Roy Exum: The CEO’s 95% Raise

Tuesday, August 19, 2014 - by Roy Exum
Roy Exum
Roy Exum

There are very few people who understand health insurance today but, for me, I have never had the need. I go to the folks at Blue Cross-Blue Shield and simply ask, “What’s best for me?” I trust them implicitly and know a great handful of those who work on our Cameron Hill campus will respond with just the right thing.

As result of forward thinking and good stewardship, 88 percent of Tennesseans who have health insurance trust Blue Cross-Blue Shield of Tennessee and in Chattanooga, due to an alliance with Erlanger Hospital, it was announced not long ago that we enjoy one of the 10 least-expensive insurance markets in the country.

So it is disturbing, to say the least, to learn that Blue Cross-Blue Shield of Alabama has a collection of seemingly crazy people in charge. A recent story in the Birmingham News revealed that no less than 10 executives at Blue Cross-Blue Shield in Alabama just pocketed over $1 million apiece in yearly salaries and – get this – each has more than doubled their annual compensation since 2011.

Terry D. Kellogg, the CEO and president of the Alabama group, made $2.47 million in 2011 but, in 2013, the guy was paid $4.84 million. That is a 95.5-percent pay raise.  And most people in Alabama – as well as the free world – think such actions are absurd. To wit: according to the Bureau of Labor Statistics, the average annual pay in Alabama is $39,180. That ranks No. 37 in the nation among the 50 states and the District of Columbia. The average hourly pay for Alabama's 1.8 million workers is $18.84.

Tim Kirkpatrick, the executive VP in Alabama, was paid a salary of $645,889 but his bonus in 2013 was $1,840,899 and other compensation netted $200,776. His take-home pay was $2.69 million.

Tim Vines, chief administrative officer, had $532,799 in salary, $1,256,903 in bonus and $107,357 in other compensation. He made a total of $1.9 million.

Tim Sexton, the marketing officer, had $471,190 in salary, $1,063,021 in bonus and $158,954 in other, totaling $1.7.

Add up the rest of the “millionaire’s club” and the average raise was a whopping 103 percent over 2011.

That’s pretty heady. I am not saying the average hourly worker has the savvy and here-with-all of our man Terry Kellogg or his cronies but something appears badly out of plumb at the not-for-profit enterprise. Not so, cried a hired firefighter for Alabama Blue Cross-Blue Shield. “Executive compensation is not a factor in determining health care premiums,” said an email reply, noting that executive pay was in line with “industry standards” and reviewed by an independent auditor and approved by an independent board.

In 2013 Blue Cross-Blue Shield of Alabama increased its gross assets by $209 million over 2012 and its cash flow was $140 million higher than the previous year. The company claims that 92 cents of every dollar is returned to the customers “in the form of payments to physicians, hospitals and other providers for members’ medical treatment.”

One thing is for certain – this is not what Blue Cross-Blue Shield was intended to do. When my grandfather went to Cuba in 1949 and bought the charter for Blue Cross-Blue Shield of Tennessee, he paid $1,000 of his own money, which was later paid back. But in the first 42 years he served as chairman of the board for the Tennessee group, he never took a dime in compensation.

In 1945, with Erlanger Hospital clearly on the ropes, Mayor Ed Bass and a handful of civic leaders asked my Pappaw – Roy McDonald -- to “look into” what could be done. So “Mr. Roy” started a prepaid plan where a “working man” could join the Tennessee Hospital Service Association in case a baby was born, a tragedy occurred or calamity struck. In 1949 he merged it with the fledgling Blue Cross-Blue Shield of Tennessee with his own nickel.

Believe me, it was simply because he foresaw a day when medical bills could doom a family or hospitals would go belly-up taking care of those poor souls who needed help but had no money. It was a non-profit, as it most certainly should be, but at some point “the industry standard,” mankind’s ceaseless greed, and well-intended plan turned into something far darker.

Let’s go ahead and say it. Today Blue Cross-Blue Shield plans across America are monopolies that force other insurers out of the market (BCBS writes 90 percent of America’s health plans). It is so swarthy it dictates health care on every individual member, can force hospitals to do anything by withholding operating agreements, and may soon force physicians to use certain facilities or their practices will perish. It so out in the open anyone can see it.

What was intended to benefit the hourly wage earner is now the elephant in the room and the animal is huge – the CEO of Blue Cross-Blue Shield of Alabama was paid $4.84 million – an unprecedented increase of 95 percent – and Terry D. Kellogg is absolutely the last man who is going to stand against such foolishness. You better believe he’s one fat happy cat.

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