Featured Health Business Daily Story, Dec. 12, 2012

Low Utilization, Membership Growth Led to Hefty Bonuses for Blues Plan CEOs in 2011

Reprinted from THE AIS REPORT ON BLUE CROSS AND BLUE SHIELD PLANS, a hard-hitting independent monthly newsletter on new products, market share, strategies, conversions, financing, profitability and strategic alliances of BC/BS plans. (Not affiliated with the Blue Cross and Blue Shield Association or its member companies.)

December 2012Volume 11Issue 12

Lower-than-anticipated medical utilization and robust enrollment growth in 2010 led to some sizable performance bonuses for health plan executives in 2011. CEOs from 35 Blues plans collectively brought home about $93 million in bonuses, salary and other compensation in 2011, according to an analysis of state insurance department filings by The AIS Report. Of the total compensation those CEOs received last year, about $40 million came in the form of bonuses.

Only a handful of Blues plan CEOs saw lower compensation in 2011 compared with the prior year (see table, p. 10).

While former WellPoint, Inc. CEO Angela Braly’s compensation dwarfed other CEO paychecks, she took a 1.5% hit on total pay due to a smaller bonus in 2011. Despite the decrease, her compensation translates to about $6,400 an hour — assuming a 40-hour work week.

On the other end of the bonus spectrum was Patricia Hemingway Hall, CEO of Health Care Service Corp. In 2011, she saw her total compensation soar to $12.8 million — up 60.5% from 2010 — due to a bonus that was $4.8 million bigger than the one she received in 2010. Her annual salary increased by just $6,608 in 2011.

While his predecessor took home $11 million in compensation after abruptly resigning in 2010, Blue Cross Blue Shield of Massachusetts CEO Andrew Dreyfus vowed to limit his salary to $800,000, including incentive pay. In response to pressure from the state attorney general, the board of the Massachusetts Blues plan in July 2011 agreed to credit the amount of former CEO Cleve Killingsworth’s severance package, $4.26 million, back to policyholders (The AIS Report 8/11, p. 1).

Blues CEOs Reap Big Bonuses

Retiring Excellus BlueCross BlueShield CEO David Klein saw his total compensation grow by a staggering 173% thanks to a $2.8 million bonus, which was awarded by the board to ensure he would stay on with the company after he announced plans to retire. Klein’s total compensation in 2011 was $5.2 million.

In 2011, Excellus collected $5.7 billion in revenues, up from $5.2 billion in 2010, according to the Rochester Business Journal. It also added 85,000 new members in 2011.

While Blues plan CEOs took home sizable paychecks in 2011, their compensation pales in comparison to some top executives at publicly traded health insurers. Cigna Corp. CEO David Cordani raked in just over $19 million, a 25.4% increase from his 2010 compensation. That figure includes $5.8 million in stock awards, $2.6 million in option awards and $9.3 million in non-equity incentive compensation. Health Net, Inc. CEO Jay Gellert saw the largest pay increase in 2011, with a 35% rise in compensation compared with 2010.

In 2011, Aetna Inc.’s retired Chairman and CEO Ron Williams received more than $50.3 million in exercised stock options on top of $18.4 million in salary, stock and other compensation, according to the company’s 2011 proxy filing. And Williams is apparently on the short list to replace Braly at WellPoint (see briefs, p. 12).

Mark Ganz, CEO of Cambia Health Solutions, Inc., earned $1.5 million in compensation from operations in Oregon and Washington — two out of the four states where Cambia’s Regence Blues plans operate. Insurance departments in Utah and Idaho do not disclose compensation data for health plan executives.

The lowest-paid Blues plan CEO was Richard Schum, Jr., who heads the Wyoming Blues plan. In 2011, Schum’s total compensation was $288,197 including a $58,470 bonus. But Schum spent only a few months as CEO in 2011. Former CEO Timothy Crilly, who retired in October 2011, earned $542,000 in total compensation in 2010.

Editor’s note: WellPoint and Triple-S Management Corp. are the only publicly traded Blues plan operators and therefore are the only ones required to file executive compensation data with the Securities and Exchange Commission. Not-for-profit and mutual Blues plans typically do not disclose executive compensation data to the public. However, the majority of plans must submit the information to state insurance regulators. Most states disclose the data upon request, although California, Idaho, Kansas, Louisiana and Mississippi are not subject to public-records requests or do not collect the data.

Click here to view Table: 2011 Annual Compensation for Top Executives at Blue Cross Blue Shield Plans and Parent Companies (Ranked by Total 2011 Compensation).

© 2012 by Atlantic Information Services, Inc. All Rights Reserved.

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