A Healthcare Insurance System Making Patients Sicker and CEOs Rich

A bit of a rewrite on this commentary to make it clear and precise in what it is saying. What is occurring is the Insurance Companies and their CEOs are profiting off of our illness. Insurance Policy pricing keeps going up along with the healthcare insurance deductibles. Unless one can afford the insurance premiums, people rely on higher deductibles. The other issue is such profit taking by executives can leave a company at risk when the economy slows or such action is beomes detrimental.

The System Makes Patients Sick and CEOs Rich (levernews.com), Wendell Potter

Health insurance companies are on a spending spree buying back shares of their own stock. An illegal gimmick until a few years ago. It has made a few insurance company CEOs rich. This comes at a time when one hundred million Americans are saddled with medical debt.

Share repurchases benefit top executives and other shareholders at the expense of the insurers’ customers. It especially hurts the health plan enrollees having high out-of-pocket requirements. This results in their being buried under a mountain of medical debt. As Forbes reported last July, those out-of-pocket requirements have reached such heights that millions of Americans are now “functionally uninsured.”

The seven investor-owned health insurers disclosed how much money their top executives made last year. (This is required by the SEC of publicly traded companies). We can see just how important that gimmick has become to the people who are ultimately responsible for:

  • whether we get the care our doctors say we need,
  • how much we have to send them every month in premiums and,
  • how much we have to shell out in copays and deductibles before they’ll start paying our medical bills.

As Bob Herman, a journalist at health care news outlet STAT reports,

In 2022, the CEOs of the seven major publicly traded health insurance and services conglomerates consisting of CVS Health, UnitedHealth Group, Cigna, Elevance Health, Centene, Humana, and Molina Healthcare combined pay was more than $335 million. This according to a STAT analysis of the annual financial disclosures. The total was 18% more than the 2021 record. High-flying stock prices again were fueling a vast majority of the gains.

Health Insurance CEO Compensation 2022

An analysis of how much of the premiums and tax dollars the companies were using to buy back shares of their own stock was done. It revealed they spent a combined $141 billion on share repurchases between 2007 and 2022.

Keep in mind this is $141 billion which otherwise could have been used to reduce premiums and deductibles. An unknown number of American families could likely avoid bankruptcy and GoFundMe campaigns resulting from healthcare debt. Instead, the $141 billion is used to increase the wealth of their shareholders and top executives. If you did not get it the first time, l said it again.

It is obvious the biggest beneficiaries of the stock buybacks being the companies’ CEOs. Why so? With each buyback, the value of the shares of stock they hold increases every time companies repurchase shares.

It is simplistic: when a company buys back shares, the number of shares outstanding decrease, and the buyback inflates the value of the remaining shares of stock. I benefited from this gimmick myself when I was at Cigna because a portion of my compensation was paid, in one way or another, in stock.

However, what I was paid in stock was a tiny fraction of what my CEO was paid. When I was Cigna’s chief spokesman, I told reporters, about 90 percent of the CEO’s compensation was “at risk.” Meaning which, most of their salary was paid based on the risk of how well the company met shareholders’ financial expectations. Whether and how much the company increased the value of each share of stock (earnings per share, or EPS) was a determining factor.

Not much has changed in how CEOs are compensated since leaving Cigna in 2008. As STAT’s Bob Herman reported last year after compiling insurance company CEOs’ compensation figures for 2021, roughly 87 percent of their pay came from exercised and vested stock. The results do not suggest a large degree of risk. In fact, not having healthcare insurance is a far greater risk than a CEO’s salary.

When much of your pay is “at risk,” you can be certain the CEOs’ top priority is to do whatever it takes to boost earnings per share. Their net worth depends on it. Every time Cigna announced quarterly earnings, my net worth would go up or down based largely on how shareholders reacted to the EPS number. A number which could be artificially inflated upward by share buybacks during the quarter. The swings in my net worth were negligible compared to my CEO’s. (Cigna’s current CEO, by the way, took the top spot among health insurance executives in 2021 with a $91-million haul. In 2022, he landed in second place with $37.1 million in total compensation.)

The salary the insurance CEOs make these days is especially alarming when you consider they are getting more and more of it from us as taxpayers. The three smallest of the seven big for-profit insurers consisting of Centene, Humana, and Molina get 80 to 90 percent+ of their revenue from taxpayers due to the Medicare Advantage plans they operate and the state Medicaid programs they manage.

And what should be especially alarming is the CEO of Molina, the smallest of the taxpayer-dependent companies was paid the most last year. Of the $335 million the seven CEOs were paid last year, more than half of it, $181 million, went to Molina’s CEO, Joseph Zubretsky. As STAT’s Herman reported,

“More than 80% of Molina’s revenues come from Medicaid, the state and federal insurance program that covers low-income people. Zubretsky’s compensation package is one of the largest ever among health insurance executives.”

The total is even more eye-popping when you look at how Molina’s CEO pay has jumped over the past ten years — from $9.5 million in 2012 to $180.8 million last year.

Molina hired Zubretsky in November 2017 after posting a significant quarterly loss. His hiring was  announced at the same time the company said it;

  • planned to lay off fifteen hundred employees,
  • exit some of the markets it served and,
  • jack up premiums on the Affordable Care Act marketplace plans by 55 percent.

To be fair, all seven of the companies are far bigger than they were ten years ago. But that growth has been fueled largely by mergers and acquisitions, not by organic growth of their health plan membership.

As STAT‘s Bob Herman wrote:

The paydays reflect not only the higher stock prices but also the companies’ relentless pursuit to get bigger. Most of the companies have continued to invest in other areas outside of health insurance. Things such as medical groupstechnologyhome health, and pharmacy benefits. On the insurance side, every company has gone all-in on government-funded programs they previously viewed as unattractive such as Medicare Advantage and Medicaid.

Even the individual exchanges created by the Affordable Care Act, for a time were viewed as untouchable. This led to a spate of insurer exits, and now they are sought-after.

Keep all of this in mind the next time you go to the pharmacy counter and are told; even with insurance, you’ll have to pay a king’s ransom for your meds. Why? Because your insurer through its pharmacy benefit manager (PBM) has once again jacked up your out-of-pocket requirement. Or the next time you notice how much has been deducted from your paycheck for your health insurance and Uncle Sam.

A suggested way to limit executives’ hunger for short term profit-taking in the form of bonuses is to set a required amount of time before they can take a bonus. As suggested by one expert on the topic:

“One solution (William Dudley, a former Goldman Sachs partner and then head of the New York Fed) is to make executives and producers bear the first loss in any bank or in this case insurance company shortfall is to withhold most of the bonus as subordinated equity.

As financial authority Yves Smith (Naked Capitalism) suggests, ‘adequately along periods of bonus retention (say five years, which is what Warren Buffett uses in his reinsurance business) are set to greatly reduce the “IBG/YBG” problem (‘I’ll be gone, you’ll be gone’).”

I can see such working. Will a company agree to such a retention? Board of Directors are typically upper management from other companies. I can envision resistance as they might be held to similar at their company.