Healthy Bonuses For Health Care Executives

BOSTON — In the past three years, executives at the state’s three largest health insurers — all nonprofits — have received bonuses that range from 14 to 245 percent of their salaries. The payments are generally less than bonuses paid by for-profit insurance companies. But amid an outcry about paying nonprofit insurance board members, these bonuses are raising more questions about what it means to be a nonprofit health insurance company in Massachusetts.

“Most people would certainly be shocked,” said Judy Meredith, executive director of the nonprofit Public Policy Institute in Boston. “They’re not getting those kind of bonuses.”

Meredith argues that the success of efforts to improve health care quality and control costs, at Blue Cross Blue Shield in particular, is undermined by public reaction to these bonus deals.

In the past three years, executives at the state’s three largest health insurers have received bonuses that range from 14 to 245 percent of their salaries.

“They still have blinders on about how their salaries and bonuses are perceived and they should know better,” she said.

The insurers say there’s a public misconception about what it takes to run a multi-billion-dollar company.

“While we are a not-for-profit, we’re a not-for-profit business, we’re a big business, we’re a Fortune 500 company,” said Blue Cross Senior Vice President Jay McQuaide.

“We compete against large for-profit competitors, so it’s important that we be able to offer market performance-based compensation that’s going to allow us to recruit and retain the best people,” McQuaide said, “the people who can help run a company of our size, scope and complexity.”

McQuaide said bonuses or incentives Blue Cross pays are part of the individual’s compensation package, except that the bonus portion is not guaranteed.

From left, 2008-2010 executive compensation for Blue Cross Blue Shield, Harvard Pilgrim Health Care and Tufts Health Plan (click to view):

Bruce McPherson, president of the Alliance for Advancing Nonprofit Health Care in Washington, D.C., said the trend among nonprofit insurers and hospitals is to shift more of an employee’s compensation out of the base salary and into a possible bonus payment.

“Tying one’s compensation to how well their organization is performing under their leadership certainly makes a lot of sense,” McPherson said.

Insurers say the wide range in bonuses, between 14 percent and 245 percent paid to Blue Cross, Harvard Pilgrim Health Care and Tufts Health Plan executives, occurs because the bonus rises with the salary and can be based on both the company’s and an individual’s performance.

Major hospitals in Boston contacted for this story say they rarely pay bonuses above 10 percent of an executive’s salary. But deferred payments and other benefits can boost the total compensation for some hospital executives by 50 percent or more.

This raises the question: what does it mean to be a nonprofit in a mixed industry such as health care? Linda Lampkin, research director at the Economic Research Institute in Washington, D.C., is watching the debate on this question. She said there are no clear answers right now.

“It’s a changing field and everyone is searching for the thing that’s going to make sense and work,” Lampkin said. “I think everyone is searching for the thing that’s going to make sense in the health care system. The search is not over.”

Advocates of a Medicare for All health care system point out that directors of public insurance programs don’t receive these “outrageous” bonuses. A spokesman for Attorney General Martha Coakley said bonus payments are part of her review of health insurance compensation.

While there is a broad view that nonprofit insurers have adopted too many for-profit habits in Massachusetts, Harvard Pilgrim, Tufts and Blue Cross are still among the top rated insurance plans in the country. Some consumer advocates worry that a backlash might push some of them into what they consider the less consumer friendly for-profit insurance world.

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  • adria

    It’s rather galling that my rates are skyrocketing as are my out-of-pocket deductibles, while these folks are raking it in. The president of the United States doesn’t even earn a salary that high! Wall Street didn’t surprise me but this is too much. No wonder we’re in trouble.

  • Anonymous

    And the right wants to go after health care reform???

  • Ggrocks

    8.5 million in salary for 1 CEO… are you kidding me? This is outrageous and shameful!

  • Lee

    What are the criteria that these top executives performance is being evaluated against? Please publish the criteria. Clearly they’re doing a crappy job in reigning in health care costs! Why are they getting paid so much?

    • Martha Bebinger

      Hi Lee – thanks for your question. The criteria for each executive’s bonus is, as I understand it, in their contract. I don’t have access to the individual contracts. The general answer to your question is that the insurers and hospitals base the total compensation for each executive on what are considered competitive rates. Within the total compensation, the bonus is based on the performance of the individual and the company.

      Best, Martha Bebinger

  • ellen

    While not surprised, I am appalled. When a small business owner like myself has to pay thousands of dollars to get health care for myself and my family, approximately 20% of my total income, this is ridiculous. Everyone complains about the cost of health care, and the desire to trim it back. Why are these executives and their boards exempt from any trims?

  • xray

    While I can accept the reasoning, but object to the amount spent, for getting exceptional talent to head up a company, I cannot understanding the reasoning for paying a huge ($13,000,000) bonus for LEAVING. What value is there in that payment other than gratuitous enrichment to the departing officer?

  • George A. Schiller Jr.

    While the VA is trying to bring down its costs this kind of crap continues!
    G.A. Schiller Jr.
    Kingston, NH 03848

  • George A. Schiller Jr.

    While the VA is trying to reduce costs this kind of crap goes on!!!!

  • Anonymous

    I am guessing here, but if BC/BS is running on the corporate model (“We compete against large for-profit competitors….) then sales /revenue income is the yardstick by which the executives are measured for compensation.
    We hear a lot about paying teachers based on performance of their students. I think that’s a wonderful idea and I suggest that we apply the same template to the executives of Blue Cross Blue Shield. Instead of using sales and revenue numbers to evaluate them, let’s take a snapshot of the general health of their subscribers on the day the executive was hired and then take another snapshot when it is time for salary/bonus evaluation.
    If rates of breast cancer, diabetes, heart disease, asthma and the rest. Blue Cross Blue Shield’s mission statement is to expand health care coverage throughout the commonwealth. How are they doing in this regard? Access to health care coverage results in a healthier population.
    Did Jay McQuaide and the other executives achieve this mission? If so, they earned their money.
    If not, why are we paying them?

    • better read

      I’m a physician at a community health center. If rates of cancer, diabetes, asthma, and other chronic diseases decline, it’s because of work done by the superb and underpaid staff at health centers and primary care offices, not because of anything done by overpaid BCBS executives. Your question is a good one. Why are we paying them, indeed?

  • http://pulse.yahoo.com/_LLH7SFRBBDZ54YLFVP6POB6XAI ANNA

    Stop the madness! Coverage is not care. We all have bodies and they all, cradle to grave, need maintenance. Insurance has nothing to do with it. We need single-payer and we need it now. HR 676, the Expanded and Improved Medicare for All Act, will eliminate the 31 cents on every dollar wasted on private health insurance bureaucracy, the parasitic middlemen that enrich their execs, increase costs for the rest of us and deny or delay care to patients. HR 676 will implement a single-payer system that will capture the savings and deliver comprehensive, high quality health care to everyone….at a savings of $400 billion ANNUALLY.

    Rep. John Conyers reintroduced HR 676 just a few weeks ago. Single-payer healthcare, as proposed by HR 676, the Expanded and Improved Medicare for All Act, would do a lot towards ending state fiscal crises across the US and will put an end to ever-increasing healthcare costs.

    It’s time. No more ‘it’s not politically feasible’ excuses!



    • Jay

      “will eliminate the 31 cents on every dollar wasted on private health insurance bureaucracy,”
      What about the government bureaucracy?

  • momdoc

    Meanwhile, salaried physicians are getting pay cuts due to cuts in payments by the government insurance. Patients are being herded through the system– factory-like. If a doc wants to spend more than 10 minutes in a visit, either it is on the doc’s personal time (unlike lawyers who are never off the clock) or the patient needs to come back. Phone calls by doctors (unlike lawyers) are free (on the docs personal time).

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