UnitedHealth settles securities suit for $895M

Anne Zieger — Thu, 03 Jul 2008 11:34:07 -0400

UnitedHealth Group has agreed to settle a federal securities class-action lawsuit brought by a group of major shareholders for $895 million. The move, coming at a time of financial challenges for the health plan industry as a whole, should have a big impact on UnitedHealth's operations. The company will cut 4,000 jobs and is warning of weaker profits, already challenged by the slow U.S. economy and higher Medicare costs.

The lawsuit was brought by the California Public Employees Retirement System (CalPERS) over the health plan's stock-option grant practices. Such practices had helped lead to the departure of previous CEO William McGuire, who resigned in December 2006 over the scandal that arose when the company's practice of backdating options to favorable dates was discovered. The proposed settlement will impose new protections against such skullduggery, including a mandated holding period for options granted to execs and shareholder approval of any stock option re-pricing.

To learn more about the proposed settlement:
- read this Modern Healthcare article (reg. req.)

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UnitedHealth suffers financial setback

Wed, 23 Apr 2008 06:59:58 -0400

After years of allegations that management engaged in financial manipulations to feather their own nest, some might see this as a bit of karma. Having already missed its first quarter financial targets, UHG has had to cut its full-year profit outlook. The company, which expects 2008 revenue around $82 billion, lowered its profit outlook by 40 cents a share to about $3.60. While UHG faces some unique challenges, this mirrors losses posted by other health plans, many of which seem likely to kick up premiums substantially at their next opportunity.

One major factor in UHG's adjusted prediction was customer losses. The company lost 530,000 commercial members during Q1 of this year, including 250,000 from its PacifiCare unit. Meanwhile, enrollment in its Medicare Part D program fell by 290,000. To boot, medical costs went up faster than income, despite raised premiums in 2006 and 2007.

This comes just as the air has started to clear from its former CEO's departure. Less than 18 months ago, former CEO William McGuire left the company with a mindbogglingly-golden parachute, options worth $1.78 billion at the time. Since then, McGuire has been forced to give up at least $400 million in assets, after regulators concluded that the options were back-dated to give him the highest possible value.

To learn more about UHG's financial picture:
- read this Modern Healthcare piece (reg. req.)

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