MANAGED CARE Legislators seek enhanced regulation of Blue Cross BY STEVEN STYCOS

Delta Dental of Rhode Island has settled its anti-trust suit against Blue Cross & Blue Shield of Rhode Island, but the huge insurer’s operations remain under scrutiny. A coalition of liberal organizations and lawmakers, led by state Representative Peter Wasylyk (D-Providence) and state Senator Maryellen Goodwin (D-Providence), is proposing tighter regulation for the company.

In November 2002, Delta Dental sued to stop Blue Cross from forcing itself into the dental insurance market for employees of Rhode Island’s cities and towns. Delta Dental specifically objected to a provision in Blue Cross’s contract with the Rhode Island Interlocal Risk Management Trust that required towns purchasing Blue Cross health insurance through the trust to pay a "dental tying penalty" if they did not also buy Blue Cross dental insurance. According to the contract, the penalty would be hefty — $7.56 per employee, per month by July 2006.

While the lawsuit was pending, the trust did not sell any of the controversial insurance, and ultimately that forced a settlement, says Scott Fraser, Blue Cross’s assistant vice president of public affairs. In December, Blue Cross agreed to remove the dental tying penalty from the contract, Fraser explains, "not because we thought there was anything improper about it, but because Interlocal wasn’t going to sell the product." With the clause removed, the lawsuit was withdrawn.

Meanwhile, the National Association of Social Workers, the United Nurses and Allied Professionals, Ocean State Action, and others grouped under the banner of the Health Care Organizing Project hope to increase regulation of Blue Cross by passing the Wasylyk/Goodwin bill. The legislation does not single out Blue Cross, but since it controls 71 percent of the commercial market in Rhode Island, according to a recent Department of Health report, regulation of health-care has largely become regulation of Blue Cross.

The Wasylyk/Goodwin bill would require the state Department of Business Regulation (DBR) to publicly analyze insurance companies’ financial statements, cap reserves, allow employers experiencing above-average rate increases to appeal to DBR, and bar above-average administrative costs from causing rate increases.

Marti Rosenberg, executive director of Ocean State Action, concedes that the Wasylyk/Goodwin bill will not solve Rhode Island’s health-care ills, but she calls the legislation "a tremendous first step to getting some oversight over insurance companies."

Blue Cross premiums have approximately doubled in the last five years, leading doctors, hospitals, and employers to strongly criticize the company’s $299 million in reserves. Those funds, they say, would be better spent to reduce premiums and increase payments to doctors, hospitals, and other medical care providers. The legislation proposes to cap reserves at two-and-a-half months of operating expenses. Blue Cross’s reserves are below that level, but current law sets no maximum, and Blue Cross’s goal is to slightly exceed the two-and-a-half months.

Blue Cross’s administrative expenses have also come under fire, particularly an extensive marketing program that has ranged from mailing dollar bills to policyholders to induce them to complete surveys, and holding golf tournaments for labor leaders, to buying expensive newspaper and television advertisements. Other costs, including corporate salaries (11 executives received more than $200,000 in 2002) and donations to charities (more than $700,000 in 2002), have also been called excessive by critics. The Wasylyk/Goodwin bill would require a quarterly analysis of administrative expenses by DBR, and bar rate increases to pay for them if they exceed 110 percent of the industry average.