Blue Cross Blue Shield of North Dakota will scrap its sales reward trips after public outrage over a Cayman Islands resort getaway, and the state's top insurance regulator called for a "targeted financial examination" of the company's executive pay.
Thursday's developments came as public anger continued to flare over the sales reward trip, estimated to cost $250,000, and recently disclosed pay figures for top executives at Blue Cross Blue Shield, whose bonuses last year totaled $853,194.
Meanwhile, Mike Unhjem, the Blues' chief executive officer, announced during a radio talk-show appearance that he will pay for his expenses on the trip, which he estimated would total $4,000, including a $1,000 airfare fee for flying back early to answer questions about the trip.
"I determined actually before today that I would cover my own expenses," Unhjem said. He said he did so "to remove any question" in the public mind about the appropriateness of his attendance at the retreat.
Adam Hamm, the North Dakota insurance commissioner, said policyholders are angry and confused about the incentive trip to a luxury resort in the Caribbean at a time of financial crisis and looming health-premium increases.
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"The phone is ringing off the hook," Hamm said. "Given the economic environment that all of us are operating in, the information that's come to light in the last couple of days reflects poor judgment. It's a public relations nightmare."
Hamm said he is considering an audit to delve into executive compensation and the reward trip at Blue Cross Blue Shield. "I want to have a complete picture of how these things are determined," he said.
Policyholders, he added, many of whom face possible premium increases of 15 to 20 percent, don't understand six-figure bonuses to executives when the company had a loss of $9 million last year from payouts exceeding premiums.
"There doesn't seem to be any sacrifice on their side, the company side," Hamm said. "That is where the anger and confusion comes in."
The Blue Cross Blue Shield board chairman defended the sales reward trip, a practice that dates back 18 years, but decided to end that form of incentives in light of the public furor.
The trip was planned in 2007, when economic circumstances were very different, said Dennis Elbert, chairman of the Blue Cross Blue Shield board. Canceling the trip would have meant reneging on a promise made to the sales staff.
"I think we made the right decision given the circumstances today," said Elbert, who is dean of the business school and a professor of marketing at the University of North Dakota.
Administrative costs at the Blues amount to less than 7 cents for every premium dollar, less than half the 14.1 cents that is the national average. That leaves 93 cents of every premium dollar to pay doctors, clinics and pharmacies, Unhjem said.
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The $250,000 spent on the sales trip is minuscule compared to the insurance firm's $1.3 billion gross revenues, he said, and has no impact on premiums.
Nonetheless, he acknowledged in an appearance on KFGO AM radio, "We know that it sends a bad signal." He added: "I would like people to look at the total picture."
Unhjem and Elbert said they welcome a review of executive compensation and sales incentives, and other administrative costs. Unhjem said Blue Cross Blue Shield of North Dakota ranks at or near the bottom nationally in its cost structure.
Pay scales at all levels in the company are based on the midrange of 10 similar nonprofit health insurance companies, Elbert said, and executive pay largely reflects performance, which determines 25 percent to 33 percent of executive pay.
Don Morrison, executive director of NDpeople.org, said Blue Cross Blue Shield of North Dakota, as a nonprofit mutual insurance company owned by its members, is held to a higher standard than many corporate entities.
"North Dakota Blue Cross Blue Shield is as good as it gets for an insurance company," Morrison said. Still, he added, insurance companies require strict oversight, as the Grand Caymans trip illustrates.
"The Blues have some social responsibility, more than most companies," Morrison said. "That's why we regulate."
