UnitedHealth cuts outlook and jobs; pays $895M in settlement

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UnitedHealth Group is attempting to improve its financial performance with a cost-cutting measure that would slash 4,000 jobs and a lower fiscal 2008 profit outlook. Meanwhile, the company simultaneously doled out $895 million in a California class-action lawsuit settlement.

The Minnetonka, Minn.-based UnitedHealth forecasted a 2008 adjusted profit of $2.95 to $3.05 per share on revenue in the $81 billion range, down from prior estimates of $3.55 to $3.60 per share.

"During the second quarter, our risk-based businesses produced a lower level of gross margin than expected, and we also experienced a continuation of the pressures we saw in the first quarter," CEO Stephen Hemsley said.

Hemsley also reported that the company will shift management positions to focus more on regional coverage. Greater-than-expected pressure on premium yields, stemming from an “intensely competitive” commercial-business environment, has squeezed gross margins, he added.

UnitedHealth said it plans to improve its financial performance, including reducing its risk-based business, because it is paying out more than expected for Medicare Part D prescription drug offerings as well as for special needs plans for seniors with chronic conditions.

In other financial news, the payor reached an $895 million settlement to a class-action lawsuit brought by the California Public Employees' Retirement System (CalPERS), a large U.S. public pension fund, reported the Los Angeles (LA) Times. The lawsuit settlement is an outgrowth of a 2006 scandal in which UnitedHealth provided executives with windfalls by backdating stock options given as incentive payments.

UnitedHealth said the proposed settlement of what it called its "historical stock option practices" provided the company with closure and "allows us to focus on quality, affordable healthcare solutions."

CalPERS said that UnitedHealth allowed top executives to book purchase dates for stock options when share values were low and sell the same shares later when prices had climbed, according to the LA Times.