Rich 'rewards' counter poor performance

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The unfolding story of UnitedHealth Group, which provides health insurance to thousands of Nebraskans, seems to embody all the worst elements of extravagant CEO pay.

For one thing, there is the sheer size of the $1.6 billion in unexercised stock options held by chief executive officer William McGuire.

Then there is the question of whether rules were broken. The Securities and Exchange Commission is investigating whether the stock options were backdated.

Stock options are intended to give executives an incentive to boost the value of a company’s stock. Backdating would put extra pay into an executive’s pocket based merely on the selection of a date on which the company’s stock took a dip.

While the SEC has yet to make a determination in the case, UnitedHealth Group has announced that it may have to lower earnings by as much as $286 million for the past three years because of the way it accounted for stock options.

But for many people the most infuriating part of the story is that McGuire and other executives were raking in billions as their company by many measures was performing poorly.

As reported in the business section of Sunday’s Journal Star, UnitedHealth Group has a poor record of paying its claims accurately and on time.

Its poor performance affected a lot of people in Nebraska, where it holds the second-largest market share behind Blue Cross Blue Shield.

“It’s amazing that a company with these resources can’t figure out how to pay a claim,” said Roger Keetle of the Nebraska Hospital Association.

State officials tried to prod the company to improve, starting with two small fines in 2003 and 2004. When problems continued, the state levied a $62,500 fine, one of the largest for a health insurance company in Nebraska, and began an investigation, according to Tim Wagner, director of the state Department of Insurance.

The fine involved three cases where the company did not pay claims for anesthesiology services for children’s dental work. One claim was reprocessed at least five times over eight months.

“They do a nice job dealing with businesses. They have a tremendous Web site. They do a tremendous job talking about quality. But their own administrative policy is a disaster,” Keetle said.

CEO pay levels began losing contact with reality during the 1980s, and the trend didn’t start arousing much outrage until the late 1990s.

Now, finally, investors are striking back against a system that has become such a travesty that even poor performers and shysters are rewarded with enormous pay packages. UnitedHealth Group apparently has supplied another example of why reform is needed.