Blue Cross and Blue Shield retirement payout raises eyebrows
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By Louis Porter Vermont Press Bureau - Published: March 26, 2009
MONTPELIER — The $7.2 million in retirement payment and salary in 2008 for the outgoing head of Blue Cross and Blue Shield of Vermont has caught the eye of a few lawmakers — and of state regulators.
The retirement plan for former Chief Executive Officer and President William Milnes Jr. was worked out a decade ago when he took the top job at the health insurer. Over those 10 years he steered the company from near-failing to fiscal stability, Blue Cross Vice President Kevin Goddard said. Wednesday.
"The company performed very, very well under his management," said Goddard. Milnes' salary was dependent on the performance of the company, and the more than $7.2 million paid to the former executive was a lump sum retirement and the annual salary for his final year on the job, according to filings.
The company did not pay the taxes on the money for Milnes, so what he actually received was less than that amount, Goddard said.
But the central Vermont-based insurer is also a non-profit in a field where there have been dramatic increases in premiums in recent years. And while the state agency that regulates insurers does not directly oversee pay for executives, it does review administrative costs and rates to make sure they are fair.
"It is an extraordinarily large amount of money and it is a not-for-profit company," said Paulette Thabault, commissioner of the Vermont Department of Banking, Insurance, Securities and Health Care Administration. "We have concerns and we are looking into it."
Milnes worked for the Blue Cross and Blue Shield system nationally for three decades, but the Vermont company covered his retirement package. The liability for that retirement accumulated over the years and was paid out when he left the company last fall.
"That amount was larger than we expected," said Thabault, whose agency received the filing from Blue Cross that specified the retirement amount early in March. "I am not going to rule out a regulatory response."
After large increases in the administrative expenses of the company in 2007, state regulators took action against the company, requiring that Blue Cross change some practices. Thabault said.
About $4 million of Milnes' payment was paid by Blue Cross and Blue Shield of Vermont, while the other $3.2 million was paid by The Vermont Health Plan, a subsidiary owned by the company. A little under $1 million of the entire $7.2 million was salary and bonuses, while the remainder was for Milnes' retirement.
The details of Milnes' retirement package were first reported in the weekly newspaper Seven Days.
When Milnes became the head of the company, Blue Cross did a national search and used an outside consulting firm to determine what his salary and benefits should be, Goddard said.
"When Bill was hired, our company basically was a failing company," Goddard said. "We did not have enough assets to remain a Blue Cross Blue Shield system."
The company had to borrow from other members of the network, some of which have since gone under, Goddard said.
"This is a billion dollar company. It needs certain qualifications and experience to run correctly," he said.
Lawmakers are not entirely convinced.
When executives and the heads of companies around the country are being excoriated for the amount they are paid — in some cases even when their firms do not do well — the amount given to Milnes raises eyebrows, said Rep. Tony Klein, D-East Montpelier and a Blue Cross and Blue Shield of Vermont ratepayer.
"When you look at what we are trying to do in Vermont with health care, a retirement fund that comes out of the premiums people like myself are paying for and is to the tune of $7 million, I think that is staggering," he said.
Sen. Doug Racine, D-Chittenden and chairman of the Senate Health Care Committee, agreed.
"It seems like an awful lot of money for a Vermont non-profit," he said. "Perhaps (the state) should ask for greater scrutiny of the compensation and the retirement plans before we give them their rate increases."
The incoming head of the company, Don George, who has been with Blue Cross and Blue Shield of Vermont and is the interim chief of the insurer, will not receive the same kind of retirement package, Goddard said.
"The times have changed," he said.
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