Memo from the Editor

June 2, 2006

How about cutting insurance execs' pay?

The high cost of healthcare gets plenty of publicity. The US spends roughly 16 percent of gross domestic product on health expenditures; that's nearly double the percentage spent, on average, by the 30 member countries of the Organisation for Economic Co-operation and Development. And over the coming decade, expenditures are expected to grow at an average rate of 7.2 percent a year.

Increases in spending on physicians services, prescription drugs, and hospital care get most of the blame for escalating costs. Some of that blame is justified, but physicians in office-based practice are barely keeping up with inflation, and many are losing the race.

There are players in the healthcare sector, though, for whom the race against inflation is of little or no consequence. They are the CEOs of the top health insurance companies. One of them, pulmonologist William W. McGuire, Chairman and CEO of UnitedHealth, has been in the headlines the past few months because he's amassed some $1.6 billion in unrealized gains on stock options granted to him over the years. Stock options aside, in 2005 McGuire's salary, bonuses, and other perks amounted to $10.7 million.

Last month, UnitedHealth's board of directors reportedly voted to slash executive compensation and perks and to stop giving options to Dr. McGuire. I suspect "slash" is a relative term. I also suspect the money that doesn't go into McGuire's pocket won't translate into premium savings for UnitedHealth's policyholders either; it'll wind up as dividends for shareholders. But it's a start.

The American public is outraged at the escalation in gasoline prices, the record-breaking earnings of the big oil companies, and the compensation of oil company executives. It's time for equal outrage over the costs of health insurance and the outsize compensation of health insurance executives. It's just not right for health insurance companies to second-guess physicians over the need for twice-a-day dosing with nitroglycerin (yes, it's happened) while McGuire, Hanway, et al. count those pills all the way to the bank.