Insurance Department Releases Report on Executive Compensation at State's Largest Blues' Plans

Harrisburg, Pa., July 30 / PRNewswire-USNewswire / - The Insurance Department of Pennsylvania today released an examination report containing detailed information on compensation Highmark Inc. and Independence Blue Cross to pay their management teams. The report was originally part of the department for consideration of consolidation of two companies of deposit, but report only when the companies have withdrawn the proposal for consolidation earlier this year.



"Our report concludes that the conditions of remuneration and independence of Highmark Blue Cross are reasonable under the legal standard," said Insurance Commissioner Joel Ario. "This standard requires us to compare the remuneration of directors of these two companies for comparable companies. Compensation expert determined that the best elements of comparison with other Blue Cross and Blue Shield companies and large 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







SOURCE Pennsylvania Department of Insurance