Drucker and my health insurance

A couple of apparently unrelated things happened earlier this month. First, I went through the annual ritual called Open Enrollment, during which I reviewed all of the optional elements of my Sun benefits (health insurance, dental coverage, health spending accounts, life insurance, and so forth) and selected the coverage that I wanted for the next year. Secondly, Peter Drucker, the man that the Wall Street Journal called “the first philosopher of management”, died at the age of 95.

So what’s the connection? First, Drucker:

From “Is Executive Pay Excessive?” May 23, 1977: Economically, [the] few very large executive salaries are quite unimportant. Socially, they do enormous damage. They are highly visible and highly publicized. And they are therefore taken as typical, rather than as the extreme exceptions they are.

These few very large salaries are being explained by the “need” to pay the “market price” for executives. But this is nonsense. Every executive knows perfectly well that it is the internal logic of a hierarchical structure that explains them…. Money is a status symbol which defines an executive’s place in the corporate hierarchy. And the more levels there are the more pay does the man at the top have to get. This rewards people for creating additional levels of management…. Yet levels of management should be kept to the minimum….

If and when the attack on the “excessive compensation of executives” is launched–and I very much fear that it will come soon–business will complain about the public’s “economic illiteracy” and will bemoan the public’s “hostility to business.” But business will have only itself to blame. It is a business responsibility, but also a business self-interest, to develop a sensible executive compensation structure that portrays economic reality and asserts and codifies the achievement of U.S. business in this century: the steady narrowing of the income gap between the “boss man” and the “working man.”

Second, health insurance. One of the providers from which I get to choose is United Health. (It’s probably a violation of some company policy for me to say this; on the other hand, the concentration of this industry is such that almost every large company offers something from everybody. And I imagine the information is publicly available.) On November 28th, Forbes reported that the salary of William McGuire, CEO of United Health Group last year was $124.8 million. (He cashed in stock options worth $115 million; he currently owns stock options worth $1 billion.) Just to take an area that I know well, a psychiatrist or clinical psychologist makes around $75 dollars per hour; William McGuire makes $115,384 dollars an hour. What on earth can justify this discrepancy? It certainly isn’t “market forces”; I’m pretty sure that the board of UBH could find a perfectly competent CEO that would do the job for a mere $1 million.

As Robert Kuttner put it in today’s Boston Globe:

Health insurance is the most vivid case of what political scientist Walter Dean Burnham calls a ”politics of excluded alternatives.” Polls consistently show that over two-thirds of Americans want universal tax-supported health insurance. Gallup found that 79 percent of Americans want coverage for all, and 67 percent don’t mind if taxes are raised to pay for it. Fully 78 percent are dissatisfied with the present system. Medicare, the one part of the system that is true national health insurance (for seniors) is overwhelmingly popular.

There is no hotter political issue, nor one that strikes closer to home. So, if Americans overwhelmingly want national health insurance, why don’t we get it? Three huge reasons: political, fiscal, and jurisdictional.

Politically, the immensely powerful private insurance industry would be displaced by national health insurance. Nearly all corporations would rather suffer with the devil that they know (escalating premiums) than the devil they hate (an expanded role for government)….

Fiscally, a shift to national health insurance would require about $700 billion that currently goes through the private sector in charges to workers and consumers and shifted to the public sector in the form of taxes. The result would be a far more efficient and reliable system, but many voters would see the increased taxes but not appreciate the savings in premium costs, payroll deductions, or out-of-pocket charges.

Jurisdictionally, states like Massachusetts can perhaps make some piecemeal progress, but it’s hard to do this right in one state without pushing the system toward further fragmentation. Medicare works because it’s a national program.

But let’s get back to McGuire’s $124 million. Obviously the public wouldn’t stand for a government official pulling in that kind of money. Instead, that sum would comfortably cover the premiums for all of the uninsured workers here in Massachusetts. As I blogged recently, it’s amazing that so many in American business are opposed to single-payer government-administered health insurance, even though it is demonstrably in their best interests (and the interests of their shareholders and employees) that such a program be adopted. And it’s a sad commentary on American politics that no political party is willing to stand up for a policy demanded by two-thirds of the people of the USA.

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