Insurer May Cut 3 Years of Results

UnitedHealth Group Inc., whose chief executive has racked up $1.6 billion in unexercised stock options, said Thursday that it might have to slice as much as $286 million from its last three years of earnings because of the way it accounted for options.

The nation’s second-largest health insurer, whose acquisition of PacifiCare Health Systems Inc. late last year made it a major provider in California, also acknowledged it is the subject of an “informal inquiry” by the Securities and Exchange Commission. It also said it could lose tax deductions for option grants it had thought were deductible.

Its shares fell $1.80, or 3.9%, to close at $44.37. That is down from almost $64 in December.

Questions already have been raised about the timing of some of the more than $1.6 billion in unexercised options that Chairman and Chief Executive William McGuire had at the end of last year.

But Thursday’s disclosure was UnitedHealth’s strongest acknowledgment yet that there might be problems with the way it handled options. It had previously described its practices as “appropriate” and had said a committee of its board of directors was examining the issue.

Of the possible $286-million restatement from the three years, $150 million is from 2005. That would represent 4.5% of its net earnings that year, the company said. The possible restatements for 2003 and 2004 add up to about 3% of each year’s earnings, it said.

UnitedHealth said it believed that the potential lost tax deductions would not have a large effect on its results, but it would “not be able to finalize its assessment of this matter” until the investigation by its board was over.

The company also said a shareholder demanded April 18 that its board “take action to remedy breaches of fiduciary duties and unjust enrichment by the directors and certain officers in connection with the company’s stock option grant practices.” It didn’t identify the shareholder or say what its response to the demand was.