Coakley urges end to board payments

AG says nonprofit health insurers can’t justify fees

By Robert Weisman and Noah Bierman
Globe Staff / April 15, 2011

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The battle over payments to board members at nonprofit health insurers escalated yesterday, as state Attorney General Martha Coakley pressed for legislation that would give her authority to prohibit the fees, while two large Massachusetts health insurance companies again said the money they pay directors is well spent.

A report from Coakley’s office — which regulates institutions classified as public charities, such as health insurance companies and hospitals — said the insurers’ longtime practice of paying directors can’t be justified. Some collect more than $80,000 a year for part-time service.

Yesterday’s report noted that most tax-exempt nonprofit charities in Massachusetts have volunteer boards, including universities and academic medical centers. It said the attorney general’s office plans to publish annual reports, starting next year, detailing board fees at nonprofits that continue to pay directors.

The state’s major health insurers said their board members provide expertise, in areas ranging from finance to risk management, that helps them compete with national for-profit rivals in a complex industry. But in her report, and at a Beacon Hill news conference yesterday, Coakley rejected that argument.

“They say nothing that makes them any different from any other nonprofit board in Massachusetts,’’ she said.

While Coakley previously has opposed nonprofit board pay, her actions yesterday intensify the pressure on the insurance companies to cease the compensation. Legislation giving her office the power to ban such payments will be cosponsored by two state lawmakers who attended the news conference, Senator Mark C. Montigny, a New Bedford Democrat, and Representative Martha Walz, a Boston Democrat.

“Her message is that there’s a sharp line, that the justification for nonprofits paying board members is inadequate,’’ said Alan Sager, a professor of health policy and management at Boston University.

Coakley’s stand takes place against a backdrop of increasing concern over the cost of medical care and a long run of double-digit annual premium increases for businesses and individuals. “There was a time when defense spending was double health care spending,’’ Sager said, “and now health care spending is quadruple defense spending.’’

Boston-based Blue Cross Blue Shield of Massachusetts and a smaller health insurer, Fallon Community Health Plan of Worcester, last month suspended their board payments under pressure from Coakley. But Harvard Pilgrim Health Care and Tufts Health Plan said they intend to keep paying their boards.

Repeatedly citing board fees at Harvard Pilgrim and Tufts, the state’s second and third largest health plans, Coakley told reporters that she asked them to “tell us why you are different than virtually every other nonprofit in the Commonwealth . . . We do not believe they have been able to distinguish themselves in any clear way’’ from nonprofit boards that do not pay their directors.

The lawmakers joining Coakley yesterday echoed that view. “Harvard and Tufts need to get with the program,’’ Montigny said. He has also introduced a separate bill that goes further than Coakley, outlawing board pay and capping executive salaries at nonprofit charities.

“Serving on a nonprofit board is a prestigious role that many of us seek out,’’ Walz said. “The notion is you serve on a board to achieve that [organization’s] mission. For most directors, that expectation is that you give financially, not take financially.’’

Harvard Pilgrim and Tufts yesterday defended their fee-paying practices against Coakley’s criticism.

Wellesley-based Harvard Pilgrim said the knowledge and experience of its directors helped bring the company back from the brink of bankruptcy 12 years ago. “Harvard Pilgrim believes compensating our board is fiscally responsible and our practice has been externally validated by nationally recognized compensation consultants,’’ the insurer’s spokeswoman, Sharon Torgerson, said in a statement.

Coakley’s inquiry and her report yesterday “diverts attention from the real issue, which is how do we contain rising costs,’’ said Patti Embry-Tautenhan, a spokeswoman at Tufts in Watertown. She took issue with what she said was Coakley’s implied link between board fees and premiums. “We are disappointed and disagree strongly with the attorney general’s conclusions,’’ Embry-Tautenhan said.

Tufts chief executive James Roosevelt Jr. and Harvard Pilgrim chief executive Eric H. Schultz declined to discuss the report. The report follows a public outcry over last month’s disclosure that the board of Blue Cross, the state’s largest health plan, voted last year to give its departing chief executive, Cleve L. Killingsworth, about $11 million. Coakley opened a separate inquiry into Killingsworth’s payout that is still underway.

Payments to board members last year ranged from $21,900 to $68,100 at Harvard Pilgrim, and from $19,500 to $82,500 at Tufts, according to documents filed with the state. Blue Cross last year paid its directors between $56,200 and $84,463. It is reviewing its legal classification as a nonprofit public charity.

Coakley applauded the Blue Cross and Fallon decisions to suspend their board fees. She said only five or six among 22,000 nonprofit charities in Massachusetts pay their directors. Officials in the attorney general’s office said they included ISO New England, Education Resources Institute, the Hyams Foundation, and the Yawkey Foundation, but they were unable to provide a full list.

The attorney general’s position was applauded by Local 1199 of the Service Employees International Union, the state’s largest health care union. Veronica Turner, executive vice president of the local, said the insurers “should do the right thing and act immediately’’ to suspend payments to board members.

Robert Weisman can be reached at; Noah Bierman can be reached at