BREAKING THE BANK
CEOs From 10 Health Insurers Took Nearly $1 Billion in
Compensation, Stock From 2000 to 2009
Health Care For
August 2010
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IN 2009, WHILE
struggled with skyrocketing health insurance costs and
the worst economy since the Great Depression, the chief
executives of the 10 largest for-profit health insurance
companies collected pay of $228.1 million, up from $85.5
million in 2008.
It was one of the best years ever for health insurance
bosses. CEOs collectively gave themselves a 167 percent
raise (not counting tens of millions more dollars in
exercised stock options), while Americans saw their
average wages increase by about 2 percent. In fact, 2009
capped a decade of extraordinary paydays for health
insurance industry leaders. Including exercised stock
options and pension packages, the CEOs of the 10
companies raked in nearly $1 billion in total
compensation from 2000 to 2009 (Table 1). Over the full
10 years, the average reported pay for each of these
CEOs has soared to nearly $10 million a year. This
report graphically illustrates the status quo that the
leaders of the health insurance industry are fighting to
preserve. The jaw-dropping compensation for 2009 set new
standards for the industry and for what CEOs will pay
themselves in the future. Last year's CEO pay could have
paid for stress tests to check heart health for up to
776,000 patients or covered medical office visits for
every resident of
combined (3.2 million people).
Each year, health insurance companies charge their
customers higher premiums and provide less coverage.
They blame the hikes on rising costs charged by health
care providers, but the facts say otherwise. Meanwhile,
health insurers set new profit records (the five largest
for-profit health insurers reported net earnings of
$12.2 billion in 2009) while compensating their top
executives with exorbitant salaries and stock options.
Unsatisfied by the excessive pay and stock options he
arranged for his last year at CIGNA, CEO Edward Hanway
also gave himself a $111 million pension package as a
retirement gift. Combined with pay received by his
successor, David Cordani, the company devoted $136
million to CEO compensation in 2009. CEO Stephen Hemsley
of UnitedHealth Group banked $107.5 million in 2009,
including $98.6 million from exercising stock options.
CEO Ron Williams of
total compensation, enough to pay for 4,853 people to
undergo arthroscopic knee surgery.
CEO Angela Braly of Wellpoint Inc. got a 51 percent
raise to $13.1 million in 2009. This came as WellPoint
subsidiary Anthem filed inaccurate actuarial data in an
attempt to increase 2010 premiums in the
individual market by as much as 39 percent. The company
blamed the massive rate hike on the weak economy and the
soaring cost of medical care. Anthem Blue Cross
President Leslie Margolin urged WellPoint not to pursue
the politically explosive rate hikes, but the CEO and
her lieutenants rejected the recommendation, according
to the
pressed WellPoint to abandon the company's gettough
approach to longtime adversaries-doctors and hospitals-
and instead collaborate as part of a new `healthcare
transformation strategy' to cut costs and improve
patient safety and the quality of care," the Times
reported. That was rejected too. In July 2010, Braly
orchestrated Margolin's resignation and ordered security
guards to escort her without warning out of the Anthem
offices. WellPoint posted a record profit of $4.75
billion in 2009.
Health insurance moguls don't collect big paychecks for
providing consumers with the best possible health plans.
It's the opposite. They focus on keeping the amount they
spend on the delivery of health care as low as possible.
These costs are known by Wall Street analysts and
insurance executives as "medical losses.
That business practice is thriving this year (Table 2).
CEOs haven't made needed health care more accessible for
consumers. In fact, they have cut back on benefits and
created more plans that provide fewer benefits. They are
doing whatever they can to avoid paying claims,
including selecting their customers by discriminating
against people who are sick.
CIGNA put profit above all else by offering health plans
with extremely limited benefits to companies with large,
low-wage workforces. The underwriting criteria
established by such plans essentially guarantee big
profits. Pre-existing conditions are not covered during
the first six months, and the company must have an
annual employee turnover rate of 70 percent or more, so
most of the workers don't even stay on the payroll long
enough to use whatever benefits they might become
entitled to. The average age of employees must not be
higher than 40, and no more than 65 percent of the
workforce can be female, thus limiting maternity claims.
Employers don't pay any premiums-the employees pay for
everything. Many people who buy limited-benefit
policies, which often provide little or no
hospitalization coverage, are misled by marketing
materials into thinking they are getting more
comprehensive care. In many cases it is not until they
actually try to use the policies that they find out they
will get little help from the insurer in paying the bills.
Coventry Health CEO Allen Wise acknowledged that his
company's health plans are good enough to be marketed
now but no longer will be acceptable under the higher
quality care standards enacted by Congress in the
Affordable Care Act (ACA) in March 2010. "We think that
the product that we have today is not at all competitive
for tomorrow," Wise told insurance industry analysts.
The new law aims to induce
to reduce administrative, lobbying, profit and
executive-pay costs and create health plans with
quality, affordable benefits.
Because executive compensation is based on performance
evaluated by companies' boards of directors, CEOs lack
the incentive to deliver quality, affordable health care
to people who desperately need it. Instead they use
their unchecked power to enrich themselves by abusing
consumers and manipulating share prices.
One key method they use to achieve excessive profits and
CEO pay is to deploy their vast corporate capital to
repurchase company stock on the open market. This
technique drives up share prices and increases the value
of personal holdings acquired through stock options
granted by the companies. From 2003 to 2009, the seven
largest for-profit health insurers spent an astonishing
$57.6 billion of their capital, some of it borrowed, to
buy back stock and propel share prices upward (Table 3).
In determining how to spend their capital, the companies
decided it was more important to enrich their CEOs and
top investors than to reduce premiums, improve benefits,
reward providers for raising the quality of care, or
bring efficiency to claims-processing and customer-
service operations. Share buybacks benefit a tiny elite
of CEOs and other company officers with bonuses and
shares that increase in value if they can manipulate the
share price upward. The enrichment of the CEOs goes
unnoticed in some cases. They may not exercise their
stock options until after they have left their jobs,
when they are no longer company insiders required to
publicly report the transactions. This camouflages the
enormous transfer of wealth from hard-pressed employers
and consumers to CEOs.
William Lazonick, a
economist who has concluded that exploding executive pay
and excessive use of share repurchasing are eroding
American prosperity, says health insurance industry
executives are among the biggest users of this
technique. "Profits are used solely to manipulate stock
prices and enrich a small number of people at the top,"
Lazonick said. "The top executives of these [health
insurance] companies typically reaped millions of
dollars, and in many years tens of millions of dollars,
in gains from exercising stock options.
Beyond the fact that stock buybacks allow executives to
divert capital resources provided by insurance premiums
to their own pockets, this practice also strips
companies of resources that otherwise could be used to
create jobs and bring innovation to the business of
health insurance. "The persistence of unregulated stock
buybacks and unindexed stock options will ensure that
the corporate executives who control the largest health
insurers will remain part of our health care problem,"
Lazonick said.
Wall Street assesses health insurance companies in
exactly the opposite way consumers would. Wendell
Potter, a former insurance industry executive, said he
became fed up "with the industry's practices-especially
those of the for-profit insurers that are under constant
pressure from Wall Street to meet their profit
expectations." This has "contributed to the tragedy of
nearly 50 million people being uninsured as well as to
the growing number of Americans who, because insurers
now require them to pay thousands of dollars out of
their own pockets before their coverage kicks in, are
underinsured," he said. "An estimated 25 million of us
now fall into that category.
Premiums have skyrocketed in recent years, often without
justification. Strong standards for insurance company
spending are needed to ensure that premiums are not
jacked up merely to perpetuate bloated executive
compensation. The largest forprofit health insurers
reported spectacular profit growth in the second quarter
of 2010 compared with the same period a year earlier.
While profits grew, the companies spent a smaller
portion of premium revenue on actual health services
(Table 2). This closely-watched indicator is known to
Wall Street investors as the medical-loss ratio (MLR).
One provision of the ACA creates standards that make
sure health plans spend a minimum amount of premium
revenue on medical care. The law requires insurers to
spend on patient care at least 80 percent of health plan
premiums collected from individuals and small employers
and 85 percent of premiums paid by large employers.
The health insurance industry wants to expand the
definition of allowable medical expenses to include
costs that are not directly related to the delivery of
care and have not historically been classified as
medical. Instead of reducing costs and improving the
efficiency of their operations, they simply want to
change how certain expenses are classified. This would
encourage CEOs to gouge consumers even more than they
already do in order to jack up profits and share prices,
increase bonuses and grants of stock and stock options,
and augment the value of their personal holdings-all
while spending a smaller share of premium dollars on
medical care. With little competition in 99 percent of
metropolitan areas,14 insurers lack the incentive to
drive down costs, and the absence of transparency about
their behavior drives up costs.
The MLR standards in the ACA are critical to curbing the
worst of the health insurance industry's consumer
abuses, controlling rising premium costs, increasing the
value of premiums paid by private and public customers,
and reining in the profiteering of health insurance
companies. To enforce the MLR standards and fulfill the
promise of quality, affordable health care for all, the
the insurance industry's sophisticated efforts to
undercut the law. If the rules governing medical-loss
ratios, rate review and other consumer protections are
implemented as intended, the ACA will hold accountable
an industry that abuses millions of customers when they
need health benefits the most.
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