Blue Cross Blue Shield Ordered to Repay $3 Million from Executive Payout

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* * updated with comments from Blue Cross Blue Shield * *

Health care regulators have ordered the state's largest health care insurer — Blue Cross Blue Shield of Vermont — to repay consumers nearly half of the $6.3 million retirement package it doled out its former chief executive officer.

The order was handed down in a 50-page ruling issued Wednesday by the state Department of Banking, Insurance, Securities and Health Care Administration. BCBS has agreed to repay $3 million in premium refunds to subscribers.

BISHCA's ruling does not spell out how BCBS should recoup the $3 million, but the company is not allowed to take the money from its subscribers. Instead, over the next two years premium refunds should be issued.

In 2009, it was revealed that BCBS gave a $6.3 million to retiring CEO William Milnes, Jr., on top of more than $1 million in compensation and bonuses. Milnes retired at the end of 2008.

BCBS has agreed to accept the requirement to return money to subscribers, rather than contest the matter in administrative hearings, BISHCA officials said in a statement.

BCBS officials were not immediately available for comment.

“Although the department does not set salary levels or approve retirement plans for insurance executives, the investigation showed that the compensation paid to Mr. Milnes simply was not reasonable when compared to similarly-sized managed care and health insurance companies”, said BISHCA Commissioner Paulette Thabault in a statement.

The $6.3 million payout was first revealed in a March 2009 "Fair Game" column, and caused a firestorm of controversy under the Golden Dome and in the public. Within weeks of the revelation, state regulators launched an investigation.

Last fall, Thabault ruled the BCBS golden parachute may have been illegal, violating various laws — including insurance regulations and the state's nonprofit laws. BCBS denied the payout violated any laws, but began private negotiations with regulators to assuage their concerns.

“Under our laws”, said Thabault Wednesday, “the company is supposed to be operated solely for the benefit of subscribers and at minimum cost. When it doesn’t, we will take action.”

In its ruling, BISHCA concluded that Milnes "had been paid substantially more than the true competitive range for the position, in part because the company was comparing itself to much larger Blue Cross organizations. The large bonuses routinely given to Mr. Milnes by the company board of directors also had the effect of increasing the value of an already generous retirement package."

BISHCA estimates that Milnes was overpaid by at least $1.4 million during his last eight years of employment and as a result his retirement package was inflated by $1.6 million. Attempts by BCBS to have Milnes repay some of the money have proven unsuccessful, according to Thabault's order.

Board members, too, are paid well for their service on the board — with its chairman earning more than $40,000 annually. The average board member earns more than $23,000 a year to meet roughly six to eight times a year.

“Although the Department does not set salary levels or approve retirement plans for insurance executives, the investigation showed that the compensation paid to Mr. Milnes simply was not reasonable when compared to similarly-sized managed care and health insurance companies”, said Thabault.

Thabault did say BCBS has taken steps to tamp down its retirement program for its top executives, and board members have also reduced their meeting fees.

You can download BISHCA's full report here, or read BISHCA's press release here.

* * Update at 1:05 p.m. * *

In a statement, current BCBS President and CEO Don George said the company was pleased with the state's order, and the company plans to repay the $3 million to subscribers in the coming two years by lowering administrative fees.

“We accept the findings of commissioner Thabault and are satisfied with the agreement to resolve this,” said George. “We are particularly pleased that the commissioner accepted our proposal to address the state’s concerns by providing our customers with some needed premium relief, and that the agreement recognizes other significant cost saving measures that we have implemented over the last two years.”

BCBS spokesman Kevin Goddard told Seven Days premium relief will vary depending on which subscriber group an individual or business belongs.

"Essentially, it means the premiums will be reduced from what they were otherwise would be," said Goddard. "For those who were getting an increase, their rate will be lower, and for those who were seeing no rate increase, they will experience a decrease."

Goddard said the company had looked at various legal options to recoup the money from Milnes or others involved in setting the compensation package, but none seemed likely to succeed.

BCBS also agreed to provide the state in 2010 and 2011 with its Medical Cost Management Plan, which identifies strategies the company has under way to help hold down health care costs.

Comments

[Margo Howland]

Good job Shay!!

[Older is Better]

"Goddard said the company had looked at various legal options to recoup the money from Milnes....." Why not just ask him to send it back? If he is such a great guy to deserve such a fat check, surely he will send back a little of it, if asked.

[Lisa Erwin-Davidson]

It is disgusting to think that last month BCBS lobbyists were following our Autism Coalition group around and testifying to the Finance Committee about the concern our bill would "raise monthly insurance rates - per member per month - on our VT families trying to get BCBS coverage for autism treatment! When Shay released the article about the huge retirement payout to Milnes after that testimony, I went ballistic! Given this situation now, there better not be a one penny increase to any of our VT families seeking BCBS coverage in July 2011.

[Shay Totten]

@ Older is Better. In fact, according to documents filed along with the commissioner's order, BCBS did try last July, multiple times, to ask Milnes to pretty please with sugar on top return the money. Milnes', and Milnes, have responded that the former CEO will, in fact, not give back a penny. And, a legal analysis shows that it's not likely BCBS could recoup the money via court action since the contract and retirement plan were not constructed illegally.

@Lisa. We'll see what happens in 2012 when BCBS will introduce its rates after the $3M penalty window has expired. BISHCA says it will be paying close attention to BCBS' proposed rates until then.