"Say on Pay" Legislation: Giving Patients a Say on CEO Pay

Warren Buffet once described the cost of health insurance mandates as "a hungry tapeworm on the American economy."  He was right.

Health care inflation continues to exceed the base inflation rate.  Health insurer CEO compensation has ballooned out of control --in 2017, Cigna CEO David Cordani took home $43.9 million, Humana CEO Bruce Broussard made $34.2 million, and Aetna CEO Mark Bertolini earned nearly $59 million. That’s approximately $162,000 per day.  Seven years after the Affordable Care Act created an insurance windfall, earnings at the 70 largest U.S. health care companies reached $9.8 billion cumulatively. 

When people like you and I are paying high insurance premiums, shouldn’t we get some say in how the money is spent?   

Local legislators, Michelle Caldier, a Port Orchard Republican, and Sherry Appleton, a Poulsbo Democrat, joined by Reps. Eileen Cody (D-West Seattle), Laurie Jinkins (D-Tacoma), Shelley Kloba (D-Kirkland), and Nicole Macri (D-Seattle) agree that people should have a voice in this process.  To that end, they have co-sponsored House Bill 1017, which is intended to regulate the salaries of nonprofit health carriers, defined as health maintenance organizations, insurers, health care service contractors, or other entities responsible for the provision of healthcare services. 

“Say on Pay” legislation would require any non-profit insurer to assemble a panel made up of 10 health plan enrollees chosen at random.  The enrollee panel would be tasked with setting the compensation and benefits package of the board of directors’ members and approving the salaries of those executive employees receiving the top five highest levels of pay and benefits.  Each enrollee on the taskforce would serve a one-year term with a two-term maximum.  

Inflated CEO compensation has many negative consequences for the typical American worker. According to the Economic Policy Institute (EPI), a non-profit economic think tank, the gap between CEO compensation and that of workers has never been greater than it is today.  In 1965, the CEO-to-worker compensation ratio was 20-to-1, by 1989, the CEO-to-worker compensation ratio had grown to 58-to-1 and in 2017, the CEO-to-worker compensation ratio is 312-to-1. 

Economists Josh Bivens and Lawrence Mishel, writing for the American Economics Association, found that the substantial income gains at the very top are a significant impediment to increases in the standard of living for low- and moderate-income households.  The Economic Policy Institute endorses reducing incentives for CEO’s and corporate executives to extract economic concessions while preserving the economy overall. 

The two best methods are by increasing taxes on CEO compensation and corporations with higher CEO-to-worker ratios or instituting a “say on pay” policy, allowing shareholders (or beneficiaries) to control compensation and benefits for the CEO and other top executives. 

“Say on Pay” legislation would empower beneficiaries and patients to hold their health carriers accountable for building and maintaining a “patient-centered” health organization more focused on value of the services provided than volume.   Patients would benefit from interventions that would reduce the price of care, limit unnecessary tests or procedures, and prioritize care coordination.  

Annual healthcare spending in the US reached $3.5 trillion last year – 17.9% of the GDP -- almost double per capita spending of other developed nations. According to the Kaiser Family Foundation, most recent growth in health expenditures is due to insurance program spending, both private and public. Private insurance expenditures represent 34% of total costs (up from 21% in 1970), and public insurance --including Medicare, Medicaid, CHIP, and the VA Health Systems – represent 41% of overall health spending in 2017 (up from 22% in 1970).  In comparison, hospital costs account for 33% and physicians’ services are only 8% of health care expenditures.

CEO compensation is closely tied to stock price; therefore, executives prefer focusing on methods to generate higher earnings per share.  Dr. J. Mario Molina, the CEO of Molina Healthcare – a Washington Apple Health Medicaid plan based in California-- was fired in May 2017 due to lackluster company performance, yet still pocketed $17 million that year and received almost $23 million in severance pay.  His brother John C. Molina, former CFO, also fired in May 2017, received $10.7 million in severance.  Despite coughing up $50 million, Molina had enough money to hire Joseph Zubretsky in November 2017 as CEO and pay him $19.7 million for two months’ work. 

Health care expenditures will continue to climb if pay packages for health insurance executives don’t provide incentives to control health care costs.   Health insurers should not be rewarded for higher stock prices and better profit margins.  Supporting HB 1017 will give consumers an opportunity to hold insurers accountable,  improving access to healthcare services for everyone.