The commish stood his ground

Bruce L Bortz

February 11, 1993|By Bruce L Bortz

JOHN A. Donaho, has demonstrated that you can defy the governor of Maryland and survive -- even succeed.

If you're one of Gov. William Donald Schaefer's top appointees, there are two basic precepts. First, listen to what he says about you in public.Whether lavish praise or unrelenting ridicule, it's almost always a reliable gauge of where you stand. Second, at any event attended by the boss, accord all deference to him, particularly if you're interested in retaining your position. Even appearing to question his judgment is a professional death wish.

A case in point was a mid-December state Board of Public Workmeeting, at which Mr. Donaho, Mr. Schaefer's state insurance commissioner, violated both rules. The 75-year-old Mr. Donaho, who has never received extravagant praise from his boss in his three years as head of Maryland's insurance division, politely suggested that Mr. Schaefer didn't quite "get it."

At issue was how to properly regulate Blue Cross/Blue Shield of Maryland, which provides medical insurance for 1.4 million Marylanders. Earlier in the month, Comptroller (and board member) Louis Goldstein, citing newspaper stories about the Blues, had voiced concern over the company's solvency. "Bring Donaho before the board," barked the governor.

When Mr. Donaho made his command appearance Dec. 16, Mr. Goldstein started him off with a simple but fundamental question: Could the company pay doctors, hospitals and other health-care providers under claims filed with the Blues? Mr. Donaho said he thought the company would be able to meet contractual obligations. Its cash flow was "sufficient," and the company's overall finances were improving as it sold off a number of cash-draining subsidiaries, said Mr. Donaho.

The governor was unimpressed. He told Mr. Donaho he'd bee"commissioner for some time now, and your statements before Congress [Mr. Donaho had appeared before a Senate committee looking into Blues operations] and before us seem to indicate that everyone is at fault but the commissioner."

Several times, said Mr. Schaefer, he had asked Mr. Donaho whether the Blues were in such a precarious position as to require state takeover. "You continually tell me 'no.' " The state, said Mr. Donaho in an unyielding response, was right not to seize company assets. The Blues were never insolvent.

For Governor Schaefer, the Blues problem centered more on MrDonaho than on the company itself. "In my opinion," he said, "you have caused a problem" by being so public about the company's problems. And, though the Blues' financial difficulties had been evident for some time, "John, you didn't do anything about it!"

Mr. Schaefer does have a point about going public with thBlues' financial woes. The state's largest insurance company is not a bank, but it can suffer a "run" if it loses public confidence. The insurance commissioner is obligated to do everything he can to help the company put out the fire before raising public alarm.

But by going public, Mr. Donaho set off a remarkable chain of events that may have saved the Blues. Company officials, whom the congressional committee accused of mismanagement and excessive spending, have resigned or retired. A new Blues chairman is instigating reforms. The company's main problem -- spending too much money on subsidiaries not directly related to its primary mission -- seems well on the way to being solved. And reform bills, one of which increases the Blues' required reserves against paying claims, are before the General Assembly.

And Mr. Donaho is still in office. True, one reason is that Mr. Schaefer can't afford to fire him. It would be a public relations disaster. Moreover, to keep insurance companies in Maryland, and to keep their tax dollars going into state coffers, the state needs to win accreditation of Mr. Donaho's division by the National Association of Insurance Commissioners. Dispatching the commish before June or July -- when the accreditation process will be moving along -- would send the wrong message to the association and to the nation's insurance industry.

In the end, by going public, Mr. Donaho may have saved the Blues. The governor, by choosing to publicly savage his insurance commissioner, may have accomplished nothing more than displaying again his proclivity for personal pique. Had Mr. Donaho's predecessors been similarly forthcoming about the savings and loan crisis, Marylanders might have saved a good deal of money.

Bruce L. Bortz is editor of the Maryland Report and Maryland Procurement newsletters and a political analyst for Channel 45. He writes here every other Thursday.

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