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The Last Of The Bubble Billionaires

The Wall Street Journal is all over the story of UnitedHealth Group CEO Dr. William McGuire, the richest guy you've never heard of. Today the CEO is calling for the end to stock-based compensation for his company's executives. The Journal notes the irony:

The catch is this: the former pulmonologist has amassed one of the fattest stock-options fortunes of all time. In a Page One article today, The Wall Street Journal reported that Dr. McGuire's unrealized gains on UnitedHealth options total $1.6 billion (he also pulls down $8 million a year in salary, plus bonus and perks). That's more lavish than anything granted to celebrity CEOs like Jack Welch or Louis Gerstner. The timing of Dr. McGuire's awards is also drawing scrutiny after the Journal reported last month that the grants were regularly dated just in time to catch substantial jumps in the company's share price. Was he just lucky? The Journal calculated that the odds of the grants occurring with such winning timing were roughly one in 200 million. UnitedHealth has defended the grants, though the company's board is conducting a review.

Dr. McGuire said in a conference call that "every member of management in this company believed at the time that we followed appropriate practices" in granting options. Remaining tight-lipped amid media reports about the grants is difficult, he said, but the company doesn't plan to comment much on the issue. Dr. McGuire promised the company would be "transparent" about the results of the internal review and take action to address shareholder interests if the review shows the company didn't follow appropriate practices. UnitedHealth is also under investigation by the Securities and Exchange Commission.

So how did McGuire get what turned out to be such a sweetheart deal? In 1998 he was just an ordinary millionaire.

Dr. McGuire at the end of 1998 had unrealized gains of $22 million on his existing options. That might have seemed like a huge sum a decade earlier. But Leonard Abramson, the founder of U.S. Healthcare Inc., netted about $900 million when he sold his company to Aetna Inc. in 1996. And dot-com mania was at its peak. CEOs of health-care start-ups such as WebMD Inc. held 5% or bigger stakes in their companies, which looked like passports to great wealth.

In contract negotiations, Dr. McGuire pushed for more options, and directors agreed. When his contract was renewed, effective Oct. 13, 1999, he got options equivalent to 2% of UnitedHealth's shares outstanding. That was the biggest slice Dr. McGuire had ever received. "Clearly we were aware of people getting huge gains on Internet-stock situations. That was perhaps a factor in our mind," says director William Spears.

The dot-coms' onslaught proved laughably brief, but UnitedHealth kept rising. As the industry consolidated -- spurred by several deals Dr. McGuire engineered -- health-plan operators found it easier to raise prices. Employers rarely complained, or if they did they directed their anger at the health-care system generally.

The better UnitedHealth fared, the more valuable Dr. McGuire's options became. Since 2000, he has cashed out $488 million of options, yet the value of his remaining options keeps rising. The 1999 grant has proved about seven times as valuable as the company projected when it was issued.

Drkoop.com, Pets.com, Idealab!, and their ilk, helped make McGuire billionaire.

As Patients, Doctors Feel Pinch, Insurer's CEO Makes a Billion (subscribers only) - [WSJ]


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Comments (7)

Interesting, I just heard f... (Below threshold)

Interesting, I just heard from one of my former co-workers at PacifiCare that United Health is under investigation from the SEC.

Oh to take the business out... (Below threshold)

Oh to take the business out of medicine!

RobertPacificare and... (Below threshold)

Pacificare and United are one in the same as of LAST year 05; nobody noticed so Dr McGuire really cashes in.

But we'll blame the doctors in the office/clinic for the rising cost of medicine.

Epador agreeed...Note the W... (Below threshold)
Steve Crickmore:

Epador agreeed...Note the Wall Street Journal companion piece a couple of days ago..Does this mean that that the WSJ and you favor the single payer government scheme..This does seem like a sea change..Can't see convincing Bush or many other conservatives?..After all health care is indeed a very lucrative business and the business of America is....

I'd really like to see an e... (Below threshold)

I'd really like to see an example of a single-payer health "scheme" that worked.

I'd also really like to see a Pauly Shore movie that was funny.

McGehee..I can't help you a... (Below threshold)
Steve Crickmore:

McGehee..I can't help you about Pauly Shore but as for a single payer system that works the Canadian single-payer Medicare program though under some financial pressure, and with some waiting lists for some operations still too high, has the highest patient satisfaction levels of the first World, far higher than the US.

I have worked for the compa... (Below threshold)

I have worked for the company for the past 4 years and getting a raise is almost impossible. The most you can hope for is 3%.
There are no bonuses for non-executive employees and the health benefits suck even for us employees.
Yet Mr. McGuire is a Billionaire.
I don't mind the company CEO being compensated for a job well done. But he is doing it off the backs of the employees.
Healthcare companies claim that the rising cost of health insurance is do to the high cost of healthcare but what about the high cost of the company CEO.






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