Health plan earnings up, but United's woes continue

Premium growth and Medicare Part D help boost the biggest insurers. But United HealthGroup warns scrutiny over its stock-option practices is far from over.

By Bob Cook — Posted Feb. 26, 2007

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United it stands, but it's bracing for a fall.

United HealthGroup, like its brethren among the nation's biggest health plans, announced robust revenue and earnings growth in 2006. But unlike the other plans, United is warning investors that investigations into its past stock-option-granting practices could hit the company hard.

The Minnetonka, Minn.-based company reported $71.7 billion in revenues for 2006, with profits of $4.2 billion, above company expectations. Like other big plans, revenues were helped by involvement in the Medicare Part D prescription plan as well as Medicare Advantage plans.

Humana was the biggest beneficiary. Its revenues jumped 50% for the year, to $21.6 billion from 2005's $14.4 billion. Its earnings per share increased 62%, to $2.90 from 2005's $1.79. WellPoint and Aetna also reported increased profits and revenues; Cigna reported increased profits, though revenues on paper went down slightly because of extra money Cigna received last year from selling parts of its business.

However, just about every plan reported a higher medical-cost ratio -- on average, up about 2% to just more than 80% -- because of the Medicare plans. Medical-cost ratio refers to the amount of money health plans spend on care compared with the amount of revenue collected.

Still, most plans in their fourth-quarter 2006 earnings reports crowed about their company's successful years. Except United.

While the company expressed happiness over its earnings and revenues, United tempered that joy with the reality that multiple investigations for its stock-option practices are under way.

The Securities and Exchange Commission, the Internal Revenue Service, the U.S. Attorney's office in New York and the attorney general in Minnesota all are looking into United's backdating of stock options. Backdating allows companies to set the exercise price for stock options based on the date of the previous year's lowest price for its stock rather than the date the options were issued. Backdating can be legal, but only if companies inform shareholders and take other steps to make the deals more transparent.

United -- along with many other companies -- is under scrutiny over whether it illegally backdated options. United CEO and Chair William McGuire, MD, stepped down last year and gave up his rights to certain options as a result of internal company investigations.

On Nov. 7, 2006, United announced its financial results from 1994 to 2006 "should not be relied upon" because of options backdating and that the company was recalculating past earnings. In its fourth-quarter report, United noted, "until we are able to become current with our filings with the SEC, we may face several adverse consequences." The company did not report any earnings-per-share numbers.

While United sorts out its stock options, the company is putting out signs it plans to be a little nicer to physicians.

CEO Stephen Helmsley, during the company's investor conference call regarding its earnings, said doctors should see "a tone and culture that will change for the better." Many physicians have complained that United operates with a take-it-or-leave-it approach that often affects a physician's pocketbook and their practice's working environment.

William Hinchey, MD, president-elect of the Texas Medical Assn., said "time will tell" what Helmsley's statement will mean for physicians. "Experience has been, they present the doctor or the group with a contract, and there's not much ability to negotiate," said Dr. Hinchey, a San Antonio pathologist.

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