In the latest blow to embattled New York-based Empire Blue Cross and Blue Shield, G. Robert O'Brien, the plan's president and chief executive officer, announced his resignation effective Sept. 1.
Mr. O'Brien is leaving to become president and CEO at U.S. HomeCare Corp., a financially troubled home healthcare company in Hartsdale, N.Y. (See related story, this page). He succeeds W. Edward Massey, who will become vice chairman.
With 7.4 million subscribers, Empire is the nation's largest Blues plan.
Despite inroads in improving plan management, Empire's long-term financial health remains tentative. As of July, the plan had reserves of $234 million, far short of the $608 million required by state law. The state requires a surplus of 12% of premium income.
In May, Empire presented a six-year financial plan containing a series of proposed rate hikes, but it isn't clear whether state insurance regulators will approve those increases.
And at a recent hearing in Washington, Blue Cross and Blue Shield Association President and CEO Bernard Tresnowski told members of a Senate subcommittee that Empire now meets the national group's financial standards but could lose the right to use the Blue Cross and Blue Shield name if the situation deteriorates.
Because of the expenses the plan incurs in providing coverage for individuals and small groups that can't get insurance elsewhere, Empire expects reserves to erode, dipping to between $160 million and $165 million by year's end, said John Kelly, an Empire spokesman.
"Empire cannot bear the burden any longer," he said, adding that state legislation is needed to require other insurers to cover individuals and small groups.
Mr. O'Brien's sudden departure surprised state insurance officials but has no immediate effect on the company, said Karen Eldred, a New York State Insurance Department spokeswoman. "We feel that the company will be able to find a suitable replacement."
Empire has formed a seven-member search committee to replace Mr. O'Brien. In the interim, board Chairman Philip Briggs will serve as acting CEO.
Mr. O'Brien, 57, joined Empire a year ago to help move the plan into managed care and out of a financial black hole. He replaced Albert Cardone, who was forced to resign amid fiscal troubles and allegations of mismanagement.
At U.S. HomeCare, Mr. O'Brien will be paid a salary of $350,000, be eligible from 1995 to 1997 for a bonus of as much as 300% of his salary and will be able to purchase stock options, according to a Securities and Exchange Commission filing. At Empire, Mr. O'Brien's salary was $450,000.