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Highmark's 20 board members get premium pay to serve

| Sunday, Oct. 23, 2011

It pays to be on the board of directors for health insurer Highmark Inc.

Highmark's 20 board members last year collected an average of $64,142 apiece -- a common practice among Pennsylvania's nonprofit health insurers. The state's three other Blue Cross/Blue Shield organizations compensate board members, according to a Tribune-Review examination of public records.

"Why aren't they lowering premiums?" asked Pablo Eisenberg, a senior fellow in nonprofit leadership at Georgetown University's Public Policy Institute.

Most nonprofit organizations don't pay directors because compensation can weaken objectivity and hurt credibility, he said. Two other experts -- Peggy Outen, executive director of Robert Morris University's Bayer Center for Nonprofit Management, and Joseph Greiger, executive director of the Pennsylvania Association of Nonprofit Organizations in Harrisburg -- agree.

"Because they are in the pay of the organizations about whom they're supposed to be stewards, their ability to be independent overseers of the organization is impaired," Eisenberg said.

Highmark, which spent almost $1.3 million in 2010 compensating board members, counters that it is not a traditional charity taking donations and distributing money for public good. Spokesman Michael Weinstein said because Highmark competes with for-profit national insurance companies -- which, like most corporations, pay board members -- it offers money to attract experienced business people.

Highmark's board compensation last year ranged from $23,955 for Dr. Calvin Johnson, state health secretary under former Gov. Ed Rendell and chief medical officer for MinSec Corrections Corp., an operator of private prisons; to $110,075 for board chairman J. Robert Baum, a University of Maryland associate professor.

The Tribune-Review sought comment from Highmark's board members. They declined to comment or did not return messages.

"It is crucial that we have a fully qualified, diverse and active board of directors, and we believe it is important for our board members to be fairly compensated for their time and expertise," Weinstein said.

Most nonprofit groups organize as public charities under IRS code 501c3, which allows them to collect tax-free donations. But Blue Cross companies in Pennsylvania are "nonprofit hospital plan corporations," created by state law as "charitable and benevolent institutions, exempt from taxation by the commonwealth and its political subdivisions," according to the state Insurance Department.

In exchange for state tax exemption, they must offer insurance plans to Pennsylvanians and report "community health reinvestment activities," the department said. The four Blue Cross companies must pay federal taxes.

Highmark pays property taxes on buildings that it owns, such as Fifth Avenue Place, Downtown, and its for-profit subsidiaries pay local, state and federal income taxes, Weinstein said. Last year, Highmark paid a total of about $260 million in taxes. It reported net income of $462.5 million for 2010. Its surplus: $3.7 billion.

Board members' pay, benchmarked against similar companies, varies depending on the director's responsibilities, Weinstein said. They typically attend six one- to two-day board meetings and nine committee meetings a year. He declined to estimate the average hours that directors spend working for Highmark.

Public outrage over executive and board compensation by nonprofit health insurers caused Massachusetts lawmakers to consider banning the practice.

"There is no justification for board members to be compensated at the commonwealth's four major not-for-profit health insurers," Attorney General Martha Coakley said in April. She estimated a typical director of a nonprofit insurer in Massachusetts worked an average three to four hours a week.

During an investigation of the four insurers, Coakley said, Blue Cross Blue Shield of Massachusetts and Fallon Community Health Plan agreed to quit paying directors. Two others, Harvard Pilgrim Health Care and Tufts Health Plan, still pay board members.

A spokeswoman with the Blue Cross and Blue Shield Association in Washington said the nation's 39 Blue Cross organizations are independent and make decisions about whether to pay board members.

Harrisburg-based Capital Blue Cross, for example, paid each of its 16 directors last year an average $75,184 -- up 37 percent over 2009 and the highest average in the state.

Capital Blue Cross bases directors' pay on comparisons with Blue Cross companies around the nation, spokesman Joseph Butera said. Its compensation is average among Blue Cross companies and about one-third of what for-profit competitors pay board members, he said.

"Directors are paid what is necessary to attract and retain people with the unique ability and experience necessary to shape the strategic direction of a $3 billion company, to assess its progress toward strategic goals, and to mentor and hold accountable the management of the company," he said.

Blue Cross of Northeastern Pennsylvania in Wilkes-Barre spent more than $1 million to compensate its board last year, averaging more than $71,000 for each of its 15 directors. The organization did not respond to requests for comment.

Independence Blue Cross spent $921,100, or an average of $29,423 for each of its 31 members last year. Officials with the Philadelphia insurer declined to comment.

Outen, of RMU's Bayer Center, said most large nonprofit organizations don't pay in order to attract qualified board members.

"I'm not particularly convinced by that argument that they have to pay to get quality people," she said. "Plenty of smart, experienced business people serve on boards and don't get paid."

Many Pittsburgh-area nonprofits don't pay their boards.

Board members for UPMC, the region's dominant health-care provider, and its separate insurance subsidiary UPMC Health Plan aren't compensated, spokesman Paul Wood said. Neither are the 19 members of West Penn Allegheny Health System's board, spokeswoman Kelly Sorice said.

Highmark and West Penn Allegheny have reached verbal agreement on terms and conditions of the insurer's planned $475 million acquisition of the region's second-largest hospital network.

The Pittsburgh Foundation, with more than $820 million in assets, does not pay its 18-member board. But it reimburses them for expenses related to board service, spokesman John Ellis said.

Nor do the University of Pittsburgh and Carnegie Mellon University, with respective annual budgets of nearly $2 billion and $900 million, compensate trustees, officials said.

Independent Sector, a Washington-based association for nonprofit groups that created a list of nonprofit management principles, said board members are expected to volunteer. But if an organization pays its board, it "should use appropriate comparability data to determine the amount to be paid, document the decision, and provide full disclosure to anyone."

Greiger, of the Pennsylvania Association of Nonprofit Organizations in Harrisburg, said he prefers to see board members volunteer their service so that nonprofits aren't criticized for behaving like corporations.

That's a charge Highmark and UPMC face from patients and lawmakers. A contract stalemate between the two nonprofits threatens to disrupt patient access to doctors and hospitals.

State Rep. Anthony DeLuca recently called UPMC and Highmark conglomerates that should worry less about money and more about "protecting patient health."

Said Greiger: "The penalty ends up being: 'You don't look like a nonprofit anymore; why should you be tax-exempt?' "

Additional Information:

Blue Cross directors

All four nonprofit Blue Cross organizations in Pennsylvania compensate members of their boards of directors. These figures show how much each organization paid last year in total compensation and an average figure per board member:

Blue Cross of Northeastern Pennsylvania -- $1.07 million; 15 directors, paid average of $71,594 each

Capital Blue Cross -- $1.20 million; 16 directors, paid average of $75,184 each

Highmark Inc. -- $1.28 million; 20 directors, paid average of $64,142 each

Independence Blue Cross -- $912,100; 31 directors, paid average of $29,423 each

Source: Tribune-Review research

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