Maryland and District of Columbia officials are scheduled to meet tomorrow to discuss the District's objections to a new Maryland law that tightens the state's control of CareFirst BlueCross BlueShield.
Lawrence H. Mirel, the District's insurance commissioner, plans to fight the Maryland law because it gives the state greater oversight of CareFirst's operations -- not only in Maryland but also in the District and Delaware, where the company also is regulated.
"Who the hell are they?" Mirel said of the Maryland General Assembly, which passed the law in May. "CareFirst is not a Maryland government property."
The Maryland General Assembly acted after Steven B. Larsen, who was the state insurance commissioner, found that the nonprofit health insurer proposed huge bonuses for its top executives in an attempt to become a for-profit organization. "Scathing" is how the new commissioner, Alfred W. Redmer Jr., described Larsen's report, which outlines the state's reasons for rejecting CareFirst's proposed $ 1.37 billion sale to for-profit WellPoint Health Networks Inc.
In their meeting tomorrow, Mirel and Redmer plan to express their starkly different views of CareFirst and how it should be regulated. Mirel said the law could drive up insurance rates in the District. "Either the Maryland legislature changes the law or we go to court and contest it," he said. Delaware's insurance regulator has raised similar concerns.
CareFirst is the largest health insurer in the Washington-Baltimore region, with 3.25 million members. The D.C. plan is the insurer's most profitable.
"They run a pretty good ship," Mirel said of the 66-year-old, Maryland-based carrier, which expanded into the District in 1997. He said he cannot fault CareFirst for trying to become a profit-making organization, and he does not blame the CareFirst board for recommending substantial salaries and bonuses to retain key executives, including chief executive William L. Jews, whose annual income topped $ 2 million in 2000.
Redmer, a former Maryland delegate from Baltimore County who took over as insurance commissioner last month, said he would listen to Mirel's objections to the law and confer with state lawyers on what action, if any, to take.
"At no point did anybody want to negatively impact the citizens of the District," Redmer said. "And if we are presented with a concern that indicates that we have inadvertently done that, I am confident that the governor, the legislative leadership and certainly this agency will do what we can to correct that."
Redmer called the law appropriate, given the behavior of some CareFirst executives and board members in the proposed WellPoint deal. Larsen's report criticized the board for agreeing to pay $ 119 million in bonus and merger incentives to CareFirst executives despite "numerous warning signs" that the bonuses violated state law.
The report also said CareFirst conducted a "flawed" auction that did not attract the best sale price. Proceeds from the sale would have gone to the jurisdictions -- Maryland, the District and Delaware -- that helped subsidize the nonprofit insurer with tax breaks.
"I personally felt that there was a need for a change in corporate culture" at CareFirst, Redmer said. "If you read the report, the activities were suspect, to say the least. There was not as much concern about . . . the company [benefiting] the citizens of the District of Columbia and Maryland and Delaware as there was in creating personal wealth for some of the employees of CareFirst."
A District consumer activist group, the Fair Care Foundation, recently asked Mirel to remove the six District-based members of CareFirst's 21-member board, saying they abused the "public trust" by authorizing, among other things, "grossly excessive payments" to company executives.
The law gives Redmer the right to review the criteria used by CareFirst to compensate its executives. Some of those executives also run CareFirst's District affiliate, known as Group Hospitalization and Medical Services Inc. The District plan, which also serves parts of suburban Maryland and Northern Virginia, was chartered by the federal government and is regulated by the District.
Redmer said he would compare CareFirst's compensation criteria with "other, similar-sized nonprofits and with for-profits, too, to get a true and accurate picture of what we're comparing." He said he has not determined whether Jews's compensation is excessive.
Mirel defended Jews's income, saying CareFirst was almost bankrupt when the former hospital company chief executive took over in 1993. Today, Jews presides over a company that reported an operating profit of $ 25.4 million on revenue of $ 1.8 billion in the first quarter of this year. CareFirst also reported reserves of $ 674 million.
"When Bill Jews came to this organization it was failing," Mirel said. ". . . He managed to turn the company around. It now runs very well. People have choices. They can decide they want to go with somebody else. But CareFirst has the largest market share, which means that people are choosing it over other plans. And it is in the black, which is important.
"Now, does CareFirst do everything right? No. Does it drive people crazy? Yes. All health plans do. There is no health plan that I'm aware of that everybody's happy with."
The Maryland law also empowers a new state-appointed committee to name five members to CareFirst's 21-member board. The new members is to help oversee CareFirst's Maryland operations, but Mirel said he fears they could push fellow board members to "offer insurance at discount rates to Maryland residents." If that happens, CareFirst may have to "charge D.C. residents more," Mirel said. "That's what I'm worried about."
The law also forbids CareFirst from converting to a for-profit company for five years. That isn't necessarily what's best for CareFirst and its members, Mirel said.
"I think it's true that this company can continue to operate as a nonprofit because it is doing so and doing it well," he said. "But two years from now, who knows? If the choice is that CareFirst gets sold or it goes out of the business, I don't want to be stuck with a Maryland law that says they can't be sold."
Mirel said he doesn't consider CareFirst a charitable enterprise, at least in the District.
"Yes, they are nonprofit. For that, they get a tax break," he said. "And they use that tax break for charitable purposes. In D.C., they use it for a rate stabilization fund. But, otherwise, they are in competition with everybody else, and if they don't compete well they are going to go out of business." |
