Why Does Executive Pay Go Up When Financial Performance Goes Down?

Why Does Executive Pay Go Up When Financial Performance Goes Down?

By

Leonard Zwelling

      As many readers know, I am a member of the Physicians for a National Health Program, PNHP. PNHP is the organization for the single payer docs. To make a long story short, we basically believe that if a single payer, government funded system is good for the elderly, why the heck isn’t it good for everyone else?

      ObamaCare is most characterized, not by what it does, but by how.

      Had the ACA legislated that a tax would be levied on all Americans so that all Americans would have a modicum of health insurance, that would be one thing. Then the ACA would be like Medicare. We at PNHP would be overjoyed. Instead, the ACA cemented the private insurance markets in place, thus guaranteeing the overpayment for medical care because there are so many middlemen that have to share in the lucre. Let’s see who’s eating at the trough of the health care industrial complex, but who does not provide health care: insurers, pharmacy benefit managers, many of the drug companies making me-too versions of already proven drugs or worse, me-too versions of lackluster drugs and charging too much, large purchasers of care, and, well you get the drift. Only two groups of folks need to be in the health care marketplace, if we insist on having one (e.g., there’s not a fire department marketplace or one for the police either). That would be patients and doctors and nurses (I hate the word providers).

      So imagine my surprise when, after having read about all the suffering of the large insurance companies due to the non-profitability of ObamaCare that their executives are making more than ever.  PNHP sent this out on September 28:

Modern Healthcare, Sept. 26, 2016

Executive pay at Health Care Service Corp. rises despite ACA troubles

By Bob Herman

Salaries and bonuses were up across the board last year for top leaders at Health Care Service Corp., the Blue Cross and Blue Shield insurer in five states. The top 10 executives cumulatively earned $56.7 million in 2015—the same year in which HCSC suffered substantial losses in the Affordable Care Act exchange markets.

That total was 57% higher than the $36.1 million that the same 10 executives earned in 2014.

The highest-paid executive was former CEO Patricia Hemingway Hall. She made nearly $16.6 million in 2015, a 42% increase from her $11.7 million pay package in 2014. Her compensation included a $1.5 million salary and nearly $15 million in bonuses. Hemingway Hall, who has made more than $68.3 million since 2011, retired last year after 23 years at HCSC.

Paula Steiner replaced Hemingway Hall as CEO. Steiner made almost $5.7 million as HCSC’s president and chief strategy officer in 2015, 85% of which came from bonuses. Colleen Foley Reitan, the insurer’s chief operating officer, was the second-highest-paid executive with a compensation package of $7.9 million.

Modern Healthcare received HCSC’s compensation records through a Freedom of Information Act request with the Illinois Department of Insurance. HCSC is headquartered in Chicago.

HCSC owns the Blue Cross and Blue Shield plans in Illinois, Montana, New Mexico, Oklahoma and Texas, and it is roughly the size of for-profit peer Cigna Corp. The mutual insurance company, which has 1.6 million members on and off the exchanges, lost $1.5 billion on its individual ACA-compliant plans in 2015. HCSC anticipates ACA-related losses from 2014, when the exchanges first went live, through this year will approach $3 billion.

HCSC’s net loss in 2015 was $66 million compared with a $282 million net loss in 2014. Revenue from fully insured products last year totaled $31 billion, and that total was roughly $35 billion after including administrative contract fees from self-insured employers.

Sicker-than-expected members in the ACA marketplaces led to high medical claims, and HCSC also blamed the lack of risk-corridor funding for the troubles. Consequently, last year, HCSC scrapped its PPO plans that have broader networks of hospitals and doctors and moved to HMO options for the individual population. The company’s New Mexico insurer also abandoned the exchange in 2016, a move that was recently followed by the unaffiliated Blue Cross and Blue Shield of Nebraska, although the New Mexico Blues are back on the exchange for 2017.

“You can’t afford to have broad networks,” Ken Avner, HCSC’s former chief financial officer, told Modern Healthcare in March. “You get killed on the selection.”

Avner retired this year and was replaced by Eric Feldstein. Avner earned $4.7 million in 2015, a 29% boost from the $3.6 million he made in 2014.

The compensation documents do not explain how bonuses are calculated or what performance metrics are used. Greg Thompson, a spokesman for HCSC, sent a statement that said board members determine executive pay with the help of outside advisers, but the specific methodology was “proprietary.”

“Compensation needs to recruit and retain top talent who can manage the complexities of this business and advocate for a healthcare system that works for our policy holders not just today, but for years to come,” the statement said.

Thompson added, “Only a small fraction of a cent from every premium dollar we receive goes toward paying our executives.”

Executives weren’t available for interviews.

Compensation also increased last year for HCSC’s board members. Milton Carroll, an energy industry executive, serves as HCSC’s board chairman. The company paid Carroll $932,667 in 2015, nearly three times as much as he earned as a board member of Halliburton Co.

Carroll and 13 other HCSC board members cumulatively received more than $4 million last year, compared with $3.2 million in 2014.

HCSC executives maintain a relatively active role in politics as well. Federal records from the Federal Election Commission show Steiner, Foley Reitan and other top leaders donated to HCSC’s political action committee in September. The PAC has funneled money to candidates on both sides of the aisle during this election cycle, according to the Center for Responsive Politics. That has included many Republicans who have openly advocated for the repeal of the ACA.

http://www.modernhealthcare.com/article/20160926/NEWS/160929921/executive-pay-at-health-care-service-corp-rises-despite-aca-troubles

Becker’s Hospital Review article, June 10, 2015, on “25 things to know about Blue Cross Blue Shield”:

http://www.beckershospitalreview.com/payer-issues/25-things-to-know-about-blue-cross-blue-shield.html

“Blue Cross, Blue Shield Getting Richer, Like Corporate Insurers” by Wendell Potter in 2011:

http://www.pnhp.org/news/2011/may/blue-cross-blue-shield-getting-richer-like-corporate-insurers

      My point is only that it appears that executive pay is unrelated to the health of the company over which these men and women ride herd and the same must be true at MD Anderson for despite the $400 million loss due to EPIC, an installation decision of the executives, I don’t hear that any of the leadership’s pay will be curtailed to help defray the new deficit brought on by the software.

      Now why is that always the case?

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