Former CareFirst CEO's severance package cut in half

Amid public scrutiny of the business practices at Maryland-based CareFirst BlueCross BlueShield, the state's insurance commissioner ruled the company's severance deal for its former chief executive officer should be pared down.

Under the ruling, William Jews will still receive $9 million, and the $2.2 million he has been paid since leaving the company will count toward that total.

Jews was CEO of CareFirst from 1993 until 2006. He was forced out, but with an $18 million severance deal.

"The company, under Mr. Jews' leadership, strayed significantly from its nonprofit mission," Insurance Commissioner Ralph S. Tyler wrote in his July ruling.

CareFirst is headquartered in Owings Mills, Md., and has more than 3 million members in Washington, D.C., Maryland and Northern Virginia.

The nonprofit plan unsuccessfully attempted to convert to for-profit status in 2002. It has recently fallen under intense criticism for building up surplus funds that critics say far exceed what Blues plans are advised to keep in reserve.

"Commissioner Tyler's action provides us with hope he's going to be looking at insurers' use of their reserves," said Stephen Johnson, JD, interim executive director of MedChi, the Maryland State Medical Society.

"People are concerned about how the reserves are being spent," he said.

That concern has been formalized in more than the examination of Jews' compensation. The District of Columbia in June sued the health plan in a district superior court for failing to give enough of its reserves back to the community, and the district council's Public Services and Consumer Affairs Committee is investigating the company. The company has filed no response to those actions.

CareFirst reported reserves of $754 million at the end of 2007, according to the lawsuit filed by the District of Columbia.

Tyler's authority to review Jews' severance pay is based on a state law passed in 2003 after CareFirst's attempt to convert to a for-profit company. The law requires executive pay be "fair and reasonable" in comparison to other nonprofit plans.

According to the insurance commissioner's 65-page ruling, Jews made more than $16.5 million in his last six years as CEO, and another $1.6 million in deferred payments.

The commissioner's ruling said even following the law's passage, "CareFirst's board failed to restrain the CEO's compensation," and it never set guidelines for determining postemployment compensation.

When Jews lost his job, board members cited concerns about his performance in prior years, but those concerns weren't reflected in how much he had been paid over those years, Tyler noted. In 2003, following the failure of the proposed for-profit conversion, Jews' annual compensation topped $3 million.

CareFirst and Jews have not said whether either will appeal Tyler's ruling.

CareFirst issued a statement saying it received the ruling. "We are reviewing the order to determine what if any other action we may take regarding the matter."