Irked Schaefer rebukes Donaho for alarming public about Blues

December 17, 1992|By Patricia Meisol | Patricia Meisol,Staff Writer

ANNAPOLIS -- Gov. William Donald Schaefer, saying he was satisfied the state's largest health insurer can pay its bills, publicly rebuked state Insurance Commissioner John A. Donaho yesterday for raising alarms about the financial condition of Blue Cross and Blue Shield of Maryland.

The governor said that whenever he asked Mr. Donaho whether it was necessary to take over the company or declare it bankrupt, "the answer always has been no."

"Saying Blue Cross' financial condition is of great concern was all great for the press," the governor said, referring to Mr. Donaho's testimony before a U.S. Senate subcommittee in July.

"This shakes the confidence of all of us in Blue Cross-Blue Shield," he said, "and that is of great concern to me."

"I don't like it at all," he continued during a meeting of the Board of Public Works. "What you have done in my opinion is caused a problem, a worry. . . ."

In response, a surprised Mr. Donaho said he didn't think a state takeover of the health insurer was warranted and asked the governor to review again the reasons Mr. Donaho gave for his concern back in July.

After the meeting, the commissioner noted that some have characterized him as a "loose cannon. But loose cannons don't testify under subpoena," he said.

He said that if he doesn't have the governor's confidence, "maybe I ought to consider resigning." But he said he had no plans to do so, noting that he took the job at the governor's behest three years ago at "considerable expense" to himself.

The governor, on his weekly radio talk show on WBAL later in the day, declined to directly answer whether he supported Mr. Donaho.

"If he gets off that and gets back to running the insurance business, then I'll be fine. But otherwise, appearing before Congress and becoming a television star. . . ."

Mr. Donaho told the Board of Public Works that Blue Cross, the state's largest health insurer, was correcting serious problems in cooperation with state regulators.

At a four-hour hearing of the House Economic Matters Committee that followed the board meeting, Mr. Donaho defended himself further and outlined his division's legislative package for the coming session of the General Assembly.

Mr. Donaho said he hadn't tried to change the laws governing Blue Cross before -- for example, seeking to require the Blues to keep more money in reserve for emergencies -- because these would be blocked by the insurer. He said his decision was based on "political realities."

He reminded lawmakers that they had approved and funded a management study of the Blues that Mr. Donaho had sought but which was never begun because the Blues successfully intervened.

Mr. Donaho said that had it not been for the investigation by the U.S. Senate Permanent Subcommittee on Investigations, chaired by Sen. Sam Nunn, D-Ga., Blue Cross of Maryland might have remained on a downward spiral. He said the Senate hearings provided regulators with the kind of information they needed to help assess the company's condition and bring about change.

"Instead of hurting the Blues, I have helped them," Mr. Donaho said.

The commissioner, cautioning that he would not know the precise condition of the company until regulators completed their review next June, nonetheless reiterated that subscribers and providers should not worry. "They will be paid," Mr. Donaho said.

Mr. Donaho asked lawmakers yesterday to support a bill to improve his ability to regulate the Blues, including a requirement to increase its reserve requirement from $75,000 to 8 percent of premiums, or about $56 million. The bill, to be submitted by the Department of Licensing and Regulation, would also guarantee the department better information from the Blues and make its directors responsible for notifying the insurance division in the event of insolvency.

Since the U.S. Senate hearings in September, six of the company's top officers have left, and the company's directors have conducted a review of spending and management.

Yesterday, Frank A. Gunther Jr., who took over as chairman of the insurer in October, told lawmakers that it "blew my mind" to learn in November that then-Blues President Carl J. Sardegna had agreed with the Blue Cross national association, which controls its license, to comply with certain financial criteria by the end of the year.

He and acting Chief Executive William A. Beasman recounted the changes ordered by the insurers' directors in recent weeks, including the departure of top executives, a review of executive salaries, an end to company-paid perks, and regular reports to the public. They said they could cut expenses almost immediately by moving some work in-house that was previously farmed out to consultants -- at an average cost of $5 million a year for the past five years.

They said the company's primary concern was improving service to customers, which is now among the worst of any Blues plans in the country. Mr. Beasman said the Blues was negotiating with EDS Corp. to help it process claims.

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