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UnitedHealth Workers Get Critical on Care

Melissa Davis

Some rank-and-file UnitedHealth Group (UNH Quote) employees feel a whole lot less pampered than their billionaire CEO.

Take a look at their health care benefits, of all things. UnitedHealth ranks as the most diversified health insurer in the country, a company that takes great pride in offering other companies a wide range of products -- including some of the richest benefits available in the marketplace today. Yet the company's 55,000 employees have just three choices when it comes to their own health care coverage. And all of those are so-called "consumer-driven" health plans.

These plans, known as CDHPs, feature higher deductibles -- and the potential for much greater out-of-pocket expenses -- than the traditional coverage that UnitedHealth continues to sell to others. The plans have grown increasingly popular among employers hoping to shift more health care costs onto their employees and previously uninsured individuals who simply cannot afford anything else.

But at UnitedHealth, a company that keeps reporting record profits and handsomely rewarded its longtime CEO, some employees feel they deserve better. After all, they watched CEO William McGuire pocket millions of dollars and add to his huge stash of stock options -- valued at an eye-popping $1.6 billion -- when the company switched them over to the skinnier benefit plans offered by its new Definity division last year.

McGuire has recently come under fire for collecting massive piles of stock options that, some believe, may have been backdated to make them worth more. McGuire believes and asserts that the company has acted properly but, with the Securities and Exchange Commission asking questions, has arranged for a special review of past option grants. Moreover, he has pledged to halt future grants for some executives -- including himself -- in the future.

In the meantime, however, McGuire already ranks as the best-paid health care executive in the country. Indeed, he has made so much money that he can afford to spend millions on pet projects -- like a massive butterfly exhibit -- without making a dent in his stash.

One UnitedHealth employee, feeling pinched by higher health care costs, voiced some resentment.

"We UHG [UnitedHealth Group] employees -- who don't earn millions per year but perform a vital function for the company -- are left having to pay much more out of our own pockets," the employee complained in a recent email to TheStreet.com. "Maybe [McGuire] could give his own employees part of the millions he is using for the butterflies at the University of Florida so that we could have a normal co-pay plan like we used to, and like they offer most other employers ... [Meanwhile], the UHG benefits people won't even address our concerns with the plan. They just say that is what is being offered, and we have to either take it or not."

Shares of UnitedHealth slipped 13 cents to $49.61 on Monday. They have lost more than 20% of their value since the end of last year, a slide -- fueled by the compensation scandal -- that could stir some outcry at Tuesday's shareholder meeting.

Mixed Review

To be sure, some UnitedHealth employees seem perfectly satisfied with the company and the benefits it has to offer.

Take Daryl Richard, vice president of communications for the Uniprise division that oversees the company's CDHPs. Richard points out that he pays lower monthly premiums for his Definity health plan than he would for traditional health insurance. He also notes that UnitedHealth funds part of his high deductible for the plan. As a result, he says, he wound up spending about the same last year on health care as he would under a traditional plan -- even though his wife had a baby.

If so, Richard's experience differs from those reported by others facing big-ticket procedures under CDHPs. Elizabeth Fowler, the former chief health care counsel for the Senate Finance Committee, last year told The Washington Post that her out-of-pocket expenses doubled when she ran into some health care problems while covered under a Definity plan.

Fowler even challenged the very label of her plan.

"I don't consider it consumer-directed," she told The Post. "And it's certainly not consumer-friendly."

The Government Accountability Office recently compared the CDHPs and traditional health plans offered to federal employees. For family coverage, monthly premiums averaged $208 under CDHPs compared to $243 under traditional health plans -- a difference of $420 a year. But the difference between annual deductibles and out-of-pocket spending limits sometimes totaled thousands of dollars. In fact, the study showed, some CDHPs featured spending limits of $10,000 before full coverage kicked in.

Consumers Union has warned of serious problems for people facing less than one-third of that payment.

"A consumer with an income in the range of $25,000 to $30,000 will suffer financial hardship if they face out-of-pocket costs as high as $3,000 a year," Gail Shearer, director of health policy analysis for Consumers Union, said when testifying against CDHPs two years ago. "This type of policy appears to be driven largely by the employer's desire to curb health care expenditures ... We believe this type of coverage is misnamed, misguided from a policy perspective, and a dangerous distraction from the health insurance crisis."

Wave of the Future

Still, Shearer now fears, CDHPs look like they are here to stay.

Powerful fans, from President Bush on down, seem to favor CDHPs even more than traditional health insurance. The plans allow consumers to set aside money, tax-free, for their health care needs and -- with their own dollars at stake -- encourage them to shop wisely for those services. Meanwhile, any untapped funds keep on piling up in the bank.

UnitedHealth, a powerful shaper of health care trends, plans to lead by example.

"One of the reasons we at UnitedHealth converted ourselves," Richard says, "is to illustrate how seriously we believe in consumer-driven health care."

Other companies have not gone quite so far. Today, Richard says, more than 140 major companies offer UnitedHealth's CDHPs. However, he adds, the vast majority of those still allow their employees to enroll in more traditional plans if they want.

A pattern emerged when federal employees faced such a choice. Those who favored CDHPs most were relatively young males -- with high incomes -- who enrolled in individual rather than family plans.

"Although the first-year enrollment in [Federal Employees Benefits Program high-deductible health plans] may not predict future trends, it does raise the possibility that individuals with certain demographic characteristics may be disproportionately attracted to these plans," the General Accounting Office (GAO) reported in January. "For example, first-year HDHP enrollees had consistently higher incomes across all age groups than enrollees of another new plan and all FEHBP enrollees. This may suggest that aspects of HDHPs -- such as the greater financial exposure coupled with the potential for tax-advantaged savings -- uniquely attracted higher-income individuals with the means to pay."

'Compare and Contrast'

McGuire could satisfy even the maximum $10,000 spending limit under CDHPs by working a few short hours.

Last year, McGuire collected $8 million -- or more than $150,000 a week -- in salary and bonuses alone. Moreover, he picked up 1.3 million stock options that could be worth far more than that down the road. Meanwhile, four of his highest-ranking colleagues raked in another 900,000 options combined.

In contrast, a recent company filing indicates, 14,000 other UnitedHealth employees received an average of 1,700 options apiece. And the remaining 41,000 employees apparently received no options at all.

Yet, every UnitedHealth employee faced the same health insurance choices -- each one featuring potentially higher out-of-pocket expenses than the plans they had before.

"I understand the compare and contrast," says CRT Capital analyst Sheryl Skolnick, who has a buy recommendation on UnitedHealth's stock. "They're thinking, 'We've worked so hard, and the company has done so well.' And when you tell people something is going to cost them more, it can make them very upset."

At the same time, however, Skolnick can see why CDHPs make sense -- especially for UnitedHealth's own employees.

"If the company is going to preach to the marketplace that this is absolutely the way the future has to go," she says, "then they have to take their own medicine and work through the very same [benefit] rationing issues" that others face.

But apparently, some UnitedHealth employees have struggled to swallow that medicine and McGuire's compensation all at the same time. Only after McGuire became a billionaire, thanks to paper stock option profits, did he finally decide to cut back on his own perks. Meanwhile, some worry about the perks he has received already.

Skolnick doubts that McGuire did anything seriously wrong. Nevertheless, she harbors some fears that McGuire -- and even President Stephen Hemsley -- could be forced out under a worst-case scenario.

"That's the visionary and the executor," she stresses. "Forget it. That's a blow that will take the company a very long time to recover from. I really wouldn't be interested in the company anymore unless there's some hidden gem there I'm not aware of."

Prudential analyst David Shove considers McGuire invaluable as well.

"As CEO, Dr. McGuire provided the strategic vision which has transformed UnitedHealth Group from a mid-size regional HMO into an industry titan that is at the forefront of the health care services revolution," says Shove, who has an overweight recommendation on the company's stock. "While the stock option compensation may appear excessive to many, we truly believe that Dr. McGuire has earned every penny of it."