08:17 AM EDT on Wednesday, June 23, 2004

BY BRUCE LANDIS and FELICE J. FREYER
Journal Staff Writers

PROVIDENCE -- The House Finance Committee yesterday approved a bill creating a state health insurance commissioner with broad powers to monitor and regulate health insurers.

An identical bill will go before the Senate Health and Human Services Committee today, as the General Assembly moves closer to passing a package of legislation that would give the state greater state control of health insurers, particularly Blue Cross & Blue Shield of Rhode Island.

The health insurance commissioner would conduct public meetings on health insurance issues, make recommendations to the governor and create an advisory council that will design a complaint process and report to the governor and General Assembly.

Consumer, adovocacy and labor groups, including the Rhode Island Public Interest Group, the Health Care Organizing Project and the United Nurses and Allied Professionals, hailed the vote as "an exciting victory for health-care consumers."

The legislation followed public outcry over high health insurance premiums, questionable financial ties between legislators and Blue Cross, and perks and benefits that the nonprofit Blue Cross gave to top executives and board members.

Under the bill, the health insurance commissioner would work within the state Department of Business Regulation instead of serving as a separate agency. Critics of the existing health insurance regulatory system had wanted the commissioner's job to be separate from the DBR.

Yesterday, Finance Committee Chairman Steven M. Costantino, D-Providence, criticized the DBR for not looking more closely at insurers' administrative expenses. He said the public has a right to know "if there are outrageous administrative expenses."

On the other hand, he said, "We didn't want to create another bureaucracy."

The bill would restore two jobs Governor Carcieri cut from the DBR budget, and also add three more positions, the commissioner and two staffers.

MEANWHILE, the House Corporations Committee yesterday considered but did not vote on two other key health-care bills -- one changing the governance of Blue Cross & Blue Shield of Rhode Island and another requiring the big insurer to provide additional information to employers about the factors that cause premium increases.

Committee Chairman Brian Patrick Kennedy, D-Westerly, said the committee would vote on those bills today, probably after some further tweaking. Representatives of Blue Cross & Blue Shield of Rhode Island and of the Blue Cross Blue Shield Association, the national trade group of Blue Cross plans, requested a series of mostly minor changes in the bills.

The Blue Cross governance bill spells out a mission for the nonprofit insurer, requires that six members of the 19-member board be appointed by the government (two each by the governor, the House speaker and the Senate president), requires two-thirds approval of the board for certain key decisions, forbids compensation for the board, and forbids financial rewards for executives or directors who sell the company.

Kennedy said yesterday that provision banning compensation for the board is likely to be changed to a one-year moratorium on board compensation.

Blue Cross Vice President Thomas Lynch objected to a requirement to spend a higher percentage on direct health care (rather than administration or reserves) than comparable for-profit plans spend. He said that restriction could prevent Blue Cross from making investments, such as a new computer system, that could in the end reduce administrative costs.

Richard R. Beretta Jr., representating the Chicago-based Blue Cross Blue Shield Association, said provisions that threaten Blue Cross independence or financial soundness could cause Blue Cross to lose the right to use the Blue Cross Blue Shield marks, and cited several examples in the bill.

ON ANOTHER health-care issue, the House Corporations Committee voted 5 to 2 to accept the Senate version of the "pharmacy freedom of choice" bill -- which allows insurers to establish limited networks of pharmacies, but regulates how they are formed.

The Senate had decided against banning the networks, citing reports that open networks raise the cost of drugs. Additionally, the bill was intended to primarily help the elderly who were sometimes inconvenienced by not being able to use a pharmacy near home. But Senate leaders said that they had learned that Medicare rules prohibit the state from requiring open networks for members of Medicare HMOs, making their efforts moot.

House leaders were unconvinced on the issue of Medicare rules, so the version that passed the Senate, and appears destined to pass the House, requires open pharmacy networks for the elderly -- unless some federal rule prohibits it.

The pharmacy bill has been the focus of the scandal involving two former Senate leaders who had financial ties to Blue Cross and CVS while also having a role in killing bills to require open networks in previous years.

Yesterday, Rep. Joseph A. Trillo, D-Warwick, in voting against the Senate's version of the bill, said: "I think the Senate is sending a bad public message."