Donaho Should Stay

December 20, 1992

Gov. William Donald Schaefer was off-base in his public dressing down of Insurance Commissioner John A. Donaho for allegedly grandstanding and misleading him about the financial well-being of Blue Cross and Blue Shield of Maryland. Mr. Donaho has been upfront and honest regarding his problems in obtaining data about Blue Cross' health. Only now is he in a position to force the insurer to heed his advice.

Under no circumstances should Mr. Donaho resign. Much remains to be done to guide Blue Cross back to financial sufficiency and integrity. A chastened board of directors has much to atone for, and Mr. Donaho is ideally suited to work with reformers on the board in reshaping Blue Cross.

For years, the insurance commissioner complained loudly about the paucity of data given him by Blue Cross. Ex-CEO Carl Sardegna and influential board members frequently intervened with legislators and with the governor to thwart Mr. Donaho. They share responsibility for allowing Blue Cross' financial situation to worsen without giving the insurance commissioner the tools to put a halt to these questionable activities.

Blue Cross' pliant board became pawns for Mr. Sardegna, who routinely conducted business without telling directors about it. He failed to inform them of the existence of several subsidiaries -- even keeping that information from the company's top lawyer. And when Blue Cross' financial problems worsened, Mr. Sardegna never told directors the non-profit company had been placed on a national "watch list" of troubled plans or that he had entered into a management agreement with the national Blue Cross Association to bolster the company's financial strength by this spring.

Now the directors have forced Mr. Sardegna out and have embarked on a major housecleaning and cost-cutting. A top data-processing firm has been called in to end the unconscionable delays in handling claims. Consultants are being terminated in favor of in-house work that is cheaper, faster and often more practical. The directors are using realistic accounting rules and are admitting the company's surplus is closer to $19 million than Mr. Sardegna's $101 million figure.

And finally, legislators are rushing to embrace regulatory reforms that will give Mr. Donaho the power to examine Blue Cross' books more fully and place new requirements on the insurer for giving a public accounting of its financial situation.

Between Mr. Donaho and a newly energized board of directors, a more open, cost-efficient and consumer-oriented Blue Cross may start to emerge. Now is not the time for finger-pointing. Now is the time to let the insurance commissioner do his job so that Maryland's largest health insurer can be nursed back to robust health.

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