by Philip Mattera
Over the past four decades, UnitedHealth Group has grown into a managed-care behemoth with health plans covering some 27 million people in the United States. It also has an operation called Optum that provides specialty health services that it claims reach tens of millions more individuals. Although nearly all its business is in the United States, UHG is now operating in Brazil as well.
Like other managed care providers, UHG has been involved in numerous controversies over the quality of its coverage and was one of the targets of a series of class action lawsuits. Its QSSI subsidiary was one of the contractors involved in the botched rollout of the Affordable Care Act’s Healthcare.gov portal.
Riding the HMO Wave
UHG was incorporated in 1977 as a for-profit management company for some of the early health maintenance organizations. By the time it went public in 1984 it was serving this role for 11 HMOs in ten states. Over the next decade it purchased a series of HMOs in various states and then jumped to a new level in 1995 with the $1.7 billion acquisition of MetraHealth Companies, which had been formed only a few months earlier through the merger of the group health operations of Metropolitan Life and Travelers Insurance. An attempted merger with Humana collapsed in 1998 after UHG announced a $900 million charge against earnings related to restructuring costs.
During the following decade UHG continued its shopping spree with three huge purchases: Mid Atlantic Medical Services ($2.7 billion), Oxford Health Plans ($5 billion) and PacifiCare Health Systems ($8.8 billion). It also spent $500 million in 2003 to acquire Golden Rule Financial, which specialized in what would become the controversial practice of selling low-cost, high-deductible individual policies.
Starting in the late 1990s, UHG was one of the giant managed care companies hit with a wave of class action suits brought by some of the same lawyers who had taken on the tobacco industry. Yet UHG never had a reputation as bad as most of its competitors. Fortune once published an article about the company headlined “The HMO (Almost) Nobody Hates.”
In November 1999 United announced that it was returning decision-making over patient case to physicians, though it would still review those decisions after the fact and try to persuade doctors to adopt certain treatment approaches. (There were later complaints that the tight controls had not been completely eliminated.)
After the class action suits were consolidated in a single federal court and allowed to proceed (at least those brought by healthcare providers), some of the defendants negotiated settlements costing hundreds of millions of dollars. UHG resisted, and in 2006 the cases against it were dismissed.
Around the same time as the dismissal, the Minneapolis Star-Tribune published a story pointing out that UHG’s record was not completely unblemished. The paper noted that the company had been involved in a series of disputes with state regulators over its practices. In Ohio it paid $175,000 to settle claims that it made improper payments to insurance brokers working for public agencies. In Nebraska it was accused of violating insurance regulations hundreds of times. The New York State Department of Health barred UHG from enrolling new members for a period of time because of persistent violations of state rules.
There were other instances not mentioned by the Star-Tribune or subsequent to the article’s publication. For example, in December 2005 the Georgia Insurance Commissioner fined UHG and its Golden Rule subsidiary $2.8 million for late payment of claims. In July 2006 the Wisconsin Commissioner of Insurance fined UHG $600,000 for not adequately responding to consumer complaints and other violations such as not notifying members when mental health benefits had been cut. In September 2007 UHG agreed to pay $12 million to 36 states and the District of Columbia to end accusations of underpaying and delaying claims. In 2009 the Texas Health and Human Services Commission terminated its contract with UHG's Evercare unit to provide coordinated services for elderly and disabled Medicaid patients after numerous complaints.
When UHG purchased PacifiCare in 2008 it inherited an alleged compliance disaster which was not promptly remedied. As of 2010, the California Department of Insurance was alleging that the company had violated state law nearly 1 million times after it was purchased by UHG and was facing potential fines of nearly $10 billion. The dispute remained unresolved, and in 2013 UHG withdrew from the individual market in California.
In April 2013 a jury in Nevada ordered UHG to pay $500 million in punitive damages in connection with an outbreak of hepatitis linked to a Las Vegas doctor's colonoscopy practice. The three plaintiffs had sued the company for negligence because its subsidiaries in the state signed a low-bid contract with the doctors even though he allegedly engaged in substandard practices.
Stock Option Scandal
In March 2006 UHG faced a major crisis when the Wall Street Journal reported that the company may have backdated stock option grants for officers. In July a BusinessWeek article wondered: “Why does UnitedHealth Group CEO William W. McGuire remain in his job?” In October McGuire, who had received hundreds of millions of dollars in stock option profits over the previous decade, was forced to resign.
Subsequently, McGuire had to pay $468 million to settle claims brought by the Securities and Exchange Commission. Additional settlements with the company brought the total that McGuire had to return to more than $600 million. The SEC let UHG off with a slap on the wrist, but the company had to pay more than $900 million to settle shareholder lawsuits brought in connection with the option backdating.
UHG’s next big legal challenge came in February 2008, when Andrew Cuomo, then the Attorney General of New York, announced that he would sue the company for its role in what he called a scheme to “deceive and defraud consumers.” He alleged that the company’s Ingenix database, which was used both by UHG and other insurers to determine how should be reimbursed for out-of-network medical expenses, systematically shortchanged plan members.
In 2009 the company settled with Cuomo by agreeing to spend $50 million to develop a new and more accurate database for handling out-of-network claims. UHG subsequently agreed to pay $350 million to settle class action lawsuits brought over the issue. Ingenix subsequently changed its name to Optuminsight.
UHG and the ACA
While Congress was deliberating over healthcare reform in 2009, UHG was one of the large insurers that went along with the idea but worked against the inclusion of a public option among the choices that would be offered. This position was reinforced by a UHG subsidiary called the Lewin Group, a healthcare consulting business that purported to operate autonomously from its parent. Lewin produced analyses concluding that the adoption of a public option would result in a mass exodus from private plans and jeopardize their future. A Lewin executive made the alarmist statement that the private insurance industry “might just fizzle out altogether” and helped sway Congress to omit the public option from the Affordable Care Act.
Around the same time, an investigation by the House Subcommittee on Oversight and Investigations found that UHG, along with two other insurers, had cancelled the coverage of more than 20,000 people, thereby avoiding payment of more than $300 million in claims over a five-year period.
In 2013 another UHG subsidiary, Quality Software Services Inc., or QSSI, was at the center of the controversy over the botched rollout of Healthcare.gov, the federal ACA enrollment portal, for which the company received more than $55 million in contracts. Despite its role in producing the flawed site, QSSI was chosen to oversee a revamping of the project. At a Congressional hearing on Healthcare.gov, a UHG executive joined other contractor representatives in putting the blame on their client, the Centers for Medicare and Medicaid Services.
In 2007 UHG's Florida subsidiary agreed to pay $1.8 million to settle a same-sex harassment lawsuit filed by the U.S. Equal Employment Opportunity Commission, which had alleged that high level managers at the company penalized an executive who complained about abusive treatment by a superior.
Other Information Sources
Violation Tracker summary page
Watchdog Groups and Campaigns
Employee Benefit Research Institute
Physicians for a National Health Program
Key Books and Reports
Deadly Spin by Wendell Potter (Bloomsbury Press, 2010).
One Nation Uninsured by Jill Quadagno (Oxford University Press, 2005).
Private Health Insurance: Research on Competition in the Insurance Industry (U.S. Government Accountability Office, July 31, 2009).
Sick: The Untold Story of America's Health Care Crisis by Jonathan Cohn (HarperCollins, 2007).
The Corporate Transformation of Health Care: Can the Public Interest Still Be Served? by John Geyman (Springer, 2004).
Underpayments to Consumers by the Health Insurance Industry (Office of Oversight & Investigations of U.S. Senate Commerce Committee, June 24, 2009).
Last updated October 31, 2013.