Saturday, March 5, 2011

Paying Health Care Executives and Board Members

Unions, employers, legislators, and the public erupted with anger at the announcement that Cleve Killingsworth, the former CEO and President of Massachusetts Blue Cross Blue Shield, received a departure payout of $8.6 million. A Boston Globe editorial fulminated about "Blue Cross at the Trough." Brian McGrory weighed in with a column blasting the four not for profit Massachusetts health insurers for paying their board members. And Derek Jackson, another Globe columnist, opined that "if Massachusetts is the model, then national health care reform is ultimately doomed."

It's an interesting issue of business and health system ethics. From one perspective, the "right" payment to a CEO or board member is the amount that results in the best "output" by the enterprise. If $8.6 million produces better results for health plan members than a lesser sum, it would seem to be the correct pay package. If $9.6 million would have produced substantially more benefit for Blue Cross members, Killingsworth was underpaid!

But real life is not so simple. Apart from the practical difficulties relating CEO and board member compensation to the level of output produced by the enterprise, the way the compensation "looks," often called the "sniff test," has to be considered. Deirdre Cummings, legislative director for the Massachusetts Public Interest Research Group, put the sniff test factor this way:
"This compensation package undermines the credibility of insurers when they say they’re serious about bringing down the cost of health care. When a CEO makes that kind of money, the public loses faith that we can solve the problem of health costs."
In my view, Cummings is on to something important here. Small businesses that provide insurance to their employees are reeling from health insurance costs. Insurees face bankruptcy from high premiums, deductibles, and other payments they must make. Primary care physicians, nurses, and many other health professionals, are struggling to stay in the middle class as their incomes dwindle. When they sniff the CEO's compensation, they find a decidedly bad aroma.

Defenders of the compensation system argue that the situation would be even worse if CEOs were not guaranteed payout of $8.6 million. But this argument is essentially faith-based. Why on earth would a small business owner, who works just as hard or harder than the health plan CEO, but earns 1/100th of the CEO's payout, believe that his health insurance premium would be higher if the CEO were paid less. Likewise for the nurse who works extra shifts to afford basic expenses or the primary care physician who works seventy hours a week for the same reason.

Income inequity has been rising steadily in the United States. The top one percent control one quarter of our wealth. Income inequity correlates with loss of social solidarity and poorer national health outcomes. And as in the recent flap in Massachusetts, an $8.6 million payout fuels distrust and rancor in a sector that requires trust and collaboration. If we had proof of the kind we look for in evidence based medicine that higher CEO compensation produced greater population health, the backlash would be substantially less. But when all we have is economic platitudes, public outrage simply increases.

(A lot has been written about income inequity. One good summary, from Slate magazine, can be found here.)

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