Mike Unhjem's firing as chief executive of Blue Cross Blue Shield of North Dakota included a $2.2 million "golden parachute" severance package, the firm disclosed Thursday.
The severance, paid in a lump sum, included $1.43 million in compensation for his administration of Blue Cross Blue Shield and $770,000 from affiliated companies.
The terms were released after lawyers reconsidered their initial decision that the severance, part of Unhjem's contract, could not be divulged, said Dennis Elbert, chairman of the Blue Cross Blue Shield board.
The Blues disclosed terms of the severance to be "open and transparent," while trying to address public concerns that the health insurer had been lavish in rewarding its top sales staff and executives at policyholder expense.
"The board has listened to the public," Elbert said. "We made the hard decision in terminating Mike Unhjem. We are taking aggressive, corrective action."
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In releasing details of the severance package, spelled out in a 2007 contract, the company said, "Unhjem displayed errors in judgment over the past couple of years that damaged the image of BCBSND." He was arrested for drunken driving in 2006.
But the company said Unhjem also met and exceeded company goals during his 18 years as president.
Insurance Commissioner Adam Hamm credited the Blues with trying to chart a new course, but predicted the latest disclosure, following a widely publicized $250,000 sales reward trip to a Caribbean resort and more than $850,000 in bonuses last year to top executives, will upset customers facing double-digit premium increases.
"The burden is on Blue Cross Blue Shield to fully explain this to policyholders," Hamm said. "This is once again a public relations black eye to Blue Cross Blue Shield. To the policyholders, the company is running out of eyes."
Gov. John Hoeven, through a spokesman, expressed a similar sentiment. "Blue Cross Blue Shield should explain why they believe that the severance package is appropriate," Hoeven aide Don Canton said. "He thinks North Dakotans will feel that it's too high and too much."
The $2.2 million payout is based on two years of salary and incentive pay for performance, and health, vision and dental benefits, according to the company.
In 2008, Unhjem earned $1,078,559, including $706,344 for his administrative duties at Blue Cross Blue Shield, and $372,215 for his responsibilities at affiliated companies, including Noridian Administrative Services as well as life, vision and dental insurance subsidiaries.
Elbert said the severance reflects salary and incentive pay for the CEO of a $1.3 billion enterprise, and pay must be competitive in a national marketplace for executive talent. Compensation companywide last year equaled 2.7 percent of total income, part of the 7.1 cents of every premium dollar to offset administrative expenses.
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"When we benchmark that salary against other Blue Cross Blue Shield CEO's that is a relatively small salary," Elbert said. "This is a very, very, large organization, a very significant organization."
