Two years after bowing to its critics and suspending five-figure annual pay for directors, Blue Cross Blue Shield of Massachusetts is reinstating the compensation — though at reduced levels and to fewer board members.
The state’s largest health insurance carrier will pay part-time board members who chair committees a maximum of $54,500. That is down from the $78,60 before the public outcry over how much directors were paid at nonprofit insurers regulated as public charities. Blue Cross will pay other directors no more than $47,000, down from $58,600 in 2011.
Despite the reductions, Blue Cross board members will remain among the best compensated directors at any nonprofit health plan in the state.
Blue Cross board members attend up to five full board meetings a year, a strategic planning session, and about eight committee meetings, executives said.
Boston-based Blue Cross — criticized in the past for having a well-connected board with minimal qualifications — has also named five new directors to replace six that recently left. That puts the head count at 17, but the goal is to whittle it to 14, while improving the board’s level of health care expertise, said chief executive Andrew Dreyfus.
“The board needed new energy and perspectives,” he said. “I thought it was important to get fresh thinking and people who knew something about this business in particular.” Competitive pay is needed to attract the best people, he said.
Among the new directors are a Bain & Co. health care consultant, a senior executive at Dana-Farber Cancer Institute, and a health care delivery specialist at Geisinger Health System in Pennsylvania. Board members who have left include prominent business leaders and the former president of the Massachusetts AFL-CIO.
Attorney General Martha Coakley, who criticized the directors’ pay in 2011, said in a statement Thursday that “We are encouraged by several changes and improvements made by the board in response to our concerns, but we continue to disagree with the decision to reinstate compensation for board members.
“Voluntary service by board members is a hallmark of charitable organizations.”
Paying directors creates conflicts of interest, Coakley said, and the money could be put to better use in an organization classified as a charity.
In March 2011, the Blue Cross board voted to temporarily end annual compensation for directors. It took the action after public criticism of large payments to part-time board members and after the disclosure the board had voted to give departing chief executive Cleve L. Killingsworth about $11 million in salary, retirement, and severance pay.
Dreyfus, who took the helm in late 2010, acknowledged the controversy had “become a great distraction” to the insurer as it was pressing doctors and hospitals to hold down costs. Dreyfus took a lower annual salary than Killingsworth, started talking with regulators and community leaders about the company’s structure, and began examining the board’s composition and pay.
Ultimately, the insurer decided against trying to convert to a for-profit corporation, despite its $7 billion in annual revenue. It also hired a compensation consultant, Frederic W. Cook & Co., to compare Blue Cross board pay with nonprofit and for-profit peers. In addition, it weighed the views of Coakley, who had called for better governance and oversight and opposed paying nonprofit board members.
“This was a well-thought-out, two-year process that was part of a repositioning of Blue Cross Blue Shield under Andrew Dreyfus,” said longtime board member Robert F. Meenan, dean of the Boston University School of Public Health. “Looking at the board and finding more expertise in very relevant areas was a major component of our overall look at the company.”
Meenan, who disagreed with the fee suspension, said he now believes it was the right move. But he said the board has concluded reinstating payments is necessary to help Blue Cross compete with larger for-profit companies in recruiting and retaining qualified board members. As to Coakley’s objections, he said, “She wanted to make sure that we thought this through. It was always known that we could agree to disagree.”
Officials at the state Division of Insurance declined to comment Thursday, said spokeswoman Amie Breton.
After the Blue Cross decision in 2011 to suspend payments, other nonprofit Massachusetts insurers reassessed their policies of doling out five-figure annual fees to directors. Harvard Pilgrim Health Care and Tufts Health Plan opted to keep paying board members. Fallon Community Health Plan suspended its board payments in 2011, but reinstated them last year without fanfare.
Fallon restored the payments at prior levels “after a deliberative, thoughtful analysis, and in conjunction with a required expansion of their time commitment,” said Christine Cassidy, vice president for the Worcester-based insurer.
Deirdre Cummings, legislative director for the Massachusetts Public Interest Research Group, said nonprofit insurers should not be giving large payouts to part-time directors when the state’s health care costs are among the nation’s highest. She noted the rate of premium increases slowed when Blue Cross Blue Shield suspended its fees.
“One would question why they were able to run their business for the last few years without paying people and why they have decided they have to start doing it again now,” Cummings said. “Paying these directors what would be equivalent to a full-time salary for many in this state just for attending a handful of meetings every year seems excessive.”
Along with the other changes, Blue Cross will limit directors’ service on the board to three three-year terms.
The new payment structure includes an annual cash retainer of $30,000, down from $40,000, and a $1,000 stipend for attending each committee meeting, a decrease of $200.
Other payouts remain unchanged, including a $7,500 retainer for committee chairs and $1,500 for attending each board meeting and the strategic planning session.
In addition, board members are eligible to buy the same health and dental insurance as Blue Cross employees. Six are doing so. The insurer also pays for travel to and from Boston for its one out-of-state member, Bruce Hamory, executive vice president at Geisinger.
Six directors left Blue Cross between May 2011 and the beginning of this year, though their departures were not previously disclosed. They include former AFL-CIO president Robert Haynes, UMass medical school professor William Lavelle, biotechnology executive Mara Aspinall, former United Way president Marian Heard, retired manufacturing executive Samuel Cabot, and Western Massachusetts businessman James Lunt.
The directors left for various reasons, according to Blue Cross, ranging from retirement to moving out of state. Some long-serving members were asked to rotate off the board. Others “made it known that they thought it was not appropriate for Blue Cross to not compensate directors,” Meenan said, though he would not identify them and said the lack of pay was not a primary reason for their departures.
New directors include Hamory; Timothy Sweeney, executive vice president at Liberty Mutual Group; Dorothy Puhy, chief operating officer at Dana-Farber; Phyllis Yale, senior adviser at Bain & Co., and Paul Toner, president of the Massachusetts Teachers Association. Under state statute, two seats on the board must be held by labor representatives.
Hamory said he was approached to join because of his outside perspective.
“They were specifically looking for someone from out of state with health care delivery expertise, national standing, and knowledge of policy,” he said. If not for the pay, he said, “I would have had to think very hard about it. It’s a considerable time commitment.”