Unflattering Portrait of the Blues

September 29, 1992

What emerged from two days of congressional testimony on the condition of Blue Cross and Blue Shield of Maryland was a company desperately trying to paint a flattering public portrait of itself even as it played loose with financial figures, lavished excessive perks on its executives and plunged into a series of poorly conceived ventures that cost the company $120 million over 10 years.

It is a damning portrait. Most damning is that it all took place under the less-than-watchful eye of the Blues' board of directors. Instead of protecting the public's interests, the board protected management's interests.

How else do you explain $850,000 in compensation for Carl J. Sardegna, the chief executive officer of this non-profit group? That ranks near the top among local private-sector CEOs. Outrageous. So is the 181 percent compensation increase for the company's top 10 executives in just five years. Or the 40 executives earning more than $100,000.

Just as mind-boggling is the $200,000 spent for executives to go to the Calgary and Barcelona Olympics, the skybox at Oriole Park, the corporate membership at Cave's Valley Golf Course and the $2.8 million in 1991 travel expenses.

But clearly the most troubling aspect of the congressional testimony was the admission by the Blues' treasurer that the company's profitability is far less than advertised. Instead of the $100-million-plus surplus claimed by the Blues, treasurer Rosemarie Schwartz said a more conservative accounting would place the surplus at $18 million. That might not be enough to withstand the next downturn in the insurance underwriting cycle.

Still, top executives and board members insist on giving the public only good news. They don't want to alarm their subscribers. Yet what is needed here is a good dose of candor. The 1.4 million Marylanders covered by the Blues deserve to know what's really happening.

There's broad agreement that the Blues' condition today is much improved from a few years ago. It is a stronger, better managed company. But not as strong and not as well-managed as the board and its executives have been telling us. There are serious problems -- massive overspending for perks and luxuries, posh salaries, the juggling of accounting standards to make the company look good and an on-going effort to prevent regulators from overseeing the company's operations.

This must end. State legislators have to give the insurance commissioner the power he needs to discover what is really happening at Blue Cross and Blue Shield. And the board of directors has to start demanding of executives that they slash internal expenses, focus the company on its prime responsibility of health-care insurance and put an end to deceptive public-relations practices.

The only portrait of the Blues consumers will accept is an honest one.

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