Color them (black and) blue

October 01, 1992

Blue Cross and Blue Shield of Maryland has been taking a pummeling recently, and justifiably so. The posh perks, the exorbitant salaries, the huge losses in failed for-profit business ventures all raise grave concerns over the operation of the state's non-profit health insurer. Yet key state legislators hardly seem alarmed. Apparently the findings by a U.S. Senate subcommittee of questionable Blues practices doesn't bother them. It should.

The 1.4 million Marylanders covered by the Blues paid through higher premiums for the $120 million in losses the company sustained from forays into dubious profit-making enterprises. They also will wind up paying for the regal lifestyles company executives enjoy: gargantuan pay raises for bosses already earning six-figure salaries; luxury accommodations at baseball games, the race track and the golf course; free trips to the Calgary and Barcelona Olympics; an incredible $2.3 million in travel expenses for just one year.

The list runs on and on. The people supposedly in charge, the Blues' directors, have been asleep at the switch. Instead of overseeing the operation, board members became obedient servants of Carl J. Sardegna, who not only runs the company but also conveniently serves as chairman of the board.

Mr. Sardegna has wined and dined those who might be of help to his company. He even hosted Insurance Commissioner John A. Donaho in the company's sky box at Oriole Park, a move that raises obvious ethics questions. Mr. Donaho has admitted his error and is promulgating rules to avoid any repetition. But the Blues have yet to say the company will alter its ways.

Mr. Donaho wants new power from the legislature so his office can regulate the Blues' for-profit ventures, force the company to increase its reserves if needed and remove executives who defy his orders. Given the irresponsible practices uncovered so far, this is the minimum the commissioner should expect from state lawmakers.

In recent years, Mr. Sardegna has improved the Blues' financial stability. But some of the company's internal expenses should never have been sanctioned by the board. Nor should the board have been so quick to give the go-ahead on subsidiaries unrelated to basic health insurance. And the board never should have sanctioned the kinds of accounting tricks that mask the true condition of the company. It is time for the directors to regain control of Blue Cross and Blue Shield. They owe it to the company's 1.4 million policy holders.

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