By Richard Craver, Winston-Salem Journal, N.C.
March 2--The release Friday of Blue Cross and Blue Shield of North Carolina's executive compensation for 2012 reopens the debate about what is fair and competitive for a not-for-profit health system to offer.
Blue Cross is the state's largest health insurer, with more than 4,000 employees, including 600 in the Madison Park office complex in northwest Winston-Salem.
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James Wilson, its chief executive and president, received a 6 percent raise in salary to $854,692. His salary is up 19 percent in the past two years. His bonus jumped 62 percent to almost $1.6 million. His total compensation was at $2.48 million, up 36 percent.
Nine of the insurer's top 10 listed executives made more than $300,000 in salary during 2012, with two others besides Wilson topping $500,000. Counting Wilson, eight executives received a bonus of at least $516,000, while six received total compensation of more than $1.08 million.
Blue Cross also reported Friday a 69 percent decline in net income to $57.5 million in fiscal 2012 even as it experienced slight growth in revenue and membership. It had $177.1 million in net income in fiscal 2011.
Its profit margin was at 1 percent based on $5.7 billion in revenue compared with a 3.2 percent profit margin in 2011 based on $5.5 billion in revenue.
"The primary factors contributing to lower net income were significantly higher medical claims expenses and continued investments in technology and infrastructure dedicated to implementing the Affordable Care Act," the insurer said in a statement.
Blue Cross spokesman Lew Borman said the insurer's pay philosophy "is results-oriented tied to performance on a variety of measurable indicators, including service to customers, membership, enrollment, financial stability and other measures. It's based on a number of measures of company goals set by an independent board of trustees in consultation with a national independent consultant."
Borman said executive salaries "are in line with other companies of our nature and size." In its release, Blue Cross provided total revenue and total executive compensation examples of three N.C.-based corporations -- Hanesbrands Inc., LabCorp and Lorillard Inc.
"We are a fully taxed business, and we pay federal, state and local taxes," Borman said.
Blue Cross said it incurred $92.1 million in local, state and federal taxes in 2012 compared with $160.2 million in 2011.
"Less than one-tenth of a cent of every premium dollar goes to executive compensation, while over 87 cents of every premium dollar covers the health care costs of our customers," Borman said.
By comparison, Paul Wiles, the retired chief executive of Novant Health Inc., made $1.02 million in salary, $997,255 in bonus and incentive pay and $2.25 million in total compensation in fiscal 2011. The not-for-profit organization typically releases its executive compensation data in November.
Dr. John McConnell, chief executive of Wake Forest Baptist Medical Center, made $878,909 in salary during the center's fiscal 2011, along with $500,000 in bonus and incentive pay and $2.49 million in total compensation. Wake Forest Baptist typically releases its executive compensation data in May.
Critics say not-for-profit systems receive tax advantages and public-relations benefits from their status while compensation committees justify corporate-level wages and benefits to top executives.
Supporters of current compensation levels say nonprofit hospitals need to offer attractive pay to get the best executives in a complex industry.
Although some high corporate pay in general has drawn attention, health care compensation is particularly sensitive because of its impact on medical costs and insurance premiums throughout society.
And for nonprofit hospitals, there is an impact on taxpayers.
Both local medical centers are exempt for the most part from paying property taxes in Forsyth County and Winston-Salem, estimated at a combined $14.3 million.
The hospitals argue that they spend much more than that on charity care, unreimbursed expenses for government programs and other community benefits -- $118 million by N.C. Baptist Hospital in fiscal 2010-11 and $79 million by Novant's Forsyth Medical Center in fiscal 2011.
Blue Cross said it had 3.7 million customers in 2012, a gain of about 100,000 compared with 2011.
Health insurers are required by the federal Affordable Care Act to use at least 80 percent of their revenues for medical bills. Federal regulators determined last year that Blue Cross's market position was so dominant it required a year-long delay in enforcing that standard or risked driving out competition from other North Carolina insurers.
The insurer said it spent $4.5 billion on claims and medical expenses for its insured customers, compared with $4.2 billion a year ago.
Blue Cross said procedures that led medical expense trends were preventive medicine visits, knee and hip replacements and specialty pharmacy. It also reported a sharp increase in claims related to flu-related office visits and emergency-department visits.
rcraver@wsjournal.com
(336) 727-7376
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