Blue Cross profits down, executive compensation up

Posted March 1, 2013

— Blue Cross Blue Shield of North Carolina said Friday that its top nine executives earned an average of 43 percent more in compensation last year than in 2011.

Meanwhile, the nonprofit company's net income dropped by 67 percent in 2012 as it prepares for the full implementation of the national health care overhaul next year.

Blue Cross, the state's largest insurer, reported that revenue rose to $5.7 billion in 2012, from $5.5 billion the previous year. Net income fell from $177.1 million in 2011 to $57.7 million last year, and its federal, state and local taxes dropped from $160.2 million to $92.1 million.

The decrease in the bottom line was attributed to higher medical claims and continued investments in technology and infrastructure to implement the federal Affordable Care Act.

“2012 was a year of focus on the future and the full implementation of health reform,” President and Chief Executive Brad Wilson said in a statement. “We are making investments today to ensure we can meet North Carolinians’ health care needs tomorrow.”

Blue Cross also invested in its executives, with six earning more than $1 million in salary, bonuses and other compensation during the year, according to the company's annual report to the state Department of Insurance. Only two executives made seven figures in 2011.

Wilson earned a $1.6 million bonus to drive his annual compensation up to nearly $2.5 million – a 37 percent increase. The other five who topped $1 million saw raises between 41 and 68 percent:

  • Executive Vice President Maureen O'Connor had total compensation of more than $1.6 million, a 41 percent increase.
  • Chief Financial Officer Gerald Petkau earned almost $1.6 million, up 68 percent.
  • Chief Sales, Marketing and Communications Officer John Roos earned $1.2 million, up 46 percent.
  • Chief Operating Officer Alan Hughes earned more than $1.1 million, up 48 percent.
  • Chief Medical Officer Don Bradley earned almost $1.1 million, up 44 percent.

The company's premiums on individuals increased an average of 7.8 percent, and they went up 8.8 percent for small employers. Larger employers are usually able to negotiate with the insurer for better rates.

Spokesman Lew Borman said salaries and premiums aren't related. Executive compensation is in line with comparable companies, he said, and it's not the reason for rising costs.

Blue Cross sign Blue Cross says raises, higher premiums unrelated

"What drives premiums is medical costs, utilization, history, that sort of thing," Borman said. "We have a state that has a lot of challenges in that area."

Blue Cross said that 87 cents of every $1 in premiums went to medical care for policyholders last year, which is above the Affordable Care Act benchmark of 80 to 85 cents. Claims and medical expenses totaled $4.5 billion last year, up 8.4 percent from 2011.

Petkau said salaries and bonuses are tied to company performance, and the expense accounts for only a tenth of a cent from every premium dollar.

"While in individual terms they're significant, in terms of the impact on premiums and the company's revenue or pricing, it's really insignificant," he said.

Adam Searing, a frequent critic of Blue Cross as director of the left-leaning North Carolina Health Access Coalition, said the insurer has been doing a good job of trying to control costs. But big raises don't match that message.

"It could create the perception in some people's minds that, maybe, you're not as serious about that cost containment as you should be," Searing said.


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  • david50 Mar 7, 2013

    As stated in the article, the healthcare reform legislation requires that 80-85% of premiums collected be spent on medical claims. Given this fact, I don't believe critics can continue to point the finger at insurance companies for the very high cost of healthcare or complain about executive compensation. High health insurance premiums are a symptom of high healthcare costs. Until we address the cost of healthcare, then costs will continue to rise. If you believe it's the government's job to bring costs down, then nationalizing the healthcare system would solve this. Then the government could decide what they were willing to pay for a given quality of healthcare. If you believe market based approaches are better, then costs will only begin to come down when consumers make healthcare decisions based on the the quality AND the cost of care. Currently their decision process is based on the quality of care and how their health insurance pays for that care.

  • kermit60 Mar 4, 2013

    Keeping down costs? It seems that if insurers got together and just flat out told the hospitals, clinics, etc that they were going to reduce payment by 10% the hospitals would have to accept or lose money. It seems that everytime bills and cost go up, insurance goes up and nobody asks why? Sort of like the militaries 800$ hammer. Does a single tylenol given in an ER really cost 6$ ? Does a room really cost 800$ a night when you can stay in New York at a really nice hotel for half that?

  • torchhappysean Mar 4, 2013

    So let me get this straight... BCBS's profits were down for this year but all of the top executives got massive raises?? Something smells fishy and it aint the dumpster!!!

  • crappertrap Mar 4, 2013

    This company has had a proud past (long distant past, but never-the-less, past). Caring doctors initiated this company as a service for the poorer NC population.

    The recent activity seems equivalent to an assault of that good name and intention. It appears that this company is becoming a NC shell game; the services provided by NC employees will follow the same path as those of other industries; OUTSOURCED!

    Don't read the words; read between the words... Profits are being spent to move to Topaz Shared Services. The pay changes are likely Topaz Shared Services achievement, and run-out salary for staying until the shell has been wasted... err... uh... MOVED!

    If it has not dawned on everyone; this company has no more loyalty to you or I than "JoHanna Frankendorf's Used Cars and Sweatshirt Emporium".

  • goldenosprey Mar 4, 2013

    These guys make a whole lot more than the folks who run Medicare and medicaid. This is symptomatic of the American economy. Wall Street is near an all time high while middle and working class wages have gone down. Premiums up, executive compensation way up. It's hard to believe there are some who scream "socialist" at Obama and "librul" at Bev. Things could not have gone more republican if Reagan himself were president.

  • weasel2 Mar 4, 2013

    I still havn't figured out why with all the medical people in NC. The state pays a large corporation to manage its fund????

  • admyank Mar 4, 2013

    Sorry folks - but the head of the Goodwill Foundation gets more money than that - your barking up the wrong tree here.

    The Obama administration is the reason for those cuts - the next step is them cutting what they cover because of it. Don't blame the non-profit....

    ... as this was in the bill so now you see what is in it.

  • 82d Airborne Mar 4, 2013

    BCBS is NOT a "private" company... they are supposed to be a nonprofit... any other nonprofit would lose their status in a millisecond if they paid their CFO, CEO etc. that kind of money

    That is NOT correct, BCBS is a NOT FOR PROFIT not a NON PROFIT, the difference is what allows them to TAKE what they want, big boys take home the loot and those that actually work are left to fend for themselves with the small take home given, don't even speak about a bonus for the low level employees!

  • FromClayton Mar 4, 2013

    meanwhile i paid $10,000 out of pocket with a very sick baby this year on State Health Plan BCBS. $10,000 in medical bills was my co-pay, co-insurance and co-whatever else this year. and the wral moniter wont let me say the rest of this comment so i'll let you use your imaganiation as to how raw this rubs me.

  • jwjsdj Mar 1, 2013

    Oh! They LOST 67% in REVENUE and the Greedy Executives got from 41% to 68% "Extra" Bonus Pay for Stuffing THEIR Pockets while Doing a Bad Job!??? Fire Them ...