Elizabeth Edwards: $1 Of Every $700 Went To Pay Salary Of UnitedHealth CEO
Elizabeth Edwards: $1 Of Every $700 Went To Pay Salary Of UnitedHealth CEO
Last night, CAPAF Senior Fellow Elizabeth Edwards appeared on The Daily Show with John Stewart to discuss her new book Resilience and health care reform. Edwards stressed the importance of restoring competition in health insurance markets noting that at one point, “the President of UnitedHealth made so much money, that one of every $700 that was spent in this country on health care went to pay him”:
It’s really important, and this is the part I’m afraid will get negotiated away. We have to have a public provider. That is, instead of buying your insurance from United Health Care, or from Blue Cross. You could actually pick a government provider. The insurance companies are against it because they don’t want that competition. And because they’re afraid of the threat of the competition they’re already saying we’re going to cut prices, we’re going to make this so much easier to get. Just the threat, so imagine what the reality will do. We will actually have health costs that could work.
Watch it:
| The Daily Show With Jon Stewart | M – Th 11p / 10c |
| Elizabeth Edwards | |
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Indeed, as a new report by Health Care for America NOW points out, “profits at 10 of the country’s largest publicly-traded health insurance companies in 2007, rose 428 percent from 2000 to 2007, from $2.4 billion to $12.9 billion.” In 2007, the chief executive officers at these companies collected combined total compensation of $118.6 million — an average of $11.9 million each.”
Competition from a new public health care plan would require private insurers to negotiate prices on behalf of their enrollees and not just pass along ever-growing health care costs to beneficiaries in the form of higher premiums. Insurer opposition to the public health option is an attempt to protect industry profits, plain and simple and in the coming health care debate, policy makers will have a choice to make: design a system that promotes the general welfare, by providing Americans the choice of a public option, or protect the monopoly of private insurers and continue redistributing as much income as possible to private industry.
13 Responses to “Elizabeth Edwards: $1 Of Every $700 Went To Pay Salary Of UnitedHealth CEO”
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I wonder if we shouldn’t look a bit more closely at what she said. Paraphrased, that a few years ago 1 of every $700 spent on health care went to compensation for former CEO McGuire of United HealthCare. Just thinking and noodling here … you corrections and/or criticism welcomed in case I am off track.
“A few years ago”, I think she said. Let’s use the 2 years ‘06 and ‘07. We know that US health care costs went above $2 trillion in 2006, so let’s just say that for 2006 and 2007 combined we are talking $4.2 trillion. OK so far?
That would mean, per Elizabeth, the now-fired CEO of UHC took down $6 Billion in those two years. $4.2 trillion divided by 700 is $6 billion. Right?
It’s pretty easy to check out what the ex-pulmonologist (”Dollar Bill”) Dr. McGuire made because it was a celebrated case when the SEC went after him for his golden parachute. What I learned is from 1992 to his ouster in 2006 he made about $500 million in compensation, ON TOP OF WHICH he got a $1.1 billion severance package. An investigative reporter for the Star-Tribune came up with those numbers, so I take them at face value since he was making the case AGAINST McGuire, not praising or excusing him.
That’s about $36 million a year in pay (which is pretty nutso, of course), so that part passes the smell test. If he had made that in 2008 (per Forbes) he’d have been in the top 40, right there with the head of Monsanto.
But let’s give Ms. Edwards the benefit of the doubt and say that he earned half of that cumulative 14-year amount ($250 million) in the final 2 years of his “reign”. And then got the $1.1 billion parachute. He would be at $1.35 billion for ‘06 and ‘07, not $6 billion. Oh, and I wonder if she figured in the part about his giving back $468 million after the SEC lowered the boom for post-dated stock options. Now we are at less than a billion in our little math puzzler, hypothetically $882 million if one can be precise about a hypothetical that uses round numbers! That’s 15% of the amount of compensation alleged by Elizabeth Edwards.
If I am even close to being right, this kind of remark drives me bonkers. Someone gives an offhand remark, without explaining it further, and it becomes gospel to the mathematically challenged. In fact, somewhere someone who misheard her a little bit is probably saying “one out of every 7 dollars”….
So, let’s recap. Maybe the (ex) CEO made $1 billion in 06 and 07 combined, after giving back $468 million. Note: I figure that’s probably higher than the actual. If we spent $4.2 trillion on health care, and he got $1 billion, then he got $1 out of every $4,200 spent on health care not 1 of $700.
Theory #1: Say, for purposes of speculation, that 1/6 of the total health care expense of the US flowed through United Health Care, then Mr. McGuire got a buck for every $700 dollars of health care spending administered by his company. That estimate I could buy.
Theory #2: The real number is “one dollar for every $7,000″ and somebody in the back room doing the analytics for Elizabeth misplaced a zero in the calculation.
Whatever the facts, I doubt we’ll get a retraction in the event it’s wrong. Too much fun to just toss stuff out there and bask in the gasps, without looking back and pondering over the data.
May 21st, 2009 at 3:38 pmNo way – “The President of UnitedHealth made so much money, one of every $700 that was spent in this country on health care went to pay him.”
Is this a misquote?
May 21st, 2009 at 3:39 pmI need to correct something from my note above, where I said reporter for the Star Tribune stated the cumulative compensation of $500+ million for McGuire from 1992 on. Actually it was in a column titled “How William McGuire earned that fat paycheck” by LOREN STEFFY, appearing in the Houston Chronicle 11/7/06. Steffy mentions “proxy statements” and says that UHC was defending that level of compensation at the shareholders’ meeting. So I think it would be right.
May 21st, 2009 at 3:56 pmmcguire’s pay + stock options, 2005:
approx $1.8 billion
total personal health care expenditures, 2005:
$1,665 billion
or about a 1:900 ratio, not that far off from 1:700, and since national health expenditure numbers are estimates and who knows what mcguire really made, the 1:700 sounds plausible.
May 22nd, 2009 at 12:50 amI thought this was a pretty eye-popping number, so I appreciate the breakdown provided above.
But even if we said $1 out of every $7,000 went to this guy’s compensation (I’m not sure if the numbers above were just salary or included “perks” like healthcare, private jet, expense account, etc.), it still makes the point that for-profit health plans have really gotten out of control.
Compare the administrative costs of Medicare and Medicaid to those of the for-profit plans and you’ll understand why the cost of health insurance has increased 120% since 1999. We need a government option to compete with these for-profit plans and keep their administrative costs manageable.
May 22nd, 2009 at 11:50 amyep, the huge amounts of $$$$$ going to fatcats [and to others], instead of to actual care, is eye-popping indeed, but we don’t need to go through the rigmarole of setting up yet another complex plan to be run by the govt in hopes that it will [or won't, depending who you ask] compete with private plans, we can just expand medicare to cover everyone. the private insurance industry can still offer supplemental insurance if they want to.
May 22nd, 2009 at 10:00 pmThe problem with my even bringing this up in the first place is: someone might think I am defending McGuire and/or his pay package. Not the case, at ALL. I simply think Elizabeth missed the boat with her comment, rather badly. One of MY pet peeves is the misuse of statistical tidbits, often incomplete, out of context, and/or inaccurate when one examines them, which then gets people believing things that just are not true.
I loved the book “Innumeracy” in which the author (John Paulos) talks about how many people sort of just go into brain freeze regarding statistics that should be questioned because they don’t pass simple and obvious “smell testing”. As soon as I saw the 1:700 ratio a bell went off, and I said to myself “suspicious, but easy to check out”.
Hiparchia’s post doesn’t change my thinking. First off, it is not appropriate to count “unexercised stock options” as compensation UNTIL they are exercised. Moreover, the options are paid for, to the extent they are exercised, by the other shareholders because the value of the shares THEY own is diluted when options are granted. So for Ms. Edwards to give us a mental picture of one of every $700 health care dollars going into Dr. McGuire’s wallet, that’s patently misleading. Consumers don’t “pay” for stock options; shareholders do.
Moreover, in Dr. McGuire’s case, a lot of those previously-granted stock options were surrendered by McGuire AFTER the 2005 data you cite, some voluntarily because of scandal, some as an outgrowth of penalties levied by the SEC (I think), and other options were tied up in the courts and may still be in a limbo status years later. I’ve lost track of the case, but I know it was still “live” last summer with lawyers getting rich by virtue of suits and appeals and countersuits and so on. It’s the game rich people play, long after the rest of us have lost interest if we ever had any.
Finally in the AFL-CIO page (that hiparchia linked) it shows McGuire’s comp for 2005 at $60 million, not a billion. A person’s income CAN soar if they cash in stock options in a particular year after they’ve grown in value over their value at time of issue (i.e., are not “underwater”). But (to repeat) an executive sitting on options is not “compensation” and even if it WERE, the source of that compensation would be “dilution” of the value of all other shares … nothing to do with health care cost or consumer spending or corporate revenue from any source.
May 22nd, 2009 at 10:38 pmyou’ve got a point there, on the stock options not being exactly compensation, but they’re not really going to pay for care either, they’re going to put $$$$$$$$$ into some fatcat’s bank account, which is the important point.
the oft-quoted statistic is that we’re paying 15, 16, 17% of gdp for health care, when the reality is that we’re paying much less than that for health care and spending a fair portion of gdp on enriching a very tiny portion of the population, all while leaving several thousand people to die each year of treatable medical problems.
i’m all for numeracy too, so i’d like to that little math problem worked out: exactly what portion of gdp is going into the pockets of the leeches that are feeding off the healthcare system.
May 22nd, 2009 at 11:59 pmhipparchia: The beaten horse is dead. but stock options transfer “paper” value from shareholders to executive employees that receive stock option grants. So the “victim” is not the person who is paying too much for health care, or who can’t afford some needed health care, but rather the other shareholders whose share values are arguably diluted and are less valuable on the market.
High levels of the other forms of exec compensation DO probably contribute a little to higher health care costs, IF companies can raise prices in order to cover exorbitant pay. And health care providers are masters of increasing prices and/or adding and promoting services and products with high profit margins. Simplistically, if $XX millions are taken from the pay of executives, there should be some combination of lower prices and greater profits (assuming the performance of the company isn’t adversely affected by the pay cut). In a truly competitive industry sector, such compensation “savings” are more likely to accrue to consumers via pricing, but I doubt that’s true in health care because we are such lousy consumers of it.
Back to stock options: If shareholders donated some of their shares or dividends to organizations providing health services to the indigent (for example), instead of having the equivalent value “transferred” to executives via options, your dream would come true. Short of that, forget about it.
I will tackle the “into the pockets of the leeches” math problem you raise as best I can, but to get started I need a little explanation or definition of who are the “leeches”. I assume we’re thinking about the corporate officers of all health providers and insurers (or is it just some of those people and some of those organizations?). Maybe lawyers who take the big class actions and malpractice cases? Who else?
May 23rd, 2009 at 10:39 amleeches:
a partial list
a few more:
May 23rd, 2009 at 8:31 pmdrug manufacturers
specialty drugs
for-profit hospital chains
Quick back-of-envelope guesstimation says about 8-10% of the costs of health care are due to “leeches” … $200 Billion, give or take.
Two-thirds of prescriptions are now generics, so let’s say we cut the cost of non-generics by 75% — saves us $75 Billion.
If we cut out 1 million insurance industry employees, at $60,000 each on average, we save $60 Billion, although we’d have people working in the government administrative body. But lets just go with the $60B.
I figure (wild guess) we save $20 billion on specialty drugs, although are we going give up future specialty drugs that won’t be developed. Maybe not, if the government does it, but how much cheaper will they be able to, is a question.
Hospitals aren’t making any profits now, so that’s a zero factor. They can say they’re “for profit” but they are generally working on small margins and with the loss of investment income — the data reported by Reuters says overall hospital profits are at zero.
Add $45 Billion for good measure to cover your other “leech” categories although I cannot back up that number.
Total is $200 Billion, out of what, $2.5 Trillion spent on health care?
May 25th, 2009 at 3:22 amTerry Ott, there has to be a reason why our health care system is inferior (based on outcome) to the systems of most other industrialized countries, yet cost so much more. It’s not just that a lot of money is going into the pockets of executives who serve no purpose other than to increase their company’s profits (it is not their fiduciary responsibility to reduce health care costs; the incentives are perverse).
Beyond that, the taxpayers are on the hook to pay for the care of the approaching-50-million uninsured.
I would like to know the source of Elizabeth Edwards’ numbers, though.
May 25th, 2009 at 4:52 pmPlease call the enemy by name: it’s the Insurance Cartel. I hope all of us who want meaningful reform–not the Obama Plan but Single Payer–will start to change the language of the debate.
May 25th, 2009 at 10:54 pm