State may owe $100 million to Blue Cross 1994 premiums for popular plan could rise 90%

November 16, 1993|By John W. Frece and Peter H. Frank | John W. Frece and Peter H. Frank,Staff Writers

Maryland may owe Blue Cross and Blue Shield as much as $100 million in underpaid health insurance premiums, leaving the state with a nasty election year deficit far larger than previously estimated and its employees with a hefty increase in their health care costs.

Budget officials scouring records of the state employee health insurance program have discovered that the state has underpaid its medical bills consistently since early 1992.

They also have concocted a new health insurance program for employees for 1994 that, among other changes, will raise premiums for the most popular benefits plan by approximately 90 percent.

The magnitude of the debt has caught the Schaefer administration by surprise. It is roughly three times as large as the amount Budget Secretary Charles L. Benton Jr. gave legislators three weeks ago, shortly after his agency assumed control of the health insurance program from the Department of Personnel. Even then, Mr. Benton blamed Personnel officials, saying they "knew or should have known" of the shortfall.

Apparently they did, although no one in the Personnel Department is now willing to answer questions about what happened or why.

Regardless of who is to blame, the potential deficit could well divert funds that the governor or lawmakers might have otherwise used to improve the state's schools, to give state employees their first pay raise in four years, or for other programs that might make them look good to voters in an election year.

On Dec. 23, 1992, Christine Alrich, who managed the state account for Blue Cross, warned the personnel department in a letter, obtained by The Sun, that Maryland's self-funded insurance program had been underfinanced by $3 million a month since March 1992. She said that Blue Cross, which administers the plan, was already owed an estimated $42.6 million.

To compound that problem, Assistant Personnel Secretary Catherine K. Austin, who has administered the state health program for the past six years, apparently gave the governor and his budget advisers incorrect projections for the cost of the state employees' health insurance program for 1993.

The mistake, state Insurance Commissioner Dwight K. Bartlett confirmed, was that Ms. Austin based her budget estimates 9 1/2 -month cost figures supplied by Blue Cross, but thought they represented a full calendar year of claims.

'An honest mistake'

The gap left the state with a $38 million shortfall for 1993 on top of at least $31 million from 1992. An additional shortfall in the $30 million to $35 million range now is expected for 1994, largely because health care costs have risen faster than premiums.

Sources involved in recent private meetings with the governor, budgetofficials and Blue Cross say Ms. Austin admitted that the mistake was hers -- "an honest mistake, but dumb," one source recalled her saying. Ms. Austin has been on leave since the health insurance story first broke in mid-October and could not be reached for comment.

The sources said she apparently grew to distrust Blue Cross projections, and feared the company was double-billing or otherwise overcharging the state for medical services for state workers.

Intense scrutiny

The problem arose as Blue Cross was coming under intense scrutiny by a U.S. Senate committee as well as by state regulators and the General Assembly for questionable business

practices. Among the charges leveled against the insurer was that it had allowed its insurance reserves to dwindle to near insolvency levels.

With the U.S. Senate and the state insurance commissioner breathing down its neck, with important legislation designed to strengthen state regulation of the Blues pending before the General Assembly, and with the state employee account among the largest and most prestigious in the Blue Cross portfolio, there were powerful incentives for the insurer to keep mum.

Apparently no one from the Personnel department notified the governor, his budget secretary or legislative budget committees that there was a problem, either.

In late April, Blue Cross sent state insurance regulators, including Mr.Benton, a routine quarterly update. On the 11th of 23 pages, it contained a one-paragraph reference to a $33.7 million debt owed by the state.

But Mr. Benton, who three weeks earlier had become the acting insurance commissioner following the firing of Commissioner John A. Donaho, said he never saw the document. The week before it arrived in his office, he left for a two-week trip to Hawaii.

"No one ever called my attention to it. I'm sure I never received it," he said.

Insurance regulators, who examined the Blue Cross books in the winter of 1992 and spring of 1993, also discovered the debt, but apparently discussed it only with Personnel officials.

Premium increase

Baltimore Sun Articles
|
|
|
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.