09:06 AM EST on Monday, November 22, 2004

With more disturbing news coming out of Blue Cross & Blue Shield of Rhode Island, the governor's plan to switch health coverage for state employees and retirees to UnitedHealthcare of New England looks better than ever. Shifting the 16,500 employees and 9,000 retirees to United should, over the next three years, save Rhode Island's taxpayers $25.3 million, according to Governor Carcieri. In other ways, too, the state's move away from heavy reliance on Blue Cross will help Rhode Island.

Until recently, Blue Cross has been run scandalously, by both its management and, by extension, its board. Acting Chief Executive James Purcell is now apparently trying to clean up the not-for-profit insurance company, but outrages persist -- the latest being that ousted CEO Ronald A. Battista had Blue Cross premium payers footing the $10,000 bill for a memorial (chapel bricks) for his parents.

Indeed, Mr. Battista, with the connivance of the board members -- whom he kept compliant with salaries, free medical insurance and junkets -- ran the place very well for himself. This included a $600,000 "loan," which the board made a gift, to help pay for his divorce and new house. And his board chums signed off on $3.1 million in severance pay for their departing leader. (Where, oh where, are Rhode Island Atty. Gen. Patrick Lynch and the U.S. attorney's office?)

More recently, there's the problem that Blue Cross is sticking its Direct-Pay customers with a 17-percent premium increase -- displaying the company's highly creative approach to risk sharing.

Clearly, Rhode Island needs much more insurance competition, and giving the state contract to UnitedHealthcare will help. Blue Cross now holds some 70 percent of the market, with United holding a bit over 20 percent and a few other companies, such as Lumenos, sharing the rest. The new contract will raise United's share by several percentage points.

In moving the contract to another insurer, Governor Carcieri is giving notice that in Rhode Island, sweetheart contracts do not warm the heart. The Blue Cross contract was grossly unfair to the taxpayers. Let us explain:

Rhode Island uses a self-insured model. That means that the state pays medical bills as they come in. It does not pay the insurance company a set amount per employee, thus putting the insurer at risk should medical spending exceed the amount paid. The fees paid to Blue Cross are based on a percentage of total claims, so the bigger the claims, the higher the fees. Not a good idea.

In seeking a new contract, the governor asked the bidders to submit a flat rate per subscriber. Blue Cross came up with an improved deal, but United did even better.

We are unmoved by Blue Cross's complaint that United is "an out-of-state for-profit company." In all-too-cozy Rhode Island, being out-of-state can be an advantage, avoiding as it does the local cronyism that has characterized such creatures as Blue Cross & Blue Shield of Rhode Island.

And calling Blue Cross a "not-for-profit" merely elicits a bitter chuckle. We immediately think of the conflicts of interest -- the most glaring being that Blue Cross Board Chairman Frank Montanaro also heads the state AFL-CIO.

Although United is based in far-off Minnesota, the company has proven a decent corporate citizen in these parts. For one thing, it covers 39,000 families in RIte Care, the state health-coverage program for low- and moderate-income residents: That's three times the number covered by Rhode Island's own Blue Cross.

Our reservations about United concern its reimbursements to health-care providers, which have been far lower than Blue Cross's.

On Jan. 1, United will raise its payments to local doctors, to almost close the gap. Still, the reimbursement for non-physicians -- especially psychologists, social workers and other mental-health professionals -- remains inadequate. Podiatrists and chiropractors also get low rates. We hope that United will improve payments to all these providers.

In short, even if Blue Cross's bid for the state contract had been similar to United's, there are good arguments for change. And that United's offer was considerably better for taxpayers makes change a no-brainer. Governor Carcieri has used his businessman smarts to get a much better deal for all Rhode Islanders.