The District of Columbia affiliate of CareFirst Blue Cross Blue Shield (Group Hospitalization and Medical Services, Inc., or "GHMSI") has departed from its federally imposed mission and charitable obligation to serve the healthcare needs of citizens of the National Capital area. The billion-dollar GHMSI spent only approximately $1 million on charitable activities in 2004--less than one-tenth of one percent of its assets.

In December 2004, The DC Appleseed Center for Law and Justice released a report entitled "CareFirst:  Meeting Its Charitable Obligation to Citizens of the National Capital Area."  The purpose of the report was to explain and establish three important principles concerning Group Hospitalization and Medical Services, Inc. (GHMSI), CareFirst's nonprofit affiliate serving residents in the National Capital area:

• GHMSI has a legal obligation to engage in charitable, community benefit activities;
• The governing legal standard requires GHMSI to spend the maximum possible amount on charitable activities, consistent with remaining competitive and financially stable; 
• Under that standard, GHMSI can afford to expend at least two percent of its earned premium for community benefit each year at current levels of premium simply by forgoing further surplus buildup.  The amount GHMSI could have spent in 2004 on community benefit was $41 to $61 million.  The amount GHMSI actually spent on community benefit in 2004 was only $1.5 million.  In 2005, it could afford to spend $44 to $66 million.

Three significant events followed the release of DC Appleseed's report.  First, CareFirst announced its 2005 community benefits plan for its four affiliates--GHMSI, CareFirst of Maryland, CareFirst Blue Choice, and Blue Cross Blue Shield of Delaware.

Second, the D.C. City Administrator, Robert Bobb, asked the D.C. Attorney General to evaluate the legal contentions in DC Appleseed's December 2004 report.  The AG issued his analysis in a March 4, 2005 memorandum.

Finally, the DC Insurance Commissioner, Larry Mirel, held a hearing on March 24, 2005, which addressed essentially two questions:  What is GHMSI's charitable obligation? And what should the company be doing to meet that obligation?  The hearing succeeded in illuminating GHMSI's legal position, which categorically denies any charitable legal obligation whatsoever.  On the other hand, the hearing failed to illuminate CareFirst's new community benefit plan, including its claim that it is going to confer charitable benefits by foregoing rate increases that it otherwise would impose.

At the hearing, GHMSI insisted that the congressional declaration in its federal charter that it is a "charitable and benevolent" institution is a meaningless anachronism.  Three conclusions follow from this, according to GHMSI.  First, GHMSI has no legal obligation to engage in community benefit activities at all.  As the Washington Post reported, GHMSI says that "neither its nonprofit status nor the language of its unusual federal charter imposes any special community responsibility on the District-based affiliate of CareFirst BlueCross BlueShield."  Second, while GHMSI plans to engage in some community benefit activities in 2005, the company says it is not required to do so and regulators may not review these activities.  Further, the company says it is not effectively owned by the public.  Apart from its legal position, GHMSI claims, finally, that the company needs a surplus significantly larger than that of any of its competitors and this need precludes it from engaging in substantial community benefit activities.  GHMSI has failed to establish any of its contentions.

DC Appleseed's original report and supplementary material DC Appleseed released in response to the contentions made by GHMSI at the March 24, 2005 hearing show that:  (1) GHMSI has a legal obligation to engage in substantial community benefit activities; (2) GHMSI's obligation requires it to spend the maximum amount possible meeting that obligation, consistent with remaining competitive and financially stable; and (3) the company has not shown that it is meeting that obligation.

Accordingly, DC Appleseed and CareFirst Watch believe that the D.C. Insurance Commissioner, the D.C. Attorney General, and the D.C. Council need to clarify (1) GHMSI's charitable obligation, (2) the standard GHMSI must meet to fulfill this obligation, and (3) the oversight process to be followed by District officials to ensure that that obligation is met.  These measures are particularly urgent in light of the fact that GHMSI has now denied any charitable obligation to the citizens of the National Capital area, and has declined to avail itself of the opportunity presented by the Commissioner to offer information explaining its claimed new community benefit program.