Bonus, pay surpasses $10M for Blue Cross CEO; some rates could dip

March 02--Blue Cross Blue Shield of Michigan's chief executive saw his bonus jump last year as the health insurance giant saw better financial results and is now planning to lower rates for its small businesses coverage.

Total compensation for Daniel Loepp, CEO of Blue Cross since 2006, hit $10.9 million in 2016, up from $9 million in 2015. His specific compensation was $1.5 million in base salary, $8.3 million in bonuses and $1 million in "other" compensation, such as car allowance and life insurance, company officials said.

"Mr. Loepp's increase in bonus compensation reflects the strong performance of the company against annual and long-term goals approved by the board," Blue Cross spokesman Andrew Hetzel said Wednesday. "These are goals that are approved by the board of directors so they're not just based on financial performance, they're based on performance across the enterprise."

The nonprofit mutual insurer had $122 million in net income last year off of $25.9 billion in total revenue, an improvement from a $68 million net loss the year before, according to its newly released annual report. This positive income was set aside to support the insurance company's long-term health, said Paul Mozak, vice president for finance and chief risk officer.

Total Michigan membership for Blue Cross was 4.6 million people last year, about 80,000 more than a year earlier.

Blue Cross did lose money in some areas, including $68 millionin the Affordable Care Act ("Obamacare") market for individual insurance plans. But the insurer made up for those losses through its investment portfolio returns and strong results from subsidiary companies, including Lansing-based AF Group, a national provider of workers' compensation.

Blue Cross also announced Wednesday that insurance rates for small group plans -- generally businesses with 50 or fewer employees -- could see slight decreases when those groups renew in the third or fourth quarter of this year. The anticipated decreases would average 1.3% for Blue Cross Blue Shield customers and 3.2% lower for the Blue Care Network HMO. The new rates are still subject to state regulatory approval and would affect the roughly 261,000 people in those plans.

Last year the insurer's small group customers saw average 2.6% and 3.6% rate increases, respectively.

Sandy Fester, Blue Cross' vice president of Middle and Small Group Business, partly attributed the planned rate decreases to changes in those plans' prescription drug formularies, which are the drugs that an insurance company will cover and the size of the pharmaceutical co-pays, which have been rising.

The growing size of plan deductibles in small group health coverage has also been a factor. Fester said that $1,000 is now the most popular deductible, meaning that consumers generally must pay that amount out of pocket before insurance fully kicks in. This strategy makes consumers more conscious of the sticker cost of various medical services and procedures.

Hetzel said Blue Cross in general has seen pharmaceutical costs skyrocket in recent years. And for the first time ever, Blue Cross paid out more for pharmacy claims in 2016 than for all procedures performed on patients in hospital settings, he said.

"The cost of these patent-protected prescription drugs that are very expensive and treat very serious life-threatening conditions are very high, and the cost pressure is growing," Hetzel said.

Hetzel said the financial affect on Blue Cross of any effort in Washington to "repeal and replace" the Affordable Care Act will hinge on the details of the repeal and replacement. "We're going to have to see what kind of policy framework emerges from congress," he said.

Contact JC Reindl: 313-222-6631 or [email protected]. Follow him on Twitter @JCReindl.

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