In 2005, we entitled a post, "How Can a $124.8 Million a Year CEO Make Health Care More Affordable?"  At that time, we contrasted the enormous compensation given to the then CEO of UnitedHealth, Dr William McGuire, with the stated mission of his corporation.  Since then, we have traced the travails of UnitedHealth and its leadership.  Dr McGuire was eventually accused of receiving backdated stock options (which at one time raised his personal fortune to over $1 billion), and was pushed into retirement.  UnitedHealth was accused of a variety of management and ethical lapses.  The rather sorry story as of April, 2010 was summarized here.

The more things change, the more they stay the same.  The Minneapolis Star-Tribune just reported:

Stephen Hemsley, a serious and studious man, is known for his marathon-like work schedule, which regularly includes Saturdays and Sundays, in his role as chief executive of Minnetonka-based UnitedHealth Group.

Now, he also is known as the highest-paid CEO in Minnesota with a 2009 pay package totaling $101.96 million, six times the amount paid to the next CEO in the Star Tribune's annual survey of the state's 100 highest-paid chief executives at publicly traded companies.

But Hemsley's big pay package is also a vestige of the company's former practice of loading executive compensation heavily with stock options, a practice that changed in the wake of a crippling backdating scandal four years ago.

Those options, granted under a different regime of board directors, accounted for $98.6 million of Hemsley's income in 2009.

The attempts company officials made to minimize Hemsley's outsized compensation were almost funny:

UnitedHealth officials assert that Hemsley's 2009 pay package minus the 10-year-old options was $8.9 million, far less than the compensation paid to CEOs in other health insurance organizations.

But Hemsley did exercise the options, so he did receive the additional $98.6 million.

Hemsley also seems on target to get gargantuan compensation this year too:

Nonetheless, Hemsley has already put up good compensation numbers for 2010 with the exercising of additional options granted after 1999 worth $21 million. He also controls 6 million exercisable and unexercisable options, half of which are underwater or below the stock's current value.

The cringe-inducing contrast is with UnitedHealth's high-minded mission statement:

Our mission is to help people live healthier lives.

* We seek to enhance the performance of the health system and improve the overall health and well-being of the people we serve and their communities.
* We work with health care professionals and other key partners to expand access to quality health care so people get the care they need at an affordable price.
* We support the physician/patient relationship and empower people with the information, guidance and tools they need to make personal health choices and decisions.

Hemsley's compensation could have provided "care they need" to quite a few people at an affordable price.

More to the point, it is hard to imagine that a company that feels the need to pay so much to its CEO, and a CEO that can accept such riches, have the slightest understanding or interest in providing people "the care they need at an affordable price."

In this cynical age, I doubt many people credit the UnitedHealth mission statement with being more than advertising fluff. Nonetheless, I suspect most people believe that our society should try to provide as many people as possible with "the care they need at an affordable price," but realize that we are far from doing so. Health care insurance companies/ managed care organizations that see fit to make their hired leaders extremely rich seem to be part of the problem, not the solution.

A little while ago, the Wall Street Journal reported on the highest paid US corporate CEOs of the past decade. One name stood out for those interested in health care: Dr William W McGuire, the former CEO of giant health care insurance company/ managed care organization UnitedHealth Group. Dr McGuire was number 9 on the list, with a total realized compensation of $469,300,000.

We started discussing the disconnect between Dr McGuire's corpulent pay and his company's failure to uphold its stated ideals back in 2005, when he was reported to have received more than $124 million to lead a company which championed "affordable" health care. Later, it turned out that much of Dr McGuire's compensation came in the form of back-dated stock-options, and the resulting scandal was followed by his resignation. Later, Dr McGuire was forced to give back some the options. The final settlement of the fiasco cost UnitedHealth $895 million, and Dr McGuire $30 million and the cancellation of 3.6 million stock options.

Meanwhile, UnitedHealth was compiling an unenviable record of ethical lapses:

• as reported by the Hartford Courant, "UnitedHealth Group Inc., the largest U.S. health insurer, will refund $50 million to small businesses that New York state officials said were overcharged in 2006."
• UnitedHalth promised its investors it would continue to raise premiums, even if that priced increasing numbers of people out of its policies (see post here);
• UnitedHealth's acquisition of Pacificare in California allegedly lead to a "meltdown" of its claims paying mechanisms (see post here);
• UnitedHealth's acquisition of Sierra Health Services allegedly gave it a monopoly in Utah, while the company allegedly was transferring much of its revenue out of the state of Rhode Island, rather than using it to pay claims (see post here)
• UnitedHealth frequently violated Nebraska insurance laws (see post here);
• UnitedHealth settled charges that its Ingenix subsidiaries manipulation of data lead to underpaying patients who received out-of-network care (see post here).

At the same time, UnitedHealth continues to boast that:

Our mission is to help people live healthier lives.

* We seek to enhance the performance of the health system and improve the overall health and well-being of the people we serve and their communities.
* We work with health care professionals and other key partners to expand access to quality health care so people get the care they need at an affordable price.
* We support the physician/patient relationship and empower people with the information, guidance and tools they need to make personal health choices and decisions.

Dr McGuire certainly expanded his access to money, which doubtless empowered him.

And as we noted here, his successor, Mr Stephen J Helmsley, seems to be going down the same path. In 2009 his total compensation was $8.9 million, and he sold stock options obtained from previous compensation packages for $98.6 million. Mr Helmsley was a top leader (President and Chief Operating Officer [COO]) of UnitedHealth during Dr McGuire's reign as CEO, so should be viewed as having some responsibility for the excesses of the McGuire years.

Despite recent attempts to reform health care, or at least health insurance, it seems that the health insurance industry still leads the way in providing its leaders perverse incentives while failing to hold them accountable for their organizations' unethical behavior and subversion of their stated missions. Is it any wonder that these organizations continue to act unethically, and that the costs of the goods and services they provide rise continuously?


If we truly want health care that is accessible, of high quality, at a fair price, and more importantly, if we want health care that is honest and focused on patients, we need to provide health care leaders with clear, rational incentives in these directions, and make them fully accountable for their actions, and the courses of their organizations under their leadership.

The issue of executive compensation in health care seems to be attracting more media attention.

A St Louis Post-Dispatch editorial noted how executive compensation for for-profit health insurance CEOs has grown. It started with a quote from Steven Hemsley, the CEO of UnitedHealth:

Today the American people are questioning whether or not we receive fair value for the $2.6 trillion we, as a society, are expecting to spend this year on our health care system. The vast majority, including those of us at UnitedHealth Group, believe the answer is, 'No.'

Here is a summary of the compensation information:

Modern Healthcare, a leading health industry trade journal, published its annual executive compensation survey this week. Topping the list is Stephen Hemsley, quoted above, who gave a speech to the Detroit Economic Club last year questioning the value Americans receive for all that health spending. [Note: We discussed Hemsley's compensation here.]

His take for 2009: $106 million — $7.5 million in salary and benefits and $98.5 million in stock options.

Mr. Hemsley is not alone. The CEOs at insurance giants Cigna, Humana, Aetna, Coventry Health Systems and WellPoint all took home between $10 million and about $18 million. Many of those companies already have announced double-digit premium increases for next year.

In all, the CEOs of America’s 10 largest health insurance companies made $228.1 million in salary and stock options during 2009, according to the liberal advocacy group Health Care For America Now. (That's enough to buy health insurance for at least 47,284 people, based on figured cited in this Kaiser Family Foundation survey on average premiums.)

Since 2000, those CEOs have received slightly less than $1 billion in compensation, the group said.

As an aside, the article noted how the compensation received by CEOs of the larger US health care corporations of all types, not just health insurance companies, has grown:

Researchers analyzed pay and benefits for 342 CEOs of corporations in the Standard & Poor’s 500 index.

They found that health care CEOs received an average compensation of $10.5 million last year. That’s 40 percent more than the average for all S&P 500 companies — 77 percent higher than chief executives at financial services companies.

Even the CEOs of not-for-profit hospital systems have become million dollar babies:

Last year, the average compensation for hospital system CEOs was $1 million. That’s enough to hire five new primary care doctors.

However, the editorial was a bit vague about why paying CEOs of health care organizations so much was a bad idea, although it did imply that it was unseemly given that much of health care is funded by government programs, and not-for-profit health care organizations receive tax breaks that give "the public an even larger stake in their efficient operation"

In my humble opinion, there are other big problems with the massive compensation that hired managers of health care organizations now command.

Paying them so much instantly vaults them into the upper class, and the CEOs of larger health care corporations now live a life style more reminiscent of aristocracy than of that of the patients who depend on them. Such riches isolate those who receive them in their own bubbles. Can one really expect a million, or ten million, or hundred million dollar CEO to really care about the health of individual patients?

Furthermore, paying them so much, usually regardless of their performance, their companies' performance, or the health effects of their products and services gives them perverse incentives to maintain their position at any cost, even at the cost of the patients they are supposed to serve.

So, we do not receive "fair value for the $2.6 trillion we, as a society, are expecting to spend on our health care system." But we cannot really expect a billion dollar group of babies to fix that.

True health care reform would decrease perverse incentives throughout the systems, spread the power in organizations more broadly, and make leaders accountable.