Where does the health care money go?

Well, some of it goes to pay executives at health insurance and pharmaceutical companies.
Here are some income figures for top executives at leading health insurance companies. The numbers are for total compensation in 2008, obtained from proxy statements required by the U.S. Securities and Exchange Commission. The total compensation includes base salary, bonuses, plus an “other” category, which can include things like stock awards and options. It doesn’t include use of the company jet, a car, and 401K contributions.
$24.3 million – Ron Williams – Aetna
$12.2 million – Edward Hanway – CIGNA
$9.8 million – Angela Braly – WellPoint
$9 million – Dale Wolf – Coventry Health Care
$8.8 million – Michael Neidorff – Centene
These numbers come from one of the many Fierce websites on health-related industries, this one from FierceHealthcare: Daily News for Healthcare Executives. There’s more detail on the top ten insurance earners at “Leading health plan CEO paychecks.”

For comparison, here are the top five compensation packages at pharmaceutical companies, from FiercePharma. The site has details on the top 17.
$33.4 million – Miles White – Abbott
$30.1 million – Fred Hassan – Schering-Plough
$25.1 million – Bill Weldon – Johnson & Johnson
$24.1 million – Bob Essner – Wyeth
$17.6 million – Robert Parkinson – Baxter

To return to the issue of lobbying

The pharmaceutical and insurance industries make a lot of money. They can afford to pay their executives well, and they can afford to spend large sums of money to influence the political process.
In yesterday’s post on lobbying (Big Pharma lobbies against health reform: Big time) I quoted Billy Tauzin. He argues that it’s only natural for health care industries to hire ex-government employees as lobbyists. They have the right experience; they know which strings to pull; they can be very effective.
That’s true, of course. What seems unfair to me is that the health care reform battle is such an unequal financial contest. There’s so much money available to lobby against any change that threatens the profits of the major health care players. And so little money available to lobby for a change supported by a majority of citizens, the public option. Without major changes in how health insurance is financed (plus changes in the way health care is organized and delivered), the rate of growth of health care costs will continue to rise.

Is the problem really executive compensation packages and health care industry profits?

We’d be fortunate if it was that simple. As economist Victor Fuchs states:

A major reason why it is so difficult to reduce costs is that every dollar of health care spending is a dollar of income to someone involved in providing health insurance or health care. Administrative costs are undoubtedly too high, and insurance companies taking excess profits and executives with high salaries are frequently blamed. But they are only a small part of the story. The biggest part consists of payments to tens of thousands of telephone and computer operators, claim payers, insurance salespersons, actuaries, benefit managers, consultants, and other low- and middle-income workers.

That is the seemingly intractable problem, yes, but it’s not the tens of thousands of low-level employees who make health care reform such a difficult political battle.
Insurance and drug company executives are paid high salaries because they satisfy their stock holders. They do that by increasing the rate at which medical spending grows. Any attempt to reduce that rate, which threatens the growth of their income, will be met with fierce resistance. These industries not only have very strong incentives to oppose health care reform. They have the financial resources and the political influence, through lobbying, to win this battle.
It would be an interesting spectacle to sit back and watch, if only the outcome were not so critically important.