The Money Pit: Health Insurance Executives' Pay

Last year was a very good year for H. Edward Hanway. The CEO of Cigna made $14.6 million in 2009.(1) He retired on December 31. Here is some of what this money could have paid for, based on national averages:

• Health insurance for 3,000 individuals ($4,824 each) or 1,100 families ($13,375 each)
• 241 nurses ($60,000 per year each)
• 209,000 additional prescriptions filled ($70 each)

Did Hanway contribute as much to the nation's health as 241 full-time nurses would have?

The total compensation for the top four executives under Ms. Braly at Wellpoint totaled $20 million in 2009, meaning Wellpoint paid out $33 million just to its top five executives.

Hanway's compensation isn't at all atypical. Ronald Williams, Aetna's CEO made over $18 million in 2009.(2) And Angela Braly, the CEO of Wellpoint, made $13.1 million in 2009.(3) This was a 51% increase over Ms. Braly's 2008 compensation, and it came at a time when Wellpoint's subsidiary, Anthem Blue Cross, proposed premium increases of up to 39% for Californians.

And these are just the salaries of CEOs. Health insurance companies have many other highly compensated, top-level executives. At Wellpoint, at least three of them received compensation increases of up to 75% in 2009.(4) The total compensation for the top four executives under Ms. Braly at Wellpoint totaled $20 million in 2009,(5) meaning Wellpoint paid out $33 million just to its top five executives.

The ten largest health insurance companies insured roughly 118 million Americans in 2008.(6) Taking Wellpoint's compensation figures as typical suggests that these 10 companies paid over $300 million dollars to their executives in 2009. While this is only a crude estimate, it serves to define a ballpark figure for overall executive compensation: hundreds of millions of dollars, at minimum. This is all money paid for by health insurance premiums that buys little or no health care. Some might call it a money pit for health care dollars.

Executive compensation isn't the only reason health care costs are so high. Hospital procedures have grown more costly and doctor's fees have also risen. But it's hard to imagine a health care system without doctors or hospitals. A health care system without health insurance executives is not only possible, it existed well into the 20th century. And the first widespread health insurance companies were non-profits.

The current health care system is nothing more than an accident of history. Melissa Thomasson, an economic historian and professor at the University of Miami (Ohio), published an article in 2003 which details the development of the U.S. health care system from its infancy.(7) This article shows that the system in place today is not part of the natural order of the universe; it evolved through a series of historical accidents. There is nothing sacred about it.