Former Chief Will Forfeit $418 Million: Media Misses The Point
Stanley Feld M.D.,FACP,MACE
The media publishes sensational stories of abuse in the healthcare system. The goal is to sell newspapers. More valuable would be an analysis of the significance of the abuse. Additionally the media should stimulate discussion about remedies for the abuse.
“In one of the largest corporate pay give-backs ever, William W. McGuire, the former chief executive of UnitedHealth Group, has agreed to forfeit at least $418 million to settle claims related to back-dated stock options. William W. McGuire built UnitedHealth into a giant.”
“
Mr. McGuire had previously returned $198 million dollars. The total amount of the excess payment was $1.6 billion.”
“As part of the settlement with the S.E.C., Mr. McGuire will pay a $7 million fine and will be barred from serving as a director of a public company for 10 years. He will, however, be allowed to keep stock options valued at more than $800 million, including many that have been sharply criticized.”
The retention of eight hundred million dollars is not a small change. The value of the $800 million in stock options could double in the next year.
Federal regulators are the protectors of the public and stockholders’ interest. They have claimed victory over corporate management abuse of the public and stockholders. They are stemming the abuse of the over use of backdate stock options. The regulators are presently investigating 120 companies.
“The developments are the most significant to date since federal regulators started looking into the backdating of stock options. More than 120 companies have come under scrutiny for granting options to executives on dates when the company’s share price was low, a tactic that guaranteed the maximum profit when the options were exercised.”
“The settlement comes a year after the furor over compensation forced Mr. McGuire’s resignation from UnitedHealth, the nation’s largest health insurer.”
“In a statement yesterday, Mr. McGuire said that he was pleased to put the controversy behind him.
“The last 18 months have been an extraordinarily challenging period for my family, and I am pleased to have reached a resolution,” he said.
I bet Mr. McGuire is happy to have this behind him. His liability for this abuse is over. He still owns $800 million dollars in backdated stock options that have a chance to appreciate further.
“UnitedHealth remains embroiled in the scandal over improperly granted options. The S.E.C. said its inquiry at UnitedHealth is continuing. So far, the company has restated its earnings by $1.5 billion and announced a $55 million settlement with the Internal Revenue Service.”
Let us think about this settlement of $55 million for a minute. Fifty five million dollars sounds like a lot of money. At the maximum corporate tax rate of 38% the corporate tax for $1.5 billion in profit would be $570 million. I would say United Healthcare received excellent settlement terms. The IRS only collected a little more than ten cents on the dollar. The settlement seems to be a pretty good way of avoiding corporate taxes. The $55 million settlement does not seem to me to be a deterrent to future corporate tax evasion.
What happens to the $515 million dollars United Healthcare saved by the settlement? I assume it is applied to United Healthcare bottom line and be subject to a future corporate tax payment. Nevertheless United Healthcare keeps increasing healthcare insurance premiums on large and small businesses. The premiums increase by up to 15% a year. The premium increases are justified by increasing costs and decreasing profits. The premium increases are putting healthcare insurance out of the range of most small companies and inaccessible to a single individual.
Shouldn’t there be some restraint on profit? The government has given United Healthcare a bye on their tax liability. Their executives have been judged to do illegal things. Has United Healthcare suffered? No! The consumer has suffered. Should consumers put this behavior out of business? An immediate question is how?
The simple answer to the consumer is; do not buy United Healthcare insurance. Additionally, every state has the ability to restrict the sale of insurance in their state by the issuance of licenses for insurance companies to sell insurance. This would be a deterrent to other healthcare insurance companies and regulate obscene profits and premium increases. The state governments have been hesitant to do this for some reason. Unfortunately it is going to take consumer pressure to force state government agencies to do their job and protect the consumer from this kind of abuse.
Citizens have been ripped off by the healthcare insurance industry long enough. The answer is not a single party payer because the same abuse would exist. The administration of Medicare is outsourced to the healthcare insurance industry.
The real point the media should be discussing is how we can correct the abuse. We have to make it clear that we are not interested in the abuse being a sensational spectator sport. We must have a serious debate on where the most significant abuses are and how are we as a nation can change the healthcare insurance industry’s behavior?
.
forHealth • December 16, 2007
I agree. Candidates from both parties are presenting plans that only satisfy one interest group – the insurance companies. Truth is that when you only offer more of the same – that is all that you will get in return. The end result is companies who don’t live up to their promises and consumers who are more accurately described as victims.