America's 2007 Petulant Plutocrat of the Year!
Drum roll, please. The time has come to name our Petulant Plutocrat of the Year.
This year, that's not easy. We simply have too many terrific candidates. War profiteers. Private equity fund strip-and-flip corporate takeover artists. Investment bankers setting Wall Street bonus records betting on subprime mortgages.
These movers and shakers all meet our basic threshold for Petulant Plutocrat of the Year consideration: They all have accumulated vast fortunes -- at the expense of average Americans -- and they all feel they deserve even more.
But, in the end, none of these outstanding candidates have made this year's final Petulant Plutocrat cut. We have found our 2007 Petulant Plutocrat of the Year elsewhere -- in the corporate snakepit known as the health care industry.
Health care, of course, makes for a natural Petulant Plutocrat hunting ground.
No other industry in the United States, over the past quarter-century, has become more expensive, impersonal, aggravating -- and profitable. And few individuals, within health care, have profited any more from this ongoing disaster area than William W. McGuire, our 2007 Petulant Plutocrat of the Year.
Last December, McGuire stepped down as the CEO of UnitedHealth, the nation's largest health insurer, with a fortune worth thousands of times more than the net worth of the typical American family.
This December, one year later, McGuire agreed to give $418 million of that fortune back, in the largest out-of-CEO-pocket corporate scandal settlement ever. But McGuire, who'll turn 60 next year, remains phenomenally wealthy, and he still hasn't acknowledged any guilt.
Indeed, last week, McGuire had his lawyers in federal court, blasting away at a judge who had tried to freeze some of McGuire's assets until all legal claims against him can be settled. The lawyers called that move "manifestly unjust."
The lawyers had a novel argument. Unlike other recently disgraced CEOs like Citigroup's Charles Prince and Merrill Lynch's Stanley O'Neal, they contended, William McGuire didn't run his company "in the ditch."
The lawyers have a point. McGuire, in his 15 years as UnitedHealth CEO, didn't run his company "in the ditch." What did he do? McGuire simply helped pump up a health care crisis that's driving American families "in the ditch." Almost 20 percent of working families with insurance are now paying over 10 percent of their incomes on health care.
For this career achievement, William W. McGuire truly deserves to be our Petulant Plutocrat of the Year.
This won't be McGuire's first award. Back in 2001, Worth magazine named McGuire one of America's "50 Best CEOs." At the time, he appeared to merit that distinction. McGuire had, after all, built UnitedHealth from an unknown for-profit regional HMO into a national health insurance colossus.
McGuire, to construct this colossus, followed standard contemporary CEO operating procedure. He didn't create a good company. He created a big one -- by orchestrating merger after merger, over 30 in all, from 1991, his first year as UnitedHealth CEO.
This merger blitz would hike UnitedHealth's annual revenues from about $600 million to $70 billion -- and send UnitedHealth's share price soaring over fifty-fold.
Each merger would also bring a torrent of reassuring rhetoric. In 1998, for instance, McGuire confidently claimed that mergers give his company "the size, scale, and operating efficiencies needed to accelerate investments in high quality health and well-being services."
Seven years later, celebrating a 2005 merger with PacifiCare, McGuire vowed that UnitedHealth would always be working to "lower costs and make things simpler for consumers."
"We are really intent," McGuire added, "on cutting down on hassle."
But the average Americans these mergers shoved into the UnitedHealth corporate family -- the company now collects monthly premiums from about one in six insured U.S. households -- have never quite experienced anything close to a hassle-free health care heaven.
UnitedHealth, under McGuire, became notorious for poor customer service, especially for foot-dragging on paying claims.
"It's amazing," the Nebraska Hospital Association's Roger Keetle last year told the Lincoln Journal Star, "that a company with these resources can't figure out how to pay a claim."
This past September, UnitedHealth reached a settlement with states that had filed formal complaints against the company's claims payment system. The company agreed to shell out as much as $20 million in penalties and "embark on a three-year improvement plan" to improve the "accuracy of claims and timeliness of payments."
UnitedHealth currently takes an average five days to fix billing issues, the worst lag in the health care industry. One reason: To cut costs, the company -- under McGuire -- outsourced all its call centers overseas.
UnitedHealth has some nasty habits that go beyond keeping customers waiting. This past June, UnitedHealth and six other insurers reached another settlement, this time to stop selling Medicare Advantage policies. Sales agents from the companies, U.S. Senate investigators found, had "tricked elderly customers into buying Medicare Advantage policies that they couldn't afford."
UnitedHealth executives haven't just been cheating customers. Under McGuire, they cheated their own shareholders -- by manipulating the dating of executive stock options.
Stock options give top executives the right to buy, at some stipulated point in the future, shares of company stock at the stock's present-day price. Options only become valuable if a company's share price rises. If the shares do rise in price, executives can happily "exercise" their options on them -- that is, buy the shares at the old low price, then turn around and sell them at the higher new price.
The lower that low price, of course, the bigger the executive windfall. In the 1990s, executives across the United States began making sure that this low price would be really low. They began "backdating" their options to dates their company shares were trading at particularly low levels, in effect lying about the dates their options were granted.
At UnitedHealth, the federal Securities and Exchange Commission charges, CEO McGuire "repeatedly caused the company to grant" options that went unrecorded in the company's books until the UnitedHealth share price fell to a suitably low point.
Three different times McGuire backdated massive option grants to grab the right to buy company shares at the stock's lowest price of the year.
Backdating an option grant, in and of itself, doesn't break the law -- if a company publicly reveals the date shift. But if the company does reveal the shift, that changes the accounting and tax treatment of the option. Companies that conceal their backdating, as a result, are improperly inflating their earnings and illegally evading taxes.
Over a 12-year period that went through 2005, backdating at UnitedHealth would inflate the company's annual earnings by $1.5 billion. The company, since the backdating surfaced last year, has had to restate all those earnings -- and pay the IRS $55 million.
And the price McGuire personally has had to pay? The $418 million he agreed to forfeit earlier this month comes on top of $198 million he previously agreed to "disgorge" after the backdating scandal first broke.
But McGuire still comes out personally ahead -- way ahead. He retains title to $800 million in unexercised stock options, plus all the many millions in cash compensation he collected as UnitedHealth CEO.
What about the future of the company McGuire grew into a giant? Current UnitedHealth CEO Stephen Hemsley -- himself a party to UnitedHealth option backdating schemes -- remains upbeat, so long as no misguided lawmakers upset America's private insurance-driven health care status quo.
"No other company," Hemsley exalted recently, "is as entrenched in the American health care system to the breadth and depth that we are."
Average working families have considerably less reason to exalt. Nearly 30 percent of Americans with health insurance, up from 18 percent in 2004, now say they're having trouble paying for food, heat, and housing.
William McGuire, our 2007 Plutocrat of the Year, may no longer be running the UnitedHealth show. No matter. His corporate legacy lives on.