Despite double-digit rate increases last year, Horizon Blue Cross Blue Shield offers some of the least-expensive health insurance in New Jersey. Low prices have helped the nonprofit become the state's largest insurer with the name recognition and clout that experts say will be critical in order to weather changes in federal health-care laws.
But news last month that chief executive officer William J. Marino was paid $8.7 million in 2009, 59 percent more than the year before, has brought the company a wave of negative attention and prompted calls for state and federal reviews.
The increase, which the company says has been misconstrued, was paid out in the same year that Horizon laid off 170 workers and froze wages. It is more than leaders at two large Blue Cross insurers in Pennsylvania made.
Horizon, which had revenue of $8.32 billion last year and covers 3.6 million members, says the salary figures it reported to New Jersey officials don't tell the whole story.
About $3.9 million of Marino's 2009 pay was deferred compensation earned in 2007 and 2008. It would have been paid in future years as part of a long-term incentive plan, but a change in tax law prompted Horizon to condense that plan and make a one-time payment last year, company spokesman Thomas Rubino said. Without that, Marino's pay would have fallen to $4.8 million from $5.5 million.
Total compensation for nine other top Horizon executives, including the one-time payment, increased 62 percent in 2009.
The company's explanation has not sat well with some lawmakers.
"That's bull," said State Senate President Stephen Sweeney (D., Gloucester), who was instrumental in calling a Senate committee hearing on the matter for June 14. "It's outrageous in these economic times, when everyone's premiums are going through the roof, that they have the guts to give themselves the bonuses that they did."
U.S. Sen. Frank Lautenberg (D., N.J.) asked the IRS last week to review the pay, calling it exorbitant.
When members of Horizon's largest union, Office and Professional Employees International Local 32, heard of the pay, "people were just shaking their heads," union negotiator Lois Cuccinello said. "We were angry."
The union represents about 1,200 Horizon employees, including 200 in Mount Laurel. Most make between $25,000 and $50,000 doing primarily clerical work, Cuccinello said.
The union entered a three-year contract last month with annual pay increases of between 2 and 3 percent. In negotiations, the company said it planned to outsource some union jobs, starting with 22 this year, Cuccinello said. Rubino said workers affected were reassigned within the company.
Horizon, which employs 4,600, has denounced coverage of Marino's pay, first reported by the Asbury Park Press.
Total executive pay at the company last year cost each member $7.68, Rubino said. Executive pay represents one-fourth of the cost of Horizon's state taxes. Horizon uses 88.9 percent of premium revenue to pay for medical care, more than the state requires.
"The fact of the matter is people's premiums are not going up because of executive compensation or anything of that nature," Rubino said. "It is based on the health-care costs that are rising significantly each and every year."
The cost of Horizon's managed-care plan for a small business of six adults and their dependents went up 17.5 percent last year, according to a state model. Horizon's higher-deductible plans increased as much as 28.7 percent.
In the individual market, changes ranged from a 2.9 percent decrease for a basic plan to a 15 percent increase. Horizon dominates that segment, covering 73 percent of the individually insured in New Jersey.
The role of the individual market in shaping the cost of health care is increasing.
With the sluggish economy, more employers are dropping coverage, prompting laid-off or uninsured workers to buy their own. In New Jersey, insurers cannot peg their rates to applicants' health history, which means the healthy help bear the cost of caring for the sick.
New Jersey could receive $141 million of the $5 billion set aside for a federal plan to create high-risk insurance pools to cover the sickest consumers. In a filing submitted last week to the U.S. Department of Health and Human Services, the state proposed contracting with carriers and reimbursing the cost of caring for high-risk individuals beyond a certain rate.
It's unclear exactly how Horizon would be affected if selected as a contractor, though the company said the impact would be minimal.
Savings for Horizon would result in lower premiums for all customers, said David Knowlton, president of the New Jersey Health Care Quality Institute, a health-policy think tank in Trenton. Creating a windfall for the insurer would be politically unpopular, he said.
But Horizon stands to gain by attracting some of the millions of people expected to sign up for insurance as a result of the health-care law President Obama signed in March, said Jerry Katz, a health-care specialist with the management consulting firm Kurt Salmon Associates in Plymouth Meeting.
The high-risk pool would guarantee federal money to manage the most expensive enrollees.
"What they're doing now, I think, apart from this silliness with their pay increases, is building goodwill," Katz said. "They don't want that business going to anybody else."
Like many Blue Cross insurers, Horizon is a nonprofit but not tax-exempt. Two years ago, it sought permission from New Jersey to allow it to convert to a publicly traded company.
The company's pending application and its dominance are reasons for executive pay to be "closely scrutinized," Sweeney said.
Not everyone shares his outrage.
State Sen. Joseph Vitale (D., Middlesex), vice chairman of the Senate Health Committee, said lawmakers had "bigger fish to fry."
"Health-insurance costs are out of control for reasons that transcend anyone's compensation," he said.
Marino became Horizon CEO in 1994 and is one of the longest-serving Blue Cross leaders. When he started, Horizon was nearly bankrupt, Rubino said. Standard & Poor's last year gave the company an A- rating. Under Marino's leadership, Horizon more than doubled its membership and increased revenue fivefold.
After a $45 million loss in 2008, the company netted income of $75 million last year.
One factor legislators likely will consider is how Marino's pay stacks up against that of other insurance executives.
His $8.7 million would have put him in fifth place if he were included in a ranking by the online newsletter FierceHealthPayer.com of compensation at the nation's seven top-grossing, publicly traded insurance companies.
Without the one-time payment, Marino's pay exceeds that of top executives at two Blue Cross insurers in Pennsylvania, according to the state Insurance Department.
At Highmark Blue Shield in Western Pennsylvania, CEO Kenneth Melani made $3.7 million and managed total revenue of $13.7 billion.
Joseph Frick, CEO of Independence Blue Cross, which includes AmeriHealth of New Jersey, made $2.2 million. Nine of the 10 top-paid executives, including Frick, took a pay cut last year. According to the most recent annual report, his company posted $11.4 billion in total revenue in 2008 and had 3.4 million members.
But Horizon executives have been paid less than their peers - about 19 percent below market targets, according to a compensation study prepared for the New Jersey Department of Banking and Insurance two years ago. The report said Horizon used a peer group made up of all for-profit entities, not comparable nonprofits. It suggested changing that to make its assessment more relevant, should the company be audited by the IRS.
Knowlton said Marino was well-respected and had helped Horizon progress in quality and financial stability.
"Does [his compensation] affect the cost of health care?" he asked. "I don't think it does. Is it too much money at a time when we think health care is too expensive? Maybe."