Hank Greenberg is gone from AIG; or at least, gone from part of AIG. It is not yet clear what his role will be at CV Starr and other entities that have significant influence over AIG’s operations, executive compensation, and other key matters. My bet is the association will not be long-lived.
His resignation letter is public; it does not say anything surprising (it was, after all, crafted by his attorney). What will be much more interesting is what the Board does after Mr. Greenberg’s departure, and if they adopt the oft-used strategy of blaming everything on the departed.
Not that Mr. Greenberg isn’t primarily responsible for any wrongdoing on his watch; especially in today’s post-Sarbanes-Oxley world he is certainly legally, as well as ethically liable. However, the other Board members also bear responsibility. I would not be in the least surprised if there are additional changes to AIG’s Board in the near future.
Clearly, Greenberg dominated the company through his force of will, intense, brutal management style, brilliance and overwhelming ambition; my few brief meetings with the man did not leave me with any desire to make them a regular event. That said, he built the most successful insurance company on the planet. Those two factors make it both unfair and inappropriate to fault the Board, or anyone else, for their apparent inability or unwillingness to prevent Greenberg from crossing the line into (apparently) unethical or inappropriate stock manipulation.
What does this mean for you?
If you are stockholder, who knows. (I used to be, until last week.) It is all too easy to look back and say should have, would have, but in today’s Spitzer-Sarbanes/Oxley world, all managers may want to re-examine their business practices to ensure they are not even close to, much less over, the ethical/legal line.

In response to inquiries and questions re “what does this mean to me and my job/company/business?” I’ll be adding a “what does this mean to you” statement at the end of some postings.
I recognize that “you” may not (and will not) apply to all readers, but I simply don’t have the time to respond to all individual inquiries re “so, what are the implications of pharma pricing/California managed care laws/Medicaid/CorVel financials/etc. for my company/business plan/employee benefits plan/future costs?”
Feel free to continue to send questions etc and I’ll get to them as time allows. If I don’t respond with a lengthy message, don’t interpret that as a lack of interest.

In what may prove to be a critical indicator of the future of Medicaid funding, a bipartisan group of senators has introduced an amendment that would restore the $14 billion in Medicaid funding cuts in the President’s budget proposal. The senators expect a vote on the amendment tomorrow…
According to California HealthLine, 14 sponsors and co-sponsors:
“have introduced a bill that would create a commission of experts to evaluate Medicaid and recommend improvements before lawmakers cut funding or make changes to the program. The commission would be made of experts to be appointed by the president, Congress, governors, and state and local officials. Commission members would hold public meetings and deliver recommendations on how to improve Medicaid (American Health Line, 2/10).
The amendment’s sponsorship is important, as it indicates the Senators have listened to their states’ governors, who were all but unanimous in their protest over the cuts. Clearly, the Administration’s desire for a quick resolution to the Medicaid budget issue will not be satisfied. In fact, many governors are actually asking for additional funds, as Medicaid expenses continue to grow at rapid rates.

Several sources reported the imminent departure of Hank Greenberg, long-time Chairman and CEO of AIG, from the company effective tonight.
According to MarketWatch, “Greenberg, 79, the long-time chief executive of insurance giant American International Group, is expected to officially step down after an AIG (AIG: news, chart, profile) board meeting Monday night, paving the way for Martin Sullivan to ascend to the $166 billion global insurance conglomerate.”
There are some indications that the Board at AIG is working to move as quickly as possible to address issues related to alleged stock price manipulation (prior to the purchase of American General); fallout from the Spitzer investigation of alleged bid-rigging and sham-bidding, and inappropriate usage of “insurance products” to smooth earnings for certain AIG customers.
Mr. Greenberg’s age, 79, may be cited by some as contributing to the decision, but I wouldn’t buy it. He has remained one of the more engaged and energetic CEOs of late.

The latest projections from the Congressional Budget Office have the Medicare Drug Program’s costs over the next ten years at $849 billion. This is a rather substantial increase over the initial projections of some $400 billion, which were for the ten years ending 2014. Nonetheless, this does represent an increase of over $100 billion from the last CBO estimate, published less than a month ago.
According to California HealthLine,
“CBO’s projection does not include anticipated savings, which could make the actual cost lower than the Bush administration’s cost estimate of $724 billion over 10 years (Fram, AP/Detroit News, 3/5).
Analysts attributed the net spending increase to a higher estimated cost of basic benefits and a change in the cost of low-income subsidies under the original bill. About $36 billion of the $54 billion net spending increase would occur before 2013 — the period covered under the original cost projections (CQ HealthBeat, 3/4).”
There have been some rumors about possibility flexibility on the part of the Administration on the program, but any “flexibility’ in terms of cutting benefits and therefore costs may well be offset by the financial support CMS may have to provide to private insurers willing to participate in the Medicare Drug card program.
These private insurers are justifiably worried about the possibility of adverse selection. The program is voluntary, so logically, only those recipients that would actually gain financially from the program would sign up. This isn’t insurance, it is a guaranteed money loser.
That being the case, one wonders how and why private companies would sign up to lose money. My sense is they are being offered stop-loss assurances from CMS; or if not explicit protection, some other form of risk avoidance.

News in brief.
The Congressional Budget Office projects potential savings from Pres. Bush’s Medicaid cuts will be some $11 billion less (over the next five years) than the White House’s claims.
The National Governors’ meeting ended without an agreement from the governors on Medicaid program cuts, changes, or alterations. Here’s the news from California HealthLine on where the effort stands…
“We’ll now work to build on [common ground] and hopefully come up with a proposal that will be bipartisan and that we can take to Congress for the purpose of being able to substantially improve Medicaid and have it reach its promise,” Leavitt said (Smith, Salt Lake Tribune, 3/2).
Governors’ Concerns
Interviews with “numerous governors” indicate that the “consensus described by Leavitt does not exist,” according to the Times (New York Times, 3/2). “We are still far apart,” New Mexico Gov. Bill Richardson (D) said.
Ohio Gov. Bob Taft (R) said, “With the respect to the budget itself, we’ve made clear we oppose [the administration’s cuts], and we’ll see how that issue works out here in the next few weeks.”
Wisconsin Gov. Jim Doyle (D) said the administration’s proposed changes are “not acceptable,” adding, “What they are saying to states is, ‘We’re going to cut you and give you more flexibility,’ and the flexibility is you can cut people off.”
Indiana Gov. Mitch Daniels (R), Bush’s former budget director, said, “There’s a lot of substantive agreement but honest tactical disagreement” (Washington Post, 3/2).
Don’t expect this to happen any time soon…

According to Reuters, AIG Chairman and CEO Maurice “Hank” Greenberg is under investigation by NY Attorney General Eliot Spitzer. The story, to be published in the March 7 issue of Fortune, identifies the problem as Greenberg’s possible promotion of the “income smoothing” products that were the cause of a previously-assessed $126 million fine paid by AIG.
The Reuters article states:
“Insurers have offered products akin to business loans to a broad swath of corporations, catching the eye of regulators who worry that these products smooth earnings and mask the true value of the borrowers. Rather than turning to a bank for a traditional loan or selling securities to raise cash, a company borrows money from its insurer. The loan is repaid in the form of increased premiums for traditional insurance.”
There are a variety of other products that also provide the same type of benefit to public companies. If there is any investigation (neither AIG nor the AG’s office would comment) my sense is the investigation is looking into not just the “inflated premium” products but other financial chicanery as well.
Until now, no public company had survived an indictment. It appeared that AIG had weathered the storm, but once the investigators start digging, there is no telling what they can come up with.

The Bush Administration’s efforts to address the rising costs of Medicaid came under attack again by state governors from both parties.
The Bush budget proposal includes cuts of $40 billion in the program, at a time when program costs have been increasing at an annual rate of 9% for each of the last four years. Governors are concerned not only with the proposed cuts, but also want to have more freedom to broaden coverage to other uninsured populations. At present, this requires a waiver, which can only be obtained after a somewhat cumbersome and time-consuming process involving the Centers for Medicare Services (CMS).
According to the Associated Press, there is an uncommon amount of bipartisanship evident in the governors’ pronouncements…
“One thing governors feel, Democrats and Republicans alike, is that we have a health care system that, if you’re on Medicaid, you have unlimited access to health care, at unlimited levels, at no cost,” said Arkansas Gov. Mike Huckabee, a Republican. “No wonder it’s running away.”
Republicans have been the most sweeping in their push toward market reforms, aiming to encourage patients to spend Medicaid dollars more wisely. Democrats, however, also are turning to concepts that require people on Medicaid to bear part of the costs, through copays or deductibles. Most try to spare additional costs, or cuts, from children and the poorest of the poor.”
Medicaid funds come from state and federal coffers, with the feds’ contribution tied to the state’s average income level (New York gets less, Mississippi gets more). Thus, any cuts in federal dollars either have to be made up with state funds, or programs cut. My bet is providers will see their reimbursement rates affected.
As Medicaid takes a hit, providers will likely seek alternative revenue sources.

Pres. Bush stated Wednesday that Medicare reform will be addressed after Social Security reform had been completed. According to the NYTimes, Bush’s statements were in response to the recent disclosure that the Medicare prescription drug program cost estimates are now in excess of $700 billion for the program’s first ten years, “with costs reaching $100 billion annually by 2015.”
By way of comparison, the Administration’s initial estimate of program costs for the first eight years was $400 billion, a number that was, according to reports, significantly less than that predicted by the Medicare Actuary. Readers may recall the mini-scandal that erupted when the Actuary disclosed that he had been threatened with dismissal if he went public with the discrepancy (the Actuary’s estimate was $534 over the same period.)
According to California HealthLine,
“lawmakers listed several possible changes to the present Medicare program. The potential measures include capping spending for the benefit; cutting payments for wealthy beneficiaries; allowing the government to negotiate bulk drug prices with pharmaceutical firms; banning Medicare coverage of “lifestyle drugs,” such as Viagra; and legalizing the importation of prescription drugs from Canada and other countries. ”
Implications
It is encouraging that our elected officials are becoming more realistic about the costs of this program, and may consider allowing the Federal government to negotiate with drug manufacturers. However, if the Feds are succesful in their efforts, there could be a massive cost-shift to private payers as drug companies seek to recoup lost income.
We’ll be watching this very closely.