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2 insurers’ boards will keep taking pay

AG criticizes Tufts, Harvard Pilgrim

By Robert Weisman
Globe Staff / March 31, 2011

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The state’s second- and third-largest health insurers said yesterday their board members have decided to keep paying themselves five-figure annual fees despite objections from the state attorney general and an inquiry into directors’ compensation at nonprofit health plans.

Harvard Pilgrim Health Care and Tufts Health Plan, in separate statements, said the expertise of directors in fields ranging from medicine to finance was critical to running their complex and high-risk businesses.

“Good governance is advanced by the recruitment and retention of experienced, independent, reasonably compensated directors,’’ Harvard Pilgrim said in its statement. “In 2010, our board worked more than 2,000 hours.’’

The two companies, which scrapped a preliminary merger deal this month, bucked the trend set by a pair of rivals — Blue Cross Blue Shield of Massachusetts and Fallon Community Health Plan — which recently opted to suspend board fees.

Those decisions came after Attorney General Martha Coakley opened an inquiry into payments to directors at nonprofit insurers amid public outrage over the decision of the Blue Cross board to give its departing chief executive an $11 million payout. The anger was fueled by rising annual health insurance premiums, which have burdened individuals, families, and businesses.

Coakley, who had praised Blue Cross and Fallon directors for halting their compensation, yesterday criticized the Harvard Pilgrim and Tufts boards for continuing to accept annual stipends and meeting fees.

“We are disappointed with this decision, and do not believe that these two organizations have justified why their boards should be compensated in contrast to the overwhelming majority of board members who volunteer their time and expertise at public charities,’’ Coakley said in a statement. “We are completing our review and will be issuing our full findings and recommendations soon.’’

Payments to board members last year ranged from $21,900 to $68,100 at Harvard Pilgrim and from $19,500 to $82,500 at Tufts (except for two board members who received nominal fees), according to documents filed with the state Division of Insurance.

That is less than the $56,200 to $84,463 that Blue Cross gave its board members in 2010 before it suspended payments.

Blue Cross has told Coakley it is reassessing the company’s legal status as a charity, but has said it will not seek to become a for-profit business.

Compensation for directors at much smaller Fallon ranged from $13,900 to $24,350 last year.

State Senator Mark C. Montigny, Democrat of New Bedford, has introduced legislation that would ban payments to directors at nonprofit health care companies and cap salaries for executives at those organizations.

“They obviously just don’t get it,’’ Montigny said of Harvard Pilgrim and Tufts. “The other two (Blue Cross and Fallon) were a day late and a dollar short. But at least they had the sense to recognize the climate. These fees are not in the interest of the insured or the taxpayers. They’re not right in the context of expensive health care.’’

Nell Minow, editor of the Corporate Library, an independent research firm that rates boards of directors, said the classification of health insurers as nonprofit charities in Massachusetts and some other states makes them vulnerable to appointing boards that are not accountable. She noted they compete for business with national for-profit insurance companies that must answer to shareholders.

“They’re kind of a duckbilled platypus, not one thing and not another,’’ Minow said. “They’re much more like for-profit organizations rather than museums. But because they are nonprofits, they have no accountability and you have no way to assure that their boards know what they’re doing. This is no way to run insurance companies.’’

Wellesley-based Harvard Pilgrim, however, said in its statement that board members “apply their specialized experience and skills in the areas of medicine, accounting, finance and law, to support our company and its mission. Our board serves as responsible, independent fiscal stewards for our members’ premium dollars.’’

Tufts, based in Watertown, said its board believes there is “an additional overlay of responsibility’’ for directors of a health insurance company.

“Unlike the directors of other nonprofits, they are subject to distinct regulatory considerations,’’ the Tufts statement said. “Therefore, compensation for time, commitment and skill of top talent is a responsible approach for the oversight of an organization that provides health care coverage to hundreds of thousands’’ of members.

Harvard Pilgrim chief executive Eric H. Schultz and Tufts chief executive James Roosevelt Jr. declined to discuss their boards’ positions on compensation yesterday, their spokeswomen said.

Tufts director Thomas P. O’Neill III, former lieutenant governor and chief executive of Boston public affairs firm O’Neill & Associates, earlier this month said he would donate his board fees to a charity until the pay issue is resolved. O’Neill yesterday said that his fees will go to Boston Health Care for the Homeless at least until August, but that he will eventually resume collecting the money.

“What Martha [Coakley] asked for us to do is to go back and think this over,’’ he said yesterday. “The history and tradition of nonprofit health plans is to pay [directors] in this state. These are people from various walks of life who bring a skill set. These are not political hacks. . . . It’s because of the responsibility, the time, the effort, and the work you have to put into it. It’s a lot of homework.’’

Critics, however, said insurers should not be paying board members at a time when premiums have been increasing by double digit percentages annually for individuals and small businesses. “Given the economic climate and the premium climate for small businesses, they’re not appropriate,’’ said Jon Hurst, president of the Retailers Association of Massachusetts.

“My biggest problem is none of the boards truly reflect small business,’’ Hurst said. “They don’t represent the types of consumers who have been hurt in the last four or five years.’’

In addition to its inquiry into board fees, Coakley’s office is investigating how Blue Cross board members decided to give former chief executive Cleve L. Killingsworth a pay package totaling $11 million after he resigned last year. The disclosure of Killingsworth’s compensation this month prompted a chorus of criticism, and board pay also came under scrutiny as a result.

Robert Weisman can be reached at weisman@globe.com.