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In 1989 New Hampshire regulators had to intervene when the state's Blue Cross and Blue Shield exhausted its cash reserves. West Virginia's Blue ran out of money three years ago, leaving 51,000 individuals with unpaid claims. Investigators discovered that among other unethical management practices, executives had funneled Blue Cross money to businesses in which they had a financial interest.
Maryland's Blue Cross plan suffered a drop in net worth from $122 million in 1985 to $25 million by the end of 1992. The recently departed boss, Carl Sardegna, was given compensation of $775,000, twice the average for the Blues. In return the plan's policyholders received abysmal service marred by delays and lost claims. U.S. Senate investigators accused Sardegna and colleagues of overstating the company's net worth, keeping its directors in the dark and printing deceptive advertising about its fiscal health.
Throwing money around came easily to Blue Cross of Washington, D.C. From 1985 to 1992, the plan's aptly named chief, Joseph Gamble, spawned roughly 40 subsidiaries, from a global travel and lost-baggage service to a Blue Cross of Jamaica. Total net losses: $182 million. Gamble enjoyed frequent Concorde flights to Europe and $900-a-night suites in Barbados.
Fortunately, all this rotten publicity and turmoil have chastened the Blues. Many have become stronger by merging with other companies. Last year 17 of the plans were in very bad shape, according to Weiss Research, an insurance rating firm. Today Weiss says only 11 are hurting, yet those plans serve 16 million Americans. Meanwhile the Blue Cross and Blue Shield trade group boasts that net income for the 70 plans was $736 million in the first quarter of 1993, up from $349 million last year.
The problem is that such figures are furnished by the companies. Naturally, if the numbers are fudged, as they allegedly were in New York and Maryland, then all tallies are suspect. And, as Senator Nunn put it last week, "If this nation is ever to truly reform its health-care system, we must find a way to hold insurers accountable to their subscribers, to regulators and to the public at large."