Probe targets Washington-area Blue Cross plan Senate panel seeks financial records of another insurer

July 09, 1992|By Patricia Meisol | Patricia Meisol,Staff Writer

While Maryland's largest health insurer opens its books to congressional investigators, a second Blue Cross and Blue Shield plan that covers nearly half a million Marylanders also has emerged as a focus in a growing probe into the health-insurance industry.

Blue Cross and Blue Shield of the National Capital Area, the largest insurer of federal employees, got the same demand yesterday that a U.S. Senate panel delivered to Blue Cross and Blue Shield of Maryland: a subpoena for a decade's worth of records regarding its finances and those of its subsidiaries.

Since 1984, National Capital Blue Cross has created 34 companies outside the scope of regulatory agencies, and most are unprofitable, the company has said.

According to an annual report filed with Maryland regulators, the parent company lost $74 million on its subsidiaries last year, although a company spokeswoman, Barbara Exstrum, said that loss occurred over the past eight years.

Group Hospitalization and Medical Services Inc., the parent company for Blue Cross, has been profitable for the past three years and earned $16.3 million in 1991, not including the earnings of its subsidiaries.

The subpoenas were issued by the Senate Permanent Subcommittee on Investigations, whose staff concluded last week that the management and solvency of many of the nation's 73 Blue Cross and Blue Shield plans warranted examination.

Testifying last week, Maryland Insurance Commissioner John A. Donaho said he and his colleagues in other states have a difficult time judging the financial condition of Blue Cross plans because the large number of for-profit subsidiaries created by the plans are not within the scope of regulators.

In addition to the Blue Cross plans in Maryland and the District of Columbia, the Senate subcommittee ordered Ohio Blue Cross and Blue Shield yesterday to turn over financial documents. Representatives of the three plans said they would cooperate fully with the subcommittee's subpoena.

"We intend to cooperate," said Ms. Exstrum at the National Capital Blues.

The Maryland Blues insure 1.4 million state residents. National Capital Blue Cross insures about a million people in the Washington area, including 400,000 in Maryland. About 40 percent of its customers are active or retired government workers. Overall, the company estimates, it insures 14 percent of federal employees nationwide.

Since a change in its federal charter in 1984, National Capital Blue Cross has been exempt from rules and regulations governing insurance in the District of Columbia. Maryland and Virginia regulators, however, take turns examining its books.

National Capital Blue Cross began getting intense scrutiny from Virginia regulators in late June after that state's records on Blue Cross were subpoenaed by the Senate panel. According to Virginia Deputy Insurance Commissioner Alfred Gross, regulators are concerned about the substantial losses reported VTC by the subsidiaries and are closely examining them as part of a scheduled review.

The subsidiaries include an emergency medical travel assistance program in Europe, life and health insurance companies and a health maintenance organization serving about 100,000 customers in Washington. In addition, National Capital owns one of the largest companies in the country that pre-approves hospital admissions and approves requests for extended hospital stays.

Although Virginia and Maryland regulators are concerned about their ability to examine financial records, neither believes

National Capital is headed for insolvency, according to testimony and interviews yesterday.

Ms. Exstrum said the company decided to create for-profit operations beginning in 1984, partly to bring in profits during the cyclical downturns that routinely confront the insurance industry.

Despite initial losses by the majority of the 34 companies, she said, Blue Cross continues to believe that the companies will turn profits and will be sound long-term investments. She said the Blues hired a consultant last month to examine the subsidiaries and other management operations.

National Capital had $1.5 billion in revenues last year.

According to an annual report filed with Maryland regulators, the parent company guaranteed lines of credit worth nearly $24 million for subsidiary companies and could be liable if the subsidiaries defaulted on any loans.

Regulators also are concerned about the plan's purchase of a Jamaica Blue Cross plan, which resulted in a drop in reserves of $40 million in 1987. The company had reserves of $102 million at the end of 1991. A company official said that figure was misleading because additional reserves are held by the federal government for its employees.

Two years ago, National Capital Blue Cross also attempted unsuccessfully to purchase the now-defunct Blues plan in Charleston, W. Va., shortly before the plan failed, with $50 million worth of unpaid medical claims.

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