FOOL CONFERENCE CALL SYNOPSIS*
By Debora Tidwell (MF Debit)

United Healthcare <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UNH)") else Response.Write("(NYSE: UNH)") end if %>
9900 Bren Road East
P.O. Box 1459
Minneapolis, MN 55440-1459
(612) 936-1300

UNION CITY, Ca., November 8, 1996/FOOLWIRE/ --- United Healthcare released third quarter 1996 results this morning. They are pleased to report that United Healthcare had sequential improvement in net earnings, an achievement they anticipated at the time of their second quarter release in July. Furthermore, positive trends have been established with ongoing record same store enrollment, improved premium to medical care cost relationships, and continued improvement in administrative efficiency. These cost reductions have occurred while working and spending to further improve customer service as well as awareness of United Healthcare among customers.

Revenues rose to $2.587 billion, a dramatic 112.9% increase over a year ago. This increase includes the revenue gains from the acquisition of PHP of North Carolina, Healthwise of America, and MetraHealth, so to do a better view they should probably make the comparison of sequential revenue gain between the second and third quarters without these acquisitions. In that regard, total revenue rose a very significant $95 million. Of that, investment income was essentially flat, premium revenue rose $104 million, and fees fell about $8 million. The significant increase in premium was a result of strong ongoing new sales and increased pricing to renewing business.

In a second key point, earnings from operations were $149,399,000. That is a 53.3% sequential increase over the second quarter of this year. The second quarter included the loss provision for St. Louis and their Healthwise acquisition charge. If they adjust out for that, the sequential increase in operating earnings was a very healthy 4.9% between the two quarters. Positive contributions to operating earnings came from all major lines of business. Net income to common shareholders was $84,039,000, reflecting a payout of $7,188,000 in preferred dividends and a tax rate of 39%. This produced the earnings per share of $0.45 on a fully diluted basis which included a share base that has increased some 473,000 shares over the second quarter.

RECORD SALES GROWTH. They again experienced record sales growth that was strong across all segments of their managed care services. Some of the major components included total enrollment in health plans which reached 4,641,000 individuals, same store enrollment increases for health plans totalling 976,600 which was a 29.1% increase over last year's third quarter. Again, this was on a same store basis without considering interim acquisitions. Third quarter health plan enrollment increased 330,800 which was a record and was also a very strong 8.26% gain sequentially from the second quarter. Growth in specific health plan customer segments was as follows: commercial was up 742,200, an increase of 25.7% on a same store basis over a year ago. They added 180,800 new members in this segment in the third quarter alone. Medicare increased 58,600, a 42.7% gain year-to-year on a same store basis and a sequential quarterly increase of 17,500. This was their largest quarterly gain to date and continues the increasing trend since their focused efforts in this segment began. Medicaid grew 175,800 or 53.2% year to year on a same store basis. This was largely due to the addition of 125,000 lives in a Puerto Rico contract effective September 1st. As an aside, their health plan same store growth was 25.1% excluding those Medicaid gains, again a record.

OTHER ASPECTS OF SALES AND OVERALL BUSINESS TRENDS warrant comment. The network based segment outside of their health plans increased this quarter on a sequential basis from the last quarter. This reflects, they believe, an ongoing move among customers to move from traditional indemnity products to the so-called "managed care" programs. This is further reflected in the decline of the indemnity segment numbers which they see reflecting this trend as well as normal previously expected attrition.

ANOTHER KEY AREA IS PRICING. They had renewal pricing quotes for health plan products averaging 4-5% increases through the third quarter. Actual realized yields appear to be up over 4% when they average all health plan markets. This is a positive indicator to them especially when they review the overall sales results at this time. Future pricing is building on this direction. Pricing for renewing indemnity insured business, most notably small group, continues to be much higher than that for health plans. In the aggregate, increases in the 15-20% range remain the norm.

MEDICAL COST TRENDS are another important and closely followed area. The medical care expense ratio improved by 40 basis points to 84.4% in the third quarter versus the 84.8% in the second quarter. This is still a small but meaningful gain over the prior three months. Overall, at the current time they have not seen evidence of any further medical cost increases beyond a 3-4% trend they reported in the second quarter. They have local operations with cost trends that are above what they believe are appropriate for their customers and these are being addressed appropriately, fully, and with dispatch. The return from these efforts will not be fully realized in one or even two quarters, but incremental improvement will occur. They remain focused on continuing to find ways to optimize the delivery of needed and high quality care at the appropriate price.

THE COMPONENTS OF MEDICAL EXPENSE remain relatively unchanged. With the outpatient service and prescription drug cost demanding the most focus relative to balancing appropriateness and cost. They are now targeting unit cost and utilization trends on specific drugs as well as distribution costs and efforts to decrease overall prescription drug cost trends in 1997. In another major area, they inpatient hospital costs, they think gains will be regional and somewhat spotty in light of the very excellent numbers achieved in several markets already.

THE LAST MAJOR EXPENSE AREA IS SG&A. Significant and continuing gains have been made here with overall spending up only $6 million against revenue gains around $95 million. Also enlightening in this regard is the fact that the SG&A numbers include specific incremental expense increases of over $6 million in the third quarter that were absent in the second quarter. These are associated with their national brand awareness efforts. While these costs will also be present in the fourth quarter, they have currently not finalized expenditure levels in this area for 1997.

SPECIALTY COMPANIES. One area that is not broken out but worth mentioning are their so-called specialty companies. They, as a group, are having an excellent year, with significant increases in people served, revenue, and operating earnings. Perhaps most dramatic are behavioral health programs and the so-called demand management areas. These include United Behavioral Systems and OPTUM respectively. Both are serving their customers increasingly well and are being rewarded with strong sales and revenue gains. Coupled with continued excellent results in their Centers of Excellence program, their employee services area, and some of the public sector and information company results, they have a very unique and successful set of internal resources that represent value in several formats, both for United's larger business efforts as well as external entities. They continue to focus on optimizing these businesses relative to their services, their position, and their end results.

IMPORTANT BALANCE SHEET POINTS. Medical payables increased about $115 million from the end of the second quarter to the end of the third quarter. Comments in that regard is that they remain conservative on their payables recording methodology and that this increase was a result of several things including increased level of enrollment occuring in the quarter, normal timing of check writes and the release of those check writes during the quarter, and normal buildup of claims on some sites that are doing system conversions. Their total cash and cash investment balances now stand at a little over $3.3 billion, almost $18 per share. Cash increased a total of $185 million from the second quarter. This strong $185 million increase for the quarter is after the $100 million payment they made during the quarter as the final payment to the former owners of MetraHealth on their 1995 earn out. Finally, their balance sheet remains relatively debt free and shareholder's equity is over $3.7 billion at the end of the quarter or almost $20 per share of equity.

PRODUCT INITIATIVES. MEDICARE. Their increased focus in serving seniors has been underway for more than one year now and the results are very positive. Their incremental membership gain of 17,500 in the quarter is the largest quarterly increase to date. They are now offering a health plan product in 17 sites and this membership increase reflects gains in both the 8 markets they were serving last year at this time as well as those that are new since that point. Their current expectation is for Medicare health plan enrollment to be up over 220,000 the first part of 1997, a significant gain of about 50% from the same period a year ago.

SENIORS. They continue to invest in new markets and hope to have 33 health plans offering a program for seniors by mid 1997. Growth in individuals served is expected to continue along their very positive trend and they have an internal target of over 400,000 enrollees by the end of 1997. Delays that hit customer sentiments about these programs can obviously impact their success, but they believe the products that are good ones and considerable growth can and should be realized. Their aggregate 1997 AAPCC increase for existing markets is around 6.2%. Their work with AARP is part of their commitment of helping with the healthcare needs of seniors. They are in the contract negotiating phase with them and both parties remain positive about the pending relationship. The contract should be resolved this year with implementation currently planned for January 1, 1998 (no change from the past). They are very excited about the opportunities presented by this relationship and the chance to further serve the healthcare needs of seniors as well as non-Medicare eligible retirees.

COMMERCIAL ACCOUNTS. On the commercial account side, new sales are obviously very strong. They continue to expect excellent growth in 1997 with new sales and migration from traditional indemnity or administrative only service programs to their network based products also making contributions. There are clear indications of this trend in their business through 9 months. Examples include the following. Sales gains have been made among both single-site and multi-site employers. They had new sales to over 1400 groups in the 50 employee or larger segment of the business during the first 9 months of 1996 with single site clients outnumbering the multi-site by about 2 to 1. The insured health plan point of service type products were utilized by virtually all single-site groups and by 2/3 of the multi-site groups. The take-away messages to them include both the strong results to date in their product approaches and the tremendous growth opportunity that is still out there.

THE METRAHEALTH ACQUISITION. While the MetraHealth acquisition was never premised on the conversion of indemnity lives to managed care programs, some conversion is occurring. To-date, 1675 groups representing about 69,000 members have moved from indemnity or PPO products into their health plan or point of service programs in the first nine months of this year. This trend has increased in the third quarter, most likely due to their own movement up the learning curve plus the progress they have made in being able to offer their health plan products to these clients. Migration to these health plan related programs is now at about a 15% rate for groups and a 9% rate for members who are in the indemnity PPO block of business.

ASO ACCOUNTS. They are also seeing early indicators of ASO type account movement to insured products. While this is somewhat smaller than the prior category, some 13,000 members came through this type of migration. Finally, informaiton on cancellations may be of interest. When considering groups of over 50 eligibles they have had remarkably few cancellations year to date, in fact around 2% in this segment. Of these, 60% gave price as the reason for cancelling. Nothing else really came close as a factor. This leaves them the impression that their products and services have strong value beyond simple price in the minds of purchasers which is an important concept for them and one that they believe underlies their continued strong enrollment gains and the ongoing potential.

PRODUCT PRICING. Another area of intention and focus in the future is product pricing. The average of their renewal quotes for January 1997 is above 5%. This covers over 40% of their health plan business overall. Rates being quote for months beyond January build on this 5% range. It is expected that some accounts will leave based on their prior quotes but this is a case by case process that they think is appropriate and they think fair for all their clients. It is also one that has existed in the past. They cannot yet say what the final yields will be or what the net impact from these rates on membership will be but they remain optimistic about the premium yield and obviously their ongoing growth.

MEDICAL COST. They continue to focus on medical cost. Their efforst remain on helping members get necessary care consistent with their benefits at the appropriate place, the appropriate time, and at the appropriate price. Inpatient costs continue to move lower at a number of sites, but certainly not all sites. The major focus is in areas like emergency room, specialized care units, chronic disease processes, and certain prescription drug areas. They believe opportunities continue to improve on past trends and the decline in the underlying medical cost trend from 3-4% noted in the second quarter is certainly possible as they move into 1997.

* A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. Note: Statements made by a company other than historical information may constitute forward-looking statements for which the company can claim protection under the Safe Harbor Act. Please consult the company's filings with the SEC for information on risk factors which might cause actual results to differ materially from the information contained in these forward-looking statements.