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Insurance Department Releases Report on Executive Compensation at State's Largest Blues' Plans
Date:7/30/2009

HARRISBURG, Pa., July 30 /PRNewswire-USNewswire/ -- The Pennsylvania Insurance Department today released an examination report providing comprehensive information on the compensation Highmark Inc. and Independence Blue Cross pay their executive management teams. The report was originally part of the department's review of the two companies' consolidation filing, but carried over when the companies withdrew the consolidation proposal earlier this year.

"Our report concludes that the compensation packages of Highmark and Independence Blue Cross are reasonable under the applicable legal standard," said Insurance Commissioner Joel Ario. "That standard required us to compare executive compensation at these two companies to comparable companies. Our compensation expert determined that the best comparables were other Blue Cross and Blue Shield companies and major non-profit hospital systems.

"In addition to demonstrating the comparability of compensation among the Blue Cross and Blue Shield insurers nationwide, the report offers a wealth of information on executive compensation practices across the health care sector at a time when executive compensation issues are being actively debated in the Congress," Ario added, noting that the report provides a wide range of comparisons among for-profit and non-profit companies in the health care sector.

"Our focus was on comparability because that is the legal standard and it also is what drives competition for executive talent," said Ario. "Whether the compensation scale is fair in a broader public policy sense, or whether new regulations are needed, are questions that are appropriately left to the legislative branch."

The report was authored by Jay Angoff, a former Missouri insurance commissioner with expertise in executive compensation. Among the report's key findings:

  • The compensation of the Highmark and IBC CEOs was commensurate with the rank of Highmark and IBC among Blue Cross and Blue Shield plans. For example, in 2007 the $3.6 million compensation of Highmark's Ken Melani was the fifth highest among all Blue plan CEOs, while Highmark was the fourth largest Blue. The $2.6 million compensation of IBC's Joseph Frick was the ninth highest among Blue CEOs, while IBC was the eighth largest Blue.
  • Highmark and IBC executive compensation was generally substantially less than that of for-profit health insurers. Dr. Melani's $3.6 million and Mr. Frick's $2.6 million in 2007 compensation, for example, compared with Aetna's Ron Williams's compensation of $23 million and CIGNA's Ed Hanway's compensation of $25.8 million.
  • Highmark and IBC executive compensation was in the same general range as that of the major non-profit hospital systems in Pennsylvania. For example, in 2006 -- the most recent year for which executive compensation for non-profit hospitals is available -- Dr. Melani received $3.2 million and Mr. Frick received $1.6 million, while the CEOs of Jefferson Health System, the University of Pennsylvania Health System, and UPMC received $1.7 million, $3.5 million, and $4.0 million, respectively.

The full report is available online via the department's Web site at www.insurance.state.pa.us under the company's respective links.

    CONTACT:
    Rosanne Placey or Melissa Fox
    (717) 787-3289


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SOURCE Pennsylvania Department of Insurance
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