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HEALTH INSURANCE ASSOCIATION OF AMERICA COMMENTS ON EMPIRE BLUE CROSS/BLUE SHIELD'S REQUESTED RATE INCREASE

 HEALTH INSURANCE ASSOCIATION OF AMERICA COMMENTS
 ON EMPIRE BLUE CROSS/BLUE SHIELD'S REQUESTED RATE INCREASE
 NEW YORK, Jan. 17 /PRNewswire/ -- The following statement was released today by the Health Insurance Association of America (HIAA) in response to Empire Blue Cross/Blue Shield's requested rate increase:
 There is at least one encouraging aspect to Empire's public plea yesterday for yet more public assistance money. At last, this quasi- governmental organization has dropped all pretenses about operating as an efficient, entrepreneurial entity. Its president, Al Cardone, as much as acknowledged at his press conference that he comes before New York's citizens with tin cup in hand.
 This latest request by Empire for a rate hike of up to 42 percent does nothing to address the fundamental problem -- the proven inability of this organization, which controls two-thirds of the health insurance market in New York, to manage the funds it already has.
 The state insurance department has questioned the management of Empire's HMO, which has lost $96 million since 1987. In the same period its Medicare supplemental coverage lost $98 million. The state is investigating charges that Empire's administrative sloppiness has resulted in underpayment on policyholder claims throughout New York. Top consumer officials in New York City and Albany have called for an investigation. And yesterday, State Consumer Protection Board Chief Richard Kessel said that Empire deserves no increase until it can cut at least $115 million from its administrative budget.
 In a characteristic misdirection ploy, Cardone blamed the hemorrhaging on commercial insurers saying that they were "siphoning off" Empire's best customers. If this were so, then the Goliath insurer would be showing sizable losses in its community-rated businesses. Ironically, however, an examination of Empire's financial records shows that it actually made a $55 million profit in this area over the past four years. And commercial insurer records actually report a decline in the types of policyholders Empire accuses them of "skimming off."
 Cardone says another reason Empire can't compete is the absence of a "level playing field" in New York. This is true. With more than $720 million in public subsidies on their side of the field in 1990 alone, the playing surface already is tilted decidedly in Empire's favor. Yet its losses mount.
 Moreover, Empire's own numbers show that where it really loses the most money is in its national accounts area, where it is allowed to base its rates on its best business judgment. Despite enjoying the same lavish subsidies it uses to competitive advantage in managing its community-rated businesses, Empire has lost $300 million on its national accounts during the past two years.
 It is clear that Empire's real problem is not unfair competition from commercial insurers, but managerial incompetence. Accordingly, the solution rests not with adding more coins to a bottomless cup. The state must first examine why Empire cannot seem to balance its checkbook before asking beleaguered New Yorkers for more emergency relief.
 We believe that this should take the form of a full, independent audit of Empire's finances and management practices immediately. The citizens and small-business owners of New York must not be asked to bail out this bureaucratic behemoth again before its inefficiencies are found and plugged.
 Judging from Cardone's closing remarks yesterday, the widespread criticism of Empire's management in recent months has not fallen on deaf ears. He noted that he had commissioned the management consulting firm of Booz Allen & Hamilton to review the company's administrative costs and that it had found that Empire's administrative expenses from 1986- 1990 "appear reasonable".
 What isn't reasonable here is Cardone's expectation that the state will grant Empire another reprieve on the basis of a self-serving study, which itself is a misuse of Empire's subscribers' money. If the people of New York want their health care chicken coop protected, they must first be assured that the fox has been removed.
 -0- 1/17/92
 /CONTACT: Chris Petersen of HIAA, 202-223-7817, or Kathy Murphy of Aetna, 203-273-3847, or 203-630-2721/ CO: Health Insurance Association of America; Empire Blue Cross/Blue
 Shield ST: New York IN: INS SU:


JT-KW -- NY063 -- 1182 01/17/92 17:34 EST
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Date:Jan 17, 1992
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