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BCBS modifies incentive program

FARGO -- A revised incentive pay program at Blue Cross Blue Shield of North Dakota is designed to meet new performance goals including keeping health coverage affordable.

FARGO -- A revised incentive pay program at Blue Cross Blue Shield of North Dakota is designed to meet new performance goals including keeping health coverage affordable.

The modified plan, in response to criticisms in 2009 from state insurance regulators, is part of a broader effort by North Dakota's largest health insurer to restrain administrative costs.

As a result of the changes, rank and file employees no longer receive incentive pay, since employees and managers agreed it was not always clear how their individual performance directly affected the insurer's overall performance.

This year, 74 managers, including 15 executives, will have part of their compensation tied to performance measures. They are a small percentage of the almost 2,000 employees of Blue Cross Blue Shield of North Dakota and affiliated Noridian Administrative Services.

Total incentive pay this year is projected at $1.2 million of almost $91.3 million in base administrative costs, according to figures provided Tuesday by Blue Cross Blue Shield of North Dakota.


The chief examiner for the North Dakota Insurance Department recently found the revamped incentive pay program complies with directives set out by Insurance Commissioner Adam Hamm in 2009.

Hamm was traveling Tuesday and unavailable for comment, but his chief examiner, in a letter April 4, concluded no further follow-up monitoring is necessary in light of the compliance.

Hamm's directives came after a critical audit of Blue Cross Blue Shield of North Dakota administrative expenses, including a sales reward trip to the Cayman Islands and "golden parachute" severance packages for departing executives.

Reward trips since have been banned, and severance policies for laid-off employees have been changed. All executive hires, promotions and terminations now require board approval.

Now, all a departing employee is entitled to as a display of appreciation is a no-frills "sheet cake," said Paul von Ebers, president and chief executive officer. By contrast, the 2009 audit highlighted a 2008 farewell party for an unnamed executive that totaled $34,814.

Under the new incentive pay plan, performance goals are shaped by three key considerations:

- Affordability, so salaries and other administrative costs are restrained to make health insurance premiums affordable for customers. Before, the comparable goal was best value.

"To change it from best value to affordable puts a different kind of pressure on executives," von Ebers said.


- Stewardship, striving to make administrative services as efficient as possible. Administrative costs account for a bit more than 7 cents of every premium dollar collected, while medical claims consume more than 92 cents.

Administrative costs this year with new initiatives -- including wellness programs and disease management programs aimed at reducing health costs -- are budgeted at $96 million.

By comparison, administrative costs without those cost-reduction measures totaled $96.7 million in 2009. Administrative costs have decreased 6 percent, according to company figures.

- Excellence goals, such as measurements of providing good customer service.

"We think that's what our customers want," von Ebers said.

Profitability was discarded as a financial performance goal. Instead, the key financial measure is to meet a target range for reserves, money set aside to pay expected claims.

"What our customers want us to be is safe," von Ebers said. "That's our primary financial goal, to stay in that safe range."

Salaries have been benchmarked to meet those of comparable insurance firms as well as other North Dakota corporations, and are targeted to fall within the midrange.


Although public attention often focuses on management salaries at Blue Cross Blue Shield, the real issue is the rising cost of health care, said Denise Kolpack, the Blues' vice president of communications.

If all management salaries were eliminated, she said, Blue Cross Blue Shield of North Dakota monthly premiums would drop by $1.20.

Salaries must be competitive, since the company must compete for talent with other regional and national companies, she said.

The top three executive compensation totals for Blue Cross Blue Shield of North Dakota in 2010, according to a report to state regulators:

- $442,801 for Michael Bergh, senior vice president for claims administration, who has since retired. That sum included a base salary of $81,287, bonus of $34,252, and other compensation of $327,262.

- $399,048 for Chad Niles, senior vice president and chief marketing officer, who since left the company. That sum included a base salary of $77,430, bonus of $36,420, and other compensation of $285,198.

- $382,923 for von Ebers, the CEO. His pay total included a base salary of $303,637, bonus of $75,909, and other compensation of $3,377.

Executive compensation figures for Medica, North Dakota's No. 2 health insurer, were not available Tuesday from regulators in Minnesota, where the company is based. South Dakota regulators provided a report for executive compensation in 2010 for the Sanford Health Plan, a much smaller insurer, including:


- $193,435 in total compensation for Dr. Michael Crandell, chief medical officer.

- $147,293 in total compensation for Wyatt York, information technology director.

- $144,374 in total compensation for Trixy Burgess, chief operating officer.

Springer reports for Forum Communications Co., which owns the Herald.

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