16 April 2020 Equity Research Americas |

UnitedHealth Group Inc. UNH

Q&A Our Way: Maintaining 2020 Guidance

Leads to a Favorable Market Response Target price (12M, US$) 325.00

Managed Care | Decrease Target Price Outperform

UNH’s Q1 MLR Not Much Impacted by COVID-19: UNH was not impacted In Q1 by Previous target price (12M, US$) 330.00 COVID-19. Late in Q1 and continuing into Q2, the company saw increased testing, Price (15 Apr 20, US$) 281.68 deferrals of physician visits, a changing mix of hospitalizations, and a downturn in elective 52-week price range 305.31 - 194.86 procedures. UNH attributes its Q1 MLR improvement Y/Y to good cost control across Market cap (US$ m) 267,194.15 benefit categories and improved performance in Medicaid. UNH also benefited from Enterprise value (US$ m) 286,588

favorable prior period development in Q1. The maturing of the new products offered over the last year or two to improve affordability was a driver of the favorable development. Research Analysts

Some Stats on COVID: UNH indicated that some unknown factors around COVID are A.J. Rice length of stay given how quickly the virus spread. Around 40% of UNH’s admissions are 212 325 8134 still in the hospital; UNH has seen about 50% of the people discharge in about 7 days, [email protected] about 75% in 14 days, and 90% in about 3 weeks. In terms of overall cost, UNH notes Eduardo Ron that costs are going to be higher for COVID-19 patients in the hospital than the traditional 212 325 7491 flu as intensity is higher (e.g. about 17% of all admits end up on ventilation). [email protected]

UNH focusing on helping its stakeholders navigate the current crisis. UNH expects Caleb Harris, CPA significant quarter to quarter MLR volatility this year. The company says it generally has to 212 325 7458 make its best estimate of current cost each quarter, and does not have flexibility to reserve [email protected] for future costs that could come later in the year. MLR minimums create a governor on how Alexander Khan low MLR’s can go (i.e. rebates payable would need to be accrued). However, UNH says it 212 325 7714 will do its best to make sure that any outsized profits from the pandemic, should they occur, [email protected] will be plowed back into efforts to support its customers and other stakeholders. Adjusting Estimates & TP: We are maintaining our 2020 EPS outlook but lowering our 2021 EPS outlook by $0.35 to $18.50 to allow for some headwind from the changing economic slowdown. Our updated model reflects no pick-up in commercial enrollment and some level of premium reduction throughout the remainder of 2020, as well as an assumption of approximately 500 bps MLR benefit to Q2 in UNH’s Comm’l Risk and MA from deferred care/procedures which we assume reverses throughout 2H20. Additionally, we are lowering our TP to $325 (previously $330) based on a blended 17.5x our 2021 EPS estimate. Risk include any deterioration in government enrollment and Share price performance margins, the economic slowdown, and unexpected increases in utilization.

Financial and valuation metrics Year 12/18A 12/19A 12/20E 12/21E EPS (CS adj.) (US$) 12.88 15.11 16.40 18.50 Prev. EPS (US$) - - - 18.85 P/E (x) 21.9 18.6 17.2 15.2 Revenue (US$ m) 226,247.0 242,155.0 258,964.0 279,538.2 On 15-Apr-2020 the S&P 500 INDEX closed at 2783.36Daily Apr16, 2019 - Apr15, 2020, 04/16/19 = US$220.96 P/OCF (x) 15.6 15.4 15.3 12.9 ROIC (%) 16.44 16.97 18.18 20.59

Number of shares (m) 948.57 Dividend yield (%) 1.5 Quarterly EPS Q1 Q2 Q3 Q4 2019A 3.73 3.60 3.88 3.90 BV/share (12/19A, US$ m) 63.3 2020E 3.72 5.21 3.97 3.49 Source: Company data, Refinitiv, Credit Suisse estimates 2021E 4.51 4.51 4.86 4.64

DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

16 April 2020

UnitedHealth Group Inc. (UNH) Analyst: A.J. Rice Price (15 Apr 2020): US$281.68 Target Price: (from 330.00) 325.00 Rating: Outperform

Income Statement 12/18A 12/19A 12/20E 12/21E Company Background Revenue (US$ m) 226,247.0 242,155.0 258,964.0 279,538.2 PBT (US$) 15,944 17,981 20,235 21,899 Headquartered in Minnetonka, MN, UnitedHealth is a diversified health Income taxes (3,562) (3,742) (4,911) (4,649) Profit after tax 12,382 14,239 15,324 17,249 and well-being company, operating across four business segments: Minorities (396) (400) (409) (429) UnitedHealthcare, OptumHealth, OptumInsight, and OptumRx. Net profit (US$) 11,986 13,839 14,916 16,821 UnitedHealth Group Inc. was incorporated in 1977. Reported (US$) 11,986 13,839 14,916 16,821

Other NPAT adjustments 0 0 0 0 Adjusted net income 11,986 13,839 14,916 16,821 Blue/Grey Sky Scenario Cash Flow 12/18A 12/19A 12/20E 12/21E Net interest (1,400) (1,704) (1,706) (1,632) Change in working capital 294 683 (479) (73) Cash flow from operations 15,713 18,463 17,672 20,731 CAPEX (2,063) (2,071) (2,316) (2,501) Free cashflow to the firm 13,650 16,392 15,356 18,229 Acquisitions (5,997) (8,343) 0 0 Divestments - - - - Cash flow from investments (12,385) (12,699) (2,316) (2,501) Net share issue(/repurchase) (3,662) (4,463) (4,734) (4,091) Dividends paid (3,320) (3,932) (4,140) (4,105) Changes in Net Cash/Debt (5,977) (4,005) 10,300 10,034 Balance Sheet (US$) 12/18A 12/19A 12/20E 12/21E Assets Cash & cash equivalents 10,866 10,985 16,415 21,579 Account receivables 11,388 11,822 13,510 15,284 Other current assets 16,438 19,827 18,817 22,315 Total current assets 38,692 42,634 48,742 59,178 Total fixed assets 8,458 8,704 8,120 7,701 Investment securities 32,510 37,209 37,209 37,209 Total assets 152,221 173,889 179,413 189,430 Liabilities Total current liabilities 53,209 61,782 61,981 67,180 Total liabilities 95,994 111,727 107,392 108,784 Our Blue Sky Scenario (US$) (from 360.00) 352.00 Shareholder equity 51,696 57,616 67,475 76,100 Total liabilities and equity 152,221 173,889 179,413 189,430 Our blue sky valuation of $352 assumes UNH continues to benefit from Per share 12/18A 12/19A 12/20E 12/21E the favorable medical cost trends, capture share gains in No. of shares (wtd avg) 983 966 958 950 Advantage market, and incremental growth opportunities at , which CS adj. EPS 12.88 15.11 16.40 18.50 Prev. EPS (US$) - - - 18.85 would mean shares get valued at a blended PT multiple of 19.0x. Dividend (US$) 3.45 4.14 4.32 4.32 Free cash flow per share 13.88 16.97 16.02 19.19 Our Grey Sky Scenario (US$) (from 190.00) 200.00 Earnings 12/18A 12/19A 12/20E 12/21E Sales growth (%) 12.5 7.0 6.9 7.9 Our grey sky valuation of $200 incorporates deterioration in Medicare Net profit growth (%) 28.0 15.5 7.8 12.8 Advantage enrollment and margins and an increase in EPS growth (%) 27.8 17.3 8.5 12.8 utilization, along with any regulatory changes that result in adverse effects Pretax margin (%) 7.0 7.4 7.8 7.8 Net margin (%) 5.3 5.7 5.8 6.0 on the PBM industry business model. This would imply UNH shares get Valuation 12/18A 12/19A 12/20E 12/21E valued at a blended PT multiple of roughly 13.5x.

P/E (x) 21.9 18.6 17.2 15.2 Price to book (x) 5.0 4.4 4.0 3.5 Share price performance Asset turnover 1.5 1.4 1.4 1.5 Returns 12/18A 12/19A 12/20E 12/21E ROE stated-return on (%) 22.6 23.6 23.2 23.5 ROIC (%) 16.4 17.0 18.2 20.6 Gearing 12/18A 12/19A 12/20E 12/21E Total Debt to Capital (%) 39.4 39.6 33.2 27.7 Interest coverage ratio (X) 12.4 11.6 12.9 14.4 Quarterly EPS Q1 Q2 Q3 Q4 2019A 3.73 3.60 3.88 3.90 2020E 3.72 5.21 3.97 3.49

2021E 4.51 4.51 4.86 4.64

On 15-Apr-2020 the S&P 500 INDEX closed at 2783.36 Daily Apr16, 2019 - Apr15, 2020, 04/16/19 = US$220.96

Source: Company data, Refinitiv, Credit Suisse estimates

UnitedHealth Group Inc. 2

16 April 2020

Takeaways from Our Post Conference Call with UNH Management

We had a post quarterly conference call discussion with UnitedHealth Group management to review 1Q20 results, considerations around COVID-19, 2020 expectations, and trends at Optum. 1Q20 In 1Q20, MLR came in at 81.0%, down 100 bps Y/Y. HIF and business was expected to drive about 90 bps reduction and day count shifting being an 80 bps headwind. That implies that on a Y/Y basis, there was 90 bps of other elements in the reduction. We asked UNH if this was primarily driven by deferral of elective procedures, and if the company has seen the rate improvement in Medicaid that it was expecting coming into the year. UNH indicated it really was not impacted by COVID-19 in the first quarter, whether through increased testing, physician visits, hospitalizations, or the downturn in elective procedures. UNH did not see any impact at all until toward the second half of March (the last month of the first quarter). UNH attributes its MLR improvement Y/Y to good cost control broadly speaking, good performance across benefit categories, and Medicaid continuing to perform well. UNH also had favorable prior period development in the quarter. The company indicated that there was not one thing to point to, but reiterated the Y/Y improvement was not related to COVID-19. 1Q20 results included a favorable PPD of $580 mln compared to $300 mln in 1Q19 and $290 mln in 1Q18. We asked UNH if this was favorable development related to the commercial book or if it was across the board. UNH noted that the development was broad-based across product lines, without any single product offering driving it. The company has been highly attentive to affordability and is the outcome of the good work UnitedHealthcare CEO Dirk McMahon and his team are doing along multiple dimensions. A lot of the favorable development was mostly related to the company’s efforts to improve affordability. The company noted that, when new products are rolled out, there is a tendency to require conservative reserving initially, until substantial experience is obtained. With the rollout of many of these initiatives taking place last year and favorable experience with these products, United seems to be seeing some benefit in favorable development. Finally, the company noted that favorable development occurred in the Employer and Individual business, as well as in the Government business, in both Medicare and Medicaid. UnitedHealthcare One of the big questions seems to relate to what we are seeing with respect to unemployment. A lot of low wage workers seemed to have been furloughed and let go (i.e. restaurant, retail, etc.). We asked UNH if when we see the level of unemployment and jobless claims rising there is any way to estimate whether these are skewed more or less to people without employer sponsored coverage than in a typical recession. Additionally, we asked if given the government support (small business payroll support loans, direct grants to companies in some cases, etc.) more of these people are retaining coverage for some period. Regarding the furlough approach – given this has happened so abruptly – UNH says many companies in general are trying to stay the course, in terms of payrolls and health coverage, as best they can and hopefully snap back as best they can. So, at least initially, there have been efforts to retain employees and benefits at some employers to a greater extent than you might see in a typical downturn. Does that last more than a short period of time though, if things do stay in an economic slump for quite some time remains an open question at this point?

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16 April 2020

What the government is doing around the stimulus and different grants and the CARES Act – that could, and hopefully will, have an impact and support some of the companies that are significantly under pressure, and a lot of the small group business too. Still, given that UNH serves over 27 mln people broadly with business across small companies, middle market, national accounts – management acknowledges that UNH is going to look a lot like the overall market over time. There might be a couple areas where the company might skew one way or the other, but overall the company’s customer base will likely resemble the overall market. Historically, in past economic downturns, the company has seen more impact around small business to start. It remains to be seen how much small will be helped by with the government stimulus efforts. The company notes that there are some differences from the previous recession as to where people may ultimately get their care. Today, the vast majority of people qualify for coverage at some level – only about 3.5 mln people today don’t have access to care. A lot of those who are furloughed or lose their jobs can get coverage through traditional Medicaid, the public exchanges, or even through employer coverage such as COBRA. COBRA is admittedly expensive so many may choose another option in this downturn. UNH is very hopeful many will be able to maintain coverage, and the company plans to do all it can to make it seamless for people to transfer into other areas of coverage if they lose their employer coverage. The company will make every effort to facilitate transitions, whether it’s to Medicaid or into other products UNH has in the individual market. The short-term products UNH has are quite attractive as individuals bridge to other kinds of coverage. COBRA also remains an alternative for a lot of people, but in today’s world UNH believes that exchange-subsidized products for a lot of people will be more attractive for them than going into COBRA. In the last recession (2008-09), we saw roughly half of the people who lost employer coverage end up in Medicaid and half end up uninsured. Given the ACA, with expanded Medicaid in most states and with the public exchanges, Credit Suisse has anticipated that half of those that lose commercial coverage may end up in Medicaid, with a quarter ending up on public exchanges and a quarter becoming uninsured. Management agreed that the uninsured will end up in these buckets, but also pointed out that individual market has become broader than simply public exchanges. In addition, UNH noted that the government is currently trying to relax requirements for people to make it easier for them to get into Medicaid – obviously more also now qualify for Medicaid because of the ACA- related expansion that many states have undertaken. In the last economic downturn, about 20% of UNH’s enrollees went into COBRA, but the company does not believe there will be as many using that product this time around. A lot of people this time will qualify for public exchanges with potentially substantial subsidies. UNH plans to do everything the company can to help people with their options and get them transitioned and make sure that people lose coverage in as cost efficient manner as possible. On its conference call, UNH specifically said it expects to be down for the year on its risk and ASO membership as businesses close and employers reduce payroll driving in-group attrition. However, the company expects these declines to be picked up in Medicaid and Individual products. We asked UNH if the company has a sense for how many lives could be potentially picked up in Medicaid given the company’s more limited exposure to certain states vs the breadth of its commercial offerings. Additionally, we asked if the expected pick-up in Individual would primarily be under COBRA, or if growth will be in the Individual Off-Exchange products UNH is offering. UNH noted the pick-up in Individual would be primarily in its off-exchange products. UNH has expanded along multiple dimensions to serve more people. In the Individual market, short-term policies are attractive for some as a bridge. The company offers other types of products as well, e.g. association-related products. One will continue to see UNH try to think about different and unique ways to cover those populations. UNH is hopeful that the company will not see a significant dislocation of people. There is a lot of thought at the company going into making sure that does not happen, between employers and UNH and the government – trying to make the alternatives available and let people get access to those. UnitedHealth Group Inc. 4

16 April 2020

On Medicaid overlap, UNH is in 31 markets with a Medicaid offering as it stands today. The company believes it has very good overlap. The government is trying to relax some of the criteria (e.g. pullback on redeterminations) which should result in quite a few more people moving into Medicaid. The exact impact on that for the company is indeterminate, as the severity or length of the potential recession here is unknown. UNH opened a special enrollment period to allow commercial customers to add employees who previously declined health benefit coverages. We asked if UNH saw much uptake from this in Q1 or in Q2 thus far. UNH noted it will be some combination of the two quarterly periods that will be impacted – this effort started later in March and moved into not quite the first two weeks of April. The company would size it as tens of thousands of people that have enrolled, so UNH is really pleased to be able to offer coverage. The company indicated that Optum has cared directly for more than 10,000 COVID-19 patients to date. We asked if the company can assess whether the cost of caring for these patients is similar or materially different than other respiratory and respiratory with ventilator patients. We also asked if UNH’s experience demographically is similar to what we have seen nationwide, heavily skewed to Medicare versus commercial or Medicaid. The company noted that in general, it is seeing some of the same things that others have reported. Of some of the key statistics what is not known is length of stay – roughly 40% of the company’s admissions are still in the hospital. This is all happening so fast – UNH has seen about 50% of the people with Covid-19 be discharged in about 7 days, about 75% in 14 days, and 90% in about three weeks. UNH’s population is skewed probably a bit less to Medicare than others but that is a function of how the company classifies people. In the Medicaid business there is a large ISNP business; a lot of people the company would classify as Medicaid are coming out of long-term care institutions. In terms of overall cost, it looks like costs are going to be higher for COVID-19 patients in the hospital than what we see with the traditional flu, and it could be a fair amount higher. The intensity definitely is higher – about 17% of all admits end up on ventilation, that’s a fair number of people. A lot of people will be in the ICU or even above and beyond that. So there is going to be a higher cost for these patients. UHC’s commercial risk enrollment declined 360K to 8.215 mln which is below the company’s year-end target of 8.46-8.66 mln. UNH’s commercial ASO enrollment also declined 360K to 18.825 mln also below the company’s previous outlook of 18.945- 19.145 mln. We asked UNH what drove this decline. UNH noted it is the same kind of cadence the company saw last year with a dip in Q1 that reversed itself as the year progressed. The company did expect to see some losses in Q1 of this year – UNH talked about some larger national account business and expected to see some losses in the commercial risk business. UNH expected to see that firm up moving through the year but with the economic situation as uncertain as it is, the trend for the rest of the year could be altered. Nothing occurred in the first quarter that is meaningfully different than what UNH would have thought. The company’s approach to pricing remains very consistent in that it is disciplined, and UNH wants to make sure to continue to be disciplined on the pricing side. UNH does not want to chase membership, but will come down on the side of maintaining solid margins. It has been a while since UNH has provided a breakdown of its membership. We asked if UNH could give us a sense for how much individual, small group, middle market, large group, national account enrollees the company has. Additionally we asked which of these buckets led to the declines in Q1 and if the company could provide a sense for how much of your ASO membership is in these buckets. UNH noted that near the end of the year, there were nearly 900K people in individual, small business had 3.7 mln people (2-99 employees), key accounts (middle-market, 100-300 employees) was 9.2 mln, public sector remains a good business and had 3.8 mln people, and large multi-location employers (above 3K employees) was about 10 mln people. UnitedHealth Group Inc. 5

16 April 2020

On its conference call, UNH noted that the majority of its member months are priced after September. However, the company has previously noted that its five most important months for renewals are Jan 1, Apr 1, July 1, Sept 1, and Dec 1. We asked UNH whether it still has flexibility for its July, Sept and December renewals to adjust pricing in light of Covid-19 developments. UNH has more flexibility for the Sept & Dec renewals; January is still the most important month. The mix across these areas has changed a fair amount – with the ACA and related changes – there’s more done towards the end of the year in Dec. There is some in July too but it’s much more skewed to end of year with ACA. UNH previously indicated that it expected the North Carolina Medicaid contract to start in mid-2020. Additionally, UNH’s previous outlook assumed Texas STAR+PLUS expansion. There is some uncertainty with some of these awards; instead of a mid-year start for North Carolina, it looks like that is going to be pushed back – potentially into 2021. UNH looks forward to the start of the North Carolina contract. The Texas STAR+PLUS is a smaller number of people. UNH continues to look to new business opportunities in Medicaid and is excited how its current Medicaid business has turned for the positive. UNH believes it is in a good shape if additional people end up gravitating to the Medicaid program. The latest CMS data points to MA growth of 355K (includes duals) as of April for UNH vs the company’s full year outlook of “up to 700K”. UNH added 410K people in the in the Medicare & Retirement business through Q1 (on a Y/Y basis). It was among the strongest individual growth performances the company has ever seen. The “up to 700K” figure includes the Medicare Advantage individuals that are in UNH’s Medicaid business which are dually eligible. Those lives would be additive to the MA number in Medicare & Retirement. UNH is fully on pace through much of the quarter; the company now has to see how that plays out whether there is less movement and its ability to sell in Dual SNP plans. UNH hasn’t updated any specific numbers but those are considerations to think about. Optum On its earnings call, UNH indicated that 2/3 of OptumHealth’s revenues are capitated. We asked the company much of that is capitated with UNH members. The company clarified the 2/3 comment from the earnings call. Management said that 2/3’s of OptumCare’s business is in some type of risk taking arrangement. OptumCare is the significant majority (north of 2/3) of OptumHealth. UNH has had strong success across that business driving more UNH business in to the risk based contracts in key Medicare Advantage geographies. The company has also grown OptumCare’s external business nicely, which is indicative of its value proposition. UNH is focused on driving more risk-based contracts on the Medicare Advantage side and has had good success partnering with others – OptumCare partners with 80+ health plans. Much of the sequential revenue growth was driven by increased risk taking arrangements. OptumHealth’s margins declined 160 bps Y/Y. We assumed some of the decline could be explained with having DaVita Medical Group in the results now. However, UNH wouldn’t attribute the margin decline to DMG. DMG has performed well, and UNH is pleased the progress there. The decline was to be expected for the same reason there was some pressure on MLR Y/Y in the insurance business due to the leap day impact. OptumHealth is where it wants to be in terms of full year absent more recent Covid-19 changes which will have more puts and takes. OptumRx had a strong start to the year. The company indicated that 2 million consumers took advantage of obtaining early prescription drug refills. We asked the company whether it saw much benefit from this in its scripts. Additionally, we inquired about OptumRx margins declining 60 bps Y/Y. UnitedHealth Group Inc. 6

16 April 2020

The company said it would place the 2 million consumers obtaining early drug refills down the list in terms of what aided the Y/Y growth in Q1. Most of the growth came from new business wins and mix shift to more specialty. That mix shift was above and beyond what Diplomat bought to the quarter. The margin decline was tied to an accounting change around co-pays coming through which added to revenues and put pressure on margins. Diplomat coming on line and the new business ramping up also pressured the year to year trend. UNH is pleased to have Diplomat in the fold and will continue to invest in that business. Regarding OptumInsight, our understanding is a significant percentage of revenues tied to volume of medical claims (i.e. claims processing, claims integrity, etc). Finally, we asked the company to expand on the comments made on the call about interest in OptumInsight programs increasing. A meaningful percentage of revenues are tied to medical claims. The biggest end markets for OptumInsight are the payer market and the provider market. To the extent OptumInsight has larger deals across both markets and doing outsourced deals, there is a combination of ways OptumInsight gets paid – there are base rates, some payment for volumes and payments for performance as well. It is fair to say that there would be some impact on that business from volume. With respect to new business, care providers today have a lot on their plate which makes it hard for a big health system to want to make a big change around revenue management. While OptumInsight continues to have good conversations, it’s difficult when there are no face-to-face meetings and there are other things on people’s minds. More broadly, OptumInsight is getting at things that systems like John Muir are struggling with in a world where things need to be done differently and more efficiently through data and analytics whether its revenue management or back office approaches. UNH believes it’s in a good spot but there has been a slowdown among these larger potential deals. Enterprise UNH beat street expectations by $0.11 for Q1 but maintained its outlook. We asked the company whether, in the grand scheme of things, this indicates that there are a lot of moving parts. UNH believes it is off to a good start for the year with its affordability agenda, growth across multiple dimensions, etc. Now that things are changing, UNH had a successful transition of people home, transition of people to other types of services – either telehealth or customer facing services. The company believes it’s in a good spot to perform well while helping others. From this distance, the company is best served to maintain initial guidance and see how things change and how it might evolve its thinking. UNH indicated that Q2 MLR will likely be the lowest MLR period of the year as elective care demands remain constrained. Offsetting this, UNH expects 2H20 MLR to be meaningfully elevated. The company reaffirmed its 2020 EPS outlook, but didn’t specific whether it was reaffirming its MLR outlook of 81.2-82.2%. While UNH hasn’t definitely changed any of its metric points, it will know more in the coming weeks how all of these Covid-19 related changes (the cost of the disease, the impact of deferred care, and the economic fallout) will impact the company. Different parts of the business will perform differently depending how COVID-19 plays out, whether the economy moves to a recession and its duration. It’s difficult to say where these will all shake out. We asked the company how much flexibility there is to mitigate the degree of the swing by reserve accruals (i.e. rebate accruals, anticipation of future cost of rebounding procedures, etc.) and how is UHC reserving for its potential COVID exposure. UNH needs to make its best estimate of what the costs were in the quarter which is what it does every quarter. There is no flexibility to reserve for future costs that could come later in the year. If UNH has outsized profits from the pandemic, UNH will do all it can to get those funds

UnitedHealth Group Inc. 7

16 April 2020 back to those that need them (consumers, patients, clients, health systems). UNH is focused on making that happen; there could be a timing disconnect on that work given the need to reserve, if it happens. It’s still early in terms of how this plays out with the virus and the potential impact on employer market, but the company is focused on helping its clients that need help. The company noted that it could potentially provide additional premium relief to clients. We asked the company about the dynamics related to this. The premium relief could be done whenever it is appropriate, there are a host of things that could be done. The minimum MLR is a natural governor for profitability. UNH will do what it can to get excess profits back to those that need the dollars. We asked the company if the $2 billion of advanced payment to providers will be netted against claims payable so it will be balance sheet item and not run through the P&L. The $2 bln would not have an income statement impact; it would have an impact on Q2’s cash flow. It would have an impact on DCPs – it would be several days. There is no impact on the P&L or earnings. The company will have to see how this all impacts full year cash flows.

UnitedHealth Group Inc. 8

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Companies Mentioned (Price as of 15-Apr-2020) UnitedHealth Group Inc. (UNH.N, $281.68, OUTPERFORM, TP $325.0)

Disclosure Appendix Analyst Certification I, A.J. Rice, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

3-Year Price and Rating History for UnitedHealth Group Inc. (UNH.N)

UNH.N Closing Price Target Price Date (US$) (US$) Rating 18-Apr-17 168.59 188.00 O 31-May-17 175.18 195.00 13-Jul-17 185.48 200.00 28-Aug-17 195.09 NC 02-Nov-17 211.10 233.00 O * 29-Nov-17 222.88 240.00 03-Jan-18 223.48 252.00 17-Jan-18 238.43 260.00

18-Apr-18 236.40 270.00 OUTPERFORM 04-Sep-18 268.51 304.00 NOT COVERED 17-Oct-18 267.30 310.00 13-May-19 239.55 293.00 04-Dec-19 279.32 320.00 08-Jan-20 295.90 330.00 * Asterisk signifies initiation or assumption of coverage. Effective July 3, 2016, NC denotes termination of coverage. As of December 10, 2012 Analysts’ stock rating are defined as follows: Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark* over the next 12 months. Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months. Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months. *Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most att ractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as Europea n (excluding Turkey) ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin America, Turkey and Asia (excluding Japan and Australia), stock ratings are based on a stock’s total return relative to the average total return of the relevan t country or regional benchmark (India - S&P BSE Sensex Index); prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analys t’s coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includes 12-month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be assigned where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18 May 201 5, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, which was in op eration from 7 July 2011. Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances. Not Rated (NR) : Credit Suisse Equity Research does not have an investment rating or view on the stock or any other securities related to the company at this time. Not Covered (NC) : Credit Suisse Equity Research does not provide ongoing coverage of the company or offer an investment rating or investment view on the equity security of the company or related products. Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward. Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation: Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months. Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months. Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months.

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16 April 2020 16April 2020 *An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multip le sectors. Credit Suisse's distribution of stock ratings (and banking clients) is:

Global Ratings Distribution

Rating Versus universe (%) Of which banking clients (%) Outperform/Buy* 49% (33% banking clients) Neutral/Hold* 37% (26% banking clients) Underperform/Sell* 12% (22% banking clients) Restricted 2% *For purposes of the NYSE and FINRA ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors. Important Global Disclosures Credit Suisse’s research reports are made available to clients through our proprietary research portal on CS PLUS. Credit Suisse research products may also be made available through third-party vendors or alternate electronic means as a convenience. Certain research products are only made available through CS PLUS. The services provided by Credit Suisse’s analysts to clients may depend on a specific client’s preferences regarding the frequency and manner of receiving communications, the client’s risk profile and investment, the size and scope of the overall client relationship with the Firm, as well as legal and regulatory constraints. To access all of Credit Suisse’s research that you are entitled to receive in the most timely manner, please contact your sales representative or go to https://plus.credit-suisse.com . Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein. Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: https://www.credit- suisse.com/sites/disclaimers-ib/en/managing-conflicts.html . Any information relating to the tax status of financial instruments discussed herein is not intended to provide tax advice or to be used by anyone to provide tax advice. Investors are urged to seek tax advice based on their particular circumstances from an independent tax professional. Credit Suisse has decided not to enter into business relationships with companies that Credit Suisse has determined to be involved in the development, manufacture, or acquisition of anti-personnel mines and cluster munitions. For Credit Suisse's position on the issue, please see https://www.credit-suisse.com/media/assets/corporate/docs/about-us/responsibility/banking/policy-summaries-en.pdf . The analyst(s) responsible for preparing this research report received compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities

Target Price and Rating Valuation Methodology and Risks: (12 months) for UnitedHealth Group Inc. (UNH.N) Method: We use Sum of the Parts (SOTP) analysis to value UNH shares. Based on our comps analysis, we estimate the company's Optum business should trade at roughly 19x our 2021 EPS estimate for the segment, while UHC business should trade at 16x our 2021 EPS estimate for the segment. This leads to a blended target multiple of roughly 17.5x, yielding a price target of $325 and an Outperform rating. Risk: Risks to our $325 target price and Outperform rating for UNH are any deterioration in Medicare Advantage enrollment and margins, adverse impact on UNH's commercial business from an economic downturn, and an increase in health care utilization, along with any regulatory changes that result in adverse effects on the PBM industry business model.

Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures/view/selectArchive for the definitions of abbreviations typically used in the target price method and risk sections. See the Companies Mentioned section for full company names

Credit Suisse currently has, or had within the past 12 months, the following as investment banking client(s): UNH.N Credit Suisse provided investment banking services to the subject company (UNH.N) within the past 12 months. Within the last 12 months, Credit Suisse has received compensation for non-investment banking services or products from the following issuer(s): UNH.N Credit Suisse has managed or co-managed a public offering of securities for the subject company (UNH.N) within the past 12 months. Within the past 12 months, Credit Suisse has received compensation for investment banking services from the following issuer(s): UNH.N Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (UNH.N) within the next 3 months. Credit Suisse currently has, or had within the past 12 months, the following issuer(s) as client(s), and the services provided were non- investment-banking, securities-related: UNH.N Credit Suisse currently has, or had within the past 12 months, the following issuer(s) as client(s), and the services provided were non- investment-banking, non securities-related: UNH.N Credit Suisse or a member of the Credit Suisse Group is a market maker or liquidity provider in the securities of the following subject issuer(s): UNH.N

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16 April 2020 16April 2020 A member of the Credit Suisse Group is party to an agreement with, or may have provided services set out in sections A and B of Annex I of Directive 2014/65/EU of the European Parliament and Council ("MiFID Services") to, the subject issuer (UNH.N) within the past 12 months. For date and time of production, dissemination and history of recommendation for the subject company(ies) featured in this report, disseminated within the past 12 months, please refer to the link: https://rave.credit- suisse.com/disclosures/view/report?i=509311&v=38wjd8ogzooiw7p8bly4ybzou . Important Regional Disclosures Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report. The analyst(s) involved in the preparation of this report may participate in events hosted by the subject company, including site visits. Credit Suisse does not accept or permit analysts to accept payment or reimbursement for travel expenses associated with these events. For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit https://www.credit-suisse.com/sites/disclaimers-ib/en/canada-research-policy.html. Investors should note that income from such securities and other financial instruments, if any, may fluctuate and that price or value of such securities and instruments may rise or fall and, in some cases, investors may lose their entire principal investment. This research report is authored by: Credit Suisse Securities (USA) LLC ...... A.J. Rice ; Eduardo Ron ; Caleb Harris, CPA ; Alexander Khan Important disclosures regarding companies that are the subject of this report are available by calling +1 (877) 291-2683. The same important disclosures, with the exception of valuation methodology and risk discussions, are also available on Credit Suisse’s disclosure website at https://rave.credit-suisse.com/disclosures . For valuation methodology and risks associated with any recommendation, price target, or rating referenced in this report, please refer to the disclosures section of the most recent report regarding the subject company.

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