Sending the Wrong Message

April 10, 1993

Gov. William Donald Schaefer, according to his press secretary, fired Insurance Commissioner John A. Donaho because "he was sending the wrong message" to Blue Cross and Blue Shield policy holders. In truth, it is the governor who is sending the wrong message -- to the Blues' customers, to the legislature, to the insurance industry and, worst of all, to Mr. Donaho's potential successors.

Mr. Donaho was not a model bureaucrat. He took dramatic and often controversial steps without first warning his boss, the governor. He seemed to go out of his way to anger influential state legislators whose cooperation was critical to his getting his job done. He took on one of the most powerful companies in his domain without mustering the political support essential to victory. He reveled in a gruff, in-your-face image.

But Mr. Donaho knew what he was talking about. Although he appeared at times to be sending mixed signals, he sounded the alarm about the shaky financial state of the Blues -- the underpinning of health insurance in Maryland -- and the dangers inherent in its razzle-dazzle management style. As much as anyone, he is responsible for the fact that the Blues have cleaned house and are back on the path toward financial stability.

By abruptly firing Mr. Donaho, Mr. Schaefer has raised serious doubts how vigorously he wants the Blues to be policed. He fired Mr. Donaho because of the way the commissioner was continuing to press the Blues to meet high standards. Mr. Donaho may not have been very diplomatic about it, but he was on the right track. The Blues are too central to health insurance in Maryland to operate without the closest public scrutiny.

Mr. Schaefer faults Mr. Donaho for playing hardball with the Blues in seeking greater regulatory power. But the Blues were playing hardball with Mr. Donaho in the legislature to water down his reform plans. The main difference was that Mr. Donaho was operating in full public view -- something the governor hates -- while the Blues were playing the influence game behind the scenes.

When Mr. Donaho was named commissioner, after his predecessor had failed to take hold of the agency, Mr. Schaefer said, "Insurance is my responsibility, direct. . . So there will be no mistake about who is responsible, it's me." Nevertheless, Mr. Schaefer deserves little credit for having pulled the Blues back from the brink. And he now has the onus for creating the impression he is loath to hold the Blues to strict standards.

If Mr. Schaefer wants to counter this impression, he must pick his new commissioner carefully. A politician, a crony, a bureaucrat, a legislator will reinforce the "treat 'em gently" message. Selection of a seasoned insurance specialist, someone who knows the industry but will not be its patsy, would signal that no regulated company is too big or powerful to be held to high standards in Maryland.

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