Insurer execs reap big bonuses
Millions doled out after Blue Cross ditched ACA plans
As Texas’ largest insurer eliminated hundreds of thousands of coverage plans for some of the state’s sickest patients and asked for double-digit rate increases last year, its Chicago-based nonprofit parent company rewarded 10 top executives with a combined $48 million in bonuses.
Patricia Hemingway Hall, the now-retired CEO at Health Care Service Corp., the largest customer-owned insurer in the nation with Blue Cross and Blue Shield divisions in five states including Texas, earned the most. Her $16.57 million pay included a $14.9 million bonus, according to 2015 compensation records obtained from the Illinois Department of Insurance.
That 42 percent pay bump from the previous year came at a time when the company and its divisions were complaining of devastating losses in the individual market due to the Affordable Care Act’s mandate that insurers cover everyone no matter their health.
When 2016 arrived, Blue Cross and Blue Shield of Texas, HCSC’s second-largest division, raised rates 20 percent and eliminated 367,000 plans, including 88,000 in Houston, that gave in-network access to many of the state’s top-tier hospitals and specialists. The company said the benefit had become “unsustainable.”
Now, with just weeks to go before enrollment opens for 2017, HCSC’s five Blue Cross and Blue Shield companies have asked state regulators for another
round of rate increases, some as high as 82 percent, for ACA individual plans.
The insurer insisted in an email to the Chronicle last week that “executive compensation and our marketplace participation are unrelated.”
“At the most transformational period the health-care industry has faced, compensation needs to recruit and retain top talent who can manage the complexities of this business and advocate for a health-care system that works for our 15 million members not just for today, but for years to come,” the statement said.
No executives at either the Texas division or parent company were made available for interviews.
“The optics are clearly bad,” said Lawrence Mishel, president of the Washington, D.C.-based Economic Policy Institute, who studies executive pay. “The company may want to draw distinctions, but consumers do not. We know how this kind of medicine goes down with the public.”
He pointed to recent outrage when it was revealed the price of the EpiPen, a medical device commonly used to treat children’s allergic reactions, rose 400 percent between 2007 and 2015 as the CEO’s salary jumped to $18.9 million from $2.4 million. No rate review in Texas
Last week, the Texas Department of Insurance “allowed to stand” rate increases of nearly 60 percent for three Blue Cross and Blue Shield of Texas exchange plans, agency spokesman Ben Gonzalez said. Federal data show the plans could affect more than half a million Texans.
Texas is one of five states that does not do its own rate review. It can check plans only for compliance to state law and to make sure they are “actuarially justified,” Gonzalez said. Rate reviews for Texas exchange plans are done at the federal level, but Stacey Pogue, a senior policy analyst for the Center for Public Policy Pri- orities, said little can be done to stop rate hikes.
Most details of the Blue Cross and Blue Shield of Texas rate filing remain sealed as the insurer marked it “confidential.” The Chronicle has asked the state’s attorney general to make it public.
Elsewhere, Blue Cross and Blue Shield of New Mexico has asked for an 82 percent rate in-
“The optics are clearly bad. The company may want to draw distinctions, but consumers do not. We know how this kind of medicine goes down with the public.” Lawrence Mishel, president of the Economic Policy Institute
crease on its 2017 individual exchange plans. The insurer told the state the steep increase is justified because it is over a period of two years since the company did not participate in the exchange last year. Blue Cross and Blue Shield of New Mexico pulled out of the exchange last year after being denied a 51 percent rate increase by the state’s Office of Superintendent of Insurance, officials there said.
In Oklahoma, the 2017 rate hike request was initially 51.6 percent. But in August, when other major insurers announced they were leaving the exchange in the state, Blue Cross and Blue Shield of Oklahoma upped its request to 76 percent, said Mike Rhoads, deputy commissioner of Life and Health Insurance.
Blue Cross and Blue Shield of Illinois asked for increases of 23 percent to 45 percent for its individual exchange plans. That request is still pending.
In Montana, the first request for individual plan exchange rates averaged 65.4 percent. Monica Lindeen, commissioner of securities and insurance there, called for public hearings and an assessment by an independent actuary before determining it “unreasonable.” Blue Cross and Blue Shield of Montana then re- duced its request to 58.4 percent, said Sanjay Talwani, the state regulator’s press secretary.
Lindeen believes it is still too high but does not have the authority to do much more, Talwani said. The rate filing has been sent to the federal Centers for Medicare and Medicaid Services for inclusion on the exchange marked with her objection.
U.S. Department of Health and Human Services officials have tried to reassure a nervous public that most coming rate increases will be offset by subsides to lower the price. That likely won’t help hundreds of thousand of people in states like Texas that did not expand Medicaid. These lowwage earners make too much for existing Medicaid but not enough to qualify for the subsidy. They must pay the full price of rising premiums.
“The fact (Blue Cross and Blue Shield companies) are a monopoly in many states just compounds the problem,” said Mishel, at the Economic Policy Institute. Insurers leaving exchange
In one of three Texas counties next year, Blue Cross and Blue Shield will be the only insurer available on the exchange.
In April, UnitedHealthcare announced it would not offer any exchange plans in the state next year. Four months later, Aetna said it, too, was leaving the exchange in Texas. Then came the announcement from regional insurer Scott & White Health Plan that it would offer individual plans only off the exchange next year.
Cigna, in a Sept. 30 email to the Chronicle, confirmed it “will not participate on the Texas public marketplace in 2017” but will offer plans off the exchange.
Humana has not made public its final determination for Texas, but a company spokesman said in an email last week that it would have a “reduced presence.”
Customers across the Houston area began receiving letters from Humana in recent days that an off-network individual preferred provider plan, or PPO, allowing a wide network of doctors and hospitals is being discontinued. That high-premium, high-deductible plan came into the local market late last year, scooping up many customers who had lost similar coverage from Blue Cross and Blue Shield.
All of the insurers have cited losses tied to the Affordable Care Act as the reason behind costcutting decisions, including exiting the exchange or narrowing networks.
Health Care Service Corp. said it lost $1.5 billion on its individual
“(Executive pay) is based on comparisons to companies in health care, insurance and across other comparable business sectors. Only a small fraction of a cent from every dollar we receive goes toward paying our executives.” Health Care Service Corp. statement
ACA plans in 2015. But the nonprofit’s overall earnings rose 13 percent from the previous year to more than $31 billion.
The net loss in 2015 was $66 million — substantially less than the $282 million net loss for 2014, financial records show. Blue Cross and Blue Shield of Texas lost $321 million last year in the individual market. That is also less than the $400 million it lost in 2014, according to a statement from the company.
The coming year could remain challenging as provisions in the law designed to help counteract losses by insurers are set to expire
More fundamental, insurers have said, is that premiums were priced too low in the early years of the law and customers enrolled on the exchange have been sicker and more costly to insure than anticipated. That has led to an industrywide movement to limit the networks of doctors the insured seek.
“You can’t afford to have broad networks,” Ken Avner, HCSC’s former chief financial officer, said in a March interview with Modern Healthcare. “You get killed on the selection.”
Avner, retired as the company’s second-highest-paid executive. Last year he earned $4.6 million, mostly from a nearly $3.9 million bonus, representing a 29 percent raise from the year before, according to the 2015 Illinois Department of Insurance report.
HCSC said in its statement to the Chronicle that its executive compensation is “determined by our board of directors with the guidance of expert outside advisors and is based on comparisons to companies in health care, insurance and across other comparable business sectors.” It followed up with a statement adding, “Only a small fraction of a cent from every dollar we receive goes toward paying our executives.” Rewarded by boards
Last year, CEO Hall was by far the highest paid top executive at any of the nonprofit “Blues” insurers in the country. The nexthighest-paid CEO, at Blue Cross and Blue Shield of Michigan, earned $7 million less, according to a report by Atlantic Information Services which compiles executive salaries.
Hall’s salary was fourth-highest of all insurance CEOs in the nation, including for-profit insurance companies, the report said.
“Without going into what I personally think of it,” Michael Morrisey, professor and head of the Texas A&M University Department of Health Policy and Management, said this of the big paychecks: “Given all the turmoil that insurers have faced over the last three years, their boards have decided to reward them.”