Why Angela Braly, CEO of WellPoint Insurance, May Not Deserve a Raise After All

Earlier this year we discussed why Angela Braly, the CEO of WellPoint Insurance, deserved a raise. WellPoint, by number insured, is the nation’s largest health insurer.  Ms. Braly had been forced to make ends meet in 2008 with total compensation which amounted to $189,311.76 per week. This of course is less than half of what Aetna’s CEO, Ronald A. Williams, made that same year ($467,309.85 per week). For those of you keeping score at home, Ms. Braly commanded $9,844,212 in 2008. Mr. Williams made $24,300,112.

Considering this disparity, we wrote

So why does Angela Braly deserve a raise? …. Because WellPoint subsidiary Anthem Blue Cross of California has found the audacity to raise individual insurance premiums in that state 39%. That’s right, 39%. This, according to Secretary of Health and Human Services Kathleen Sebelius, “as WellPoint Incorporated has seen its profits soar, earning $2.7 billion in the last quarter of 2009 alone.”

Profits “soar,” raise rates. What more could Wall Street want?

The answer to that question, apparently, is both math skills and a public relations strategy.

In April, Wellpoint was forced to withdraw its California rate hike of 39%  because of math errors in the submission. Yes, math errors.

According to the Wall Street Journal, “WellPoint’s stock fell almost 10% on April 30, the day after the company disclosed mathematical errors in its California rate filing, and it hasn’t rebounded.”

As such, Ms. Braly is said to have faced staunch criticism as of late at WellPoint’s annual shareholder’s meeting and at meetings with the company’s managers and top brokers prior. The shareholder’s meeting, described as “testy” by the Associated Press, was cut short when William H.T. Bush, the brother of former President George H. W. Bush, and a member of WellPoint’s board of directors, collapsed. Although no one is said to have collapsed at her other meetings, no one has described them as cordial either.

Wellpoint faced criticism from the Obama administration in light of its noteworthy proposed rate hikes in California, including, but not limited to, the scathing letter quoted above from Secretary of Health and Human Services Kathleen Sebelius. The level of acrimony recently escalated when, according to the Wall St. Journal

A week ago, President Obama said his administration had recently asked an insurer to stop systematically dropping coverage of women with breast cancer. The president didn’t name the insurer, but WellPoint has been fending off accusations that it targets such women.

Ms. Braly denied the allegations and shot back at Mr. Obama for spreading “false information.” Health and Human Services Secretary Kathleen Sebelius has called on states to investigate WellPoint’s pricing practices. And last Thursday, the Senate Finance Committee asked Ms. Braly for a detailed account of how the errors occurred.

Perhaps the lady doth protest too much?

Either way, Ms. Braly is said to have later offered that: “The goal is to have a positive relationship with the government at all times.”

It is good to have goals.

The Wall Street Journal notes that

Jay Nogueira, vice president at one of the company’s top 10 shareholders, T. Rowe Price, said the stock won’t bounce back until investors were convinced that there isn’t another chapter in the hostility with the government. “These guys are not dealing well with the public limelight,” said Mr. Noguiera.

Why Angela Braly, CEO of the WellPoint Insurance Co., Deserves a Raise

Angela Braly, CEO of  health insurance giant WellPoint, deserves a raise. As regular readers of this column know, Ms. Braly did not make as much as Aetna’s Ronald A. Williams in 2008.

In a post written back in May of 2009 I noted of Insurance Company CEO Total Compensation:

Aetna’s Ronald Williams received $24,300,112 last year. That’s $467,309.85 per week. That’s a house. Maybe not a house that Mr. Williams would live in, but a house nonetheless. The man makes a house a week. And interestingly enough, if Mr. Williams were to eschew the purchase of a house on any given week and instead look to deposit the money in a bank– in order to remain FDIC insured (up to $250,000)– he would actually need to open more than one account–every week. Lest we lament the fate of the other CEOs on the list, in 2008 Ms. Braly had to get by on $189,311.76 per week….

Less than half of what Mr. Williams brought in, in 2008 Ms. Braly was forced to make ends meet on $9,844,212.

In 2007, her first year on the job: $9,094,271. Which, for those keeping score at home, is $174,889.83 per week. Her predecessor at Wellpoint, Larry Glasscock, received  $23,886,169 in total compensation in 2006. Again, in 2008 Ms. Braly had to get by on $189,311.76 per week. True, it was $14,421.93 more per week than she had made the year prior, but that won’t be nearly sufficient for this year.

So why does Angela Braly deserve a raise? Pay so high that the  FDIC limits on insurance (yes, it’s somewhat ironic) won’t work for her weekly paycheck? Because WellPoint subsidiary Anthem Blue Cross of California has found the audacity to raise individual insurance premiums in that state 39%. That’s right, 39%. This, according to Secretary of Health and Human Services Kathleen Sebelius, “as WellPoint Incorporated, has seen its profits soar, earning $2.7 billion in the last quarter of 2009 alone.”

Profits “soar,” raise rates. What more could Wall Street want?

Secretary Sebelius has demanded “justification” for the increase. In a letter sent to the Wellpoint subsidiary Anthem Blue Cross, she writes:

One of the biggest pressures facing families, businesses and governments at every level are skyrocketing health insurance costs.  With so many families already affected by rising costs, I was very disturbed to learn through media accounts that Anthem Blue Cross plans to raise premiums for its California customers by as much as 39 percent. These extraordinary increases are up to 15 times faster than inflation and threaten to make health care unaffordable for hundreds of thousands of Californians, many of whom are already struggling to make ends meet in a difficult economy.

Your company’s strong financial position makes these rate increases even more difficult to understand. As you know, your parent company, WellPoint Incorporated, has seen its profits soar, earning $2.7 billion in the last quarter of 2009 alone.

And there you have it, profits soar, raise rates, the stock soars–as will, presumably, Ms. Braly’s stock options. She won’t have “to get by on $189,311.76 per week” for all that much longer. With that kind of move it’s only a matter of time before she finds herself in Mr. Williams’ neighborhood.

Now that the healthcare reform debate awaits its Summit, from the vantage point of its nadir, one might imagine other Insurance Company CEO’s to embark upon a similar strategy. Good thing we jettisoned all those proposed pesky insurance regulations contained in the House & Senate bills.

Because it never gets old to me, here’s the list of Insurance Company CEO Total Compensation:

Res Ipsa Loquitur.

Ins. Co. & CEO With 2007 Total CEO Compensation

• Aetna Ronald A. Williams: $23,045,834
• Cigna H. Edward Hanway: $25,839,777
• Coventry Dale B. Wolf : $14,869,823
• Health Net Jay M. Gellert: $3,686,230
• Humana Michael McCallister: $10,312,557
• U.Health Grp Stephen J. Hemsley: $13,164,529
• WellPoint Angela Braly (2007): $9,094,271
  L. Glasscock (2006): $23,886,169

Ins. Co. & CEO With 2008 Total CEO Compensation

• Aetna, Ronald A. Williams: $24,300,112
• Cigna, H. Edward Hanway: $12,236,740
• Coventry, Dale Wolf: $9,047,469
• Health Net, Jay Gellert: $4,425,355
• Humana, Michael McCallister: $4,764,309
• U. Health Group, Stephen J. Hemsley: $3,241,042
• Wellpoint, Angela Braly: $9,844,212

See Nonprofit Health Related CEO Compensation Here.

Medical Expense for a Family of Four Rises

Yesterday we took a look at Health Insurance CEO pay, and noted that Mr. Ronald Williams of Aetna made $467,309.85 per week in 2008, while Ms. Braly of Wellpoint was left to make ends meet on $189,311.76 per week, and Mr. Hemsley of United Health was forced to manage on  $62,327.73 per week (though one might hope that Mr. Hemsley had the presence of mind to put a little something away the year prior when he had made $253,164.02 per week).

Today we take a brief look at how the other half lives. HealthCare Finance News reports that according to the Milliman Medical Index (MMI) the average medical bill for a typical family of four covered by an employer-sponsored preferred provider organization (PPO) program rose 7.4 percent from 2008 to 2009. In actual dollars:

The total 2009 medical bill for a typical American family of four is $16,771, compared with the 2008 figure of $15,609. The $1,162 increase is the highest measured by the MMI since the 2006 increase of $1,168, when cost trends were at 9.6 percent.

The MMI found that employers are expected to pay $9,9947, or 5.4 percent more than in 2008, while employees are expected to contribute $4,004 toward their health costs, an increase of 14.7 percent, and pay $2,820 in out-of-pocket expenses, an increase of 5.4 percent.

According to Health and Human Services: “The estimated median income for a four-person family living in the United States is $70,354 for FFY 2009″ (slightly more than Mr. Hemsley’s weekly paycheck). According to the MMI, of that $70,000, nearly $7,000 in employee wage goes to healthcare expense. That’s 10 per cent or $583.33 per month. That’s more than enough to make the payment on a brand new Cadillac.

In addition, one should also note that the employers’ contribution is nearly $10,000 per year, or $833.33 per month. Together, the actual total is $16,771 or $1397.59 per month. Which is to say that the average expense for medical for a family of four is $1400.00 per month. According to the Census Bureau, the average price of a house in the U.S. in March of 2009 was $201,400.00.

According to CNNMoney.com the current average for a 30 year fixed rate mortgage is 5.24% but rates are “all over the map.” We’ll use 7%. The monthly mortgage payment on $201,400 for a 30 year fixed rate at 7% is $1339.92. The average monthly medical expense amounts to $1397.59.

That’s a house. The average monthly medical expense for a family of four amounts to a house, maybe not one that Mr. Williams, Ms. Braly or Mr. Hemsley would live in, but a house nonetheless. Oh, and there’s still $57.67 left over– enough to catch the earlybird special at the Family Buffet.

Health Insurance Company CEOs Total Compensation in 2008

A few months back we posted the Total Compensation for a number of Health Insurance Company CEOs for 2007. Those numbers, culled from the companies’ SEC filings (Schedule 14A) appears immediately below. Below that are the numbers for 2008, courtesy of FierceHealthcare.com through Jan Rodolpho, RN.

As you can see, the year has brought decreases for some CEOs (but not all). One wonders, discretion being the better part of valor, if the clamor for health care reform and the pursuit of a Public Plan, has counseled caution –for the time being– regarding executive compensation. If the timing for further compensation has merely been adjusted so as to backload payments until after the health care reform debate is settled. Either way, the numbers pretty much speak for themselves. Perhaps a slight bit of context is in order, however: it has struck me that Aetna’s Ronald Williams received $24,300,112 last year. That’s $467,309.85 per week. That’s a house. Maybe not a house that Mr. Williams would live in, but a house nonetheless. The man makes a house a week. And interestingly enough, if Mr. Williams were to eschew the purchase of a house on any given week and instead look to deposit the money in a bank– in order to remain FDIC insured (up to $250,000)– he would actually need to open more than one account–every week. Lest we lament the fate of the other CEOs on the list, in 2008 Ms. Braly had to get by on $189,311.76 per week, and Mr. Hemsley had to somehow manage on $62,327.73 per week (but perhaps he was able to save a little from last year when he made $253,164.02 per week).

Res Ipsa Loquitur.

Ins. Co. & CEO With 2007 Total CEO Compensation

• Aetna Ronald A. Williams: $23,045,834
• Cigna H. Edward Hanway: $25,839,777
• Coventry Dale B. Wolf : $14,869,823
• Health Net Jay M. Gellert: $3,686,230
• Humana Michael McCallister: $10,312,557
• U.Health Grp Stephen J. Hemsley: $13,164,529
• WellPoint Angela Braly (2007): $9,094,271
  L. Glasscock (2006): $23,886,169

Ins. Co. & CEO With 2008 Total CEO Compensation

• Aetna, Ronald A. Williams: $24,300,112
• Cigna, H. Edward Hanway: $12,236,740
• Coventry, Dale Wolf: $9,047,469
• Health Net, Jay Gellert: $4,425,355
• Humana, Michael McCallister: $4,764,309
• U. Health Group, Stephen J. Hemsley: $3,241,042
• Wellpoint, Angela Braly: $9,844,212

See Nonprofit Health Related CEO Compensation Here.

Update: “Why WellPoint’s Angela Braly Deserves A Raise”

Health Care Reform and the Public Insurance Plan: “Framing the Debate,” and Fording the Corporate Dam of Shareholder Wealth Maximization

Kaiser.org has recently noted that “Liberal and conservative interest groups ‘have begun a fierce ideological battle, with each side trying to shape the public’s perception of a public insurance plan,’ the Christian Science Monitor reports.”

Kaiser states:

The Health Policy Consensus Group, a coalition of conservative interest groups spearheaded by the Heritage Foundation, listed the creation of a public insurance option as the No. 1 “deal killer” for health care reform. The group argues that the government would use its “regulatory, pricing, and taxing authority” to make it nearly impossible for private insurers to compete, leaving U.S. residents without a private alternative.”

Let’s attempt to understand the argument against a public insurance plan. To do so, I would suggest that it will be of some help to understand the nature of a “public plan,” and, perhaps just as importantly, where the interests lie.

When we speak of “a public insurance plan,” we speak essentially of expansion, not creation: Medicare, Medicaid and SCHIP are “public plans,” as are those administered by the Veterans Administration and the Indian Health Service.  At present, however, these plans are tailored to bring medical care to people who meet certain criteria. At present, this country is estimated to have close to 50 million people who are uninsured: primarily people who either lack the money or employment requisite to obtain private health insurance or who fail to meet the criteria requisite for enrollment in any of the public plans as they are presently configured.

The “public plan” proposal would expand the criteria for enrollment in extant “public plans” and perhaps constitute other service providers to administer to the need.   So…the argument against a public plan is essentially an argument against making these plans (or very similar plans) available to a greater number of people. Why? Simply put, those who would be serviced by an expanded “public plan” would thereby be rendered unavailable to Private Insurers as customers and generally speaking, less customers = less profit.

Understandably, those who oppose a “public plan,” such as America’s Health Insurance Plans (AHIP), have proposed that as a means of achieving universal coverage, all Americans should be forced (”mandated”) to purchase health insurance from, well, Private Insurers. The plan calls for the Government to subsidize this purchase of private insurance. Given that there are close to 50 million uninsured, this would result in an increase of tens of millions of paying customers for Private Insurers.  This proposal has been rather aptly compared by Jeff Emanuel of The American Spectator to an automaker bailout which would require each American to buy a car.

The Heritage Foundation’s Health Policy Consensus Group, opposed to a public plan, is said to argue that with the advent of an expanded public plan

“the government would use its “regulatory, pricing, and taxing authority” to make it nearly impossible for private insurers to compete….”

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Private Insurers Respond to Threats of Lost Profit

Reed Abelson of the New York Times reported recently about private health insurance companies’ response to the “bleak economy” and Washington’s most recent attempts to make health insurance affordable and available to greater numbers. Large private insurers, such as Aetna, have developed “2,000- page strategic plan[s]” and are meeting “almost every other working day” in response.  Private insurance companies are said to be feeling threatened by the Democratic Party’s new found dominance.

The NY Times states:

Almost every business in the country is feeling buffeted by the recession. But for health insurance companies, the bleak economy is only part of the problem: the changing of the guard in Washington is an equal if not more dangerous threat. Together, these forces could deal a body blow to a business model that was already teetering.

The bottom line, of course, is the bottom line. And the fear of the “new guard,” is the fear of lost profit. Although many private insurers have experienced declining enrollment and diminished profits over the course of 2008, two of the country’s largest private insurers, Aetna and United Health, were described by the Times as still being “solidly profitable.” It should also be noted, as we reported in a recent post on this blog, that in 2007 Aetna’s CEO, Ronald A. Williams, received total compensation of $23,045,834 . Despite that lofty number, Aetna managed to record a  profit in 2007 of 1.831 Billion.

The NY Times reports:

Both Aetna and UnitedHealth had double-digit declines in earnings last year, but both remain solidly profitable. Aetna earned $1.4 billion, down 24 percent, on sales of $31.6 billion, while UnitedHealth had net earnings of nearly $3 billion, down 36 percent, on revenue of $81.2 billion.

Although profits are declining, attributable in part to rising premiums and customer dissatisfaction in a declining economy, perhaps a greater threat to insurers is present uncertainty. Markets abhor uncertainty. And as the Times states,

As the conversation intensifies in Washington about health care reform, no one knows for sure what role the insurance industry will play in a revamped system.

President Obama, along with the Democratic majorities in Congress, may simply rewrite the rules, forcing insurers to take all comers as customers, including those who previously would have been rejected because of poor health. The government may sharply cut how much it pays insurers to take care of the elderly. And, in what some people say would be a clear step toward a government-run system, there is even discussion about expanding the Medicare program, now limited to the elderly and the disabled, so that anyone could enroll in it.

Although private insurers have made sure to take a seat at the health reform table so as to “influence the debate,” the Times reports that:

Given the current sentiment, the insurers understand that they won’t be able to beat back all efforts at sweeping change, as they did so successfully during the Clinton administration.

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