Cuts fuel Blue Cross surge

Membership growth and revenue are flat, but savings and investments reap a net income leap.

Staff WriterMarch 2, 2011 

  • The top boss at Blue Cross and Blue Shield of North Carolina made $1.87 million last year, less half what his predecessor earned during 2009.

    The state's largest health insurer disclosed the pay package for Brad Wilson, who took over as CEO in February 2010, in its annual report with the N.C. Department of Insurance.

    Bob Greczyn made $4.08 million in 2009, his last full year as CEO.

    Some of the difference is related to their tenures as CEO - Greczyn had a higher base salary and bigger potential bonus after more than a decade running the company, chief financial officer Gerald Petkau said. And some of Wilson's total pay package is tied to longer-term incentives, which he will be in line to receive in coming years.

    The board of Blue Cross works with an outside consultant to set executive pay and bases bonuses on benchmarks such as financial results, membership growth and more.

    Wilson's 2010 compensation is a raise from the year earlier, when he made $1.82 million as the insurer's No. 2 executive.

    Consumer advocates often criticize the company's executive pay as excessive, especially as many consumers struggle to afford health coverage or have to go without.

    Most board members at Blue Cross also got raises in 2010. Chairman Jeffrey Houpt, for example, received $61,482 last year, up from $51,314 in 2009.

    Blue Cross spends less than 0.1 cent from every premium dollar on executive pay, vs. 86 cents of every premium dollar used for medical care, said spokesman Lew Borman.

  • Revenue, 2010

    $5.2 billion

    (unchanged from 2009)

    Net income, 2010

    $167.7 million

    (up from $107.3 million in 2009)

    Margin

    3.2 percent

    (up from 2.1 percent in 2009)

    Employees

    4,300

    (down from 4,700 a year ago)

    Membership

    3.7 million

    (unchanged from 2009)

Blue Cross and Blue Shield of North Carolina reported a surge in net income for 2010, as the state's largest health insurer cut costs and saw stronger returns on its massive investment portfolio.

But membership growth and revenue were essentially flat, as customers continue to shift to cheaper health plan options. Blue Cross lost about 30,000 insured members as the economic downturn continued to take a toll, but saw an uptick in membership where it provides only administrative services.

For 2011, the company doesn't expect to see a big rebound, said chief financial officer Gerald Petkau. Individual and corporate customers are still seeking ways to keep premiums affordable, such as shifting to health plans with higher deductibles.

"We're trying to maintain a relatively stable level of profitability to serve our members well," he said. "Stable and modest growth are good in this business."

Blue Cross is a frequent target of critics for its dominant position in the state's health care market, especially coverage for individuals. But under Brad Wilson, who took over as CEO in February 2010, the company has taken steps to try to improve itsimage.

Last fall, it announced an agreement with the N.C. Department of Insurance to refund about $156 million in premiums. The company also agreed to a less-than-requested rate increase of 5.4 percent for its popular health plan for individuals.

Rates for employer groups are rising an average of about 11.5 percent. The company blames surging medical costs and demand for more expensive treatments.

For the full year, Blue Cross reported net income of $167.7 million, up about 56 percent from 2009. The stock market rally helped boost the company's investment portfolio, worth about $2.6 billion. And Blue Cross saw a $20 million gain from the sale of a claims-data company it owned a stake in.

"Having a big war chest to invest in everything from marketing and political campaigns helps give them enormous clout in this state," said Adam Linker, a policy analyst with the N.C. Justice Center's Health Access Coalition, a liberal nonprofit group in Raleigh.

The company also is trying to build up reserves as it looks ahead to the full implementation of health-care reform in 2014 because "they're not entirely sure how reform is going to affect them," Linker said.

The net income figure for 2010 translated to a profit margin of 3.2 percent. That was up from 2.1 percent in 2009, but down from previous years and below the company's goal of 3.5 percent to 4.5 percent.

Wilson has set a goal of reducing the company's annual operating expenses by about $200 million by 2014.

As it began that effort, Blue Cross cut its expenses last year by reducing its work force, consolidating its office space and taking other steps.

The company now employs about 4,300 people, down from about 4,700 a year ago. Blue Cross cut jobs through attrition, eliminating open positions and outsourcing technology jobs.

As it needs less space, Blue Cross vacated seven buildings totaling 151,000 square feet across the street from its Chapel Hill headquarters. The company is "considering all options" for the buildings, including a sale, Petkau said.

Blue Cross has about 3.7 million members. The company is a nonprofit, but paid nearly $160 million in state and local taxes last year, spokesman Lew Borman said.

The private company is required to file an annual report with the state Department of Insurance, which reviews insurers' financial health to make sure customers' claims are covered.

alan.wolf@newsobserver.com or 919-829-4572

News & Observer is pleased to provide this opportunity to share information, experiences and observations about what's in the news. Some of the comments may be reprinted elsewhere in the site or in the newspaper. We encourage lively, open debate on the issues of the day, and ask that you refrain from profanity, hate speech, personal comments and remarks that are off point. Thank you for taking the time to offer your thoughts.

Commenting FAQs | Terms of Service