Monday, June 16, 2008

Why People Can't Afford Insurance

Maybe this little tidbit will bring some clarity to the issue:
"Almost every CEO of a publicly traded health insurance company made more than the median salary for a top executive in the S&P 500 in 2007.


In its analysis of S&P 500 companies, Equilar found median total compensation for the CEOs was $8.8 million. The six publicly traded health plans that are a part of the S&P 500 index all paid their CEOs more than that median: from $9.1 million for WellPoint's Angela Braly to $25.8 million for Cigna's H. Edward Hanway."
When the heck will this trend cease?



Rogue Medic said...

On income, where did these companies fall in the S&P500, were they evenly distributed above and below the median?

6 data points out of 500 may not mean much of anything.

Rogue Medic said...

That should read 6 data points, out of all of the data points that have been compiled about these 500 companies, may not mean much of anything.

DrWes said...

rogue medic-

I'd refer you to these guys and their analysis, since this is where the data came from. Irrespective, if one agrees with their '$8.8 million' annual compensation median for CEO's in the Fortune 500, and the annual compensation for these insurers was between $9.1 and $25.8 million. I could care less what the company's income was, especially when the guys and gals on the front line of healthcare are threatened with an across-the-board 10.1% paycut 1 July. I mean, what the heck justifies that kind of compensation in this era of out-of-control healthcare costs?

Rogue Medic said...

The board of directors seem to feel they need to pay this kind of money to obtain/retain someone with the skills they feel are necessary.

If you worked in health care administration and were getting say $3 million per year, but other companies are offering you more to come work for them, how high do you let the offers go before you give in to the bidding for your services?

If the company sees CEOs leaving for other companies, they are likely to offer more and more perks and/or money to encourage the CEOs to stay with them (if they want to keep their CEO).

Expecting people to behave altruistically when there is that much money involved is likely to lead to disappointment.

Another approach is proposed by Nassim Nicholas Taleb. He feels that we give far too much credit to the CEOs for things that happen during their tenure and that they do not deserve the compensation, because it is more due to coincidence than skill. I agree with his interpretation (I hope that I am expressing it well).

Justification? They will probably do a lot of damage, be replaced by somebody similar, with this pattern repeating. You have the companies on one side and the government on the other, but neither is focused on the patient. It is not good.

My prescription is a nice old movie about a different business Network, or one about health care by the same writer The Hospital.