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HEALTH-CARE COSTS
Critics hit Blue Cross on $30K golf junket

BY STEVEN STYCOS

On Monday, September 17, dozens of Rhode Island labor leaders will travel to the Valley Country Club in Warwick. After a pleasant lunch, they'll gather outside for an afternoon of golf and then return to the clubhouse to enjoy cocktails and a station-style dinner. Blue Cross and Blue Shield of Rhode Island will pay all the costs -- a situation that infuriates some labor leaders and raises questions about the administrative expenses for the nonprofit health insurer.

The day of golf and dining for 80 labor leaders will cost Blue Cross about $30,000, estimates Scott Fraser, the company's assistant vice president of public affairs.

One invitee who won't be attending is Joseph Peckham, senior business agent for the American Federation of State County and Municipal Employees (AFSCME), Council 94. In recent years, Peckham says, Blue Cross has cut benefits and increased prescription drug co-payments, forcing union members to pay more for health-care. At the same time, he notes, the nonprofit health insurer, by raising premiums, has pressured employers to demand that workers pay a larger share of health insurance costs. Rather than pay for golf and dinner, Peckham argues, Blue Cross should provide better benefits or reduce premiums.

Peckham also objects to the annual spring labor appreciation night held by Blue Cross at the Rhode Island Convention Center, which, he says, features an open bar, prime rib, lamb chops and shrimp Alfredo. "They talk about cost containment with hospitals, pharmacies and doctors," he snaps. "Blue Cross should practice what they preach."

Another critic is Kate Coyne-McCoy, executive director of the state chapter of the National Association of Social Workers, who blasts Blue Cross for paying high corporate salaries. According to the company's annual financial report, Blue Cross President Ronald Battista received $492,754 in compensation in 2000, and five other executives collected more than $200,000. "The job of an insurance company is to pay the bills," says Coyne-McCoy. "They're wasting money that could be spent on health-care."

Fraser defends Blue Cross. Events like the labor golf tournament should be considered part of the insurer's administrative costs, he says. The company only spends 10 percent on administrative costs when all of its income for insurance and claims administration is included, he notes. Battista's salary is reasonable, Fraser adds, when compared to salaries for CEOs at other 1600-employee companies.

A comparison of Blue Cross' annual report and that of its principal rival, for-profit United Healthcare of New England Inc, however, reveals that Blue Cross' administrative costs are higher in some key areas.

According to the formula on the reporting form, Blue Cross' administrative expenses consume 13.1 percent of premium dollars, while United's use 11.7 percent. And Blue Cross' marketing and advertising costs were $3.4 million in 2000, while United's were $276,247. In addition, United's president, Elwood "Budd" Fisher received $284,292 in compensation, considerably less than Battista. Only one other United executive made more than $200,000.

Part of the difference can be explained by United's smaller size; it collects about 50 percent fewer premium dollars than Blue Cross. And the two companies may report their administrative costs differently, notes Joseph Torti, chief insurance examiner for the state Department of Business Regulation, because the forms for insurers and health maintenance organizations are slightly different.

United, however, doesn't hold events for union officials, never sponsors golf days, and "very, very seldom" participates in golf tournaments, says marketing communications manager Deborah Spano. "It just gets expensive, and it's a question of whether that's the best use of premiums."

Issue Date: September 14 - 20, 2001