Blues, expecting downturn, begin cutting jobs Hundreds of layoffs likely at health insurer

October 19, 1991|By Peter H. Frank

Blue Cross and Blue Shield of Maryland has started cutting hundreds of jobs as the state's largest health insurer, anticipating the start of a three-year downturn, tries to pare millions of dollars a year in expenses.

The company, which has about 1.5 million Maryland customers, has told more than 100 employees that their positions will be abolished. As many as 200 jobs could be lost in the company's health maintenance organizations. And more jobs could be eliminated as Blue Cross looks to cut expenses by an estimated $7 million to $8 million this year and in each ofthe next two years.

"We're all trying our best to make the transition for people as easy as possible in a difficult situation," said Carl J. Sardegna, chairman and president of Blue Cross.

He said that he had hoped attrition would be sufficient to lower expenses but that "unfortunately, it's not going to work. The skills are not going to match, and the timing is not going to match."

How many jobs will be lost remains unclear, but the cuts are expected to affect a sizable percentage of the 2,700 employees of the company's core Blue Cross and Blue Shield plan.

The company's health maintenance organizations -- the Columbia Medical Plan, Columbia/FreeState Health System and the recently purchased CareFirst plan -- have about 500 employees, excluding physicians. Between 150 and 200 of those jobs, which would not include doctors, could be abolished as CareFirst merges into FreeState, Mr. Sardegna said.

For decades, Blue Cross' fortunes typically have swung widely in three-year cycles. And, though the local company's profits have been relatively slight over the past few years, the company is expected to begin one of its periodic declines next year.

The current efforts are aimed at avoiding the kind of sudden crisis Blue Cross faced in 1986, when it laid off 250 workers -- more than 10 percent of its staff -- about a year after Mr. Sardegna took control. The company's insurance operations lost more than $150 million in the next three years.

"This time, we're not losing money," Mr. Sardegna said yesterday. "This is a planned approach, and we're preparing for it."

Blue Cross, which returned to profitability in 1989, earned $48.6 million last year and $12.6 million in the first half of 1991.

Mr. Sardegna said his goal is to cut expenses from nearly 11.5 percent of revenue to 9.5 percent by 1994. Blue Cross plans typically have considered 10 percent of revenue the limit above which costs were too high.

Blue Cross recorded $1.2 billion in revenue from premiums last year and spent $135 million, or 11.25 percent, on operating expenses, according to its 1990 annual report. The company is projecting revenue for this year at $1.3 billion to $1.4 billion.

Based on those figures, Mr. Sardegna projected the spread between revenues and expenses needs to increase by $15 million a year for three years. Roughly half of that would come out of cost reductions, and the other half is expected to come from gains in revenue, he said.

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