CareFirst BlueCross BlueShield, the state's largest health insurer, will unveil what it calls a multi-million dollar commitment to fulfill its community obligations as a nonprofit, but the plan was quickly labeled "pathetic" yesterday by the chairman of a key legislative committee.
Del. John Adams Hurson, chairman of the House Health and Government Operations Committee who was briefed by CareFirst officials, criticized the insurer's board for taking a year to commit what he said amounted to $ 8 million in new charitable spending. At the same time, he said, it had decided "in a few minutes" that installation of a new board amounted to a change of control, an interpretation that could mean millions in additional compensation to top executives if they are terminated.
Michael R. Merson, chairman of the CareFirst corporate board, defended CareFirst's charitable plan, which he said represented an annual commitment of more than $ 90 million, as "making enormous progress toward fulfilling the nonprofit aspect of our mission." He said he would continue to work with Hurson and other officials -- including those in the District of Columbia and Delaware, where CareFirst also operates -- to meet public needs and make sure the insurer lives up to its obligations.
Yesterday's exchange has potential for re-igniting the controversy that began in November 2001 when CareFirst filed for state approval to convert to for-profit operation and sell the company for $ 1.3 billion to a California insurer. That deal was tainted by lavish executive bonuses, the state insurance commissioner ruled in 2003 as he blocked the sale.
The legislature subsequently moved to reform CareFirst, passing a law that ordered replacement of the Maryland members of CareFirst's board and required the health insurer to remain nonprofit. The board turnover was completed last July, and the new board, chaired by Merson -- who was chosen by a state-selected nominating committee -- been working since then to develop a plan to meet its non-profit obligation.
House Speaker Michael E. Busch said yesterday it was too early to tell whether CareFirst will become a major issue in the legislative session that opened this week. He expressed confidence both in his health chairman and in CareFirst's new leadership.
Merson and Hurson -- who met to discuss the plan yesterday -- gave similar accounts of the insurer's proposal but vastly different assessments of its impact. The four major elements of the plan, according to both, are:
--Premium stabilization. Merson said CareFirst's board decided to use about one third of its projected $ 175 million in net earnings for 2005 -- about $ 60 million -- to reduce premiums or moderate increases by an average 1 1/2 percent. Merson said the decision was a response to "employers' anguish over rising premiums" and concern that employers might drop coverage or shift more cost to workers.
CareFirst has about 3.2 million members, about 2 million in Maryland, but nearly half of those are in plans for self-insured employers, who would not receive the savings. Merson said company actuaries were working on how to apply the reduction to CareFirst's various products.
Hurson, however, said the rate moderation could be an effort to be "competitive in the marketplace" by pricing its products attractively compared to its rivals. This is the largest piece of the overall plan, which the insurer calls the CareFirst Commitment.
--Senior prescriptions. CareFirst said it should get credit for applying the money it gets from a state tax break -- about $ 22 million this year -- to provide subsidized prescription coverage for moderate-income seniors. Hurson characterized this as a state contribution, not CareFirst's. CareFirst says before the prescription program started, it had used the tax savings to enhance its profitability, but agreed to divert it to help seniors.
--New initiatives. Merson said CareFirst would commit $ 8.7 million for "initial investments" in programs to address such areas as patient safety and disparities in health care among different ethnic groups. Hurson said this sounded promising, although he was awaiting more details of how this part of the program would work.
--Charitable contributions. CareFirst said it would maintain contributions to local charities at its current level of $ 2.5 million a year.
Hurson's committee and the Senate Finance Committee will both hear from CareFirst Tuesday, when the insurer officially unveils its plan. Hurson said he would consider legislation to dedicate a portion of CareFirst's premium revenue to charitable activity.
The Montgomery County Democrat said he saw that as a potential source of funds to provide care for more of the state's uninsured. Hurson last year sought unsuccessfully to subsidize health clinics for the uninsured with an HMO premium tax, but the legislature this week enacted a malpractice reform bill that uses HMO tax revenue to reduce doctors' premiums and increase Medicaid payments.
Next week's committee sessions will also be an opportunity for lawmakers to question CareFirst on executive compensation arrangements, which were a flash point during the previous debate over the company's future.
Hurson said he had learned from a board member that CareFirst had interpreted the replacement of board members as a "change in control," as defined in employment agreements with its top executives -- potentially entitling them to millions of dollars in additional severance pay. Merson said the extra payments would be made only if any of the executives were terminated within two years of the board changeover last July. He said the board currently had no plans to terminate any of the executives.
Merson said the interpretation had been given by CareFirst's legal counsel in response to questions from the board. He said the board currently believed the potential extra payments represented a total of $ 3 million to $ 4 million, with about half of that going to Chief Executive Officer William L. Jews and the rest to about half a dozen other top executives. Merson said the board had brought in a second compensation consultant to verify those estimates, and expected to make a report to insurance regulators by the end of February on the final numbers. He said he was not sure what the potential total severance payments would be to the executives.
Hurson said based on preliminary estimates by the attorney general's office, he believed the potential extra payments were in the range of $ 5 to $ 6 million.
According to testimony two years ago during the hearings on the proposed sale, eight top CareFirst executives stood to collect as much as $ 100 million -- $ 38.7 million for Jews alone -- if they were terminated after a change in control. However, that amount included deal-related bonuses, and was based on the executives' then-current pay rates, bonus earnings, deferred compensation and years of service.
Walter Smith, executive director of the DC Appleseed Center for Law and Justice, a public interest organization, said yesterday he was not familiar with CareFirst's new plan, but that the company had sufficient reserves and earnings to contribute much more than it does currently to meet its charitable obligations. A study released last month by Appleseed said CareFirst should be spending $ 50 million to $ 100 million a year just in the Washington area. |
