The former Aetna CEO was thrust into that role despite his iconoclasm about corporate life and American healthcare. His success tells us a lot about contemporary business. For him, mindfulness was as important as profit.
The following transcript has been lightly edited and condensed for ease of reading.
David Gelles: Good afternoon everyone. Good afternoon! There’s still life in the room, even though it’s late.
Mark Bertolini: Energy.
Gelles: Thank you all. So, a radical capitalist.
Gelles: This is a moment at which there’s talk of socialism among the candidates. We’ve got Ray Dalio talking about the need for reforming the capitalist system. Is it not an oxymoron to be a radical capitalist? What do you actually mean by that?
Bertolini: We have to change capitalism if it’s going to continue to work.
Gelles: What is wrong with capitalism?
Bertolini: Well, income inequality, we’ve lost our way in the way we—let me start it this way. We have two economies in the United States. We have a wage economy and we have a wealth economy. And if you look at wages since the early ’70s, they’re pretty much flat in a real basis. If we look at the wealth economy, which is based on the stock market, the stock market has risen pretty dramatically. And unless you were invested in the stock market, you didn’t get the advantage of it. Now, we fooled the middle class for a long time, until 2008, that they had this asset called a home that was wealth. And the result is, is that now, with what happened in 2008 and the fall in housing values, the middle class has been laid bare, and we now have 60% of the United States public which is within $400 of financial disaster. That’s what wrong with capitalism.
Gelles: So let’s talk solutions. What specifically are you suggesting needs to be done? Because for all the letters that Larry Fink writes and for all the things you can say at Davos about the need to raise the minimum wage—
Gelles: —that’s not going to do it and you know that.
Gelles: So let’s talk about real structural solutions, which as you know are going to require investors to maybe take a bit of a haircut on the returns they’ve gotten used to. What has to be done?
Bertolini: I think you’re starting to see some of it with what Ray Dalio’s doing with schools in Connecticut. I think what we’ve got is a problem around our institutions and their ability to govern a social and economic ecosystem that’s larger than they can manage. And so their response, our federal government’s response, is to get bigger, put more regulation on, and the result is that they can’t control it and it gets worse and it gets worse and it gets worse. And people have lost faith in the federal government. As a matter of fact, among institutions, our federal government is probably at the lowest it’s ever been, and it’s well below business. Business is actually the most credible institution—low bar, mid-30s—but it’s the most credible institution in America.
Gelles: Okay, but that said, I don’t know if want Ray Dalio and Mark Zuckerberg designing my kid’s school curriculum.
Bertolini: No, you don’t. No, you don’t. What we have to do is we have to adjust our governing mechanisms. And so in my book, I note that I think the best form of governments now is at the community level.
Gelles: Buy the book.
Bertolini: And so we need to get back to community, we need to re-establish community, we need to invest in communities. And that’s where employers, business, business leaders at the community level, where they’re known and they’re engaged, can help those communities thrive in education, around environment, and most importantly, around community sustainability.
Gelles: Okay, so here we’re getting to brass tacks. Large employers need to make decisions—difficult ones, perhaps—to spend more money on wages, more money on their communities, perhaps be less mercenary when it comes to the kind of decisions they make about programs that might cost a little more but benefit the environment.
Bertolini: We used to do that.
Gelles: How do you sell that on the street, though?
Bertolini: We used to do that.
Gelles: How do you go to your investors, your largest investors, and say, “You know what? You know that buy-back that you were expecting? Dear analyst, that dividend that you’ve gotten so used to?
Gelles: Maybe that’s going to come down a little, because we really care about the world. Are you—what happens when you go have those conversations?
Bertolini: I did that. I did that, and you know, you get the investors you deserve. So if investors don’t like it, they can get out of your stock, which is what I told our largest shareholder when I took over as CEO back in 2010.
Gelles: Yeah. So give us some examples, because I know you’ve done this, and we’ve talked about it. Talk about some of the specific things you did at Aetna that fit this mold.
Bertolini: So, I mean, I was meeting with our largest investor. My predecessor was a great CEO, learned a lot from him, Ron Williams. Had done $14 billion worth of stock buy-backs in his four and a half years with the company. And I—the board, I sat down with the board my first day on the job, and I said, we’re going to—let’s cut the share buy-back in half, and let’s invest in the business. That means in our employees, in our customers—let’s invest in our communities. Aetna has an incredible history. In the 1930s, during the Depression, Aetna built its building and kept everybody at Aetna employed. We manufactured four and a half million red bricks on site. Every brick has Aetna’s name stamped in the back, and we kept everybody in the community employed.
In 1970, when Hartford went bankrupt—it was one of the first cities in America to ever go bankrupt—Aetna made payroll for the city for the first year as they came out of bankruptcy, and that’s what the start of the Aetna Foundation was, which has since then given almost $700 million away as a company out of our earnings. Our second CEO was mayor of Hartford and governor of Connecticut. As a matter of fact, he was called the Sledgehammer Governor because he broke open the office when there was a dispute over the election, smashed through the door, and took the office over, because there was a dispute over the vote count, back in 1928 or 1932—somewhere around there.
And so as a company—and companies in those years were very much vibrant parts of their communities, and gave to their communities. So this is not new. What we did is we got away from it, because we got short-termism, responding to the stock market, lining our own pockets, versus taking care of the people that served our customers.
Gelles: Yep. And you may—and you probably deserve credit for being willing to slash that return of capital program with your shareholders early in your tenure. But you also know full well that the most junior Aetna employees were some of those people, maybe, with only $400.
Gelles: So what did you do, because this is a moment we’ve talked about in the past. You recognized this. You read the Piketty book—which I think you were sort of channeling earlier—over Christmas one year. You gave it to your board—
Bertolini: I gave it to all my senior executives to read over the holidays. A little light holiday reading.
Gelles: Light reading, right, here. And then you came and you asked to raise the minimum wage for your lowest-paid employees by a not insubstantial amount.
Bertolini: I didn’t ask, I told.
Gelles: You told them that this was happening.
Bertolini: And my board was informed after it happened.
Bertolini: We—I actually went to the Peterson Institute for International Economics, a great non-partisan economics group, and worked with them—I’m now on their board—about, how can you give me the ammunition to defend against this idea; that we’re going to go from $12 to $16 an hour in minimum wage, and we’re going to eliminate out-of-pocket costs for health benefits for employees under 300% of the federal poverty level. And they gave me ammunition to protect against it. The day we announced it, I was in front of 250 million of our 300 million shares at the time, and I did not get one pushback by our shareholders. Now, we had changed our shareholder base pretty dramatically over that time. I had refused to talk to ARBs, so I never went to a meeting with our ARB analysts, and I got our largest shareholder out of our stock because they didn’t like our share buy-back program.
Gelles: Yeah. Yeah. So that’s terrific, but this is one company, and you said at the outset and we all know that what we need is real systemic reform.
Gelles: How do you change industries and economies? How do you—because you have a unique life story that led you to this perspective, and it’s your journey as a radical capitalist, but again, that’s one journey. How do you start to make the case for real systemic change?
Bertolini: So when I did it—I wanted to do it in ’13, and my team said, “You’re going to look like a complete idiot,” so it got—I had to fight with my own team inside the organization. We got it done by ’15. Everybody else outside of our company looked at me like I was some sort of nut, bleeding-heart liberal tree-hugging academic, Upper West Sider—which is where I live. And what ended up happening is that everybody started to follow suit. Doug McMillon at Walmart raised his minimum wage for his employees, and it was expensive for him to do it. Every dollar an hour he raised was a billion dollars, given the number of employees he had—really big investment. Jamie Dimon eventually did it. A lot of people did it. Now, it caught on, but we haven’t done it at scale.
Gelles: And they’re still in the wage economy—
Bertolini: Right, still in the wage economy; they’re not in the wealth economy.
Gelles: $12 to $16 may help, but you’re not retiring on $16 an hour.
Bertolini: You aren’t. You can’t save anything. And even—in my book I chastise some of my fellow CEOs who took the tax cut last year and gave people a $1,000 bonus. That was the cheapest shill in homage to the administration about, “Great, give us the tax cut, and we’re going to give $1,000 to our employees.” Not a permanent increase, a $1,000 bonus to go spend for the holidays. It was ridiculous. Instead of really making a meaningful investment in their employees. Now, our story didn’t end at the minimum wage. It went to doubling the tuition reimbursement, paying back student loans—it even went as far as pet therapy in all of our buildings, paying people to sleep, and adding more and more programs. By the way, none of which were my ideas. The organization got the belief and the feeling that we could take care of one another, and that was the community aspect of it. That’s the engine that gets created. It’s the fourth level of Taoist leadership, where you’re invisible because everybody gets the mission and they move forward with it.
So we were paying—we were moving our employees out of harm’s way in major storms and natural disasters, into hotels with their pets and their families so we could keep them out of harm’s way. We give our PTO to people who are suffering with family problems or mental health issues so they can take more time off of work, give them money through our foundation. So all of these sorts of things created a different kind of community inside the organization and a culture that said it’s really important to take care of us as well as the people we serve.
Gelles: Sounds like a different sort of company, but you sold that company last year.
Gelles: To CVS.
Gelles: Was that decision in the best interest of your employees and your customers, or was it in the best interest of your shareholders?
Bertolini: So here’s the next step. So if you create a culture inside an organization, how do you scale it? And the only way we’re going to solve this problem is by building community sustainability at the community level. We have to do placemaking. We have to create space inside of every community to allow people to come together and take care of one another. And we weren’t going to set up Aetna stores everywhere. Who wants to go to an Aetna store? Nobody. I don’t want to go to an Aetna store. So what can we do to create a retail presence of sorts, a place in the community, that was as close to as many people as possible, to change the nature of how they got their health, because in the end analysis, the opposite of health is poverty. What you are seeing today in our spending in the healthcare system, where we spend 62% of the total cost of social and health programs on healthcare, where every other OECD nation is spending less than 40%, is that we are doing it wrong. We’re not investing enough socially. We are not taking care of social determinants. That’s education, that’s Maslow’s basic level of need, right? Food, security, safety, shelter—
Gelles: Sure, sure. But you talked about this company and this culture, and my question was, was the decision to sell, and everything that’s ensued so far and everything that you can see coming, do employees and Aetna customers, members, benefit from this change?
Bertolini: So that’s their challenge. That’s my employees and my team that’s still behind their challenge, is to infuse that into the CVS culture and move it into the community.
Gelles: What’s the early verdict?
Bertolini: More to come.
Gelles: Yeah, he’s on the board, he can’t say what he really thinks.
Bertolini: I can’t say. So—but I think that’s really the issue. I mean, I could have kept my job for another six years.
Gelles: You intended to. You had a succession plan in place.
Bertolini: I had a succession plan in place, you know, it was all going to work really well. And we could have done really well financially as a company and rewarded all of our shareholders even more so. As a matter of fact, my shareholders accuse me of selling out too cheap, given where our future was. But the strategy of getting into the community and connecting in the community was so profound, I was willing to give up my job, give up control—I would have loved to implement it myself—and turn to my employees and say, “Okay, now you’ve got it. I’m the invisible leader. You all understand what it takes to take care of one another. Go forth and make this happen in the communities where we work and play.”
Gelles: To come back to the theme of this conference, which is the impact of technology, how did you view it from where you sat as the CEO of Aetna? On the one hand, there’s the potential for better care, electronic medical records hold great promise, you were able to give some of your employees more autonomy to make real decisions about care at the ground level without having to run things up the chain—that’s all good. At the same time, automation was killing jobs, and all of this complexity, technological complexity, comes at additional cost to a system that’s already too expensive.
Bertolini: So let me take this in two chunks. Chunk one: we spend 99.6% of our time outside the healthcare system as human beings. We only spend 20 hours a year in the healthcare system, where we spend $3.2 trillion a year. And what is driving that health situation and our life expectancy is 10% of our life expectancy is related to that 20 hours. 30% is related to our genetic code. And the remaining 60% is where we live. Our ZIP code is more important than our genetic code. There are ZIP codes in this town—just go up to the Bronx or up to even Harlem, where Mari and I are doing work in the schools around literacy and urban farming, and there’s 20 years less life expectancy 80 blocks north of here, 20 years less. And so we’ve got to invest in that if we’re going to save the healthcare system. Because right now we have a break-fix operation. So in order to do that, we have to be in the community, and we need to have—let’s call it a health cloud, an ecosystem, where people can get services that are much cheaper and convenient in the home.
Now, everybody keeps asking about Haven and the JPMorgan-Berkshire Hathaway deal with Amazon, and I’m here to tell you, that’s an interesting project, and it’s a feint. Amazon’s on its own other track. When they buy PillPack and get into the home with Alexa, when they set up HSA and FSA cards on their system, where every time you buy something, if it’s HSA- or FSA-eligible, they can prod you to open up a wallet you don’t know you have and you never spend, they’re starting to get into a health cloud in the community. And if you look at that as a record of what happens at 99.6% of the time, it becomes an open source, patient-centered medical home for every physician in the America—with your permission. So that physician now knows what really happens 99.6% of the time, versus the lies we usually tell when we go in about our diet and our exercise routine and whether or not we quit smoking—the whole thing.
Gelles: Mark, I can’t tell if the notion of Jeff Bezos having all of the country’s medical records excites you or terrifies you.
Bertolini: It’s not—so we shouldn’t have medical records in one place. We now have broadband and speed. With the coming of 5G, we don’t need it all in one place. We need it wherever it sits, and with a single patient identifier and a single provider identifier and those permissions—node encrypted—we can scrape and get whatever information we need for that moment, and then destroy it, and let it sit where it sits. It’s harder to hack.
Gelles: We’re going to go to questions in a few minutes, but I do want to come back to this notion of being a radical capitalist and what that means. So you had a board, you had shareholders, you did raise the minimum wage for your lowest-paid employees from $12 to $16, but we touched on it already—that’s not enough to get those people out of the wage economy and into the wealth economy.
Gelles: What could you have done to get more of your employees into the real wealth economy? How do you actually bridge the gap in a meaningful way that’s going to have real societal impact one and two decades from now?
Bertolini: So that’s where regulation and accounting get in the way. So for us to give all of our employees stock is almost impossible, a company of our size, because of the accounting regulations and the way you have to account for it. You have to expense it all. If we invest in a machine, we can depreciate it over the life of its benefit, but when we invest in an employee, we’ve got to expense it all. And when we do capital gains after day 366, our asset has almost become twice as valuable as it was on day 365. All the wrong incentives. If we really want capital gains to work, we should let it be a sliding scale from 100 to 0 over 10 years, so that we stay with the investment. When we invest in an employee, we should be able to depreciate that investment against the benefits—or, treat machines like employees and expense it all, so there’s no real incentive to invest in a machine versus a person. We treat machines better than we treat people.
And then the third part around employee stock ownership, that should not be accounted for the way it is, and we did that—for reasons I don’t understand—back in the mid-’80s—to control stock. But we can’t give it out like we used to before, for the way we’ve got to account it. So let’s change all of that, open up the door to invest in people and treat them better than machines, and create a long-term incentive to hold assets that create benefit longer.
Gelles: Yeah. Sounds like the beginning of a road map. Let’s take a few questions. Yeah, I saw this one here first.
Miller: Michael Miller. You talked a lot about community and Aetna’s relationship with Hartford. Of course, you made the decision to move Aetna’s headquarters out of Hartford.
Miller: Can you—how do you square that, and can you say what should Connecticut have done differently to retain you.
Bertolini: That’s a great question. So, we were moving the executives out of Hartford and we were creating a technology center at 9th & 15th downtown for data analytics and machine learning, which we were having great difficulty recruiting people to Hartford. We were leaving 5,000 people in Hartford, as we had before.
Gelles: What’s happening now with CVS?
Bertolini: That’s going to be different now. That’s going to be a bigger problem. But that was—so we weren’t leaving Hartford, we weren’t going to shut down the building, we weren’t going to blow it up and leave it an empty field. We were going to remain in Hartford, because the people in Hartford that we have employed are really great people. They’re some of the smartest people I’ve ever worked with. And if they want to be in that community, and they want to work there, that’s great. But if they want to be in New York, we should accommodate for that. If they want to be in Boston, where we had another—and Wellesley and—I can’t remember the other town right offhand, but a couple towns outside of Boston. We had a lot of technology people that wanted to be in those communities. So if you want to recruit the kind of talent that’s going to change a company, you’ve got to recruit for where people want to be.
Miller: So what should Connecticut have done differently?
Bertolini: Connecticut should have done a lot of things differently, and I would argue—and I—they should have done high-speed rail between New York and Boston right through Hartford, and then Hartford as a community—I’m a cyclist, I love riding my bike in the Connecticut hills. I mean, it’s one of the most beautiful places to live. And it could have become a bedroom community 30 minutes away by high-speed rail from Boston or New York. That would have been great. That was number one, but we couldn’t get that done. You can’t even get the Acela working along the shore line, for those of you that ride the train like I do.
Number two, we wanted to redevelop the downtown area of Hartford with redoing the civic center—Aetna used to own it—bringing an NHL team. We had Gary Bettman ready to talk to us about bringing the Atlanta Thrashers. We needed the governor to turn over the civic center to the business community, and we needed the support to help recruit the team, and he said we didn’t need the team and he didn’t want the civic center to be anything more than it was. Now, when the civic center was originally built, it was a shopping mall, and people laughed because the Hartford Whalers played in a shopping mall. Now every hockey player, football player, baseball player plays in a shopping mall, if you’ve been to a brand-new stadium.
So those are some simple things they could have done. You know, they need to address the labor situation in Connecticut, and Governor Rowland created a 20-year labor agreement, and I used to do some work on the labor side of the table with the steel workers in the SEIU, and we would have killed for a 20-year labor agreement. So how do you address that?
Gelles: I saw in front right here.
Ellison: Hi, Mike Ellison, Corporate Insight. You talk about the cost of—your colleagues say raising the minimum wage a dollar costs a billion dollars to the company. And then you mention Harlem, upstate. I mean—and the fact that a dollar more an hour doesn’t really go very far. If you took that kind of money and just reinvested it directly into the community, I mean, a billion dollars in, call it Hartford, call it Harlem, whatever. I mean, isn’t that maybe something companies should do or consider doing?
Bertolini: But they’ve got to be able—that’s right. And they’ve got to work with government to be able to let that happen, but it can’t get tied up in the kinds of arguments we get tied up in today whenever we want to contribute. When I first took over as CEO at Aetna, we were short 100 police officers in the Hartford area, we had cars getting stolen out of our parking lot, people getting assaulted on the street—one of our employees was stabbed right out in front of the building—and I called in the police commissioner, I said, “Tell you what, how many police officers you need?” “We need 100.” “How much will that cost?” “$5 million a year.” “I will have my CFO come in and write you that check right now if you go hire 100 police officers.” And the answer was, “No, Aetna doesn’t run Hartford.” So those are the kinds of things we’ve got to come to a way where we can cooperate and work together on as businesses and as individuals.
Gelles: I think this is our last one.
Meyer: Thank you. My name is John Meyer [INDISCERNIBLE]. I’m formerly a Director of Pharmacy in New York City and also medical affairs consultant for a gene therapy company currently. So I know a little bit about healthcare and a little bit about insurance, and I’m just wondering, now that you’re—have some relationship with CVS and Aetna, it’s quite a marriage, and I would say, how do you get more transparency into the way people see their insurance? You can certainly see from a drugstore or a pharmacy how much something’s going to cost once you get the bill, and you can make that decision whether you want something or not. But with healthcare, it’s not that transparent.
Bertolini: Great question. I grew up in Detroit. I worked in the auto assembly line; I did rear axle differential housing assembly at Ford Motor Company after flunking out of college my second time, and so I’ll use a car analogy. When you buy a car, you don’t go to General Motors Acceptance Corporation and say, “I want a car.” They don’t sell them. They finance them. Insurance companies finance healthcare. You don’t go to the General Motors building and knock on the door at General Motors and say, “I want a car.” You can’t buy one there. You have to go to a dealership and you have to describe your ambition for transportation: you want four wheels, you want red, you want leather interior, you want a big engine, you want an electric motor. Whatever it is you want, you have to describe it, and then if you buy your car right, you don’t talk about how you’re going to finance. You say, “How much does that car cost?” And then you say, “Okay, how do we finance it?”
In healthcare, we have confused the investment decision with the financing decision. As a matter of fact, what we do is we sell a warranty car at Aetna. And when you get sick, present yourself to the dealership, and we’ll fix you. We don’t sell any kind of investment. We have no conversation with you about what it is you expect about your health. So if we want to do it right—how many people in here remember AAA TripTiks? Okay, if we want to do it right, here’s what we do. We say to individuals, “What is it about your health that gets in the way of the life you want to lead?” I’m a spinal cord injury survivor; I never describe myself that way. But I have a less than useful left arm with a lot of pain that gets in the way of my playing piano—I was classically trained in piano—and in my tying flies when I go fly fishing. But I’ve got my motorcycle back, I’ve got my bicycle back, I’ve got all my other stuff back, because I made modifications to live that life and I’ve had surgeries done to get as much use of this hand as I can, because it was completely disconnected from my spinal cord. But it was about getting this back. It wasn’t about the fact that I had a spinal cord injury. So if we say to individuals, what is it about your health that gets in the way of the life you want to lead, and it matters, then we’re going to engage that individual, we create a plan for them, like a TripTik from AAA, here’s the path you take, here are the attractions along the way—
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