Blues board seeks to limit top pay Insurer could owe $7 million to Sardegna, 5 other former officers

December 23, 1992|By Patricia Meisol | Patricia Meisol,Staff Writer

ANNAPOLIS -- Directors of Blue Cross and Blue Shield of Maryland are investigating whether they are legally obligated to pay an estimated $2.5 million in benefits to former President Carl J. Sardegna.

Mr. Sardegna quit Dec. 4 in the wake of a critical U.S. Senate investigation. His resignation also came after board members learned that he kept vital information from them, including the fact that the insurer had pledged to meet certain financial standards as a condition of maintaining the Blue Cross name.

"Our intent is to do what we have to do according to law and not a penny more," Blue Cross Chairman Frank A. Gunther Jr. told the state Senate Finance Committee in a four-hour hearing yesterday.

Blue Cross could pay as much as $7 million in retirement and severance to Mr. Sardegna and five top managers on his team under agreements approved by the company's board in recent years. They left the company after a U.S. Senate staff report questioned their management practices.

Also yesterday, state Insurance Commissioner John A. Donaho said he would return to Congress next month, under subpoena, to tell what he knows about the Blue Cross plan in the District of Columbia. His July testimony before a congressional committee launched the investigation of Maryland Blue Cross.

He asked Maryland lawmakers to approve a package of new laws to help him better regulate Blue Cross and other insurers, warning that if states do not improve oversight of Blue Cross plans, federal legislators will step in.

States have regulated insurance for more than 130 years, he noted. But Mr. Donaho, who helped start a national reform movement two years ago, said Sen. Sam Nunn, D-Ga., chairman of the Senate Permanent Subcommittee on Investigations, would introduce legislation if states don't do it first.

The commissioner also told lawmakers a potential merger between Blue Cross plans in Washington and Virginia, a deal announced several months ago, could collapse because of serious problems in the D.C. plan.The D.C. plan includes 450,000 Marylanders.

Members of the Senate Finance panel yesterday grilled the commissioner as well as Blues executives on the company's future. Some questions focused on whether board members are being adequately advised on the company's finances.

Lawmakers were assured that the insurer's new executives, when hired, would be paid salaries comparable to those of other Blues plans nationally.

Responding to comments from Sen. James C. Simpson, D-Charles, that Mr. Sardegna should have been fired, Mr. Gunther said such an ouster would not have legally mattered in regard to his retirement package.

Mr. Sardegna, whose $850,000 salary and bonus last year made him one of the highest-paid insurance executives in the country, could not be reached yesterday for comment. To date, no money has been paid to him.

A company spokesman said yesterday that the board is in the process of hiring an outside law firm to review the contract with Mr. Sardegna. He would get about $2 million in cash based on an average of his last three years' salary, under a salary package negotiated in 1990. In addition, he is entitled to as much as a year's base salary, about $450,000, under a severance plan passed several years ago.

Mr. Gunther said the board had not decided how to reduce the $3.7 million retirement package for company attorney Fred M. Gloth Jr.

Mr. Gloth's regular company pension after more than 40 years totals $1.5 million; the remaining retirement benefits were added in 1991. But after the total became public, board members expressed shock and said they would change it.

Mr. Gunther told lawmakers yesterday that even if the board does away with high salaries and perks as planned, the move isn't likely to lead to lower premiums. The salaries counted for one-tenth of 1 percent of the 10 percent increase to subscribers last year, he said.

He also said that the company is negotiating to sell part of Green Spring Health Services, which manages mental health care, and could raise as much as $20 million in cash by mid-January to add to reserves.

Blue Cross now estimates reserves at $19 million, down from the $107 million claimed in June when it used a more liberal interpretation of accounting rules.

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