Blue Cross CEO saw pay cut to $15.7M amid jump in medical, pharmacy claims

The top executive at Blue Cross Blue Shield of Michigan took home slightly less pay last year as the insurance giant experienced an underwriting loss amid a 12% jump in medical and pharmacy claims, including growing cost pressure from popular weight-loss drugs like Ozempic.

The Blues reported Wednesday that total all-cash compensation for CEO Daniel Loepp, 66, was $15.7 million in 2023, down $1.2 million from the year before. Of that payday, $12.3 million was bonus, $1.7 million was his base salary and $1.6 million was "other" compensation, such as the value of benefits like life insurance.

Loepp has been The Blues' top executive since 2006 and is preparing to retire at the end of this year. The board of the insurance company has already begun a search for his successor. Blue Cross is the largest health insurer in Michigan for number of covered lives.

”Overall, the consistently strong performance of the company under Mr. Loepp’s leadership is reflected in his total compensation," Blues spokesman Andy Hetzel said Friday during a call with reporters. “In 2023, he led the Blue Cross enterprise through tremendous cost pressures … and lingering uneasy economic times, while the health care ecosystem was relying on us more than ever.”

Blue Cross reported a $544 million underwriting loss in 2023, which reflected a $3.2 billion increase — a 12% year-over-year jump — in medical and pharmacy claims compared with 2022.

However, strong performances from the insurer's investments and subsidiaries made up for the underwriting loss, allowing Blue Cross to end the year in the black with a net gain of $100 million, or 0.2% of revenue.

“Our company sits in an uncomfortable position between two extraordinary pressures: the skyrocketing increase in prescription and specialty drug costs, and the desire of our customers to maintain the affordability of their health insurance plans," Hetzel said.

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Pharmacy claims had a $1.8 billion year-over-year increase, which included $750 million more for specialty drugs, especially for autoimmune conditions, plus $350 million more spent for a class of weight-loss drugs known as GLP-1 agonists for obesity and/or diabetes that have brand names such as Ozempic, Wegovy and Mounjaro.

Blue Cross has been tightening up its coverage of GLP-1 drugs and last fall began requiring patients seeking the drugs for just weight loss (not for diabetes) to first undertake a six-month lifestyle modification effort — attested to by their health care provider — before it will approve coverage. (Without insurance, GLP-1 drugs can cost around $1,300 per month out of pocket.)

Even so, Blue Cross anticipates more growth in 2024 for GLP-1 claims as the effective drugs continue to gain popularity.

For just medical claims, The Blues had a $1.4 billion year-over-year increase in 2023 and saw claims for outpatient surgery grow by 13%.

Asked whether the recent flurry of hospital mergers across Michigan has had an effect on medical claims costs, the Blue Cross spokesman said they haven't noticed any so far.

Academic research suggests that hospital consolidation ultimately results in higher prices for health care as bigger hospital networks gain negotiating leverage with insurers.

"The impact of consolidation in the industry is downstream impact over several years," Hetzel told the Free Press. "It’s not felt immediately ... it’s felt over the long term."

Hetzel added: “The bottom line is that we all serve the same people and health care economics can’t be a zero sum game where a health system wins and a health insurance company loses, because we all serve the same people. And if their health insurance plans are too expensive for them to afford, they are not going to be patients in a health systems business.”

Coinciding with last fall's United Auto Workers strike, more than 1,000 Blue Cross workers went on strike from mid-September until late November. They included workers in customer service, billing, claims and maintenance.

Joe Radtka, vice president of enterprise finance and chief risk officer, said that the 2½-month strike had "no material impact" on the insurer's financials.

Blue Cross remains in compliance with Affordable Care Act rules aimed at preventing profiteering by insurance companies and administrative bloat. Those Medical Loss Ratio rules require insurers to pay out on claims at least 80% of the money they take in as premiums from customers, or issue rebate checks. (The minimum is 85% for large groups.)

According to the latest figures available, Blue Cross paid out an average of 88% for its large group PPO plans and 86% for large group HMOs between 2020 and 2022.

The figures were 83% for small group PPOs and 88% for HMOs. And for individual plans, the figures were 76% for PPOs and 84% for HMOs. (Those individual plan PPO customers were to receive rebate checks last September for the premium overcharges.)

As a nonprofit mutual insurer that is taxable, The Blues reported paying $150 million in taxes last year to federal, state and local governments. It plans to make a $100 million payment next month to the Michigan Health Endowment Fund to help support wellness programs and insurance discounts.

Contact JC Reindl: 313-222-6631 or jcreindl@freepress.com. Follow him on X @jcreindl.

This article originally appeared on Detroit Free Press: Blue Cross CEO Daniel Loepp saw pay cut to $15.7M in 2023