Members of a Senate health panel on Monday questioned Horizon Blue Cross Blue Shield officials about premium increases and the 200 people it laid off in 2009, the same year executives saw large pay increases.

CEO William J. Marino has been criticized in recent weeks for the $8.7 million he was paid in 2009, 59 percent more than the previous year. The company has said the increase and others among the executive team were the result of one-time payments prompted by a change in the tax law.

At a Senate health committee hearing, Sen. Fred Madden (D., Camden) pressed Marino on how he could justify $31 million in total employee bonuses in a year when he also laid off about 200 people, with salaries totaling about $14 million.

The layoffs were prompted by a drop in commercial business in 2008 and 2009, when employers who buy Horizon plans were going through their own staff reductions, Marino said.

Even without the layoffs, "you still would have had money left over for bonuses," Madden said. "I just don't want to underestimate the amount of money you're talking about. ... Whether it's right or wrong, it's an ethical issue."

Horizon executives tried to clear up what Marino said were public "misconceptions and inaccuracies" about the pay rates. Among them was that the high 2009 figures did not represent salary increases. The company condensed its long-term incentive plan from six to three years, prompting a large one-time payment.

Horizon, a nonprofit and the largest insurer in New Jersey, has filed a petition with the state to convert to a publicly traded company. Executives repeatedly said Monday that the company falls into a tax category that's distinct from organizations like the American Red Cross.

It is not tax-exempt. Horizon paid $123 million in state taxes last year and $49 million in federal taxes.

"Each and every day, Horizon competes for business with large, for-profit, publicly-traded health insurance companies," said Aristides Georgantas, chairman of the company's compensation committee and a retired executive of Chase Manhattan Corporation.

Committee Chairwoman Sen. Loretta Weinberg (D., Bergen) questioned how much of Horizon's $8.3 billion in 2009 revenues came from public tax dollars. Depending on that figure, she said, she could push for the Legislature to impose a cap on executive pay.

The bulk of Horizon's revenues comes from private employers.

In addition to cities and towns that buy insurance directly from Horizon, the company is paid $97 million to manage a portion of the state health benefits plan for about 690,000 state, municipal and county employees. Marino said Horizon does not make money on the venture.

Asked why he would bid on the coverage plan if it is not profitable, Marino said, "We are New Jersey. We are the hometown health plan."

The discussion only dabbled in premium increases. Frederick Carr, township administrator for Bloomfield, Essex County, told the panel the township's health plan with Horizon, which covered more than 400 full-time employees, cost $8.13 million in 2008. Last year it jumped to $10.15 million before he negotiated it down slightly and then switched to Cigna.

Horizon will soon launch an initiative called "Changing the Paradigm" aimed at reducing the 25 to 30 percent of health care costs that Marino said "do not add value to the patient" and that are are a result of "defensive medicine" practiced by doctors in fear of malpractice suits.

Spokesman Thomas Rubino declined to provide more details on the program but said it would involve partnerships with providers aimed at improving quality and cutting costs.

Contact staff writer Chelsea Conaboy at 856-779-3893 or cconaboy@phillynews.com.