UnitedHealth on the back foot

The class action was led by the California Public Employees’
Retirement System (CalPERS).

In the lawsuit CalPERS alleged that UnitedHealth “issued materially
false and misleading statements regarding the company’s business,
its stock option plans, compensation practices and its financial
results, while employing manipulative acts in connection with
UnitedHealth’s stock option programmes and financial
statements.”

In a statement UnitedHealth noted: “Neither the company nor any of
the individuals [named in the class action] admit any wrongdoing as
part of the proposed settlement agreement.”

UnitedHealth also announced an agreement to resolve a class action
brought under the Employee Retirement Income Security Act relating
to its historical stock options practices. Under the terms of this
proposed settlement, UnitedHealth will pay $17 million into a
settlement fund for the benefit of class members.

The settlements come at a time when UnitedHealth is facing what it
terms “greater-than-expected pressure on premium yields, due to an
intensely competitive commercial business environment.” These
pressures have prompted the insurer to trim its financial outlook
for 2008 for the second time this year.

In April UnitedHealth cut its forecast by 10 percent following the
announcement of first quarter results.

In the latest adjustment the April earnings per share forecast of
between $3.55 and $3.60 has been revised to between $2.95 and $3.05
prior to consideration of cash payments for the litigation
settlements. At $3.05 the adjusted forecast represents a 12.9
percent fall in earnings per share compared with $3.50 reported in
2007, while at $2.95 per share the fall is 15.7 percent.

“We are continuing to take the aggressive specific steps necessary
to improve our operating performance,” commented UnitedHealth’s CEO
Stephen Hemsley. In the first move in this direction the insurer is
to cut about 4,000 jobs, or 5 percent of its total workforce.