The governor says he has asked the Department of Business Regulation for a report on what it has known about the "overly generous and excessive" compensation packages at Blue Cross.

01:00 AM EST on Friday, April 2, 2004

BY KATHERINE GREGG
Journal State House Bureau

PROVIDENCE -- In his first public comments on the Blue Cross & Blue Shield controversy, Governor Carcieri yesterday denounced as "entirely inappropriate" the writeoff of a $600,000 loan to company president Ronald A. Battista and the payment of salaries of up to $25,000 to the part-time members of the nonprofit's board of directors.

"This is a company that was created by the General Assembly for the good of the citizens," Carcieri said in an interview yesterday. But "something has fallen apart here at the board level."

"A corporation chartered the way Blue Cross was chartered should not be paying board members," Carcieri said of the $12,500 paid to members, $15,000 paid to committee chairmen and the $25,000 paid to the chairman of the nonprofit health insurer's board of directors. They are also paid $750 for each meeting attended.

"People should be serving on that board as they do in so many not-for-profits in our community because they are interested in the issue of health care and bringing their service, if you will, to the benefit of our citizens," Carcieri said of a board that includes the presidents of the state's largest unions, the CEO of the state's largest bank and a Superior Court judge.

Of the loan to Battista, Carcieri said it raised larger questions about how the members of the Blue Cross board see their role.

"I think if you look at the actions, particularly the compensation actions that have taken place, they look to me like they have been more concerned about the management and the compensation for the management . . . [than] their role as representatives of a not-for-profit that was chartered for the good of our citizens," he said.

Carcieri said he is also concerned about the seeming reluctance of the state's own insurance regulators to ask hard questions when Blue Cross has requested double-digit increases in health-insurance premiums, as it did last year.

A year ago, the attorney general's insurance-rate advocate, Genevieve Martin, tried to draw the attention of top officials at the Department of Business Regulation to the forgiven $600,000 loan Blue Cross gave Battista, and to other "extravagant corporate expenditure decisions," including a $4,002 payment to the Squantum Club for "country club dues."

"Every dollar Blue Cross chooses to spend matters because all of its corporate expenditures are passed through to all of its subscribers," Martin argued at a time last year when Blue Cross was seeking rate hikes of up to 32.6 percent for one group of Direct Pay subscribers, 33.5 percent for another.

The rate hikes were nonetheless approved, in full, by the Department of Business Regulation on June 3, 2003, in an order signed by director Marilyn Shannon McConaghy that said: "The attorney general argued that some of the administrative expenses claimed by Blue Cross are improper to be included in a rate filing, but the attorney general failed to introduce any evidence quantifying the rates . . . . In the absence of any such evidence, the department is prohibited from arbitrarily reducing justified rates."

But during hearings at the State House this week, the state's insurance superintendent and his chief analyst told lawmakers they would not, as a rule, question an insurer's administrative expenses unless there was a question of solvency.

Chief insurance analyst G. Rollin Bartlett went a step further during a hearing on Wednesday night, in which he told a roomful of senators: "If you perceive weakness in DBR . . . [that] may derive from the historic attitude Rhode Island has had toward regulation."

"Do we need a law that tells them to look at these things? Maybe we do," Carcieri said yesterday. But, "I would expect more digging, particularly at this juncture where the health-care costs, premium costs, reimbursements to providers is such a huge issue," and "particularly with Blue Cross . . . since the company has two-thirds of the the market."

The governor said he asked his legal staff last week to review the state laws governing health-insurance regulation, in general, and rate-setting, in particular, to see if there is "some confusion" about the Department of Business Regulation's statutory authority.

He said he has also asked "for a whole report from DBR" on what it has known about the "overly generous and excessive" compensation packages at Blue Cross.

"What information gets supplied in the normal course? In other words, are we even asking for this kind of information? Have we had acccess to it, OK, and just were ignoring it or not taking it into consideration?

"Do we know all of the details of what the compensation plans are, for example, if it's sold. If Blue Cross was sold, what are the ramifications on the management . . . . I have asked for all of this. The other thing I have asked for is an appraisal of how DBR views its role, because I think there is some ambiguity.

"In my judgment, I think they should be taking a deeper and harder look at these things," Carcieri said.

That the attorney general's office questioned Blue Cross spending is not enough, Carcieri said: "The burden is on the regulator to ask the right questions."

"It comes back down to the issue of how do you see your roles. If they have been seeing their role as not to probe on these issues, unless they are concerned about the financial solvency, then that is a very narrow view of your role. In my judgment, too narrow," the governor said, "particularly in view of the fact that health-care cost is such a big issue today."

In a related development, several lawmakers questioned the propriety of a letter they received from AFL-CIO president Frank J. Montanaro opposing a move by House Finance Chairman Steven M. Costantino to make the exempt Blue Cross & Blue Shield pay the same 2-percent premiums tax that other insurers pay.

"We feel that this legislative proposal would adversely affect our affiliates during the collective bargaining process and any increase would be passed on to the employer and ultimately the employee," wrote Montanaro, who is also the chairman-elect of Blue Cross & Blue Shield.

Costantino, D-Providence, said he was struck by the "disconnect" between Montanaro's efforts to scuttle his efforts to raise $19 million to $20 million in new revenue to avert some of the potential budget cuts the state unions and other advocacy groups have deplored.

"This, in my opinion, is a clear conflict of interest," chimed Rep. Christine Callahan, R-Middletown.

But Montanaro -- a member of the Blue Cross board since 1991 -- said he does not lobby for Blue Cross at the State House, only the state association of firefighters and the AFL-CIO executive board, which voted unanimously to oppose making Blue Cross pay the tax.

Though Costantino has disputed Blue Cross' contention it would have to raise rates to pay the tax, Montanaro yesterday said: "Our position has to be the employer should pay for health care fully," and "we don't want the employers' health-care costs to go up."