HMSA execs saw big pandemic pay raises as workers lost their jobs

Executives at the Hawaii Medical Service Association, the state’s largest health insurer, received hefty pay raises and bonuses during the COVID-19 pandemic, while the company’s board voted to begin compensating itself for the first time in the nonprofit’s history, with its highest paid directors receiving about $100,000 annually beginning in 2022.

The pay upgrades for top officials came at the same time HMSA was eliminating and outsourcing the jobs of nearly 200 of its employees.

Ultimately, 107 HMSA workers lost their jobs during the company’s 2022 restructuring. An additional 89 were “rebadged,” an industry term for transferring employees to another company. Those workers are still providing customer serv­ice and technology assistance to HMSA, but are now employees of a business processing company called Firstsource that’s based in Mumbai, India, and a technology company, Infinite, that has headquarters in Maryland and Bengaluru, India.

Dennis Miller, a Waikiki business owner and advocate for health care reforms, said HMSA’s decision to boost pay for top officials while employees were losing their jobs raises ethical questions. He called for a deeper probe into the health insurer’s finances.

“I think that the community does deserve a much more rigorous look at the accounting for what HMSA is doing,” he said.

HMSA President and CEO Mark Mugiishi acknowledged that the optics “are unfortunate” but said the job reductions and pay raises were unrelated.

“We have to be competitive if we are going to get good people,” he said, adding that executive pay is based on industry benchmarks. “Our board compensation is tied to the need to really understand that our business is getting much more sophisticated, much more complicated and that we need really engaged, talented board members who can be our thought partners.”

Mugiishi said the impetus for outsourcing was not to save money but to increase the company’s capabilities. He said the complexity of the business required HMSA to take a look at ways to automate its back office functions.

“The best way to do that is to look for places of scale where other people do it and where they are more capable of getting more automated, and so that is why we pulled that trigger,” he said.

Executive compensation

Mugiishi took over as HMSA’s CEO in February 2020. His total compensation, including salary and bonus, rose from $2.5 million in 2021 to $3 million in 2022, an 18.6% increase, according to financial filings. His 2022 compensation included his $1 million salary, plus a $2 million bonus.

Gina Marting, HMSA’s executive vice president and chief financial officer, had a similar pay boost during that period. Her total compensation went from $902,402 to $1.08 million, a 20% increase.

Janna Nakagawa, the company’s executive vice president and chief administrative and strategy officer, saw a 26% increase in compensation. Her combined salary and bonus rose from $788,287 in 2021 to $995,633 in 2022.

David Herndon, HMSA’s executive vice president and chief business operations officer, saw a more modest increase of 3.7%, with his total compensation rising to $817,361 last year.

Jennifer Walker, the company’s senior vice president for data and analytics and general counsel, saw a nearly 20% increase in compensation. Her combined salary and bonus totaled $737,689 in 2022.

The pay increases for HMSA’s top officers are even more stark when compared over two years. Their combined salaries and bonuses increased 48% from 2020 to 2022.

For comparison, the typical annual pay increase for workers in the United States is between 3% to 5%.

Nakagawa said the compensation for top officers is determined by HMSA’s board of directors, whose compensation and human resources committees work with a private firm to evaluate executive pay at similar companies.

“We are compared against that and our target really is the 50th percentile, or median,” she said.

Pay for board members

In late 2021, HMSA’s board, which is heavily composed of executives from other Hawaii companies, also voted to begin compensating itself for the first time.

HMSA Board Chair Robert Harrison, who is chair and CEO of First Hawaiian Bank, said in a statement that the decision was based on the need to attract future directors and the significant amount of work that goes into serving on the board.

“The decision to compensate the board required thoughtful consideration, especially given the years and decades many have served as volunteers. However, the need to find successor board members to serve in this increasingly complex industry was ultimately the deciding factor,” he said.

Harrison said HMSA pays its board with investment income, not from member premiums.

Harrison, as board chair, was paid $105,000 in 2022, the highest paid of the 14 directors. Elizabeth Hokada, a retired chief investment officer for Kamehameha Schools, was paid $99,500, while Lisa Sakamoto, chief financial officer for the Roman Catholic Church in Hawaii, received $93,500.

Other directors earned between $67,000 and $88,000 last year.

The board includes prominent Hawaii executives such as Elliot Mills, vice president for hotel operations at Disney’s Aulani resort; James Polk, vice chair and chief banking officer at Bank of Hawaii; Ronald Williams, CEO of Atlantis Adventures, which provides cruise and recreational submarine tours; Robert Wo, owner of C.S. Wo & Sons, a furniture company; Roger Wall, vice chair of Foodland Super Market Ltd.; and Whitney Limm, an executive vice president and chief physician executive at The Queen’s Health System.

Other members include Terrence George, president and CEO of Harold K.L. Castle Foundation; Ross Murakami, a partner at accounting firm KMH LLP; Carla Nip-Sakamoto, a doctor and co-owner of Oahu Dermatology; and Kenric Murayama, chair of the Department of Surgery at the University of Hawaii John A. Burns School of Medicine and chair of the clinical surgery program at The Queen’s Health System.

Lorraine Akiba, an attorney, senior adviser in Dentons’ Energy group and former commissioner at the Hawaii Public Utilities Commission, left the board at the end of last year. She was replaced by Staci Fujikawa, director of human resources for ‘Iolani School.

HMSA’s Mugiishi also serves on First Hawaiian Bank’s board of directors.

HMSA, which provides health insurance coverage to 1 in 2 Hawaii residents, is among 34 independent Blue Cross Blue Shield companies that operate in states across the country. Walker, HMSA’s general counsel and assistant secretary for the board, said the Hawaii affiliate was the only Blue Cross company that wasn’t compensating its board members.

“The demand on our board members was increasing and the expertise that we needed was increasing quite a bit,” she said. “We are a highly regulated $4 billion company in a rapidly evolving industry and we really needed to have sophisticated board members making complex decisions.”

While board compensation has changed little since its decision to start compensating its directors, Walker said the intent is to roll off one or two members a year and replace them with new members that have the expertise the company is seeking.

Walker cited as examples the recent board departures of Akiba and Randy Perreira, executive director of the Hawaii Government Employees Association.

Perreira, whose term ended in August 2021, said he left the board voluntarily, before the issue of board compensation was discussed. He said his decision was based on the time commitment required and his desire to stay focused on representing HGEA members.

Walker said she didn’t have an estimate for how much time board members spend on their duties. According to HMSA’s bylaws, the board is required to hold at least four regular meetings a year.

Transparency at the top

It’s common for board members of for-profit companies, such as banks and tech companies, to be paid. But HMSA occupies a nebulous space between the for-profit and nonprofit worlds of business. In the nonprofit sector, board compensation is largely taboo.

In the 1980s, Congress decided that Blue Cross Blue Shield companies had become largely indistinguishable from commercial insurance carriers and revoked their federal tax-exempt status. Prior to this they were typically organized as 501(c)(4) social welfare organizations, which under the federal tax code must be operated exclusively to promote social welfare and can’t be run for profit.

But at the state level, many Blue Cross companies, including HMSA, have continued to operate as nonprofits exempt from state taxes, which at times has spurred controversy.

In 2011 Blue Cross Blue Shield of Massachusetts suspended its five-figure annual pay for directors amid criticism that board members for charitable organizations shouldn’t be paid at all. Two years later it reinstated the compensation but at reduced levels. Its board is now compensated at levels similar to what HMSA’s board is now earning.

In California, consumer advocacy groups raised concerns about the executive pay and financial reserves of Blue Cross of California and in 2014, the state revoked the company’s tax exemption following a scathing audit that blasted the company for enjoying taxpayer subsidies while failing to fulfill its obligations for civic betterment and social welfare.

In Hawaii, HMSA is organized as a nonprofit mutual benefit society. While it is federally taxed, the company remains exempt from state taxes.

That status has shielded it from the same financial transparency on board compensation required of both publicly traded and federal tax-exempt nonprofits. For example, nonprofits such as Kaiser Permanente and AlohaCare, a Medicaid managed-­care company, must file annual IRS Form 990s listing the compensation of their highest-paid employees and board members, while publicly traded companies have to disclose this in public financial filings.

HMSA, like other health insurers operating as mutual benefit societies in Hawaii, including the Hawaii Medical Assurance Association and UHA Health Insurance, do not have to file either.

Earlier this month, when the Honolulu Star-Advertiser reached out to HMSA seeking information about compensation for its board and top executives, a company spokesperson initially said it does not disclose such information.

HMSA and the other insurance companies are required to file this information with the state Insurance Division annually on forms called supplemental compensation exhibits, and the Star-Advertiser subsequently submitted a public records request for the documents.

On April 23 the agency denied the newspaper’s request for HMSA’s filings, as well as filings for Hawaii’s other major health insurers after deciding the documents included proprietary information that was exempt from disclosure under the state’s insurance code and public records law.

However, it did turn over documents detailing the pay of HMSA’s top executives, which is required to be public under a state law pertaining only to Medicaid contractors.

Lloyd Lim, a former health insurance regulator with the Insurance Division, said he believes information about board compensation was disclosed publicly in the past and he didn’t know why the state would withhold the documents from the public now.

“It only fosters suspicion,” he said.

After the Star-Advertiser’s records request was denied, HMSA voluntarily provided the newspaper with its supplemental compensation exhibit.

“We’re not embarrassed about what we’re doing and what people get paid and the fact that we compensate our board,” said Mugiishi. “We think it’s an evolution that was necessary.”

The compensation for executives and directors at HMAA and UHA Health Insurance remains secret. The companies did not respond to inquiries from the Star-Advertiser.