Maryland's new insurance commissioner escalated the state's dispute with CareFirst BlueCross BlueShield yesterday by announcing plans to fine the company and three of its top leaders for actions that allegedly violated Maryland laws regulating not-for-profit organizations.
In a 50-page report, commissioner Alfred W. Redmer Jr. accused CareFirst; its chief executive, William L. Jews; its executive vice president, David D. Wolf; and its chairman of the board, Daniel J. Altobello, of turning the not-for-profit health insurer into a for-profit company that sought to reward executives with multimillion-dollar salaries and bonuses.
In seeking the fines, Redmer is alleging that CareFirst has failed to abide by its corporate mission in the state as a nonprofit that requires it to offer insurance at the most reasonable rates under sound fiscal management.
The action grows out of allegations that originally surfaced in a report by the previous insurance commissioner, Steven B. Larsen, that contended CareFirst sought to sell itself to California-based WellPoint Health Networks Inc. for $ 1.37 billion in an effort to enrich its top executives.
Jews and Wolf face allegations that they made "willful misrepresentations" to their own board members to secure bonuses for themselves during negotiations on the sale of the company, the report said. Jews also faces allegations that he made a "willful misrepresentation" during testimony before Maryland Insurance Administration officials by denying that a lawyer retained by CareFirst was also his private lawyer.
CareFirst said it will fight the allegations. "In all circumstances, the CareFirst Board and its executive management acted appropriately in representing the interests of this company and we look forward to presenting our case at the appropriate time," the company statement said. "We are certain that a fair hearing on allegations of violations of the code will clear the record," it added.
CareFirst and the three officials will have an opportunity to answer the allegations at hearings run by the Maryland Insurance Administration. If CareFirst is dissatisfied with the regulator's decision, it can appeal to the Maryland circuit court.
CareFirst, the Washington area's largest health insurer, can be fined a maximum of $ 500,000 -- $ 125,000 for each of four violations, Redmer said. Jews can be fined a total of $ 15,000, Wolf $ 10,000 and Altobello $ 5,000, he said.
The potential fines are small, given the salaries and bonuses paid to top CareFirst executives, said T. Michael Preston, executive director of the Maryland State Medical Society. Last year, Jews earned $ 2.78 million in salary and bonus. Wolf was the second-highest-paid CareFirst executive, collecting $ 936,927.
"But the size of the fines is inconsequential," Preston said. "The message of these fines is that there has been a failure of accountability and that Mr. Jews should resign."
Redmer was empowered under Maryland law to suspend or revoke CareFirst's license. But he said neither action would "serve the public interest." CareFirst has 3.25 million members in Maryland, the District, Delaware and Northern Virginia.
Larsen, the previous commissioner whose term ended last month, issued a 300-page report in March rejecting the WellPoint deal.
In May, Maryland Gov. Robert L. Ehrlich (R) signed a law that gave the state greater oversight of the Owings Mills-based insurer. A state-appointed committee, for example, will appoint five members to CareFirst's 21-member board by the end of this year. By next July 1, the newly constituted board will replace seven more members.
Maryland House Speaker Michael E. Busch (D-Anne Arundel) yesterday called the fines against CareFirst and its top leaders "appropriate."
"But the real punitive action will be the replacement of current board members," he added. "The current CareFirst executives will have to face a new board who obviously will have read the reports. And I'm sure the new board will take whatever action they feel is appropriate."
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