House panel OKs more control over Blues

February 13, 1993

A House committee yesterday unanimously approved a bill giving the state's insurance commissioner wide powers to regulate Blue Cross and Blue Shield of Maryland.

The bill is designed to fix a regulatory code that allowed the state's largest health insurer to sidestep scrutiny of its finances. As amended by the House Economic Matters Committee, House Bill 238 is more stringent than the reforms sought by the insurance commissioner in several key areas -- the type of assets that the insurer can count toward its reserve, or excess funds for unexpected bills, as well as the oversight and makeup of the board of directors.

The bill bars the insurer from counting stock in its subsidiaries as an asset unless the stock is publicly offered for sale or traded on an exchange, or unless the insurance commissioner believes it is so valuable that it could be sold instantly for cash at the assessed price. Generally, insurance companies use the most conservative method for valuing subsidiaries, usually no more than the company's net worth. The Blues claimed a much higher value for its CareFirst subsidiary and its other health maintenance organizations last year, leading the insurance commissioner to seek an outside assessment of the value before making his own assessment of what the companies could be sold for. That ruling is expected next month.

The bill also adds two consumer members to the board of directors, to be appointed by the governor with the advice of the insurance commissioner. In addition, it limits the terms of directors, and gives the commissioner power to remove directors when their actions are deemed to have harmed the company.

The bill is expected to be voted on by the full House Wednesday. It then would go to the Senate. Insurance Commissioner John A. Donaho expressed gratitude yesterday for what he noted was a stronger bill than what he proposed, calling it a "very positive step."

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