Gov. David Paterson, with his wife Michelle Paterson for his...

Gov. David Paterson, with his wife Michelle Paterson for his announcement that he will not run governor. (Feb. 26, 2010) Credit: Getty Images

ALBANY - State insurance officials have recommended a subsidiary of the health care company that employs first lady Michelle Paige Paterson to run a new federal program for New York's uninsured.

Group Health Inc., a nonprofit insurer, was designated this month to administer $297 million in federal funds for medical coverage for about 15,000 New Yorkers with pre-existing conditions. The insurer is expected to receive about $30 million to cover its costs, though officials conceded Monday it may lose money on the deal.

The state's decision must be approved by the U.S. Department of Health and Human Services, which would negotiate a contract with GHI for the 3 1/2-year program, part of federal health care reform.

Paige Paterson, wife of Gov. David A. Paterson, is director of integrative wellness for GHI's parent, EmblemHealth Inc. Monday, the governor responded to a claim of impropriety, saying the couple only learned of GHI's designation from a New York Post story published hours earlier. "My wife doesn't even work in the area," he said.

Paterson explained GHI's selection stemmed from rules requiring the federal program be run by a nonprofit group. GHI is the only such entity with a statewide network, he said.

Asked why New York wasn't allowing Washington to administer the program as others have, Paterson cited the unique characteristics of the state's insurance market. New Yorkers, for example, cannot be denied coverage due to poor health. "The federal government would have a long time figuring out how New York does it. And this was the fastest way," he said.

The normal procurement process was bypassed because of short notice from federal authorities and fears the state would lose funding if the program wasn't running by fall, said Insurance Department spokesman David Neustadt. For-profit insurers showed no interest in the initiative because of its temporary status, small size and likely high cost. "There's nothing to protect them from losing money, which may very well happen," he said.

GHI officials aren't expecting to turn a profit, though they hope to break even. "We aren't going to make a dime on this," said spokeswoman Ilene Margolin.

She and others denied any involvement by Paige Paterson. "She has no role in this, never has," Margolin said.

Citing an unnamed top Democrat lawmaker, the Post reported Monday that GHI's designation was under investigation by the legislature. However, Travis Proulx, a spokesman for the State Senate's Democratic majority, told Newsday: "there is nothing officially from our conference about any investigation."

An aide to Assembly Speaker Sheldon Silver (D-Manhattan) declined to comment, but sources said the lower chamber wasn't probing.

A spokeswoman for the Health and Human Services Department did not respond to an e-mail requesting comment.

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