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OP-ED | Skyrocketing Salaries For Health Insurance CEOs

by Wendell Potter | Jun 11, 2014 11:55am
(10) Comments | Commenting has expired
Posted to: Corporate Watch, Health Care, Opinion, Health Care Opinion, Reprinted with permission from the Center for Public Integrity

If They’re Making Millions, Should The Rest Of Us Have To Pay Higher Premiums?

If health insurance companies announce big premium increases on policies for 2015, I hope regulators, lawmakers and the media will look closely at whether they are justified, especially in light of recent disclosures of better-than-expected profits in 2013, rosy outlooks for the rest of this year, and soaring CEO compensation.

Almost all of the publicly traded health insurers reported big increases in revenue and profits last year. The big winners have been the top executives of those companies, led by Mark Bertolini, CEO of Aetna, the nation’s third largest health insurer. Bertolini’s total compensation of $30.7 million in 2013 was 131 percent higher than in 2012.

If the stock prices of these firms keep growing at the current pace, Bertolini and his peers can expect to be rewarded even more handsomely this year, especially if they can hike premiums high enough to satisfy shareholders.

YouTube via Center for Public Integrity According to Health Plan Week, a trade publication, the CEOs of the 11 largest for-profit companies were rewarded with compensation packages last year totaling more than $125 million.

Over the past several weeks, several of them have told shareholders and Wall Street financial analysts that their companies likely will have higher profits at the end of this year than they expected, despite having to pay more medical claims as a result of the new Obamacare customers they picked up.

Those announcements have been music to the ears of shareholders, who are considerably wealthier today than they were this time last year.

Of those 11 companies (Aetna, Centene, Cigna, Health Net, Humana, Molina, Triple-S Management Corp., UnitedHealth Group, Universal American, Wellcare, and WellPoint) nine saw their stocks close near 52-week highs this past Friday.

The biggest gainer has been Humana, one of the largest operators of Medicare Advantage plans, whose share price has increased more than 53 percent over the past year.

The increases have been equally impressive at most of the other big companies. Aetna’s share price is up 31 percent, Cigna’s 32 percent. United’s is up 28 percent. And WellPoint’s is up 39 percent.

But it is the CEO compensation that has been the most eye-popping, especially at two of the publicly traded companies that specialize in managing Medicaid enrollees in several states: Centene and Molina.

Centene’s CEO Micheal Neidorff saw his compensation increase 71 percent last year, from $8.5 million to $14.5 million. Even more impressive was the 140 percent raise Molina’s J. Mario Molina got. His compensation jumped from $4.95 million in 2012 to $11.9 million in 2013.

All of those totals were disclosed in the proxy statements those companies filed with the Securities and Exchange Commission earlier this spring.

When I handled financial communications for Cigna, the day I dreaded most every year was the day we filed the company’s proxy. That’s because I knew I would get calls from reporters wanting to know how we could justify paying the CEO so much when most other employees were lucky to get 3 percent raises.

I always had talking points drafted with plenty of help from the company’s lawyers and HR executives. They didn’t vary much from year to year. Basically, all I said was, hey, this is a very big company, the CEO has a very big job and his pay is in line with what other firms of similar size pay their top guys.

I made frequent use of those talking points the first couple years. But toward the end of my 15 years at the company, I would rarely get more than one or two calls. By 2008, the year I left, the phone didn’t ring at all, at least not from the media. Fewer and fewer reporters even bothered to look at the proxy statements.

Chances are you are learning for the first time right now just how much the CEOs of big health insurance companies make. Unless you subscribe to Health Plan Week, it’s not likely you will stumble across their salaries. Nor it is likely that many members of Congress have subscriptions to Health Plan Week. That’s a shame, because they probably haven’t seen this quote, attributed to Paul Dorf, managing director of Compensation Resources Inc., from the May 19 edition, in reaction to insurers’ increasingly stratospheric CEO pay:

“I think what is going to happen is that the government is going to be stepping in. I really foresee it. As this stuff becomes public and more of the media recite these numbers, I think people are going to go to their legislators . . . This is crazy.”

I agree. But I’m not holding my breath waiting for the media to recite those numbers. Or for Congress to pay any attention to the outsized paychecks those CEOs are demanding — and getting — even though by law we now have to buy coverage from those companies.

Former CIGNA executive-turned-whistleblower Wendell Potter is writing about the health care industry and the ongoing battle for health reform for the Center for Public Integrity.

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(10) Comments

posted by: Art Vandelay | June 11, 2014  1:07pm

Fear Not. In a few short years this nation will have 100% government controlled (socialized) medicine. Private health care insurance companies will be non-existent. The ACA was designed to fail so government can step in and take complete control of a failed program. The CEO’s will be in the unemployment line like the rest of us.

posted by: gutbomb86 | June 11, 2014  1:47pm

gutbomb86

Yes, read us more of your conservative tea leaves, Art. Find a reason not to address the point of the op-ed - bloated executive compensation that “trickles down” higher rates onto customers.

BTW, for those of you keeping score, the information in the op-ed above pretty much refutes Art’s point.

Also, the nonprofit insurer in Connecticut’s exchange is lowering its rates ... only took a few short months of operation for rates to come down. And the pool is only around 7,000 people right now.

Please, explain to me again why the profit motive is helpful in the insurance industry? Why it’s helpful to give CEO’s multi-million dollar compensation packages when your company is raising rates?

Thanks but no thanks.

posted by: Art Vandelay | June 11, 2014  2:10pm

@GutBomb86,
I agree with what you’re saying for the present, however you’re missing my point.  In a few short years insurance CEO salaries are not going to matter. The government will have 100% total control of health care.  Private health insurance and Connecticut’s exchange will be history.  When the federal government starts a bureaucracy (IRS, EPA, Medicare, & Social Security) it starts out small and grows. The AHCA will be no different.

posted by: GBear423 | June 11, 2014  2:27pm

GBear423

“The biggest gainer has been Humana, one of the largest operators of Medicare Advantage plans…”

GB86, why would an insurer of medicare plans be in the realm of all these other insurers? Apparently leading the pack with profits?

You can’t call this current system capitalism when it is being subsidized/manipulated by the Tax Payers’ representatives who are owned by Big Insurance and Big Medicine.
And going to a Government provided Healthcare system? 
Ask a Veteran or an Active Duty service member, they will tell you every time that they would go to a civilian Doctor for any serious procedures.

posted by: Matt W. | June 11, 2014  2:38pm

Matt W.

Shocking to see what happens when you let the insurance companies write the regulations and protect themselves from competition. Can’t believe they would take advantage of that to enrich themselves.  HAHAA!  The irony here is that you blame the insurance companies for taking what we have given them! Of course the CEOs are getting huge salaries! The President gave them the keys to the castle in exchange for their support and they used that to make bucket loads of money for the shareholders. The People were always against this.  And now you’re shocked to find out that the People are getting screwed? Is this news to someone?  I’ve got a door that needs to be propped open so I’d like to meet the person who believed that the insurance companies agreed to go along with the ACA out of the goodness of their heart and without being assured of a significant financial benefit.

posted by: Art Vandelay | June 11, 2014  5:56pm

@GBear423,  You’re correct. When the government takes total control of our healthcare (which it will) it will be far worse than what our veterans are receiving through the VA. Many lies were perpetrated by the left to get the ACA passed. “If you like your doctor & your plan you can keep them” was just the tip of the iceberg.  Insurance companies were also promised to be well compensated.  This is all going to implode fast, and once the house comes crashing down, the government will take complete control then watch out. The death panel will emerge and services will be rationed. The ACA is the worse piece of legislation ever signed into law.  I’d rather have insurance CEO’s make millions vs the repercussions this law is going to have on our society.

posted by: Joebigjoe | June 11, 2014  8:46pm

I wasnt familiar with Centene so looked them up. I found they have 8800 employees. If the CEO didnt get paid anything and the money went to the employees, then that means that each employee would get 1600 dollars. Since you obviously have to pay the CEO something then lets cut it in half and give each employee 800 dollars more a year.

Oh by the way none of my math works because much of this compensation was related to stock and not to salary, so you really cant take from his paycheck and give it to employees.

Now dont think I am for CEO pay but I am for it when the stock increases because employees benefit by that as do all kinds of public sector pension funds and mutual funds. However I do get outraged when a company and its stock are in the tank and the CEO makes a killing.

In the spirit of honesty I didnt come up with this math analysis myself. I got it from an article where people complained about the CEO of United Health which has close to 150,000 employees. The math for that one came out to be 200 dollars per employee more annually to pay the CEO nothing. That might pay for the increase in gas taxes at the pump for a few months in this state.

posted by: GBear423 | June 12, 2014  7:54am

GBear423

I imagine watching the big Insurance companies will tell the tale if they are going the way of the dodo. Selling of stock and top officers pulling the cords on the golden parachutes.
I have read of some Doctors going with no insurance, dealing direct with patients, paying cash, heck some in rural areas are trading for their medical advice/treatments.  Saves the Doctors money not having to deal with the regulations and overhead that comes with insurance billing, coding, mandates, etc.

posted by: Bulldog1 | June 13, 2014  10:44am

There are a couple of things not mentioned in the thread that deserve mention:
1. Why does the rest of the industrialized world have insurance that covers ALL of their citizens at half the cost of the US healthcare system that excludes 50 or so million people?

2. Why are their health outcomes in terms of preventive care and life span are better than ours, some by 4 years for both men and women?  Again at half the price.

3. While the CEO and their multi-million salaries got mentioned nobody thought to include the rake offs the investors want all of which consumes the attention of the CEO and premium dollars.  So cost to the ploicyholder increases in order to keep the stock movin’ on up.

4. Art, the sdministrative cost of Social Security is in the 3% range.  The cost of private insurance is in the 10-12% range to manage the operation.  Which makes them look not so good.  Toss in the payoffs to the boss and the price of keeping the stock up it gets a lot more costly to “provide” healthcare.  I’d rather pay my doctor and the hospital which by the way Medicare will be doing soon. A system that covers lots of us. 

And yes the insurance industry essentially wrote the ACA so of course their gravy will be the richest.  No competition here.

The math seems clear: Every citizen at half the price.  With better outcomes.

posted by: RJEastHartford | June 14, 2014  7:52am

Regardless of the business model, the author makes a great point about this new paradigm, post 2008 crash, of business. Aetna: strong revenues and profit ratios, strong equity-as stock price advances, CEO’s receive insane compensation amounts, yet Aetna is still shedding jobs, laying off workers folks. A problem here in Connecticut, losing good jobs with good wages. Remember when a company was profitable and had a lot of cash they would HIRE , without laying off?  This paradigm has nothing to do with technology, it is about lowering worker costs, which Wall Street loves, and in turn leads to higher CEO compensation. Insane.