Blues to cut jobs, citing high costs, HMO competition


Hurt by rival HMOs and concerned that its operating costs are too high, Blue Cross and Blue Shield of Maryland said yesterday that it will eliminate 350 jobs, or more than 9 percent of its work force, by the end of the year.

The cuts, to be spread through most departments at Maryland's biggest health insurer, will include some layoffs.

But top Blue Cross managers said they won't know how many or who will be affected until November or December. Voluntary retirements and resignations will account for part of the shrinkage, said William L. Jews, president and chief executive officer.

The company will make the cuts "as quickly as we humanely can so people can get on with their lives," Mr. Jews said in an interview.

Widely rumored in recent weeks at Blue Cross' Owings Mills headquarters, yesterday's news follows the insurer's decision two weeks ago to cut prices for most of its 1.4 million customers.

The developments are related. Flanked by growing health maintenance organizations that are increasingly willing to pare prices to win business, Blue Cross executives have decided that they must respond in kind.

Mr. Jews had already told employees earlier this year that the company would have to trim administrative expenses to remain competitive. With this month's price cuts and the prospect of correspondingly lower revenue next year, the pressure to rein costs got more intense.

For Blue Cross, the job losses cap several years of organizational tumult and offer another stark sign that changes in the health care industry are far from over. Once a passive service organization, Blue Cross in the last decade has lurched into a world of bare-knuckle, for-profit health plans.

Heat from stockholder-owned HMOs like Rockville-based MD-IPA and Blue Bell, Pa.-based U.S. Healthcare has become especially intense this year, insurance brokers and benefits experts report.

Blue Cross will "suffer from incredible competition. You've got some new players coming in here," said Robert Davis, executive director of the Maryland Health Care Coalition, an employer group that works to control medical costs.

The company is fighting for customers and not always winning. It told regulators that it may lose enrollees next year as a result of the state's decision to offer more competing plans for 200,000 state workers and retirees.

There have been other defections. After NationsBank Corp.'s purchase of Maryland National Bank, NationsBank pulled its 6,000 Maryland workers from Blue Cross and gave them to its carrier, CIGNA.

Blue Cross started the year with about 1.4 million subscribers. Enrollment is less than that now and is expected to be "slightly" less at year's end, Mr. Jews said. Officials refused to furnish precise enrollment figures, saying Blue Cross releases those numbers only annually.

Dwight K. Bartlett III, Maryland's insurance commissioner, said he couldn't comment on the job cuts until he learns more about the company's recent financial results. "We'll want to know a lot more about the rate filings they've made recently," he said.

When Mr. Jews took over as CEO in the first half of 1993, Blue Cross employed more than 4,000. Through retirements and attrition, it trimmed employment to fewer than 3,700 workers today. It could have fewer than 3,200 by next year.

On top of yesterday's cuts, Blue Cross decided earlier this year to abandon part of its Medicare claims-processing business. That means another 150-plus workers will be leaving the company. Most have been hired by Blue Cross and Blue Shield of Texas, which is taking over the Medicare job, officials said. Some could be laid off, however.

Among employees, morale has fallen along with the employment level, several workers said. Word of possible layoffs had been circulating for weeks -- in part because Mr. Jews has relentlessly delivered the cost-cutting message. Employees interviewed declined to be identified, saying their jobs might be at stake.

Turmoil is nothing new at Blue Cross, which offers several HMO products in addition to traditional indemnity insurance and administrative services.

In recent years the company has endured near-insolvency, turnover among all its top executives, sales of large divisions, criticism over executive pay, the indictment of two former executives and customer anger over a rickety, gridlocked claims system.

The latest cuts will be spread throughout Blue Cross, officials said. "We're asking each manager to do an assessment of every area," Mr. Jews said. Those laid off will be eligible for the company's severance plan.

Cuts announced yesterday should save Blue Cross approximately $20 million in annual administrative costs and are part of a plan to save $40 million in all, Mr. Jews said. Blue Cross' operating expenses were $216.2 million last year, about 11 percent of its $1.95 billion in revenue, according to company documents.

The company's goal is to pull operating expenses below 10 percent of revenue -- and to pass the savings onto customers, said Frank A. Gunther Jr., Blue Cross' chairman. "We're well on the way to achieving that goal," Mr. Gunther said.

Officials declined to say what they expect in total premiums for this year or 1995, but revenue for the three months ended June 30, the most recent results available, fell by 1.6 percent.

Price cuts will add to downward pressure on revenue. Besides the rate reductions announced two weeks ago, Blue Cross in July cut prices for its small-group coverage by up to 30 percent to match competitors.

"There have been about a half-dozen insurance companies that have reduced rates since July," said William F. Simmons, president of Group Benefit Services Inc. of Lutherville.

Blue Cross is also re-examining its computer systems and is taking proposals from potential "technology partners" to help it process claims and do other data processing. Officials declined to discuss plans in detail, but a significant switch in computer processing could lead to more employment change.

Mr. Jews said it's possible that more layoffs could result from computer improvements but just as possible that the proposals would lead to only minor changes -- new software, for example. He declined to say how many employees work in data processing.

Aside from computer uncertainties, Mr. Jews said he doesn't expect more cost-cutting layoffs -- barring drastic changes in regulation or competition.

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