Blues treasurer rejects rosy outlook

September 26, 1992|By Patricia Meisol and Ann LoLordo | Patricia Meisol and Ann LoLordo,Staff Writers

WASHINGTON -- In a surprise sworn statement unveiled yesterday at a U.S. Senate subcommittee hearing, the treasurer of Blue Cross and Blue Shield of Maryland disputed the picture of improving financial health painted by her bosses.

The treasurer, Rosemarie K. Schwartz, told Senate probers that she believed the $100 million-plus surplus now claimed by the insurer should be, under a stricter interpretation of accounting rules, around $18 million.

Mrs. Schwartz's opinion was revealed during a two-hour grilling of Blues Chief Executive Officer Carl J. Sardegna by Sen. Sam Nunn, D-Ga., chairman of the Senate Permanent Subcommittee on Investigations.

Mrs. Schwartz, Senator Nunn told Mr. Sardegna, "leveled a number of accusations against the senior management of the plan and a number of the subsidiaries."

"One of the more serious things she said under oath . . . was that your statement of your surplus or net worth is not really $100 million but rather should be somewhere in the neighborhood of $18 million," Senator Nunn said.

Mrs. Schwartz's assessment is the first by a company insider to differ with the insurer's portrayal of itself as on the road to recovery. It was followed by the revelation that a Blues consultant predicts possible losses of up to $100 million within three years.

The disclosures came as Mr. Sardegna sought to assure the Senate panel that Blue Cross was in its best shape in years.

"All of our managed care subsidiaries are profitable," Mr. Sardegna said. "Our reserves for unpaid claims are conservatively stated. Our surplus account exceeds $100 million. Without a doubt, Blue Cross and Blue Shield of Maryland is in its strongest financial position since 1985."

State Insurance Commissioner John A. Donaho told the panel that he planned to ask the Maryland legislature to grant his agency more regulatory powers next year to better oversee the Blues.

Mr. Sardegna appeared to be caught off guard when Senator Nunn confronted him with statements by Mrs. Schwartz, who testified under subpoena for five hours to Senate staff Thursday. She did not appear in person yesterday.

In her deposition, Mrs. Schwartz said she raised concerns with top Blues executives about the insurer's financial statements, including that the 1990 reserve may have been achieved in violation of state rules. But her objections were overruled, she said, because they would result in lower reserves, and this was "unacceptable to management."

She said the officers -- Chief Financial Officer Peter Campisi and Senior Vice President Philip Grantham -- insisted that the company show a continuing upward growth trend in its reserves, and that she believed they were following the instruction of Mr. Sardegna.

"It was unacceptable to management," Mrs. Schwartz said in the deposition when asked why a questionable $42 million asset had not been removed from the books.

"What do you mean by, 'It was unacceptable to management,' ?" the Senate investigators asked.

"It was not an option at that time to take a hit to statutory reserves," she said.

"Why wasn't it an option? Was that explained to you?"

"Because it was felt that it was important to show a continuing trend of building statutory reserves," she replied.

"Public perception was very important," Mrs. Schwartz said when asked why it was so important to show continual growth in reserves.

In her sworn statement, the treasurer also accused Mr. Sardegna of misrepresenting the ability of the Blues to convert assets to cash when he testified in public hearings this summer. She also called descriptions of the company's financial condition in advertisements published in The Baltimore Sun, including today's, "misleading."

In two hours of testimony yesterday, Mr. Sardegna expressed surprise at the treasurer's comments, saying she never told him of her concern.

"I would have hoped she would have expressed that opinion to me. She did not," Mr. Sardegna said. "It gives me a great deal of concern."

As he has done in recent weeks, Mr. Sardegna defended his company's financial position, asserting it is on the upswing, and defended the Blues' methods of valuing assets and other measures that have helped boost the reserve in recent years.

These included claiming $42 million in debt from subsidiaries as an asset, claiming $21 million worth of furniture and equipment, and valuing a subsidiary, CareFirst, at $34 million according to a method not typically allowed in the industry.

These items all were approved by the Maryland state insurance commissioner. Although one Blues top executive yesterday conceded that they were unusual, Mr. Sardegna defended them as appropriate and well within the insurance commissioner's authority.

Mrs. Schwartz, treasurer at Blue Cross since 1989, declined to elaborate yesterday on her deposition. But Mark H. Tuohey III, the attorney retained by Blue Cross to represent her, said Mrs. Schwartz had "professional differences" with various people at Blue Cross in calculating the company's reserves.

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