Blues' financial state still weak

May 13, 1994|By Patricia Meisol | Patricia Meisol,Sun Staff Writer

A new report by the General Accounting Office says 11 of the nation's 69 Blue Cross and Blue Shield plans, including Maryland's, are still in weak financial condition and would be strained even further under the Clinton health plan.

The findings were disputed by the president of the Chicago-based organization that licenses the independent plans, and Maryland Blue Cross and Blue Shield President William L. Jews said yesterday that his company has made substantial progress from its perilous state of one year ago.

"It seems like old, bad news continues to linger," said Mr. Jews, referring to the GAO report.

As if to demonstrate how much the insurer's fortunes have improved, the Blues reported first-quarter results yesterday, one day earlier than scheduled. Earnings more than doubled in the three months that ended March 31, to $15.3 million. The Blues' reserve, which had dwindled to $9 million in December 1992, was at $114 million, exceeding requirements.

The nonprofit insurer, which serves more than 1.4 million people JTC in Maryland, is facing major challenges from managed-care companies that have entered the state, and the company is still struggling to turn a profit in major segments of its business.

The 64-page GAO report, based on a review of recent financial data as well as past congressional investigations and current state probes, charges that the national licensing organization had demonstrated a "historic reluctance to enforce its membership standards against financially troubled Blue plans."

The association had been loath to revoke licenses, the auditors concluded, for fear this would "tarnish the reputation of other member plans and the Blue Cross and Blue Shield trademarks."

The report was commissioned by Sen. Sam Nunn, a Georgia Democrat and chairman of the Senate Permanent Subcommittee Investigations, whose committee first warned in July 1992 that poor oversight by state regulators and the national Blue plan could leave subscribers in the lurch.

The GAO says the plans are in trouble because of mismanagement, weak oversight by plan directors and state regulators and, in some cases, because the plans failed to respond to changes in the marketplace.

Mr. Nunn said yesterday that in light of the shaky financial condition of some Blues plans and the changing marketplace, "we need to take a hard look at what role the Blues and other large nonprofit entities will play in any health care reform package that may be adopted by Congress."

In the days before the report was released publicly, Bernard R. Tresnowski, president of the Chicago Blue Cross and Blue Shield Association, said that it was based on outdated information and said the 11 plans cited as weak by the GAO are, in fact, strong.

Yesterday, Susan Barrish, vice president and licensure and financial services for Blue Cross in Chicago, said Blue Cross is not having a dispute with the GAO and doesn't argue with the financial rating system it used.

However, she said the organization does object to using the term "weak" in describing the plans and said changes in the plans means that none of them are now financially threatened.

"If you look at the Maryland plan, that's probably a good example of what is happening in other states -- new management, changes in boards, new strategic direction in core business, changing to managed care," she said.

The GAO report says the plans in the worst shape are Blue Cross and Blue Shield of the National Capital Area, which covers subscribers in Prince George's and Montgomery counties, and Empire Blue Cross and Blue Shield of New York City. But it says these plans are no longer in imminent danger of collapse.

The Maryland plan sold assets last year to boost its reserve from levels that made it virtually insolvent 15 months earlier.

The Blues' quarterly profit of $15.3 million is 104 percent higher than the first-quarter 1993 earnings.

The insurer's five HMO subsidiaries continued their profit streak, accounting for $3.9 million of the first-quarter earnings, up 40 percent from the same period last year.

The Blues' basic insurance operations accounted for $11.4 million of the quarter's profit, but revenues for basic business dropped almost 10 percent, to $339 million. The filing shows the insurer losing more money administering health care plans for others, a service that accounts for about half its basic business. Losses in that area rose to $3 million, from $1.2 million in the same period last year.

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