Vermont Blue Cross to re-pay $3 million of former CEO's salary to customers

Blue Cross and Blue Shield of Vermont (BCBSVT) has agreed to reduce customer premiums by $3 million over 2011 and 2012 after the state Banking, Insurance, Securities and Health Care Administration Department found that the Berlin-based health insurer had overpaid its former president and CEO William Milnes Jr. by an equivalent amount, reports the Burlington Free Press. The state investigated Milnes' earnings after he received a $7.2 million payout from nonprofit BCBSVT when he retired in 2008 and was able to establish that BCBSVT paid Milnes more than required to do his job in violation of state law, says department Commissioner Paulette Thabault. (BCBSVT has a statutory obligation to operate at "minimum cost through efficient and economical management.")

During his 10-year tenure, Milnes sometimes received more bonus compensation than base pay. For example, in 2005 he was paid $489,800 in bonuses vs. just $425,000 in salary. CEOs of similarly sized Vermont health insurance companies received 45 percent to 50 percent less compensation than Milnes. BCBSVT reports that it set Milnes' pay according to "recommendations from a leading national consultant on executive compensation." However, the state found that those recommendations were based on a 2007 "peer group" study that equated Milnes with the CEOs of significantly larger Blue Cross plans. Nine of the 14 Blues plans in the study had more than $1 billion in 2007 gross premiums, while BCBSVT had 2007 gross premiums of $590 million.

The $3 million reduction in administrative fees will be applied on a per-member, per-month basis. BCBSVT also has agreed to share with the state in 2010 and 2011 its strategies for managing medical costs. Milnes rejected a BCBSVT request to voluntarily return some of the money and will not contribute to the $3 million repayment.  BCBSVT subsequently has re-evaluated and revised executive compensation packages, including eliminating the long-term incentive program for all executives.

To learn more:
- read this Burlington Free Press article
- read the BCBSVT press release