$17 million CareFirst payment faces review

Hearing ordered on package for ex-CEO

October 25, 2007|By M. William Salganik | M. William Salganik,SUN REPORTER

Maryland's insurance commissioner ordered a hearing yesterday to determine whether the former chief executive of CareFirst BlueCross BlueShield should be allowed to receive a $17.65 million retirement and severance package from the health insurer.

William L. Jews left his post a year ago in what CareFirst's board chairman, Michael R. Merson, described as "a mutual decision." Merson said at the time that Jews would receive "substantial" payments after his departure, but the amount hadn't been made public until the insurance commissioner specified it in his order yesterday.

Insurance Commissioner Ralph S. Tyler said the hearing would review whether the payments comply with a state law specifying that CareFirst executives and officers can receive only "fair and reasonable compensation in the form of salary, bonuses, or perquisites for work actually performed for the benefit of the corporation."

Proposed bonuses to Jews were a key factor in sinking a 2001 deal for CareFirst to convert from nonprofit to for-profit operation and be sold for $1.3 billion. Jews stood then to make $39 million in bonuses and severance. But Steven B. Larsen, then the insurance commissioner, blocked the deal, saying there was "substantial and credible evidence" that it was "inappropriately influenced by the prospect of large payouts for some individuals."

The General Assembly reacted by passing a law locking in the company's nonprofit status and removing a majority of board members. That law also set the "fair and reasonable" standard for compensation. It directs the board to make sure payments, including salary and bonuses, are consistent with those of similar nonprofit health plans.

CareFirst said in a statement yesterday that the proposed payout to Jews was "consistent both with the requirements under his employment agreement and with the `fair and reasonable' standard." It said compensation consultants hired by CareFirst had "concluded that the benefits due Mr. Jews are reasonable compared with those provided by similar not-for-profit Blues plans."

A consultant hired by the Maryland Insurance Administration agreed, CareFirst said.

The insurance administration declined to release the report by Smart Business Advisory and Consulting LLC, saying it was part of a continuing examination and therefore not public.

According to CareFirst, Jews was due $12.6 million in pension payments, deferred compensation, long-term incentive payouts and retiree health coverage. The other $5 million represents three years' base pay and projected incentive payments, which was payable because Jews had been terminated "without cause." Jews received $2.5 million - $1.1 million in base pay and $1.4 million in incentives - in 2005, the last full year that he worked.

Jews has received about $1 million and is due $800,000 in interest if all the payments are approved, according to Tyler's order.

Del. Shane Pendergrass, a Howard County Democrat who was the principal sponsor of the 2003 law, said Tyler would have to judge fairness based on comparable companies. However, she said, "by definition, it is not fair and reasonable. Nobody is worth $17.6 million."

Jews did not respond to messages seeking comment.

He became CEO of Blue Cross and Blue Shield of Maryland in 1993, when the company was on the edge of insolvency. He turned around its finances and engineered the mergers with the District of Columbia and Delaware Blues plans to create CareFirst in 1998.

He became a target of criticism during the debate over the attempted sale. When Jews left last year, Merson said CareFirst needed someone who could lead it through a new, more technology-centered, phase.

This isn't the first time executive severance at CareFirst and its predecessor, the Maryland Blues, has been scrutinized - though the previous instances came before the enactment of the "fair and reasonable" law.

Jews' predecessor, Carl J. Sardegna, quit in 1992 after a U.S. Senate panel concluded there had been poor management and extravagant spending at the Maryland Blues.

The board decided to revoke his $3.5 million severance package, but an arbitration panel ruled in 1997 that the payments were required under Sardegna's contract.

Larry C. Glasscock, who had been CEO of the District of Columbia Blues, collected $2.8 million when the D.C. Blues joined CareFirst. Larsen reviewed the payout and found that it was consistent with what other Blues plans were offering their executives.


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