Maryland Insurance Chief to Rule on CEO’s $18M Pay Package

June 24, 2008

Maryland’s insurance commissioner heard closing arguments last week on whether to allow a nearly $18 million severance and retirement package for former Carefirst CEO William Jews.

Insurance Commissioner Ralph Tyler is looking into whether the payments are excessive for the state’s BlueCross BlueShield insurer.

Regulators contend it was illegal for CareFirst BlueCross BlueShield to link executive pay to profits, instead of measures tied to promoting community health.

Jews was criticized after he tried to convert CareFirst into a for-profit company and sell it, but he has denied accusations that his sole focus was boosting profits. The former CEO testified that he transformed CareFirst from a faltering health insurer to an award-winning plan with a $1 billion surplus.

Following the conclusion of the hearing, Tyler has 30 days to issue a decision.

In filings with the commission, attorneys for the Maryland Insurance Administration argued the Jews’ package violated provisions in state insurance law limiting the pay of executives for nonprofit health service plans. The law says executives may only receive “fair and reasonable” compensation for work performed for the corporation.

State attorneys argued that a number of the payments called for in the package “are objectionable because they are neither fair nor reasonable.”

As an example, they noted a $731,250 award during the same year in which the CareFirst board terminated Jews’ employment and also expressed concerns about his lack of leadership.

The insurance administration attorneys also argued that payment for one year of the package was not for work performed for the insurer.

Jews’ attorneys argued he was entitled to the payments because he did what he was hired to do — overhaul a troubled company. The former CEO’s attorneys also argued that the state failed to prove the package was not fair or reasonable; and interfering with Jews’ contract would violate the U.S. and Maryland constitutions.

“The MIA’s ill-founded attempt to interfere with Mr. Jews’ established contract rights is unfair, unjustified and unconstitutional,” his attorneys argued in the filing.

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