Although some health insurers notched record-high profits when the COVID-19 pandemic’s first wave drove down routine care utilization, those fiscal benefits do not appear to have translated into big compensation bumps for some of the highest-paid insurer CEOs.

Only two of the CEOs at the six largest publicly traded health insurers saw their total compensation increase in 2020 compared with 2019 — Cigna Corp.’s David Cordani and Anthem, Inc.’s Gail Boudreaux — while the other four saw decreases. Some Blue Cross Blue Shield insurers, however, gave their chief executives sizeable pay hikes, including a 109% raise for Blue Cross Blue Shield of Minnesota’s Craig Samitt and a 73% bump for Independence Blue Cross’ now-retired Daniel Hilferty.

Those are some of the key findings from AIS Health’s annual collection of compensation data for the country’s largest health insurance companies by commercial enrollment. The data is compiled from individual health insurance companies, state insurance department documents, and U.S. Securities and Exchange Commission filings, and it is broken down by base salary, bonuses, stock awards and other factors that influence CEOs’ total compensation.

All six of the largest publicly traded insurers — Anthem, Centene Corp., Cigna, Humana Inc., Molina Healthcare Inc. and UnitedHealth Group — either raised or maintained the base salary of their CEOs in 2020 compared with 2019. However, as exemplified by perennial top earner Michael Neidorff of Centene, a bump in base salary does not necessarily mean a rise in overall annual compensation. Neidorff saw his salary rise from $1.5 million in 2019 to $1.8 million in 2020, but his overall compensation dropped 5.6% year over year, from $26.4 million to $24.9 million. An explanation for that total compensation decrease can be found in the amount of Neidorff’s stock award, which dipped from $16.9 million in 2019 to $14.9 million in 2020.

Cigna, Anthem CEOs’ Stock Awards Rose

But Cigna’s Cordani and Anthem’s Boudreaux, the only CEOs out of the top seven who saw their overall compensation rise in 2020, experienced year-over-year increases in their stock awards. Cordani notched $11 million in 2020 vs. $10.4 million in 2019, and Boudreaux took home $9 million in 2020 vs. $7.7 million in 2019.

Heidi Leeds, senior client partner and sector leader, health insurance, at the management consulting firm Korn Ferry, says it isn’t surprising that total CEO compensation at the large publicly traded companies is so closely correlated to stock option amounts.

“If the stock performance decreases, then it would be in alignment for them to have lower overall compensation,” she says of the companies whose CEOs saw a dip in total pay. “These executives put a lot of their compensation at risk, which is a huge incentive for them to make sure their company performs.”

There is also evidence that health insurers didn’t make massively inflated profits, on net, last year. “The combined 2020 operating EBITDA [earnings before interest, taxes, debt and amortization] margin was approximately 7.5% for the seven largest publicly traded health insurers in the U.S., essentially unchanged from 2019,” noted a Fitch Ratings report from May 2021.

Equity Pay Can Drive Executive ‘Myopia’

Hamed Mahmudi, Ph.D., an assistant professor of finance at the University of Delaware who studies executive compensation, says that making executive pay so sensitive to stock price has both advantages and disadvantages. “The advantage is that…their packages only increase in value when the stock price does well, and that’s what shareholders care [about],” he tells AIS Health, a division of MMIT.

“On the other hand, the downside is, that could create myopia or short-term-ism,” with executives primarily incentivized to “pump up” their firm’s stock price in the near term, Mahmudi says. To overcome that, companies often structure executives’ contracts to have long vesting periods, meaning those managers are not allowed to sell or exercise their stock options for a set number of years.

“Otherwise, the equity contracts do pretty well in terms of incentivizing managers to do well,” Mahmudi argues. Still, he cautions that tying compensation so strongly to stock performance can result in executives benefiting from market forces they can’t control — like when global oil prices rise and buoy energy companies’ stock prices, resulting in a potential windfall for those companies’ top leaders despite that having nothing to do with their management talents.

To filter out such “common factors” — whether they’re global oil prices rising or health care utilization cratering — companies often use relative performance evaluation, Mahmudi says. That means contracts reward executives if their firms outperform the average of their “peer group” of similar companies, which are often determined by corporate consulting firms.

But Charles Elson, a finance professor and director of the Weinberg Center for Corporate Governance at the University of Delaware, says “peer grouping” has its own issues.

“The idea is that to quote-unquote retain talent, they come up with a quote-unquote market,” he tells AIS Health. “The problem with it is, it’s a fake market because everyone’s [pay] goes up. It never goes down. Everyone wants to be the median, but if someone has a big year, the median goes up dramatically.”

Elson says the concept grew in part out of a “superstar theory of the CEO” that emerged in the 1970s, with the idea being “that the CEO is indispensable and can move [companies], and hence the peer group.”

“It was basically where you didn’t want to put someone up for auction every year, so you created an artificial market around a peer group, and it became systematized and accepted,” Elson continues. But research he’s conducted has indicated that top executives actually make very few lateral moves, he adds.

Aside from the small dips seen in four of the six largest insurers’ executive pay in 2020, base salaries and overall compensation at those firms have steadily risen in previous years. Further, data that AIS Health collected on smaller, non-publicly traded health insurers indicates that decreases in 2020 total compensation among those firms was the exception, not the norm.

While the 109% and 73% compensation increases, respectively, for Blue Cross Blue Shield of Minnesota’s Samitt and Independence Blue Cross’ Hilferty stood out from the pack, other Blues plan CEOs received less eye-popping but still-significant raises. Blue Cross Blue Shield of Arizona’s Pamela Kehaly, for example, saw her total compensation rise 24.5%, from $2.7 million in 2019 to $3.3 million in 2020. At a non-Blues plan, meanwhile, EmblemHealth CEO Karen Ignagni — who once was the CEO of insurer trade group AHIP — got a 66.6% compensation boost year over year (she earned $3.2 million in 2019 and $5.3 million in 2020).

“Blues are complex organizations, and to attract the right talent they have to be competitive with the public companies,” Leeds tells AIS Health. In fact, “there are a number of Blues plans across the country that have a CEO who came out of the for-profit side.”

Even so, “for the most part, they’re still paid slightly less — or maybe considerably less in some cases — than the for-profits, and state regulators scrutinize the Blues heavily,” Leeds points out. “And so sometimes there’s some constraints on what a board can actually pay their CEO because it will raise red flags.”

Overall, the median total compensation increase among the 42 firms that AIS Health studied was 7.2% in 2020 compared with 2019.

Contact Elson at elson@udel.edu, Leeds at heidi.leeds@kornferry.com and Mahmudi at hmahmudi@udel.edu.

by Leslie Small

See a full list of director compensation for top health insurers at https://bit.ly/3mGCLvs, compiled by AIS Health.
N/A = Not Available.
Compensation data for Mark Ganz includes payments allocated to Regence insurance operations in Washington state, Oregon and Utah but not Idaho.

SOURCE/METHODOLOGY: All data is compiled from individual health insurance companies, state insurance department documents and U.S. Securities and Exchange Commission filings.
Health plans selected based on commercial medical risk enrollment as of the beginning of 2020, per AIS’s Directory of Health Plans.

NOTES: Arkansas, Alabama, Louisiana, Idaho and South Dakota do not disclose compensation data for specific executives at health insurance companies. California does not collect compensation data. Blue Cross Blue Shield of Florida marked its compensation exhibit as “Trade Secret.” Cigna Corp.’s David M. Cordani also earned $189,898 under “change in pension value and nonqualified deferred compensation earnings.” David S. Wichmann served as UnitedHealth Group Inc’s CEO until Feb. 2, 2021, when he was succeeded by Andrew Witty. Daniel J. Hilferty served as president and CEO of Independence Blue Cross through December 2020, and Gregory E. Deavens became president and CEO in January 2021. Maurice Smith became president and CEO of Health Care Service Corporation effective June 1, 2020. Blue Cross and Blue Shield of Kansas City’s CEO Danette K. Wilson retired in May 2019. Erin Stucky, formerly EVP for market innovation and business development, succeeded Wilson effective June 1, 2019. Mark M. Mugiishi became president and CEO of Hawaii Medical Service Association in February 2020. Babatunde Sotayo Sotunde became president and CEO of Blue Cross and Blue Shield of North Carolina effective June 1, 2020. His sign-on payment was 750,000. SelectHealth’s Patricia R. Richards retired in 2020, and Michael Cotton became president and CEO in Nov. 16, 2020, whose total compensation is $278,119. Michael L Cotton left Providence Health Plan in 2020, and Michael Gordon White served as interim CEO, whose compensation is $529,755. Kurt Wrobel was appointed president and CEO of Geisinger Health Plan in 2020, and former CEO Steven R. Youso left in 2020, whose compensation was $1,324,510. Todd Shamash was appointed president and CEO of Capital Blue Cross in April 2020.