Donaho sets sights on reforms But Schaefer snubs commissioner's bill

January 09, 1993|By Patricia Meisol | Patricia Meisol,Staff Writer

State insurance commissioner John A. Donaho will make a bid for more power to regulate Blue Cross and Blue Shield of Maryland in the next session of the General Assembly, which opens Wednesday -- but without the help of Gov. William Donald Schaefer.

A departmental bill to be introduced in the House next week would give the insurance commissioner access to the insurer's books at any time as well as power to remove directors and to stop the Blues from opening new businesses.

Moreover, Mr. Donaho will try for the second year to obtain passage of an additional set of reforms that would vastly improve his ability to regulate the rest of the insurance industry in Maryland.

But Gov. Schaefer, who last month publicly rebuked Mr. Donaho for raising alarms about the Blues' financial condition, has issued a snub of sorts. While allowing the reforms to be submitted by the department, he has refused to include them among the 1,000 or so bills he will present in his administration package, thereby leaving Mr. Donaho on his own in the legislature.

Mr. Donaho is making his bid at a time when his position over the Blues has been significantly strengthened by the exposure of the insurer's financial and management weaknesses. The Blues' former chief, Carl J. Sardegna, resigned in December after months of increasing criticism from government, including an investigation last fall by the Senate subcommittee headed by Sen. Sam Nunn, D-Ga., and heightened scrutiny from the press.

Blue Cross, which on previous occasions thwarted Mr. Donaho's efforts to closely examine its financial position, is in general agreement with the commissioner's bill and will support it, according to Fran Tracy, Blue Cross vice president of government affairs. "Now, we are saying, we understand the need to come forward with additional information," she said, referring to the section of the bill that requires the insurer to open its books.

The stakes are high. First, there are more than 1 million people in Maryland and Washington who are directly insured by Blue Cross and Blue Shield plans and who are depending on state regulators to watch over the companies' solvency.

Second, the insurance division lacks the ability to detect financially troubled companies so that these can be monitored more closely, according to a recent review by the Department of Fiscal Services. Unless the state can correct this and meet standards set by the National Association of Insurance Commissioners, companies headquartered here may be forced to move to other states.

Mr. Donaho, who has long complained that his division's ability to protect consumers has been hindered by political interference, now has support in some quarters of the General Assembly.

Casper R. Taylor Jr., chairman of the House Economic Matters committee, said he plans to introduce bills next week that are tougher than the commissioner's requirements for areas including financial strength and qualifications of Blues directors. He is prepared to support the commissioner.

"My prediction is, we will pass the commissioner's bill in some form," Mr. Taylor said.

Mr. Taylor said he hopes the General Assembly can agree on independent funding for the insurance division, now part of the Department of Licensing and Regulation.

A key part of Mr. Donaho's Blues bill calls for the insurer to build a financial reserve equal to at least 8 percent of its annual revenues. The reserve would act as a cushion in the event the Blues used up the fund it sets aside every year to pay medical bills. The current legal cushion would be used up in "minutes," associate commissioner Chuck Siegel testified last month.

The proposed reserve requirement is not as tough as Virginia's, which requires it equal 45 days' worth of bills, but it represents a significant increase over the $75,000 minimum that is now mandated.

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