Blues given new financial, ethics rules National group hopes to lift plans' images

February 13, 1993|By Patricia Meisol | Patricia Meisol,Staff Writer

The association that oversees the nation's 72 Blue Cross and Blue Shield plans issued new financial and ethics standards yesterday in a bid to bolster the independent plans' sagging reputation.

The standards, approved in November by the board of the

national group, which is made up of the presidents of Blues plans, followed U.S. Senate hearings that looked into excessive spending, poor management and, in three cases, insolvent or nearly insolvent plans, including Maryland's, that used unusual accounting methods to hide their true financial picture.

Under the standards, each independent Blues plan must devise a way to "guarantee" that it can pay medical claims to subscribers in the event of insolvency. This could be done by joining a state guarantee fund or by banding together with other Blues plans to establish a new guarantee fund to protect customers. Also, the plans have to fully disclose the finances of subsidiary companies. In some cases, these subsidiaries have served to drain resources from the health insurance business and increase the cost for all subscribers.

The new standards would be phased in within the next year.

They also require Blues plans to adopt ethics codes dealing with conflicts of interest and "insider deals" by officers and directors, "a code that would make clear our plans to adhere to the highest business ethics," said Cheryl Arvidson of the Chicago-based Blue Cross and Blue Shield Association.

The national association, which licenses member plans, said it wouldimprove its own oversight, including using a new method to assess a plan's finances, require increased capital and liquidity reserves, and begin monitoring plans that remain weak even while meeting minimum requirements.

The Maryland Blues plan would be largely unaffected by the changes, since it is already in a guarantee fund and because similar or more stringent requirements are included in a reform bill passed by the House Economic Matters Committee yesterday.

LTC Moreover, the proposed changes appear to fall short of those sought by a special committee of the National Association of Insurance Commissioners, which has looked into regulatory problems with the Blues nationwide.

The panel, founded in part at the urging of Maryland Insurance Commissioner John A. Donaho, recommended this fall that the NAIC develop uniform financial reporting standards for Blue plans and that the Blues be required to participate in guarantee funds.

The NAIC panel also wants to investigate whether the national Blues association even enforces its own standards. Unlike commercial insurance companies, which follow uniform standards set by the NAIC and adopted by the states, Blues plans report to individual state commissioners and follow a variety of standards.

PD Currently, 22 states, including Maryland, require Blues plans to

participate in guarantee funds.

Most Blues plans are healthy, the Chicago-based association said. The main problem with the Blues that are not, however, has been the inability of regulators and the national association to assess the plans' finances, particularly whether their unrelated subsidiary businesses are draining away company cash that many believe should be pumped back into the main business.

The national Blues association was roundly criticized in U.S. Senate hearings last month by Virginia Insurance Commissioner Steven Foster, who chairs the NAIC, for saying that it would not pull the license of any plan until the plan's reserves dipped to a level of "zero."

By then, as happened in the case of the West Virginia Blue Cross plan, the public and providers could be stuck with multimillion-dollar medical bills. Over the years, the national Blues group has put up to 15 plans on a watch list because of major financial problems, but it has never pulled a license.

Mr. Foster said yesterday that the changes paralleled those recommended by the NAIC special committee and would be carefully monitored by state insurance regulators. He said the NAIC would "continue to investigate steps" it can take to protect consumers served by Blue plans.

Similarly, the changes were praised as a "good first step" by Sen. Sam Nunn, a Democrat from Georgia. Mr. Nunn, whose subcommittee is investigating abuse and mismanagement by the plans, also said he'd continue to work with the group.

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