Legislators set to boost controls on Blues

April 11, 1993|By John W. Frece | John W. Frece,Staff Writer

State legislators moved aggressively yesterday to strengthen regulation of Maryland's insurance industry and specifically to increase oversight of Blue Cross and Blue Shield of Maryland.

With the General Assembly set to adjourn at midnight tomorrow, key lawmakers reached tentative agreement on a bill sought by fired Insurance Commissioner John A. Donaho that would give the state much more control over Blue Cross and other nonprofit insurers.

And unexpectedly, legislators said they may do something they never would have done were Mr. Donaho still in charge -- set up a completely independent Maryland Insurance Administration.

The insurance industry is currently regulated by a division in the Department of Licensing and Regulation. Mr. Donaho and lawmakers alike wanted to separate it, primarily because funds intended for insurance regulation were being siphoned away for unrelated departmental uses.

But the General Assembly was reluctant to give the controversial Mr. Donaho more authority.

"We haven't passed it in the past because of the personalities involved," said Sen. Thomas P. O'Reilly, the Prince George's Democrat who has been critical of Mr. Donaho's performance. "There was not a lot of interest in seeing [Mr. Donaho] continue with even more power."

The change is backed by Gov. William Donald Schaefer, who proposed the same thing a year ago. It would be accomplished this late in the session through a maneuver in which amendments would be attached to another insurance bill expected to win approval tomorrow.

The amendments, which were being drafted last night, were expected to call for direct gubernatorial appointment of the next commissioner, subject to Senate approval.

The measure also would allow the governor to offer the next commissioner a higher salary. Mr. Donaho was paid $72,452.

Earlier yesterday, a six-member conference committee reached tentative agreement on a bill to expand the insurance commissioner's regulatory control over Blue Cross. Unless the bill gets stuck behind an end-of-session Senate filibuster on some unrelated issue, lawmakers predicted it will pass easily.

The measure would give the commissioner authority to remove directors for engaging in unsafe or unsound practices, and stipulates stricter solvency requirements. It also would clarify that the state has authority to examine the books of Blue Cross subsidiaries.

The final deal was struck when the conferees agreed to allow four longtime directors of the company to stay on the Blue Cross board until Jan. 1, 1995, while four other veterans would have to leave when their term expires Jan. 1, 1994. The Blue Cross board would be allowed to decide which of the eight may stay the extra year.

That means Blue Cross would be left for the next 20 months in the hands of many of the same people who were at the helm when the company lost $120 million, gave its executives some of the fattest salary and cash bonuses in the insurance industry nationwide, and issued reports that shielded the company's true financial picture from the public.

The Blue Cross legislation was proposed by Mr. Donaho as a means of assuring the solvency of a company that handles insurance of some 1.4 million Marylanders. Agreement came, ironically, two days after Governor Schaefer fired Mr. Donaho, in part for threatening to put Blue Cross into insolvency if the legislation failed.

Last summer, Mr. Donaho told a U.S. Senate committee that Maryland's Blue Cross plan was on the verge of insolvency. In December, two months after Blue Cross President and Chief Executive Officer Carl J. Sardegna was removed, Mr. Donaho proposed the legislation.

Some lawmakers wanted a complete overhaul of the Blues' board.

"I think the firing of the president fell far short," said Republican Sen. F. Vernon Boozer of Baltimore County. "Lots of people were asleep at the switch."

The final sticking point was over what to do about incumbents on the company's 18-member board. The Senate wanted to limit members to three three-year terms, while the House wanted to allow only two terms, or six years.

Under the more restrictive House plan, eight senior members of the board, including chairman Frank A. Gunther Jr., would have had to step down Jan. 1, 1994. With a new chief executive officer, William L. Jews, senators said that such quick turnover may force the company to try to correct its problems without an experienced team.

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