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Executives

David S. Wichmann - Chief Financial Officer, President of Operations and Executive Vice President

Stephen J. Hemsley - Chief Executive Officer and Executive Director

Jack Larsen - CFO, Public and Senior Sector Group

Gail K. Boudreaux - Executive Vice President and Chief Executive Officer of United Healthcare

Jeff Alter - Chief Executive of UnitedHealthcare Employer & Individual Business

Dan Schumacher - CFO, UnitedHealthcare

Tom Paul - COO

William A. Munsell - Executive Vice President

Analysts

Michael J. Baker - Raymond James & Associates, Inc., Research Division

Carl R. McDonald - Citigroup Inc, Research Division

Charles Andrew Boorady - Crédit Suisse AG, Research Division

Kevin M. Fischbeck - BofA Merrill Lynch, Research Division

Peter H. Costa - Wells Fargo Securities, LLC, Research Division

Matthew Borsch - Goldman Sachs Group Inc., Research Division

Doug Simpson - Morgan Stanley, Research Division

Christine Arnold - Cowen and Company, LLC, Research Division

Justin Lake - UBS Investment Bank, Research Division

Scott J Fidel - Deutsche Bank AG, Research Division

Sheryl R. Skolnick - CRT Capital Group LLC, Research Division

Joshua R. Raskin - Barclays Capital, Research Division

Sarah James - Wedbush Securities Inc., Research Division

Ana Gupte - Sanford C. Bernstein & Co., LLC., Research Division

John F. Rex - JP Morgan Chase & Co, Research Division

Unitedhealth Group (UNH) Q3 2011 Earnings Call October 18, 2011 8:45 AM ET

Operator

Good morning. I will be your conference facilitator today. Welcome to the UnitedHealth Group Third Quarter 2011 Earnings Conference Call. [Operator Instructions] 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 amount. A reconciliation of the non-GAAP to GAAP amount is available on the Financial Reports and SEC Filings section of the company's Investors page at www.unitedhealthgroup.com.

Information presented on this call is contained in the earnings release we issued this morning and in our Form 8-K dated October 18, 2011, which may be accessed from the Investors page of the company's website.

I would now like to turn the conference over to the President and Chief Executive Officer of UnitedHealth Group, Stephen Hemsley

Stephen J. Hemsley

Good morning, and thank you for joining us to review third quarter results. We will begin with some general third quarter highlights, and then turn to a more detailed review of UnitedHealthcare and Optum's progress and growth. As we conclude, we will offer our view of the overall economic and healthcare environment and our positioning as we head into 2012, which we will detail further at our November 29 Investor Conference, when we will review our 2012 performance outlook with you, as we did last year.

UnitedHealth Group earned $1.17 per share in the third quarter. Our results show consistent growth and continued strong, broad-based execution across the enterprise. People are purchasing more of our offerings, and we are doing a strong job delivering ever-improving value and service to them. Deeper and more diverse relationships across many aspects of healthcare, consistent fundamental execution, practical innovation and our diversified offerings are increasingly important to driving top line growth.

The pace of change in healthcare is accelerating, and people are looking for strong partners who can deliver comprehensive solutions to the challenges they face. Our consistent and strong third quarter financial performance was driven by organic growth, careful cost management and continued moderate trends in the level of care utilization, along with the benefits of our broader diversification of offerings to the market.

We have increased our 2011 earnings outlook to a range of $4.40 to $4.45 per share on revenues exceeding $101 billion. Let's review some of the details supporting these results. Third quarter revenues increased 7% to more than $25 billion, with revenues growing 6% at UnitedHealthcare and 22% for the Optum businesses. The third quarter operating margin of 8.2% was stronger than expected and generally in line with the level reported for the first half of 2011.

The third quarter margin decreased year-over-year, primarily due to an increase in the medical care ratio, which was caused by premium rate obligations -- rebate obligations, $30 million less favorable reserve development and modestly higher medical utilization trends as compared to 2010.

The operating cost ratio increased 40 basis points year-over-year to 15.4%, driven by the growing mix of service and fee revenues. This mix impact was partially offset by consistent productivity improvements across our businesses. UnitedHealthcare, for example, has improved its operating cost ratio on a year-over-year basis each quarter this year despite the significant cost for reform readiness and increasing regulatory compliance purposes. In total, third quarter net earnings of $1.17 per share improved from $1.14 per share in 2010 and were again supported by strong adjusted cash flows from operations of $2.6 billion.

Now let's review how these results were driven across our complementary business platforms. UnitedHealthcare's strong growth performance has been distinctive in the market. We have increased enrollment in every major product category every quarter for more than a year. The number of people UnitedHealthcare serves with medical benefits has increased by more than 1.4 million so far this year, including 220,000 more people served in the third quarter. This is on top of adding nearly 1 million people in 2010.

Third quarter 2011 growth was led by the Employer & individual business, which grew by 100,000 people, half in fee-based benefits and the other half in risk-based benefit products. This brought growth for Employer & Individual to nearly 1 million people over the past 9 months and 1.1 million people year-over-year.

UnitedHealthcare Community & State and the UnitedHealthcare Medicare & Retirement both had strong growth as well. These businesses increased by 120,000 people this quarter and 435,000 people in the past 9 months, plus another 300,000 people in stand-alone Part D plan so far this year.

Medicare Advantage sales have been strong all year. We added another 30,000 seniors this quarter bringing the year-to-date net increase to 145,000. UnitedHealthcare's consistently the choice for the largest share of newly eligible beneficiaries who choose private Medicare plans.

Our Medicaid business grew by 55,000 people in the quarter, bringing year-to-date growth to 165,000. Community & State was recently awarded new business in Texas and Louisiana for 2012, and we estimate will allow us to serve as many as 250,000 more people in those states. These awards illustrate the larger-scale Medicaid opportunity, as states continue the decade-long trend of moving the greater portion of our nation's Medicaid population into the benefits of coordinated care programs.

Overall, medical cost trends remain moderated across the benefits businesses compared to historical levels. Unit costs continue to be the most significant trend driver, particularly in inpatient settings. We're starting to see some evidence of increased utilization in physician and outpatient settings albeit considerably less than what we expected when we entered 2011.

Hospital days per thousand continued to be lower year-over-year in part due to our targeted efforts to improve care and manage these costs appropriately. Our consolidated care ratio of 80.7% increased 60 basis points from last year's third quarter, as the commercial medical care ratio increased 110 basis points year-over-year.

In summary, diversified growth continues across our Health Benefits businesses. UnitedHealthcare's earnings from operations of $1.75 billion decreased only $85 million year-over-year as new premium rebate obligations, lower earnings for Medicaid rate pressure and lower favorable reserve development levels were offset in part by strong organic growth, effective product positioning and strong, persistent cost management. 2011 earnings are well ahead of our original forecast for the year.

Optum continued its strong performance this quarter, with revenues increasing 22% year-over-year to $7.2 billion. Growth was again driven by both organic expansion and acquisitions that support our efforts for engaging and enabling the healthcare system to perform better for all stakeholders.

OptumHealth's third quarter revenue increased by $1.7 billion, a $577 million increase year-over-year, driven by added capabilities and market expansions in services for payers in the military and the clinical care community.

OptumHealth total consumers served increased by 1 million people this quarter and nearly 3 million over the past year as OptumHealth's earnings from operations grew 12% to $115 million. For full year 2011, OptumHealth is tracking to outperform its original revenue and earnings expectations with operating margins in the range of 6% to 6.5%.

OptumInsight's revenues of $625 million increased 6% year-over-year after absorbing the impact from the divestiture of our clinical trial services business. OptumInsight's earnings from operations of $91 million in the quarter increased 30% year-over-year. OptumInsight had a strong third quarter sales performance with momentum across all 4 of its markets: payer, provider, government and life sciences. Again, adjusting for the divestiture of the clinical trials business, OptumInsight's sales bookings grew 32%, and contract revenue backlog increased 22% year-over-year.

These figures reflect the strong continued momentum in this business. We are committed to excellence and execution and are pacing our growth to ensure we deliver at the highest levels of client service. And evidence suggests it's working. The number of clients willing to recommend OptumInsight doubled over the past year.

OptumRx increased revenues by 17% to $4.9 billion in the quarter. PBM revenue growth reflects a substantive increase of nearly 2 million people served through internal and external channels and the growing mix of higher-revenue specialty pharmaceuticals. As expected, OptumRx earnings from operations decreased due to investments to support future growth prospects, including its service to the UnitedHealthcare Commercial business.

In summary, Optum's 22% revenue growth and combined earnings from operations of $320 million in the quarter reflect increasing market demand and uptake for its differentiated service offerings. We believe these well-positioned businesses will deliver meaningful value across the healthcare system and exceptional growth for years to come.

As we stated at the outset, we are raising our full year outlook. We now expect full year earnings to be in the range of $4.40 to $4.45 per share, which will represent growth of roughly 8% over 2010 results. This forecast includes the meaningful burden of investments to comply with extensive new regulations, premium rebate obligations for the health benefit customers, some modest increases in healthcare utilization trend and intense preparation for the full in-sourcing of our commercial pharmacy benefits.

Full year 2011 cash flows from operations are expected to be approximately $6.2 billion, and we are on pace to repurchase more than $2.5 billion in shares.

Beyond this year, healthcare continues to offer compelling growth opportunities, and we strengthened our position and capacities to offer ever-improving value to participants. We are strengthening our ability to respond to those opportunities by continuing to advance performance on many fronts. We continue to build on our reputation and brands. We continue to be active and engaged at both federal and state policy levels.

Inside the company, we are strengthening our employee engagements and our commitment to a united culture of integrity, compassion, innovation, relationships and performance. And these efforts are driving better and more consistent value to those we serve.

In innovation, we join past winners, Apple, BMW and Pepsi in receiving the unique and prestigious award for the Product Development and Management Association. We are only 1 of 2 companies recognized this year for sustaining value-added business performance from innovation for more than 5 years.

Our most recent innovation example would be the launch of our HI, health innovation, hearing device business this month. We will be offering effective hearing-assistance devices that are less costly than traditional alternatives, along with a broadly available hearing test. The devices will be available through several channels, including at attractive discounts through many of our 2012 UnitedHealthcare Medicare Advantage benefit plans.

In pharmacy benefits, we are focused on advancing a fully capable, fully scale platform to bring customers an innovative and differentiated value proposition around integrated cost and total quality management. We are advancing a consumer-focused agenda with a growing portfolio of leading mobile applications, consumer transparency tools and consumer financial analytics that link retirement and healthcare financial needs that's part of a long-term financial plan.

The energy invested in these efforts, and more like them, is important to our long-term position, performance and customer value. It must be paired with strong execution for what we expect will be an even more challenging environment in 2012.

For 2012, we expect unemployment to remain high, and the rate of new business formation will be low, extending the pressure on employment levels and overall growth in the Commercial Benefits business. We do expect to continue our very positive momentum in the fee-based national employer market segment for 2012.

In the risk-based market segment, we have seen some pockets of greater price competition. This is not unexpected, given the premium rebate regulations and recent lower cost trends. We have not seen action among competitors that imply an intention to broadly discharge reserves. We will maintain our pricing discipline and consistency and expect increased local competition will pressure our membership growth rates in commercial risk offerings in 2012.

We project medical utilization will trend toward more normal historical and seasonal levels in the fourth quarter 2011 and into 2012. We have realized strong, favorable prior year reserve development this year, which we believe is unlikely to be sustained in 2012. Importantly, if commercial reserve development recurs next year, it will be fully considered in premium rebate calculations, just as in-year development was this year.

For these reasons, we expect the consolidated medical care ratio to continue to trend up year-over-year in the fourth quarter of 2011 and into 2012.

We entered the MA marketing season with strong offerings for 2012 to emphasize value, benefit stability, great service and with a proven sales organization. So we expect continued strong Medicare Advantage growth next year.

In Part D, we expect to lose 450,000 to 550,000 low income, subsidized auto-assign members in 19 markets, where our bids were above the benchmark. This will impact revenues, and to a lesser extent, operating earnings for UnitedHealthcare and OptumRx. Part D bidding approach continues to focus on sustaining high-quality broad-access programs that meet the needs of the market. Our bids were similarly above the benchmarks for low-income beneficiaries in most regions in 2008, and we foresee price-driven business such as this moving back and forth among auction participants over time, and we remain committed to our broader, longer-term oriented market approach.

Premium rate increases for government-sponsored benefit programs are expected to remain low and operating costs in 2012 will continue to reflect investments in compliance and reform readiness as we continue to respond to added administrative requirements from the health reform law and ICD-10.

At OptumRx, we expect increased investments in service and operations, personnel and anticipation of the repatriation of our UnitedHealthcare Commercial business during 2013.

For 2012, OptumHealth expects strong top line revenue and earnings performance to be driven by an increase in clinical services, new military offerings and expansion more deeply into consumer services. Our 2012 cash flows from operations will need to absorb the cash flow impact of the initial premium rate -- rebate payments. And lastly, we expect to increase in the corporate tax rate for 2012 to around 36%.

Considering these pressures, achieving an earnings per share advance, as we expect in 2012, will require diversified growth in both the Services and Benefits businesses, excellent operating and medical cost control and the effective use of capital. These are fundamental execution elements in our business -- of our business, where we have great strength and will continue to concentrate.

Strong fundamental execution in these areas will be key to earnings growth in the years that follow. We see significant opportunities stemming from bringing our resources to serve the healthcare needs of many different people, those with lower incomes, the exponentially growing numbers of seniors, dual eligibles, the uninsured through Medicaid and exchanges and the military. We believe the PBM market opportunity and the broad and growing demand for services and technologies that help the components of healthcare to better connect, better operate and perform as a more integrated system will be sizable.

To recap, we believe our long-term growth prospects are excellent. We're optimistic about our prospects for sustained multi-year earnings growth, driven by diversified revenue expansion and strong consistent execution on cost control. We are realistic about the challenging current market environment and the challenging earning comparisons we will face in 2012. We will incorporate this cautious view when we provide our outlook for next year at our Investor Conference on November 29, and we hope many of you will join us at this event.

We're interested in your questions this morning. As usual, there will be 1 question per person, so we can speak with as many of you as possible. And I will turn this call back to our moderator for your questions. And again, thank you for joining us today.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Scott Fidel with Deutsche Bank.

Scott J Fidel - Deutsche Bank AG, Research Division

I was hoping to get the Washington update from you, and maybe just hone in on the super committee and talk about some of the key issues that you may be monitoring there? And how much risk, if any, you see from those potential proposals for the business.

Stephen J. Hemsley

Yes, Scott. And I think monitoring is the correct term. We certainly have been positively engaged in a dialogue at both federal and state levels over the last couple of years and continue to advance an agenda of a more modern healthcare system, opportunities that we think that can change the cost trajectory for important government programs, things of that nature. But I think it would be inappropriate for us to actually comment about the processes that we really are not directly involved in and are monitoring just as you might be, both at the committee level and if there is subsequent alternative in sequestration, if I could ever say that word correctly. So I don't think we're going to comment on that, other than to suggest that we're monitoring it, as I'm sure you all are. A lot of the materials and activities that we have been engaged in and continue to be engaged in, we're hoping are considered in recognizing these processes. But I don't think we can comment further beyond that.

Scott J Fidel - Deutsche Bank AG, Research Division

Okay. Steve, maybe just thinking about framing sort of the overall scope of this. When we compare it just to the whole health reform process that we just went through, how would you compare, I guess, sort of the potential impact or just extent of the issues they're talking about relative to the broader healthcare reform process that the industry just went through?

Stephen J. Hemsley

I'm not sure it really compares on that level. And there's a much wider range of activities that can be pursued, particularly, as it relates to principally the government programs and so forth. So I'm not sure that those 2 are really comparable. I would say though that perhaps similar to reform, I think anything that goes -- goes forward has to be shaped to effectively translate to the realities of local markets and the environment that we're dealing with today. And so at some point in time, whatever comes forward has to get translated at a practical executional level, and I think that's always a challenge. I really don't think these processes other than that common thread are necessarily comparable. Cory Alexander, do you have any other observations on that? The answer is no.

Operator

Your next question comes from the line of Charles Boorady with Crédit Suisse.

Charles Andrew Boorady - Crédit Suisse AG, Research Division

Trying to figure out how to jam multiple questions into one here. But, basically, Steve, I want to make sure I'm interpreting...

Stephen J. Hemsley

Yes. We're onto you on this one. Yes, so...

Charles Andrew Boorady - Crédit Suisse AG, Research Division

I just want to make sure I'm interpreting your cautionary comments on 2012, as every year this year, you tend to be pretty conservative and cautionary on the following year. But am I right in interpreting that your EPS growth may fall below your long-term average target of 13% to 16% a year? And if so, can you just bullet for us what the most important headwinds and tailwinds are for you going into 2012?

Stephen J. Hemsley

Yes. Well I think we did a pretty strong job of delineating the headwinds if you like me to go through those. And they are considerable, and that's why we are being cautious, with respect to our outlook. We were not, in this year, near that long-term growth range. And I don't think the environment has changed dramatically there. So we're also not giving guidance or direction today. We will do that at the Investor Conference, so I will stay away from that as will my colleagues through the course of the morning. The challenges are considerable. And it is a difficult environment. It is both on a broad economic level and in the healthcare domain, when you consider the number of factors that we're engaged in. We have operated effectively through that environment in the last couple of years, and we are poised to continue that and to double down on our efforts on that basis. But I think caution is the appropriate tone to set at this stage in the environment, both on the broad economic plane and in the healthcare domain. You -- I mean, you are as versed on these issues as we are. From a positives, we have a lot of growth opportunities, and we're, I think, a much stronger, and more capable organization today and more diverse in our offerings, in our reach into the marketplace. And we intend to pursue those things aggressively. I think we have opportunities to improve our performance as we do each year, and I'll ask if my colleagues want to add anything to that. No participants on that...

Charles Andrew Boorady - Crédit Suisse AG, Research Division

So the big tailwinds that you mentioned, Steve, the non-risk enrollment growth -- you've got the Texas and Louisiana Medicaid. And I imagine, the CMS comments around 10% Medicare Advantage growth next year for the industry wouldn't be achievable, if you weren't growing your enrollment around at that level as well. Are there any other tailwinds to talk about for next year that could move the needle?

Stephen J. Hemsley

We have strong national performance business. We have had a growing pipeline of productivity and innovation and integration benefits that we have been pursuing. And we are really kind of institutionalized in terms of pursuing and capturing those each year. So I think there is a lot of things about our organization. I would say our reputation and our persistency in the marketplace, our ability to hold on to business even in challenging conditions is much, much stronger than it has been in the last few years. And I think a lot of that has translated into kind of performance. We meaningfully outperformed in 2011 compared to what our expectations were going in. And while I think that, that will be a challenge in 2012, given a number of headwinds, that's certainly our goal.

Operator

Your next question comes from the line of Carl McDonald with Citigroup.

Carl R. McDonald - Citigroup Inc, Research Division

Do you think your commercial risk margins will be up or down in 2012? It sounds like you thought pricing, at least in pockets, was getting more aggressive. You talked about your assumption that the cost trends would be up next year. So when you put those 2 together, where do we end up from a margin perspective?

Stephen J. Hemsley

Well, again, we're not going to be answering details with respect to 2012 guidance. I really am not interested in piecemealing this. We will respond kind of thematically to what we see in terms of pressures in the commercial marketplace. Gail?

Gail K. Boudreaux

Sure. Let me frame sort of the comment, as Steve said, we're not going to comment on 2012 margins at this stage. But part of your question was around what's happening in the commercial risk-based business. And I guess, I'll touch on and follow up on the comments Steve made around pricing in the marketplace and the competitiveness. We are seeing a more competitive marketplace, but I think what's important to note is that this isn't an across-the-board change. It really is in selected markets. And I'll give you a few examples. For example, the California market where we're seeing some segments of that marketplace being much more competitive with a few specific competitors, as well as in some pockets in the Northeast and mid-Atlantic, which are more segment or customer-based type of situation. From our perspective, we've stayed very disciplined in our pricing. As we have historically talked about over the last several years, our fundamental process hasn't changed, and we do expect that to pressure our 2012 financial growth somewhat. The guide grills around this, which I think makes this a little bit different than what's happened in past years is that many of the competitors are dealing with reform implications, rate review and still have to make investments. So that's why we see this as specific to certain markets and not a real broad-base change, but still some increasing pressure.

Operator

Your next question comes from the line of John Rex with JPMorgan.

John F. Rex - JP Morgan Chase & Co, Research Division

I just want to make sure I'm kind of based correctly on how you view the '11, so the jumping off point. Do I think of your '11 kind of the clean -- kind of think of a clean run rate as the x Penn Treaty, when I think about kind of where were jumping off from? Or do you incorporate saying kind of that would be offset by lower development, rebates or anything else like that?

Stephen J. Hemsley

I think, I'm going to let Dave respond to this a bit, but I think that it is -- you should be careful about just taking run rates and running them into next year, I think, each year. And that's why the pretty impressive list of challenges needs to be considered. I'll use the premium rebate as just one example. The reserve development this year -- for prior years was not affected by the rebate calculations. Next year, all reserve development to the extent it exists will be affected. So those kinds of things really kind of throw that kind of run-in modeling off a little bit. Dave?

David S. Wichmann

Steve, I'm not sure I have a whole lot more to add more to that. John, you picked off, I think, the 2 important features. One is we do have Penn Treaty still forecast in the fourth quarter, and as indicated in the past, that's in the $0.12 to $0.15 range. And then we do have substantive prior year development in 2011, which will not recur in 2012. And as Steve had indicated, to the extent that it does, a good chunk of that will be given back to the market. So that, I would characterize as being the most substantive, besides the list of headwinds and tailwinds that Steve articulated in his opening comments.

John F. Rex - JP Morgan Chase & Co, Research Division

So when you're talking, you were talking to EPS growth for '12 -- you're basing yourself on the GAAP guidance of $4.44 to $4.45 not the $4.55 to $4.60. Is that fair to say?

David S. Wichmann

Yes, I think that's fair to say.

John F. Rex - JP Morgan Chase & Co, Research Division

And then just the color, again, '11 -- so coming off year '11 with the trend having run lower, and as you've approached '12 from a pricing perspective, how much -- so you approach it with a view that trend is going to reaccelerate appropriately. Can you give us kind of an order of magnitude, how much would trend have to reaccelerate to where it was kind of just matching the expectations you built into that forward -- the forward pricing?

Stephen J. Hemsley

I don't think we can offer that kind of precision. And I think it might be -- it can somewhat -- inappropriate to talk about our pricing at that level in a forum like this, John. So I would offer it -- and I'll let Gail kind of correct me on this if I get this wrong -- I'm going to offer it that we, basically, look at the current state, and then assess that the more moderate levels of utilization perhaps would not be sustained that we would go back to more historic levels off our current baseline. And that's the kind of approaches we might take broadly. And we're not trying to sit back and say we're catching up on 3 years or something like that. Gail?

Gail K. Boudreaux

The only thing I'd add to Steve's comments, John, are that terms of the fundamental approach, it's stayed the same. And remember, we're pricing to a long-term medical loss ratio and across 350 different intersections, so they have -- we look at the geography, the product and trying to make sure that we are projecting appropriately our forward view of those costs in that pricing. So there is a number of things other than a straight-line assumption on just the trend that go into the factors on our pricing across our markets and our segments as well. So it's a little bit more broad than what -- is just assessment of a broad-based national trend.

Operator

Your next question comes from the line of Josh Raskin with Barclays.

Joshua R. Raskin - Barclays Capital, Research Division

I was wondering if we could just drill into what exactly the message is on the commercial cost trends. I think, Steve, you were saying that you're continuing to see moderated levels relative to, I guess, historical norms, but now you're starting to see a slight uptick. So maybe just what exactly is the message there? Are you starting to see what you would consider normal trends, or are we still sort of well below that? And then from your best information, what's causing that increase on both the inpatient and the physician side? And again, I just want to make sure it's -- this is just commercial. You haven't seen anything in Medicare or Medicaid?

Stephen J. Hemsley

Well, I'm going to let Dan respond to this, but I think we're going to respond across the expanse of the Benefits business. I would say that I think, we have seen higher levels across all of 2011 compared to 2010. And then Dan, you want to pick it up?

Dan Schumacher

Sure, good morning, Josh. As always, I need to start with the reminder around the composition of our trend. Our trend is -- unit cost is by far the largest driver in our underlying trend, so utilization is a much smaller component. So with that said, I think what we're seeing in utilization is really an extension of themes from last quarter. So our utilization trend in 2011 is up over 2010, and that's true in commercial Medicare and Medicaid. It's still below historical norms, but I would tell you that Medicare and Medicaid are closer to historical norms. As we look at the composition of that increase, it's really a blend of a couple of factors. The first is really the low comparison period in 2011, in particular, in the third quarter where it was very low in 2010, which will also be true in the fourth quarter, because the fourth quarter of '10 was very low. We're also seeing increased consumption levels, and that consumption is going up and in the outpatient and physician categories, most notably. And on the inpatient side, we continue to see a more restrained utilization, so that's still trending flat to slightly down, and that's true across, again, commercial Medicare and Medicaid. The other item that's impacting our trend is also the increase in our treatment costs for Hepatitis C, with the introduction of 2 new pharmaceuticals in the month of May. As we think about the full year guidance from a commercial cost trend standpoint, we expect that now to be slightly below 6% on the full year. And similarly, we have updated our medical loss ratio guidance to around 81% on the Commercial business as well for 2011.

Joshua R. Raskin - Barclays Capital, Research Division

Okay. Just so I get this straight, it sounds like now the cost trend for the full year is actually a little bit lower than what you said last quarter. But last quarter, you didn't mention any -- even a moderate increase in utilization. So I guess, I'm just confused. Is -- are cost trends relative to what you saw 90 days ago? Are they higher now than what you were seeing? Or is this continuing to run below expectations, but maybe not as much below expectations?

Dan Schumacher

So I think what I shared last quarter is that we did see an increase in our utilization trend on a year-over-year basis. And we did see a further increase in that sequentially, at albeit a little bit lower than what we had expected.

Stephen J. Hemsley

So if I were to kind of summarize, 2010 was quite an extraordinarily low year. 2011 is running slightly higher than that and pretty much across the board. And we are seeing some elevation, not so much in the inpatient settings but in the other settings, and that we're still off what might be historic norms. But we're seeing some trend pickup, right? And I think that's pretty consistent with the way we've seen it all through the year. So I don't know if we're signaling anything particularly new here.

Operator

Your next question comes from the line of Kevin Fischbeck with Bank of America Merrill Lynch.

Kevin M. Fischbeck - BofA Merrill Lynch, Research Division

I was wondering if you could provide a little bit more details around the bringing back the rest of the PBM. Any thoughts about how much incremental spend there is next year? And then how we think about normalized margins on that business overtime?

Stephen J. Hemsley

Yes. I think, at this -- I think Bill Munsell can respond to this, I think, pretty effectively. Bill, you want to take this?

William A. Munsell

As I try and answer this question, let me provide a little context in doing that. And I'd like to start off from the standpoint. And we've talked about this several times in the past in this forum and others like it. But we've enjoyed a unique relationship with Medco. In that relationship, UnitedHealth Group has retained the responsibility for all of its benefit designs, its formulary management, its rebate contracting and its retail pharmacy network contracting. On the other hand, Medco adjudicates and pays our retail pharmacy claims and provides home delivery service to our customers. So in essence, Medco has provided us an array of administrative services to what is really a very well-established pharmacy function within UnitedHealth Group. As Steve mentioned in his prepared remarks, we are investing in OptumRx to enhance its information systems and technology and to increase its scalability. We're also integrating some of the capabilities of our sister companies, such as OptumHealth's eSync platform, which helps combine medical and pharmacy data and OptumInsight's data analytics and predictive modeling tools. The transition will add more than 12 million commercial members on a stage basis. And we'll begin that process in 2013. We've developed our transition plan and are currently working with folks at Medco to incorporate what they need to do in that plan.

Kevin M. Fischbeck - BofA Merrill Lynch, Research Division

So is there any sense about just the amount of incremental investments, and then what you think you can ultimately do on that business once the business has fully transitioned back?

Stephen J. Hemsley

Yes. We've invested, maybe year-to-date, kind of in the range of about $35 million, year-to-date, in that process. We'll probably finish off the year at about that same -- that quarterly rate, so just under $10 million a quarter that will escalate meaningfully next year. I don't want to specify the number. We will specify it at the Investor Conference. But it will be a meaningful uptake on 2 levels, not only the readiness of the structure of it, but we're going to have to be staffing in the latter part of the year, as we begin the process of transitioning. So that will be meaningfully higher than this current year level. And obviously, we are pursuing this because: One, we think that this can produce for us a distinctive offering in the PBM space, one that perhaps is more integrated, a little -- more modern, a little more technology-oriented, more consumer-oriented; and we think that we can perform and compete at the highest levels in this space and produce the kind of returns that have been historic in this space. So that's our ambition. And I don't think we can really comment any more specific level beyond that.

Kevin M. Fischbeck - BofA Merrill Lynch, Research Division

Okay. That makes sense. I don't know if this is a question that you're going to -- for the Investor Day. But in the past, you talked about being able to grow the margin across all the services businesses, do you still feel that way, or is that a longer-term target? And it sounds like the PBM might have a hard time growing margins next year with this investment, but...

Stephen J. Hemsley

Yes. I think when he have made those kind of comments, that it's always been with the longer-term point of view. We certainly aspired to -- we think the margins in these businesses can be strong and can be strong as they get scaled and as these businesses mature. But that has always been a longer-term ambition. We really aren't commenting, in terms of like next year's numbers.

Operator

Your next question comes from the line of Justin Lake with UBS.

Justin Lake - UBS Investment Bank, Research Division

Just first, a quick clarification. Steve, in your prepared comments, I know there's been a lot of questions around 2012, but you did specifically say there will be earnings growth, and we'll know -- we'll get the EPS guidance specificity at Investor Day, right? And that's off the current guidance of $4.40, $4.45, right?

Stephen J. Hemsley

That is -- that's our expectation.

Justin Lake - UBS Investment Bank, Research Division

Okay. Great. And then my question is just on the government margins. And 2 things. One, on Medicaid, can you give us any update on one, I think, you threw out a rate number expectation of about 1% for next year in the second quarter. Any update there? And also, what you're seeing on cost trends in Medicaid, specifically, if you're seeing any uptick? And then what you think -- just some color on government margins for next year, breaking up Medicare and Medicaid, and what you see as kind of the headwinds, tailwinds from a margin perspective, knowing that you're going to grow membership there?

Stephen J. Hemsley

Sure. Well, I'll have, Jack, kind of respond, I think, principally to the Medicaid questions. We really haven't been breaking those margins out and have no expectation to. But I think, Jack can respond a number of the other questions you asked.

Jack Larsen

With respect to your first question about the 1% expected rate increase for full year, I think we have very good visibility to the majority of our member months that were subject to some type of a rate action, 90 days ago. And we will see about a 1% average annual rate increase across full year 2011, so feel pretty good about that. I think in terms of what that may portend for 2012 and some of the headwinds, tailwinds, a significant portion of the member months that had their final rate action here in the last few weeks and months of the quarter really came out flat to slightly negative. So to the extent that these rates are set on a state fiscal year basis, they're going to present a headwind, at least for the first half of 2012. And we'll certainly have more to say about the extent of that headwind when we get together in New York here in a few weeks. I'd say with respect to cost trends specifically to Medicaid, I guess, I would defer to Dan's comments. He really answered for all of the Benefits businesses, and we're really not seeing anything different than the aggregate Benefits business, and that is good performance on inpatient bed days, with a increasing rate of trend in, specifically, outpatient, physician and then the prescription Rx category for us, so fairly consistent.

Justin Lake - UBS Investment Bank, Research Division

Okay. Great. And just on the Medicare side, I wasn't asking for specificity, but just any color like you gave there, as far as knowing what the rates are, knowing what the benefits you set in the marketplace? Any x PPD any thoughts on what a Medicare margin might be just directionally a headwind, tailwind?

Dan Schumacher

Yes. Again, following up on Steve's comments, not particularly talking about the margins in the Medicare space, but you can talk a bit just to show a little bit of color on 2012 and where we see the Medicare Advantage business from a growth perspective. We're coming up a strong sales year, as Steve mentioned in his opening remarks, and feel very well-prepared for the 2012 selling season. We're in day 4 of the annual election period and are pleased with our competitive positioning across our portfolio and at the local market level, with a strong attention to premium stability with the vast majority of our membership remaining in a 0 premium plan, benefits that resonate strongly with the consumers, as they've told us. And then the value-added services and benefits, again as Steve mentioned under the innovation category of his opening remark, with the inclusion of the hearing assistant devices that we think have been really resonating well within the marketplace and getting good consumer response. So we're very optimistic about 2012 and would be happy to share more details in November at the Investor Conference.

Operator

Your next question comes from the line of Sarah James with Wedbush.

Sarah James - Wedbush Securities Inc., Research Division

As we think about healthcare reform and the Supreme Court, there are several ways that, that could play out. If it was the case that reform was upheld but without the individual mandate, could you talk about some ways that the industry or United could evolve to adapt to that sort of environment?

Stephen J. Hemsley

Maybe I'll offer some opening comments, and then -- but it would essentially continue to drive the costs up because of the mix of participation in the marketplace in general. And there are states today that have those kinds of environments, and those states have higher cost structures. But they are -- they're open markets, there are a number of competitors involved. We participate in some of them. That's pretty much it.

Gail K. Boudreaux

This is Gail Boudreaux. The only thing I'd add to Steve's comments is we're preparing our business for the future, regardless of what happens with any rulings that occur. So as you think about exchanges and preparing to be in a more consumer-focused marketplace, adding transparency tools, preparing our products with more affordable price points across the boards, we're looking at all of those things and we're the process of getting ready for that now, and we're seeing some of that implemented in the marketplace, as we speak.

Sarah James - Wedbush Securities Inc., Research Division

And just a follow-up. On the states that do have that sort of situation, currently, it -- does that generate a different margin outlook for those products? Or is that something that you're able to adjust to and maintain the sort of margins that you get across the rest of your book?

Stephen J. Hemsley

I think -- I don't know if Jeff wants to answer. New York is kind of one of those markets, I think, it generally elevates the cost in total of the marketplace.

Jeff Alter

Sarah, it's Jeff Alter. Predominantly New York right now has an individual market for the past 15 or 16 years with guarantee issue, community rated. Costs are very high, but on a margin -- we still have margin on that product. It's -- it is on a much higher rate in a shrinking market, as it has progressed because of the cost.

Stephen J. Hemsley

Because of the cost, yes.

Operator

Your next question comes from the line of Christine Arnold with Cowen.

Christine Arnold - Cowen and Company, LLC, Research Division

My first question is a clarification. I think I might have just missed it, because it went kind of quickly. Did you say that you expect Optum growth, in terms of earnings in 2012? So can we think about lower investment in OptumHealth, offsetting higher investment on the PBM? And then can you speak to the duals? Where you see that opportunity and how that might evolve for you?

Stephen J. Hemsley

Sure. I'll have Jack and Gail kind of address the duals. And I don't think we offered any guidance with respect the Optum or any of the other businesses at that particular level. We did say we expect Optum to continue to grow and that we expect it to grow profitably. But there will be costs associated with a number of the investments we're making to PBM, in-sourcing and so forth. So we'll go through the performance of the individual business units with you in November. So we really didn't comment on any particular business, in terms of its bottom line performance.

Christine Arnold - Cowen and Company, LLC, Research Division

And so you're just saying revenue is going to grow in Optum. You said nothing about earnings either in total or any of the divisions?

Stephen J. Hemsley

That's right, for Optum or any of the businesses in UnitedHealthcare. We'll cover that when we go through specific guidance. I really don't want to piecemeal this through this. What I was endeavoring to do was at least portray the environment, I think, that we're involved in, and how we're positioning it against that environment. Jack?

Jack Larsen

The CMS office of Integrated Medicare, Medicaid programs has really infused the whole notion of coordinated care, with respect to those who are dually eligible for Medicare and Medicaid with a lot of momentum. And it really began last summer with the introduction of their 2 contracts and states really taking that ball up and developing really responses -- LOI responses as to how they might participate in that dual program. I think at last count, we saw about 37 states responded with that nonbinding LOI. Just as a point of reference, we are partners with about half of those states in the underlying Medicaid program and also offer currently dual Special Needs Plans in the majority of those states. So in terms of how it plays out for us, I would tell you that we have been synthetically providing integrated care to duals for many, many years, starting with our dual Special Needs Plans, on to our ongoing Medicaid plans and then a decade or so ago, with our Evercare Institutional Special Needs Plan and nurse practitioner-based program. So I think it plays out well for us. I think we're going to see real acceleration of activity in the next few quarters as states move ahead and begin to flesh out, specifically, what they intend to do with these pilot programs. I think CMS is going to continue to review those pilots and move some ahead with further support. I would hold out really the State of Michigan is probably in full position on this. A couple of months ago, they have basically decided to move about 250,000 of their dual eligibles into managed care, and we're working very closely, certainly, with that state as they move forward. So we're very excited about the opportunity as a company.

Operator

Your next question comes from the line of Matt Borsch with Goldman Sachs.

Matthew Borsch - Goldman Sachs Group Inc., Research Division

Could you just comment a little bit more on the pricing environment. I'm interested in -- if you can, if you're seeing any variation. Where in those markets you touched on California and the Northeast Mid-Atlantic, where you are you seeing some more price competition or rate pressure? Is it from for-profit or not-for-profit carriers? And does it seem more in the individual side, the small group side, large group? Just any more granularity you can give?

Gail K. Boudreaux

This is Gail Boudreaux. In terms of my earlier comments, I guess, the only specific I give is that, again, it isn't broad-based, and it often is -- in some of those markets, it's client specific, as we near the end of the year. And I think some competitors are looking at just their positioning. In California, we're seeing it in, actually, in a couple of the market segments just given some of the actions that have been taken by a few competitors there. So I don't think, from my comments before that it is broad-based. It is very specific. It's unique circumstances in a marketplace that a -- a competitor's positioning is. And I do think people are broadly being rational about their position in the market. And as I said, we are staying very disciplined around our pricing and our position in those markets as well.

Matthew Borsch - Goldman Sachs Group Inc., Research Division

And lastly, are you seeing in the commercial market any noticeable acceleration in a preference for self-funding, particularly at the smaller employers size that would normally look at that option?

Gail K. Boudreaux

We haven't -- I wouldn't say we're seeing an acceleration. We've seen a movement to self-funding overtime. It has not accelerated meaningfully. We are seeing some movement down market, but I don't think it's -- I wouldn't characterize it as significant acceleration. We also have product offerings in that category that move downstream, but we still have a pretty robust, fully insured risk business in the small group, and that's the preference. What I am seeing is a huge focus on affordable product offerings, so we've put a lot of products into the market that are what we consider value-based networks and that focus on wellness and provide incentives for employees. And that's been very popular, and those are some of our fastest-growing product offerings in the marketplace today. So there's a real focus on that.

Operator

Your next question comes from the line of Sheryl Skolnick with CRT Capital Group.

Sheryl R. Skolnick - CRT Capital Group LLC, Research Division

I don't know if you can answer this question, because it's not about cost trends and it's not about pricing and it's not about 2012 guidance. I'm going to go back to what I usually go back to, which is what I'm really interested in and what I think I'm seeing more in both your published and oral remarks today is the intersection and synthesis of the Optum services with the Benefits business. First, am I seeing that? The second part of this question is to the extent that you can measure it and to the extent that you can quantify it, what would be the impact on the Benefits business -- if I can frame it that way -- on the Benefits business of whether it's OptumInsight's tools and working with hospitals to become more cost-effective partners, get them readmissions et cetera, or OptumHealth ability to work with both consumers and employers and other participants to make more intelligent decisions and pursue better cost trends for everyone. Can you measure that at all? I mean, I guess, what I would say is when you look at your 2011 numbers, and as they have developed over the year, what might your margins have been in the Benefits business without the benefit of Optum?

Stephen J. Hemsley

So just to kind of -- first of all, this is a broader perspective question. It really speaks to the full range of the healthcare marketplace and the healthcare environment we work in. We see those, that whole marketplace, evolving towards a more integrated state, a more end to end, a more connected, a more aligned kind of universe in healthcare and that one would logically imagine that, that more aligned -- everybody has commented about the fragmentation of healthcare for many, many years -- that, that more aligned marketplace should perform better. And the agenda of our businesses in the engagement in the marketplace on both the benefits side and the services side is to facilitate that alignment and integration and to move it along and participate in a productive way, plain recognizing we play a -- more than a role in that. I think that's been our agenda for several years. We are really just at some levels, kind of getting the first-generation of traction or scale at it. And I think, one would logically believe that you should get a better-performing marketplace. Your business, if you are moving in this direction should perform better. Ultimately, you'd get a more sustainable cost, and you get a better end-to-end experience, as you get both the consumer and provider participating in a way that is using information at the appropriate point and using the -- using more modern faculties, if you will, in the healthcare space. And I think much of that agenda, is starting to -- you're seeing the first -- the beginnings of that. I think the only way to actually measure it is to look at certain clients that have moved along in that continuum a little bit more aggressively, so you jump down to a -- almost a client environment, where there is that kind of -- you're closer to that, and they tend to perform better, they'll use their own book of business. Our own employees, where we have been kind of a first mover in on the benefits side in terms of how we engage on the delivery side and use the tools that Optum has, you get better performance. And I don't know if -- Gail, you want to add to that?

Gail K. Boudreaux

Sure. I'll add a few comments to Steve's overview. I think we have the unique platform with our 2 businesses. And I think it really does, when we work together on this, it does provide us a much better platform. And I think about it, pretty simply, it's using better information which we get from OptumInsight and the tools, helps us make better decisions which Optum helps through its care management capabilities embedded with our programs with our customers, fundamentally, drives better health. And that really is the foundation of the programs that we have. So as I think about those, we have many clients that we work together in a very integrated way and other clients who work separately and do that across our entire book of business. But together, it's hard for us to break it out, because the programs and information are embedded in how we manage our business, Sheryl. So I think, that, for us is what's unique about the platform we have. We can take some of the best tools across our 3 Benefits businesses and apply them and integrate them with the results. And I think our National Accounts business is probably one of the best examples of driving a lower trend year-over-year, better employee engagement though our programs, and quite frankly, very high satisfaction rates. So that would be my gauge of the external market's value of an integrated program.

Stephen J. Hemsley

And I think the winners in this, at the end of the day, while I think our business will prosper by enabling that kind of agenda, the winners are the consumers who should get a better, tighter more engaged and take on the tools to become more responsible consumers in healthcare, and the care providers who are using their resources now more productively, more the way they have intended to when they entered that profession. And then, if we can use those resources more effectively, there's a dividend to society in that, and that's kind of -- we're hoping that there is some modeling that plays to that agenda, but it is the long-term proposition.

Sheryl R. Skolnick - CRT Capital Group LLC, Research Division

Right. In the meantime, the stock is down 7%. So couldn't you be a little more optimistic about 2012?

Stephen J. Hemsley

I'm disappointed to hear the stock is down 7%, but I think what we're trying to do is to kind of prudently lay out the challenges for 2012. But I didn't think we were holding back on the notion that I think, we're a much more capable organization, that we'll engage the marketplace very effectively. We did it in the 2011 and exceeded expectations. And we're focused on continuing driving that agenda up. So we are not discouraged, if that's the message.

Operator

Your next question comes from the line of Peter Costa with Wells Fargo.

Peter H. Costa - Wells Fargo Securities, LLC, Research Division

Just quickly, what's the cash at the parent? And my real question is what portion of your commercial risk businesses is in rebate status? And are you pricing more aggressively in those markets for growth, or perhaps thinking of exiting some of them, if you're at a loss situation?

Stephen J. Hemsley

Very market-specific, but Gail, do you want to comment on that?

Gail K. Boudreaux

Sure. In terms of the pricing. Obviously, we're pricing, as I mentioned, a 350 different intersections. And we're trying to price closer to the pin around medical loss ratio. Clearly, those that are above medical loss ratio status we're managing to get within that realm, and that's where we think there's opportunity to continue to work through those markets. So we won't disclose or get into kind of what percentage of our markets are in, what status, again. But I think if you get a sense, we had a pretty very disciplined process. There's a lot of intersection points around that pricing. And clearly, we're working to get closer to the pin around all those intersections and offer, I think, competitive viable products in the market. So we think there's a broad footprint, and we offer that today in our markets, and that will be our continued goal.

Peter H. Costa - Wells Fargo Securities, LLC, Research Division

And then cash at the parent?

Stephen J. Hemsley

$1.3 billion [indiscernible].

Operator

Your next question comes from Michael Baker with Raymond James.

Michael J. Baker - Raymond James & Associates, Inc., Research Division

Sounds like you're still working on your back-end systems for OptumRx to produce that differentiated approach, that being ultimately the integration of medical and pharmacy data. I was wondering when you would have kind of end results ready for the consultant community to try and influence the way they evaluate RFPs?

Stephen J. Hemsley

Jackie, do you want to respond to that?

Jacqueline B. Kosecoff

We've been working on improving OptumRx consistently over the last 3 or 4 years and believe that we, actually, are quite competitive right now, and we'll continue to be even more competitive. We're hearing from consultants that OptumRx is well positioned, has a rising profile in the national accounts market in particular and is increasingly seen as a thoughtful alternative to the big PBMs. Just to add a tad more color, we have recently introduced a whole new web portal system. We have new tools which we think are state-of-the-art to help members and our clients decide how to reduce healthcare costs and pharmacy costs in ways that match their corporate DNA. And we have some very new tools that we've developed in concert with some OptumInsight to help with data analytics and predictive modeling.

Michael J. Baker - Raymond James & Associates, Inc., Research Division

And then, finally, when do you expect during 2013, to complete the transition process?

Jacqueline B. Kosecoff

We are in discussions as Bill Munsell mentioned right now with Medco. And we are evolving our transition and migration program. Our goal is to do this in a way that creates the most flawless transition, least disruption to our members. And we will announce migration details as they become more formed with -- more formed.

Operator

Your next question comes from the line of Ana Gupte with Sanford Bernstein.

Ana Gupte - Sanford C. Bernstein & Co., LLC., Research Division

Wanted to follow up on some of the questions on the self-insured national accounts market, and hopefully, this is a little more positive and more tailwind-oriented. On the group retiree market, we're hearing that as many of 5 to 10 million group retirees could be moved in the next 2 years to MA and apparently 50 plus percent of employers are planning to that in the next 2 years. Given that you have a very strong presence in employers and in MA, should we be considering that as a bolus that comes in for 2012? Can you comment on the pipeline?

Tom Paul

Sure. Yes. this is Tom Paul. I think we talked in 2011 that the group retiree marketplace in '11 was a bit flat, as employers were coming off of health reform discussions and delaying their decisions. But as you just noted, there is growing interest. And we are seeing that in our 2012 pipeline. And I think that the common theme around that is employers are looking for a more affordable solution for their long-term retiree strategy. And as you noted, Medicare Advantage is a strong offering that meets that affordability question. And so as we're seeing sales for 2012, and quite frankly, across our entire portfolio, whether it be Med Sup, Medicare Advantage or Medicare Part D, we are seeing sales that are returning to more normal levels in that group retiree with a pickup in MA, as well as in Part D. Because of the change in the RDS status as a result of the health reform law, a number of employers are looking at changes in their drug program, which over 2012 and 2013 is continuing to afford us many opportunities in that marketplace.

Ana Gupte - Sanford C. Bernstein & Co., LLC., Research Division

So you would think that the 5 million maybe over 2 years is a reasonable estimate for the industry as well?

Tom Paul

I think the -- I don't want to comment specifically on the numbers to give you an indicator, but I do think that there is significant opportunity across the employer space.

Ana Gupte - Sanford C. Bernstein & Co., LLC., Research Division

And related to that, to MA, but not in group retiree, you have Med Sup and MA. Med Sup is somewhat under the gun right now with the deficit committee. As you're selling and you're entering the selling season with the individual market, is the opportunity to upsell someone who's got Medicare supplement in Part D to MA and even for you, with the big Med Sup program you've got as much as twice the operating profit dollars, are you seeing more of a trend towards that? And are you proactively driving that?

Tom Paul

True. This is Tom again, I'll respond to that. So I think that's the beauty of having a Medicare portfolio that crosses each of the products offered in the marketplace. I will say that within our consumer population, there are distinct characteristics that attract -- or within individuals that attract them to medical supplement versus Medicare Supplement versus Medicare Advantage or even to add on to Medicare Part D. And so each year, as we approach the marketplace for their consumers, we're very attentive to what their needs are and then provide the best product that meets their individual needs. And so we actually have been seeing transition from individuals from the Medicare Supplement marketplace into the Medicare Advantage marketplace over the past year or years. And we would expect to see that in 2012. But we'd continue to see Medicare Supplement as a solid offering for a distinct segment of the marketplace, and especially because of the benefit features that it offers.

Ana Gupte - Sanford C. Bernstein & Co., LLC., Research Division

And then finally -- I might be the last one anyway asking questions -- so on the OptumHealth side, again, the consultant seem to indicate that the disruption that the express Medco merger could potentially go on even if the deal closes is benefiting Optum and Caremark, so are you projecting a bigger uptick in sales for 2012? Just so we see something for 2012 ahead of the big Medco, bringing in a Medco contract in house, because right now, it seems like it's more about all these upfront investments, but you don't realize the top line tailwinds until 2013. But can we see some of that in 2012?

Stephen J. Hemsley

I don't know if that national business moves at that speed, but there is no question that we see upside we would not be pursuing this marketplace, we see the need in the marketplace, recognize, I think, that we've had, for years, very strong capabilities in this space if we didn't see significant growth. And I would agree with you, the marketplace will be in some level of disruption with that kind of activity going on. So it should be an opportunistic marketplace. I just think we have to be baselined about how that business will come to the marketplace. But I believe, that we will be very, very competitive for it.

Operator

That question will come from the line of Doug Simpson with Morgan Stanley.

Doug Simpson - Morgan Stanley, Research Division

Just -- you've touched on a lot of questions. Just on the inpatient unit prices, where do you think you stand right now relative to the #1 carrier within your respective markets, obviously, the blues. And just how do you think about the opportunity to better control the in patient unit costs going forward? And then maybe, just if you could also touch on what trends you're seeing in acuity across Care, Caid and Commercial that will be great.

Stephen J. Hemsley

Sure. I think our competitive position in these areas has consistently advanced. And I think we're very, very competitive today. But I'll let Gail kind of respond to that.

Gail K. Boudreaux

Sure. I think as you look at our growth in the National Accounts space, which is highly sensitive to that unit cost issue and overall value proposition, we've continued to improve our positioning and feel that we're very competitive across that space. So I think from that perspective, we continue to do it, but beyond just unit cost, I think that the other elements we add around care management, value proposition products, wellness have also played into that. And I'll ask Dan to comment on your note about acuity.

Dan Schumacher

This is Dan Schumacher. On the acuity front, it does vary across the different Benefits businesses. I would tell you in the Medicare space, it's been very stable. We haven't seen any meaningful change with respect to acuity on the inpatient side. Whereas in the commercial space, we have a long-standing increase in acuity year in and year out that really relates to the underlying aging of the population, and so that's no different this year than other years.

Doug Simpson - Morgan Stanley, Research Division

Okay, is part of that acuity also the lift in commercial? I mean, can you tie that back to the economy, and just a bias where the lower acuity treatments get put off?

Dan Schumacher

No, I would say it more relates to the overall demographic trend. That's the larger influencer of it.

Doug Simpson - Morgan Stanley, Research Division

Okay. And then if we just think about inpatient unit costs as the driver of trend, I mean, is it -- is it your view that as we look out 12, 18 months that, that will continue to be the single biggest driver of care cost trends? I mean, is there any dynamic you can foresee where that would change and not remain the biggest driver?

Dan Schumacher

My view is that it will continue to be a very significant driver. And we're working very hard inside the organization to change the way that we orient our payments to reward value. And we're making some progress in that regard, as we look at gain-sharing opportunities, all the way through to the full capitation and risk arrangements.

Stephen J. Hemsley

And to be honest, it has been the driver several years. So it's not a new trend. It's just -- with utilization environment, it just becomes more pronounced.

So thank you for your interest this morning. Sum up quickly, I think UnitedHealth Group is performing well, delivering consistently strong and fundamental execution. We remain very focused on customer and external market needs, those we serve, very focused on innovation, very focused on driving value. While we are mindful of the challenges in 2012, I would suggest that our success, in terms of the capabilities and building the capabilities of this organization as we have demonstrated through 2010 and 2011, that we are poised to take on 2012 at exactly the same way. And we look forward to discussing this with you further at our Investor Day in late November. So thank you very much

Operator

Ladies and gentlemen, this does conclude today's conference. Thank you, all, for participating, and you may now disconnect.

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