Blue Cross Blue Shield CEO’s compensation questioned

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(Host) State regulators have raised questions about how much Blue Cross Blue Shield of Vermont spends on expenses and executive salaries. The top executive was paid about $850,000 in 2005. The company is Vermont’s largest health insurance carrier. And regulators want Blue Cross Blue Shield to explain its administrative costs, including its executive compensation.

VPR’s John Dillon has more:

(Dillon) Blue Cross Blue Shield is a non-profit corporation. It has to get state approval to pass through its increased costs to customers.

Last month, the Department of Banking, Insurance, Securities and Health Care Administration rejected the company’s request to raise its administrative expenses by 21.4 percent. The regulators said that the increase will lead to insurance rates that are “excessive, unfair, unjust… and otherwise in violation of Vermont law.”

Christine Oliver is deputy commissioner for Health Care Administration.

(Oliver) “We declined the administrative fee increase as filed, based on our actuary having some questions about how they arrived at the number.”

(Dillon) In a written order, the Department asked a number of pointed questions. It asked whether an independent audit was needed to look at the expense side of the company. It asked whether the audit should examine the company’s spending on information technology over the last five years. And the department questioned the compensation and bonuses paid to top executives.

William Milnes is the chief executive officer for Vermont Blue Cross Blue Shield and for a related managed care plan. His compensation in 2005 for running both companies was $854,000. That includes $440,000 in bonuses.

Vermont’s governor earns $144,000. But Blue Cross says its CEO salary is justified based on Milnes’ performance and based on what other health insurance executives are paid around the country. Kevin Goddard is the vice president for external affairs. He said Milnes helped turn around a company that was almost insolvent eight years ago.

(Goddard) “Under his management the company has strengthened by almost every measure. Financially, it has become a much, much stronger company. Operationally, it has become a stronger company.”

(Dillon) But Jeanne Keller, a health policy analyst in Burlington, was astounded by the Blue Cross compensation package.

(Keller) “I think it would be very interesting for the board to disclose to the public for this non-profit corporation, what in fact the goals were that he did achieve, [what] he did to earn a bonus that is so extraordinary in the light of what Blue Cross’ rate increases have been. I think the board owes an explanation to the public, because their duty is to the subscribers and the public.”

(Dillon) Goddard said the company has to compete nationally for top executives.

(Goddard) “The board of directors has a robust process through which it establishes executive salaries. They are benchmarked both against peer group companies, as I understand it, as well as performance goals for our own company.”

(Dillon) But Keller questions whether these national salaries are justified.

(Keller) “We may be caught in kind of a vortex of misplaced values nationwide. Just because a CEO somewhere else was paid that much money nationwide doesn’t tell us anything about that CEO’s performance for that much money. I look for value for performance for that much money.”

(Dillon) Blue Cross recently lost a major customer – the Vermont League of Cities and Towns – because of a proposed 36 percent rate increase. According to the League, Blue Cross later lowered the increase to 29 percent.

Goddard says administrative expenses and salaries compose a tiny portion of overall rate increases. But the state in its written order said the company may want to re-design its compensation package to include incentives for reducing costs. The state has scheduled a hearing for January 19 to look at Blue Cross’s administrative expenses.

For Vermont Public Radio, I’m John Dillon in Montpelier.

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