Greenbacks for BlueCross

RELATED ARTICLE• Salaries at the top10 FOR-PROFITS UNDER BLUECROSS UMBRELLAA dozen identities are owned and operated by BlueCross BlueShield of Tennessee, including 10 for-profit businesses.• BlueCross BlueShield of Tennessee Inc.: Formed in 1945, BlueCross is Tennessee's largest health insurance provider and is organized as a not-for-profit mutual benefit corporation. The Tennessee BlueCross plan is one of 39 independent licensees of the BlueCross BlueShield Association.• Southern Health Plan Inc.: Incorporated in September 2003, the Southern Health Plan is a not-for-profit, social welfare organization that acts as a charitable foundation. Operating under the name of BlueCross BlueShield of Tennessee's Community Trust, the foundation contributed $573,000 to more than 150 charitable organizations last year.• Tennessee Health Foundation Inc.: Also begun in September 2003, THF is a not-for-profit public benefit corporation that is licensed as a charitable foundation. In 2010, the foundation distributed $4.3 million in charitable gifts.• BeneVive Inc.: Founded in 2006, BeneVive is a for-profit, wholly owned holding company of BlueCross and holds the stock and appoints directors for five for-profit businesses: Online Health, Shared Health, RiverTrust Solutions, Security Care and Riverbend Government Benefits Administrator.• Onlife Health Inc.: This for-profit business operates as Gordian Health Solutions Inc., and is headquartered in Franklin, Tenn. Founded in 1996, the company is a national personal health coaching company that serves many businesses, including other insurers.• Shared Health Inc.: Incorporated in April 2005, Shared Health is a for-profit business created to work on electronic health records and other health care technology infrastructure. The business works with patients, doctors, employers and insurers to improve quality and efficiency by communicating vital medical information through a single secure online source.• RiverTrust Solutions Inc.: Started in December 2003, this for-profit business contracts with the federal government for Medicare and Medicaid services, including durable medical equipment appeals, pharmacy and equipment audits in New Jersey and acute care services reviews.• Security Care Inc.: Incorporated in July 2004, Security Care is a for-profit business to partner with government and businesses for fraud prevention, detection and investigation.• Riverbend Government Benefits Administrator Inc.: Incorporated in October 2002, this for-profit business helps BlueCross provide Medicare services.• Southern Diversified Business Services Inc.: Started in July 1982, this for-profit holding company holds the stock on Volunteer State Health Plan Inc., Group Insurance Services Inc., and Golden Security Insurance Co. Inc.• Volunteer State Health Plan Inc.: Incorporated in 1996, the plan is a licensed health maintenance organization and provides TennCare services, including managed care organizations, and other services to BlueCross.• Group Insurance Services Inc.: Incorporated in 1964, this for-profit business acts as a broker to provide stop-loss insurance, group life insurance, voluntary employee benefit products and other insurance products.• Golden Security Insurance Co. Inc.: Incorporated in 1982, this is a for-profit business licensed as a shell insurance company in Tennessee, Alabama, Arkansas, Texas, Mississippi and Louisiana. It currently is not conducting any business.Source: BlueCross BlueShield of TennesseeBLUECROSS BOARD MEMBERS AND THEIR PAYThe BlueCross board comprises between 11 and 17 members who serve three-year terms and meet at least four times a year. In 2010, the 13 board members collectively were paid more than $1.02 million by BlueCross.• Lamar Partridge, chairman of VMI Holdings LLC in Chattanooga, has been chairman of the BlueCross board since 2009. 2010 pay: $100,000• Betty W. DeVinney, a retired executive for Tennessee Eastman in Kingsport, is vice chairman of the BlueCross board. 2010 pay: $90,000.• Hulet Chaney, CEO emeritus of Tennessee Farmers Insurance Co. in Knoxville. 2010 pay: $75,000• Gus B. Denton, a retired executive for SunTrust Bank from Memphis. 2010 pay: $80,000• DeWitt Ezell, a retired executive for BellSouth from Brentwood, Tenn. 2010 pay: $75,000• Herb Hilliard, an executive of First Tennessee Bank in Memphis. 2010 pay: $90,000• James M. Phillips, managing partner of Pinnacle Investments in Memphis. 2010 pay: $75,000• Gloria S. Ray, director of the Knoxville Tourism and Sports Corp. 2010 pay: $90,000• Emily J. Reynolds, senior vice president for the Tennessee Valley Authority in Nashville. 2010 pay: $75,000• Paul E. Stanton Jr., M.D., president of East Tennessee State University. 2010 pay: $75,000.• Scott Wallace, a visiting professor from the Darden School of Business at the University of Virginia. 2010 pay: $90,000.• John F. Germ, president of Campbell & Associates Inc., in Chattanooga. 2010 pay: $26,666.64 before he left the board.• William Gracey, chief operating officer with LifePoint Hospitals and HCA president of the MidSouth region before joining BlueCross as president last year. 2010 pay for his board service: $75,000Source: BlueCross BlueShield of Tennessee payments for BlueCross and subsidiary retainers in calendar 2010COMPANY AT A GLANCEName: BlueCross BlueShield of TennesseeFounded: 1945Headquarters: ChattanoogaStaff: 5,330 employees, including 4,539 in ChattanoogaRevenues: $5.2 billion in 2010Members: 3.1 millionAnnual claims: More than 65 million

BlueCross BlueShield of Tennessee doubled what it pays its directors and chief executive officer in the past five years, boosting the salary for part-time board Chairman Lamar Partridge to $100,000 and raising the compensation package for CEO Vicky Gregg to more than $4.4 million.

BlueCross officials insist the bigger paychecks to those in the boardroom reflect the growing size and complexity of managing Tennessee's biggest health insurer. The Chattanooga-based company covers more than 3 million people and runs a dozen subsidiary businesses and foundations - both for profit and for charity.

Critics, however, object to the pay hikes for those running a nonprofit company that has raised its average premiums by more than triple the inflation rate since 2005.

"When the rest of the country is hurting and struggling to keep a roof over their heads and food on the table, the amount of compensation that is being paid to directors and the CEO at BlueCross BlueShield is just absolutely absurd," said Tony Garr, deputy director of the Tennessee Health Care Campaign, a Nashville-based group that supports health care reform.

Ethan Rome, executive director of Health Care for America Now, a national health consumer advocacy group, urged regulators to take a tougher look at how BlueCross spends its money.

"You've got an overpaid group of board members who go to a small number of meetings a year to decide how much they are going to pay the CEO," he said. "So it's not a surprise that they award excessive pay for the CEO when they are getting paid so much themselves."

Most BlueCross directors were paid from $75,000 to $90,000 each to attend quarterly board meetings and other committee and company sessions last year. Emily Reynolds, a $274,000-a-year senior vice president for TVA who must take leave time to serve on an outside corporate board, said she took eight vacation days last year to attend to her responsibilities on the BlueCross board.

Partridge, president of Valley Capital Corp. in Chattanooga and head of the 11-member BlueCross board, said directors "commit a tremendous amount of time, energy and expertise to guide the company" and have had to assume more risk and responsibility as regulations have been added.

"It is critical for the state - and Chattanooga - that BlueCross performs well," he said. "Our company is consistently ranked by industry experts as among the best-performing health plans in the country."

Under Gregg's leadership as CEO since 2002, BlueCross has boosted its enrollment by nearly 37 percent, kept premium increases below the industry average and improved its productivity by consolidating operations in a new corporate campus, Partridge said.

"BlueCross has assembled a talented and high-performing senior leadership team," he said. "In that time, BlueCross has doubled revenues and market share, which directly reflects leadership's effectiveness and the value they bring to this organization."

BlueCross paid out $8.7 billion in health care benefits last year, so executive pay represents only a tiny fraction of premium dollars paid by consumers.

Average premiums for employer groups rose by more than 40 percent in the past five years even after many employers shifted a bigger share of health care costs and premiums to their workers. But most of that increase came from increased utilization and higher rates charged by hospitals and physicians, BlueCross spokeswoman Mary Danielson said.

"Even if Vicky Gregg and the entire board gave up all of their pay and became volunteers, that would only amount to 15 cents a month for the average BlueCross member," she said.

Blues in Massachusetts

In Massachusetts, a not-for-profit BlueCross plan similar to BlueCross of Tennessee recently did drop its board members' pay after the state attorney general said the longtime practice of paying directors for a nonprofit group can't be justified.

"We can't think of a good reason why, in a not-for-profit setting, they should compensate their directors," Massachusetts Attorney General Martha Coakley said.

David Spackman, chief of the state office that oversees nonprofit and charitable organizations in Massachusetts, said paying directors not only diverts money from the nonprofit's mission, but it "has the potential to impair board independence."

"Individuals who have a personal financial interest in the affairs of a charitable organization may not be as likely to question the decisions of those who determine their compensation or fees or to give unbiased consideration to changes in management or program activities," he said.

The board of the Massachusetts BlueCross plan, which is twice as big as Tennessee's, agreed in March to suspend their directors' pay, which had averaged $70,000 to $90,000 a year.

But BlueCross in Tennessee was not created as a type of charity like the BlueCross plan in Massachusetts.

"We pay all of the taxes just as if we were an investor-owned company, and we must compete for business just like any other insurance company," BlueCross Communications Director Roy Vaughn said.

Last year, BlueCross reported earnings of $119.6 million on more than $5.2 billion in revenues. As a not-for-profit company, BlueCross earnings are added to its reserves, which grew to a record $1.4 billion at the end of 2010.

The insurer paid $240.4 million in local, state and federal taxes last year, according to the company's 2010 annual report.

Pay for Performance

Partridge said the BlueCross board uses a national compensation consultant to set executive pay based upon market competition.

Gregg's pay was less than a third of what Cigna Corp. paid its top boss in 2010. Cigna, a nationwide health insurer more than four times larger than BlueCross of Tennessee, more than doubled the compensation of CEO David Cordani last year to an industry high $15.2 million.

Wendell Potter, a former senior executive of Cigna who left the company three years ago and joined the Center for Public Integrity, said executive pay at nearly all health insurers "is ridiculous."

"The rate of increase for the executives at these companies is far and above what it is for regular employees, and I'm sure there are plenty of highly qualified people who would do very well at these jobs for far less money," he said.

Unregulated pay

When Gregg turned 55 in 2009, her contract activated partial vesting of certain deferred compensation, swelling her total pay package that year to nearly $6.2 million.

But in its regulatory filings on salaries paid strictly by BlueCross BlueShield of Tennessee, Gregg's salary in 2009 was listed as $1.7 million.

Most of the compensation for BlueCross directors and top officers comes from for-profit businesses that BlueCross has started or bought over the past three decades.

Vaughn said BlueCross has launched separate for-profit ventures to help fulfill its health care mission while exploring related business opportunities, including new ventures for technology, wellness promotion and government contracts around the country.

Executives and board members receive part of their compensation from such subsidiaries and affiliate companies.

The 1945 law that established BlueCross of Tennessee, as amended, restricted what directors may be paid each year to $10,000 from the state-regulated BlueCross plan. But since 2000, as new businesses have been added under BlueCross' ownership, directors' and executives' pay has been raised with payments from other BlueCross subsidiaries, records show.

Vaughn said directors of major businesses often are paid far more to serve on boards that oversee a company's operation. Chattanooga's biggest private, for-profit company, disability insurer Unum Corp., which generates twice the revenue of BlueCross, paid its board members between $175,784 and $322,002 last year, according to the company's proxy statement.

"We're responding to marketplace needs and opportunities, but always in a way that complements BlueCross' core mission of serving Tennessee's health care needs," Vaughn said.