The governor said yesterday that reports of lavish salaries and perks for Blue Cross and Blue Shield of Maryland executives were "embarrassing," but he voted to approve an $85 million contract with the insurer anyway.
"I agree with the comptroller that some of the actions by [executives] are embarrassing," Gov. William Donald Schaefer said. "It puts us in a tight spot when we're approving a contract for this amount of money."
Stephen Bailey, a senior vice president with the insurer, called the approval of the contract "kind of a vote of confidence" in the Maryland Blues, which was the only qualified bidder.
Only last week, congressional investigators issued a scathing report on his company. The study said the state's largest insurer overstated its financial worth by as much as $100 million, hid its condition from its own board and state regulators, and spent lavishly on executive salaries and perks.
Despite claims by top executives that their company is in great shape, internal audits obtained by subpoena revealed a long history of management failings, according to U.S. Senate investigators.
The governor refrained from making public comments on the Maryland Blues until yesterday's Board of Public Works meeting at the State House.
"I don't think they're bankrupt. I think they're solvent," Mr. Schaefer said.
Comptroller Louis L. Goldstein questioned the insurer's spending on vacation trips to Europe and golf course fees but, like the governor, seemed satisfied that the insurer is solvent. Mr. Goldstein said he had a letter from a national accounting firm saying the company was sound.
The Board of Public Works, which consists of the governor, comptroller and treasurer, went on to approve a five-year contract with the Blues to manage a health benefits program for current and retired state employees and their families.
The total amount of the program is an estimated $945 million, $85 million of which will go to the Blues to administer the program from Jan. 1, 1993, to Dec. 31, 1997, State Personnel Secretary Hilda E. Ford said.
The rest goes toward paying state workers' medical, surgical and hospital bills through the state's self-insurance fund.
The state received two other bids for the health benefits contract, both from Health Care 2000 Inc. Those bids, however, failed to meet technical requirements and were disqualified, leaving only the Maryland Blues for consideration.
The company had an advantage because it holds the current health benefits contract.
"The company that has the contract does not have start-up costs," Ms. Ford said.
Blue Cross and Blue Shield has provided health benefits to state workers since 1968. The plan's preferred provider network and health maintenance organizations currently administer benefits for more than 67,000 state employees and their dependents.