On September 16, Senator Max Baucus unveiled a newly revised federal health care reform bill. I'll leave it to others to give the bill a thumbs-up or a Bronx cheer. I was intrigued, though, with one of its provisions: out-of-pocket spending on health insurance would be capped at 13% of household income for most Americans.

This is a recognition that the nation's health crisis is not about cost – it's about price.

To call a price a "cost" is to suggest that it's an expense that's both unavoidable and non-negotiable. In the US, conventional wisdom says that health insurance "costs" always go up.

Massachusetts Solved Half the Problem

The Baucus plan proposes a mandate for individuals to buy health insurance; prevents insurers from denying coverage due to pre-existing conditions; and provides government subsidies for those who need them. All of these elements are part of Massachusetts' 2006 reform plan.

The state's plan has fulfilled one goal of health care reform, which is to reduce the ranks of the uninsured. Insurance prices in Massachusetts, however, have continued to climb.

This Boston Globe piece informs us that the price of insurance will rise 10% next year, after a decade in which such prices have doubled. "It's all about medical costs going up," according to an insurer's spokesman.

One Handshake Can Move a Market

What's driving these "costs"? Mandated coverage and an aging population may only be part of the answer. In a 2008 investigative report that deserves wider notice, the Globe revealed a "market covenant" between a major Massachusetts insurance company and a large hospital chain. In 2000, Blue Cross agreed to increase its payments to Partners HealthCare, and, crucially, also assured the hospital that it would grant similar hikes to the other providers in the state. Partners, in turn, would request increases in payments from other insurers.

The deal was sealed with a handshake between the two firms' top executives.

The Globe wrote that "individual insurance premiums have risen 8.9% a year ever since the 'market covenant,' state figures show, more than twice the annual rise in the late 1990s." The article also includes a comment from Partners, the hospital chain:

"Partners officials stressed that its contract with Blue Cross in 2000 was far from unique, noting that big teaching hospitals across the country cut favorable contracts with insurers in 2000 and 2001, creating a shift in political power from the HMOs to the hospitals."

Corporate bargaining practices affect the price – not the "cost" – of health care. Some practices should raise red flags for policymakers, and for investors who consider environmental, social and governance (ESG) factors in their research. Well-established companies whose margins depend on "market covenants" may be riskier than they seem.

Inflation is Not Inevitable

This is why the Senate price-cap proposal is so significant. It requires healthcare providers to innovate and cut costs, or lose customers to those who do. This is the normal ebb and flow of a market economy, and its action brings us iPods that cost less than phonographs did 30 years ago.

Wiser observers than I have explained why, for consumers, the health care market is not like that for music players. In the context of wholesale bargaining between two companies, however, it really doesn't matter what's being bought or sold; what matters is how their actions affect competing buyers and sellers.

Timothy Noah at Slate has done an excellent job of explaining how the US health care sector's price hikes have contributed to a broader stagnation in American wages. In an economy that remains short of jobs and low on buying power, real reform would shield workers and employers from paying the price of a handshake.

The Securities and Exchange Commission has rejected Consol Energy's request to omit a novel proposal that seeks prompt disclosure of the vote results on shareholder proposals. In a Feb. 27 ruling, the SEC's Corporation Finance Division turned down the Pittsburgh, Pa.-based coal company's challenge, clearing the way for a vote at the firm's April 28 meeting.

The resolution, filed by two of New York City's pension funds, calls on Consol to disclose preliminary vote results to resolution proponents within five business days of a shareholder meeting. In their supporting statement, the city funds argue that expedited disclosure of vote results "could provide proponents and companies more time to consider appropriate actions, including meaningful dialogue, thereby increasing the opportunities for positive outcomes."

In seeking to exclude the proposal, Consol argued that it would violate Regulation FD (which prohibits selective disclosure of material information), was vague and indefinite, and would further a special interest not shared by other investors. In response, the New York City funds pointed out that Regulation FD bars only the disclosure of non-public information that someone might trade on, and noted that it is unlikely that early disclosure of votes on compensation or ESG proposals would affect any short-term trading decisions. The pension funds also pointed out that Consol could avoid any potential violation by releasing the information to all investors via the company's Web site, or by asking the proponents to agree not to trade on the information.

The resolution reflects the frustration experienced by proponents over the refusal of some companies to release vote results on a timely basis, even though the issuer often has preliminary results (because of electronic voting by many institutions) at the meeting. While many firms release preliminary results, some companies wait until their next 10-Q filing, which may be three months after the annual meeting, to disclose final vote results on proposals and director elections. It is not uncommon for companies with May meeting dates to decline to release their vote tallies until mid-August.

Other shareholders share these concerns over vote result disclosure. The Council of Institutional Investors has adopted a policy that urges issuers to release preliminary results at shareholder meetings and to disclose final tallies via a press release, 8-K filing, or a Web site announcement no later than one month after a meeting. As the council notes, "early release of final tallies would cultivate an environment of open communication and board accountability to shareowners."

The housing market collapse and resulting credit crisis have brought significant erosion of shareholder value, unprecedented levels of market volatility, and a continuing lack of confidence among market participants. Observers are questioning the role of executive compensation in incentivizing risk-taking behavior by executives who oversaw the creation and proliferation of the complex financial instruments at the root of the liquidity crisis.

RiskMetrics will host a webcast addressing these issues on Tuesday, March 17 at 11 a.m. EDT. Our webcast panel will share insights into management actions on stock and other incentive plans shareholders voted on in 2008 and what we're seeing in 2009.

Speakers include:
--Mark A. Borges, Compensia Inc.
--Andrew Letts, Vice President of Corporate Governance at State Street Global Advisors
--Laura Thatcher, Alston & Bird
--Valerie Ho, RiskMetrics' Head of Compensation Research

The panel will also cover other executive compensation hot topics, such as performance goal adjustment, award exchanges, and other trends to watch. Carol Bowie, Head of RiskMetrics' Governance Institute, will moderate the panel.

To register for this webcast, please visit here.

The Miami Herald reports that for the first time, two investors have prevailed directly against former Citigroup telecommunications analyst Jack Grubman (as well as the company) in NASD arbitration hearings alleging flawed and conflicted research. The amounts of the awards--$23,000 and $205,000--are relatively minor. According to the article, the $205,000 award was issued jointly against Grubman and Citigroup, and Grubman was ordered to pay only a quarter of the $23,000 award, plus attorneys fees (total: $7,000). A copy of the $205,000 award is available here.

The article further notes that under Grubman's severance agreement with Citigroup, the firm must pay "without limitation" all his legal costs, and that it remains unclear whether Grubman actually will pay any money in these proceedings.