Executive pay at Health Care Service Corp. rises despite ACA troubles
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September 26, 2016 01:00 AM

Executive pay at Health Care Service Corp. rises despite ACA troubles

Bob Herman
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    Health Care Service Corp., which has its headquarters in Chicago, operates Blues plans in five states.

    Salaries and bonuses were up across the board last year for top leaders at Health Care Service Corp., the Blue Cross and Blue Shield insurer in five states. The top 10 executives cumulatively earned $56.7 million in 2015—the same year in which HCSC suffered substantial losses in the Affordable Care Act exchange markets.

    That total was 57% higher than the $36.1 million that the same 10 executives earned in 2014.

    Hemingway Hall

    The highest-paid executive was former CEO Patricia Hemingway Hall. She made nearly $16.6 million in 2015, a 42% increase from her $11.7 million pay package in 2014. Her compensation included a $1.5 million salary and nearly $15 million in bonuses. Hemingway Hall, who has made more than $68.3 million since 2011, retired last year after 23 years at HCSC.

    Paula Steiner replaced Hemingway Hall as CEO. Steiner made almost $5.7 million as HCSC's president and chief strategy officer in 2015, 85% of which came from bonuses. Colleen Foley Reitan, the insurer's chief operating officer, was the second-highest-paid executive with a compensation package of $7.9 million.

    Modern Healthcare received HCSC's compensation records through a Freedom of Information Act request with the Illinois Department of Insurance. HCSC is headquartered in Chicago.

    HCSC owns the Blue Cross and Blue Shield plans in Illinois, Montana, New Mexico, Oklahoma and Texas, and it is roughly the size of for-profit peer Cigna Corp. The mutual insurance company, which has 1.6 million members on and off the exchanges, lost $1.5 billion on its individual ACA-compliant plans in 2015. HCSC anticipates ACA-related losses from 2014, when the exchanges first went live, through this year will approach $3 billion.

    HCSC's net loss in 2015 was $66 million compared with a $282 million net loss in 2014. Revenue from fully insured products last year totaled $31 billion, and that total was roughly $35 billion after including administrative contract fees from self-insured employers.

    Sicker-than-expected members in the ACA marketplaces led to high medical claims, and HCSC also blamed the lack of risk-corridor funding for the troubles. Consequently, last year, HCSC scrapped its PPO plans that have broader networks of hospitals and doctors and moved to HMO options for the individual population. The company's New Mexico insurer also abandoned the exchange in 2016, a move that was recently followed by the unaffiliated Blue Cross and Blue Shield of Nebraska, although the New Mexico Blues are back on the exchange for 2017.

    “You can't afford to have broad networks,” Ken Avner, HCSC's former chief financial officer, told Modern Healthcare in March. “You get killed on the selection.”

    Avner retired this year and was replaced by Eric Feldstein. Avner earned $4.7 million in 2015, a 29% boost from the $3.6 million he made in 2014.

    The compensation documents do not explain how bonuses are calculated or what performance metrics are used. Greg Thompson, a spokesman for HCSC, sent a statement that said board members determine executive pay with the help of outside advisers, but the specific methodology was “proprietary.”

    “Compensation needs to recruit and retain top talent who can manage the complexities of this business and advocate for a healthcare system that works for our policyholders not just today, but for years to come,” the statement said.

    Thompson added, “Only a small fraction of a cent from every premium dollar we receive goes toward paying our executives.”

    Executives weren't available for interviews.

    Compensation also increased last year for HCSC's board members. Milton Carroll, an energy industry executive, serves as HCSC's board chairman. The company paid Carroll $932,667 in 2015, nearly three times as much as he earned as a board member of Halliburton Co.

    Carroll and 13 other HCSC board members cumulatively received more than $4 million last year, compared with $3.2 million in 2014.

    HCSC executives maintain a relatively active role in politics as well. Federal records from the Federal Election Commission show Steiner, Foley Reitan and other top leaders donated to HCSC's political action committee in September. The PAC has funneled money to candidates on both sides of the aisle during this election cycle, according to the Center for Responsive Politics. That has included many Republicans who have openly advocated for the repeal of the ACA.

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