Rhode Island
Silver Haired Legislature
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Rhode Island Silver Haired Legislature
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Executive pay at Blue Cross stirs debate Providence Journal, 11:50 AM EST on Wednesday, March 17, 2004
PROVIDENCE -- The state's dominant health insurer, Blue Cross & Blue Shield, paid its president, Ronald A. Battista, $2.8 million last year, according to documents the insurer filed earlier this week with state regulators. Battista's compensation package is described as his $509,000 salary, a $159,482 performance bonus, and a $2.1 million advance on supplemental executive-retirement benefits. A Blue Cross spokesman said Battista was entitled, at age 55, to a lump-sum payment of the benefits he had accrued, in this supplemental-retirement account, over 32-plus years with the company -- but he had no imminent plans to retire. "The best way I can describe it," said Blue Cross spokesman Scott Fraser, "was as an incentive for him to stay, not an incentive for him to go." "This was money he had earned in the course of a 32-year career. Ron could have made a choice to retire and taken that money. The board felt this was an incentive to have him stay as CEO by allowing him to take this money prior to retirement," said Fraser of the Blue Cross board's June 8, 2000, decision to allow Battista to take the money when he turned 55. Battista's seven-figure compensation during the year that ended on Dec. 31, 2003, topped Blue Cross's latest executive-compensation report to the Department of Business Regulation. From 2001 to 2003, Battista's salary increased by more than 24 percent to $509,711. Bonuses and salary increases raised the compensation of some of the other top executives of the state's dominant health-insurance company by more than 30 percent over two years. With his own bonuses of $39,520 last year and $40,390 the year before, lawyer and former state Sen. Thomas Lynch's compensation as a Blue Cross vice president increased from $189,646 in 2001 to $250,670 last year. For others, such as CEO James E. Purcell, whose salary rose from $393,378 to $451,190 over two years, the dollar increases were steeper. Fraser said the pay increases and bonuses reflect Blue Cross' success in growing its reserves and customers during a period when the nonprofit insurance company reduced its own administrative expenses. "You have to look at the performance of these individuals. They have turned the company around," he said. But Blue Cross' latest filing with state business-regulators drew gasps of disbelief from some state officials, in a year when anger at high premiums, low reimbursement rates and the accumulation by Blue Cross of a $290-million reserve has already led lawmakers to introduce an estimated 250 bills in the legislature to fix what they perceive as The Blue Cross Problem. Attorney General Patrick C. Lynch had this one-word response to Blue Cross' executive-compensation report: "Wow." "These levels of compensation are so over the top they are almost indescribable," said state Rep. Paul W. Crowley, cosponsor of legislation aimed at replacing the current Blue Cross board with new members appointed by the governor. "We chartered them as a nonprofit, tax-exempt insurance corporation with the intent to provide the people with the most cost-effective, comprehensive health insurance that we could," said Crowley, D-Newport. But, "they seem to have their own agenda," said Crowley, suggesting "this is reflective of what I perceive as a growing arrogance of Blue Cross . . . because what this shows is that, at a time when health-care costs, health-care insurance is rising substantially, it looks like the general management has a game plan to basically loot the system." "How many millions is the public sector paying annually in premiums to this insurance company to, in good part, support these levels of compensation?" he asked. "It's amazing," chimed House Finance Chairman Steven M. Costantino, D-Providence, "the rates small businesses are paying are going up 22 percent, 23 percent, 24 percent and salaries, at least at this level, are going up more than 30 percent . . . there seems to be a disconnect in terms of administrative costs and adequate or reasonable rates and reimbursement for providers." A spokesman for Republican Governor Carcieri, a former private-industry executive, said "the governor believes that we should look at the issue of executive compensation at Blue Cross as it pertains to their status as a not-for-profit company that is incorporated by the General Assembly." The compensation disclosure comes three weeks before AFL-CIO president Frank J. Montanaro takes over, April 8, as the new $20,000-a-year chairman of Blue Cross' newly downsized board of directors. Montanaro is also president of the Rhode Island State Association of Firefighters, and chairman of WorkingRI, a new labor coalition at the State House that has hired veteran casino lobbyist Guy Dufault, at $3,333 a month, to "set Rhode Island's priorities straight." So far, that has included an organized effort to defeat Governor Carcieri's attempts to make state employees pay a portion of the premiums for their Blue Cross coverage, which are now 100 percent state-paid. Fraser said the focus on executive compensation misses "the large picture." "Whatever anyone makes is something people are always attracted to. I don't care what the industry is," Fraser said. But, "reducing administrative expenses . . . that is what people need to focus on," Fraser said, because "all of our salaries -- every employee -- here at BCBS goes into adminstrative costs and if our administrative costs [have] been going down over the last four years, and we have been running as a more efficient company and we are saving money for our customers, that's what you need to focus on." Fraser pegged Blue Cross administative expenses at $206 million last year, but said he could not, on short notice, say how much more or less Blue Cross actually spent on such expenses four years ago. But he said Blue Cross believes it saved subscribers a potential $80 million by reducing those expenses from 14.4 percent to 10.4 percent of premiums. Fraser acknowledged the annual financial report Blue Cross filed Monday with the state Department of Business Regulation does not fully reflect the $1.982 billion that Blue Cross actually took in last year in premium income. The report shows $971 million in total revenues. Fraser said Blue Cross disclosed in this report only what DBR required, and that did not include another $519 million in premium income from Blue CHIP, and another $494 million from its "alternative funding arrangements" with clients, such as the state of Rhode Island, that effectively are self-insured. "This all leads," said House Finance chairman Costantino, "to what I feel will be more scrutiny and oversight and increased regulation and what the status of being a nonprofit really means in the insurance industry." How the officers are compensated 03/17/2004
SOURCE: Blue Cross and Blue Shield of R.I. Department of Business Regulation
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