WASHINGTON - Defending itself yesterday against accusations that it isn't meeting its legal obligations for charitable spending, CareFirst BlueCross BlueShield presented insurance regulators in the District of Columbia with an actuarial study concluding that the company's surplus is "reasonable and appropriate."
Further, CareFirst argued that its first obligation is not to the public at large, but to its members. The insurer "is not and cannot be a second United Way," Sister Carol Keehan, a member of CareFirst's board who chairs its mission oversight committee, said at a hearing before Lawrence Mirel, the D.C. insurance commissioner.
The regional nonprofit health insurer, based in Owings Mills, has also faced challenges from Maryland legislators over its charitable efforts and its billion-dollar surplus. Lawmakers asked tough questions when CareFirst officials appeared in Annapolis in January.
There are bills this session - their prospects are uncertain - that could require CareFirst to contribute more to help care for the uninsured in Maryland and could direct regulators to consider surpluses when insurers seek rate increases.
The D.C. hearing was triggered by a December report by an advocacy group, the D.C. Appleseed Center for Law and Justice, which said that based on its reserves and profitability, CareFirst should be contributing about $50 million a year to the community in Washington and its suburbs. It contributed about $1.3 million last year.
Mirel could order CareFirst to do more if he finds it was violating the law, or he could do nothing. Most likely, he said before the hearing yesterday, he will issue a report with conclusions and recommendations, not a legal order.
During the hearing, Mirel said, "There is a big difference between saying they are legally obligated to do something and saying they should do something."
The commissioner referred several times to an opinion this month by the D.C. Attorney General, Robert J. Spagnoletti, which concluded that CareFirst has obligations under its nonprofit charter and could fulfill them solely by offering affordable, high-quality health insurance.
The company, Spagnoletti wrote, "does not have an obligation ... to satisfy any minimum threshold for providing services at no charge or for making contributions to other organizations."
Walter A. Smith, executive director of D.C. Appleseed, pointed to other sections in the legal opinion that said CareFirst has a public obligation under the charter for its D.C. affiliate and that district regulators have the authority to review its performance.
"We believe they are accountable to the public," Smith told Mirel at the hearing.
Since the Appleseed report in December, CareFirst has announced a plan called "the CareFirst Commitment," which will include more grants to health-related projects in the community. As part of the plan, CareFirst lowered its earnings target by $60 million this year to moderate rate increases.
Smith said rate cuts could be considered charity if targeted as subsidies to those who can't afford coverage. However, he said, if CareFirst reduces its prices across the board, the primary effect might be to help CareFirst capture market share from other insurers.
He said Mirel needs to get more data from the insurer "to assure yourself that they're carrying out a true charitable mission, rather than engaging in a slowing of rate increases for competitive reasons."
Testifying for CareFirst at the hearing, Constance B. Foster, former insurance commissioner of Pennsylvania, said the term "surplus" is often misunderstood by the public to mean "extra," but that insurers needed money in reserve "to meet obligations to policyholders" in the event of unforeseen events, such as an epidemic.
The hearing also included testimony from the public. Some advocacy groups said CareFirst wasn't doing enough to help the community. Others praised it for grants they have received.
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