By URVAKSH KARKARIA
Blue Cross and Blue Shield of Florida’s chief executive drew $4.7 million in total compensation last year — making him among the top paid Blue Cross CEOs nationwide. This as the Jacksonville-based insurer pink-slips some rank-and-file employees and trims administrative costs.
Robert Lufrano’s pay topped that of CEOs at not-for-profit Blue Plans or subsidiaries, some of which reported higher 2004 revenues, according to an analysis of 27 Blue Cross plans by Atlantic Information Services.
Lufrano’s package included $808,635 in salary, $2.35 million in bonuses and $1.56 million in other compensation, the Washington, D.C.-based health care publishing and information company said.
The CEO was not made available for comment, but Randy Kammer, vice president of regulatory affairs and public policy at Blue Cross Florida, defended the compensation as “fair and equitable” in a “complex market.”
The pay package, approved by the board, was determined by an independent consultant after reviewing executive compensation surveys and the financials of publicly traded competitors.
The notion of CEOs earning lucrative paychecks even as workers face the brunt of cost-reductions is not unique.
Winn-Dixie Stores Inc. chief Peter Lynch received $2.5 million in salary and bonus in fiscal 2005 even as the Jacksonville-based retailer is in the midst of slashing 22,000 jobs as part of its Chapter 11 bankruptcy reorganization.
The Florida Times-Union last week reported Blue Cross Florida is undergoing a corporate overhaul — including job cuts — aimed at trimming administrative costs and improving efficiency.
Internal documents obtained by the newspaper reveal plans to cut $50 million in administrative costs for 2006. The insurer is hoping for a 25 percent reduction in administrative costs through 2007, the document said.
The cost-cutting goals are not set in stone, Kammer said.
“Our budget planning process is very fluid,” she said, adding that if the initiative hurts customer service, the scale of cuts could be rolled back.
The cost-cutting extends beyond employees. Blue Cross is jacking health insurance premiums for retirees by about 25.5 percent on average.
Health insurance premiums for the general population have increased an average of 8 percent to 12 percent annually, said Patrick Hays, former president and chief executive of BlueCross BlueShield Association, which represents 40 independent, locally operated Blue Cross and Blue Shield companies. Retiree health insurance premiums can be expected to increase at a greater rate than the general population, he said.
Corporate shakeups are a competitive necessity, industry analysts say, as health insurers find themselves bracketed by rising medical costs and customers clamoring for competitive premiums. While unable to completely control medical costs, i.e. the claims paid out, Blue Cross executives say they can better manage administrative expenses.
Lufrano’s compensation was second only to WellPoint Inc. chief Larry Glasscock who pulled in $5.4 million, the Atlantic Information Services survey showed. Glasscock also owns WellPoint stock valued at $26.7 million on Dec. 31.
WellPoint is a for-profit, publicly traded company that owns Blues-branded subsidiaries in 13 states. WellPoint said in September it will buy WellChoice Inc. for $6.5 billion giving the combined company more than 33 million medical members across 14 states.
CEO pay at Blue Cross Florida “is indicative of a broader issue among executive salaries in this country,” Hays said.
“The ratio of what a CEO can expect to make and what a key professional employee makes . . . is way out of whack,” he said.
Part of the reason for the escalation of salaries in recent years is that even though many of the Blues are incorporated as not-for profits they have to compete for talent with investor-owned insurers, Hays said.
Blue Cross’s Kammer echoes that sentiment: Lufrano’s pay is justified because that’s what it takes to attract and retain top talent in a hypercompetitive market.
The compensation is worth it, Kammer said, because it translates into customers receiving the “the best bang for the buck.”
“What [policyholders] are getting for their premium,” she said, “is the best service and the best product and the best network, because we have the best people running our company.”
While Blue Cross is a not-for-profit, Kammer said it operates like a for-profit and should be compared with publicly traded rivals.
“We are regulated in a way that’s much more closer to a commercial company,” she said.
Unlike not-for-profit Blue Cross plans in some other states, Blue Cross Florida does not receive tax breaks or state-authorized discounted rates on reimbursements to health care providers such as hospitals, Kammer said. But like a not-for-profit, profits go back into the company and not to shareholders.
Kenneth McNabb, a Blue Cross Florida policyholder doesn’t have a problem with Lufrano’s pay package. But the 55-year-old Jacksonville stock trader would like some financial clarity as to where the company’s profits are being spent.
“They’ve got record revenues coming in on the front end and yet they are now on a campaign to cut costs,” McNabb said. “This means that profits should be larger in the future and so the question is where are all these profits going?”
Kammer would not say if Lufrano and other top officers would take pay cuts as part of the push to reduce administrative expenses. But she said all employees were sharing in the pain.
“Everybody is making do with more work and less resources,” Kammer said.
Starting this year employee health insurance contributions are tied to pay. This means higher paid workers contribute proportionately more in health insurance premiums than workers lower on the pay scale.
Expecting companies to force top executives to share in the pain of corporate cost cutting is not realistic, said John Challenger, chief executive of Challenger, Gray & Christmas, a Chicago-based outplacement firm.
Cutting pay of senior officers could result in the loss of top talent, he said.
It is easier for a company to eliminate or reduce pay for a lower- level job because the task can be consolidated among other employees, Challenger said.
“Usually there’s one person in each senior management position,” he said. “So you have to cut the whole function.” [email protected], (904) 359-4367COMING SUNDAYBlue Cross consolidationBlue Cross plans nationwide are consolidating. Is Blue Cross and Blue Shield of Florida a takeover target or potential acquirer?BY THE NUMBERS2004 CEO pay at selected Blues PlansBlue Cross and Blue Shield of Florida’s chief Robert Lufrano was among the highest paid among Blue Cross plans last year.Publicly Traded, For-Profit Blues PlanCOMPANY CEO SALARY BONUS OTHER TOTAL COMPENSATION COMPENSATION WellPoint Inc. Larry Glasscock $1,081,600 $4,081,498 $283,445 $5,446,543Multistate Not-for-Profit or Mutual Blues PlansCareFirst Inc. William Jews $1,140,606 $1,793,199 $0 $2,933,805Highmark Inc. Kenneth Melani 805,326 634,502 231,197 1,671,025Single State Not-for-Profit or Mutual Blues PlansBCBS of Florida Robert Lufrano $808,635 $2,350,000 $1,566,150 $4,724,785Horizon BCBS of N.J. William Marino 824,000 2,614,455 0 3,438,455BCBS of Michigan Richard Whitmer 826,315 1,295,421 183,728 2,305,464Source: State insurance department documents and U.S. Securities and Exchange Commission filings, compiled by Atlantic Information Services Inc.
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