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UnitedHealth's Merger Malaise

OKLAHOMA CITY -- UnitedHealth (UNH - Get Report) can't seem to shake its merger-integration headaches.

Take a look at one small client, Sun Community Newspapers. For months after UnitedHealth completed its purchase of health care insurer PacifiCare back in December 2005, Sun Community faced an avalanche of errors on everything from enrollment plans to insurance cards to cancellation notices.

"It was constant, constant, constant," says Kelly Mayfield, associate publisher of the San Fernando Valley newspaper outfit, which saw its PacifiCare coverage shifted over to a UnitedHealth plan. "And we're a fairly small company. I can't even imagine if we had 200 employees."

UnitedHealth, the Minneapolis-based health insurance giant, concedes it has weathered integration setbacks. But after devoting "substantial time and resources," the company feels that it has made real progress. Mayfield agrees, saying the company has finally straightened out its issues and boasts a "fine program" once again.

But insurance agent Barry Cohn has his doubts. He has taken to warning his clients about PacifiCare's problems -- and even now forces policy buyers to sign waivers saying they have been warned.

"I still don't see things getting better," says Cohn, president of RGEB Employee Benefits in southern California. "It's pretty much a disaster."

The problems could mean trouble for UnitedHealth investors. The company is in the midst of trying to make another acquisition, a $2.6 billion buy of Nevada's Sierra Health (SIE). Meanwhile, UnitedHealth will soon lose President Lois Quam, a highly regarded executive known for her integration -- and overall leadership -- abilities.

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