Aetna CEO Set to Reap About $500M If CVS Deal Closes • Hacker News Board

Re: Aetna CEO Set to Reap About $500M If CVS Deal Closes

#121

Post by yequalsx » Tue, Dec 05, 2017, 8:40 PM UTC

rukittenme wrote: post #117

yequalsx wrote: post #112

Earlier quoted context omitted.

Revenue comes from selling policies. The company has a financial incentive to deny care because that increases the profit. It's one way they try to control expenses and thereby increase profit. After Katrina State Farm famously denied coverage to many people on the grounds that it wasn't storm damage but rather flood damage. Companies that have an incentive to get out of spending money generally try to do so. Health…

> Do you have evidence that Aetna's valuation was not based on profitability? No. But if you read the comment of the person I originally responded to, you'll see that this discussion is irrelevant to the overall point. Any clarification of Aetna's valuation has been for your understanding of stock valuations in general. Not to pursue some point about Aetna's ethical or unethical valuation. > The company has a financi…

Yes, categorically. If Aetna signs an agreement to pay health expenses and fails to follow through they face three major consequences: - They can be sued for breach of contract. - They can lose market power as their brand loses public trust. - They can face fines from government regulators.

I think you are ignorant about how things work in the U.S. There haven't been strong regulators for quite some time. The average person has neither the money, time, or willpower to fight an insurance company. The legal costs can be quite high. The time required to get a favorable ruling that actually gets enforced is often times quite long. Witness Exxon and the time required to get them to pay for the Valdez accident.

In an ideal world your point would be relevant. We do not live in a truly free market. We live in an environment of regulatory capture. An era of force arbitration which is well known to favor the corporation. We do not live in an environment where corporate malfeasance is properly punished. Look at the fines banks had to pay for knowingly laundering drug money. It was far less than the profit. BP famously has leaky oil pipelines in Nigeria because it can get away with it. Comcast has virtually no public trust and yet it continues to profit greatly. Your view is not justified by reality.

It is well documented that health insurance companies hire people to look for loopholes. To delay and ultimately try to deny coverage. This is not disputable.

Re: Aetna CEO Set to Reap About $500M If CVS Deal Closes

#122

Post by yequalsx » Tue, Dec 05, 2017, 8:43 PM UTC

pc86 wrote: post #118

yequalsx wrote: post #71

Earlier quoted context omitted.

That's a fair point. But the value in stock comes from profit which comes from...

> the value in stock comes from profit You haven't been following Wall Street very long, have you? The stock price gain is something like 8-9x the profit gain for Aetna. This money would not have paid a single claim, ever.

This money would not have paid a single claim, ever.

That is the essence of my point and we agree on this. Yes, if the CEO did not get this $500 million it would have gone elsewhere but certainly not to paying claims or enhancing healthcare for anyone. We agree on this point.

Re: Aetna CEO Set to Reap About $500M If CVS Deal Closes

#123

Post by yequalsx » Tue, Dec 05, 2017, 8:47 PM UTC

cabaalis wrote: post #95

sitkack wrote: post #20

Earlier quoted context omitted.

More importantly, that 500M was money siphoned away from healing people. This is a share of the reward in not healing the sick.

Isn't this 500m being paid from the value of the stock being sold? Therefore paid by CVS who is buying the stock? In that case, CVS is primarily a pharmacy company, which makes their money by directly selling drugs which heal the sick. So I believe your comment is entirely backwards, the 500m comes directly from healing the sick.

The $500 million comes from CVS's belief in the profitability of Aetna and the future returns it sees. Aetna would not be worth as much money as CVS believes it is worth if Aetna did not profit so much. And part of its enormous profit comes from denying care to people.

Re: Aetna CEO Set to Reap About $500M If CVS Deal Closes

#124

Post by rukittenme » Tue, Dec 05, 2017, 8:54 PM UTC

yequalsx wrote: post #121

rukittenme wrote: post #117

Earlier quoted context omitted.

> Do you have evidence that Aetna's valuation was not based on profitability? No. But if you read the comment of the person I originally responded to, you'll see that this discussion is irrelevant to the overall point. Any clarification of Aetna's valuation has been for your understanding of stock valuations in general. Not to pursue some point about Aetna's ethical or unethical valuation. > The company has a financi…

Yes, categorically. If Aetna signs an agreement to pay health expenses and fails to follow through they face three major consequences: - They can be sued for breach of contract. - They can lose market power as their brand loses public trust. - They can face fines from government regulators. I think you are ignorant about how things work in the U.S. There haven't been strong regulators for quite some time. The average…

> It is well documented that health insurance companies hire people to look for loopholes. To delay and ultimately try to deny coverage. This is not disputable.

Everything you said before this point is irrelevant.

It's trivial to find the list of lawsuits lost and fines paid[1].

Read this excerpt:

> In 1999 a California jury awarded $116 million in punitive damages to the widow of a man whose death from stomach cancer was alleged to have been caused by the refusal of an Aetna subsidiary to approve treatment approved by its own doctors.

$116 million for failing to pay what would have been $100k max for treatment. Aetna certainly has a financial interest in upholding their agreements. They would have to deny 1160 identical cases before breaking even. Assuming that none of those 1160 sued for damages.

1. https://www.corp-research.org/aetna

Re: Aetna CEO Set to Reap About $500M If CVS Deal Closes

#125

Post by nugget » Tue, Dec 05, 2017, 8:57 PM UTC

prklmn wrote: post #120

aaavl2821 wrote: post #116

Earlier quoted context omitted.

health insurance companies are not perfect, but id argue they are more a product of the imperfections of the us healthcare system than a cause of the imperfections private health insurance is needed as we do not have public insurance for everyone. even in countries like the UK, which tend to have better outcomes and lower cost, private health insurance exists. it gives people more options if they are willing to pay a…

Ask yourself this question - how do insurance companies in general add value? Forget payout for a moment. Their value is added in deciding what rates to charge people, and determining if a claim is valid, that's it. Anything else they do is value subtraction. Their profit drivers come from raising premiums and denying more claims, both things kill value. You make a good point about providers consolidating, and the sa…

Health insurance companies recruit providers (hospitals and physicians), negotiate prices for services, manage patient records and billing, detect, prevent, and prosecute provider fraud, determine market prices based on their predicted population of insured live, and other random tasks. It's a stretch to call this no value add, in my opinion. We can, and should, compare the efficiency of medicare administration to private insurance administration, and study the best practices of each system. Even in countries with state-sponsored universal healthcare, like the UK, there are robust private health insurance systems, which indicates to me that they offer value to consumers and fill some market need.

Re: Aetna CEO Set to Reap About $500M If CVS Deal Closes

#126

Post by s73ver_ » Tue, Dec 05, 2017, 9:06 PM UTC

Nrsolis wrote: post #85

pg314 wrote: post #76

Earlier quoted context omitted.

> CEOs interests are aligned perfectly in this situation: increase shareholder value. That is wrong. The CEO's risk is asymmetric. Huge upside with limited downside, which encourages reckless risk taking. It is also shorter term (until his grants vest), encouraging short term profit over long term value. > I don't quite grok the idea that employees with no ownership stake in the company are somehow owed a share of th…

His risk isn't asymmetric. He (or she) has got to justify their job each and every quarter to the investors. A couple of bad quarters and you can expect the shareholders to be looking for a scalp and it's usually the CEO. I think you maybe underestimate the job market for senior executives. It's not like a CEO of a S&P500 company can find another job on LinkedIn. Sometimes they land a new gig. A lot of the times they…

"His risk isn't asymmetric. He (or she) has got to justify their job each and every quarter to the investors. A couple of bad quarters and you can expect the shareholders to be looking for a scalp and it's usually the CEO."

But what actual risk is the CEO taking? Sure, the board might decide to let them go. But that usually comes with a multi-million dollar severance package. They're not hurting. There is no practical downside. On the other hand, someone who gets laid off because of the company tanking does get hurt, through no fault of their own.

"I think you maybe underestimate the job market for senior executives. It's not like a CEO of a S&P500 company can find another job on LinkedIn. Sometimes they land a new gig. A lot of the times they don't."

They land on their feet more often than not. And, again, they're not hurting for money. If they don't find another job, their children are not going to go hungry.

Re: Aetna CEO Set to Reap About $500M If CVS Deal Closes

#127

Post by aaavl2821 » Tue, Dec 05, 2017, 9:06 PM UTC

prklmn wrote: post #120

aaavl2821 wrote: post #116

Earlier quoted context omitted.

health insurance companies are not perfect, but id argue they are more a product of the imperfections of the us healthcare system than a cause of the imperfections private health insurance is needed as we do not have public insurance for everyone. even in countries like the UK, which tend to have better outcomes and lower cost, private health insurance exists. it gives people more options if they are willing to pay a…

Ask yourself this question - how do insurance companies in general add value? Forget payout for a moment. Their value is added in deciding what rates to charge people, and determining if a claim is valid, that's it. Anything else they do is value subtraction. Their profit drivers come from raising premiums and denying more claims, both things kill value. You make a good point about providers consolidating, and the sa…

Insurance companies negotiate much lower payment amounts with providers than individuals could achieve otherwise. They do this through scale, which, as you mention, can be bad when scale gets too big, but also through risk pooling. Risk pooling allows you to eliminate idiosyncratic risk and thus lower the cost of healthcare on average.

If you are a sick person with no insurance and average income, you won't be able to afford health care. But if you join a group of healthy people and pool some to pay for emergencies, you can. That's health insurance

Re: Aetna CEO Set to Reap About $500M If CVS Deal Closes

#128

Post by s73ver_ » Tue, Dec 05, 2017, 9:06 PM UTC

bfuller wrote: post #69

Kyragem wrote: post #15

Oligarchy at its best: Aetna/CVS workers mostly making minimum wage and doing all the work while the CEOs earning insane paychecks. Would this guy really be worse off if he only made 50M and the other 450M would go to the employees?

So the workers should be paid less if the companies profits fall? edit: feel free to join the conversation silent downvoting cowards

They already face the risk of getting laid off.

Re: Aetna CEO Set to Reap About $500M If CVS Deal Closes

#129

Post by nugget » Tue, Dec 05, 2017, 9:09 PM UTC

eecc wrote: post #86

lefstathiou wrote: post #49

Earlier quoted context omitted.

I respectfully disagree with the way you are positioning this. The relative impact of a CEO, whose job is to set strategic direction and direct human (tens of thousands of employees) and financial capital (billions of dollars) at scale, dwarfs that of any of its individual employees and the vast swath of them combined. Most relevant to you, the majority of the benefit of this 7x increase in value in 7 years is actual…

> The relative impact of a CEO, whose job is to set strategic direction and direct human (tens of thousands of employees) and financial capital (billions of dollars) at scale Or - according to my anecdotal experience - get out of the way and stop interfering with employees that know what they’re doing? I can think of several asinine “big plans” that just ended up burning huge stashes of capital and costing even more…

Are you advocating for a flat org structure and if so have you seen any examples of that succeeding at scale?

I think many people who argue against the value of great management have just never worked at a company with great management. Great managers are as awesome and empowering as bad managers are terrible and soul-destroying.

Re: Aetna CEO Set to Reap About $500M If CVS Deal Closes

#130

Post by Nrsolis » Tue, Dec 05, 2017, 9:20 PM UTC

s73ver_ wrote: post #126

Nrsolis wrote: post #85

Earlier quoted context omitted.

His risk isn't asymmetric. He (or she) has got to justify their job each and every quarter to the investors. A couple of bad quarters and you can expect the shareholders to be looking for a scalp and it's usually the CEO. I think you maybe underestimate the job market for senior executives. It's not like a CEO of a S&P500 company can find another job on LinkedIn. Sometimes they land a new gig. A lot of the times they…

"His risk isn't asymmetric. He (or she) has got to justify their job each and every quarter to the investors. A couple of bad quarters and you can expect the shareholders to be looking for a scalp and it's usually the CEO." But what actual risk is the CEO taking? Sure, the board might decide to let them go. But that usually comes with a multi-million dollar severance package. They're not hurting. There is no practica…

If you got fired from a job that had a potential $500M payday attached to it and only got a $25M severance package at the end of it, trust me, you'd be pretty bummed about it. Go looking for CEOs that got fired and see where they landed. it's one and done for a lot of them.

Again, there is no room for socialist populism here. He negotiated a package and he delivered results. His interests as a CEO are aligned with the shareholders who risk their capital with ownership of the company. They trust the board and the CEO to increase the value of their investment.

Why is this controversial? Why does it matter if he's rich before or after he does the job? All of these guys are already wealthy before they even sign up. They don't need to do this work to survive.

Somehow the notion seems to go around that anyone who makes a boatload of money suddenly has to kowtow to the public on whether or not they deserve that money. That's not how this works.