Published in the Wall Street Journal, Friday, April 3, 1998, page B5:

"New York state's top insurance regulator ordered Oxford Health Plans Inc. to suspend payments to its former chairman Stephen F. Wiggins under the $9 million severance package he was awarded upon his stepping down from the post in late February.

Neil D. Levin, superintendent of insurance, said the size of the package raises "significant concerns" in light of management and financial problems at the beleaguered managed-care company and in the face of Oxford's recent request to raise rates for some New York subscribers by almost 70%.

The Norwalk, Conn., company disclosed in its annual 10-K filing with the Securities and Exchange Commission earlier this week that it had agreed to pay Mr. Wiggins a lump sum of $3.6 million and an additional annual fee of $1.8 million for each of the next three years in payment for his services as a consultant. Mr. Wiggins, who remains a board member, had to give up his post in the wake of a computer-system debacle that led it to report a $291.3 million loss in 1997, wiping out the company's entire cumulative profit since it went public in 1991.

Mr. Levin protested the severance package in a letter to Oxford's recently elected chairman, Fred Nazem. He said he was directed to order a suspension of payments by Gov. George E. Pataki, who had expressed "serious concern" about the amount of the severance and some related perks, including payment of membership dues at a country club.

"When you have a company that has had these tremendous losses, to reward the person in charge like that is not appropriate," said Mr. Levin's spokesman, John Calagna.

In his letter to the company, Mr. Levin said his department wants any payments suspended until it receives assurances that none of the severance costs are allocated to Oxford's New York subsidiaries, and that the subsidiaries have "sufficient capital and surplus to resolve their problems and adequately service their subscribers."

In response, Oxford defended the provisions of the agreement with Mr. Wiggins, but said it agrees that none of the costs of the package will be borne by any of its operating subsidiaries in New York or elsewhere and that it will have "no impact on premiums" for subscribers or employers in any of the states where it does business. It agreed to withhold future payments to Mr. Wiggins pending discussions with the insurance department over its concerns.

Mr. Wiggins couldn't immediately be reached for comment.

It isn't clear what authority the insurance department has to dictate the severance policy of a publicly-traded company, especially one whose headquarters is in another state. But one health-care economist who doubts the value of regulatory intervention in the case was sharply critical of Mr. Wiggins' pact.

"It is a thumb in the eye of the shareholder and it's a bad wart on the face of capitalism," said Uwe Reinhardt, professor of economics at Princeton University.

Mr. Reinhardt has previously defended the pay of Leonard Abramson, founder of U.S.Healthcare Inc., whose option-enhanced compensation package was a target of doctors and other HMO critics in the mid-1900s before that company was sold to Aetna Inc. "Mr. Abramson got a bad name and doctors hated him, but that man could balance his books and shareholders grew richer," Mr. Reinhardt said.

Oxford said the terms of severance package took into account the need to make a transition to new management, Mr. Wiggins' contractural rights, and the value of a non-competition agreement with the company's founder, among other things. "The board's assessment, with the advice of outside experts, was that the....agreements were were reasonable and structured not to affect the regulated subsidiaries and individual consumers and are in the best interest of the corporation."

The state insurance department opposed a severance package at least once before, Mr. Calagna, the spokesman, said. In 1993, it ordered Empire Blue Cross and Blue Shield to suspend a similar agreement valued at about $1.3 million for a chief executive who departed in the wake of a controversy over financial irregularities. After the executive filed suit, the amount was revised to $860,000, an amount based on the executive's loss of pension benefits, according to a spokeswoman for Empire."