Md. ending contracts with Blues and 6 HMOs

June 24, 1994|By John W. Frece | John W. Frece,Sun Staff Writer

The Schaefer administration moved yesterday to scrap the current health insurance program for 70,000 government workers by year's end and replace it with one officials say could save the state $20 million a year.

Prompted by a report from a consultant brought in last year to study the insurance program, the administration sent letters yesterday to Blue Cross and Blue Shield of Maryland and to six health maintenance organizations notifying them that their contracts -- valued together at more than $200 million a year -- will be terminated Dec. 31, three years earlier than expected.

The state intends to solicit bids this summer for new contracts, award them by October and hold an open enrollment period for the state workers and 20,000 retirees in November. Coverage under the new policies will begin Jan. 1, 1995.

To stimulate competition, the administration is dividing Maryland into four regions -- Central Maryland, Western Maryland, Eastern Shore and Washington suburbs/Southern Maryland -- and awarding contracts in each region. Smaller companies that could not compete on a statewide basis in the past might be able to bid to provide service in one or more regions, said Frederick W. Puddester, deputy budget secretary.

Health benefits offered under the new contracts will be more standardized than they are now to allow employees to make more intelligent choices among competing plans, Mr. Puddester said. But he insisted that benefits otherwise will not be reduced.

"Absolutely not," he said. "We're not going to reduce benefits to employees. That's not the goal here."

He said the new program will be designed to provide better service to employees, including a new telephone system so workers with health insurance questions can get answers. Materials distributed during the open enrollment period will be made more understandable, and health care coordinators in eachstate agency will be better trained to explain the options, he said.

Mr. Puddester acknowledged that the cost savings to the state -- expected as the result of increased competition -- probably will not be used to reduce workers' premiums. But workers still will benefit financially, he said, because premiums will grow less rapidly than if the state stayed with its current plans.

The administration is able to make a change now because all state contracts contain a boilerplate provision that permits the state to terminate contracts at its own convenience.

Until the new contracts go into effect next year, employees health care coverage will remain unchanged. The state's pharmacy and mental health plans are unaffected by yesterday's move.

The decision is rooted in events that began to unfold in October,when the Department of Personnel announced plans to raise premiums for about 40,000 state employees by 500 percent or more.

Gov. William Donald Schaefer reacted by halting the increase, stripping the department of responsibility for the health insurance program, and shifting it to the Department of Budget and Fiscal Planning. One of Budget Secretary Charles L. Benton Jr.'s first moves after taking over was to hire a consultant, Foster Higgins, to study the current plan and make recommendations on how it should be changed.

The state is self-insured, but has a contract with Blue Cross and Blue Shield of Maryland to administer the health insurance program. It is Blue Cross' next-to-largest account, second only to its account covering federal employees in Maryland.

Employees also have the option of coverage by one of six HMOs: Columbia/Freestate, MD-IPA, Kaiser, Prudential, Health Plus and GW-Chesapeake.

While it was uncertain yesterday what the ultimate effect on each of those companies will be, the general reaction was that the change will be beneficial to HMOs, but not necessarily to Blue Cross, which will face increasingly stiff price competition.

Blues officials reacted cautiously to the news yesterday.

Blue Cross and Blue Shield said in a prepared statement that it is confident that it "will remain a viable choice for the state of Maryland, as it has continuously for 26 years." Asked specifically if Blue Cross would be hurt by the state action, company spokesman Mike Streissguth would only say, "We're evaluating what the state decided."

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