Jessica M. Karmasek Apr. 15, 2011, 11:52am
BOSTON (Legal Newsline) - Massachusetts Attorney General Martha Coakley said in a report Thursday that there is no justification for board members to be compensated at the state's four major not-for-profit health insurers.
Coakley also announced that her office will publish an annual report detailing board compensation levels and rationales, as well as file legislation that would allow the Attorney General's Office to prohibit charities from compensating directors.
Coakley's six-page report is the result of an investigation into the compensation of board members of Blue Cross Blue Shield, Fallon Community Health Plan, Harvard Pilgrim Health Care and Tufts Health Plan.
The health insurers, Coakley said, were given "extensive opportunities" to justify the rationale for compensating their board members during the course of the investigation. In the end, the attorney general said their rationales were "unsupported."
"The vast majority of board members at charities volunteer their service, and for good reason," Coakley said in a statement. "Compensation of board members creates unavoidable conflicts of interest and diverts resources otherwise focused on achieving the mission of the charity.
"These organizations enjoy significant tax and other benefits due to their charitable status, and we asked them to justify why they should be treated differently from other charitable boards. We found their explanations to be unjustified."
The boards at both Blue Cross and Fallon have agreed to suspend board compensation while the Harvard Pilgrim and Tufts boards have decided to continue paying their board members, the Attorney General's Office said.
"We believe Blue Cross and Fallon did the right thing by suspending compensation of their directors, and commend their actions. We do not believe that Harvard Pilgrim nor Tufts have an adequate basis to continue to pay their board members, and we once again urge them to discontinue the practice in the interest of their charitable purpose," Coakley said.
Harvard Pilgrim and Tufts, in continuing to pay their board members, said they are doing so because their organizations are more "complex" and require more highly skilled directors; that their directors committed "significant" time and effort to their board duties; and that nationally, health insurers pay their directors and, as a result, they must do likewise to compete for directors.
Coakley's office shot down those reasons in its report.
Harvard Pilgrim had publicly indicated that its board worked a total of 2,000 hours in 2010. That averages to about three or four hours per week per board member, the attorney general said.
As to competing with other national health insurers, Coakley's office noted that "nearly all of your directors live and work in Massachusetts, which suggests at minimum that none of your organizations compete nationally for talent."
Coakley said her office will now require annual statements from all Massachusetts-based public charities that compensate independent directors, explaining in detail the basis and rationale for the practice. Those statements, director compensation levels and attorney general evaluations will form the basis of her annual public report.
The Attorney General's Office also will file legislation, sponsored by Sen. Mark C. Montigny, D-New Bedford, and House Ways and Means Vice Chair Martha M. Walz, D-Boston, aimed at prohibiting these organizations from continuing to compensate directors without approval from the office, Coakley said.
From Legal Newsline: Reach Jessica Karmasek by e-mail at firstname.lastname@example.org.