There is nothing wrong with Carl J. Sardegna's grand vision to transform Maryland Blue Cross and Blue Shield from a non-profit health insurance organization into a competitive health-care management company. But in his zeal to realize this vision, Mr. Sardegna should be careful not to lose sight of the organization's special status as the health insurer of last resort that is supposed to provide affordable health care coverage for Marylanders.
When Mr. Sardegna took over the management of the Maryland Blues seven years ago, it was in horrendous financial shape and barely solvent. He developed a simple strategic plan: decrease the size of its insurance business and expand its profit-making businesses such as health maintenance organizations, claims processing companies and other less-regulated enterprises. He wanted the operations of the non-profit organization to mimic those of a commercial insurer.
Many of these new investments failed, consuming more than $140 million in precious capital. Unlike a commercial insurer, which can use profits to cover losses or issue new stock to raise capital, the Maryland Blues rely on subscriber premiums or profits from their subsidiaries for their capital. If the profit-making businesses result only in losses, the burden will inevitably fall on subscribers, who will pay higher premiums for their coverage.