In February last year, this newspaper's reporters and editors asked BlueCross BlueShield of Tennessee to provide full disclosure of executive salaries and their total compensation packages, including deferred compensation. We asked because BlueCross BlueShield, a nonprofit corporation, is the state's largest health insurer, and because executive compensation and overhead costs in the health insurance industry have become a significant driver in the double-digit rate increases in health insurance rates for much of the last decade, forcing many people to whittle their insurance coverage, or go without it altogether.
CEO Vicky Gregg refused to provide full disclosure. She said her BC-BS salary was $1.7 million in 2009, but she and her staff refused to say how much she and other executives and board members were compensated through BC-BS' other 10 for-profit and two nonprofit companies.
Reform drives transparency
Thanks to a requirement under the new Affordable Care Act that directs health-care insurers to disclose their administrative costs beginning this year, those figures are becoming available. Reporter Dave Flessner's story last Sunday said Gregg's compensation was now more than $4.4 million. He also found that in 2009, her contract activated partial vesting of certain deferred compensation when she turned 55 that brought her total compensation package that year to nearly $6.2 million - more than three times the amount of compensation that she revealed to us last year.
Flessner's report didn't disclose the total cost of executive compensation at BC-BS, but such figures are pertinent to the debate about health care reform, the crisis of affordable care, and the increasingly fragile access to insurance and health care.
Costs need scrutiny
Factual insurance information is especially relevant at a time when more than 50 million Americans are forced to go without health insurance due to costs or so-called "pre-existing conditions," and when Republicans want to take control in Washington and repeal the health care reform bill before it ends pre-existing conditions for adults and establishes flat community rates and other vital reforms. Small wonder Gregg has publicly opposed reform.
We believe BC-BS should disclose not just executive salaries, but also the total compensation packages of all employees whose earnings and benefits total more than $250,000, a figure which would put them in the top 2-to-3 percent of family income nationally. In the interest of transparency in health care costs, the public should see the same figures for-profit health insurers.
Overhead hogs dollars
Administrative and overhead costs bear mightily on the future cost of America's health insurance and medical care, which is nearly double the cost, as a percentage of national GDP, of national health care expenditures in every other industrialized country, all of which provide generally excellent universal health care to all of their citizens. Every dollar that U.S. insurers spend in overhead and administrative costs, and every dollar they sock away in reserves (the BC-BS reserve fund is now a record $1.4 billion) adds to their premium costs, and helps drive the cycle of cost insurance rate increases that far exceed the general rate of inflation.
The Affordable Care Act, beginning in 2014, will require insurers to spend at least 85 percent of their revenue from premiums on reimbursements for health care costs for large-group policyholders. For small group and individual policies, they will be required to spend at least 80 percent of related premium revenue.
These floors are a good start, but they don't go far enough. Many insurers, including BC-BS of Tennessee, for example, generally hold their administrative costs to less than 10 percent when they contract to administer Medicare programs in various states. (That's why single-payer systems have so many advocates.) The nation's most publicly minded insurers manage to spend no less than 85 percent of all premium revenue on actual medical costs.
A rash of millionaires
The reimbursement floors will force most insurers to begin tightening their belt on administrative costs. That should begin to exert downward pressure on soaring executive compensation costs and rate hikes. Those costs should come down regardless. A WellPoint executive told a congressional panel last year that her health insurance company had nearly 40 executives whose compensation topped a million dollars.
Given the high range of denials-for-care that insurers traditionally have made to keep their so-called "medical-loss ratio" from climbing above the 80 percent-of-premium-revenue threshold - a ceiling that many for-profit insurers have set to protect their profits and high executive compensation - the ratio of multimillionaires in the health insurance industry has become more than an outrage. Rather, it has become a not-uncommon life-or-death issue for both policy holders and for Americans who can't afford insurance.
Wendell Potter, a former senior executive at Cigna Insurance who left to become a public advocate for reform, is particularly concerned about executive compensation at health insurers. He told Flessner that executive pay at nearly all health insurers "is ridiculous." He's absolutely correct, never mind what insurers' self-serving paid consultants for executive compensation say.
Their compensation "is far above what it is for regular employees," he said, "and I'm sure there are plenty of highly qualified people who would do very well at these jobs for far less money." He also believes that nonprofit insurers should have unpaid boards of directors. He referenced a decision by Massachusetts Blue Cross to suspend its directors' pay, which averaged $70,000 to $90,000, after the state attorney general said board compensation for a nonprofit couldn't be justified. That should make BC-BS of Tennessee rethink, and end, its $75,000 to $100,000 salaries for its cozy 13-member board.
Costs rise, care dwindles
Health insurance cost trends are extremely troubling. BC-BS of Tennessee's average premiums rose by more than 40 percent over the past five years, and that's after repeated waves of employers' shifting more and more cost to employees for deductibles, copays and more restrictions on coverage. For same-policy benefits, the costs for many policies would easily have doubled, or more, over the past five years.
This dynamic has triggered a potentially dangerous counter-trend of insured patients avoiding needed medical care because of the excessively high costs of deductibles and coverage exclusions. The result is that insurers are, as The New York Times reported on May 14, "barreling into a third year of record profits, enriched in recent months" by policy payers who won't go to the doctor even when they need to.
No holds barred
Yet health insurers continue to press for higher revenue and double-digit increases in premiums, The Times reported, "even though their reserve coffers are flush with profits and shareholders have been rewarded with new dividends."
That sounds too much like BC-BS, and all its for-profit competitors. There are many other factors in America's health care industry, of course, that make our health care costs so much higher than in other advanced countries. But insurance practices alone are a huge factor. More transparency in the industry's overhead costs and executive compensation, and the tighter rules of pending reforms, are a large part of needed reform.