The CEOs of America’s seven largest publicly traded medical insurance and companies firms cumulatively earned greater than $283 million in 2021 — by far probably the most of any yr up to now decade.
Hovering inventory costs overwhelmingly fueled executives’ fortunes, based on a STAT evaluation of annual proxy disclosures from UnitedHealth Group, CVS Well being, Anthem, Cigna, Humana, Centene, and Molina Healthcare relationship again to 2012.
Increased earnings drove these firms’ shares. The coronavirus pandemic has led to folks delaying care, leading to insurers retaining premiums that in any other case would have been paid out as medical claims. Years of enormous acquisitions additionally began paying off, as medical insurance firms have morphed into conglomerates that additionally embody profitable drug advantages middlemen, doctor teams, pharmacies, and a number of different companies and suppliers.
Consultants argue the pandemic ought to have spurred insurers to do extra to maintain the nation’s well being care costs in verify. However as a substitute, taxpayers, employers, and employees have continued to abdomen increased well being care premiums.
“If that group of seven people had been delivering what they need to be delivering to the American folks, I’d don’t have any downside paying them $283 million,” stated Ted Doolittle, Connecticut’s well being care ombudsman and a former federal well being care official. “What they need to be delivering to People is not any will increase to their well being care bills. They need to be centered on the costs they’re paying to pharma and hospitals, particularly, however they’re not. So that they’re being rewarded for the incorrect factor.”
Roughly 87% of insurance coverage executives’ pay final yr got here from exercised and vested inventory, the evaluation reveals. Cigna CEO David Cordani took dwelling greater than $91 million in 2021, probably the most of any insurance coverage government. He’s registered $366 million since 2012. Cigna didn’t reply to requests for remark.
Longtime UnitedHealth government Dave Wichmann technically earned probably the most final yr, with $142 million, almost all of which got here from exercising his inventory choices. However STAT didn’t depend Wichmann’s complete towards the evaluation as a result of he abruptly left as UnitedHealth’s CEO in early 2021. UnitedHealth declined to remark and referred to its proxy doc for all questions.
A CVS spokesperson stated in a press release that “the overwhelming majority of government compensation is performance-based. In different phrases, our leaders profit when shareholders and a broader set of workers profit.” The opposite insurers didn’t reply to a request for remark.
The figures had been calculated by utilizing the precise realized features of inventory choices and awards, as a substitute of the estimated truthful worth of these choices and awards that’s extra generally reported. The massive paydays line up with how shares’ values improve over time, Alex Edmans, a finance professor on the London Enterprise College, informed STAT in an electronic mail. If executives keep at an organization for a very long time, as many throughout the medical insurance business have finished, and if inventory costs march upward, windfalls observe.
Each insurer besides Cigna and Humana outperformed the Dow Jones and S&P 500 final yr. CVS is the one firm that has lagged behind the market since 2012.
The insurance coverage CEO payouts are among the many highest in well being care, however government pay is a relative drop within the bucket for a rustic that spent an estimated $4.3 trillion on well being care in 2021.
“There’s an inclination to scold ‘grasping’ insurance coverage firms,” stated Cynthia Cox, a vice chairman on the Kaiser Household Basis who research medical insurance markets. “I don’t assume that’s with out benefit, however the issue with how a lot we spend on well being care goes properly past how a lot insurance coverage firm CEOs are paid.”
The insurance coverage business, broadly, is constructed on comparatively perverse incentives. Hospitals, medical doctors, drug firms, medical gadget companies, and different suppliers have consolidated and bulked up their bargaining muscle to cost increased costs to the 155 million individuals who get medical insurance by a job, however insurers have been awful negotiators, specialists say.
Some market dynamics are out of insurers’ management, equivalent to when hospitals management the market and have to be included in networks. However insurers will earn more money if costs and prices don’t decelerate.
For instance, federal legislation says well being insurers can solely retain 15-20% of premiums for revenue and overhead. That sounds good in principle, however it may truly encourage insurers to let spending and premiums develop, as a result of they’ll have the ability to maintain a slice of a bigger pie. Many employers additionally use insurers merely as third-party directors, paying them flat charges, which may make insurers detached to the costs that suppliers cost employers.
All of this implies it’s not in insurers’ curiosity to haggle for the very best offers and places them instantly at odds with the employers that rent them.
“Employers on the whole aren’t well-served by the carriers,” stated Sabrina Corlette, a medical insurance researcher and professor at Georgetown College. “The motivation construction is tousled. At a sure level, when is the employer group going to begin storming state capitals and Congress with pitchforks?”
There’s some hope federally mandated worth transparency amongst hospitals and insurers will peel again extra of the secrecy behind negotiations for these in business plans. Corlette stated there’s a rising “cottage business of distributors” which might be crunching the information and informing firms of the uncooked offers they’re getting. For instance, worth transparency startup Turquoise Well being simply raised one other $20 million to assist with extra well being care contracting that’s based mostly on clear costs.
However clear costs received’t resolve imbalances in market energy, nor will they resolve whether or not some insurance coverage firms roll over on the negotiating desk when their pay packages encourage them to take action.
“There’s no capability on the insurance coverage firm facet to get internationally regular costs, they usually’re not being held to account for that failure,” Doolittle stated.