David Wichmann - CEO, UnitedHealth Group Larry Renfro - Office of the Chief Executive; Vice Chairman, UnitedHealth Group and CEO, Optum Steve Nelson - EVP, UnitedHealth Group and CEO, UnitedHealthcare John Rex - Office of the Chief Executive, EVP and CFO, UnitedHealth Group Andrew Hayek - SCA, Chairman and CEO Dan Schumacher - CFO, UnitedHealthcare Molly Joseph - Chief Executive, International Business Brian Thompson - Chief Executive, UnitedHealthcare Medicare & Retirement John Price - CEO, OptumRx Jeff Alter - Chief Executive, UnitedHealthcare Employer & Individual Business Eric Murphy - CEO, OptumInsight

Justin Lake - Wolfe Research Dave Windley - Jefferies Matt Borsch - BMO Capital Markets Stephen Tanal - Goldman Sachs Michael Baker - Raymond James A. J. Rice - Credit Suisse Chris Rigg - Deutsche Bank Josh Raskin - Nephron Research Kevin Fischbeck - Bank of America Merrill Lynch Gary Taylor - JPMorgan Ralph Giacobbe - Citi Zack Sopcak - Morgan Stanley Ana Gupte - Leerink Partners Frank Morgan - RBC Capital Markets Sarah James - Piper Jaffray Christine Arnold - Cowen Peter Costa - Wells Fargo Securities

Good morning. I'll be your conference operator today. Welcome to the UnitedHealth Group Fourth Quarter and Full Year 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 January 16, 2017, 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, Mr. David Wichmann. Please go ahead.

Good morning and thank you for joining us today. This morning we reported 2017 results that are ahead of the outlook we shared with you at our investor conference at the end of November. Full year 2017 revenues exceeded $201 billion increasing more than $16 billion year-over-year. Operating cash flows grew to $13.6 billion and adjusted earnings per share grew 25% to $10.07 per share with operating earnings from both UnitedHealthCare and Optum ahead of the forecast we provided at our conference. We had an active December on the growth front. We wrapped up the fourth quarter serving the benefit needs of nearly one half million more consumers completing another successful sale season in individual group MA and dual special needs plans as we turn into 2018. And advancing our strategic positions in two of five growth categories by signing both Banmedica and DaVita Medical Group, while maintaining our operating focus to both closed 2017 strongly and we expect to carry that momentum into a healthy start to 2018. We know the effects of tax changes for 2018 are top of mind for many. So we will begin there today with corporate tax reform. Our starting point for determining our approach was with our mission helping people live healthier lives and helping make the health system work better for everyone and our recognition of the enormous gap between where healthcare is today and where it could and should be. We concluded that our ambitions for a better health and for a better health system are best achieved through investment in ways that will make healthcare far more affordable and of far higher quality. More specifically corporate tax reform is expected to improve earnings and cash flows by $1.7 billion in 2018. That’s after an estimated $400 million to $500 million reduction in premium revenues due to minimum loss ratio and lower net health insurance fee recapture effects and a 200 million to 300 million additional investment and operating costs as we accelerate existing initiatives and artificial intelligence, data analytics, individual health record custodianship, digital health, net promoter score improvements and health related initiatives in local communities. We expect to invest the remaining increased cash flows to better fulfill our mission and in turn to grow and diversify our enterprise for the long-term all aligned to the ambitious agenda we discussed with you on Investor Day. We now expect adjusted 2018 earnings of $12.30 to $12.60 per share and cash flows from operations in the range of $15 billion to $15.5 billion. John Rex will offer more details later in this call and as usual we will be available by phone throughout the day. Before leaving Texas, I would note that we continue to advocate strongly for our multi-year deferral and ultimately the repeal of the health insurance tax given its high cost to consumers and society. If a deferral for 2018 occurs, we plan to return the value to those impacted by the tax. As highlighted in our investor conference, we are pursuing growth and diversification in five key areas, healthcare delivery, pharmacy care services, consumer centric benefits, digital healthcare and global. Our busy December helped us to advance these goals. The combination of OptumCare with DaVita Medical Group establishes primary and ambulatory healthcare delivery in several new local care markets for OptumCare. Through Banmedica and with Amil and Americas medical services in Brazil, we’re establishing a foundation for growth in South America for decades to come. And then Steve Nelson will discuss United Healthcare’s 2018 growth in individual and group Medicare advantage and dual special needs plan should again lead the market. Now let’s turn to businesses starting with Optum’s Chief Executive, Larry Renfro.

Thank you, Dave. Delivering strong results for Optum customers in 2017 enabled us to drive strong revenue and earnings growth and to create opportunities for further growth in 2018. Full year, 2017 Optum revenues increased 9% exceeding $91 billion. 2017 earnings from operations grew by nearly $1.1 billion or 19% with individual businesses earnings growth rate ranging from 16% to 28%. We again balance innovation investments in our businesses and strategic acquisitions with business simplification and focused cost management. The result is improved margin performance. Our full year operating margin expanded by 70 basis points to 7.4% including 9.1% in the fourth quarter. Fourth quarter earnings from operations grew by more than 20% for every reporting business. We entered 2018 with positive indicators for our business outlook. Optum helped serve 91 million people at year-end. Strong 10% growth on a large and growing base. In the fourth quarter, Optum Rx fulfilled 333 million adjusted scripts and OptumInsight advanced this backlog producing full year backlog growth of 19% to $15 billion. Our strategic relationships continued to advance as we became more deeply involved with an increasing number of sophisticated customers. Let me give you a few highlights. In state government services, West Virginia became the first state to engage Optum to integrate program eligibility across all state sponsored health benefit program. Over half the state population or about 900,000 people will access Medicaid as well as other human surface benefits through Optum’s new integrated eligibility platform. We expect to build on our strong and differentiating capabilities serving health plans. Our health plan customers members, our patients, receive quality care from our physicians at local clinics and ambulatory sites of service. We had strong growth in data analytic work related to risk and quality and we received a multi-year award to manage the technology platform modernization for SSS, Blue Cross Blue Shield Puerto Rico. The healthcare transformation alliance relationship is off to an excellent start with 10 companies selecting OptumRx, driven by their interest in quality, cost transparency and total cost management. Finally, with the full implementation for Quest Diagnostic, completed their exceptional performance levels, we now manage more than $65 billion in annual billings on behalf of our diverse revenue management customers and the new client pipeline is vibrant. Acquisitions this past year added market leading platforms, strengthening our capabilities and depth of resources. Surgical care affiliates with its leading ambulatory surgical care practice grew revenues 7% on a same-store basis, driven by ever more complex surgical procedures shifting to non-hospital settings. We plan to accelerate center development in 2018 and 2019. We expanded OptumCare primary care driven practices into 10 new major metropolitan areas. This includes our pending acquisition of DaVita Medical Group, with more than 2000 employed or affiliated physicians serving 2 million patients annually. Like our OptumCare doctors, DMG physicians our well known for delivering high quality care to their patients and are seasoned and are working in a value-based care context on behalf of a diverse group of the most respectful payers. Combined with DMG, OptumCare will be in 35 local care delivery markets, nearly one-half of the 75 markets targeted for engagement or development. And these market operations are still in the early stages of growth and development, a fraction of the size they are targeted ultimately. And we combine with The Advisory Board, the market leader in healthcare research, consulting and technology. We expect Optum to bring further resources, capabilities and value serving the 4,000 hospitals and health systems that comprise The Advisory Board’s membership. And we look forward to accelerating their engagement in the next six months. Finally, we continue to innovate to better serve market needs. We doubled the number of people with Rally IDs in 2017, now more than 15 million, while administrating more than $400 million in consumer incentives. Market interest for this type of scale tested solution is growing. A large local health plan selected Rally as its consumer technology platform and several renowned hospitals are now using Rally for everything from searching for a physician to pricing the appointment and appointment schedule. We launched PreCheck MyScript connecting patients, physicians and health firms with useful information at the point of prescribing, right in the physician’s workflow. PreCheck MyScript has already being used by tens of thousands of prescribers for nearly 1.5 million transactions. We will offer it to all OptumRx members expecting to reach 80% of active prescribers by the end of 2019. And we unified our unique data science and analytics capabilities under the OptumRx brand. We are optimistic about our current progress and our long-term opportunities to continue to advance NPS, to raise quality, to innovate and develop and grow relationships, making the healthcare system work better for everyone. Optum was built over 20 years but we are only just beginning to get a glimpse of its potential. Now let me turn it over to Steve Nelson, the CEO of the UnitedHealthCare.

Thank you, Larry. Like Optum, we’re pleased to report strong growth and performance across our businesses on behalf of those that we serve. UnitedHealthCare’s 2017 revenues exceeded $163 billion, and grew 10% year-over-year. 3 of our 4 businesses posted percentage growth rates in the mid-teens or higher. An employer and individual offerings performed exceptionally well, growing 9% absent the $5.3 billion negative impact of reduced participation and ACA Individual Insurance products and the 2017 Health Insurance Tax Moratorium. Medical costs were well managed for the year and our full year medical care ratio was near the lower end of our original forecast. The full year 2017 commercial medical cost trend was about 5.5% and we continue to forecast the trend of 6% plus or minus 50 basis points for 2018. Operating costs were well controlled in 2017 as operating margins strengthened 30 basis points to 5.2% with fourth quarter operating margin seasonally lower as expected. We improved our positioning for 2018 and for the long-term. Together with Optum, we renewed early the AERP relationship, a key long-term positive for growth serving the senior’s community. We also strengthen our ability to address the social determinants of healthcare to better serve people with complex needs. And we’re seeing strong interest for multi-site employers in the Nexus ACO products, the first national ACO product targeted to large self-funded customers looking for higher quality and cost performance. Nexus ACO leverages UnitedHealth premium physicians to achieve cost savings of up to 15% as customers see reductions in readmissions, ER visits, inpatient length of stay, and hospital admissions. We expanded into several new markets including the western slope of Colorado and upstate New York. And we’ll enter Minnesota and the northern planes in the second half of 2018. And we began to advance the next generation of digital health and wellness management which is available for seniors based on connected wearable devices and wireless technology. Participants in the UnitedHealthCare Motion Wellness Program have used activity trackers to walk 65 million miles, earning nearly $20 million in incentives to cover out of pocket medical expenses. In 2017, we served 2 million more people in the U.S. employer group, Medicare and Medicaid market segments, including almost 0.5 million more people in the fourth quarter. In Medicaid, we grew by more than 800,000 people in 2017 reflecting entries into new state, support for 110,000 more dual special needs plan numbers and a significant late year expansion in Iowa. In 2018, we expect further growth from our 2017 entries into California and Virginia from further acceleration in serving dual needs special plans and from continued in-market organic growth. The Medicaid pipeline for 2019 and beyond continues to be robust as states increasingly look to manage care for innovation, effective service and cost containment. In Medicare, we serve nearly 1 million more seniors in 2017 and we again expect strong growth in 2018 consistent with our expectations. Based on performance in the annual enrollment period, high customer retention and continued success serving employer group retirees through our national four-star quality plan. In UnitedHealth employer and individual, commercial group full risk offerings group served 130,000 more people this quarter and 465,000 over the past year. We expect some modest pull back in membership in the first quarter followed by sequentially quarterly growth over the balance of the year led by strength and small group fully in line with our Investor Conference growth projections. In global, our Brazil businesses had strong positive 2017 performance and carried that momentum into 2018. We expect to add Banmedica in the first quarter 2018. Banmedica is a provider of healthcare services and health benefits in Chile, Columbia and Peru serving 2.1 million people and operating 13 hospitals with 1,900 beds and 143 medical centers. In many ways the growth opportunities apparent in these South American markets are reminiscent of the opportunities in healthcare markets in the US two decades ago, when consumers and benefits sponsors were seeking better managed benefits and access at lower cost, Medicare advantage plans and managed Medicaid were nascent and Part D did not exist. We expect opportunities for growth in these markets to advance as we have in the past two decades or more in the US. Our 2017 growth and our 2018 outlook demonstrate the competitive value our offerings bring to consumers and the market, rising rates of customer retention and strong new business generation reflect the sustaining value of innovative benefit and network designs, improved service, rising NPS, distinguished clinical engagement and effective cost control. Now, I’ll turn the call over to John Rex, UnitedHealth Group’s Chief Financial Officer.

Thank you, Steve. We delivered strong well-balanced performance again in 2017. Consolidated revenues exceeded $201 billion, cash flow from operations were $13.6 billion and adjusted earnings per share of $10.07 increased 25% on top of 25% earnings growth in 2016. We re-valued our US deferred tax liabilities to reflect the newly enacted federal statutory rate of 21% which added $1.2 billion in non-cash earnings in 2017. We have excluded this from adjusted earnings per share. Our expectations for 2018 have been revised solely to reflect the lower expected tax rate now approximately 24%. The incremental investments Dave referred too and items such as rebate obligations related to loss ratio requirements, triggered by the lower tax rate. The change affects several line items which I will step through. We now expect adjusted net earnings per share of $12.30 to $12.60 in 2018, with cash flows from operations rising $1.7 billion from our prior outlook to a range of 15 billion to 15.5 billion. Dave referenced the $400 million to $500 million impact on premium revenues, which we expect to accommodate within the existing $223 billion to $225 billion revenue range we set at our November Investor Conference. We now expect UnitedHealth Group earnings from operations to be in the range of $16.7 billion to $17.3 billion in 2018. This is reduced by 700 million from the prior range. Roughly 400 million to 500 million of which is driven by the premium effects of the new lower tax rate with greater than half attributed to a lower insurers fee gross up. The other factor within this $700 million reflects the end year P&L impact from the investments Dave noted to better serve people and improve the healthcare system, while strengthening our growth and innovation value. We expect these accelerated investments will result in 200 million to 300 million in incremental operating expense. Our current plans while still maturing allocate these investments to both businesses, leaning toward Optum. We now expect our 2018 medical care ratio to run in a range of 81.5% plus or minus 50 basis points. With the midpoint increasing is much as 30 basis points from our prior outlook, again driven solely by mechanics related to the tax rate change. In addition, with these impacts, we expect our 2018 operating cost ratio to run in a range of 15.3% plus or minus 30 basis points with the midpoint 10 basis points above our prior outlook. With respect to our overall capital position and outlook, we expect to continue to follow our longstanding approach to capital allocation. This includes maintaining a consistent approach of investing in the business and returning capital to shareholder, steadily pacing toward a market rate dividend, while targeting a debt to total capital ratio in the 40% range over the long-term. All of the above is contained in the revise 2018 guidance table included in our supplemental information package this morning. The takeaways are that we entered 2018 with growth and earnings momentum and strong financial flexibility, a significantly improved cash flow outlook and a debt to total capital ratio below 39% at year-end 2017 with clear opportunities to put capital to work. Dave?

Thank you, John. 2017 was a strong year for UnitedHealth Group by virtually every measure. Top-line growth, rising NPS, strengthening culture and service, strategic advances, operational execution and as a result, strong financial performance. We are entering 2018 with solid momentum and a clear direction and much to get done. We plan to sustain this ambitious pace most importantly because our mission and culture and those we serve require it. Our goal remains realizing the full growth service and social potential of this remarkable enterprise. Thank you for your investment and interest in support of that goal. We will now open the call for questions. Asking you to limit to one question a piece, so we can get to as many as possible.

[Operator Instructions] And we’ll take our first question from Justin Lake with Wolfe Research. Please go ahead, your line is open.

Thanks, good morning. I appreciate some of the detail on tax reform. Just wanted to drill down here a little bit more. First, you talked about the 400 to 500 million and most of that or more than half of that being from the health insurer fee impact. I think it's pretty clear that you know the grossed up of the Medicaid - Medicaid states would require to give you back, needs to be smaller because the taxes go down, but beyond that can you help us understand how much that is of the half or more that’s 400 to 500, how much is commercial and how much is Medicare that you might have passed through which I assume is zero on Medicare. And then more importantly for 2019, would love to hear your thoughts on the sustainability of the tax reform benefit that you’re seeing here in 2018 including any differentiation on that sustainability by business would be really helpful. Thanks.

Good question Justin, appreciate it. We’ll have John Rex talk about the -- give you a little bit more details on the impact of the $400 million to $500 million on premiums. As it relates to 2019, we’re not really in a position to give elemental guidance at this stage. I understand the question but hopefully you can also appreciate that is as is always the case with respect to market dynamics particularly in the commercial market with respect to pricing it subject to a number of variables including negotiation and also attribution of cost. So, it’s not as -- not to belittle it at all but it's not as simple as applying math. This is something though that as the year progresses and we see what happens with the health insurance tax, we will be very deliberate and making sure that we quantify the effects of that and do so in the context of giving you guidance for 2019. John do you want to discuss the four to five please.

Yes, good morning Justin. Let me just give a little more background on how that works which will benefit everyone on the call here. So just recall, when we look through how this works through our P&L, the larger component as I mentioned in my prepared comments is the impact of the lower premium gross, the federal tax rate decline. So, remember the health insurance tax of course in non-deductible, that results in a gross upon the premium line and that flows through the P&L and that impacts the number of ratios as you heard me describe this morning across the P&L. So as a result of the gross at the pre-tax operating earnings of course were impacted. As that requirement declines, it’s neutral on the after-tax earnings line but it impacts pre-tax. So that’s really what we are attempting to go through here. I think you spotlighted one of the kind of the easiest to understand ones in terms of some of our state program arrangements here where really when we went into this, the arrangements for the state were explicitly around being made whole for the tax gross up because of the non-deductibility. So that has an explicit impact as that declines and so some of those state arrangements are explicitly that way and so when we go to collect that we’ll be collecting a gross up rate of 21%. There are other businesses where they have some impact, to contractual arrangements. I’m not going to parse them out in terms of the specific amounts we’ve joined as Dave described. But you’re right about kind of how that impact flows through.

I am sorry just wanted to confirm here. In Medicare I think you guys have talked about the gross up not having -- you never passed it through to consumers via lower benefits. So that doesn’t need to be given back. Is that correct? And then on commercial, how much of commercial do you expect to get back over time and how much is already in this number? Thank you.

Well, Justin we are -- as it relates to in Medicare in particular -- obviously that’s all subject to a discussion with CMS and negotiation that occurs in connection with the offering of the annual benefits. Our goals are always to maintain as much consistency as possible and benefit offerings, network access, pharmacy offerings, formularies as much as possible to keep those benefits as stable as can be. That’s one of the leading contributors to a very strong net promoter scores with that population. So again, our goals there are to maintain as much stability as possible. As it relates to the market, if you think about what we have here, we’ve got two businesses. One which is regulated and one unregulated. But the regulated business taxes if you will, we have the tax of value of that if you will a piece of that, a good chunk of it goes back to the market through these recapture mechanisms that we’ve outlined here this morning, that’s the 400 million to 500 million that John described. In addition to that, we thought it would be best that we then invest in things that we know happened to be through our P&L, in this case of areas we know where we can improve healthcare quality and reduce healthcare costs in the future. That’s a 200 million to 300 million that John described as well. The vast majority of the residual is either attributed to the Optum business and/or we felt was best and most appropriate for us to invest in continuing to advance healthcare quality and reduce healthcare costs really aimed at trying to achieve this mission around helping people and helping to improve health systems. So that’s where we are at today. We think it’s a fair balance. We think that that balance is something that’s sustainable over the long haul.

And we will take our next question from Dave Windley with Jefferies. Please go ahead.

Hi, good morning. I figured there will be a lot of questions on tax pass-through, I'm going to avoid that one. In your OptumHealth build out, I am curious to what extent or how far along are we in the process of your benefit designs on the UnitedHealthcare side including some type of favorability toward OptumHealth networks, is that something you can do now, is it something that you plan to do, is it something that you need to build more critical mass in OptumCare before you can get there? I am curious about how much -- if you are building a plan that helps the healthcare system to work better, I would think you would want to favor that, I am wondering how much you are doing there?

It’s a great question Dave and it’s one of the things that’s often misunderstood about our OptumCare platform, and that is a multi-payer platform. It serves 80 plus payers broadly. The dynamics around its offerings to the market, particularly around pricing are negotiated including with UnitedHealthcare, there is no favoritism applied other than what you would characterize as normal dynamics in a marketplace. And so, our intention is to not -- is to provide a broad offering and engage the ambitions of all payers so that we can serve more patients. But Andrew, do you want to touch on maybe some of our strategies there and how we’re advancing that business?

In today’s comments, we are very much committed at Optum and in OptumCare to a multi payer strategy and serving multi payers in the markets we serve is integral to our business models including our medical groups, our IPAs, our ambulatory surgery centers and our neighborhood care centers. So, we work to earn and maintain the trust and confidence of our payer partners around the country. And we do that by providing outstanding value to the members and the communities we serve in terms of quality, patient experience and impacting the total cost of care. And then as you look at the track record that we have as we added IPAs, medical groups, as we added SCA, as we added MedExpress, we have continued the multi-payer strategy of those entities. And in fact, we’ve worked very carefully with each of those payer partners to expand those relationships, continue to serve them and help their success.

So, Dave it’s fair to say those that get kind of closest to OptumCare, the payers that do are the ones that get the best value out of it. And certainly, UnitedHealthCare works very collaboratively with OptumCare, but several of our payer, our customers do as well. Next question please?

And we’ll next to Matt Borsch with the BMO Capital Markets.

Thank you. I was hoping that you could just talk about medical trend. And from a couple of different dimensions, number one, to understand as your outlook for going back up to the 6% range versus 5.5% that you experienced, is that just the conservatism that we’ve seen from UNH over the last several years or is there something specific? And I guess related to that is, what you think the impact to the economy is here? And if you’re surprised at all by the 2017 if anything, it seems like a softening of trend relative to the prior year? And sorry, if I could fit this one in and that base of question of the pace of benefits change in the high deductible plan impact in this mix?

Okay, that’s all right, Matt, I will try to get all those answered. As it relates to medical trend in 2017, our teams worked very hard to control healthcare cost. Usually, our forward view of trend is comprehensive and it also reflected deep respect for the healthcare economy and the ways trends developed overtime. But, I think our teams did a really nice job of continuing to mitigate trend for 2017 and have done -- have taken a prudent approach for 2018 and beyond. Do you want to talk at all about the how trend has advanced year-over-year and maybe what some of the elemental items are?

As Steve Nelson mentioned in his commentary and as Dave touched on where we’re now at 5.5%. So right at the low end of the range from a year ago that we laid out, but completely in line with our investor conference. It really reflects as Dave mentioned, our efforts to manage cost and improve quality and we continue to do that through things like ensuring the right level of care, the right place of service, the effectiveness of our clinical model, alignment with our partnerships and we’re really seeing -- the improvements have really been broad base across our category, I wouldn’t point to anything specific, wouldn’t point to the economy especially around that as well. And as Dave mentioned as to 2018, we’re always respectful of trend and there is nothing that we’ve seen as we closed out 2017 that would view our change at this point for 2018.

What about the pace of benefit change in on how that’s obviously played a role as you move to more employers to high deductible plans. Is that continuing at the same rate going into this year?

Dan Schumacher, will comment on that, Matt.

Good morning, Matt. It’s Dan.

Good morning.

As you look at the benefits what couple of dimensions to it, right. We have -- if you look at the deductibles, deductibles are rising a little bit faster in 2018 as compared to the rate of increase in 2017 and in part due to the reintroduction, I think of the insurers feed that’s pushing pricing up and putting some pressure on employers to make more adjustments to the benefits. If you look at aggregate buy downs, I think those are relatively comparable year-over-year, but if you just look at the proportion of people that are buying and choosing more progressive plan designs, I would say that that has been a long-standing trend that continues in 2018, just a thing that was in 2017.

We’ll take our next question from Stephen Tanal with Goldman Sachs. Please go ahead.

Thanks a lot for the questions, guys. Wanted to just touch on the $400 million to $500 of minimum MLR rebates. I’m sort of curious to understand whether that had anything to do with sort of pricing plans for the all tax regime and what that could mean for 2019. And relatedly on the incremental investments side of things these were described as accelerated programs in the release. And I’m wondering if you can sort of give us a flavor for how much flexibility that might enable for 2018 and then looking into 2019 as well?

Maybe we will have John Rex address the fore part of that question and then I’ll wrap on the investments.

Let me just get back to that. So, to be clear here on the $400 million to $500 million, that’s comprised of two components and the minimum MLR rebate component of that is less than half of that component. The greater component has to do with just really the lower premium gross ups as the federal tax rate declines. I just really want to be clear on that in terms of how that works. So minimum MLRs, less than half of that $400 million to $500 million, it’s really just the mechanical impacts, the recapture impact on the lower premium gross up, that is the majority of $400 million to $500 million. And Dave will address the investments.

So, Steven it’s a very good question. So, what we’ve done here is we really have investment occurring on two fronts. One is it relates to the $200 million to $300 million as I described earlier, it’s going through the P&L and that’s the one when you’re picking up on a lot of those investments through the P&L are in the application of technology if you will across the business and in order to accomplish a number of things, it’s to both improve the quality of our services to people which includes the advancing of our MPS ambitions which I think we’ve laid out pretty strongly as well as to continue to find ways to improve cost structure thereby delivering greater value broadly to the health system and to individual consumers within it. You should look at that as an uptick in the run rate expectations of our level of investments, partly in response to the tax, a great change if you will. Beyond that is the balance, which is $1.7 billion or so in improved cash flows in the business. And that you’ll see us align more quickly strategically in the market to advance things like our care delivery platforms, which we just discussed. As you know, we are not quite midway through the establishment of the foundation of our market presence in local markets in that business, as an example. So that additional investments and technology related platforms to advance things like precision medicine, genomics, things of that nature where we believe we can apply our capacities as an organization are some of the areas that you will see us advance our investment portfolio.

And the next question comes from Michael Baker with Raymond James.

Just trying to get a sense of the size of the PBM pipeline of opportunities this year compared to last year. And if you could gave a little bit of color on market segments that are more active that would be helpful?

We see nice growth in the PBM, both this year, including the growth within our customer base and we have a nice pipe for 2019. John?

So we just finished off a really strong year. We had our new business targets. We also had really good retention as I talked about at Investor Day we’re at almost 98% in terms of our retention. We’ve seen solid growth both with our existing client based, including health plans. So really broad based both across all market segments for 2018. In terms of 2019, I think it's still early. We have a really good pipeline, but their pipeline year-over-year is pretty similar, but it’s actually still early. We have some wins for 01/01/19 already, so we’re seeing strong active growth for the market. And I’d say the big deals we won’t care about until the end of first quarter, so strong pipeline and good growth. I don’t see any changes in terms of what market segments are selling more than others right now. And I’d say last summer comment is that our value story in the market is really resonating. We’re seeing strong interest from sophisticated buyers that are attractive to our pharmacy care services model.

Our next question is from A. J. Rice with Credit Suisse. Please go ahead. A .J. Rice: Maybe I’ll just ask you about the acquisition pace, seems like in ’17 and accelerated and it certainly as we went through the year, it seemed to accelerate as we got toward the end. I mean that could be a function of greater availability of deals; it could be a function of particularly and after we build out the infrastructure; you feel more confident as you can integrate them faster pace of deals; it could be the balance sheet is now as your target. Can you give us a flavor for R&D? We’re in an environment where your acquisition pace is likely to accelerate. And maybe I’ll just throw in there an update on the international outlook since I know both Optum and UHC have pointed to that as a growth area and with the BenMedica deal maybe that brings you back into focus a little bit?

Thank you, A. J., very good question. There really is nothing -- we really didn’t accelerate the pace of our acquisition, it's just coincidental that those two acquisitions happen to come at that time. As indicated, they line up nicely with two of the five growth areas of our business. We’ve long indicated that we have an interest in measured investments in global, and that BenMedica allowed us to get into three additional South American markets. We have been studying those markets for about five years, and that allowed us to advance our position there. As you know, we’re in an open process right now to close that transaction. And then the other one was the DMG acquisition, which again I would characterize as more coincidental but highly strategic in terms of our ambitions and interest in building the Optum care platform overall. So really no acceleration, you shouldn’t infer anything with respect to how we’re allocating capital broadly. I would like to just take a moment, if I can, to have Molly Joseph who is our Chief Executive of our International Business, UnitedHealthcare International, maybe just spend a moment on BenMedica and our positioning in South America broadly.

Thanks for the question A. J. Let me just offer my perspective on three things related to our global expansion; first is the business progression we’ve seen in Brazil; second, the pending transaction with BenMedica; and then perhaps touching on how we view Latin America, more broadly. Brazil, we’ve started 2017 with pretty ambitious expectations for the business, particularly in the area of margin improvement. And that was across both our health benefits and our BenMedical delivery businesses. Very pleased that we‘ve fully executed on that plan. The improvements are really being driven by a combination of a very strong local management team that focused on innovation and quality and increasing, the localized application of our enterprise capabilities and competencies in clinical, in technology, in data and analytics. So we entered 2018 in Brazil with really strong momentum for continued margin expansion and quality advancement, which brings me to BenMedica. As Dave mentioned, BenMedica is a organization that we have known for a very long time and we have suddenly built the market for a long time. There are market leader across Chile, Columbia and Peru, in both healthcare benefits and medical delivery. And they have a really strong local management team with a proven track record in delivering very consistent high margin growth across both lines of their business and across all three of those countries. So similar to Brazil, we see a opportunity to create value by combining that strong local team and that strong platform with our enterprise capability, again across, clinical, technology and data and analytics. Transaction is currently in an open tender process and we would expect to close that yet this quarter. So pivoting then to our view of Latin America more broadly. We see really attractive healthcare dynamics and characterized by a growing demand for affordable private healthcare. And our acquisition of BenMedica will put us in a leading position in four of the largest economies across that region. Collectively, these countries have a population roughly equal to that of the U.S., but perhaps more growth opportunity in these emerging private healthcare markets, as well as a broader and longer term opportunity to serve the systems more holistically by also serving public markets. So we think we’re really well positioned for the value creation over the long horizon and we are focused on bringing value to those markets.

So we took a little bit of time there, because you hadn’t had the chance to discuss this at our investor conference. And of course, this came right on the hills of that as the DMG, which we’ve already referred to earlier today. As it relates to the international markets, in particular, I just want to stress again that our approaches to those markets will be measured approach to deployment capital in those markets will be measured, and deeply respectful of the volatility that’s inherent in each one of those. And our expectations are that they provide returns that are reflective of those risks and risk profiles that exist in each of those markets. Not to belabor this, but there was one other acquisition that we had closed, The Advisory Board that I might just ask Larry Renfro to make a few comments on as well. Thanks.

So A. J., I know this would be something important to you, The Advisory Board where you closed, I think it was in the latter part of November. So we’re in the process of implementing the Optum playbook in terms of integration and alignment, but it’s gone extremely well. Well received it in the marketplace. And we really believe that this is going to enhance our sales pipeline, as well as our sales for 2018. It’s very, very complementary business and their management team is strong and it’s so complementary to us. We’re looking for a lot of good things out of The Advisory Board.

Next question is from Chris Rigg with Deutsche Bank.

Actually just had a follow-up on the international and global strategy. When we think about at least South America, do you think overtime this becomes one cross-border enterprise under a unified brand name, or is it a portfolio approach where you’ll continue to run both businesses separately for the long-term? Thanks.

Just like North America, South America is an inherently local market. And so in that regard at least for the time being, we have two very strong or three very strong brands now in Brazil, both Amil and Américas Médicos Serviços and then in Chile, Colombia and Peru, predominantly Chile, BenMedica is the holding company. But they also operate with a series of very recognizable local brand names, both in healthcare delivery as well as healthcare insurance. So I think you will continue to see that posture. To the extent that we need to clarify that like we’ve been doing with some branding activity in Brazil this past year, we will do so. But for the most part we’re deeply respectful of the brand value that these folks have created overtime.

And the next question is from Josh Raskin with Nephron Research.

So wanted to talk a little bit about med stuff, and I am curious what percentage of your book today has first dollar coverage. And then maybe you could talk a little bit about migration strategy going that one open enrollment period before the changes take effect for 2020? And I guess I am just curious on the economics of that switch. I assume the dollars are -- gross margin dollars are higher. But I would be curious if the returns are any better. And then lastly, do you think this is a big impact on the industry, i. e., a step function for MA in 2020 or do you think this is going to be more incremental? Thanks.

As you might suspect, a lot of the growth we’ve seen MA comes from our Medicare supplement products overall. But I would ask Brian Thompson maybe to more specifically respond to your question.

Sure, Dave. Good morning, -- thanks for the question. Maybe I'll start with the last point. I don't see this as a big transformative change. We’ve seen this and been aware of this change. [Audio Gap] for some years now. We have the vast majority of our business today in first dollar coverage, but have been very pleased with our introduction of what we call the Plan G in the middle of 2017 and we are certainly seeing that resonate in the marketplace. But actually in terms of the seniors' perspective, we like the continuation and really the collision of both the Medicare Advantage and the Medicare supplement products in the marketplace really provide broad, good choice for those that are choosing. And again as we're selling right now very pleased with the margins on both plans, I don't think there is much as to be differentiated in terms of economics of either. But certainly don't think this as a big move over the long-term.

And the next question is from Kevin Fischbeck with Bank of America Merrill Lynch.

I wanted to go back to tax reform and the long-term sustainability of the benefit. I appreciate that facing change over the next year, so you have to watch and wait. I guess I start with United actually and actually almost literally wrote the book on pricing per membership. And although I guess competitors might decide to put that back in the benefits, you obviously don't have to follow a suite. And so I would think that would be largely -- how much of benefits you decided to keep versus not keep, so maybe you could give some perspective on that. And then is there any thoughts initially about where you think competition wise there might be more pressure within the business? I would think that most of the Optum businesses actually will probably have less pressure than the health plan businesses. But want to get your perspective on that?

So as it relates to the $400 million to $500 million, just again to reiterate, most of that is the combination of two things. One is the minimum MLR amount so that we would need to return to policyholders, if you will. And then, the second relates to the lower tax rate on the health insurance tax. So that is what I would characterize is more of a -- I hate to say, but more of a mechanical element, if you will, and returning those premium values to consumers. As it relates to sustainability, again, I would urge you to think about the tax reform affecting our cash flows and earnings, as in a bifurcated way. One is, as it relates to the services business, which -- and as well as all the unregulated aspects of UnitedHealthCare, which are substantive. Those components are the ones that we're retaining and investing, if you will. And then think about the other half or the other portions being that, which relates to the regulated entity, of which you can see a substantial dollar amount is being returned to the market. On top of that, we invest in managing healthcare costs better, as well as applying better services. And then on top of that, invest more fully in what I'll characterize as more substantive event or transformative change to improve the health system and improve our offerings broadly to the marketplace. So in our view, we believe it to be sustainable, because of the fact that we have such a substantive amount that's already been reverted back in premium values, plus the other changes that we’ve outlined. So our intention is at this stage from this distance, which is it’s pretty early on, that we’ve made the right allocations if you will in determining how to best utilize this tax reform value.

And we’ll take next question from Gary Taylor with JPMorgan. Please go ahead.

Just want to ask a little bit about OptumRx, and it looks like the revenue growth accelerated -- year-to-year revenue growth accelerated sequentially and the OI accelerated pretty meaningfully the growth there sequentially. And anything you wanted to call out for us there.

Gary, I’m not sure we got your question, it that was fairly broken. So if you could rephrase it please.

I was asking about OptumRx.

Okay. Thank you, much better.

And the question was, it looks like the revenue growth, year-to-year revenue growth, accelerated sequentially a fair amount than and the OI growth accelerate pretty substantially, sequentially as well. Just wondered if you could give us a little more color on that performance?

Sure. I’d ask John Prince, please.

In terms of the acceleration, I think the key driver of that is our strong increase in adjusted scripts. So if you look at our volume, which is driving our business, our adjusted scripts is up 5%. Our scripts are actually been accelerated all year long. So our script growth was the highest in Q4 versus any other quarter in the year. So that is really driven by the success we’ve had in the market in terms of taking on new clients, winning new business and keeping our existing clients. And so that is the key driver from it. One other driver from it has also been the Specialty Pharmacy business. So we highlighted that at Investor Day that we’ve been very successful in the specialty market, that’s the market where you both plan with existing business and also compete in the open market. Our value story has been resonating. Our experience has been very solid, both for members and physicians. And so we’ve been getting a lot of uptake in our specialty pharmacy business, that all has been driving our overall revenue growth. So very solid from the business standpoint.

Thank you for your question, Gary. We’re going to pick up the pace here a little bit to try to get in this as many questions as possible. Next question please.

And we’ll take next question from Ralph Giacobbe with Citi. Please go ahead.

A little bit of time has passed and you’ve had more time to think about the executive order and lack of individual mandate. Any updated thoughts on how disruptive you think that will or won’t be, maybe have you had dialogue with small group. What’s your sense for their appetite and maybe change their approach. And does that at all relate to your commentary on your call around enrolment being pulling back I guess in 1Q and coming back due to small group, I think. If you could flush that out as well. Thanks.

So I’ll address the executive order and then I’ll have Jeff Alter to talk about the market dynamics here in just a moment. So the executive order had three components to it, the one I think that has the most momentum or at least initial momentum is around the association how plans, but we also have HRA and short-term limited duration policy considerations as well. So what I think happening across all of these is that the administration is pursuing an expansion of products that are available to consumers and in an effort to lead to more participation. And I think that that also lead to more insurance market stability broadly. So we’re supportive of that, of expanding the choice of the offerings that consumer has and continues have. And I think each and every one of these regulations are really geared in that way. So we’re supportive of these efforts to improve choice and frankly provide access to lower cost alternatives because as you well know healthcare costs too much and consumers are seeking more affordable options. We’re still reviewing the association health plan rules at this time and we’re not going to speculate on the potential outcomes of regulatory matters. But I would remind you that we have significant experience and do offer association health plans today, primarily in our individual business and/or operate in markets like PEOs and others that have similar characteristics. What’s important about these is they must be designed carefully in order to enhance coverage options and to ensure that they don’t destabilize other aspects of the insurance market, like the small group market. So that’s largely where our commentary will be aimed, is making sure that there is no unintended consequences of these. And then with respect to enrollment in the first quarter, Jeff, can you touch on that please.

As you saw, we had another strong quarter of growth at the end of 2017 and that makes a run of 13 consequence quarters of strong fully insured group growth. When you look at 2018, our outlook that is unchanged from our investor conference has a market dynamic that has the introduction, full introduction of the health insurer tax. And that’s resulting in much higher premiums and quite frankly, much higher year-over-year increases for our clients. So with that in mind, we look at our very large one-one enrollment in our larger business. We continue to see small group growth and we believe that as the year paces, we will return to growth in that the remaining three quarters and continue our run of strong growth.

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

Just wanted to ask quickly about your MedExpress Walgreens collocation highlight, I think you’re at about 15 sites at your Investor Day. Curious how that’s going and how you think about in your perspective what metrics you have to see or think about a broader rollout for United and Optum? Thanks.

I know this has gotten a lot of attention here, in particular, over the course of the last week or so with some activity at the JP Morgan Conference. I want to keep this into context. We have about a dozen or so locations that we brought online throughout 2017 and that was really to see whether not a retail side of service in this case with Walgreens would be an attractive venue for care delivery. The results are not near final but we’re hoping that our MedExpress surgical care model with an adjunct pharmacy performs as good or better than without meaning that we can provide more convenient service to consumers at a lower cost and with very, very high levels of quality as MedExpress had as reflected in their NPS scores from consumers. I also want to put into context in that and this is just part of developing an overall higher performing local health systems. So it just be one component that maybe nested inside a local care delivery market with ambulatory surgical capacities and house calls and things of that nature. This is the future health system that we see delivering considerable value to people. The other thing I just want to emphasize is that we’ll evaluate other venues and partners as well. This is an exclusive to any one, in particular, our interests are being able to line as productively as possible with others in these local communities to see if we can deliver additional value to people.

We’ll go next to Ana Gupte with Leerink Partners.

So on the providing side of the house, wanted to see what your thoughts are on your organic strategy and M&A. And firstly on the build out of the Optum care into 35 and then into target 75 markets. What type of competition are you facing with either other plans or private equity or other health systems? And how do you become the acquirer of choice? Obviously, you did get the DaVita asset.

I think we’re nicely positioned initially here, but we’ve got a long ways to go. But I wonder if we -- over that for Andrew, Andrew Hayek

So first and foremost, we started this strategy to build out Optum care in high value ambulatory care networks several years ago. And so we’re several years into the strategy. The addition of DMG is another step forward in that process. We’re excited about the opportunity to combine with DMG. And I would also remind you that we’re in the midst of an approval process that’s underway. And the step forward for us allows us to combine DMG’s outstanding clinicians, local leadership and national leadership. They’ve achieved very strong results in Stars, clinical outcomes and patient experience. And our capabilities and our strategies are very complementary. We anticipate that many of DMG’s capabilities will make Optum care stronger. Reciprocally, we believe we can add a lot of value to DMG. And by doing this, we enhance the value we provide into the markets we serve. More broadly, the markets that we are targeting and entering have been and remain competitive. We earn the right to partner with medical groups and IPA, and surgery centers and ambulatory care centers through value. But we need to demonstrate our ability to enhance clinical outcomes, the patient experience and reduce the overall cost of care. And that is true across Optum care in each component parts. So we earn that right to partner and we think as we continue to grow and enhance our capabilities, we become a more and more attractive partner. And now that we have the ability to combine various ambulatory care assets with the medical group and the IPA, we can address a broader spot of healthcare needs in the marketplace and become an even more attractive partner overtime.

So Ana, very good question, one of five key areas for growth in the future this one, very early stages. Again, it feels like we are assembling relatively quickly, but it's one thing to enter into the markets and other things to apply information, technology and really enable these health systems to be strong performers and make a difference on the cost and quality, consumers receive in those market. So more to come over the coming years on this strategy as we continue to roll it out. Next question please.

We’ll go next to Frank Morgan with RBC Capital Markets. Please go ahead.

For several quarters now, you called out the growth in the behavioral health services as one of your drivers of growth inside of OptumHealth. I was curious if you would give us any additional color on that growth area. What specific services, the in-patient out-patient and what in particular markets, is it more of a government or Medicaid product? And then wanted just a clarification, I think you said of surgical care affiliates 7% growth. And I want to confirm is that organic and then also if you could break out price versus volume? Thanks.

Frank, thank you. That is a same-store growth rate as we described, but Andrew oversees all those businesses. Andrew Hayek?

I will start with SCA, so the 7% is our same-site net patient revenue growth, so that’s how we measure organic growth at SCA for several years. And so that’s the combination of volume and rate. Keeping in mind that a total joint replacement could take couple of hours and reimburse $20,000, pain injection could take 10 or 12 minutes and reimburse less than $1,000. So we use same-site revenue as the organic growth measure. And 7% is a very strong number, that’s the high end of the range that we have grown over the past several years, and is a reflection of the cumulative impact of the strategy we pursue, partnering with health plans and medical groups and health systems, being very disciplined in shaping our portfolio, the right M&A as well as some strategic dispositions to make sure are in the right markets, focusing on high acuity procedures, ramping up total joints, cardiovascular, complex spine, et cetera. So we’re very pleased with the 7% same-site growth rate. And as Dave -- as was mentioned in the script, we continue to grow our SCA portfolio. On behavioral health, we’ve had strong performance across the board and that’s including our medical expense, our ability to serve our consumers, including the growing needs in autism and substance abuse disorder. And so really we feel very good about our product and our presence. And we continue to ramp up and add external customers and grow in virtually each of the segments that we serve. So we feel very good about the behavioral, the trajectory we’re on and the prospects for 2018.

And we’ll go next to Sarah James with Piper Jaffray.

Can you speak to the OptumCare ASC surgical trend environment? So how is the trajectory going this year versus in the past? Are you seeing consumerism impact total annual surgical demand, or is it just back-end loading and changing the location of service? And taking that one step further. Do your systems allow you to see impact of in-patient diversion for non-UHC members? In the past, you’ve said that you could track this on the individual member basis on the insurance side. But I am wondering for the submarket of OptumCare’s ASC, can you tell how much of that volume was diverted from in-patient or does this data and technology not currently exist with that?

I would say from a wide lens, stepping back that ASC environment, certainly fits into consumerism. And so over the past several years with rising membership and high deductible plans, consumers being more aware of various alternative sites of care and having more financial responsibility for the cost of their care; we study this; we hear it anecdotally; patients are asking more questions; are asking questions to their physician; and they are searching more. And when they do, the ASC environment for clinically appropriate procedures is at very attractive site; based on quality outcomes, based on the patient experience, we have a Net Promoter Score of 91, as well as the cost effectiveness; procedures in our setting of care are roughly half to less than half the price of the same procedure in a hospital environment. So we do fit very well into consumerism and we have some data as well as many, many anecdotes that affirm the consumerism does drive increasing interest in our sites. In terms of back-ended nature, the years have always been seasonal, that's due to the members and patients when they're at the end of the year and they have a deductible to spend. They would rather get the procedure done by the fourth quarter before the plans are reset. So there is nothing new or different about that trend. And then in terms of in-patient diversion or share of the market that we're receiving, we work with multiple plan partners to measure this in various ways. We have a number of pilots underway with multiple health plan partners to track this and do a better job of capturing the right, clinically appropriate procedures. We're making progress. We feel very good about it. And we're still in the very early days. There is still a lot of opportunity to think about higher acuity procedures, like total joint replacements, complex spine, cardiovascular procedures. So we're very optimistic about what the future holds.

And we'll go next to Christine Arnold with Cowen.

OptumInsight backlog $15 billion, uptick nicely in the quarter. And could you talk about the specific areas where you're really seeing traction in OptumInsight? And where that backlog is really building?

To your point, we added $2.4 billion to our backlog during 2017. In Larry's opening comments, we shared, that’s 19% year-on-year growth. So we're pleased with that performance. We had a strong Q4 in terms of sales, which enabled us to achieve the $15 billion objective. For Q4 sales, the primary contributors to that backlog came through our state government business, as well as our ambulatory rev cycle business. In terms of the path forward, we take a very robust pipeline into 2018, which should help us achieve our $17 billion to $18 billion guidance that we provided to you during the Investor Conference.

We'll go next to Peter Costa with Wells Fargo Securities.

My question is on your guidance. Well, I appreciate very much that your guidance changed only includes tax reform items, so that makes easier for us. But the fourth quarter looks like it was running ahead of your guidance. And the fact that you even called out the UHC was ahead of your own expectations in the fourth quarter. So why aren't there other changes to guidance going forward? Or does that imply that you're more comfortable at the top-end of the range now or were there some negative things that we should be thinking about that came into play during the quarter?

Well, Peter I think really what it's reflective of is we're maybe 45 days from the time that we had our investor conference and first led out the depth of our initial guidance. Overall, we're quite pleased with the performance of the company and how it's advanced to the balance of 2017 and how it's established itself nicely for 2018 and beyond. At this instance, we didn't think it was appropriate or necessary to reflect any additional guidance changes based upon the core performance of the business. Let us get through a quarter or two here and we'll reevaluate what our expectations are for 2018.

And what was the prior period development in the fourth quarter, if you don't mind?

I think it was $200 million.

So thank you Peter. To wrap up, in 2017, UnitedHealth Group, Optum and UnitedHealthcare delivered quality products and services, practical innovation, a better consumer experience and increasing customer satisfaction. Financial performance was strong, marked first and foremost by distinguished and diversified growth, meeting or exceeding our outlook by virtually every measure, including revenue, cash flows and earnings. We have carried this momentum into 2018 and expect to continue to improve quality and MPS scores and build greater trust and loyalty, enabling continued growth for many years to come. Thank you for your interest today.

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