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UnitedHealth CEO Makes Recommendation on Pay

UnitedHealth CEO Makes Recommendation on Pay

By DINAH WISENBERG BRIN and VANESSA FUHRMANS
Wall Street Journal
Originally published April 18, 2006

UnitedHealth Group Inc. Chairman and Chief Executive William W. McGuire said Tuesday he is recommending that the insurer, which is under scrutiny for the timing of past stock-options awards, forgo equity-based payments and grants for most senior executives.

The company also said it posted higher-than-expected first-quarter earnings but lowered its guidance for next year. Earnings at the country’s second-biggest health insurer climbed 21% to $899 million, or 63 cents a share, in the quarter, from $743 million, or 55 cents per share, a year earlier. UnitedHealth’s acquisition of PacifiCare Health Systems Inc., which it completed late last year, and its new Medicare drug-benefit plans helped fuel profits, as a well as a 58% jump in first-quarter revenues to $17.59 billion.

As a result, Dr. McGuire said the company now expects full-year earnings between $2.88 and $2.92 a share — a 22% to 24% increase from 2005 — compared with its earlier projection of between $2.85 to $2.90 a share.

Dr. McGuire prefaced his discussion of the company’s performance with his first comments on the controversy over his massive financial windfall from stock options, now totaling $1.6 billion in unrealized gains. In a move that could prove to be a significant pullback from what has been an enormously generous remuneration package, Dr. McGuire said he was recommending that the company eliminate change-in-control severance payments and “noncash perquisites,” for the most senior executives, as well as capping supplemental retirement plans and eliminating further equity-based grants “for the foreseeable future.” UnitedHealth’s board will consider that idea at its next meeting in May, he said.

Dr. McGuire’s suggestion does not restrict him or other executives from exercising options they’ve already received, and a company spokesman declined to specify what perks Dr. McGuire suggested be eliminated.

Earlier this month, UnitedHealth said a committee of its independent directors would review the company’s options-grant practices in light of Securities and Exchange Commission scrutiny of options grants at numerous companies, including UnitedHealth.

The Wall Street Journal reported last month that Dr. McGuire’s options grants were regularly dated just before substantial run-ups in share price and after a sharp fall.

Monday, Comverse Technology Inc. said that after a preliminary review of its stock-option practices, it expects to restate more than five years of financial results because the grant dates used in its accounting “differed” from the actual grant date.

Several UnitedHealth executives frequently received stock-options grants dated at or near quarterly low points in the company’s share price, raising questions about how the Minnetonka, Minn., health insurer timed options grants, the paper reported this week.

“I and all of us at UnitedHealth Group take these concerns seriously,” Dr. McGuire said. “It is extraordinarily difficult and frustrating not to respond to media reports” about company options practices, especially those that “impugn” management, Dr. McGuire said.

“To my knowledge, every member of management in this company believed at the time that we followed appropriate practices” for granting options executives and other employees, he said. The CEO, questioned by an analyst, wouldn’t specify whether he had received backdated stock options, saying the company didn’t want to bias the independent review committee. “We sleep with good conscience,” he added.

By the quarter’s end, UnitedHealth had signed up about 70 million consumers, an increase of 27% over the prior year. The company said it had 4.5 million seniors using its Medicare Part D prescription drug benefit, generating $1.2 billion in revenue for the quarter. The company’s Part D plans saw their margins squeezed due to the costs of assimilating new members, but it said it expects to see margins expand by year’s end.

Dr. McGuire was the subject of a Page One article in The Wall Street Journal today that looked at how an elite group of companies is getting rich from the nation’s fraying health-care system. Many of them are middlemen who process the paperwork, fill the pill bottles and otherwise connect the pieces of a $2 trillion industry.

UnitedHealth directors in the late 1990s allowed Dr. McGuire the rare freedom to time his stock-option grants. In several cases the grants carried dates when the company’s share price was particularly low, allowing him to profit when it recovered.

The Journal’s analysis of 12 options grants to Dr. McGuire from 1994 to mid-2002 found that if the options had been randomly dated, the odds of their occurring at such propitious times were about 1 in 200 million. It raised the possibility that the options grants were backdated. Backdating an options grant isn’t necessarily illegal, but civil or criminal actions could be brought if disclosure of the practice was inadequate, securities lawyers say.

Write to Dinah Wisenberg Brin at dinah.brin@dowjones.com10 and Vanessa Fuhrmans at vanessa.fuhrmans@wsj.com11

MORE ON MCGUIRE
• Option grants to Dr. McGuire in 1997, 1999 and 2000 carried dates on which UnitedHealth’s stock hit its low for the year. Read more about the grants and those made to other companies’ executives in The Perfect Payday (March 18, 2006) and see charts of the option grants.

Government-Funded Care Is the Best Health Solution

Multiple Insurers, Multiple Plans Create Expensive, Draining Hassle

THE DOCTOR’S OFFICE

By BENJAMIN BREWER, M.D.
THE WALL STREET JOUNRAL
April 18, 2006

A recently approved Massachusetts plan designed to force all residents to get health insurance was a step in the right direction, but it doesn’t go far enough.

Under the Massachusetts approach, there will still be a maze of plans provided by any number of insurers. That multiplicity is the problem. Multiple insurers and multiple plans create layers of unneeded expense and bureaucracy related to billing, collections and the entire assembly line of middlemen between the service rendered and the payment.

It took me a while to conclude that a single-payer health system was the best approach. My fear had been that government would screw up medicine to the detriment of my patients and my practice. If done poorly, the result might be worse than what I’m dealing with now.

But increasingly I’ve come to believe that if done right, health care in America could be dramatically better with true single-payer coverage; not just another layer — a part D on top of a part B on top of a part A, but a simplified, single payer that would cover all Americans, including those who could afford the best right now. Representatives and senators in Washington should have to use the same system my patients and I do were they to vote it in.

Doctors in private practice fear a loss of autonomy with a single-payer system. After being in the private practice of family medicine for 8 1/2 years, I see that autonomy is largely an illusion. Through Medicare and Medicaid, the government is already writing its own rules for 45% of the patients I see.

The rest are privately insured under 301 different insurance products (my staff and I counted). The companies set the fees and the contracts are largely non-negotiable by individual doctors.

The amount of time, staff costs and IT overhead associated with keeping track of all those plans eats up most of the money we make above Medicare rates. As it is now, I see patients and wait between 30 and 90 days to get paid. My practice requires two full-time staff members for billing. My two secretaries spend about half their time collecting insurance information. Plus, there’s $9,000 in computer expenses yearly to handle the insurance information and billing follow up. I suspect I could go from four people in the paper chase to one with a single-payer system.

It would be simpler and better for the patient, and for me, if the patient could choose a doctor, bring their ID card with them, swipe it in a card reader at the time of service and have the doctor get paid on the spot with electronic funds transfer.

Instead, patients have to negotiate a maze of deductibles, provider networks, out-of-network costs, exclusions, policy riders, ER surcharges, etc. Wouldn’t a card swipe be simpler? No preexisting conditions to worry about. No indecipherable hospital bills. One formulary to deal with and one set of administrative rules to learn instead of 300.

With a single-payer system, there are concerns about waiting times for procedures and not getting access to the “best doctors.” These are real issues, but not unsolvable ones. We have these disparities now. Fact is, they are mostly a matter of geography, insurance status and personal wealth.

A single-payer system would increase access to care for the uninsured and the underinsured, including the working poor. It would lower total health costs, in part by replacing 50 different state Medicaid programs and umpteen insurers with one system. This approach has the potential to improve quality and lower costs by improving care for chronic illnesses such as diabetes, high blood pressure and heart disease.

Such a system of care would rely on evidenced-based interventions, that is, providing the right care at the right time to the right patients, according to generally accepted best practices, and it would reduce the disparities in access to and quality of care among ethnic groups. Better tracking of chronic diseases, outbreaks and identification of bioterrorism would also be benefits.

There are powerful forces that oppose a single-payer system — the health insurance industry for one. The insurance industry got its share of the Medicare drug benefit pie, as did the pharma industry. It would have been better and simpler for the government to design one plan with a standard drug fee schedule that everyone could understand, as the government does with care that doctors provide to Medicare patients. But that’s not the way it happened.

Doctors have been supportive of the idea of universal access to care, but not necessarily a single-payer system. Some fear delays in obtaining necessary testing and surgeries. What I suspect they fear most is a loss of income and the fear of the unknown.

A single-payer system would admittedly lower fees for subspecialty care, such as radiology and cardiology. But if more doctors went into family medicine or obstetrics and fewer into subspecialties like plastic surgery, that shift might help correct the physician manpower imbalances that exist now. That wouldn’t necessarily break my heart.

I suspect doctors would be more likely to support a single-payer system if national malpractice reform was part of the package — which it should be.

I used to think a single-payer system would keep my income down and inject bureaucracy into my medical decision-making. But with the efficiency it could bring, it would at worst be an economic wash; more likely, the trimmed costs would more than make up for any foregone revenue. As for autonomy, I’m already struggling to maintain it amid the interference of insurers.

On the whole, the efficiency — and equality — that a single-payer system would provide would more than compensate for its shortcomings.

Write to Dr. Benjamin Brewer at thedoctorsoffice@wsj.com

Insurer CEO Makes a Billion

Rewarding Career As Patients, Doctors Feel Pinch, Insurer’s CEO Makes a Billion

UnitedHealth Directors Strive To Please ‘Brilliant’ Chief;
New Questions on Options
Selling Trout for 40 cents a Pound

By GEORGE ANDERS
April 18, 2006
Page A1 Wall Street Journal

MINNETONKA, Minn. — When William McGuire switched careers in 1986, he was so restless that a pay cut of more than 30% didn’t faze him. Health maintenance organizations were booming, and Dr. McGuire wanted to help run one. So he jettisoned a six-figure income as a pulmonologist in favor of an HMO management job that paid about $70,000 a year.

Savvy move. Today, the 58-year-old Dr. McGuire is chief executive officer of UnitedHealth Group Inc., one of the nation’s largest health-care companies. He draws $8 million a year in salary plus bonus, enjoying perks such as personal use of the company jet. He also has amassed one of the largest stock-options fortunes of all time.

Unrealized gains on Dr. McGuire’s options totaled $1.6 billion, according to UnitedHealth’s proxy statement released this month. Even celebrated CEOs such as General Electric Co.’s Jack Welch or International Business Machines Corp.’s Louis Gerstner never were granted so much during their time at the top.

Dr. McGuire’s story shows how an elite group of companies is getting rich from the nation’s fraying health-care system. Many of them aren’t discovering drugs or treating patients. They’re middlemen who process the paperwork, fill the pill bottles and otherwise connect the pieces of a $2 trillion industry.

The middlemen credit themselves with keeping the health system humming and restraining costs. They’re bringing in robust profits — and their executives are among the country’s most richly paid — as doctors, patients, hospitals and even drug makers are feeling a financial squeeze. Some 46 million Americans lack health insurance.

UnitedHealth’s main business is offering health plans to employers and Medicare beneficiaries. Bigger employers usually pay employees’ medical bills out of their own coffers and hire UnitedHealth to administer the health benefit. Smaller employers pay an annual insurance premium to UnitedHealth in exchange for having the insurer take on the risk of covering employees’ health care.

The “risk” business has been a particular gold mine for UnitedHealth and its rivals in recent years. As health-care inflation eased, insurers still raised premiums at double-digit rates. UnitedHealth’s stock price tripled between January 2003 and January 2006, helped by acquisitions, although it has fallen back somewhat since the beginning of this year. UnitedHealth’s net income in 2005 totaled $3.3 billion, nearly four times the figure in 2001.

UnitedHealth directors in the late 1990s allowed Dr. McGuire the rare freedom to time his stock-option grants. In several cases the grants carried dates when the company’s share price was particularly low, allowing him to profit when it recovered. The company’s options-granting practices were among several scrutinized in a page-one article in The Wall Street Journal last month and are being examined by the Securities and Exchange Commission.

The Journal’s analysis of 12 options grants to Dr. McGuire from 1994 to mid-2002 found that if the options had been randomly dated, the odds of their occurring at such propitious times were about 1 in 200 million. It raised the possibility that the options grants were backdated. Backdating an options grant isn’t necessarily illegal, but civil or criminal actions could be brought if disclosure of the practice were inadequate, securities lawyers say. A UnitedHealth spokesman said the grants were appropriate, but the company’s board is reviewing options-granting procedures.

The arrival of the $1 billion CEO would be a head-turner in any industry. But it’s especially controversial in health care, where “people tend to view each dollar of executive pay as money that isn’t spent on them,” says Jonathan Weiner, a health-policy expert at Johns Hopkins University. Dr. McGuire and his supporters say the U.S. would be in even worse shape if it weren’t for insurers such as UnitedHealth weeding out unnecessary treatments, bargaining with doctors and encouraging patients to seek out the highest-quality care.

Ever since missing a stock-market windfall in the late 1980s, Dr. McGuire has pursued stock-options wealth tirelessly, as an iron-willed leader surrounded by an admiring board. He declined to discuss his pay, but current and former directors talked at length about their desire to do whatever is necessary to keep Dr. McGuire happy.

“We’re so lucky to have Bill,” says Mary Mundinger, a UnitedHealth director who sits on the company’s compensation committee. “He’s brilliant.” She says his income gives him extra credibility in health-policy debates because it shows his success. “He needs to be compensated appropriately so that his business model has believability in the market,” says Ms. Mundinger, who is dean of the nursing school at Columbia University.

Robert Ryan, another UnitedHealth director, notes that the company’s stock-market capitalization has climbed 112-fold since Dr. McGuire took over in 1991. “A lot of the board’s job here is to keep him motivated,” says Mr. Ryan, a retired chief financial officer of Medtronic Inc.

Bill McGuire was born in Troy, N.Y., but moved to Texas as a boy when his father got a job as an oil-company engineer. He grew up in League City, Texas, a blue-collar town near Galveston. Friends remember him as shy, pleasant and dead-certain of his expertise in areas ranging from sports to math.

He grew to be 6-foot-6, and as a high-school senior he was the starting center on a basketball team that nearly won the state championship. “Bill did all my scouting reports for me,” recalls Bill Krueger, who was in his first year as coach. “I’d never played our opponents before. Bill had. He remembered all the other players’ strengths and weaknesses.”

After college, Bill McGuire attended medical school in Galveston, Texas, at the urging of family doctor Ned Dudney. Varsity athletes who go into medicine often end up as surgeons. But Dr. Dudney pegged his young friend as more of an intellectual problem-solver and pointed him toward internal medicine. “Bill liked the challenge of diagnosing the rare, complicated disease,” Dr. Dudney recalls.

At medical school, Dr. McGuire became famous for his side income as a commercial fisherman, selling speckled trout to Galveston’s best restaurants at 40 cents a pound. The night before one exam, he slipped away to the Gulf of Mexico and spent hours catching fish.

“It flabbergasted us,” recalls classmate Robert Hendler. “The rest of us were struggling to learn the material. Bill had it down cold. He could go fishing and still get one of the best scores on the test.”

In the early 1980s, Dr. McGuire settled into private practice as a lung-disease specialist in Colorado Springs, Colo. Much of his job involved hospital care of the desperately sick at all hours of the day and night. In one case, Dr. McGuire — who wasn’t certified as a cardiac surgeon — reopened the chest incision of a critically ill patient in the emergency room and massaged his heart. That audacious step kept the patient alive until a surgeon arrived.

Looking for a new challenge, Dr. McGuire joined Peak Health Plan Inc. in 1984 as its assistant medical director. He helped found a smaller health plan, CostGuard Inc., in which he took a 10% ownership stake. “Bill gave us a lot of credibility,” recalls Stephen Hyde, Peak’s CEO at the time. “I was trying to expand our provider network, and I couldn’t get doctors to come to our recruiting meetings. Bill could.”

Within two years, both Peak and CostGuard were sold to UnitedHealth, a larger Minnesota company that had been founded in 1974, for a total of about $95 million. Dr. McGuire was irked that the company he had recently joined was suddenly sold, associates say. He earned about $1 million on his CostGuard stake but he didn’t own any Peak stock, so he missed out on bigger windfalls that Peak’s three founders collected. “Bill didn’t let me forget about it for years,” Mr. Hyde says.

The managed-care industry in the late 1980s was experiencing booming but chaotic growth. Big corporations, instead of simply paying whatever medical bills their employees submitted, tried steering them into more restrictive HMOs to hold down runaway costs. Members streamed in so fast that many health plans’ computer systems buckled.

Dr. McGuire moved to UnitedHealth’s headquarters in Minnesota, where he quickly became the company’s No. 2 executive. In 1988 and 1989, he performed the business world’s version of emergency surgery on a company that was stretched too thin. After he helped sell or close a half-dozen regional plans that weren’t working out, UnitedHealth became a smaller but more profitable company.

“When we saw Bill’s talent and potential, we started providing him with some big stock options to give him some incentives,” recalls Robert Ditmore, a former UnitedHealth director in the late 1980s. By the end of 1990, Dr. McGuire had options on 229,277 shares, or 0.7% of the company.

This was the beginning of a period when U.S. corporations began making options a big part of pay packages, seeking to align the interests of executives and shareholders. Traditionally, hired CEOs enjoyed big salaries but their puny stockholdings left them no hope of approaching the epic wealth of the Rockefellers or DuPonts.

But as stock options took off, highflying bosses such as Dr. McGuire propelled themselves into the top ranks of their companies’ shareholder registries. As stock prices rose, these bosses became tycoons, too.

The stock jumped 10-fold during Dr. McGuire’s first five years at the company. Directors purred. “We knew we had a really strong leader in Bill,” recalls Walter Mondale, the former presidential candidate, who was a member of the UnitedHealth board’s compensation committee in the early 1990s. “We wanted to keep him and help him with incentives.”

During his first seven years as CEO, Dr. McGuire’s base salary more than tripled, to $1.3 million in 1998. His bonus jumped nearly as briskly for a few years. Then in 1997 and 1998, Dr. McGuire told directors that he would forgo his bonus. The company’s stock price and earnings growth had stalled amid a backlash against restrictive health plans.

His sacrifice impressed directors. As the expiration of his contract approached in mid-1999, the directors and the CEO met repeatedly to talk about a new contract.

Dr. McGuire at the end of 1998 had unrealized gains of $22 million on his existing options. That might have seemed like a huge sum a decade earlier. But Leonard Abramson, the founder of U.S. Healthcare Inc., netted about $900 million when he sold his company to Aetna Inc. in 1996. And dot-com mania was at its peak. CEOs of health-care start-ups such as WebMD Inc. held 5% or bigger stakes in their companies, which looked like passports to great wealth.

In contract negotiations, Dr. McGuire pushed for more options, and directors agreed. When his contract was renewed, effective Oct. 13, 1999, he got options equivalent to 2% of UnitedHealth’s shares outstanding. That was the biggest slice Dr. McGuire had ever received. “Clearly we were aware of people getting huge gains on Internet-stock situations. That was perhaps a factor in our mind,” says director William Spears.

The dot-coms’ onslaught proved laughably brief, but UnitedHealth kept rising. As the industry consolidated — spurred by several deals Dr. McGuire engineered — health-plan operators found it easier to raise prices. Employers rarely complained, or if they did they directed their anger at the health-care system generally.

The better UnitedHealth fared, the more valuable Dr. McGuire’s options became. Since 2000, he has cashed out $488 million of options, yet the value of his remaining options keeps rising. The 1999 grant has proved about seven times as valuable as the company projected when it was issued.

In Minnesota, such riches have infuriated some people. Joel Albers, a Minneapolis pharmacist, regularly impersonates Dr. McGuire at state fairs, donning a tuxedo, holding up an enlarged picture of Dr. McGuire on a stick and handing out leaflets denouncing corporate greed. Most people chuckle and walk on. But Mr. Albers says he has a serious point. He has been urging Dr. McGuire to spend his options proceeds on providing free health coverage for Minnesota’s 77,000 uninsured children.

UnitedHealth executive John Penshorn says outsiders’ efforts to tell Dr. McGuire how to spend his money are “very parochial” because “the issues are broader than just Minnesota.” Dr. McGuire has been speaking out about national health system reform and UnitedHealth has opened advanced clinics that serve some of the nation’s poorest neighborhoods. Dr. McGuire also has set up a family foundation that gives away millions on behalf of education, science and the arts.

Some of Dr. McGuire’s most eye-catching gifts are unrelated to health care. In January, he announced he was giving $10 million to help thousands of disadvantaged Minnesota children attend college. Dr. McGuire also has given nearly $10 million to the University of Florida for a biodiversity center that includes one of the world’s largest butterfly research institutes. An avid lepidopterist himself, Dr. McGuire discovered the brown Texas butterfly Euphyes mcguirei.

As long as UnitedHealth stock keeps climbing, big shareholders say they aren’t likely to badger Dr. McGuire for a pay cut. “It’s hard to say what someone like that is worth,” says Tom Marsico, head of Marsico Capital in Denver, which owns about 5% of UnitedHealth’s shares. “But compared with hedge-fund managers or athletes, he’s probably doing more to improve the world.”

Even so, UnitedHealth directors huddled several times last year to discuss whether they have showered Dr. McGuire with too many options. His 1999 employment contract obligated the company to award him further options on 2.6 million shares each year, adjusted for splits.

“The number [of options] became larger than we were comfortable with,” says Mr. Spears, a member of the UnitedHealth compensation committee. Directors in August 2005 eliminated the options guarantee. Dr. McGuire received options last year on 1.7 million shares, down 35% from the previous year.

But several directors say they have no desire to peel away some of the CEO’s longtime perks, such as a $139,000 travel allowance and $69,100 of financial planning last year — even though Dr. McGuire is long past the point of needing help with everyday living costs.

“If we did reduce these things, Bill would take it as a signal that directors weren’t enthusiastic about his leadership,” says Mr. Spears. “That would be a distraction, at the very least. Bill takes these things as a benchmark of how directors feel about him.”

During their August 2005 overhaul of Dr. McGuire’s contract, directors did eliminate an unusual provision that let Dr. McGuire choose when his options would be awarded. As this newspaper reported on March 18, option grants to Dr. McGuire in 1997, 1999 and 2000 carried dates on which UnitedHealth’s stock hit its low for the year. Mr. Spears said in March that he wasn’t aware of anything inappropriate about the options grants. (Read the March 18 article and see stock charts showing the options grants.)

In an SEC filing April 7, UnitedHealth said a committee of independent directors will work with outside lawyers to review the company’s “current and historic stock option grant procedures.” The company said the board review was Dr. McGuire’s idea.

Write to George Anders at george.anders@wsj.com

Marcia Angell on the flawed structure of the Massachusetts plan

Healthcare plan needs dose of common sense

By Marcia Angell
The Boston Globe
April 17, 2006

If Governor Romney thinks the state’s new plan for universal health coverage will carry him to the White House, he should think again. This Rube Goldberg contraption won’t even get him off the ground because it doesn’t touch the underlying problem — our reliance on multiple private insurance companies.

Private insurers compete not by offering better healthcare, but by avoiding high-risk individuals, limiting services for those they do cover, and, whenever possible, shifting costs to other payers or to individuals in the form of high deductibles and copayments. It’s a chaotic and fragmented system that requires a mountain of paperwork, which is one reason premiums are so high. Those employers who still offer health benefits react by capping their contributions, so that workers pay more out of pocket and bear the full brunt of premium increases. Massachusetts does better than most states, but healthcare in Massachusetts is also the most expensive in the nation.

If this system is left essentially intact, as it is under the new plan, expanding coverage will inevitably increase costs. That is common sense: Coverage and costs have to move in tandem if the system stays the same. Furthermore, the plan does nothing to keep costs from growing. For years, premiums have been rising much faster than the consumer price index. At current rates, even if the state were able to cover its proposed contributions to the plan at launch, it wouldn’t be able to keep up with soaring prices.

But already it’s clear that the governor and legislators don’t know how to pay for it even at launch. One legislator told Boston Globe columnist Joan Vennochi: ”We don’t yet know what it’s really going to cost us or where we’re going to get the money from. To some extent you might call it a Hail Mary pass.” The essence of this faith-based plan is to squeeze employers and individuals, with a relatively small state contribution. But employers who don’t offer health insurance can get away with paying a penalty of only $295 per employee per year — in a state where health insurance for individuals costs about $7,200 per year.

Individuals not covered by employers and whose income is at least 300 percent of the federal poverty level (now about $30,000) will have to buy their insurance or pay income tax penalties. Romney thinks premiums can be held to $2,400 a year with a cap of $2,100 on deductibles, but that is wildly implausible. If premiums are higher than that and continue to escalate faster than income, this will amount to fining people because they can’t afford health insurance, which, in effect, will punish them twice — an unsavory prospect.

Those individuals whose income is less than 300 percent of poverty level would receive state subsidies. That will require an enormous bureaucracy to determine what insurance is adequate and ”affordable” and who can really afford it, and there will be incessant legal and regulatory wrangling. The legislation calls for a new state agency, the Commonwealth Health Insurance Connector, to oversee insurance plans, and that is just the beginning.

Like the Medicare prescription drug benefit, the Massachusetts healthcare plan is a complicated morass that might limp along for a while, but will never cover all the people it is meant to cover, and will become increasingly unaffordable. Most likely, it will meet the same fate as the much celebrated 1988 legislation to provide universal coverage in Massachusetts, which shriveled and died with scarcely a whimper.

The only answer is to change the system entirely, so that we can expand coverage while controlling costs. Romney said, ”The old single-payer canard is gone.” No, it isn’t. Sooner or later, that is exactly what we’ll need if we’re really serious about universal healthcare. There’s no other way.

(Dr. Marcia Angell is a senior lecturer in social medicine at Harvard Medical School and former editor-in-chief of the New England Journal of Medicine.)

http://www.boston.com/news/globe/editorial_opinion/oped/articles/2006/04/17/healthcare_plan_needs_dose_of_common_sense/

Comment:

By Don McCanne, M.D.

Dr. Angell’s perspicacious comments apply to our entire health care system.

Health care coverage must be automatic for everyone. It must be comprehensive. It must be efficient. It must include mechanisms that improve allocation of our resources. It must be affordable.

The Massachusetts plan and every other proposal fails on these measures, except for one model: a single payer national health program.

The health-care tipping point

Insurance CEOs fattened on the suffering of many

By Howie Wolf
Originally published April 16, 2006
Boulder Camera

A brilliant and widely read book by Malcomb Gladwell called “The Tipping Point” calls our attention as to why there are so many changes in our society which seem to happen unexpectedly and suddenly. The sudden rise in popularity of “Hush Puppies” in the ’50s was an example.

Then Gladwell shows that not only fashion trends, but social movements and reform also may reach a “tipping point” wherein it is realized by the populace that something needs to give. The civil rights movement of the ’60s is an example of how a longstanding wrong reached the point when most of society could not tolerate racial inequality. Recently across our country people are marching in protest of impending anti-immigration legislation in Washington. Tipping points are being reached.

There is clearly a growing movement in our nation regarding health-care reform. We are spending far more for health care per capita and of our GDP than any industrialized nation. We have 46.8 million uninsured and many millions more underinsured. This means lack of access to care or delay in seeking care which translates into the grim reality that an estimated 18,000 Americans will die annually. Those who lack health insurance make around 50 percent of all bankruptcies, but 70 percent were “insured” when their medical condition began.

We do have outstanding health care being delivered in our country, and scientific advances abound. But these aren’t affordable for the uninsured.

Our co-pays and premiums are rising dramatically for those of us “lucky enough” to have insurance. Sadly for many Americans it is a choice of medication or food or a heating bill. Trying to understand most EOBs (Explanation of Benefits) reports from insurance companies is usually a complex task. Worse, there is no accountability, and insurance companies rake off 15 percent to 30 percent of our premiums to keep their companies rolling, which includes CEO salaries in the $20 million-per-year range. Most medical facilities must employ extra people to do the communicating with each insurance company with their varied rules and formularies. Payment to providers is made with predictable delays and dramatic cuts.

As a family physician who has practiced in this county for more than 43 years, I have seen the realities of what it is like for my patients who lack insurance and who face frightening medical doctor bills. An ethical and moral dilemma probably occurs with any provider who treats patients lacking insurance; we simply cannot offer the same services, treatment or medicine to the underinsured person.

Something needs to be done! Most national legislators seem uninterested in significant reform. The insurance and pharmaceutical lobbies have supported those in Congress who resist change. Indeed, the Medicare part D you’ve been hearing about is not only complex, but will be useful and money-saving for but a few Americans, while reaping nice profits for insurance and pharmaceutical companies.

Consider the savings that could have been achieved had prescription drug prices been a negotiable item, but that option was deliberately omitted. It was unconscionable how they swung this deal, leaving many seniors with costly choices. Why should a senior have to pay more than three to four times more for Lipitor than what Pfizer’s charges the VA Health care system?

Over 60 percent of all Americans favor a single-payer universal system, similar to the Canadian model. We would prefer a system that is affordable, accountable and accessible and includes preventive care and management of costly resources. Countries which have universal care can cover everybody – and have preventative care as well – at less cost than we are now paying. Their outcomes – longevity, maternal and infant mortality figures – are better than ours. Many of us who are activist in health care reform believe that – until the masses -including the uninsured and underinsured – create enough power to reach the “tipping point,” we’re stuck with the status quo.

Perhaps politicians will “listen better” when the streets swell with millions of people – as with the recent crowds demanding immigrants’ rights – but this time demanding health care for all. We are the only industrialized country without a universal system. Most systems are funded publicly but run privately. Canada’s operating cost is 2 percent to 3 percent compared to the 15 percent to 30 percent in our country.

I have learned that incremental reform will not do. A major fix is needed. Yes, the Health Savings Accounts are nice for those who have youth, money and good health. But for those who become very sick, the costs can be unaffordable, plus they do nothing to address the uninsured. Tying health insurance to employment seems absurd. People often get laid off, lose their insurance, and COBRA costs are out of sight. Employers get stuck because fewer of them can afford the rising rates. Why should employers carry the burden of health insurance anyway?

Are we close to reaching the “tipping point” with health care?

Howie Wolf, M.D., is a Boulder physician.

Healthcare plan needs dose of common sense

By Marcia Angell
Originally published April 17, 2006

IF GOVERNOR Romney thinks the state’s new plan for universal health coverage will carry him to the White House, he should think again. This Rube Goldberg contraption won’t even get him off the ground because it doesn’t touch the underlying problem — our reliance on multiple private insurance companies.

Private insurers compete not by offering better healthcare, but by avoiding high-risk individuals, limiting services for those they do cover, and, whenever possible, shifting costs to other payers or to individuals in the form of high deductibles and copayments. It’s a chaotic and fragmented system that requires a mountain of paperwork, which is one reason premiums are so high. Those employers who still offer health benefits react by capping their contributions, so that workers pay more out of pocket and bear the full brunt of premium increases. Massachusetts does better than most states, but healthcare in Massachusetts is also the most expensive in the nation.

If this system is left essentially intact, as it is under the new plan, expanding coverage will inevitably increase costs. That is common sense: Coverage and costs have to move in tandem if the system stays the same. Furthermore, the plan does nothing to keep costs from growing. For years, premiums have been rising much faster than the consumer price index. At current rates, even if the state were able to cover its proposed contributions to the plan at launch, it wouldn’t be able to keep up with soaring prices.

But already it’s clear that the governor and legislators don’t know how to pay for it even at launch. One legislator told Boston Globe columnist Joan Vennochi: ”We don’t yet know what it’s really going to cost us or where we’re going to get the money from. To some extent you might call it a Hail Mary pass.” The essence of this faith-based plan is to squeeze employers and individuals, with a relatively small state contribution. But employers who don’t offer health insurance can get away with paying a penalty of only $295 per employee per year — in a state where health insurance for individuals costs about $7,200 per year.

Individuals not covered by employers and whose income is at least 300 percent of the federal poverty level (now about $30,000) will have to buy their insurance or pay income tax penalties. Romney thinks premiums can be held to $2,400 a year with a cap of $2,100 on deductibles, but that is wildly implausible. If premiums are higher than that and continue to escalate faster than income, this will amount to fining people because they can’t afford health insurance, which, in effect, will punish them twice — an unsavory prospect.

Those individuals whose income is less than 300 percent of poverty level would receive state subsidies. That will require an enormous bureaucracy to determine what insurance is adequate and ”affordable” and who can really afford it, and there will be incessant legal and regulatory wrangling. The legislation calls for a new state agency, the Commonwealth Health Insurance Connector, to oversee insurance plans, and that is just the beginning.

Like the Medicare prescription drug benefit, the Massachusetts healthcare plan is a complicated morass that might limp along for a while, but will never cover all the people it is meant to cover, and will become increasingly unaffordable. Most likely, it will meet the same fate as the much celebrated 1988 legislation to provide universal coverage in Massachusetts, which shriveled and died with scarcely a whimper.

The only answer is to change the system entirely, so that we can expand coverage while controlling costs. Romney said, ”The old single-payer canard is gone.” No, it isn’t. Sooner or later, that is exactly what we’ll need if we’re really serious about universal healthcare. There’s no other way.

Dr. Marcia Angell is a senior lecturer in social medicine at Harvard Medical School and former editor-in-chief of the New England Journal of Medicine.

Copyright 2006 Globe Newspaper Company

http://www.boston.com/news/globe/editorial_opinion/oped/articles/2006/04/17/healthcare_plan_needs_dose_of_common_sense/

Hoffa supports national health care

Health costs destroying our economy
National health plan only way to protect workers and employers
Detroit News
April 14, 2006
By James P. Hoffa, president of the International Brotherhood of Teamsters

Our nation’s health care system is broken. America must act now.

Health care costs are destroying our nation’s economic edge. The cards are stacked against American companies as they try to compete with low-cost, low-wage foreign producers.

The only real solution to this crisis is national health care. Meeting such a basic need should not force government budgets, companies and workers into the red. As the crisis grows, more and more Americans, workers and corporate leaders alike, are calling for government action.

We invite General Motors, Delphi, Sikorsky, UTC, Waste Management and other corporations to stop fighting against us and start fighting along side us.
It’s time for all Americans to join this fight for a country that rewards hard work and where working families don’t have to choose between going to the doctor and paying the rent.

http://www.detnews.com/apps/pbcs.dll/article?AID=/20060414/OPINION03/604140315&SearchID=73241530077956

Comment:

By Don McCanne, M.D.

The crescendo of the drum beat is now almost deafening. Isn’t it time?

State overreach on national problems

State Governments Overreach in Taking on Problems Best Solved at the National Level
The New York Times
April 13, 2006
By Robert H. Frank

In most of the world… the primary responsibility for ensuring access to health care, regulating environmental quality and supporting basic scientific research is exercised by national governments. But in this country, these tasks are increasingly managed by state, and even local, governments.

Last week, for instance, Massachusetts became the first state to enact legislation trying to ensure that all its citizens have access to health care. At least 19 other states considered legislation expanding health care coverage in 2005.

In each case, there are compelling economic reasons for delegating the activities to national, rather than state or local, governments. Yet in each,arena, the federal government has failed to act.

Although it is no mystery why states are beginning to take the lead in thesem domains, it is important to understand why the recently enacted programs are destined to fall far short of what could have been achieved at the federal level.

The explanation begins with the question of why we have multiple levels of government in the first place. Almost all of us are subject to taxation and regulation by governments at the local, state and national level. Although multitiered government entails substantial redundancy and inefficiency, there are good economic reasons for it.

As the economist Charles M. Tiebout explained in a seminal paper published in 1956, an important advantage of providing public services at the local level is that this enables us to better achieve our desired mix of public and private consumption.

People who like lots of parkland, well-maintained roads, large police forces and good schools can thus gather in high-tax communities that provide these amenities, while others can choose low-tax communities and spend more of their income on private consumption. Local government also minimizes the distance between citizens and the lawmakers who tax and regulate them.

But for some public services, like national defense, scale advantages rule out primary reliance on local government.

Scale advantages, however, do not explain why health care policy, environmental regulation and support for basic scientific research are best delegated to the federal government. Rather, the problem is that in each of these instances, programs at the state and local levels create perverse economic incentives.

A case in point is a proposal recently discussed in Ithaca, N.Y., where I live. Activists in this progressive upstate community (sometimes called “the

People’s Republic of Ithaca”) called for a local income tax to finance a single-payer health care system for local residents. According to health policy experts, such a system would eliminate the substantial waste associated with attempts by insurance companies to limit authorized services and avoid covering people with chronic medical conditions.

Yet, despite this advantage, a health system operated at the local level could never work. Because people are free to move, such a plan would attract uninsured people with chronic conditions from surrounding cities, substantially raising the program’s cost. In turn, the need to raise income tax rates would induce many of the community’s more affluent taxpayers to flee to neighboring cities. The resulting death spiral would quickly doom the program.

Like local borders, state borders are completely permeable. So, unless a large number of other states simultaneously enact comprehensive health care legislation of their own, the new Massachusetts program will confront the same problem.

My point is not that states are foolish for having extended their reach. Again, the federal government has completely dropped the ball in these domains. The recent state actions may not be the most efficient ways of dealing with our most pressing problems. But they are an unmistakable signal of voter impatience with ineffective government at the federal level.

(Robert H. Frank, an economist at the Johnson School of Management at Cornell University, is the co-author, with Ben S. Bernanke, of “Principles of Economics.”)

Comment:

By Don McCanne, M.D.

Professor Frank has provided a highly credible explanation of the principle that many are now recognizing instinctively: We need a national solution to our health care crisis. That doesn’t mean that we should abandon efforts on the state level to compensate for the failures of our federal government. Rather, it means that we must intensify our efforts to enact an efficient, comprehensive, universal program of single payer health insurance on a national level.

The New Yorker Comment: Consumption

The New Yorker
by Hendrik Hertzberg
Issue of 2006-04-17 | Posted 2006-04-10

Perhaps you have been wondering who or what is to blame for the high cost of medical care in this land of ours – and, more broadly, for the ungainly, unjust mess that is the American health-care system. If so, wonder no more. Your government has fingered the culprit: it’s “the vast majority of Americans.”

The perp having been collared, the trial held, and the verdict rendered, only the sentencing phase remains. Providentially, our leaders have come up with a punishment that fits the crime. We, the guilty, are to be condemned – or invited, but in any case for the rest of our natural lives, without possibility of parole – to turn over our bodily well-being to “consumer-directed Health Savings Accounts” in conjunction with “high-deductible health policies.”

This judgment was handed down last Monday, in the form of an article on the Op-Ed page of the Times. The piece was no Dowdy jestfest or Friedmanesque memo-to-the-mullahs, and not only because of the dreariness of its style and the banality of its content. Its author, Allan B. Hubbard, identified as “assistant to the president for economic policy and director of the National Economic Council,” has lately emerged as the White House point man on health policy, and, in subsequent days, his Op-Ed proved to have been the overture to a veritable symphony of spin conducted by President Bush himself, including an Air Force One ride to Bridgeport, Connecticut, for a stagy “Panel on Health Savings Accounts.”

Hubbard’s article, headlined “The Health of a Nation,” begins with a frank-sounding acknowledgment that “in the past five years” – that is, since the present Administration took office – “private health insurance premiums have risen 73 percent,” with the result that “some businesses” have dropped coverage altogether. “What is driving this unsustainable run-up in health insurance costs,” Hubbard asks, “and how can we make things better?” Then comes what bloggers call the money quote:

Health care is expensive because the vast majority of Americans consume it as if it were free. Health insurance policies with low deductibles insulate people from the cost of the medical care they use – so much so that they often do not even ask for prices.

Can this really be the Administration’s view of the health-care crisis? That its root cause is that Americans are (a) malingerers and (b) freeloaders who perversely refuse to go comparison shopping when illness strikes? That wefre overinsured? Hard as it is to believe that this is what they say, it’s even harder to believe that this is what they believe.

Health care is indeed expensive, but not because people are too quick to call the doctor when they experience a scary symptom or merely an annoying one, and not because some of them may bridle at entrusting their health to the lowest bidder. Throughout the Western world, health care is expensive, first of all, because it is expensive, and is bound to get more so as populations age and medical technology advances. Indeed, it should get more expensive, both in absolute terms and as a proportion of national income, because what it aims to provide – healing, the relief of suffering, the staving off of death – is of such inestimable value.

American health care is the most expensive on earth, but this, too, has little to do with overindulgence in seeking medical attention. (Overindulgence in cheeseburgers is another matter.) It has a lot to do with the waste built into what Paul Krugman calls our crazy-quilt health-care system, which has a lot to do with the fact that so much of that system is private rather than public, which in turn has a lot to do with two other factors. One is historical: during the Second World War, industry (with prodding from organized labor) got around wage controls by offering workers health benefits in place of cash, thus saddling the United States with “employer-based” private health insurance – a system now in slow-motion collapse under the competitive pressures of globalization. The other is institutional: even though there has long been popular support here for universal, government-run health care, as there is in Europe and Canada, America’s fragmented political system – riddled with weak points where well-organized, well-financed minorities can thwart the unfocussed will of a majority – has been able to deliver only for seniors and, less generously, for the poor.

Medicare – a mixed system, under which the insurance function is socialized while the care itself remains in private hands – dedicates two per cent of its resources to administration. By contrast, the private health-insurance industry spends a fortune – more than ten per cent of its income – on administrative dreadnoughts devoted largely to vetoing treatments, sloughing off sick or potentially sick clients, and scheming to stick someone else with the bill. In the United States, we spend fifteen per cent of our gross domestic product on health care, close to six thousand dollars per person. The French and the Canadians spend ten per cent of G.D.P., about three thousand dollars per head. Yet their “health outcomes,” measured by indices like longevity, are better than ours. If they spent the kind of money we do, they’d live forever.

Hubbard – who, by the way, is a finalist to be Bush’s next Secretary of the Treasury – is an initiate of the cult of the market, which he evidently regards as the fundamental model for all human relations. For him, sick people who require care are “consumers.” That word and its derivatives appear ten times in the eight hundred and fifty words of his Times piece. (“Patient” appears once. “Sick,” “ill,” and “under the weather” do not appear at all.) Accordingly, the solution that he and Bush are pushing – so-called health savings accounts – puts the onus on “consumers” to fend for themselves in the medical gmarketplace.h Itfs probably unnecessary to add that this solution would solve nothing. It would be yet another gift to people in the higher tax brackets, would undermine traditional insurance by pulling young and healthy people out of risk pools, and, with a fine evenhandedness, would discourage people from going to the doctor for real and imaginary illnesses alike. This is a worthy follow-up to the Administration’s prescription-drug program for seniors, another excrescence of market cultism. The elderly had hoped for a straightforward benefit that would have allowed them to acquire, at some affordable price, the medicines their doctors prescribed. What they got was a parody of “choice,” sadistic in its complexity, which forces them or their children or caretakers to game out which of dozens of private “plans” might give them access both to the medicines they need now and the ones they might unpredictably need in the future. The solicitude their government might have bestowed on them was reserved instead for the insurance and pharmaceutical industries. The Administrationfs message to the old and sick is the same as its message to the country after the September 11th attacks: Go shopping. Well, caveat emptor.

Massachusetts Bill Fact Sheet from MASS-CARE

DID YOU KNOW THAT:

•Most uninsured people will now have to buy their own insurance without any or with very little financial support?

•The Bill will not help the underinsured or those with poor quality insurance, including those on Medicare paying high out-of-pocket costs?

•It will not attempt to reduce the costs of health insurance for individuals and businesses paying the highest prices in the world?

DID YOU KNOW THAT:

•40 percent of the uninsured in Massachusetts, the 292,000 who earn more than three times the poverty level income, will be forced to purchase their own health insurance without any help or subsidies from the state? Bad insurance for someone earning three times the poverty level will cost them 20 percent of their total income.

•The Bill raises only $170 million per year in new spending to help subsidize 748,000 uninsured people in Massachusetts? This is not enough to pay for 45,000 people. All other funds used by the Bill are a shell game, most taken out of Free Care – which provides medically necessary health services for the uninsured – and moved into more wasteful plans run by commercial insurance companies.

•This Bill, which will affect the lives of hundreds of thousands, was bought and paid for by healthcare industry lobbyists? Industry lobbyists spent over $7.5 million this year to make your health care Bill work for them. Forcing uninsured people into private insurance plans will create new business and new profits for insurers, without reforming the system of waste and discriminatory health care access for Massachusetts residents.

DID YOU KNOW THAT: every developed nation in the world offers comprehensive health care for all of its residents, except the United States? And they pay less for it? Let’s organize against these attempts to shift health care costs on to low-income people. Let’s fight for the universal, quality health care that we know is possible!

Reform strategy from Harvard's greatest minds

The Harvard Interfaculty Program for Health Systems Improvement
April 2006 A Strategy for Health Care Reform:
Catalyzing Change from the Bottom Up

The American health care system seems in an accelerating downward spiral:
wasteful, unsustainably costly, inadequate in quality, and unable to protect millions against the financial burden of illness.

The Harvard Forums underscored the important notion of local communities functioning as laboratories for innovation and testing, assessing what does and does not work before broader adoption.

The authors offer a vision that is sufficiently challenging to encourage our most thoughtful, creative efforts, and also sufficiently realistic to be attainable. They propose a set of steps over a twenty-year period that will put our nation on a course towards a health care system that assures universal health insurance coverage to all Americans, provides optimal quality of care, is affordable, assures improvements in population health, and provides the greatest possible value for health care expenditures.

Stage One – Strengthening and Leveraging Existing Efforts

In this model, state and local governments will act as regulatory enablers, while private stakeholders – large anchor corporations, local health plans, major health care providers, unions, consumer groups – will provide leadership and expertise to launch local health care reform.

Specifically, over the next five years, this strategy advocates strengthening the tax credit and health savings account (HSA) approaches through careful elaboration of all the options and developing devices to mitigate possible unintended consequences and by evaluating these programs to see how well they perform in terms of reaching coverage, population health, and cost goals.

Stage Two – Phasing in a Federalist Approach to Reform

State plans must commit to achieving quantifiable, five year goals for expansion of health insurance coverage, and at least one other domain of the vision outlined above (e.g., quality, affordability, value, population health). (Don’s comment: Note that this does not require universal coverage, and, besides, which three goals would you decide to omit?)

…goals might stipulate…

…goals might include…

…states might propose…

…states could focus…

…States could put in place…

…States could take steps…

…states could undertake…

…(etc., etc.)…

Stage Three – Implementation of State-Based Programs throughout the United States

States that come late to the health care reform table will have the benefit of 15 to 20 years of systematic experimentation with local and state level health system reforms addressing the nation’s most fundamental health care problems. Those experiments will have been carefully evaluated, the results published and thoroughly vetted, and the strategies themselves will have become familiar to the American people. A cadre of experienced health policy leaders will exist in both the public and private sectors that can testify to the strengths and weaknesses of alternative approaches, and will be available to implement change throughout the United States. In other words, the intellectual and human capital necessary for effective change will be ready and waiting for a more comprehensive effort at health system change, whatever form that effort ultimately takes. We further expect that this eventual program of reform will continue to rely heavily on state management, will provide considerable autonomy to state government, and will consist of varied solutions to common problems across the United States.

Conclusion

Policy-making, like politics, should be viewed as the art of the possible.
The current climate cries for action, but the political climate determines the form such action can take. We believe that the program we have outlined will improve the lives of Americans in ways that foster learning, prepare us for all eventualities, and precludes no options as changes in our health care system unfold over the next twenty years.

Harvard University Program for Health Systems Improvement http://www.phsi.harvard.edu/

A Strategy for Health Care Reform: Catalyzing Change from the Bottom Up http://www.phsi.harvard.edu/pdfs/reform.pdf

Comment:

By Don McCanne, M.D.

Wow!

Some of the greatest minds at Harvard University have been given five years to produce a report providing us with a strategy for health care reform in the United States. While acknowledging the profound deficiencies in our very costly system, these geniuses have proposed that we sit around for another two decades waiting to see if someone can do something on the state or local level. Just what do they think the states and counties have been doing during the past century of federal inaction? And tax credits and health savings accounts? We need to bring them out of their closets!

If a freshman Harvard student were to produce this paper in response to an assignment on proposing a strategy for health care reform, the instructor would certainly grade it with an “F” as being totally non-responsive to the assignment.