CareFirst BlueCross BlueShield has no legal obligation to make contributions to community organizations, Washington's insurance commissioner ruled yesterday.
Its legal responsibility is to its members, although the insurer "can and should engage in more charitable activity," Lawrence H. Mirel, the insurance commissioner for the District of Columbia, said in a report yesterday.
Mirel directed the nonprofit regional health insurer to file a report by September cataloging its charitable efforts. The report, he said in an interview, was "essentially a form of pressure - we want them to articulate to the community what they are doing."
The issue of CareFirst's role in the community has also been raised in Maryland. After a CareFirst effort to convert to for-profit operation was blocked, lawmakers sought to make sure it met its obligations as a nonprofit. Decisions in the District of Columbia might influence the debate in Maryland, but don't apply directly because the D.C. affiliate operates under different laws and a different corporate charter.
Walter Smith, executive director of D.C. Appleseed Center for Law and Justice, said yesterday that Mirel's view on the legal requirements for the company was "wrong as a matter of law." Smith said he was hoping for the D.C. attorney general to issue a clarifying opinion on the question, and that he would work with lawmakers in the district to spell out an enforcement mechanism to make sure that nonprofits meet their obligations.
D.C. Appleseed, an advocacy group, raised the issue in Washington with a report in December charging CareFirst was not meeting its legal obligations as a nonprofit. That report prompted Mirel to hold a hearing in March.
CareFirst spokesman Jeffery W. Valentine said the insurer was pleased that Mirel had recognized that "our core responsibility is to our members, in providing quality, affordable health insurance." CareFirst also agrees, Valentine said, that the company has a "social responsibility" to contribute to the community, but that it's up to CareFirst's directors to determine what level is appropriate.
Appleseed had argued in its December report that CareFirst's reserves - just under a billion dollars at the end of 2004 - are more than it needs to cover future claims. It should be contributing 2 percent to 3 percent of revenue, or $41 million to $61 million a year from its D.C. affiliate alone, to charitable efforts, Appleseed said.
Aside from grants to organizations that promote health in the community, Smith said, CareFirst could meet its charitable obligation by providing subsidies to low-income subscribers or by increasing benefits without raising premiums.
Mirel said insurance regulators are usually worried about reserves that are too low, not too high. Of CareFirst's billion, half of that is from the D.C.
affiliate, giving it a ratio of 950 percent of its "authorized control level," the level at which regulators would take action to preserve solvency. Noting that the Blue Cross Association sets 800 percent as a level indicating a company is in "good shape," he said that, at 950, CareFirst's D.C. affiliate was in "great shape."
"I can conceive of a situation where a company could have too much surplus, but they are not at that level," Mirel said. "If they were at 4,000 percent, that would get my attention."
During Mirel's hearing, CareFirst said it provided $2.6 million in charitable grants throughout its service area during 2004, and planned to increase that to $8.7 million in this year.
It has also announced a program it calls "CareFirst Commitment." In addition to grants, it will moderate premium increases, reducing its profit target by $60 million, the company has said. Smith said CareFirst has not provided the data to show whether the price moderation is truly charitable or just an attempt to attract more business.
With headquarters in Owings Mills, CareFirst has 3.2 million members. Most are in Maryland, but CareFirst also does business in Delaware and Northern Virginia as well as Washington. |
