If his former customers ever get a chance to confront him, Albert Cardone may need plenty of health insurance. Before his ouster in May as chairman of New York's Empire Blue Cross and Blue Shield, he took home $600,000 a year in his chauffeur-driven Lincoln Town Car. The salary and transportation were paid for by the nation's largest nonprofit health insurer at a time when it was trying to stave off insolvency by drastically raising the premiums of the elderly, the poor and the chronically sick. But, as Cardone once asked a New York Times reporter, is it "fair" for a man of his stature to take a train to work every day?
Then there were the helicopter trips, the accounts at Tiffany and Cartier for Empire employees and directors, the fleet of 123 cars, the $130,000 in art and sculpture, the $62,832 in tacky silk plants, the $48,000 in computer and security systems in Cardone's home and so on. As part of an aborted redesign of his office, the imperious Cardone bought a $20,000 Chippendale desk, which was placed in storage and never used.
In testimony last week before the U.S. Senate's Permanent Subcommittee on Investigations, Cardone defended his management of Empire, which has racked up $255 million in losses since 1990. Pressed by committee chairman Sam Nunn, Cardone denounced accusations of corruption and mismanagement as "absolutely untrue." He got little support, however, from Harold Vogt, Empire's current chairman, and Donald Morchower, the chief executive. They used to work closely with Cardone, but now seemed anxious to distance themselves. Vogt and Morchower, who admitted that Empire has had management problems, have agreed to step down when replacements can be found.
Empire's leaders had no convincing response to the damning testimony of their chief auditor, Maroa Velez. She told of being "stonewalled" by superiors when she tried to investigate discrepancies between internal books and the financial reports Empire sent to regulators. The company allegedly / overstated losses incurred in providing insurance to poor customers. Those exaggerated losses helped persuade the state legislature to force Empire's competitors to take over some of its least profitable business. Despite Cardone's denials, Manhattan's district attorney has launched a criminal probe to determine whether the tough ex-Marine or his aides falsified records or committed perjury.
What makes the Empire story so sad is how familiar it is. Some $70 billion flows annually through the U.S. system of 70 not-for-profit Blue Cross and Blue Shield companies, which control more than 30% of the private health- insurance market. While the majority of the "Blues" are financially sound, others, like Empire, have been walloped by spiraling health costs and "cherry picking" -- the loss of the best customers to for-profit rivals. Gross mismanagement and lax oversight in many states have raised urgent questions: Can the Blues still carry out their mission as insurers of last resort? Are they too big and powerful to be regulated properly? Should the executives of these nonprofits enjoy the same perks as their brethren at FORTUNE 500 companies?