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HealthPartners' ex-CEO reaped board's favors
Secret deals contributed to $5.5 million package
Star Tribune: Newspaper of the Twin Cities (Minneapolis, MN)
January 17, 2003
Author: Glenn Howatt
Staff Writer

HealthPartners board members knew it wouldn't look good if they gave Chief Executive George Halvorson a new fringe benefit in 1998, especially because the company was losing money.

But after receiving assurances that the supplemental retirement plan wouldn't have to be reported to the public, the board approved it, even rejecting a suggestion that awards into the plan be tied to company performance, according to documents reviewed by the Minnesota attorney general's office.

It was one of several compensation enhancements and secret arrangements that gave Halvorson $5.5 million in pay and benefits when he left the company last April, according to the investigative report.

In a review of company documents and board minutes, the attorney general's office found evidence that requests to increase Halvorson's compensation were sometimes questioned by the board but were rarely rejected.
Halvorson's package, which included life insurance with a cash value of $1.1 million, contained money that the company wasn't required to pay because he had not become fully eligible to receive it, according to the documents.

Halvorson, HealthPartners and several HealthPartners board members either refused to comment or could not be reached Thursday.

However, HealthPartners general counsel Barb Tretheway said that HealthPartners would recoup the $1.1 million in life insurance premiums that it paid should Halvorson draw upon the policies' cash value or when Halvorson dies. She also clarified that if Halvorson were to access $2.6 million set aside in one of his accounts, he would have pay about $650,000.

Attorney General Mike Hatch said the history of the board's relationship with Halvorson and the terms of his severance indicate that Halvorson had more control over the board than they had over him.

``He did have a mystique within that organization,'' Hatch said. ``HealthPartners became a culture of George Halvorson.''

Pete Wyckoff, executive director of the metro region of the Minnesota Senior Foundation, worked closely with Halvorson on health care issues and respects his positions. But Wyckoff, who not only leads a nonprofit organization but also sits on several nonprofit boards, wonders what happened to the leadership of HealthPartners' board.

``It would be terribly unfortunate if those kind of issues undermine the basic credibility to provide mission-driven, cost-effective health care,'' Wyckoff said. ``When we look at our health plans being nonprofit, we are looking for them to meet a higher standard.''

Hidden bonuses

Not only did the board approve pay packages that could be hidden from the public, it also took action at Halvorson's request to hide his bonuses from other employees, according to company documents.

Halvorson received bonuses in 1997 and 1998, even though all other HealthPartners executives had theirs rescinded because of the company's poor financial performance.

In 1998, Halvorson asked to have his bonus deferred to another year so that his payment couldn't be discovered by his colleagues, according to the attorney general's report.

The board also decided to pay Halvorson bonuses that were larger than what he had earned. In 1997, they upped his pay even though some board members warned that the action would undermine the credibility of the bonus program.

``Some committee members felt that if the President was awarded the full amount of the withhold [bonus], while not fully achieving two core objectives regarding membership and finances, the goals and objectives have less meaning,'' stated board minutes of a January 1997 meeting.

The board also increased his bonus in 2000.

Halvorson was on track for making $1.5 million in 2001, an increase over his 2000 pay package of $1.3 million.

Because Halvorson quit in 2002 to become head of Kaiser Permanente, he had to forfeit $200,000 of his 2001 pay.

But as part of his exit package, Halvorson retained ownership of three life insurance policies that will pay $5.5 million to his survivors.

The policies also give him a $1.1 million cash fund that he can borrow from tax-free.

His severance also includes $3.4 million in cash benefits, including at least $100,000 that Halvorson was awarded even though he had not stayed long enough at the company to earn it.

More oversight

Halvorson's compensation was also comparatively large - the board was even told in 1997 that his pay was at the maximum level compared to other health plans.

Although she didn't have enough information to comment on Halvorson's pay, Sen. Linda Berglin, DFL-Minneapolis, said that Hatch's audits of HealthPartners and previously Medica indicate problems with overall spending by Minnesota's health plans. ``In a day and age when health care costs are going up as dramatically as they are and causing as many problems as they are, certainly health plans should be looking for more austerity in their administrative expenses,'' she said.

Hatch said he will ask HealthPartners to install a representative on the board to help it exercise more oversight over executive pay and administrative expenses.

Hatch expressed confidence in Mary Brainerd, Halvorson's replacement. ``We don't question her ability, what we want is a change in the expenditures and in this culture of luxury,'' he said.

Hatch conducted the investigation as part of a series of reviews that he is doing of all the major health plans and systems in Minnesota. In 2001, he completed an audit of Allina Health System, including Medica, which had been criticized by a federal agency for inappropriate administrative expenses.

Hatch said he will ask HealthPartners to share in some of the expenses of his audit. An estimate of its cost had not been completed, he said.

Brainerd, who was the company's chief operating officer under Halvorson, could not be reached for comment Thursday.

But on Wednesday she confirmed that she had changed the company's executive bonus program, which called itself a ``withhold'' program so it would sound better to legislators and the news media, according to a company memo.

Brainerd acknowledged that the program was confusing. For instance, if the company paid a withhold that was 30 percent, it actually increased an executive's base pay by 43 percent, investigators determined.

In addition to his pay packages, Halvorson received additional benefits that included a choice of two fully paid medical and dental plans, membership at three social clubs, the right to take his wife with him at no cost on five business trips per year, secretarial and research assistance for any books or articles he was writing, one week's full pay while he was doing outside consulting and free use of a car phonefor personal calls.

In 1998, Halvorson also requested that the company pay for refractive eye surgery for him and his wife.

The board turned down the request to pay for the eye surgery directly because the company didn't pay for the same surgery for its own health plan members. Instead, it authorized that Halvorson be given $5,000 to $6,000 that he could use to pay for the surgeries himself.

- Glenn Howatt is at
Edition:  METRO
Section:  NEWS
Page:  1A
Copyright 2003 Star Tribune: Newspaper of the Twin Cities