UnitedHealth Group (UNH)

Accounting and Tax Considerations

Section 162(m) imposes a $1 million limit on the amount that a company may annually deduct for compensation to its CEO and its three other highest-paid executive officers employed at the end of the year, unless, among other things, the compensation is “performance-based,” as defined in Section 162(m), and provided under a plan that has been approved by the shareholders. The Compensation Committee seeks to structure most elements of our executive compensation program to meet this exception. However, to maintain flexibility to promote varying corporate goals, we have not adopted a policy requiring all compensation to be deductible. In particular, stock options granted under the Company’s 1998 Broad-Based Stock Incentive Plan (the “1998 Plan”) and exercised by named executive officers do not qualify as performance-based compensation, however no equity awards have been granted under the 1998 Plan since April 2002. Also, future exercises of stock options determined to have an exercise price less than the closing price of our common stock on the accounting measurement date as a result of the review of our historical stock option practices may not qualify as performance-based compensation under Section 162(m). In light of the Company’s amendments to its compensation plans and actions related to certain outstanding equity awards during 2007 and 2008, the Company believes that its executive compensation plans and agreements are in compliance with Section 409A.

Accounting and Tax Considerations

Section 162(m) limits to $1 million the amount of compensation that a company may deduct in any calendar year for its CEO and the three other highest-paid executive officers, excluding the chief financial officer. The Compensation Committee seeks to structure most at-risk elements of our executive compensation program to meet the exception to this limitation for “performance-based” compensation, as defined in Section 162(m), so that these amounts will be fully deductible for income tax purposes. Stock options and SARs typically qualify as performance-based compensation. However, stock options granted under the Company’s 1998 Broad-Based Stock Incentive Plan (the “1998 Plan”) and exercised by named executive officers do not qualify as performance-based compensation. The Company has not granted any equity awards under the 1998 Plan since April 2002. Also, future exercises of stock options which have been determined to have an exercise price that was less than the closing price of our common stock on the accounting measurement date as a result of the review of our historical stock option practices may not qualify as performance-based compensation under Section 162(m). To maintain flexibility so that the executive compensation may be delivered in a manner that promotes varying corporate goals, we do not have a policy requiring all compensation to be deductible.

In February 2008 the Compensation Committee approved, subject to approval by the shareholders at the 2008 Annual Meeting, material terms for executive incentive compensation that will change the structure of the incentive pools for the 2008 annual cash incentive award and the long-term cash incentive award period that starts in 2008. These new incentive compensation terms also include a list of objective performance criteria that, if used as vesting terms in restricted share grants after shareholder approval is obtained, would qualify those restricted share grants as performance-based and, therefore, deductible as a compensation expense under Section 162(m). A description of these recently approved material terms for executive incentive cash compensation is included in Proposal 2 in this proxy statement.

Accounting and Tax Considerations

Under Section 162(m) of the Internal Revenue Code, annual compensation in excess of $1 million to each of a company’s CEO and four other most highly compensated executive officers that is not paid pursuant to a plan approved by shareholders and does not satisfy the performance-based exception of Section 162(m) is not deductible as a compensation expense for federal income tax purposes. Because qualifying performance-based compensation is not subject to the $1 million limit if certain requirements are met, we have sought to structure most at-risk elements of our executive compensation program so as to qualify those elements as performance-based compensation. Specifically, the Executive Incentive Plan has been structured so as to qualify both annual and long-term cash incentive compensation as performance-based. Stock options and SARs have been preferred as equity compensation vehicles in part because they typically qualify as performance-based compensation. However, stock options granted under the Company’s 1998 Broad-Based Stock Incentive Plan and exercised by named executive officers do not qualify as performance-based compensation. The Company has not granted any equity awards under the 1998 plan since April 2002. Future exercises of stock options which have been determined to have an exercise price that was less than the closing price of our common stock on the accounting measurement date as a result of the review of our historic stock option practices by our named executive officers may not qualify as performance-based compensation under Section 162(m).