8. United Health

8. United Health

CEO: Stephen J Hemsley
2007 compensation $13.2 million
HQ: Minnetonka, MN
Profits: $4.7 billion (2007)
Assets: $53.5 billion

United Health is plagued by accusations that its greed has endangered patients. Physicians report that reimbursement rates are so low and delayed by the company that patient health is compromised. Money that should have been spent on medical treatment for policyholders has instead gone to the company’s former CEO, who faced criminal and civil charges for backdating stock options. United Health has also used its association with AARP to jack up premiums on products aimed at seniors, even through they are no better than their cheaper counterparts.
_______________________________________

William McGuire orchestrated United Health Group’s rapid growth to become the largest health insurance company by premiums written in America. (138) Along the way, he ensured that he would be well compensated for his efforts. When McGuire became CEO in 1990, he immediately began to streamline the company by cutting back on coverage for treatment he deemed unnecessary and by bargaining with doctors to reduce payments.

United Health also became dominant in the burgeoning HMO market by investing in information technology and acquiring smaller companies. The company’s success under his leadership made it easy for McGuire to convince the board of directors to reward him for his performance. McGuire was allowed to choose when his stock options would be awarded, essentially allowing him to backdate his options to make it appear they were issued on days when stock prices were at their lowest.

The Wall Street Journal conducted an analysis of McGuire’s stock option grants between 1994 and 2002 and concluded that the probability the options were randomly awarded on dates when stock prices were at their lowest would be about 1 in 200 million. An internal memo made public during litigation confirmed that on at least one occasion options were granted “with an advantageous price.” By backdating his options, McGuire was able amass $1.6 billion in options as United Health’s stock price rose from 30 cents per share in 1990 to $62.14 in December 2005. Given the incredible performance of the stock, the board saw no reason to restrain McGuire.

Shareholders and the SEC did not share the board’s view of McGuire’s worth. The SEC opened an investigation into United Health’s options granting process, which ultimately led to McGuire’s ouster as CEO in 2006. Additionally, McGuire agreed to give back $620 million in stock gains and retirement compensation in order to settle federal and shareholder claims. The settlement left McGuire with just $800 million in options and $530 million in compensation.

During his tenure as CEO, McGuire was meticulous about expanding the company’s reach. One very profitable move was the decision to partner with AARP to sell insurance products. United Health Group understood the value of AARP’s image as a trusted advocate for senior citizen’s rights when it partnered with the non-profit organization in 1998 to market its insurance products. That year, the insurer won a 10-year contract to brand its supplemental Medicare insurance policies with the AARP name. The deal was lucrative for both sides. United Health received $4.5 billion in premiums from AARP-branded products in 2004, while the seniors’ organization pulled in $197 million in royalties and $23 million in investment income that same year.

Beginning in 2006, AARP licensed its name to three United Health Medicare prescription drug plans, covering 4.1 million people. United Health also sells two other prescription drug plan not branded by AARP, and the enrollment numbers show just how effective the AARP name is. United Health’s stand-alone plans cover only 600,000 people.
While this partnership is advantageous for United Health, it laid AARP vulnerable to the charge of allowing financial gain to trump its members’ best interest. The premiums charged by United Health’s AARP plans are often far higher than those charged by other companies. The AARP reputation gives seniors the false sense of value and quality, even though there is little difference in services and the premiums are far higher. In June 2007, United Health was forced to suspend marketing of its Medicare Advantage program after the federal government determined that the company was misrepresenting its products. Medicare audit reports found that United Health lacked an effective program to supervise its marketing representatives. (150) The reports also found that the company failed to notify policyholders about changes in costs and benefits.

United Health has repeatedly been accused of focusing on profits at the expense of its policyholders and their health care providers. The Nebraska Insurance Department reported a spike in complaints against the insurance giant for wrongful denials of claims and for failing to reimburse claims in a timely manner. Other state regulators have said United Health has acted improperly in denying claims. In one case, the company denied a doctor’s request for an enclosed bed to protect a four-year-old with an abnormally small head. In another case,the company rejected a request from a patient who lost 200 pounds after bariatric surgery and wanted to have flaps of excess skin removed to prevent infection. (151)

Physicians report that United Health’s reimbursement rates are so low and delayed that patient health is being compromised. Many physicians in South Carolina have stopped accepting United Health coverage and others are forcing patients to pay up front. South Carolina is the only state that does not have a “prompt pay law,” which requires insurers to pay claims within 90 days. Texas, which has a prompt pay law, has levied $4 million in fines against United Health for late payment. (152) Regulators in Arizona fined the insurer $364,750 for illegally denying over 63,000 claims by doctors.

New York regulators and health care providers have taken an aggressive stance against United Health practices they believe to be unfair. The state Department of Health prohibited United Healthcare of New York from enrolling new members until it improved practices, such as adding more customer relations staff, responding to claims faster, and updating financial reports. The American Medical Association (AMA) and the Medical Society of the State of New York sued the insurer over its reimbursement rates.

Perhaps the biggest hit to United Health will come from a lawsuit New York Attorney General Andrew Cuomo intends to file over how the company determines what portion of a doctor or hospital bill to pay. Cuomo alleges that United Health has systematically been forcing patients to pay more than they should for visits to out-of-network doctors and hospitals by intentionally low-balling reimbursement rates. A company called Ingenix calculates rates; however, this company is owned by United Health which creates the potential for a conflict of interest.