ANNAPOLIS --CareFirst BlueCross BlueShield officials appeared before state lawmakers on Tuesday to unveil the company's $92 million plan to fulfill its nonprofit mission by holding down insurance rates and investing in local communities.
The company's proposal includes investments in medical institutions and policy pricing, as well as community programs. But some lawmakers called the company's cost estimate inflated and its motives mixed. They spoke of targeting both the company's profits and its principals' salaries in legislation to reduce both.
CareFirst is lowering its profit target for 2005 by $60 million in order to keep rates at or near their current levels, company executives told lawmakers. The "ensuring affordability" plan will effectively reduce projected increases in premiums.
The company also will continue to spend $24 million annually on public-private programs providing drugs to low-income seniors, invest $8.7 million in improving physician care, patient safety and other initiatives and ramp up its rate of corporate giving, currently at $2.6 million, over the next several years.
"What we ask from you is to support us ... in fulfilling our nonprofit mission as well as managing our fiduciary responsibilities," CareFirst Inc. Board Chairman Michael R. Merson told the House Health and Government Operations Committee in the morning.
The company's proposal responds to a mandate from legislators, who reconstituted CareFirst's governing board in 2003 after the company tried to merge with Wellpoint Health Networks for $1.37 billion and become a for-profit company. Lawmakers nixed the controversial deal and legislated reforms requiring that CareFirst remain nonprofit and come up with a strategy to provide more benefits to the community.
Merson said the proposal unveiled Tuesday will decreases the company's return on policies. "We're projecting profits of little more than 2 cents on every dollar of premium."
But in an interview following CareFirst's presentation, House Health and Government Operations Committee Chairman John Adams Hurson repeated his charge that the plan falls far short of what lawmakers expected, especially in light of CareFirst's hefty surpluses and dominance in the market.
Hurson (D-Dist. 18) of Chevy Chase told The Gazette last week that CareFirst's plan to stabilize premiums appears to be a strategy to stay competitive in the market, and that he intends to propose legislation forcing the company to surrender a percentage of its surplus -- amounting to between $25 million or $30 million -- to an independent, nonprofit foundation or community program. The money would go primarily toward improving health care and increasing access to health care.
On Tuesday, Hurson said he is also planning to introduce a bill targeting the salaries of CareFirst executives. Hurson has criticized the company for approving compensation packages for CareFirst executives totaling roughly $4 million to $5 million.
In testimony Tuesday afternoon before the Senate Finance Committee, CareFirst president and CEO William L. Jews stressed that calculations of executive compensation have not changed, and continue to follow incremental cost of inflation and living increases. The $4 million to which Hurson refers, Jews later said, constitutes exit packages for CareFirst's executives, which they will receive if the new board dismisses any of them without cause.
The board's only decision regarding salary, Jews said, was to determine that the legislature's reconstitution of the board fulfilled one of the two necessary triggers for the executives to receive the additional compensation. To receive the money, however, the company would have to fire them without cause, he said.
Hurson said that Jews is oversimplifying, and that the attorney general has advised him that the executives can collect some of the money even if they leave on their own.
"He eventually gets the money," Hurson said. "The problem is, we all have to exit sometime."
Sen. E.J. Pipkin noted that the executives' salaries have not changed and that they have remained with CareFirst since failed merger with Wellpoint.
"It's like it never happened," said Pipkin , (R-Dist. 36) of Stevensville. "This is business history, in my opinion."
Walter Smith, executive director of the D.C. Appleseed Center, a nonprofit that has served for years as a CareFirst watchdog, said it seemed inadequate for the company to base its new proposal primarily on a $60 million effort to stabilize premiums, if it is indeed a response to market forces and a strategy on CareFirst's part to remain competitive.
The $24 million in continuing investment in prescription drug programs is irrelevant, he added.
"That doesn't count, because they're required to do that by law," Smith said. "In our view, CareFirst is essentially a publicly owned company. Its assets should be used to serve the public interest."
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