Governor fires insurance chief Donaho's threat against Blues said to prompt Schaefer

April 09, 1993|By Patricia Meisol and Marina Sarris | Patricia Meisol and Marina Sarris,Staff Writers Staff Writer Suzanne Wooton contributed to this article.

Gov. William Donald Schaefer yesterday fired Insurance Commissioner John A. Donaho, who has been engaged for months in a public battle to gain more control over Blue Cross and Blue Shield of Maryland.

The commissioner learned of his ouster in a phone call 15 minutes before a press conference at which he planned to say he would not resign in the face of mounting criticism from the governor and legislators.

Sources close to Mr. Schaefer said the firing was prompted by Mr. Donaho's latest threat against Blue Cross -- to declare the insurer insolvent unless the General Assembly enacted a bill giving Mr. Donaho more power to regulate the Blues.

From the governor's standpoint, the commissioner was once again scaring hundreds of thousands of policyholders and once again doing so without giving the governor advance notice.

"I think John was a little rough on Blue Cross, a little rougher than he probably should have been," Mr. Schaefer said yesterday on his 3:30 p.m. weekly radio show on WBAL.

The governor said his secretary of budget and fiscal planning, Charles L. Benton Jr., 77, would temporarily run the division until a replacement is chosen within seven to 10 days. Speculation about possible successors centered on David S. Iannucci, the governor's chief lobbyist, and former Sen. Edward J. Kasemeyer.

Mr. Donaho lost his job yesterday when the governor accepted a letter of resignation he had solicited from Mr. Donaho -- as he had from all his top advisers -- at the start of Mr. Schaefer's second term.

The firing capped nine months of battles between the governor and the 75-year-old commissioner, whose outspokenness drew public attention to a national examination of Blue Cross plans by the National Association of Insurance Commissioners and by Congress last summer.

"Since July, the governor and I have had a variety of discussions concerning the Blues and we have had difficulty reaching a meeting of the minds," Mr. Donaho said yesterday. He said Mr. Schaefer just doesn't understand what it takes to regulate an insurance company.

And he said he had done the "best I can to protect the citizens of this state. I believe I have been courageous, I have stood up against interest groups, and I have brought to light the inequities of the health care system and I will continue to do so."

Upsetting the governor

The beginning of the end for Mr. Donaho came Saturday, when the governor learned from an article in The Sun that Mr. Donaho had threatened to declare the insurer insolvent unless the General Assembly enacted a bill to beef up his authority to regulate the Blues.

In a letter to William L. Jews, the Blues' new president, Mr. Donaho said he wanted the state Senate to remove amendments that he believed weakened the bill and would derail its chances in the House. He urged Mr. Jews to help beat back the amendments, which Blue Cross had sought.

"The governor felt he was sending the wrong message to more than 1 million policyholders who have Blue Cross and Blue Shield," said Page W. Boinest, the governor's press secretary.

Threatening an insurer "is not an appropriate lobbying tool," she said, "because what was at stake was the financial health of a major medical insurance company."

Mr. Donaho, speaking at his press conference yesterday, laid blame for his ouster on his decision beginning last summer to challenge Blue Cross and on his April 2 letter to Mr. Jews.

"What is happening to me is a demonstration of what can happen to people who want proper regulation of the Blues," Mr. Donaho said. He said he had acted courageously in standing up to interest groups. "Obviously, my administration of the law without fear or favor" had drawn their ire, he said.

He said recent news reports that he had accepted a limousine ride from a company he regulates were a "smoke screen [planted] by special interest groups."

Mr. Donaho emphatically denied that accepting the limousine ride was improper. The public ethics law allows him to accept "unsolicited gifts of nominal value," he said. Mr. Donaho said he asked the State Ethics Commission for a ruling in the matter and said he would pay the cost of the ride if it were found to be in technical violation of the law.

The governor stressed yesterday that Mr. Donaho's limousine ride had nothing to do with his firing.

"I think it was time that John leave and the problem with the limousine was not in our thinking," Mr. Schaefer said. "I guess it was a conflict of interest. I don't really know."

Growing signs of trouble

There were increasing signs over the past week that Mr. Donaho was in trouble.

At a press conference Tuesday, the governor complained that Mr. Donaho had questioned the insurer's financial health in public while privately assuring him of the company's solvency.

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