provides very strong access and value to consumers. And the reality is before that regulation we saw incredible increase in the growth as the cost of exchange offerings have grown and it’s been a bridge for people. So, we look to continue to support people as hopefully the duration of those plans gets extended.

Thank you for your question, Zack. We have time for one more question.

And we’ll take that question from Christine Arnold with Cowen. Please go ahead. Your line is open.

Good morning. Thanks for putting me in. I think that we really haven’t delved in as much detail as some of the other things as OptumHealth and recognizing that as a tailwind to your 10% to 15% top line target as well as your 8% to 10% margin target. How should we think about that business performing over the next couple of years in the context of that top line and margin assumption putting SCA aside? I know you are still investing a lot in that business. So, was that 8% to 10% margin something we should be thinking about near-term or should we think about that as a longer term target? Thanks.

Maybe I will ask Tim to comment on the margin and then maybe Andrew can provide some comments about where we are headed with the business.

Sure, great. Thanks, Christine. So, as we think about the year today, reported margin grew 50 basis points year-over-year and 160 basis points sequentially driven by FDA. In addition, there was margin expansion from our care delivery businesses, HouseCalls and financial services as well and overall OptumHealth earnings grew 27% while we make strategic investments in the platform much as you represented. I think as you look at those investments, really important to think about that we make those investments in businesses that we have an intent to grow and those investments are designed to further improve that ability to grow and that’s really evidenced even in this most recent reporting period around our revenue growth at OptumHealth of 21% year-over-year for the third quarter. I turn it over to Andrew to talk specifically about the areas of investment and market areas, where we are making those investments across platforms.

Thanks, Tim and thanks for the question, Christine. So, we are pleased to be at the higher end of our range of 8% to 10% margin in the third quarter. And as Tim mentioned, we continue to balance current profitability with making investments in future growth and some examples of those are investing to help transition physician groups from fee-for-service to value-based contracts, which does require an investment period. Second is investing to ramp up new contracts and as Larry mentioned in his prepared remarks, in our military and veterans segment as an example for contracts commencing in 2018. And thirdly is opening new MedExpress locations. And as you would imagine that requires an investment as each location ramps up to profitability. So given this, we expect our margin to continue to fluctuate over time and be in that range of 8% to 10%. We will continue to balance current profitability with investing and we were pleased with the 27% growth year-over-year in the quarter. There is strong performance across most of our businesses, local care delivery, HouseCalls, behavioral, financial services, consumer engagement. And so we were bullish on the business and we will continue to balance investing with current profitability.

Great. And Larry?

So, Christine, it’s Larry Renfro. I just want to make a couple of comments that one is kind of a commercial here on the military side, we have a new senior executive leader here by the name of General Patty Horoho. She has joined us about 5 months ago and she is leading the effort in the OptumHealth side of the military programs and I might ask – just ask her in a second to comment on a couple of the programs that are coming through on the military side. The other piece that I would add into this is that we have Optum360 that is part of our OptumInsight organization that utilizes OptumHealth as well in a lot its programs, especially when we do, do programs with major organizations that we have worked with on the West Coast and the East Coast. So that’s tying in as well when you get to the physician groups and surgery centers and so forth. So, to keep it short, so Patty, would you mind just talking a little bit about what you are working on and give everybody a little [indiscernible].

Thank you, Larry and good morning. I have the honor to join Optum about 6 months ago after 33 years of experience culminating as the 43rd U.S. Army Surgeon General. And what we have been able to do is really leverage and find ways to transform our healthcare system from one that treats diseases to one that promotes good health. And so two of our newest 5-year contracts kept in the September of this year, we began performing the medical disability event for military veterans on behalf of the Veterans Benefit Administration. And through this contract, we provide exams in 44 states in the District of Columbia. The second 5-year contract is the TRICARE Global Nurse Advice Line, where we will operate the Military Health System’s Global Nurse Advice Line starting in 2018 and this is our frontline nurse advice care coordination line offered 24 hours a day utilizing telehealth capability to military service members, retirees and their families worldwide. And what I would just say is that this is just the beginning of our ability to serve our military, their families and our veterans and we are just getting started. Thank you.

Great. So, I think you could take from that that our bench is deep and continues to get deeper. Welcome, General Horoho and thank you Christine for your comments.

So, I will wrap briefly with this. UnitedHealth Group, Optum and UnitedHealthcare are intently focused on fulfilling the healthcare needs of the people and customers we serve. As we had distinct tangible value to healthcare, we continue to grow at a sustainable market leading pace. We expect to continue this trajectory through the remainder of 2017 into 2018 and for the decade ahead. We look forward to sharing more detail with you at our investor conference in New York on November 28. Thank you for joining us and for your continued interest in our enterprise.

And this will conclude today’s program. Thanks for your participation. You may now disconnect. Have a great day.