What Congress Will Find in Health Insurer Pay

Health insurer executive pay is in the bulls' eye in DC, with the Senate Finance Committee pushing hard on a plan to limit the corporate tax deductibility of health insurers' pay if these companies make a lot of money off of health reform.

And Democratic Congressmen Henry Waxman and Bart Stupak are now beavering away at collecting information for potential hearings on executive pay and corporate junkets from at least 52 health insurers, in an effort to shame them into reform. The moves come as the Federal Reserve and the pay czar crack down on executive pay on Wall Street.

We've got a bead on what Congress might be looking at in health insurer pay. For example, Martin Sullivan, the former chief executive of AIG, one of the country’s biggest bail-outs as it got $185 bn in taxpayer money, is getting free medical insurance coverage. For life. Other health insurance execs also get free medical insurance and free medical exams as well. For more, see below.

The executives are getting these freebies at a time when family health care costs are big enough to block out the sun, and when insurers are denying coverage for all sorts of pre-existing conditions, as well as coverage for things like brain tumors, bone marrow transplants, maternity care, even if consumers have acne, varicose veins, or bunions.

Attacking executive pay is a real crowd pleaser for voters angry about the bailouts and deficit spending, as the economy is still on thin ice, as health insurers deny coverage, and as the banks are still careening around in a hospital gown.

However, the “executive pay as silver bullet to greed” story is a classic example of the autopilot thinking in DC.

The blame-it-on-executive pay angle is a panacea, a one-size-fits-all solution that invites a dangerous complacency, that capping pay will somehow stop rampant excesses on Wall Street or at health insurance companies.

It doesn’t work. Wall Street has already shown that the government’s past attempts at capping executive pay is the equivalent of pressing down on Jell-O, because executives figure out other ways to get richly paid.

Take what happened in the late ‘90s, when the government tried to cap the tax deductibility of executive pay at $1 mn. Wall Street invented other paper to pay themselves with, stock options, which then exploded in use.

For both the banks and insurers, what might stop the excesses could entail pre-emptive moves instead of this costly after-the-fact refereeing.

Like re-enacting Glass Steagall, which would separate the utility operations of retail deposits from the casino that bankers gamble in daily to hit their earnings.

Resurrecting the firewall of Glass Steagall between the utility and the slot machines might reduce bonuses naturally, as it might curtail the reckless bets and also might reduce the need to pay for extra bureaucrats to supervise individual banks.

Similar issues hold true for health insurers. Instead of cracking down on pay, the government could open up competition across interstate lines and let Americans choose coverage from a wider array of providers.

Or how about getting regulators to actually yank operating charters, or at minimum threaten to, for companies—the Office of Thrift Supervision, which oversaw AIG, could have done that and stopped that train wreck.

But why ignite a nasty political fight, why force the taxpayer-paid government regulators to get a backbone transplant, when it’s easier to do costly after-the fact refereeing, such as spotlighting excessive pay or bailing out companies with American taxpayers’ money?

Having slipped down a memory hole, the Senate Finance committee voted 14-8 last week to pass an amendment that would curb the tax deductibility of compensation for health insurance executives to $500,000 a year, down from the current $1 mn. Congress wants to avoid enriching insurance executives after it passes its mandates forcing Americans who don’t have insurance to buy coverage.

And the pay czar may potentially demand that 175 top executives at seven bailed out banks and car companies get paid more in stock than cash.

The Federal Reserve is also drilling down to the level of trading desks and loan officer cubicles to rein in pay, beyond the executive suites. It is going so far as to ask Wall Street about bonuses built on paper gains from derivatives, because the central bank views excessive pay "as a safety and soundness issue," Fed chairman Ben Bernanke told Congress last week.

However, the government cannot stop executives from remunerating themselves richly in other ways, such as stock options, or lucrative pension plans, or the usual corporate freebies, including the free use of company cars, company jets, parking spaces, and yes, even free annual medical exams and yes free health insurance coverage for top executives and their families.

Forcing more stock-based pay is double-edged, too. Stock-based pay exacerbated fake accounting at places like Enron and WorldCom, as executives cooked the books to cause their stocks to go higher.

Financial executives lost a median $5.1 mn when the bubble burst, Ohio State University researchers say--Lehman's Dick Fuld lost an estimated $1 bn in stock value when his firm collapsed, though he pocketed $22 mn in bonus money before it went under.

Below are some details you may see in coming weeks in the embarrassing tar pit Congress is now digging for health insurers when it comes to their executive pay.

Health Insurers’ Corporate Junkets

*An audit by North Dakota's Insurance Commissioner found that Blue Cross Blue Shield of North Dakota used premium payments to fund nearly $15 mn in employee bonuses that were almost assured regardless of performance, a $3.5 mn investment in a hotel in Fargo, and sales reward trips to resorts totaling $1.2 mn.

The audit also found that $34,814 was spent for a party for a retiring vice president.  The audit came following criticism of a sales managers' incentive trip in the Cayman Islands that cost $238,000 at a time when Blue Cross Blue Shield of North Dakota was seeking rate increases – a scandal that resulted in the firing of the company's then-CEO.

* In a September 2007 interview with Incentives Magazine, an Aflac "vice president and chief people officer in human resources" discussed some of Aflac's employee incentives, including:

- The President's Club, for which just the company's top 85 associates, 44 district sales coordinators, 25 regional sales coordinators and seven state coordinators qualify. That program award is an annual trip, "most recently a five-day, and four-night Mediterranean cruise departing from Monte Carlo."

- The annual convention trip for field associates (for which 1,280 agents qualify) which is held in locations like New York, Hawaii and, in 2007, Las Vegas.

- Employee Appreciation Week – described by the employee as a "weeklong party for 4,500 people."  Events at the celebration range from dinners, movies and concerts, to parties, prize drawings and trips to local amusement parks.

Health Insurers’ Executive Pay

Below is a list of health insurance CEOs who earned more than $5 mn in total compensation, including salary, bonus, stock-based pay and pension plans, in 2008, compiled by Paul Hodgson and Greg Ruel at The Corporate Library, based on SEC filings. Check out the breakdown of health insurer executive perks that follows the table.

Health Insurers’ Corporate Benefits

Axis Capital Holdings – CEO Charman’s “other compensation” which totaled $758,492 included personal travel between Bermuda and the United Kingdom, club membership fees, a housing allowance, payment for a personal internet account and free, company-paid premiums for additional medical coverage for Mr. Charman and his children.

MetLife – CEO Henrikson’s “other compensation” which totaled $404,129 consisted of Company Savings and Investment Programs Contributions, personal aircraft use at a value of just over $140,000, personal car service, free financial planning services and free medical examinations.

American International Group – Former CEO Sullivan’s “other compensation” of nearly $11.9 mn consisted of $11.5 mn in cash severance payments, along with continued free medical and life insurance benefits and free office and secretarial support. He also gets free personal aircraft use and free club membership, amongst other things.

Amerigroup – Despite the fact that the company was sued over a Medicaid case that allegedly cost the state of Illinois $225 mn, Carlson took home $2 mn more in 2008 versus 2007. His bonus doubled too, to $520,312 from $225,000. He also gets free life insurance, a free executive health screening, flight services, and a free medical insurance stipend (Amerigroup settled claims alleging that it defrauded Illinois’s Medicaid program by not enrolling pregnant women and unhealthy patients in the state’s low income program – something it was required to do).

CIGNA – CEO Hanway took a sizable chop in annual pay from 2007 to 2008, largely due to an $11 mn reduction in his non-equity incentive compensation plan. However, Hanway still gets $3.6 mn in stock option awards, plus he gets a company car with a driver, in-office meals, and emergency assistance services for things like free medical exams.

Chubb Corp. – CEO Finnegan’s “other compensation” of $205,615 consisted of financial planning services, contributions to defined contribution plans of over $180,000 and an automobile expense of $12,269.

W. R. Berkley Corp. – CEO Berkley’s “other compensation” of nearly $391,000 included but was not limited to Director Fees and a stock award for serving as a company director, free use of the company aircraft, company contributions to a profit sharing plan and secretarial and administrative assistant expenses of just over $50,000.

CNA Financial Corp. – CEO Lilienthal’s enormous “other  compensation” amount of $14.3 mn was primarily attributed to severance of over  $13.3 mn, but also includes free, personal use of the company aircraft valued at over half a million dollars along with miscellaneous other benefits including free  parking, tax preparation club memberships, plus the company pays his tax bill for certain benefits.

Everest Re Group – CEO Taranto’s “other compensation” of $86,215 consisted of free life insurance premiums, employee matching contributions to benefit plans and dividends on restricted shares.

Humana – CEO McCallister got $4.8 mn in 2008, $5.5 mn less than 2007. He also gets personal use of the company aircraft for him, and sometimes his family; company contributions to the Supplemental Executive Retirement & Savings Plan and the Humana Retirement & Savings Plan; a once-a-year physical, and free financial planning assistance.

Aetna – CEO Williams earned $24.3 mn in total compensation for 2008, with more than half of that ($13.5 mn) coming from option rawards. He also received an additional $6.5 mn in stock awards to go along with his base salary of $1.1 mn. Personal use of a corporate aircraft and vehicle, as well as financial planning and 401(k) company matches added up to $101,487.

WellPoint -- CEO Braly $9.8 mn in total compensation was bumped up by $1.5 mn in stock option awards. Braly also gets the use of a private jet for her and her family on business trips, about $10,000 annually for legal services, and cash credits.