The congressional invesstigation of Blue Cross and Blue Shield of Maryland not only criticized the plans' operations and management, it seriously questioned the ability of state regulators to oversee Maryland's largest health insurer.
When state insurance commissioner John A. Donaho appeared before the U.S. Senate Permanent Subcomittee on Investigations in late September, he told the panel's chairman just what he needed to keep a tighter reign on the Maryland Blues.
But, as U.S. Sen. Sam Nunn pointed out that day, the future strength of the state's regulatory authority rests not so much with Mr. Donaho.
"Do you think the prospects for getting your legislative package through the Maryland legislature are pretty good?" the Georgia senator asked Mr. Donaho.
"Is the governor backing those?" Mr. Nunn wanted to know.
Mr. Donaho was politic as ever, suggesting that the Senate committee's good work investigating the Blues had enhanced his chances in Annapolis and that the governor's staff had already been briefed.
But the month-old questions remain unanswered.
The only public statement Gov. William Donald Schaefer has made on the Blues' problems has been this: "I don't think they're bankrupt. I think they're solvent."
Del. Casper R. Taylor, D-Allegany, one of two key lawmakers who will oversee Mr. Donaho's package as it moves through the legislature, won't say publicly where he stands on Mr. Donaho's proposals. Mr. Taylor, who chairs the House Economic Matters Committee, contends that he hasn't seen the commissioner's regulatory initiatives -- although the lawmaker's legislative aide attended the Washington hearings during which Mr. Donaho's proposals were unveiled.
"I haven't seen any legislation. There's no way I can put my name to anything unless I see legislation," said Mr. Taylor, who repeatedly has pointed out that the insurance commissioner has always assured his committee that he had all the tools needed to do his job.
But Mr. Taylor added, "I fully expect the legislature to pass a package of legislation relevant to some regulatory authority that is in this general subject area."
His counterpart in the Senate, Prince Georges Democrat Thomas P. O'Reilly, said he expects to meet with Mr. Donaho to discuss his needs. And whether Mr. Schaefer decides to embrace Mr. Donaho's package doesn't matter to him. "We're going to do what's right," said Mr. O'Reilly.
The furor over the Maryland Blues began over this issue of regulation.
During a hearing in Washington this summer, Mr. Donaho complained to Sen. Nunn's subcommittee that Blue Cross routinely thwarted his authority. That and a host of other complaints led to an investigation by Mr. Nunn's staff, which culminated in a series of startling revelations about the way the Blues do business. Exorbitant salaries for top executives. Financially-draining subsidiaries. Tickets to the Olympics for influential customers and rewarded staff. Disputed financial reserves. A history of poor management.
The effects of the investigation continue to be felt at Blues' headquarters in Owings Mills where an embarrassed board of directors searches for ways to restore the public's confidence in the "name to trust."
Mr. Donaho has proposed a 10-point plan to strengthen his regulatory authority over the Blues. The insurance commissioner wants the power to increase level of reserves required, prohibit the ownership of non-health care subsidiaries, examine records of all Blues affiliates and subsidiaries, to fine company officers and directors for failure to obey a commissioner's order and to remove directors if they disobey his rules.
Already, however, state lawmakers are coming up with their own ways to reign in the Blues.
State Sen. Walter Baker, D-Cecil, is considering calling for a special investigation of the Blues "because the Blue Cross rates are going up and up and people can't afford the Blue Cross rates."
"If the management of the company is, as indicated in the paper, I think there should be an investigation. We had the savings and loan fiasco, didn't we?" Mr. Baker asked.
Del. Joan B. Pitkin, D-Prince George's, has a list of possible actions. She wants to cap the administrative costs of a health insurer by restricting them to a certain percentage; to limit the Blues' investment in other business to "areas of their expertise, which is health care;" to give the state rate-making authority over the Blues' group customers.
"It's a touchy business. I think there will be a lot of screaming about the state getting into people's business," said Ms. Pitkin, who sits on the Environmental Matters Committee, which handles health issues. "There are a lot of forces at work."
Governor Schaefer has refused to discuss the Blues controversy publicly. And the governor's legislative aides say it's too early to know if Mr. Donaho's requests will be embraced by Mr. Schaefer.