Is Health Care the Next 'Bonusgate'?
House energy panel asks 52 companies to cough up info on everyone who makes more than $500,000 a year. Insurers cry foul. Does health CEO pay matter?
WASHINGTON - Earlier this year, public outrage boiled over with news of eye-popping pay to top executives on Wall Street.
White House officials later acknowledged they had misjudged the velocity and volume of furor triggered by "bonusgate," which raised the profile of corporate executive pay.
Could that happen now in health care?
Some of the known salaries are pretty big. Last year, the head of Cigna (CI, Fortune 500) made $11 million and the head of United Health Group (UNH, Fortune 500) made $9.4 million, according to the Corporate Library.
Fifty-two health and accident insurance companies have until Friday to turn over salary details on employees who make more than $500,000 a year.
Last month, Rep. Henry Waxman, D-Calif., head of the House Energy and Commerce Committee, asked for the figures as part of a broader look at how health insurers operate.
And last week, Sen. John D. Rockefeller IV, D-W.Va., who runs the Senate Commerce panel, also asked the biggest health insurers to cough up particulars of premium dollars spent on patient care.
Some policy watchers believe the congressional push has the potential to shake things up. In fact, a controversy over CEO pay could renew debate over a public option, a government-run health insurance plan that would compete with private insurers.
Public option advocates hope outrage over big-time salaries prompts a new rally for their case.
The debate over pay
"I think they will get some information that will surprise policyholders, because there's not a great deal of awareness of how much these executives do make," said Wendell Potter, a former Cigna vice president who now works for a left-leaning media group. "A lot of money they're paying in premiums is going to make executives richer and richer every year."
But health insurers call the salary quest a politically motivated "fishing expedition" that distracts from other reform issues such as expanding access, controlling costs and improving the quality of care.
They say it is the latest in a series of attacks against them as the debate to redo the nation's health care system enters the final stretch.
"These letters were sent at a time when the industry dared to raise questions as to whether there should be a government run plan," said Robert Zirkelbach, a spokesman for America's Health Insurance Plans, the industry's lobbying group. "Health insurance profits are not what's driving health care costs."
Most executives of publicly traded companies draw their big pay checks from bonuses, stocks and options to buy and sell stocks at sweet prices. Their compensation is tied to profit levels and how the company is valued.
In health insurance, profits come out of the pot of money left over after premium dollars are used to pay for patient care. The formula that accounts for how much of premiums are spent on patient care versus administration, marketing and profits is called a "medical loss ratio." And that's one of the things lawmakers want to know more about.
In the early 1990s, health insurers spent more than 90 cents of every dollar collected on patient care, but that has been declining. In 2007, national publicly-traded health companies spent about 81 cents of every dollar on patient care, according to a PriceWaterhouseCoopers report.
Advocates who want executive pay included in the reform debate want to reverse that trend and force insurers to spend more on patient care.
Profits and patient care
"These guys are operating on the sole basis that they want to retain as much as they can in premium dollars for their investors and their own pay," said Robert McGarrah, counsel for the AFL-CIO Office of Investment. "That's why we need a public plan, so we'll have a benchmark."
America's Health Insurance Plans, the industry advocacy group, argues that the industry is not sacrificing patient care for profits. It points to the industry's ranking as 35th on Fortune's report on most profitable sectors returning a 2.2% profit in 2008. (In 2006, the sector ranked 21st and averaged a 7.1% profit.)
But while health insurance might not be the most profitable of industries, even in an off-year like 2008, several top chief executives made more than $5 million, according to analysis by the Corporate Library, an independent corporate governance research firm.
AHIP and other insurers say executive compensation should be debated across the board on Wall Street, not just for health insurance companies.
"While executive compensation is an important issue, the health care industry should not be singled out alone," said Chris Curran, spokesman for Cigna. "We have been diligently working on a plan that guarantees coverage for everyone ... without adding to the debt burden of the country that a government sponsored plan would create."
But advocates like Potter say the difference between health insurers and other companies is that in health insurance, those dollars that go to reward top employees could be going to patient care.
"I think it's significant because Americans are spending more and more of their premium dollars on compensation for the executives and other highly paid employees," said Potter, now a senior fellow for the Center for Media and Democracy.
The salary request is part of a broader investigation into the health insurers' business practices, following recent hearings into why health insurers drop some patients, congressional aides said.
"As Congress continues to debate health care reform, it is important we have all of the facts," said Rep. Bart Stupak, D-Mich., who has led the push along with Energy Chairman Waxman.
In the Senate, Rockefeller's inquiry went to the top 15 health insurers. The industry's answers are due Sept. 8.
CNNMoney.com sought comment from a dozen of the bigger publicly-traded insurers, and all said they planned to respond to the requests.
"We have received the letter, are in the process of reviewing it, and have not yet determined a response, although we certainly take the request seriously," said Aetna's (AET, Fortune 500) Fred Laberge. To top of page