Monday, July 19, 2010

Not Your Average Joe's Health Plan

A Denver Post article offered a brief glimpse into the health benefits of corporate leaders, on the unusual occasion of a former CEO now in legal fight for the health benefits in the style to which he had become accustomed:
Poor Joe. He's not getting the health-care benefits he was promised.

His former employer merged with another company, and then another, and then another. And, you know how it goes after a slew of mergers. Suddenly the new, conglomerated monster just doesn't care about retirees any more.

Joe isn't going to sit back and take it like an average Joe. He's suing his former employer in U.S. District Court in Manhattan for breach of contract, breach of faith, breach of fiduciary duty and even promissory estoppel.

The Joe in question was really:
Lord & Taylor's CEO.

Joseph E. Brooks of Greenwich, Conn., lorded over a fourfold increase in sales at Lord & Taylor, expanding to 46 from 19 locations.

His career and Lord and Taylor's course after that were checkered, perhaps contributing to the current dispute:
But that was a long time ago. And Macy's Inc., the current parent company, is resisting some of his medical claims.

Brooks didn't get a deal like this from Filene's, where he served as president before joining Lord & Taylor. Or Ann Taylor, where he went on to generate shareholder lawsuits and shopper hate mail after demanding lower prices from suppliers and higher prices from customers, destroying both quality and value at the same time.

Brooks also made his son president of Ann Taylor, sparking cries of nepotism. And then his son got snagged trying to slip by U.S. Customs without paying duties on pricey watches and was forced to resign. The senior Brooks subsequently resigned as well. A 1992 Newsday article called him 'as egotistical and extravagant as he was brilliant.'
What Health Care Benefits Do CEOs Get?

What had Brooks been promised as CEO of Lord and Taylor?
In 1983, Lord & Taylor's corporate parent told Brooks it sought to provide 'great comfort to executives knowing that their medical costs are fully reimbursed by the Corporation.' The company told Joe it was a lifetime guarantee.

CEOs should never, ever, have to worry about health care.

Here are some details about his benefits:
And for nearly 27 years, substantially all medical costs have been fully covered, even premiums.

We're not just talking doctors' visits, hospitals, medications and tests. We're talking all travel and ancillary expenses associated with care, too.

We're talking first-class transportation, accommodations and meals while being treated at the Mayo Clinic and the Duke Diet and Fitness Center. We're talking expenses for a companion or personal aide, too.

We're also talking 'cosmetic services (surgery, medications, injections, creams and the like)' dental care, gym memberships, personal trainers, vitamins, massages — all paid by Joe's former employer for the rest of Joe's life.

Oh, and if any of these benefits have tax consequences, we're talking gross-up payments to cover that, too.
Why should we be concerned about the extravagant health plans given to top corporate executives? 

The Implications

We noted in 2009 that the Goldman Sachs 2009 proxy statement indicated that top executives of that now controversial company received health plans worth about $40,000 each. 

My concern then were not how much the costs of the plans contribute to top corporate leaders' compensation packages. Such packages are generally already so outrageously huge that providing $40,000 rather than $13,000 worth of health insurance is a trivial increase. My concern was not that plan recipients' demands for health care will collectively increase health care costs, because they likely include only a tiny portion of the population.

My main concern, instead, was how much these plans further insulate already cocooned top executives from the vicissitudes of daily life, particularly related to coping with our current dysfunctional health care system. What benefits executive health care plans provided were not clear from the 2009 story about Goldman Sachs.  However, this year's case of Joe Brooks does suggest that the plans paid for every expense that could be conceivably health related. 

As I worried then, it now does appear that such plans could completely insulate executives from having to deal with the managed care/ health insurance bureaucracy which frustrates patients seeking particular services, but not necessarily the most expensive, or least beneficial services. Furthermore, such plans may completely insulate executives from the various other vicissitudes of managing our currently dysfunctional health care system.  (By the way, that is why it seemed amazing that the CEO of Pfizer had to put up with some of the common vicissitudes when he went to a hospital for an elective procedure, an experience he publicly talked about with an almost charming naivete, given that he runs such a powerful health care organization which has been so influential in shaping our US "health care reform," see post here.)

Such executives isolated from the real world of health care might thus not have gut level appreciation of how dysfunctional the health care system has become for even insured patients. Since top executives often are disproportionately influential members of the "superclass," their disconnection from the realities of dysfunctional health care is likely to translate into little real support by the powers that be for meaningful health care reform. There support may be further retarded by the influence of their fellow superclass members whose personal fortunes depend on the status quo in health care.

Real improvement of health care may depend on finding leaders who have better understanding of the plight of real people.
Two Postscripts
Note: the Goldman Sachs 2010 proxy indicates that the executive health plans given to the five most highly paid executives cost up to $56,927.  
Also note that despite the effect that executive health plans may have on the thinking of those with the most power to influence health care policy, the plans have been of little interest to health care services and policy researchers.  I have not been able to find a single article in these literatures on the subject.  This appears to be yet another version of the anechoic effect, that certain inconvenient truths (to borrow from former US Vice President Al Gore) are not subjects of polite discussion of health care, lest the results excessively disturb the powers that be.

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