Mass. insurer to rebate cost of CEO severance

Posted July 06, 2011, at 9:26 p.m.

BOSTON — Blue Cross Blue Shield of Massachusetts, the state’s largest health insurer, said Wednesday it would rebate more than $4.2 million to its customers to offset the cost of a controversial severance package the company gave to a former chief executive.

The decision followed an investigation by the office of Attorney General Martha Coakley which determined that Cleve Killingsworth, who resigned in March 2010, was legally entitled to the hefty package under his contact with the insurer, but that the contract and others like it were “costly both in dollars and public perception.”

Killingsworth will not be required to give back any of the severance, the disclosure of which earlier this year came as Gov. Deval Patrick and other state officials were outlining proposals to overhaul the health care payment system to rein in the soaring costs of premiums. A public outcry indirectly led to a separate move by Blue Cross Blue Shield, a not-for-profit firm, to suspend sala ries paid to board members, a practice that had also been sharply criticized by Coakley and others.

Under the agreement announced Wednesday, Blue Cross promised to improve its recruitment and succession plans for top executives and strengthen its board’s ability to review the chief executive’s performance. Coakley also noted that the compensation and severance terms for current CEO Andrew Dreyfus were far more reasonable than the ones enjoyed by Killingsworth.

The decision to voluntarily rebate $4.26 million to ratepayers was made as “a gesture of good faith to our customers and the community,” the insurer said in a statement. Blue Cross said the credits would appear on invoices sent to individual and group policyholders in the fourth quarter of 2011, but neither the company nor the attorney general could offer any type of average figure tha t a customer might receive.

Coakley called the decision to rebate the funds “appropriate” and said she had received assurances that the money would be paid from company reserves, and not simply passed on to consumers in the form of higher premiums or other charges.

“It wouldn’t do anyone any good to cut off one end of the blanket and sew it on to the other end,” said Coakley. “Blue Cross has assured us that it will not be passed on to customers and it will come out of profit that normally goes into reserves.”

The attorney general said the investigation by her office determined that under the terms of a contract Killingsworth signed with Blue Cross in 2005, the company was legally required to meet severance terms unless his departure was the result of “intentional misconduct.” The payment, thought “exorbitant” in Coakley’s view, was required even if the company determined that Killingswort h’s performance in the job was unsatisfactory.

Killingsworth stepped down weeks after Blue Cross announced a $149 million annual loss, but a company spokesman said at the time he was not forced to leave.

Coakley added that the $4.2 million represented only the negotiated severance and did not include deferred compensation that by some estimates could bring the total amount paid to Killingsworth following his departure to $8 to $11 million.

The investigation also determined that CEOs of other major health care organizations in Massachusetts had similar severance and compensation provisions, Coakley said, and she would seek to have all charitable organizations in the state publicly disclose severance terms for their top executives.

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