Where health-care dollars go

While businesses and individuals are paying more and more for often fewer health-care benefits, we thought we would take a look at where some of those health care dollars go.

Last year, over $1.136 million of your health-care-premium dollars went to Herbert Randle Brereton (Gubby) Barlow, president and CEO of Premera Blue Cross. That salary was up from $1.074 million the year before, even though his income from "all other compensation," presumably retirement and other non-cash items, was down $65,000 from 2000.

In fact, if Premera were a publicly traded company, Barlow's salary would make him the 13th most highly paid executive in the state, based on cash compensation, as ranked by Washington CEO's "Top 50 Highest Paid Executives" (September 2001).

As of July 2001, Premera was not even the largest insurer. Regence Blue Shield had 1,103,991 members plus another 268,450 from self-insured plans, for a total of 1,372,441. Premera had 903,487 members, plus another 82,497 from self-insured employers for a total of 985,984 members. Premera has 386,000 fewer members than Regence, yet still can afford to have almost double executive salaries?

Why is this interesting? First, Premera has indicated it wants to convert to for-profit status. Second, their salaries are not just different, they are wildly different from the other health plans.

Mary McWilliams, CEO of Regence, earned a puny $421,861 in 2001, up from $317,686 in 2000. Cheryl Scott, CEO at Group Health Cooperative, received $553,170 in 2001, up from $483,888 in 2000. But, she just announced she will take a 20-percent cut, so she's down to $442,536 now, in league with Regence. With this salary, she would rank No. 50 and knock Steve Gillis of Corixa off the executive compensation list.

The figures are based solely on the cash compensation of the executives and exclude stock options and other non-cash compensation, which is why Bill Gates is not in the top 13. He receives only $639,000 in cash compensation, which places him at No. 25 in terms of compensation of the Top 50.

In nearly every category of comparison, Premera executives are paid nearly twice — or more than twice — what their colleagues are paid at Regence and Group Health. Here are a few examples rounded to the nearest thousands, according to annual reports filed with the Office of the Insurance Commissioner:

• Corporate counsel:

Premera, Yoram Milo $731,000;

Group Health, Rick Dale Woods $264,000;

Regence, Joanne Long $166,000;

• Medical director:

Premera, John Castiglia $447,000;

Regence Jeffrey Robertson $241,000;

• Chief actuary:

Premera, Andrew Bao-Hwa Wang $694,500;

Regence, Robert Rueder $184,000;

• Vice president sales and marketing:

Premera, Corbin Marion Butler $556,000;

Group Health, Maureen McLaughlin $271,000;

Regence, Martin Andrews $209,000.

In light of the fact that Premera has declared its intention to convert to a for-profit organization, I think those overseeing the conversion should ask why there are such large discrepancies in salaries between these organizations and their peers. As a nonprofit, Premera has enjoyed huge tax breaks compared to commercial businesses.

As employers, you may wish to ask how Premera calculates its premium increases. Insurers are required by law to hold three months' anticipated claims payments in reserves. The challenge facing insurers is having an adequate reserve. However, what they can't do is have too much money lying around, or the insurance commissioner can't justify their requests for premium rate increases.

It seems to me, when physicians in our state are no longer taking new Medicare and Medicaid patients; when physician practices are in meltdown; when our employers are dropping coverage, cutting benefits and dependents because the cost of health insurance is greater than they can bear during this recession, that at some point we need to ask where our health-care dollars go. It would be one thing if these salaries were within maybe $100,000, but these salaries do not seem to be anywhere near the industry norm in this state.

And if these insurance companies work with "outlying" doctors whose practice patterns are significantly different from their colleagues', it seems to me, we need to ask ourselves where is their responsibility to the community that pays the premiums that helped fuel those salaries.

When Blue Cross in California converted from a not-for-profit health plan to a for-profit, it offered the state $100 million in return for the taxes it had not had to pay all those years as a nonprofit. The state of California took a look at what it thought the benefit was to the health plan and said no deal and made Blue Cross fork over $3.2 billion, which was put into two different foundations to address health-care access and services for the people of California. Closer to home, in 1997, the Northwest Health Foundation in Portland was formed with $58 million when one of Oregon's nonprofit health plans was sold to a for-profit health plan.

As Premera moves through this conversion, it behooves us all to see that we are returned an equivalent value for the many tax-exempt benefits it has reaped from the businesses and individuals in this community that have kept it so very well in business these many years.

Kathleen O'Connor writes regularly on health-care issues for The Times. She publishes "The O'Connor Report" and hosts seminars on the health-care marketplace.

Her Web site is: www.oconnorhealthanalyst.com.