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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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