UnitedHealthcare History: A Remarkable Transformation From 2006 to 2010
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How UnitedHealth Group expanded Medicare, prescription drug coverage, healthcare services and its national footprint — while facing one of the most difficult corporate governance episodes in its history
When 2006 began, UnitedHealth Group was already one of America’s largest healthcare companies.
The previous five years had brought enormous expansion. The company had purchased MAMSI, Oxford Health Plans and PacifiCare, giving it a much broader presence across the United States.
But 2006 would bring something different.
It was a year of rapid business growth, the launch of Medicare Part D, a major expansion of government-sponsored healthcare and a corporate crisis involving the company’s historic stock-option practices.
Over the next five years, the company would continue to grow.
Revenue climbed from $71.5 billion in 2006 to $94.2 billion in 2010. At the same time, the business increasingly balanced commercial employer coverage with Medicare, Medicaid, prescription drug benefits and other healthcare services.
This period is important because it helps explain how the company moved from being primarily viewed as a large health insurer toward becoming a much broader healthcare organization.
1. 2006 Started With a Major Change: Medicare Part D
One of the biggest developments in 2006 was the launch of Medicare Part D.
Beginning January 1, 2006, UnitedHealth Group became a plan sponsor offering Medicare prescription drug coverage under a contract with the Centers for Medicare & Medicaid Services.
By December 31, 2006, approximately 5.7 million people were enrolled in its Part D program.
That included approximately 4.5 million people in stand-alone prescription drug plans and about 1.2 million in Medicare Advantage plans that included Part D coverage.
Data Table 1 — Medicare Part D at the End of 2006
| Measure | 2006 |
|---|---|
| Total Part D members | ~5.7 million |
| Stand-alone PDP members | ~4.5 million |
| Medicare Advantage members with Part D | ~1.2 million |
| Program start | January 1, 2006 |
| Government partner | CMS |
Table caption: UnitedHealth Group’s Medicare Part D enrollment at December 31, 2006.
For American seniors, this was more than a corporate development.
Prescription drug coverage had become a major part of Medicare, and millions of people were now interacting with private health plans through the new benefit.
2. PacifiCare Became Part of the Business
The PacifiCare acquisition, completed in December 2005, was fully reflected in UnitedHealth Group’s 2006 results.
PacifiCare had approximately 3.1 million health-plan members, including roughly 2.4 million commercial members and 750,000 senior members.
It also had approximately 12 million specialty-plan members nationwide.
Its Secure Horizons business was one of the country’s large Medicare Advantage programs.
Data Table 2 — PacifiCare’s Scale Entering 2006
| Category | Approximate Members |
|---|---|
| Total health-plan members | 3.1 million |
| Commercial | 2.4 million |
| Senior | 750,000 |
| Specialty-plan members | 12 million |
| Acquisition consideration | ~$8.8 billion |
Table caption: PacifiCare membership and transaction information reported by UnitedHealth Group.
The deal gave UnitedHealth Group a much stronger Western U.S. presence.
3. 2006 Was a Huge Financial Jump
The numbers for 2006 show how dramatically the company had expanded.
Data Table 3 — UnitedHealth Group Financial Performance
| Measure | 2005 | 2006 |
|---|---|---|
| Revenue | $45.4B | $71.5B |
| Net earnings | $3.3B | $4.2B |
| Earnings from operations | $5.1B | $7.0B |
| Operating margin | 10.9% | 9.8% |
Table caption: UnitedHealth Group’s reported financial performance for 2005 and 2006.
Revenue increased about 54% in 2006.
The company said revenue would have increased about 21% excluding acquisitions, showing that acquisitions were a major part of the year’s expansion.
4. But 2006 Was Also a Corporate Crisis
The growth story was interrupted by controversy.
In March 2006, media reports questioned UnitedHealth Group’s historical stock-option practices.
The SEC then notified the company that it had begun an inquiry.
UnitedHealth Group’s board created an independent committee to investigate stock-option grants covering the period from 1994 through 2005. The committee reviewed more than 26 million pages of documents and conducted more than 80 interviews.
Data Table 4 — 2006 Stock-Option Review
| Item | Reported Figure |
|---|---|
| Review period | 1994–2005 |
| Documents examined | 26+ million pages |
| Interviews | 80+ |
| Independent committee created | April 4, 2006 |
| Report issued | October 15, 2006 |
Table caption: Key facts from UnitedHealth Group’s independent review of historic stock-option practices.
This became one of the most important corporate-governance events in the company’s history.
5. William McGuire Leaves the CEO Position
William W. McGuire had been one of the central figures in UnitedHealth Group’s extraordinary growth.
But on October 15, 2006, he resigned as chairman and director and announced that he would leave the company by December 1.
The board selected Stephen J. Hemsley, then president and chief operating officer, to become CEO. Richard T. Burke became non-executive chairman.
Data Table 5 — 2006 Leadership Transition
| Position | Change |
|---|---|
| William W. McGuire | Left chairman/director roles |
| CEO transition | Announced in October 2006 |
| Stephen J. Hemsley | Selected as successor CEO |
| Richard T. Burke | Became non-executive chairman |
| Effective transition | 2006 |
Table caption: UnitedHealth Group’s leadership transition following the 2006 governance review.
This marked the end of an important leadership era.
6. The Financial Statements Were Restated
The controversy did not end with a leadership change.
UnitedHealth Group concluded that historical financial statements had to be restated because of errors in accounting for stock options.
The company said its previously issued financial statements for 1994 through 2005 should no longer be relied upon.
The SEC later stated that UnitedHealth Group restated its financial statements for each year from 1994 through 2005 and disclosed cumulative pre-tax errors in stock-based compensation accounting totaling $1.526 billion.
Data Table 6 — Stock-Option Accounting Issue
| Measure | Figure |
|---|---|
| Historical period affected | 1994–2005 |
| Cumulative pre-tax accounting errors | ~$1.526B |
| Financial statements restated | 1994–2005 |
| SEC enforcement settlement involving McGuire | $468M |
Table caption: Major figures associated with the stock-option accounting controversy.
This episode is essential to understanding the 2006–2010 period.
The company was growing quickly, but it was also being forced to strengthen governance, accounting controls and executive oversight.
7. 2007: The Business Keeps Growing
Despite the corporate controversy, the underlying healthcare business continued expanding.
UnitedHealth Group reported $75.4 billion in revenue in 2007, up 5% from 2006.
Net earnings reached approximately $4.7 billion, up 12%.
Data Table 7 — 2007 Financial Highlights
| Measure | 2007 |
|---|---|
| Revenue | $75.4B |
| Net earnings | ~$4.7B |
| Earnings from operations | $7.8B |
| Operating margin | 10.4% |
| Diluted EPS | $3.42 |
| Operating cash flow | $5.9B |
Table caption: UnitedHealth Group’s reported 2007 financial highlights.
The business was still producing substantial cash and earnings.
8. Prescription Solutions Became More Important
Prescription drug services were becoming increasingly important.
UnitedHealth Group’s pharmacy benefit management operation, Prescription Solutions, generated revenue through products and administrative services.
The company’s 2007 filing highlighted particularly strong growth in Prescription Solutions and other healthcare-service businesses.
Data Table 8 — Major 2007 Growth Areas
| Business Area | 2007 Direction |
|---|---|
| Prescription Solutions | Strong growth |
| Ingenix | Strong growth |
| AmeriChoice | Notable growth |
| Health Care Services | Continued expansion |
| Medicare-related business | Increasing importance |
Table caption: Business areas highlighted by UnitedHealth Group in its 2007 results.
The company was becoming less dependent on a single type of health-insurance customer.
9. 2008: The Economy Gets Tougher
Then came one of the most difficult economic environments in modern U.S. history.
The financial crisis was spreading through the economy.
Unemployment was rising, businesses were under pressure and American households were becoming more cautious.
UnitedHealth Group still increased revenue in 2008.
But profitability came under pressure.
Data Table 9 — 2008 Financial Results
| Measure | 2007 | 2008 |
|---|---|---|
| Revenue | $75.4B | $81.2B |
| Net earnings | ~$4.7B | ~$3.0B |
| Earnings from operations | $7.8B | $5.3B |
| Operating margin | 10.4% | 6.5% |
Table caption: UnitedHealth Group financial performance before and during the 2008 financial crisis.
Revenue rose 8%, but net earnings declined sharply.
That difference tells us something important.
A healthcare company can continue collecting premiums and generating revenue even when its overall profitability is under pressure.
10. The 2008 Economy Changed Employer Health Coverage
The economic downturn also affected employer-sponsored insurance.
When companies reduce jobs, the number of workers covered through employer plans can fall.
UnitedHealth Group later reported that the commercial market was affected by the significant decline in U.S. employment during 2009.
Data Table 10 — Economic Pressure on Commercial Coverage
| Factor | Effect |
|---|---|
| Rising unemployment | Reduced employer-based membership |
| Business cost pressure | Greater focus on health-benefit costs |
| Household financial pressure | Greater sensitivity to healthcare expenses |
| Government programs | Increasing strategic importance |
| Medicare/Medicaid | Continued growth opportunities |
Table caption: Major economic forces affecting the U.S. health-benefits market during the financial crisis.
For families, this was a very real issue.
Health insurance was often tied to employment.
When a job disappeared, healthcare coverage could become much more complicated.
11. 2009: Revenue Continued to Rise
UnitedHealth Group’s revenue increased again in 2009.
Data Table 11 — Revenue by Year
| Year | Revenue |
|---|---|
| 2006 | $71.542B |
| 2007 | $75.431B |
| 2008 | $81.186B |
| 2009 | $87.138B |
| 2010 | $94.155B |
Table caption: UnitedHealth Group consolidated revenue from 2006 through 2010.
Over these five years, revenue increased by more than $22 billion.
That is a substantial increase in scale.
12. 2009: The Company Focuses on Government-Sponsored Markets
As employer-sponsored coverage faced pressure from the recession, public and senior markets became increasingly important.
Medicare and Medicaid were becoming major growth areas.
The company was building a business that could serve Americans at different stages of life and through different types of government and commercial programs.
Data Table 12 — 2009 Revenue by Major Health Benefits Areas
| Business Area | 2009 Revenue |
|---|---|
| Employer & Individual | $40.8B |
| Medicare & Retirement | $32.1B |
| Community & State | $8.4B |
| Combined | ~$81.3B |
Table caption: 2009 revenue reported for the major Health Benefits businesses.
These figures show how important government and senior markets had become.
13. 2010: A New Business Structure Emerges
By 2010, UnitedHealthcare’s major Health Benefits businesses were increasingly organized around three broad markets:
- Employer & Individual
- Medicare & Retirement
- Community & State
This structure made it easier to see the company’s diversified customer base.
Data Table 13 — 2010 Health Benefits Revenue
| Business | 2010 Revenue |
|---|---|
| UnitedHealthcare Employer & Individual | $41.2B |
| UnitedHealthcare Medicare & Retirement | $35.9B |
| UnitedHealthcare Community & State | $10.4B |
| Combined | ~$87.5B |
Table caption: UnitedHealthcare Health Benefits revenue by major business in 2010.
The senior and public-sector businesses had become extremely important.
14. Medicare Was No Longer a Side Business
By this point, Medicare had become a central part of the company’s strategy.
The company had Medicare Advantage plans, prescription drug plans and other services for older Americans.
| Area | Development |
|---|---|
| Medicare Advantage | Expanded |
| Medicare Part D | Major new business beginning 2006 |
| Senior health benefits | Increasing scale |
| Prescription drugs | Major new enrollment base |
| Secure Horizons | Expanded Western senior-market presence |
Table caption: Major Medicare-related developments during 2006–2010.
For the company, the aging U.S. population represented a long-term business opportunity.
For seniors, however, the practical question was simpler:
What plan covers my doctors, hospitals and prescriptions at a price I can afford?
15. Community & State Became Important
Medicaid and other public programs were also becoming a major part of the company’s operations.
Community & State worked with state governments and public programs to provide health benefits to eligible populations.
Data Table 15 — Community & State Revenue
| Year | Revenue |
|---|---|
| 2009 | $8.4B |
| 2010 | $10.4B |
| Increase | ~$2.0B |
| Approx. growth | ~24% |
Table caption: Revenue growth in UnitedHealthcare Community & State from 2009 to 2010.
The increase showed how important public-sector healthcare had become.
16. Commercial Coverage Still Mattered
Government programs were growing, but employer-sponsored coverage remained the largest single part of the Health Benefits business in 2010.
Data Table 16 — Employer & Individual Revenue
| Year | Revenue |
|---|---|
| 2009 | $40.8B |
| 2010 | $41.2B |
| Increase | ~$0.4B |
| Approx. growth | ~1% |
Table caption: UnitedHealthcare Employer & Individual revenue in 2009 and 2010.
The modest increase reflected the difficult employment environment.
The commercial market was recovering, but it was not growing as rapidly as the company’s public and senior businesses.
17. 2010: Overall Revenue Reaches $94 Billion
The company finished the five-year period at a much larger scale.
Data Table 17 — 2010 Consolidated Financial Results
| Measure | 2010 |
|---|---|
| Total revenue | $94.155B |
| Premium revenue | $85.405B |
| Service revenue | $5.819B |
| Product revenue | $2.322B |
| Investment & other income | $609M |
Table caption: UnitedHealth Group consolidated revenue composition in 2010.
Approximately 91% of total revenue came from premiums when looking at the reported revenue categories.
The company was still fundamentally a health-benefits business, but its services and product businesses were becoming more significant.
18. Medical Cost Management Became a Central Theme
By 2010, the company was emphasizing cost management across commercial and government customers.
UnitedHealth Group reported that Health Benefits earnings and operating margins improved in 2010 because of revenue growth, continued cost-management disciplines, moderation in demand for medical services and favorable development in prior-period medical costs.
Data Table 18 — 2010 Health Benefits Performance
| Indicator | 2010 |
|---|---|
| Employer & Individual revenue | $41.2B |
| Medicare & Retirement revenue | $35.9B |
| Community & State revenue | $10.4B |
| Main growth drivers | Public and senior markets; premium increases |
| Cost focus | Medical-cost management |
Table caption: Key Health Benefits operating themes reported for 2010.
For an insurer, controlling medical costs is fundamental.
If healthcare costs rise faster than premiums, margins can deteriorate.
If costs are managed successfully, profitability can improve.
19. The Company Also Continued Paying Dividends
UnitedHealth Group had begun paying annual dividends in 1990.
The company continued that policy through the 2006–2010 period. Its archived dividend history shows annual dividend payments of $0.03 per share in 2006 through 2009, with quarterly payments beginning in 2010.
Data Table 19 — Dividend History
| Year | Reported Dividend |
|---|---|
| 2006 | $0.03/share |
| 2007 | $0.03/share |
| 2008 | $0.03/share |
| 2009 | $0.03/share |
| 2010 | $0.03 Q1; $0.125 Q2–Q4 |
Table caption: UnitedHealth Group dividend history during 2006–2010.
The figures are reported historical amounts and should not be compared across periods without considering the company’s stock-split history and presentation conventions.
20. Where UnitedHealth Group Stood in 2010
Five years earlier, PacifiCare had just been acquired.
By the end of 2010, UnitedHealth Group had become a healthcare organization serving tens of millions of people through multiple businesses.
Its 2010 filing reported 69.2 million individuals served through all subsidiaries.
Data Table 20 — UnitedHealth Group at the End of 2010
| Indicator | 2010 |
|---|---|
| Individuals served through all subsidiaries | 69.2M |
| Medical members | 33.3M* |
| Total revenue | $94.155B |
| Premium revenue | $85.405B |
| Employer & Individual revenue | $41.2B |
| Medicare & Retirement revenue | $35.9B |
| Community & State revenue | $10.4B |
Table caption: UnitedHealth Group scale and Health Benefits business measures at the end of 2010. Medical membership figure cited in the company’s 2010 filing refers to the filing’s specific membership definition.
The difference between 69.2 million individuals served and the reported medical-membership figure is important.
They are not interchangeable measures.
UnitedHealth Group included people across multiple subsidiaries and products, while medical membership was a narrower measure.
The Five-Year Story in Simple Terms
So what really happened between 2006 and 2010?
The answer is bigger than simply saying that UnitedHealthcare grew.
The company changed what kind of healthcare business it was.
In 2006, Medicare Part D immediately gave the company millions of new prescription-drug members.
PacifiCare strengthened its Western footprint.
Medicare Advantage became increasingly important.
Medicaid and other public programs expanded.
Employer coverage remained the largest commercial business, but the recession exposed the risk of relying too heavily on employment-driven insurance.
At the same time, the stock-option controversy forced the company to confront serious governance and accounting problems.
2006–2010 Timeline
| Year | Major Development |
|---|---|
| 2006 | Medicare Part D launched |
| 2006 | PacifiCare fully integrated into results |
| 2006 | Stock-option investigation and governance crisis |
| 2006 | William McGuire stepped down |
| 2006 | Stephen Hemsley selected as CEO |
| 2007 | Revenue reached $75.4B |
| 2008 | Revenue passed $81B despite financial crisis |
| 2009 | Revenue reached $87.1B |
| 2010 | Revenue reached $94.2B |
| 2010 | 69.2M individuals served through all subsidiaries |
What American Families Actually Experienced
The corporate numbers tell only part of the story.
For an American family during this period, healthcare was becoming increasingly complicated.
A worker might have insurance through an employer.
A parent might have individual coverage.
A child might qualify for a public program.
A grandparent might have Medicare Advantage or Medicare prescription drug coverage.
The insurer could be involved in all of those markets, but the rules were different in each one.
That meant consumers had to pay attention to more than the name on their insurance card.
They needed to understand:
- What doctors were in-network
- What hospitals were covered
- What prescriptions were included
- What the deductible was
- What copayments applied
- What the annual out-of-pocket limit was
- Whether the plan required referrals
- Whether the plan was employer-funded or fully insured
The growth of a large insurer did not automatically mean every plan was the right plan for every family.
That distinction remains important today.
What Investors Saw
From an investor’s perspective, 2006–2010 was a complicated but important period.
Revenue increased from approximately $71.5 billion to $94.2 billion.
The company expanded government and senior markets.
Prescription drug coverage became a major business.
Commercial insurance remained important.
And acquisitions completed before the period continued to contribute to the company’s national scale.
But investors also saw something else.
Growth could create enormous complexity.
The stock-option controversy demonstrated that financial performance alone was not enough. Corporate governance, accounting controls and executive oversight could materially affect a company’s reputation and financial statements.
The Bigger Picture
The UnitedHealth Group of 2010 looked very different from the company that entered the 2000s.
In 2000, the organization was already a major health-benefits company.
By 2010, it had become a much broader healthcare enterprise with major positions in:
Employer health coverage
Individual insurance
Medicare
Medicaid and public programs
Prescription drug benefits
Healthcare services
Specialty healthcare
That diversification would become one of the defining features of the company’s next chapter.
Final Takeaway
The years 2006 through 2010 were not simply another period of growth.
They were a transformation.
The company entered 2006 with the huge PacifiCare acquisition behind it.
It immediately expanded into Medicare Part D.
It grew its government and senior businesses.
It continued serving employer-sponsored customers.
It survived the financial crisis while continuing to increase revenue.
And by 2010, UnitedHealth Group reported $94.2 billion in revenue and 69.2 million individuals served through all subsidiaries.
But the period also carried a serious warning.
The stock-option controversy showed that a company can be financially successful while still facing major governance problems.
That makes the 2006–2010 story especially important.
It was a period of rapid expansion, diversification, controversy and organizational change.
And it set the stage for the next chapter:
UnitedHealthcare and UnitedHealth Group from 2011 to 2015 — the years when healthcare services, technology, pharmacy and Medicare became even more deeply connected.
Source: National Institute of Standards and Technology (NIST), U.S. Department of Commerce.
Official U.S. Time Source: NIST Time and Frequency Division
Time Zone: Eastern Daylight Time (EDT), UTC−4
Location: New York, USA