Big Pay For Top Blue Cross Execs

Two of Washington's top Blue Cross/Blue Shield executives were paid more than many of their counterparts across the country, with combined salaries, benefits and perks totaling well over $1 million.

After years of secrecy and increasing pressure by state insurance regulators, Blue Cross officials released a report yesterday outlining 1992 compensation packages for top executives of their 10 nonprofit health-insurance companies in the state.

Donald Lockwood, former president of Blue Cross of Washington and Alaska, came out on top with salaries and benefits of $584,133. That doesn't include $162,000 paid separately to Lockwood as part of a long-term incentive plan.

Even in retirement, he's still on the payroll doing consulting work for his successor and the board of directors. His compensation and other benefits will add up to $230,012 this year.

Winlock Pickering, who now heads King County Medical - the Blues plan with the largest number of policy holders - was paid $408,578 in salary and benefits last year.

Both 1992 compensation packages were apparently higher than the average compensation packages for 73 Blue Cross/Blue Shield executives in the United States. According to congressional testimony, the average executive compensation for the nonprofit insurers is $388,000.

Members of the boards of directors of Blues plans in this state defend their compensation to top managers, saying they must pay top dollar to attract good people.

When it comes to Pickering's $400,000-package, "It's extremely difficult to get a top-flight executive for much less," said Joseph R. James, chairman of the board of King County Medical.

"The health-care industry has gotten so complicated in recent years that you've got to have talent that knows what they're doing."

But critics question whether Blue Cross and Blue Shield organizations should measure their executives' worth by industry standards given their nonprofit status.

The symbolism of high salaries, rather than the money itself, could be damaging to Blue Cross's reputation, said Sen. Phil Talmadge, a West Seattle Democrat, who wrote Washington's landmark health-care-reform legislation.

"Here you have an organization like Blue Cross that's supposed to be nonprofit, supposed to be managing claims and keeping costs down," Talmadge said. "It comes down to the double standard. (They're saying), `It's OK to pay ourselves what we want with minimal scrutiny, but you doctors, hospitals, health-care users have to cut back.' "

A comparison of executive compensation of other insurers indicates the 1992 salary numbers outlined for the Blues' 10 organizations are competitive with that of their for-profit competitors and somewhat higher than health-maintenance organizations in Washington.

But Talmadge said he doesn't think the Blues can continue to pay high salaries and compete in a shrinking marketplace.

Betty Woods, who succeeded Lockwood at Blue Cross of Washington and Alaska in March of this year and previously served as vice president, acknowledges that she and Lockwood were paid handsomely in 1992, but that they deserved it.

"Don Lockwood and the team we put together are responsible for doing one of the most remarkable turnarounds (in Blues operations) in the country," Woods said.

The Blue Cross report showed her 1992 earnings, as the No. 2 person, at $408,077, which is more than Pickering at King County Medical. King County Medical, which has a half-million subscribers, is the largest Blue in the state. Yet Blue Cross, with 118,000 fewer policy-holders, earns nearly 40 percent more than King County Medical.

State Insurance Commissioner Deborah Senn said she's not convinced the salary information released yesterday is accurate and doesn't want to make any comment on individually reported compensation until her examiners can validate the figures.

She still plans to launch an in-depth investigation of both King County Medical and Blue Cross of Washington and Alaska.

Traditionally, the Blues have kept their executive salaries close to the vest. Unlike their for-profit and HMO competitors, nonprofit insurers have never been required by state or federal laws to divulge such information.

Senn's predecessor, Dick Marquardt, requested executive compensation information from the Blues last year, but was given a dollar figure that reflected the aggregate compensation for all top executives.

The Legislature also has asked the insurers for individual compensation figures, but the Blues would not relinquish them.

The Blues, whose mission has been community service rather than making a profit, has come under increasing political pressure nationwide to account for its compensation packages.

The Colorado plan had its executive, Tom Levin, forced out last month after the insurance commissioner there declared the plan's insurance rates inflated and Levin's $575,000 compensation package excessive.

Other Blues plans have been audited or seized by state regulators during the past year after investigations uncovered questionable business practices and major financial losses. Six-figure salaries and the lifestyles of the nonprofits' top executives also have sparked interest from regulators.

In issuing their report on compensation yesterday, Washington's Blues officials say they hope to assure the public that their operations are well-managed and financially solvent.

"The Washington Blues should not be linked with a few financially unstable plans in other states," said Don Sacco, president of Pierce County Medical and a spokesman for all the Blues. "We are making all these figures available because we believe the public wants to know their health-care dollars are spent wisely." ------------------------------------------------------------------- Executive pay

Here is a comparison of compensations for CEOs among top commercial insurers and their companies' net incomes.

Blue Cross/Blue Shield compensation, 1992.

Compensation # Co. net income Donald Lockwood, CEO $584,133 $18.5 million. Blue Cross of Wash. & Alaska

Winlock Pickering, president $408,578 $11.6 million King County Medical/Blue Shield

Donald Sacco, president $225,077 $3.7 million Pierce County Medical

Fred Jacot, president $276,031 $8.9 million Medical Service Corp., East. Wash.

# Includes salary, bonuses, retirement contributions, life insurance, and other benefits. List does not include all state Blue Cross/Blue Shield organizations. Source: Blue Cross/Blue Shield; State Insurance Commissioner

Health Maintenance Organizations

Compensation HMO Net Phil Nudelman, president $303,441 $17.6 million.

Group Health Coop. Puget Sound

Michael Katcher, senior v.p. $294,218 $6.4 million.

Kaiser Foundation Health Plan

Gary Meade, president no report filed $4.2 million.

Health Plus

M. Joseph Leinonen, vice president $129,641 $1.3 million .

CIGNA Healthplan

Source: State Insurance Commissioner

Some of the highest-paid chief executives of national commercial insurance agencies. # #

Company Compensation Net income/loss Saul Steinberg Reliance Group $5.8 million ($35.7 million).

M. Greenberg American Int. $1.9 million $1.6 billion.

Harold Hook American General $1.7 million $533 million.

Dean O'Hare The Chubb Corp. $1.2 million $617 million.

Walter Rhulen Frontier Insur. $580,000 $19.0 million.

James Billett Jr. Trenwick Group $614,017 $18.6 million.

# # Includes 1992 salary and bonuses. Does not include stock options, retirement or other benefits.

Source: Business Insurance magazine