Audit: Blue Shield of California Executive Pay Jumped 64% in 2012

Blue Shield of California increased overall executive pay by $24 million in 2012, a jump of 64% from the previous year, according to an audit by the California Franchise Tax Board that has not been released publicly, the Los Angeles Times reports.

The findings come as Blue Shield appeals the revocation of its not-for-profit tax exempt status in the state.

Background

Blue Shield is the third-largest health insurer in California, providing policies for about 3.4 million members. The insurer brings in $13.6 billion in annual revenue, according to the Times (Terhune, Los Angeles Times, 9/1).

In August 2014, the California Franchise Tax Board decided that Blue Shield no longer qualified for exemption from state taxes as a not-for-profit company. The decision was noted in government records but the public did not hear about it until March, when a newspaper reported the change (Lauer, California Healthline, 5/18).

Audit Findings

The audit found that Blue Shield paid nearly 60 executives a total of $61 million in 2012 -- up from $37 million in 2011 and $39 million in 2010.

The $61 million figure appears to include some pay that went to executives who left the company in 2012, according to the Times. However, Blue Shield omitted such pay from a state filing on 2012 compensation for the insurer's 10 highest-paid employees.

The state requires Blue Shield and similar companies to disclose annual pay information, but the insurer reported such data for 2012 only on executives who still worked at the company when it filed the paperwork, in March 2013.

According to the Times, the audit also criticized Blue Shield for amassing "extraordinarily high surpluses" totaling $4 billion and for not offering more affordable health plans (Los Angeles Times, 9/1).

According to documents related to the audit, such criticisms helped to influence the board's decision last year to revoke the insurer's state tax exemption (California Healthline, 7/6).

Reaction

Frank Glassner, CEO of San Francisco-based Veritas Executive Compensation Consultants, said the findings "rais[e] so many red flags," adding, "Blue Shield owes policyholders an explanation for how it spent this money."

California Insurance Commissioner Dave Jones (D) said the insurer's exclusion of pay for its executives in its regulatory filing "raises very serious and troubling questions with regard to whether Blue Shield misled the Department of Insurance."

He said that DOI "will be investigating this discovery by the [Los Angeles] Times and looking at all of our options."

Blue Shield's Response

The insurer maintains that it has not violated any state rules or regulations.

Blue Shield spokesperson Steve Shivinsky said, "We disclose executive compensation in full compliance with all regulatory requirements while at the same time respecting our employees' privacy."

Shivinsky added, "Many factors contributed to this one-time increase in officer compensation that affected a large number of employees, including severance, pension, deferred compensation, accrued vacation, merit increases, incentive pay, benefits and relocation expense reimbursement" (Los Angeles Times, 9/1).