United Health Group and You

It's anecdotes like these that make me seriously question if profit should be in the health care industry at all.

When William McGuire switched careers in 1986, he was so restless that a pay cut of more than 30% didn't faze him. Health maintenance organizations were booming, and Dr. McGuire wanted to help run one. So he jettisoned a six-figure income as a pulmonologist in favor of an HMO management job that paid about $70,000 a year.

Savvy move. Today, the 58-year-old Dr. McGuire is chief executive officer of UnitedHealth Group Inc., one of the nation's largest health-care companies. He draws $8 million a year in salary plus bonus, enjoying perks such as personal use of the company jet. He also has amassed one of the largest stock-options fortunes of all time.

Unrealized gains on Dr. McGuire's options totaled $1.6 billion, according to UnitedHealth's proxy statement released this month. Even celebrated CEOs such as General Electric Co.'s Jack Welch or International Business Machines Corp.'s Louis Gerstner never were granted so much during their time at the top.

Dr. McGuire's story shows how an elite group of companies is getting rich from the nation's fraying health-care system. Many of them aren't discovering drugs or treating patients. They're middlemen who process the paperwork, fill the pill bottles and otherwise connect the pieces of a $2 trillion industry.

What's come of this $8 million a year, plus an estimated $1.6 billion in stock options?  Think how many extra people could be covered a year with that $1.6 billion.  Especially when the company also did this:

The Arizona Department of Insurance on Friday ordered United Healthcare to pay civil penalties totaling $364,750 — the largest fine in the department's history — for violations of state insurance laws. State regulators said United Healthcare illegally denied more than 63,000 claims by doctors without receiving all of the information needed to accept or deny a claim. The company also failed to follow state laws for promptly notifying doctors and patients about about decisions and appeals, the state said. United also violated a 2002 agreement to correct previous violations, the state said.
 

And the fact that they're doing this while the rest of us see our premiums rise 10%/year (if our employers don't drop coverage, that is):

The "risk" business has been a particular gold mine for UnitedHealth and its rivals in recent years. As health-care inflation eased, insurers still raised premiums at double-digit rates. UnitedHealth's stock price tripled between January 2003 and January 2006, helped by acquisitions, although it has fallen back somewhat since the beginning of this year. UnitedHealth's net income in 2005 totaled $3.3 billion, nearly four times the figure in 2001.

No, this all makes me quite angry, and really puts to question insurer's claims that health care costs are rising so quickly that they can't keep up with them. 

This is the kind of money I'd expect to see from an oil CEO (who are doing similarly well right now).  But in health care, this kind of profit is disgusting.  We have 45 15 (sorry quoted the percent on accident) million uninsured people in this country, we have a health care industry trying it darndest to shift costs to consumers with health savings accounts and high deductible plans, and we have insurance CEO's valued over a billion dollars for their efforts.  Not hospital groups, or entire organizations, but individuals. 

Is this the kind of system that fits with our ideals?  If health care is an expensive necessity, one that we join together to ensure for everyone, should health insurers be making these kinds of profits?

Comments

[Jane Doe]

Dr. McGuire is not doing anything wrong; he is paid well because he deserves it. UnitedHealth is a company that is redefining healthcare, take a look at their new consumer driven healthplans that cut down cost overall. Honestly without health insurance, you or I could not afford surgery, or pregnancy, or anything else over $1000.

The man does a great job running this company what he did is not illegal or against the rules. There are plenty of CEO's getting paid even more money but doing a crappy job. So I would say back off a little because HMO’s are not going away. This country will never be a country where everyone receives free healthcare. And to be honest with you, I like being able to go to the better doctors and hospitals because I work for a living. I do not want to go to the ER and wait 4 hours to be seen because I am in a line of 100 other people. You can call me selfish because of that, but America is a selfish place, I want my family to be taken care of the best way possible. That is why I busted my butt in college, to get a good job, to get good pay and good benefits. If you want free healthcare for all, go to Canada.

[Roy M. Poses MD]

Redefining health care is an interesting way of putting it.
UnitedHealth Group's official mission statement says its goal is to make health care more affordable. Although clearly even $1.6 billion was only a fraction of UnitedHealth's profits over the time the options were granted, this hugely generous executive compensation suggest that the company puts enriching its CEO ahead of its stated mission.
Also of interest is that the board of directors that has been so generous to Doctor McGuire has an interesting set of conflicts. Three of its members have full time jobs in health care not-for-profits and have written about health policy without disclosing their fiduciary duties to UnitedHealth: Mary Mundinger (Dean of Nursing, Columbia), Donna Shalala (President, University of Miami), and Gail Wilensky (Senior researcher, Project HOPE).
See our posting on Health Care Renewal:
http://hcrenewal.blogspot.com/2006/04/us-health-insurance-more-market.html/

[Kate]

Good point, Roy.

Jane, I'd ask you where in my post I said anything about having health care for free. I'd ask you to look through my archives, because I've never in my life argued or suggested health care should be free for everyone. Even in Canada health care is not free, but paid for through taxes.

But you're wrong on another thing -- you say you want your family to have "the best health care" -- well the U.S. health care is not, in fact, the best in the world, but ranks far down the line. http://www.nlm.nih.gov/medlineplus/news/fullstory_31902.html

Nor did I call what Mr. McGuire does illegal or "against the rules". I just think his compensation is immoral, contrary to the goals of a good health system, and also to his company's stated goals.

[Matthew Holt]

Jane, very brave use of your real name! McGuire is a big boy and can stand up for himself. In his defense, at least their stock has gone up plenty...so he hasnt stolen from his shareholders (although the option price dating issue is a little suspect) unlike many of the out and out fraudsters in CEO land, or the Carly Fironina being paid 20m to go away after helping drive down stock prices

And I think Kate wants Canada to come here, as there are 45m (not 15m)uninsured here who probably agree.

[Adrienne]

I don't begrudge people the right to rail against what they consider to be "excessive" profits or absurd compensation levels for CEOs, but why single out the health care industry? There are quite a few things that are necessities--food, shelter, and clothing, to name a few--but we don't sit around stewing about the for-profit companies that produce and sell those items. We just subsidize those who need help buying them, and let private companies do their thing.

I'm not sure what a non-profit health care industry would look like, but I'm pretty sure we wouldn't like or accept the lack of investment in emerging technologies and procedures that make us happier and healthier.

[Kate]

Adrienne,

I actually thought about the other necessity question when writing this. My answer would be, we don't have 45 million people in this country unable to buy food, and keep in mind that another huge number already are covered by state programs and charity -- the number of people truly unable to afford enough food is infinitely smaller. That, and I'll be the CEO of Kraft is valued nowhere near $1.6 billion.

And I'm not necessarily for a non-profit health care industry either. But news like this makes me want to be.

[Trapier]

Kate,

(1) You think UHG could better serve America's insurance needs (i.e., do something to extend insurance to the 45 million w/o it)

(2) You think hording such wealth is lamentable.

The glorious thing about American capitalism is that you and I could, tomorrow, design a better insurance product that, in theory, did a better job of covering Americans than UHG does. Then we would be the ones earning enormous incomes which we would be free to give back to society through investments in for-profit ventures with similarly social missions or non-profit organization of charitable purpose.

In a socialized, planned, command-and-control economy, we would have to wait 30 years to climb the bureaucratic ranks to be in a position to implement any of our ideas and we would likely only climb if our ideas didn't rock the boat but merely propogated the status quo.

[Ezra]

Well, the question, of course, is whether you can find any objective measure that justifies that sort of compensation. Nothing about it is illegal, but it's pretty grotesque, both for shareholders who could've seen that plowed into profits and the consumers who could've paid less. Homie was probably a fine CEO, but ain't no CEO so fine they deserve a billion plus while the health system disintegrates around them. This, by the way, is why I advocate obscene marginal taxation rates on incomes over $500,000 and an equalization of rates for asset wealth and incomes. If it were up to me, McGuire would lose most of this in taxation, and still end up absurdly rich. No one in our society needs more than a billion dollars.

[Adrienne]

No one in our society needs more than a billion dollars.

I'm sure glad we've got crack 22 year-old progressive journalists who are willing and able to make such judgments. Whew! Ezra, would you mind telling me how much my labor is worth? Or would you be kind enough to leave that matter to me and my employers?

[Adrienne]

Actually, I should clarify- I'm not really annoyed with you, Ezra--I'm actually quite relieved. Sometimes I forget why I'm a libertarian, and then someone comes along with some words about zero-sum economics and intrinsic value theory, and then all of a sudden, I remember.

[Kate]

Silly Adrienne, Ezra's 21, not 22.

[Adrienne]

Even worse!

[Cryptic Ned]

Ezra, would you mind telling me how much my labor is worth? Or would you be kind enough to leave that matter to me and my employers?

Your labor is worth less than a billion dollars. No need to consult anyone.

In fact, your labor is worth less than one million dollars.

[marquer]

Honestly without health insurance, you or I could not afford surgery, or pregnancy, or anything else over $1000.

And what if one cannot afford the health insurance?

--