Friday, March 11, 2011

A Different Perspective on Compensating Directors of Massachusetts Nonprofit Health Insurers

All week the blog has followed the story – some might say drama – of the Massachusetts Attorney General’s scrutiny of the compensation of directors of nonprofit health insurers.  In Redirect the Outrage, Boston Globe columnist Steven Syre offers a different take on the matter.  The gist of his perspective, in his own words, is the following: “The problem with those boards has nothing to do with compensation. It’s all about composition.”  He continues:

Our biggest health insurers aren’t really public charities, no matter what the law or Martha Coakley say. They’re big insurance companies and should act that way. People love to hate insurance companies, but those businesses will be an important part of the puzzle if we ever mean to solve — or at least slow down — the real problem of soaring health care costs. …

When it comes to boards, insurance companies should be recruiting a smaller number of people with specialized skills and backgrounds to lead the managers in charge of big, complex businesses. That means throwing over many of the people who currently sit on those boards, but don’t come close to meeting such a standard.  It also means paying for the best available talent and expertise that creates real value. Why? Because that’s what it will take.

Syre does not advocate that Blue Cross continue with board business as usual.  While he thinks that the directors “are not wildly overpaid based on the size of the company they oversee,” he also considers the board “too big” and some members to have been “invited onto it for the wrong reasons.”  And what about the rising costs of health care?  Here is Syre's view of that issue in a nutshell, which comes full circle:

Insurance companies are in a position to make more when we pay more, but they aren’t a leading cause of the higher health costs. Hospitals and other providers that charge more — along with all of us who insist on access to expensive facilities and tend to use more services — are most responsible.  Managing those costs and expectations is the key to getting our hands around health care costs. Insurance companies can, and should be, part of the answer.  One way insurers can do better: Improve their boards by finding the best directors and paying them.

Syre has a point.  But its implications reach well beyond board compensation and composition.  His column observes that talented people “stand in line to give their money away to hospitals and sit on their boards for free,” but that “insurance companies that are legally considered public charities in Massachusetts fit a different profile.” The latter do not rely on charitable contributions.  The bigger issue is how the law should classify such a nonprofit entity for purposes of taxation and regulation.


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