Regulatory Blues Squabble Over Financial Condition

August 09, 1992|By PETER H. FRANK | PETER H. FRANK,Peter Frank, an assistant business editor of The Baltimore Sun, covered insurance issues for four years.

Twenty minutes.

In just 20 minutes -- less than the length of a long coffee break -- legislators in Annapolis had heard enough from the state's top insurance regulator regarding his disturbing concerns about the state's top health insurer.

Blue Cross and Blue Shield of Maryland executives spent four and a half hours explaining the company's position. John A. Donaho, Maryland's Insurance Commissioner, then spent less than 20 minutes, including the time it took to answer questions.

The gathering, held before the House Economic Matters Committee, had been billed by Del. Casper R. Taylor Jr., who chairs the committee, as an opportunity to separate "fact from fiction" in the aftermath of Mr. Donaho's surprising testimony earlier in the month before a U.S. Senate subcommittee.

What it turned out to be was a missed opportunity.

Mr. Taylor had scheduled the hearing just days after Mr. Donaho testified in Washington that the Blue Cross and Blue Shield plan in Maryland was "barely solvent," displayed poor management and set up money-losing subsidiaries outside his regulatory purview. The General Assembly would be given an opportunity to examine the issues.

And for good reason. Roughly 1.4 million Marylanders depend on the Blues for insurance. The argument over the company's financial condition, its corporate structure and its management is more than a squabble between a well-paid corporate chairman and a frustrated bureaucrat. The answer to these questions affect what kind and how much health care these people receive.

Given the high cost of health care, the thousands of people in Maryland who cannot afford it and the importance of Blue Cross in shaping the kind of care state residents receive, one might have expected a committee eager to pepper Mr. Donaho with questions for hours -- if not days.

What's behind his concerns? What troubles him so much that he would be willing to create such a furor? Where are the specifics to back up his comments? What does he think should be done? What help does he want? And what help does Blue Cross need?

The dispute between the two sides -- regulators and the $H company -- is to be expected. Regulators want information and unimpeded access to a company's files. For the most part, it has that right under Maryland law.

Blue Cross wants to be left alone to run its business the way it wants, which, presumably, is part of corporate nature.

But beyond the clash of personalities, though that figures in, the disagreement between Mr. Donaho and Blue Cross chairman Carl J. Sardegna essentially stems from a difference of opinion about the direction and objectives of Blue Cross.

Is it just another big insurer that wants to compete with other insurance companies on equal footing?

Or does its size and non-profit status and special role in Maryland mean it demands intense scrutiny from state regulators?

Created under a 1937 law as the Associated Hospital Service of Baltimore, what is now Blue Cross and Blue Shield of Maryland is actually a "non-profit health service plan." It has no owner but is run by a board of directors who vote each other in. What rules it follows are ultimately set by the legislature.

Blue Cross has consistently -- and correctly -- argued that it is hamstrung by its special status. The company says the unique rules governing its operations hurt. Regulators argue that without those special rules, the citizens might be hurt.

But the fact is it is no longer 1937. Then, for 75 cents a month, an individual would be guaranteed medical care at 12 local hospitals. The cost was twice that amount for a husband and wife and $2 a month for a family, regardless of the number of children.

It was simple. All the money went into one big pool and when people got sick, the hospitals were paid from the funds.

While the company continues to offer insurance to all comers, it is a far different world. Now, with the cost of health care skyrocketing, with computer programs tracking medical histories, expenses, premiums and more, and with new and diverse types of insurance dominating much of the marketplace, little about the business is simple anymore.

While still exempt from state premium taxes, the company now pays federal taxes. It also competes against commercial insurers that can raise money through the sale of stock, the issuance of debt or from income earned on ventures not allowed to the Blues.

No longer is insurance even its primary business. Sixty percent of its operations deal essentially with doing the bookkeeping for other companies. For a fee, Blue Cross does the paperwork and the companies pay the medical bills. The HMO business, love it or hate it, is an increasingly large part of the pie. Together with group insurance policies, it accounts for about 25 percent of the whole.

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