The top boss at Blue Cross Blue Shield of Michigan has reached the pinnacle of executive pay in Michigan, getting more in total compensation than CEOs at several bigger for-profit companies across the state.
Blues CEO Daniel Loepp, 61, who received $19.2 million in total compensation last year — a record for Michigan's largest insurance company — is also one of the highest-paid bosses of any health insurer in the nation.
Loepp's compensation, disclosed a week ago, has not drawn much scrutiny from public officials in Michigan. But it became a rallying point this week for presidential candidate Bernie Sanders, a U.S. senator from Vermont, who scoffed at the payout in a Facebook post as a reason the country needs a single-payer, government-run health care system.
A Free Press analysis of Michigan Fortune 500 companies plus Netherlands-based Fiat Chrysler found that only General Motors' CEO Mary Barra received higher compensation in 2017 than Loepp did last year. Barra, who made just under $22 million, also serves as GM's board chairman.
His payday was bigger than Ford's and Fiat Chrysler's CEOs in 2017, according to their most recent salary disclosures.
All three automakers are publicly traded companies with significantly bigger operations than Blue Cross, which is a nonprofit mutual insurance company and doesn't sell or produce products overseas.
The automakers also pay a large portion of their executive compensation in stock awards, an option that Blue Cross, as a nonprofit, cannot provide.
The breakdown of Loepp's compensation last year was a $1.5 million base salary, a $16.2 million cash bonus and $1.4 million in "other" compensation, such as car allowance and life insurance. The size of the bonus each year depends on whether Loepp meets various goals.
The Blues reported $29.3 billion in total revenue for 2018 with a positive 2.1 percent operating margin of $605 million. Blue Cross' average operating margin over the past decade has been zero, the company said.
Midland-based DowDuPont is also bigger than Blue Cross, with $86 billion in revenue last year. In 2017, it reported paying then-CEO Andrew Liveris $4.1 million in total compensation.
In the view of Blue Cross and its 35-member board of directors, Loepp earned his $19.2 million by putting in a strong performance that helped to achieve the insurer's goals.
That included running subsidiary companies with nationwide footprints, such as workers' compensation insurance firm AF Group; and accident and long-term care insurance provider LifeSecure.
Blue Cross kept many customers' rate increases to a minimum, the company said, particularly for small business groups and those buying Medicare Advantage plans.
When Loepp, a native Detroiter, started the CEO job in 2006, he earned slightly under $1 million.
At the time Blue Cross was still a traditional nonprofit and under direct state oversight for its then-role as Michigan's insurer of last resort. During that period, then-Attorney General Mike Cox was a regular critic of Blue Cross' executive salaries.
Loepp's compensation has soared since Blue Cross reorganized in 2013 from a tax-exempt nonprofit to a nonprofit mutual, a move that gave the insurer more regulatory flexibility to set premiums and grow its footprint beyond Michigan.
Now essentially a private company, the Blue Cross enterprise paid $422 million last year in local, state and federal taxes.
As a condition of its reorganization, Blue Cross is also obligated to contribute up to $1.56 billion over 18 years to the Michigan Health Endowment Fund, which gives money for health- and wellness-related programs.
"We are a complex, national and diversified enterprise — not just a health insurance company," Blue Cross spokesman Andy Hetzel said in an email. "Our companies operate in diverse markets, under different regulatory schemes, and managing this requires a unique set of skills and vision that Mr. Loepp has proven to possess over his 13 years as CEO."
Hetzel said Loepp championed the insurer's move into subsidiary businesses that expanded the enterprise's revenues beyond just the Michigan health insurance market, and "this keeps health coverage more affordable than it otherwise would be."
"He is a unique leader for a business enterprise as complex as ours," Hetzel said. "He is a potential target of national recruiters because of his strong track record, and the board has a vested interest in retaining him to continue to lead us into the future."
Loepp also oversaw Blue Cross' initiative that slashed administrative expenses by $360 million over the past three years. Many dozens of jobs were cut to make that goal, according to reports by Crain's Detroit.
The Blue Cross board is populated by business people, executives and labor officials from across the state. By law, the board must vote on the CEO's compensation.
"We at the board are sensitive to compensation issues, and we have emphasized that pay be tied to performance," Blue Cross board member William Black, executive director of Michigan Teamsters Joint Council 43, said in an email. "His compensation is heavily weighted against company performance, as it should be. That performance has been very strong in recent years."
Big among insurers
The Blue Cross CEO's pay is exceptional in the nationwide health insurance industry.
Rankings last year by AIS Health, a health-care sector information firm, placed Loepp as the No. 7 best-paid health insurance executive in the country. He was No. 1 among all Blue Cross Blue Shields, including the parent corporation of five Blue Cross Blue Shield plans in Texas, Illinois, Oklahoma, New Mexico and Montana.
All six insurance executives ahead of him on the list worked at for-profit companies such as Cigna and Aetna. The rankings used Loepp's smaller 2017 compensation of $13.4 million. (The report didn't include data from California, New York or Arizona.)
Blue Cross is the largest health insurer in Michigan with roughly 70 percent of the commercial market. The Blue Cross enterprise reportedly has 4.5 million Michigan customers and an additional 1.6 million in other states.
How pay is set
Blue Cross' directors are responsible for setting Loepp's pay. The board uses a Chicago-based compensation consultant, Ed Steinhoff of Pearl Meyer, to help in the task.
Loepp's $1.5 million base salary has been the same for the past five years. His $16.2 million bonus was the result of him hitting performance marks for annual and long-term goals approved by the board, the company said.
Blue Cross declined to share the precise compensation formula, calling it proprietary information.
The health insurer's full board votes on the compensation formula and the CEO's performance goals, said Hetzel, the Blue Cross spokesman.
Hetzel declined to share the tally of the board's vote, saying that Blue Cross considers all board actions proprietary information.
The Michigan Department of Insurance and Financial Services has the authority to challenge the salary size of any insurance company in the state. Department spokeswoman Andrea Miller said state officials have occasionally objected to salaries, although she would not provide examples.
'Success over time'
Blue Cross Board Chairman Greg Sudderth, who works as president of Traverse City-based Executive Labor-Management Services, did not return a message for comment about Loepp's compensation.
The Free Press also attempted to reach all eight labor representatives on the board, including those with the UAW, Michigan AFL-CIO, Michigan Education Association and Michigan Building Trades Council. Only the Michigan Teamsters official offered any response.
“Dan Loepp’s compensation as CEO of Blue Cross is the result of his success over time in guiding a nearly $30 billion, national, multi-company business through a very complex and turbulent time of change," Black said in his statement.
Blue Cross board members are paid annual retainers for their service. The company declined to specify the amounts, but said they are similar in size to comparable companies.
For Sudderth, his compensation in 2017 for serving on the Blue Cross board totaled $285,647, according to the AIS Health report.
Blue Cross operates under financial rules set by the Affordable Care Act to prevent profiteering and exorbitant administrative spending by insurance companies.
Those rules require insurers to pay out as claims at least 80 percent of the money they take in as premiums from customers, or issue refund checks.
For its large groups insurance plans, Blue Cross paid out an average of 88 percent between 2015 and 2017. That figure was 85 percent for individual plans and about 78 percent for small business groups.