Blue Cross Blue Shield of South Carolina, which has generated hundreds of millions of dollars in profits over the past five years, has boosted the pay of board members and top executives while sticking policyholders with ever-higher premiums, a Post and Courier review found.
The nine members of the company's board of directors have more than doubled their reported salaries in the past year, financial filings show. In 2010, two executives earned more than $1 million in salary and bonus pay, and another earned more than $2.2 million, according to the filings.
As top earners' salaries have surged, an April financial analysis showed the insurer is sitting on excess capital reserves, money that instead should have been returned to policyholders through rebates or lowered premiums, consumer watchdogs said.
The health insurer also has been accused of having a vise on the state's insurance market, stifling competition and leaving its 1-million-plus South Carolina customers with few health care alternatives.
To make matters worse, soft state oversight of the insurance industry leaves South Carolinians exposed to continual rate increases, a recent report on insurance industry regulation nationwide showed.
The high cost of premiums has put health coverage beyond the reach of an estimated 1 million South Carolinians, said Sue Berkowitz, who heads the Appleseed Legal Justice Center, a Columbia advocacy group for disadvantaged residents.
"People are struggling to afford health care even as industry profits continue to grow," Berkowitz said.
Blue Cross Blue Shield spokeswoman Elizabeth Hammond said the insurance giant's policies are priced "to reflect its superior networks," and she dismissed concerns about market domination. Although it hiked group insurance premiums last year, Hammond pointed out that the company did not increase prices of its individual policies, which account for 6 percent of its membership.
Ethan Rome, executive director of Health Care for America Now, a national health consumer advocacy group in Washington, D.C., said the dominant carrier is not playing fair.
"Huge reserves, big pay, no competition, very little scrutiny -- you've got a big problem," he said. "You're not going to have fair rates."
During the past five years, Blue Cross Blue Shield's net income generated from premiums has increased considerably, while the number of members has increased only modestly, according to data provided by the state Department of Insurance.
While the insurer said it is difficult to draw conclusions about premium pricing using composite figures, the data indicate the average per-member premium has increased by about 17 percent since 2006.
As consumers struggle with rate hikes, Blue Cross Blue Shield's profits have soared.
In 2010 alone, the company's profits rose 46 percent over the previous year, to about $96 million, according to records filed with the National Association of Insurance Commissioners. Its total capital increased from $1.5 billion in 2009 to nearly $1.7 billion in 2010, the records show.
Insurance companies must maintain a certain level of capital to cope with large-scale disaster. But Blue Cross Blue Shield's capital far exceeds regulatory requirements, with nine times the amount required under state law, according to an April Citigroup Global Markets financial analysis.
That level of excess will make it difficult for Blue Cross Blue Shield "to justify why premium rates need to rise as much as expected cost trends" and will "lead to significant tension" with consumer activists, according to the Citigroup analysis.
Industry observers such as Rome and Judy Dugan, a research director at California-based Consumer Watchdog, already have taken note. Policyholders are entitled to share the company's profits, they said.
Most health insurers operate either as for-profit, publicly traded companies or as tax-exempt nonprofits. That makes those companies publicly accountable to either shareholders or taxpayers.
As a mutual insurance company, Blue Cross Blue Shield of South Carolina's policyholders act as shareholders, industry experts said. That means those policyholders are entitled to rebates or rate cuts when the company posts big profits, they said.
But neither rebates nor reduced premiums seem to be in the cards for Blue Cross Blue Shield's customers.
"The fact that we make a small profit means we can afford to build into our prices only the impact of increases in medical care," spokeswoman Hammond said in emailed responses to questions from the newspaper. Blue Cross Blue Shield responded to Post and Courier questions by email from Hammond.
She rejected criticism that the company is sitting on excessive capital.
"These reserves ... provide our customers with the security they need," she said in the statement.
Each of the nine members of Blue Cross Blue Shield of South Carolina's board of directors doubled their reported pay or better since last year, according to compensation reports filed with the S.C. Department of Insurance. Some members increased their pay by as much as 163 percent in one year, the records show.
All members of the board -- made up of prominent lawyers, bankers and development and business leaders -- earned between about $100,000 and $160,000 in 2010 for their board duties, documents show.
Despite acknowledging the accuracy of financial statements showing the increased pay, Blue Cross Blue Shield officials said compensation did not double.
M. Edward Sellers, the company's former CEO who now serves as chairman of the board, said pay was reported differently in previous years.
"I don't know exactly what happened," Sellers said.
The board meets multiple times a year and holds ultimate responsibility for managing the company's business affairs, Blue Cross Blue Shield's Hammond said in a statement. The board examines national comparative studies on pay and sets compensation with input from a consultant, she said.
Sellers said the board pay is "commensurate to a company of our scale."
Recent public uproar over executive and board compensation in Massachusetts led Blue Cross Blue Shield in that state to suspend board pay. But in Massachusetts, all board members earned far less than their South Carolina counterparts.
Rome, of Health Care for America Now, said the South Carolina pay is unjustified.
"It's a group of people who are highly compensated to go to an occasional meeting," he said.
The Palmetto State insurance giant's top executives also were well-compensated in 2010, with most of the top nine earners getting increased pay over 2009.
Sellers, who retired from his position as CEO in August, earned a reported $2.26 million in pay and benefits.
David Pankau, the company's former chief operating officer who replaced Sellers as CEO, earned about $790,000.
Two other executives outpaced Pankau in 2010. Senior Vice President Stephen Wiggins earned more than $1 million in pay and benefits, while Chief Financial Officer Robert Leichtle earned more than $1.3 million.
Most states have Blue Cross Blue Shield plans. The South Carolina executives' compensation is higher than many of their counterparts in other states, according to Atlantic Information Services, a group that reports on the insurance industry. But executives in some states, including New Jersey and Florida, earned more.
That provides little solace for consumer advocates like Berkowitz at the Appleseed Legal Justice Center.
"I don't begrudge them for making big salaries," Berkowitz said. "But there's big -- and then there's huge. And here we have people who have no access to health care because they can't afford it."
Blue Cross Blue Shield of South Carolina and UnitedHealthcare, whose market share is a distant second to Blue Cross', together controlled 83 percent of the state's commercial health insurance market in 2008, according to a recent American Medical Association study of the health insurance industry nationwide.
That figure, up from 65 percent two years prior, puts South Carolina among five states nationally where the two largest health insurers had the biggest gains in market share, the report said.
"The market power of health insurers places physicians and patients at a significant disadvantage," American Medical Association President Cecil Wilson said in a statement. "When insurers dominate a market, people pay higher health insurance premiums than they should, and physicians are pressured to accept unfair contract terms and corporate policies, which undermines the physician role as a patient advocate."
Blue Cross Blue Shield spokeswoman Hammond dismissed the criticism.
"South Carolina has a strongly competitive health insurance marketplace in all segments and S.C. Blue Cross sees no sign that this will change," she said in a statement.
The insurer has seen market success "because it provides superior products at a superior price with superior service," she said in the statement. "If this were not the case, the company's clients would move to its competitors."
In most parts of the state, however, viable competitors do not exist, the report showed.
The American Medical Association studied eight of South Carolina's metro areas. Blue Cross Blue Shield held at least 60 percent of the market share in all areas, but stretched to about 80 percent and beyond in three -- Anderson, Spartanburg and Sumter.
The insurer holds about 70 percent of the market share in the Charleston area, the report said, including employees of The Post and Courier.
Through her spokesman, Gov. Nikki Haley declined comment on the market domination.
Department of Insurance Director David Black does not see anything to worry about.
"It's something to be aware of," he said.
Black said he has spoken with people in the industry about Blue Cross Blue Shield's heavy concentration. "They don't think it really leads to problems in the marketplace," he said.
Asked for his personal opinion as the state's chief regulator, Black said, "I haven't formed an opinion. It's a good question."