Stephen Hemsley - CEO Larry Renfro - Vice Chairman; CEO, Optum Dave Wichmann - President, CFO Dan Schumacher – CFO, UnitedHealthcare John Rex - EVP, CFO, Optum Bill Miller – CEO, OptumInsight Jeff Alter - CEO, UnitedHealthcare Employer & Individual Steve Nelson – CEO, UnitedHealthcare Community & State

David Windley - Jefferies Matthew Borsch - Goldman Sachs Sheryl Skolnick - Mizuho Andy Schenker - Morgan Stanley Christine Arnold - Cowen Brian Wright - Sterne, Agee Gary Taylor - JPMorgan Kevin Fischbeck - Bank of America A.J. Rice - UBS Peter Costa - Wells Fargo Josh Raskin - Barclays Sean Wieland - Piper Jaffray Ana Gupte - Leerink Partners Tom Carroll - Stifel

Good morning. I will be your conference operator today. Welcome to the UnitedHealth Group second quarter 2015 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 the 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 cautionary statements included in our current and periodic filings. Information presented on this call contained in the earnings release we issued this morning and in our Form 8-K dated July 16, 2015, which may be 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, Stephen Hemsley. You may begin, sir.

Good morning, and thank you for joining us to review UnitedHealth Group's second quarter results. Our second quarter and first half are once again strong across our business portfolio continuing the performance consistency and growth momentum that have been advancing since the second half of 2014. The market sees real value in a simpler, more modern and helpful consumer experience, well-informed consumer and physician engagement, access to quality care, practical innovation and fair pricing. With the expected closing of the Catamaran transaction and improved momentum in our base business, we now expect 2015 revenues to be $154 billion, earnings to be in the range of $6.25 to $6.35 per share and cash flows from operations to be $8.4 billion to $8.6 billion. Second quarter revenues grew 11.3% year-over-year to $36.3 billion. After tax net margins improved 10 basis points and net earnings grew 15% year-over-year to $1.64 per share. Second quarter cash flows from operations also grew 15% year-over-year to $1.2 billion and brought first half 2015 operating cash flows to $3.4 billion or 114% of net income and this compares to 97% through the midpoint of last year. Second quarter earnings were driven by both consistent, broad-based growth at UnitedHealthcare and continued strong growth and improving margin performance from Optum. We are positioned well for the second half of 2015 and continue to forecast UnitedHealth Group's earnings per share growth will accelerate in 2016. I will ask Larry Renfro to lead off today with a review of Optum and then Dave Wichmann will pick up with UnitedHealthcare and some UnitedHealth Group enterprise themes. Larry?

Thanks, Steve. Optum is firmly on track to achieve significant growth and performance targets for both 2015 and 2016. Second quarter results were strong across the board and position us well once again for a strong finish in the second half of the year. Optum revenues grew 16% in the second quarter. Optum's overall operating margin of 6.4% improved 20 basis points year-over-year and 60 basis points from the first quarter, with all businesses improving their margins sequentially. This higher overall margin on a growing revenue base drove 19% growth in Optum's earnings from operations this quarter. Through the first half of the year, Optum earned 42% of its full year operating earnings target, even while absorbing $42 million in Catamaran merger costs in the first quarter. Given normal seasonality, Optum is well on track to achieve its full year plan. As we have shared before, Optum is focused on opportunities to dramatically elevate value for customers in five large growth markets, clinical care, pharmacy care services, technology solutions and government services, with international versions of these being the fifth opportunity. In pharmacy care services, there is a clear market need for a more integrated patient centered cost sensitive offering. We are committed to creating a next-generation pharmacy care services company. The addition of Catamaran accelerates our efforts significantly. Together, we believe we would better serve people through a comprehensive whole person approach that integrates data, information, analytics and clinical care insight to support care treatments and compliance rather than just filling prescriptions. This is doubly true in the coming era of specialty drugs. We will bring better and more consistent overall quality and lower costs for consumers. This approach enhances the differentiated value OptumRx offers customers beyond the benefits of our combined purchasing of over one billion scripts per year. We expect the merger to close within the next two weeks. So we will be advancing this effort over the balance of this year slightly ahead of schedule. Turning to the technology solutions market. Care providers are strongly embracing Optum360 offerings. They can leverage our technology infrastructure and full portfolio of solutions for modern, performance-based care delivery across the full range of care settings, including receiving comprehensive revenue management services and accompanying operating analytics computer-assisted coding, clinical documentation, ICD-10 compliance and population health management. These capabilities packaged as a comprehensive solution are designed to optimize the financial and service performance of the care provider customers we serve and help them transition to perform exceptionally well under performance-based and value-based delivery arrangements. Optum360 has been one of the contributors to the overall growth in OptumInsight revenues which grew 13% this past quarter and contributed to growth in contract backlog of more than 35% externally reaching a record $9.8 billion in total at June 30. And we are seeing accelerating growth potential going forward, as Optum's overall sales pipeline of potential contract awards has grown to $14 billion, an increase of about 30% year-over-year in part due to significant proposals in the Optum360 markets. OptumCare, our local care delivery business, helped drive 33% growth in Optum health revenues this quarter. We offer physicians a unique, strong and stable professional practice opportunity. We can support and equip them to do what they most clearly want, to practice medicine rather than administer a complex business. We have invested in modern technology with unique analytics and process tools to create service responsiveness for patients well beyond what standalone clinics deliver today and OptumCare offers compelling value to payers through risksharing capabilities that help them offer affordable health benefit products. The stability and growth in our patient base and payer relationships reflect the value our physicians provide. As this business matures, we expect to expand operating margins while delivering strong consistent revenue growth. This past quarter, MedExpress joined OptumCare with nearly 150 freestanding neighborhood care centers in 16 local markets. MedExpress can offer as much as 90% of the care typically delivered in a hospital emergency room at about 90% lower cost. We are committed to growing as a leading provider of ambulatory care services, recognizing this capability will be increasingly valuable to the consumer and health care system overall. We offer these few examples to help illustrate Optum's diversity and commitment to delivering remarkable value for patients and customer. In each case, these examples are part of enduring relationships we are building with people who are seeking sophisticated trusted partners to help them address both the pressures and the opportunities across the whole health system. More than selling any one product, serving these client relationships well will be critical as Optum works to achieve its ambitious goals. Now let me turn it over to Dave.

Thank you, Larry. Starting first with UnitedHealthcare. Second quarter revenues grew a strong 10% organically to $33.1 billion, while operating margins were steady at 6.1%. The UnitedHealth Group consolidated medical care ratio improved 20 basis points year-over-year and throughout the first half medical costs were well controlled. The year-over-year decrease in the care ratio occurred despite the growth of about 1.3 million people in Medicaid, Medicare Advantage and public exchanges, all higher care ratio businesses. The 2015 commercial medical cost trend outlook continues to be biased towards the lower portion of our 5.5% to 6.5% full-year forecast and we continue to expect a full year consolidated care ratio of 80.8%, plus or minus 50 basis points. Steady growth and discipline around care management and operating cost drove 11% operating earnings growth at UnitedHealthcare in the quarter. The core story for UnitedHealthcare continues to be one of distinctive organic gains in overall market share and above market revenue growth, along with continued emphasis on serving local market needs. We project domestic growth of 1.4 million people in 2015, bringing us to organic growth of nearly 10 million more people served in the United States in the past six years. While this has been among the strongest organic growth periods we have experienced, we see continued growth potential going forward. We believe there are opportunities to serve substantially higher numbers of people to deliver further value and build equity with consumers and physicians in the benefits market. These opportunities stem from delivering practical innovations at fair price points and executing consistently in their local markets for the millions of people we serve. Our newest products increasingly use configured networks that improve care quality and total cost and embeds complementary services to further strengthen value to the consumer. Our combination of informatics and dedicated local market clinical staff help us find people and engage them in the healthcare system to get the care they need at the right location at the right time. Consistently getting all this right, drives consumer trust and growth follows in an expanding market of more than 300 million people in the United States alone. Let me flag a few representative examples. We are bridging the direct link between consumer engagement and lower per member cost trend and with employers' help further engaging consumers in their own health and wellness. This includes our product development efforts like Rally in cutting-edge areas like incentives, gamifications, missions and social networks. Engaging people on their own care informs them as real consumers and translates into better care, better care resource use and lower costs. In July we released the next evolution of our diabetes prevention and weight management program called Real Appeal, which merges proven science and diabetes prevention with motivational multimedia weight and lifestyle management programs to reduce the onset of diabetes, reduce obesity and improve overall health and metabolic state. Real Appeal is the first digital extension of Rally both of which use life coaches and other motivational methods to achieve superior engagement, quality outcomes and economic results. Similarly, we are using technology and data behind the scenes to advance the fundamentals of service. Our approach predicts and prioritizes the needs of inbound inquiries and connects the consumer through whatever communications channel they choose with clinical, wellness or administrative personnel based upon their predicted need making the service experience simpler, better and more complete for them and more efficient for us. We approach Medicaid in the context of the broader array of social services people need and states must address in support of better healthcare. We believe we can increase value for our state customers and our Medicaid members by helping connect people with our growing network of local market social services like transportation, housing and nutrition. On the physician side, 465,000 physicians nationwide have signed up to use our secured cloud-based workspace called Link. Link enable doctors and their office staff to transact routine business with multiple payers more efficiently than they could ever do through traditional widely used channels like portals, faxes and phones. We are furthering that offering to support practice performance, risk arrangements and referrals through the deployment of tools for search and price transparency, referrals and online scheduling and we are just getting started. Think of Link as the end-to-end dashboard for managing all critical elements of an ambulatory practice fully integrated with the physicians practice management system. Under benefit innovation, we continue to organize our networks around specific local market products expanding value-based purchasing and our medical network and next-generation patient incentives to help them get the right care and make the right decisions. This full alignment from the consumer through the care provider consistently delivers the highest value. While modern technology positions us to target and engage people, it is our local people who close the circle. We have nurses who are performing one million clinical visits annually in seniors homes, nurses and case managers in local hospitals working alongside hospital staff, community health workers assisting Medicaid recipients neighborhood-by-neighborhood and physician office staff assistance helping document physician care quality for Medicare. Each one of these professionals puts a human face on UnitedHealthcare with every interaction they have at the local level, improving the quality of health care and reducing its costs. We believe no one else delivers such a total package nationally. Looking forward, we continue to develop and more deeply integrate our capabilities. We believe UnitedHealthcare will continue to grow at market differentiating pace profitably growing share as a direct result of the total value we are delivering and the brand equity we are building. Before Steve sums up, let me touch on a couple of items for UnitedHealth Group as a whole. During the second quarter, we raised our dividend by another 33% to an annual rate of $2 per share. We plan to return nearly $2 billion to shareholders in dividend payments over the next year. As Larry mentioned, we expect to close the Catamaran merger in July after financing of the transaction our projected debt to total capital will be around 48% in the third quarter. We are committed to sustaining our strong financial position and current debt ratings and expect to reduce debt to total capital in short order. With the deal expected to close in two weeks, we are incorporating Catamaran into our 2015 outlook. We foresee Catamaran adding around $10 billion in revenues this year, with full year 2015 UnitedHealth Group revenues now growing 18% year-over-year to approximately $154 billion and we now expect cash flows to be $8.4 billion to $8.6 billion in 2015. In addition, we are increasing our outlook for our earnings per share to a range of $6.25 to $6.35 per share. The improvement comes from our core operating performance with Catamaran's impact on earnings over the balance of 2015 offset by interest, amortization and integration costs. We continue to foresee strong revenue, earnings accretion and cash flows from Catamaran in 2016 and increasing level thereafter, but again, Larry described for you the real story, which is the future value creation. Steve?

Thank you, Dave. Larry and Dave have given you some sense for why we continue to be optimistic about our potential to deliver value throughout the broad health system and to growth. Let me just comment briefly before we summarize today's report. Certainly, we all recognize this market space has been exceptionally active this quarter and beyond that observation we do not believe it is our place to comment on market specific activities or hypothetical implications that we are not involved in. And we are not going to comment on the activities of others or speculate on subsequent processes or market dynamics no one really yet knows. Our focus remains squarely on the continued growth and expand the capability of our enterprise and how we can serve our customers more effectively. The markets we serve are changing in positive ways to call upon our competencies we have cultivated for years and accordingly these changes help prospects for years of positive growth in the continued expansion of our products and services. Our capabilities are strengthening and we are expanding into natural market adjacencies. We are intensely focused on these opportunities and committed to driving higher and more consistent performance for customers across our businesses. The key elements of our efforts going forward are familiar and fundamental. Truly focusing on serving consumers, care providers and benefit sponsors, creating and adopting simpler, more modern approaches around how healthcare is paid for, around information transparency, consumer engagement and care access and care provider support, developing valuable long-term relationships with strong partners, pricing products and services that deliver real value to the market because our design approach in underlying cost structures are market-leading, executing to serve the key future growth areas for Optum, clinical care, integrated pharmacy care, technology solutions and government services, thoughtfully moving forward at the targeted global menus, using capital to strengthen capabilities and improve and expand our growth potential and cultivating capabilities that will be important to the future more than the past. With that, we thank you and operator, we will now take questions.

The floor is now open for questions at this time. [Operator Instructions]. We ask that you limit your question to one per person so that we can get as many questions as possible. And we will take our first question from David Windley from Jefferies. Your line is open.

Thanks. Good morning. Steve, acknowledging your comments about market activity, wondering if with Catamaran now near closed, what is United's appetite for further M&A activity? And maybe dovetailing that, what is your current view on provider consolidation and balance of power in local markets as it relates to negotiating your cost position? Thank you.

Well, in terms of the commentary along those lines, we have been building our business and diversifying our businesses across the landscape of our business model for several years and we can expect to continue those approaches, continue to diversify our business as we said in the natural market adjacencies, continue to deploy capital in ways that we think makes sense for us and continue to fill in market positions and to build on capabilities. So I don't think anything has really changed in that domain and I don't think there is any reason to think otherwise. Our businesses are well positioned across the expanse of benefits and across services. We are well positioned across virtually all the key markets and think that we can continue to drive very strong cost positions, have plenty of scale across all our business segments. So we are just going to continue to run our business and maintain that approach. So I don't think anything has really changed, David.

Great. Thank you.

Next question please

We are going to take our next question from Matthew Borsch from Goldman Sachs. Your line is open.

Yes. So just hoping you could maybe help us understand how much the impact there was on the medical cost ratio from higher acuity enrollment? I think we can probably do our own math on the growth in the MA Medicaid enrollment relative to commercial. But since you are not giving the commercial MCR anymore, I was just looking for whatever additional insight you could provide on that?

Again, I think because it really reflects more the reality and the diversity of our business but I don't know if we can give you something that is so precise but Dan, do you want to take a shot?

Sure. Matt. Good morning.

Good morning.

So in terms of our care ratios and our performance in the quarter, they were very much in line with our expectation. And then underneath that, as Dave mentioned, we continue to drive very low trends which is why we are orienting towards the lower half of our prior guidance. Obviously, there is impacts associated with the 1.3 million lives we have added over the last 12 months in Medicare, Medicaid, as well as in exchanges which have higher relative care ratios. But maybe if you step back and look at it, we have been able to drive a 20 basis point improvement on a year-over-year basis. We have a little higher pricing for reform fees, which is helping that offset by a little less development. And when you compare that to the prior year quarter, we did have revenue true-ups in there related to our government programs. So when we look at it on a consolidated basis, it's very much in keeping with our expectations and we have strong confidence in our full year outlook of 80.8%, plus or minus 50 basis points.

If I could just one quick follow-up on that, you mentioned the prior year development or to prior period development, I noticed you didn't breakout between inner year and prior year, or I missed it. Do you have that?

Yes. It was all current year development.

Okay. Thank you.

Next question please

And we will take our next question from Sheryl Skolnick from Mizuho. Your line is open.

Good morning. Thank you very much and a very nice job again. If we can focus on the Catamaran transaction for a moment since that is something that is going forward and new as opposed to looking backwards as I suspect you would like us to shift our focus, a couple of questions around that. First of all, the new model that you are describing and new value proposition for the OptumRx business in conjunction with Catamaran, can you elaborate a little bit, I heard what you said, Larry, and I understand that you basically trying to change the conversation away from a finite, how much more efficiently can we fill prescriptions, to something that is much more clinically focused and much more targeted at helping the ultimate payers to manage the spend and improve the health of the patient. Can you talk a little bit about why you are doing that now with Catamaran and why you couldn't do that before? That's question number one. And question number two. Can you set our minds at ease a little bit about how you are thinking about retaining and you have answered this question before, but retaining large-scale customers that Catamaran currently has in the face of the transition to ownership by competing health plan? Thanks.

I will let Larry handle the bulk of this, but I would say that OptumRx was clearly on a path to a more comprehensive and integrated approach using data and analytics and engaging in the clinical protocol before - the intensity of that has increased. The advent of specialty pharma has clearly been an element of that and allows us to actually engage it even more effectively as you know. And the only other comment I would offer is, is that we are intensely focused on serving all of our customers and serving the expectations of the Catamaran customers for sure and their expectations. There is significant value coming their way from this combination. And we think that, that is going to be compelling and we are looking to build that business not only for current customers but to expand that business as well. Larry, would you want to add to that?

Sure. So Sheryl, I will come at it a couple of ways. Steve said this and we are laser focused on our customers right now and that's not only customers that we have at Optum, but also when we have the ability to get to the customers of Catamaran. As you know, we are limited right now as the transaction hasn't been approved, so we haven't had a lot of interaction with them yet. But I think that if I looked at the timing on this and what we are trying to do and why we did the transaction, it fits with why I think this is going to work pretty well. Number one, we needed scale and that's what we are going to have now that we have the volumes that Catamaran brings to this. So scale is going to be there. Obviously, we have been on their technology for 10 years. So this makes it an easy integration and we are going to have enhanced technology that's going to benefit both our organizations. But we get into what Steve was talking about is some distinctive capabilities whether that's the specialty drug side or that’s synchronization. And if I was looking at that, on the synchronization side, we would be looking at data, modeling, analytics, the things that we do every day, tying that together with our clinical and case management programs and engaging the providers and members. So this is a profound program that we are putting in place at this point around synchronization that Tim Wicks has been working on in OptumRx, that we will now tie in together with Catamaran. And then the specialty, obviously drug side, we are focused with synchronization being part of that as well as trend management, case management as well as just the purchasing power that with the scale will bring. I think the fourth area would be a well-rounded management team. Now we are going to have a very, very strong sales organization, as well as service organization. So that works very well and it's good timing on all this and I think everyone knows that this is a very complementary business. With catamaran, had a big focus on retail where we are on the employer side and government. They are strong in their relationships and sales. We are strong in service. Both are strong in technology. So it's just good timing right now. We believe we can move the dial a bit with the organizations together and I can comment more on this after we get this approved.

Great. Thank you.

And I would say that goes along with the broader theme of the cost of the businesses really taking a fresh looks, using information, approaching the marketplace in a more comprehensive and integrated way, engaging local resources to targeted groups so that we can improve their access to care, their use of resources and change their consumer experience as well. So it plays to us across a whole spectrum of areas in pharmaceuticals and specialty pharma is really just one of those themes. Thank you. Next question.

Our next question is from Andy Schenker from Morgan Stanley. Your line is open.

Thanks. Good morning. So I appreciate some of your earlier comments here on cost trend in MLRs versus your expectations and maybe if you could just provide any additional color on how maybe the components, their utilization and unit costs are really developing across your book and then remind us how that compares to your initial expectations and related to that one of your peer's highlights on how utilization in Medicare book, specifically anything you are seeing there versus commercial and Medicare? Thank you.

Dan, do you want to comment?

Sure. Good morning, Andy. This is Dan. I again reiterate that certainly our costs in this quarter were well within our expectation and we continue to drive a low trend, relatively speaking. And I think when you look at the combination of factors that impact it, it starts first with a benefit design that rewards consumers for better choices and then we are aligning it with provider relationships that incentivize more appropriate use of health resources. And then we overlay our medical management on that. And that starts with our people and we have got people in UnitedHealthcare and Optum across facilities, across the country as well as in neighborhoods, as Dave mentioned and in people's home and when we look at the combination of all those things, we have been able to drive a very consistent utilization trend across all our businesses within the UnitedHealthcare portfolio and again, well within our expectations. So your comments about what you seeing and others around hospital use and so forth, specifically on that, we have not seen anything outside of normal seasonal variation. So it's all in keeping with our expectation. And I think it's important to remember, as we have talked before, we have got a lot of visibility on the hospital side, who is coming in, who is there, who is leaving, how we are interacting with them, facilitating their just discharge and so forth and this is really a strength of our company and we continue to drive absolute reductions in per capita hospital usage and we been talking about that for the last six years. So again, from our perspective, very much in keeping with our expectations in the quarter, nothing that I would highlight by category or by business, frankly.

Dan, if I could just squeeze a quick follow-up in there. You obviously highlight medical management and benefit design. Do you think United is maybe doing better than the overall market as a result of those? Or do think that they are still generally in line with the broader market on some insurance?

I think the combination of the assets that UnitedHealthcare and Optum bring in combination to this marketplace is distinctive.

Thank you.

Next question please.

And our next question comes from Christine Arnold from Cowen. Your line is open.

Great. Thanks for the question. Your OptumInsight backlog is up significantly. You talked a lot about Optum360. How does the composition of your business change over time? And how might the changing mix of business change earnings growth and seasonality in the future? And then as a second kind of unrelated question, is there anyway to quantify the out of period revenue you experienced a year ago, so we can think about underlying core MLRs? Thanks.

Sure. Maybe I will have John start the themes and then send that down to a couple of business leads.

Good morning, Christine. John Rex here. So just a few thoughts here on the backlog and how that relates to what we see going on in OptumInsight. So a few things here as we talk about the backlog. One of the things that we been noting here is that it continues to be driven by the external business, commercial business that OptumInsight has been successfully gaining. In particular, in driving those increases are, we go back to the theme of the larger, deeper and more comprehensive relationships that we been pursuing for some time. We thought making considerable investments in OptumInsight a couple of years ago and that impacted some of the progression. We spoke about that and tried to highlight that. In particular it was related to those kind of relationships. As they come on, they typically come on and we need to invest. It takes some while to mature and then they start contributing. It's a part of what you are seeing in OptumInsight this year as some of those investments we made a couple of years ago maturing, starting to starting to come online. But our aspiration is to continue to make those and continue to make those in a way that we can balance both our growth that we are looking forward as well as deliver on those commitments. So I am going to ask Bill Miller to make a few comments and give a little bit more detail in terms of exactly where that's occurring.

Yes. I think John did a good job at touching on the 360. If I broaden the spectrum a little bit, I think there is three primary factors why you see this pipeline growing and certainly the backlog growing. One, I just think is a very strong focus on our markets, understanding the pressures that are boiling up there, really getting inside of the trend there. And I think we do a really good job of anticipating those trends, which cascades to the next thing as we spent a lot of time with our clients interpreting how these pressures and trends are going to have to be solved for inside of whether they are provider, payer government, life sciences, businesses and so really building with them in concert with them with their input solutions that really help solve and help them thrive in an environment that is becoming more and more performance-based. And I would say, thematically our portfolio is really shape charged for helping our clients move into more of a performance-based environment. And then finally I would say, we execute and deliver. We have great outcomes on the big large end-to-end contracts that we have undertaken but we execute every day on our software solutions, our more standalone solutions and that track record continues to strengthen and the market is recognizing it.

Thank you. Next question please.

Our next question is from Brian Wright from Sterne, Agee. Your line is open.

Thanks. Good morning. Just wanted to clarify, on the higher acuities with the Medicaid and Medicare and the exchanges, I just want to make sure that the exchange MLR is within your expectations as well too.

I would ask Jeff or Dan, who do you want?

I will have a take, Brian, on the exchanges. Obviously, when we talked about how we are going to approach this market in 2013 and then in 2014 and beyond, our expectation was to get more fully involved this year, which we have done. We have seen some really nice growth. But as we talked about last quarter and we talked coming in, we didn't have an expectation of any meaningful contribution on a margin standpoint. So from a care ratio, it's in keeping with expectations, but obviously higher than what our traditional commercial book would be.

As expected.

As expected, yes.

Okay. So nothing out of the ordinary, nothing surprising in what you see?

Brian, it's Jeff Alter. No, nothing. As we mentioned, as we were preparing for 2015, we were very purposeful in building both product and networks that supported those price points. And as a matter of fact, we grew where we thought we would grow in the markets that we thought with the products that we thought and we were pleased we actually grew a little more than we expected. So we are pleased with where we are at exchanges and it's a growing, emerging, developing market and we are planning for that as we pace forward.

And sorry, just be a second, but the better-than-expected growth isn't coming at the cost of worse-than-expected medical cost in that bucket?

No, absolutely not. We are growing where we thought we would with the products and the network designs and economics that supported those price points.

Perfect. Thank you so much.

Thank you. Next question.

Our next question is from Gary Taylor from JPMorgan. Your line is open.

Hi. Good morning. I just had one little nit and then my real question. I think it was Larry who said $42 million of Catamaran merger cost in the first quarter. Is there a 2Q number you have for us?

I think that was Dave.

Okay.

There is no meaningful Q2 cost. We recorded the costs associated with the Catamaran merger, the transaction cost in the first quarter.

All in the first quarter. Okay. Thank you. So the question I wanted to ask, I am sure you guys saw the CMS announcement last Friday proposing to bundle roughly 25% of Medicare hips and knees in 2016 into a bundled payment methodology. I just wondered if you can maybe talk just for a couple minutes on conceptually your experience with bundled payments on the commercial side? Are you using bundled payments in your ACOs? Or is that more risksharing agreements in capitation? And do you see this, the CMS announcement, as an opportunity to push for more bundled payments in your commercial book?

Sure. Dan, do you want to comment on that?

You bet. Good morning, Gary. So as it relates to our value-based reimbursement in a program, we have talked historically about the continuum working from less progressive to more progressive reimbursement methods and sort of sitting in the middle of that are bundled payments. Today, we deploy them in, if you think about our $36 billion of value-based reimbursement at the end of 2014 or the $43 billion we will have at the end of 2015, we have got about 5% stake in that bundled payments category. And from our perspective, it is a good mechanism along the journey towards a more progressive population orientation around outcomes and value and quality. But at the core, it still doesn't specifically address the volume of utilization. So the number of bundles, right. So as we look at progressing, we are looking to get to more comprehensive alignment around total population cost. It is a piece of productive and positive, but it's just part of a broader solution.

Right. Okay. Thank you.

Next question please

Our next question is from Kevin Fischbeck from Bank of America. Your line is open.

Great. Thanks. I wanted to dig into the two comments you made about guidance. I guess first on 2015, it sounds like all of the revenue number are from Catamaran or the revenue increases are mostly Catamaran, the earnings increase is not. So I just wondered if you could break out what is driving the increase in earnings this year versus your expectations last quarter? And then second, Stephen I think you said that you expect earnings growth to accelerate next year and I just wanted to see if that was due to Catamaran or whether you would make that same comment on a core basis, whether the core United would have grown or growth would have accelerated even without the Catamaran deal?

Sure. I will weigh into this and let Dave deal with specifics particularly around the revenue break. But we are not expecting a contribution from Catamaran at the balance of the year. Basically its earnings will be offset by integration cost, interest expense elements such as that. The improving performance is really historic core businesses and actually UnitedHealthcare has a strong period and a big contributor to that. But the beauty of our construct is that it's a broad-based portfolio and really, the vast majority of the businesses are performing very strongly and we see growing momentum. We clearly expect 2016 to be even stronger year. I think we have been basically have held that posture consistently and that would be in the core business not just Catamaran.

But I guess, just no finer point on the 2015 guidance rate? Is it 50-50? Or is one business causing more of the improvement?

Dave?

Most of the improvement for the guidance for the balance of the year comes from expectations out of UnitedHealthcare. And as for the revenue guidance, you are right, it increased in the quarter but predominantly related to Catamaran. That said, all the businesses improved their revenue forecasts for the balance of the year, just not enough to around up further.

Are you saying United is better but you reaffirm the MLR guidance. So what's is driving the UnitedHealthcare better performance?

UnitedHealthcare's performance is predominantly coming from growth. Very strong growth. 1.6 million people year-over-year, 1.4 million for the balance of the year. Very strong growth momentum really commencing about this time last year and actually earlier for Medicaid and for the government programs broadly.

Wasn't the 1.4 million, didn't you put out the same number last year, wasn't that your -- in last quarter, wasn't that your guidance for membership this year, last quarter as well?

I think that's right. Yes, that's the same.

But you are raising guidance on better growth?

Yes. We are raising guidance on growth and then we were raising guidance $0.10 at the bottom end of the ranges and $0.05 at the top end of the range. And we are raising that guidance based on better visibility on growth and performance in the business.

Okay. Great.

So translating the slightly stronger revenues on the core businesses and stronger earnings keep earnings efficiencies out of those businesses.

All right. Great. Thanks.

Thank you.

Next question please.

Our next question comes from A.J. Rice from UBS. Your line is open. A.J. Rice: Thanks. Hello, everybody. Maybe I will ask a little more broad question about the Medicare advantage. Obviously the bids are now in for next year. You have now a chance to comment in a big forum like this about your thinking about how that will go for next year and opportunity for margin gains, enrollment that type of thing. Any broad color on that, now that the bids are in?

I will ask Steve Nelson comment on that. Pretty positive, but obviously at this stage we are not going to give real much precision around next year, but from a thematic point of view, Steve?

Sure. Good morning, A.J., it's Steve Nelson. As Steve said, it is obviously too early to be specific. Don't have CMS approval on our benefit submissions yet. But at a high level, we really like how the Medicare Advantage business is positioned for 2016. We are poised to offer stable benefits and distinctive value to both new and existing customers and this is really just at a high-level a result of the work that we have done over the past couple of years to reshape our networks. We introduced premiums more broadly into our membership this year. We have introduced, developed and implemented new and unique customer service model. We call it Advocate4Me. We think it's distinctive. We have more effective clinical models and clinical capabilities in conjunction with our partnership with Optum. And when you couple that with really strong local brand, we really like our position and excited about the growth opportunities in this Medicare Advantage business for 2016. A.J. Rice: All right. Great. Thanks a lot.

So really stable across the board. We think it's strengthened the business across the board and very positive. Next question please.

Our next question is from Peter Costa from Wells Fargo. Your line is open.

Hi. I am hoping you give us some specifics around your MLR this quarter, in particular on three items you have broken out or a couple that you have broken out anyways. The first being the overall mix. What was the actual impact from mix on the MLR this quarter? Second is, what was the impact from the revenue true-ups that you mentioned? And were those favorable or unfavorable true-ups? And I assume some of that relates to the risk adjuster in the New York small group market. And the last question is, your eliminations went up this quarter sequentially, usually they are more flat, except for last year when you were bringing in the PBM revenues, but they were up again this quarter sequentially and I am kind of wondering why they were up and did that have any impact on your MLR this quarter?

I don't think the eliminations had really any impact, but anyone try to address the other two?

Sure. Peter, we are not going to get into the specifics of spiking out the mix impact on the revenue true-ups. Obviously, if you think about the things influencing the quarter and as you compare to the same quarter last year, on a mix basis, we would have a rising care ratio just based on greater orientation to Medicare Advantage, Medicaid and exchange enrollment. Revenue true-ups I referenced earlier, so in last year's second quarter, we recognize government-based revenue true-ups which were favorable. So as you look at the comps year-over-year, that would be something that we will be working against that comparison on a year-over-year basis. And then as you look at the second quarter this year, on the revenue side, we had expected in the commercial business to be receivers on the risk adjustment and we did a little bit better risk adjustment on the commercial business in the second quarter related to 2014. So those are the things that are all coming together, but when you step back from it we have seen a decline in our care ratio on a consolidated basis year-over-year. Our medical costs are in line with our expectations and our trends are trending towards the lower half of the guidance that we have provided previously. So as we look at the second quarter, it is very much in line with what we were thinking before we get into it and as we exit it, we have confidence of balance of the year.

And last year was affected by the true-ups.

Yes. It was last year.

Okay. And then, just a follow-up. Why did the eliminations go up sequentially this quarter?

Dave, you want to take?

Peter, they go up as UnitedHealthcare grows, so too does Optum because UnitedHealthcare is obviously a customer of Optum. So when you look at them, you will actually see that Optum's overall growth rate is growing at a faster rate than the eliminations, if you will, which suggests that Optum is going faster externally than they are through the internal business with UnitedHealthcare, which is the case. But they are going to continue to rise as UnitedHealthcare continues to grow at these rates.

Next question please.

We take our next question from Josh Raskin from Barclays. Your line is open.

Thanks. First, just a quick clarification and then a question. The clarification, just you guys don't talk about cash earnings, but I was curious if you could give us what your estimates for cash earnings EPS guidance would be this year? And the $0.30 that you talked about for Catamaran, I just want to make sure that's a GAAP number and I guess, maybe what would be the cash estimate? And then real question just around the national accounts business we are getting for July here, I am curious what you are seeing for 2016? Any changes in the competitive dynamics? Have you guys thought about different strategies for sales in light of what's perceived to be industry [indiscernible]?

Sure. I will have Dave do the earnings and Jeff can comment on the national business.

Yes. So Josh, we maybe unique in this regard, but we only report numbers on a GAAP basis. So in every case they include the application of the amortization of intangibles which are pretty consistent in our business. If you look at 2015, the effects on EPS would be about $0.34 per share, if you look back to 2014, it would be the same $0.34 per share and yes, the forward view on 2016 accretion for Catamaran was a GAAP base number as well.

And Dave, so what would the cash accretion be on Catamaran next year?

Catamaran will carry about $0.20 of amortization per year.

Okay. Perfect.

Jeff?

Good morning, Josh. It's Jeff Alter. So we had a really strong 2015 national account season and that momentum is continuing. We have been very purposeful in focusing on our customer's needs to deliver a total reduction in cost for them. So the partnership that we been able to create with our existing clients and with bringing Optum resources to the table have resonated in that market. As far as 2016 goes, right now, it's improved over where we were in 2015. We have got a couple of new strategic wins already booked. Some growth in existing clients in slices of business that we didn't have and we have retained today all our key clients that we have to bid. We will give you more clarity as the season wraps up during our next call.

Okay. That's helpful Thank you.

Next question, please.

Our next question is from Sean Wieland from Piper Jaffray. Your line is open.

Thank you very much. What percent of your members are predominantly inside the United tent? That is, they get their medical benefits from United, their pharmacy benefits from OptumRx, they engage with Optum health services? And can you comment on what the medical cost ratio is of this subset of members versus your average?

We are not going to provide cost ratios with respect to that, but we will give a sense of other.

Sure. Hi, Sean. It's Dan Schumacher. Your question, assuming its oriented towards the large customers, right, because if you look into our fully insured offering down market, we have full and total pull through of all Optum care, disease management, pharmacy clinical analytics, data and so forth in managing those population. So looking up market, the UnitedHealthcare national accounts block, we have about a third of them have pharmacy through OptumRx, so two-thirds represent an opportunity for us as an enterprise. As you think about the other services, the vast majority of them have care management, disease management and other engagement routines through Optum. So the only one where we have less penetration is around pharmacy.

Then on the on the last piece of it, Sean, the only thing I might comment is, is that when you take a look at the across the cohort of clients and then take a look at the clients that really embrace the kind of the more maximum of the offerings that we have from both UnitedHealthcare and from Optum, those clients tend to actually have performance levels that are superior. So when a client is progressively lean towards the more modern approaches that we are offering, as Dan and Jeff have described before in terms of designs, engagements of the consumer, the clinical programs to the use of the high performing networks that are incentive-based, incentives on both ends, their performance from a cost trend point of view, from a satisfaction point of view tend to be stronger. Next question please.

And our next question is from Ana Gupte from Leerink Partners. Your line is open.

Yes. Thanks. Good morning. So one question I had was, there is obviously angst around MLR, but you are reaffirming your guidance. Have you any thoughts or suggestions for the street around how the seasonal variation should be looked at now with exchanges, with MA, any other changes in one small group and so on?

I really don't think so. I really think the question really comes round mix and it is really more the mix of the membership from where the growth does come from and the higher care ratio category. I really think it's as simple as that.

And then just a follow-up on that question. On the small-group, which is becoming ACA compliant from 50 to 100, how do you see that playing out for 2016? And may be if there is early renewals we had some volatility last year, what are you seeing in the marketplace? Might that actually create more stability or would the risk pool estimation might there be any issues?

Jeff?

Good morning, Ana. It's Jeff Alter. What we are preparing for and expecting is very similar to what happened in the fourth quarter of 2013 when there was transitional relief in some early renewal programs for two to 50 block. We assume that will happen again this year in the 51 to 99 and we are ready for it. We are geared up with products and other offerings to serve what those clients might want to do when transitional relief for early renewal programs are offered.

Thanks for taking the questions.

So maybe perhaps one more question. Thank you.

And we will take our final question from Tom Carroll from Stifel.

Hi, guys. Good morning. Thanks for squeezing me in here. So somewhat related to Josh's question, with all the action, if you will, in the managed care space, do you think that employee benefit consultants and brokers may give United a stronger look into 2016 than they might otherwise? And maybe conversely asking another way, are you guys perhaps being any more proactive with these sales sources and highlighting your focus relative to others into next year? Thanks.

I think I can address that. First of all, as we said, we are not going to comment on market dynamics that are driven by anything other than the prevailing market dynamics. Always looking for more value, always looking for more innovation and so forth. And I really do believe the momentum of our business has been advancing our capabilities, have been advancing and we are engaging the market as productively as we ever have been. And we are continuing to focus on that, serving customers and really responding to them and we are seeing some of that in the results in terms of retention, the response to our offerings, the broader penetration of offerings to customers. We are just going to keep on that. And I think that's the best response. We have been on it. We are going to continue to stay on it. And I think the market has been in flux and looking for value and so we are just going to stay on it. So with that, we will conclude. Thank you for your questions this morning. As always, this interaction is helpful in framing or speaking around information we offer you and we do our Investor Conference. That will be coming up again in New York City on December 1. So we would ask you to hold that date on your calendars and we will make sure that that is a substantive engagement for all of you. And to wrap up, through the first half of 2015, UnitedHealth Group. Optum and UnitedHealthcare delivered an advance in momentum and strong growth in revenues, in earnings, in cash flows and the number of people and customers we serve and we expect this growth to continue and accelerate in 2016 and beyond. As I said, we remain focused on further improving service, cultivating and expanding our capabilities and market positions, introducing practical innovations and the potential to make healthcare work even better. So thank you and we will see you next quarter.

This does conclude today's program. You may now disconnect at any time.