Blue Cross profits down, executive compensation up

Posted March 1, 2013 2:42 p.m. EST
Updated March 1, 2013 7:30 p.m. EST

— 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.

"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.