BCBSIL parent company’s CEO pay increases 61% to $12.9 million
New federal regulations intended to force health insurers to spend less on administration didn’t keep the parent of Blue Cross & Blue Shield of Illinois from paying CEO Patricia Hemingway Hall more than $12.9 million in 2011, a 61 percent raise.
The Health Care Service Corp. chief executive’s total compensation last year dwarfed the $8 million she received in 2011, according to a filing with the Illinois Department of Insurance. The 2011 increase was fueled by an $11.8 million bonus, which was 69 percent above her 2010 bonus of $7 million.
Ms. Hall wasn’t alone in getting a big raise at Health Care Service, whose insurance business booked net income of more than $1 billion in 2011, for the second straight year.
The 10 highest-paid executives at the Chicago-based mutual company – which operates Blue Cross plans in Illinois and three other states — earned a collective $41.7 million, 65 percent more than the $25.3 million they were paid in 2010.
The big pay increases were handed out as new regulations took effect in 2011 that are intended to require insurers to spend more on health care and less on administrative costs, including salaries. Part of the 2010 federal overhaul of health care, the medical loss ratio requires insurers to spend a minimum amount of premium revenue on patient care and other health activities — 85 percent for large group plans, for example.
Insurers “complain about MLR and say they should have no cost containment, and yet these guys are still paying their executives these outrageous salaries,” said Jim Duffett, executive director of the Champaign-based Campaign for Better Health Care, a consumer group. “They should be taking that money and plowing it back into better quality care and better services for people.”
Health Care Service’s profits jumped last year even though total revenue for the insurance segment of its business rose just 2 percent, to $19.9 billion, compared with 2010, according to its annual financial statement.
The document does not include its low-margin, fee-based work administering health plans for self-insured clients. Revenue for that business includes payments to health care providers processed by the company.
With both operations combined, Health Care Service had $49 billion in revenue in 2011.
“For every dollar we receive in revenue, a small fraction of a penny goes to executive compensation,” a company spokesman said in an email.
Health Care Service’s executive compensation must be in line with other companies the same size to attract and keep top executives, he said.
Among the five largest publicly held insurance companies nationwide, the highest-paid CEO was David Cordani of Bloomfield, Conn.-based Cigna Corp., who made $19.1 million in 2011, according to the company’s financial statements. Cigna reported $22 billion in revenue for the year.
The nation’s biggest health insurer, Minnetonka, Minn.-based UnitedHealth Group Inc., posted $102 billion in revenue in 2011. CEO Steve Hemsley made $13.4 million.
Health Care Service is the country’s fourth-largest health insurer based on membership, with 13.1 million members.
Under the Patient Protection and Affordable Care Act, insurers must pay out a percentage of premium revenue, not including taxes and fees, on medical claims or activities intended to improve health care. For individuals and small-group plans, the standard ratio is 80 percent; for large-group plans, it’s 85 percent.
The requirements are designed to encourage insurers to pay out more money on health care while keeping down costs.
In 2011, Health Care Service’s medical loss ratio was 81.6 percent for small-group plans and 90.2 percent for large-group plans, exceeding the requirements, according to preliminary figures.
The company failed to meet the standard for individual customers, with an overall medical loss ratio of 75.5 percent.
Health Care Service didn’t meet the requirements with individual plans offered in Illinois, Oklahoma and Texas, and one small-group plan in Oklahoma, according to the preliminary figures.
The final medical loss ratios, to be published by the U.S. Department of Health and Human Services this year, will be based on information not reflected in the preliminary ratios. According to the final rules published by the agency on Friday, insurers must notify policyholders on or after July 1 if they have met or exceeded federal requirements.
In anticipation, Health Care Service has set aside $88.2 million to pay out the rebates to individuals and small-group members. The company has said the rebates were the result of lower-than-expected use of medical care by customers in 2011, which created a surplus in revenue that wasn’t used to pay claims.
An estimated 4% of the company’s members, or about 500,000 people, will likely receive rebates, the company spokesman said.
Original article from chicagobusiness.com