Judge rules Highmark profits not 'excessive'

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Highmark Inc. has not accumulated "excess profits" in violation of state law, and its executives make a "reasonable" salary, according to a judge's dismissal of a lawsuit that had been filed against the insurer.

The state's largest health insurer was sued two years ago by Philadelphians Herman Wooden and Thomas Logan, both former nonvoting "lay" members of a since-disbanded Highmark advisory committee serving the company's board of directors.

Both of the plaintiffs argued that the $1.2 billion in profits that Pittsburgh-based Highmark had earned from 2005 to 2009 was excessive.

This month, Philadelphia Court of Common Pleas Judge Patricia McInerney also rejected arguments that Highmark shouldn't be able to reinvest money in its for-profit subsidiaries and that the company awarded improper bonuses to its executives.

In an Aug. 8 order, the judge wrote that the "plaintiffs' argument is logical and compelling. However, the judiciary is not the proper arm of government to restrain this particular charity's acquisitiveness." The legislature and the executive branch "are the ones who must say whether the accumulation of substantial profits by a nonprofit health insurer is improper."

The plaintiffs have already appealed the decision to the state's Commonwealth Court, according to attorney David S. Senoff of Caroselli Beachler McTiernan & Conboy.

The "plaintiffs respectfully disagree with the trial court's ruling dismissing this case prior to any trial," Mr. Senoff said. "This is particularly true since the court found plaintiffs' case to be both 'logical and compelling.' "

A Highmark spokesman said the company is "pleased with the court's decision that the company has met all legal requirements under the Pennsylvania Nonprofit Corporations law."

The plaintiffs had focused on the provision of the law that says nonprofits such as Highmark may make "an incidental profit [that] in no case shall be divided or distributed in any manner whatsoever among the members, directors or officers of the corporation."

They argued that billions in profits are more than "incidental," but the court disagreed with that reasoning.

"The plaintiffs interpret [that] as meaning 'small' or at least 'not substantial' ... [but] the above provision does not prohibit Highmark from earning substantial profits" from sales of other products.

The plaintiffs had argued that because of the salary and bonuses being made by top Highmark executives, those executives were essentially profiting from the nonprofits' business activities.

The judge again disagreed.

"Although plaintiffs and the public may look ... aghast at the high level of compensation paid to the executives of this supposedly 'nonprofit' corporation, the court cannot find such payments to be unreasonable based upon outrage alone." Highmark's top officials make a "reasonable" salary, at least "among the rarefied ranks" of health insurance executives.

In 2012, Highmark reported $432.3 million in profits, a figure that includes assets absorbed when the insurer acquired Blue Cross Blue Shield of Delaware. Much of that income was driven by the company's three main subsidiaries -- vision, dental and reinsurance units -- which, together, had net income of $193.6 million.

The company's "surplus" reserves grew slightly, from $4.1 billion in 2011 to $4.14 billion in 2012.

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For the full ruling, go to www.courts.phila.gov/pdf/cpcvcomprg/110903159.pdfBill Toland: btoland@post-gazette.com or 412-263-2625.


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