How Much do Oregon Insurance Executives Earn?

Documents show CEOs such as Jack Friedman and Andrew McCulloch earned more than previously disclosed, but specifics are often hazy

The leaders of Oregon’s largest insurance companies are often paid far more than they tell regulators, according to a Lund Report review of public records.

Kaiser Permanente told regulators that its regional president, Andrew McCulloch, earned $953,457 in 2012 – but the company told the IRS that it paid him $1.4 million. Providence Health Plans told regulators that it paid its president, Jack Friedman, $625,738 in 2012 – but it reported $906,913 to the IRS.

And leaders at other insurance companies are likely also being rewarded with more than they officially report. Nonprofits must disclose their annual tax-filings, but for-profit insurance companies such as Moda Health and Health Net Health Plan can keep their financial details a secret. And nonprofit Cambia has not released an organization-wide IRS tax filing since before it changed its name from The Regence Group in 2011.

Officials at the Oregon Insurance Division say they are aware that the numbers they receive may not match what companies report to the IRS – but the regulators are not concerned.

Referring to the form where insurance companies disclose executive pay as an “exhibit,” Insurance Division spokeswoman Cheryl Martinis said, “The intent of the exhibit is to give regulators information concerning payments to senior management and directors that could negatively impact a reporting entity’s financial condition.”

The form is “part of an annual statement that is uniform nationwide through the National Association of Insurance Commissioners,” Martinis said. Oregon lets the NAIC define what information to collect, and is not concerned that the data it gathers might be incomplete.

And, Martinis said, there are a number of reasons why the compensation reported to regulators might not be the same as reported to the IRS.

“Some executives work for multiple companies in multiple states,” for example, Martinis said. To find out the total that one of these corporate leaders earns, “you might have to add up compensation from multiple companies,” she said. And in some states, that total might not be a matter of public record.

Cambia Health Solutions, the holding company for insurance companies in multiple states, illustrates just how hard it can be to find out how much of an insurance executive earns. In 2012, Cambia’s Regence BlueCross BlueShield of Oregon subsidiary reported paying $607,993 to CEO Mark Ganz. Its Washington-based Regence BlueShield subsidiary paid Ganz another $767,819. And Ganz likely earned additional income from other Cambia-owned companies in Utah and Idaho which are not required to disclose executive compensation – though it’s not clear just how much. The nonprofit regional company has not yet released its 2012 tax filing.

Jack Friedman’s Compensation Reached $3.4 Million

At Providence, Friedman declined to discuss his own compensation, but company spokesman Gary Walker said that his boss’s pay is more complex than the numbers first reveal.

IRS filings make it look as though Friedman received an enormous one-time compensation boost in 2011. Providence Health Plan told the IRS that Friedman received $3.4 million in 2011 – but the insurer only reported $589,144 to insurance regulators.

The Lund Report discovered differences in compensation by comparing insurance filings submitted to state regulators and the National Association of Insurance Commissioners with copies of federal 990 tax forms submitted to both the IRS and to Oregon’s Charitable Activities Division.

The IRS tax filing includes executive compensation “that isn’t actually earned as take-home pay, and certainly isn’t a base salary,” Walker said. “It adds to compensation such items as employee benefits, employer paid contributions for health and life benefits, and retirement funding, regardless of whether it is earned, paid or deferred. Certain retirement distributions are taxable, so they are reported as compensation, even if the employee did not receive these funds.”

That’s what happened with roughly $2.5 million of Friedman’s 2011 reported compensation, Walker said.

“This process of lumping reportable but unearned income into compensation makes compensation look much higher than it actually is,” he said. “Even though the information is listed as compensation, retirement funding is not accessible to the employee until they retire from Providence.”

Even so, a multi-million-dollar retirement benefit – whether collected now or not for a number of years – is a form of executive compensation that Friedman will eventually receive. And it raises questions about just how much for-profit insurance executives could be bringing home.

Here’s what the state’s largest for-profit insurers told regulators they paid their top executives in 2012:

  • Moda Health (formerly ODS Health Plan) - $271,346 to CEO Robert Gootee.

  • PacificSource Health Plans- $545,089 to CEO Kenneth Provencher.

  • LifeWise Health Plan - $546,275 to CEO Majd Fowzi El-Azma.

  • Health Net Health Plan of Oregon - $594,898 to CEO Chris Ellertson.

These figures do include wages, salaries, bonuses, commissions, stock grants and “all remuneration” paid by the Oregon portion of the company’s insurance business to its executives, Martinis at the state Insurance Division said. But there’s no way to know if this is all that each executive earns, because they could be receiving additional pay from related companies.

The Affordable Care Act is placing increased attention on how insurance companies spend their money, from IT investments to marketing. Providence’s decision to put its name on the home of the Portland Timbers soccer team, which has been re-named Providence Park, raised some eyebrows, as did Moda’s choice to purchase naming rights to the basketball arena formerly known as the Rose Garden.

Providence Health and Services – the parent of both the insurance company and its associated hospitals and clinics – laid off 150 employees across its system in April 2013, according to the Seattle Times, even as the company was paying hundreds of thousands of dollars to top executives. Layoffs affected employees in Washington, Oregon and Montana, many in back-office positions in areas like billing and patient registration, the paper said.

Even so, industry insiders have defended the compensation of Oregon health insurance leaders.

Portland-based staffing firm Ajilon Professional Staffing told the Portland Business Journal that insurance executive pay is roughly in-line with what leaders of similarly-sized organizations earn.

Providence said it takes care to make sure its compensation is fair for all employees.

“The system’s board of directors uses an independent consultant to review and determine appropriate compensation, and executive salaries are set at the middle of the market average,” Walker said. “Health care is complex and we must compensate appropriately in order to attract the best and brightest to serve the Providence mission and to provide the highest quality care to all we serve.”

Oregon-only insurance compensation figures for 2013 will be released by regulators within roughly a month. Though they don’t tell the whole story, The Lund Report will share these best-available numbers when they are made public.

FOR MORE INFORMATION

Here's a look at the salaries of insurance executives.

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Comments

States like Massachusetts are beginning to question high executive compensation of nonprofits.

Nonprofits come in many flavors, with the newest being the 501(c)29. The CO-OP program was created as a qualified health program with the Affordable Care Act. All are exempt from paying most federal income tax, and the IRS requires they file a 990 form which is accessible for public review. The most recent ones were filed in 2012 for tax year 2011.

ProPublica has a handy tool: the Non-Profit explorer.

Many of Oregon's non-profit healthcare executives are in the million dollar club. Sure... performance-based and deferred compensation are a big chunk of these earnings. But they deflect criticisms that a compensation package is excessive and can mean less taxes paid on the income and interest earned for the executive.

13 executives at Providence (pp 131-132) are reaping total compensations an average approaching $3M. The prize goes to Dr. John Koster, CEO Emeritus (nearly $6.4 M).

Kaiser has 8 executives in the stratosphere, the highest awarded to former CEO George Halverson (nearly $8M).

For 2011 returns Moda (née ODS) was a 501(c)4. OREGON DENTAL SERVICE had two million dollar execs, including Robert Gootee who was paid $2,143,135.

While Legacy Emanuel is a hospital (rather than insurance company), Legacy's high paid executive is President and CEO Robert Pallari who was paid $6,349,109. Dr. Monica Wehby, who is running as a Republican for the U.S. Senate earned $1,020,790. http://dynamodata.fdncenter.org/990_pdf_archive/930/930386823/930386823_...  p.51

Curiously, on p. 85, is this: "Legacy's wholly owned insurance captive, LHSIC, operates in the Cayman Islands and is currently not subject to income taxes."

Explained further "Legacy Health System Insurance Company (LHSIC) provides excess healthcare and general liability Supplemental insurance to Legacy and its affiliates. LHSIC was formed in 2004 under the laws of the Cayman Islands and Information obtained an Unrestricted Class "B" Insurer's license under the provisions of the Cayman Islands Insurance Law and is a wholly owned subsidiary of Legacy. LHSIC's financial information is included in the Legacy consolidated financial statements and is reported on form 5471." http://dynamodata.fdncenter.org/990_pdf_archive/237/237426300/237426300_...

Why off-shore when Oregon became the newest U.S. captive domicile in 2012?

It's too bad that SEIU just decided to withdraw initiative petitions to limit hospital executive compensation...

 

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