Steffy: How William McGuire earned that fat paycheck

What has William McGuire done to advance the cause of medicine?

That's what Dr. Jose Rodriguez wanted to know when he called me a few weeks ago. McGuire agreed to step down Dec. 1 as chief executive of UnitedHealth Group amid a scandal involving backdated stock options. His severance alone could be as much as $1.1 billion.

Rodriguez says he has reason to be incensed. He's spent 16 years building a practice in Houston as an orthopedic surgeon, yet he says he frequently finds his medical judgments second-guessed by insurance companies.

"We can't take care of people the way we're trained because they want us to treat them the cheapest way," he says. "It's all about money."

UnitedHealth spokeswoman Cheryl Randolph says her company took steps in 1999 to eliminate its role as "gatekeeper," allowing doctors to make their own decisions on treatment.

That still leaves the question of McGuire, who gave up pulmonology and found riches in insurance.

In its proxy statement, UnitedHealth argued that McGuire's compensation — more than $500 million since 1992, and that's in addition to the pending severance — was justified because of the company's performance.

So what has McGuire done to warrant his $1.1 billion farewell package? He's done what Wall Street investment banks have done for decades. He positioned himself and his company at the choke point of money.

UnitedHealth and other managed care providers have essentially become medical brokers, making money at the expense of an inefficient system.

They may allow doctors to make treatment decisions, but they ultimately decide who gets paid and who doesn't. They are the arbiters of capital in the medical community, and for that, they extract a hefty price.

On Wall Street, brokers get their price from us in the form of commissions. On Med Street, it's in the form of premiums.

The end result is the same.

Gambling with our health

What has McGuire done? On his watch, UnitedHealth has become one of the nation's biggest peddlers of consumer-directed health plans. These are plans in which we get to gamble with our own health.

Lower premiums are offset by higher deductibles, often $1,000 or more per patient. It's a great deal if you know that you and your family aren't going to get sick.

UnitedHealth has about 1.8 million enrolled in consumer-directed plans nationally, about 10 percent of them in Texas, Randolph said.

When proponents talk about these plans, they talk about how they lower costs and allow consumers more control over their health care decisions.

This is based on a myth known as moral hazard, which says we'll use less health care if we have to pay for it ourselves.

Moral hazard theory, which has governed health insurance since the 1950s is, quite simply, backward. In a lengthy piece in the New Yorker last year, Malcolm Gladwell, author of The Tipping Point, noted that Americans spend almost two and a half times as much per capita on health care as the median for the industrialized world.

"Americans have fewer doctors per capita than most Western countries," Gladwell wrote. "We go to the doctor less than people in other Western countries. We get admitted to the hospital less frequently than people in other Western countries. We are less satisfied with our health care than our counterparts in other countries. American life expectancy is lower than the Western average. Childhood-immunization rates in the United States are lower than average. Infant-mortality rates are in the 19th percentile of industrialized nations."

And on top of all that, the U.S. spends almost $400 billion a year, about $1,000 per capita, on health-care-related paperwork and administration, Gladwell found.

Losing ground

In other words, for all we're spending, we are getting nowhere. In fact, we're losing ground. Because while "consumer-directed plans" may have the feel of greater control, they — and related programs such as the various pretax spending accounts — are nothing more than an effort to shift more costs to us.

That doesn't, as Rodriguez noted, advance the cause of medicine. It doesn't advance public health.

It has, however, helped advance UnitedHealth's profits and enabled the company's CEO, ousted amid scandal, to line up a severance package that could be the fattest in corporate America, three times that of Lee Raymond at Exxon Mobil.

That's what McGuire has done.

Loren Steffy is the Chronicle's business columnist. His commentary appears Sundays, Wednesdays and Fridays. Contact him at loren.steffy@chron.com. His blog is at http://blogs.chron.com/lorensteffy/.