Health insurer executives earn healthy pay
Total pay jumped 72 percent for CEOs at the three local health insurance firms
The profits of Western New York’s three major health insurers took a big tumble last year, but you wouldn’t know it from the hefty raises given to their top executives.
The CEOs of HealthNow New York, Independent Health Association and Rochester’s Excellus Health Plan, which owns Univera Healthcare, took home more than $6.5 million combined last year in salary and other pay.
That’s a 72 percent increase from $3.77 million in 2006.
Independent Health doubled the compensation of Dr. Michael Cropp to $1.7 million, while Health- Now CEO Alphonso O’Neill-White’s pay rose 75 percent to $2.24 million. Excellus’ David Klein took in $2.56 million, up 43 percent.
And the high pay reaches down much further. Between the three companies, 43 people earned more than $300,000, 99 took in more than $200,000, and 498 received more than $100,000.
“They certainly raise eyebrows,” said Assemblyman Joseph D. Morelle, D-Rochester, who chairs the Assembly Insurance Committee. “I think that these organizations ought to be very mindful that there are small businesses and individuals struggling to pay premiums. If the difference becomes too great, people start appealing to legislators for redress.”
Topping it off, the pay hikes came as earnings fell. Profits for the three nonprofit insurers fell 37 percent to a total of $184 million, down from $290.1 million the year before. Underwriting profits, before investment income and taxes, plummeted even more sharply to $62.4 million, down 75 percent from $252.6 million.
But that’s not what matters most, officials say. “Our focus is on our mission,” said Thomas Fentner, HealthNow senior vice president of human resources. “It’s not exclusively on profit.”
CEO pay is a hot button
Soaring executive pay is a constant flashpoint in the corporate world, as shareholders, customers, and employees question such high salaries.
The top echelons of corporate America have been known to earn tens of millions of dollars in combined compensation each year — averaging $10.8 million in 2006, or 364 times the pay of rank-and-file employees, according to a study by Institute for Policy Studies and United for a Fair Economy.
All three of Western New York’s local health insurers are not-for-profit organizations that receive state tax breaks in exchange for pursuing a mission to serve the public good and benefit policyholders. There are no private owners and no stock. Any “profits” the insurers earn are plowed back into the companies’ operations and reserves — cash cushions used to pay claims.
Compensation experts, board members and corporate executives defend the pay packages as necessary to attract and retain the talent and expertise needed to run such companies. They say the market for these executives is not local, but national, requiring employers to pay enough to compete or lose out.
“Our non-profit health plan is not a charitable organization,” said Excellus chairman John Doyle. “We compete with non-profit and for-profit companies for local and national business. We also draw from the same competitive talent pool of executives who manage health plans throughout the United States.”
However, some in state government question such arguments. “In theory, not-for-profits should have lower salaries than for-profits,” said state Insurance Commissioner Eric Dinallo. “There’s a good argument that it takes a certain salary to attract management talent. [But] there could be a point at which it’s troubling.”
Each of the companies said the pay packages are carefully considered by their boards, without the involvement of the CEOs and with the help of independent compensation consultants hired by directors.
Officials said most of the pay for all three CEOs stemmed from long-term incentive payouts in 2007 based on unusually strong years in 2006 and even before. Such pay is considered to be “at risk” each year, not guaranteed. Even HealthNow’s rank-and-file get some bonus pay. “Every single employee has some skin in the game,” Fentner said.
Executives touted last year’s results as demonstrating their commitment to the community, not the bottom line. That’s because the big drop in earnings stemmed from deliberate efforts to hold down premiums, after years of double-digit increases that made insurance policies less affordable.
“We made a concerted effort to keep premium increases as low as possible. The result is lower profits,” Fentner said.
“These results allow the plan to provide coverage to the underinsured, invest in technology and assure that the health plan remains strong enough to withstand major unexpected events,” said David Klein, CEO of Excellus and Univera.
HealthNow earnings slip
HealthNow posted earnings of $75.7 million in 2007, down 5 percent, as a doubling in investment income wasn’t enough to overcome a 33 percent drop in underwriting profits, which dropped to $48.4 million — its lowest since 2004. Net underwriting gain equals premiums collected minus claims and expenses.
The Buffalo-based parent of BlueCross BlueShield of Western New York and BlueShield of Northeastern New York said total premium revenues rose 1 percent to $2.14 billion. But medical expenses rose 3 percent to $1.88 billion and operating costs rose 5 percent to $155.7 million. Its statutory reserves total $496 million.
Meanwhile, O’Neill-White, the CEO, took home $2.24 million last year, up from $1.28 million in 2006. That includes $1.95 million in cash, consisting of a $732,000 salary, a $515,625 bonus, and long-term payouts for 2004 through 2006 of $701,195.
His two top deputies, Executive Vice President of Operations Cheryl Howe and former Chief Financial Officer James H. Dickerson Jr., each received about $1 million, up from $634,814 and $623,809, respectively. Both got long-term payouts and bonuses.
Last year, HealthNow abandoned its existing long-term incentive plans for executives, adopting a new format instead. To do so, company officials said they had to cash out the remainder of the old plans, leading to the outsized cash awards. Without them, O’Neill-White and other top executives would likely see total cash pay drop by as much as one-third in 2008, the company said.
Additionally, the company’s 10-member board of directors earned a total of $413,000 for the year, ranging individually from $31,750 for Frank
B. Mesiah to $64,250 for Chairman Thomas J. Murrer.
Former executives Alden F. Schutte, James A. Cardone, Thomas P. Hartnett, and Dr. John Gillespie were paid $349,235, $247,085, $232,137, and $187,636, respectively. The company also donated $142,000 each to the Buffalo Philharmonic Orchestra and the Buffalo Bills.
Membership in its health plans fell 2 percent to 564,165 — the lowest in at least five years, led by drops in the point-of-service and HMO plans. But total membership exceeded 815,000, up from
775,000, as the company attracted large employers to self-insured plans and single-insurer, experience- rated plans.
Independent Health profits tumble
At Independent Health in Williamsville, which submits two reports to the state, profits tumbled 59 percent to $24 million from $58.4 million, as the underwriting gain plummeted 93 percent to $2.96 million — the lowest for both since 2003. Premiums rose 13 percent to $1.2 billion, but medical costs rose 18 percent to $1.17 billion and operating costs increased 15 percent to $62.1 million. Reserves total $335 million.
Health plan membership was almost flat at 323,816.
Spokesman Frank Sava said the company had budgeted for no profit margin from underwriting last year, expecting instead that investments would drive the company’s results.
Cropp’s pay was more than double his $704,378 in 2006. It includes a one-time 10-year “longevity bonus” of $895,000 — $600,000 in cash and $295,000 from investments.
Chief Financial Officer Mark Johnson took in $572,743, up from $515,759. Former Chief Marketing Officer Scott Averill, who joined in 2006 and left last year, received $594,540.
The company’s 19 directors earned $582,508 as a group, with payments ranging from $7,880 to a high of $43,800 for Chairman Dr. Barry Winnick. Founder and former CEO Frank Colantuono took home $169,568.
The insurer also paid $248,544 for advertising, sponsorship and tickets to Hockey Western New York, a company created in 2003 by B. Thomas Golisano to buy and own the Buffalo Sabres. And it gave $25,000 each to the Buffalo Urban League — CEO Brenda McDuffie is one of the insurer’s directors — and to the Buffalo Philharmonic.
Excellus earnings drop sharply
Excellus reported profits of $84.26 million, down 45 percent from $151.7 million. A 75 percent gain on investments, to $102.2 million, was not enough to offset a 92 percent plunge in underwriting profits, to just under $11 million — a fraction of its profit margin in recent years.
Premium revenues increased 7 percent to $5.13 billion, but medical claims expenses rose 10 percent to $4.6 billion, while general administrative costs rose 2 percent to $257 million. Reserves rose to $1.19 billion. Health plan membership was flat at 1.88 million.
Klein, based in Rochester, earned $2.56 million, up from $1.79 million in 2006. That includes a salary of $887,937 and bonus and incentives worth more than $1.45 million.
Chief Financial Officer Emil Duda received $1.8 million, while Chief Administrative Officer Christopher Booth got $1.2 million and Chief Operating Officer Paul von Ebers took in $808,321. Mary Lee Campbell-Wisley, Univera regional president, got $389,405, up from $372,451.
The company has 93 directors and trustees, who earned a total of $923,593 for the year, ranging from just $619 to $56,339.
