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POLICY/HEALTH PLANS: Shalala and the janitors (not a 60s doo-wop band)

Over at Health Care Renewal, Tony Poses has done some excellent digging into the tale of how the University of Miami, best known for the close to criminal behavior of its football players over the years, is (by proxy of a middleman) stiffing the janitors at its hospital from getting health insurance. Meanwhile, university President and former Clinton HHS secretary — not that she did much while holding that hot seat other than make the camera pan way down when she walked in the room for the State of the Union — Donna Shalala was profiled in the New York Times for her luxury lifestyle. It’s all in the story: A Tale of Three Ironies: University of Miami’s Janitors Still Have No Health Insurance. And Roy digs up the fact that she gets a decent chunk of change for doing basically nothing by being on UnitedHealth Group’s board. ($750 for listening to a summary of a phone call? Nice work if you can get it).

Of course, compared to the average take home pay of UnitedHealth board members, that’s chicken feed. But the average is somewhat distorted by the CEO.

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Mike MorganThe Medical Blog NetworkJohn C.Tom LeithMatthew Holt Recent comment authors
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Mike Morgan
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Dr. Shalala has problems in many areas of her public life, and probably too many items on her plate to do any of them well. She’s in it for the personal gain and recognition. Constrovery Concerning President Bush’s Appointment Dr. Shalala sits on the Board of Directors of Lennar Corporation, the nation’s third larges home builder. In this position, she has influence over the actions of Lennar Corporation. As noted on the website http://www.Lennar-Homes.info Lennar Corporation has issues with building and delivery of defective homes. Dr. Shalala refuses to address these issues, as Lennar Corporation turns the American Dream into… Read more »

John C.
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John C.

UM is changing its tune. I will keep you updated on the status.

Tom Leith
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Tom Leith

> does anyone have anything to add about > Shalala and the janitors? I do not know whether this really contributes anything or not, but here goes. Ms. Shalala is not alone. What is going on evidently at Miami is pretty much what happened at my own Alma Mater back around 1987 (certainly before 1989). Essentially, they outsourced all the janitors, groundskeepers, and cafeteria workers because the rich benefits package required to attract and retain faculty is not necessary to attract and retain service workers. I was disappointed in this decision, what with the university’s claim to be socially conscious… Read more »

Matthew Holt
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Matthew Holt

C’mon John, arguing about option valuation/acounting is much more fun….

John C.
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John C.

Ok, now that we have all revisited our Corporate Finance course, does anyone have anything to add about Shalala and the janitors?

The Medical Blog Network
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Option valuation = voodoo economics

Tom Leith
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Tom Leith

I see: “Without starting a huge debate on corporate finance, I’m going to throw out a bunch of half-truths, non sequiturs, contradictions, and falsehoods, and call them ‘sufficient’. So there.” Geez, Matthew… > The company’s option cost is the share price > at the time the option is granted – when the > option shares are set aside in the company > treasury. This is not true. The company’s option cost is unknown until the option is excercised. Most CFOs will use some variant of the Black-Scholes Model for estimating its value before that point. This is about the best… Read more »

bourne2y
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bourne2y

“Theora’s right, of course” Matt, I’m surprised at you. Theora does not understand how options work. The company’s option cost is the share price at the time the option is granted – when the option shares are set aside in the company treasury. To exercise the option, the employee must first buy the stock from the company at the option price. This repays the company for the option shares. The employee then owns the stock, and can sell (or hold) at will. Selling is a market transaction, and does not involve the company paying anything. Same for any random United… Read more »

Matthew Holt
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Matthew Holt

Hmm… Without starting a huge debate on corporate finance, suffice it to say that most “responsible” companies now count new stock option grants as an expense — particularly true in the case of new grants of “in-the-money” options which assume that unless the stock goes down, the excercise of the option will cost money that could be used elsewhere in the company. You can argue about the accounting all you like, but the money (the $136m in this case) has to come from somewhere, and as this is an option grant for which the company has to basically go into… Read more »

John C.
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John C.

This is happening literally in my backyard. For years the MCO I have worked for has attempted to provide benefits to these employees. The janitors are actually employees of a company called UNICCO. UM outsources the work to UNICCO. Our conversations, through intermediaries, with UNICCO has not resulted in anything meaningful. The primary reason is that UM refuses to pay or require that benefits become part of the contract. Its ironic because we cover several other UNICCO-based employees under contract with other business entities, ie, Miami International Airport janitorial services. Because the County government passed a living wage ordinance whereby… Read more »

Tom Leith
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Tom Leith

> Someone has to make up the difference between > the option price and whatever his purchaser paid, > and the answer is it’s the company which forgoes it — > so it is compensation. Matt, if you mean when you say “the company forgoes it” that “the current stockholders forgo it” then you are right. Any other meaning is wrong. United (in the meaning above) DID pay McGuire $136M — that was his share of the gains in value during the option period. The stockholders who held shares on the day the option was granted paid the $136M, and… Read more »

Matthew Holt
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Matthew Holt

Theora’s right, of course, and Silicon Valley has been moaning about having to account for this, but talk to Warren Buffet. Someone has to make up the difference between the option price and whatever his purchaser paid, and the answer is it’s the company which forgoes it — so it is compensation.
But who said I was complaining? If anyone wants to pay me that much you’ll hear no complaints. That’s just the way things are in America. Surely McGuire’s not embarrased about that, is he?

theorajones
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Nice hairsplitting, bourne2y. Point of fact: United created those stock options, and could have stold them on the open market. Instead, they chose to give them to McGuire and let him sell them. If I give someone a diamond and let him sell it would you say that’s substantively different from selling it myself and giving him a big pile of money?
That said, Shalala should be ashamed of herself. I hope those janitors unionize and kick her ass.

bourne2y
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bourne2y

I don’t care for McGuire’s income any more than you do – but for the sake of being correct about things, let’s note that United did not “pay” McGuire $136 million. That was his gain on the exercise of stock options, whose cost was paid by whoever bought the stock McGuire sold when he exercised his options – not by United (unless of course United also bought the stock, which I doubt). If United stock had declined in value, these same options could have been bupkis. Is anyone worth that level of comp? I dunno. Worth is a slippery concept.… Read more »