WHEN THE BOARD of directors of Group Hospitalization and Medical Services Inc. (GHMSI), the D.C. affiliate of CareFirst BlueCross BlueShield, meets this weekend to discuss the nonprofit company's charitable activities for next year, the first order of business should be to find out why GHMSI has done such a wretched job of complying with its legal obligations under the company's federal charter. Failure is the logical conclusion to be drawn from a comprehensive legal and economic report prepared by the DC Appleseed Center for Law and Justice on the company's compliance with legal requirements to undertake charitable activities in the national capital area. The report, released yesterday, contends that CareFirst, a billion-dollar company by worth and the region's largest health insurance provider, is spending only about $1.5 million, or less than one-tenth of 1 percent of its assets, when it should be committing about $40 million to $61 million annually. If the Appleseed report is on target, the company's board of directors has no choice but to demand a substantially higher rate of charitable activity.
Meeting that legal requirement may well entail the board reeducating William L. Jews, CareFirst's president and chief executive. We offer that observation because there may exist within the company a mistaken belief that CareFirst can revise or reinterpret its obligations as it sees fit. Mr. Jews, for instance, says that the company's first responsibility must be to policyholders, which is true. But his statement, in response to the Appleseed report, that CareFirst is willing "to play a role" in addressing community health problems quite misses the point. CareFirst and GHMSI are not private players in the community. They are nonprofit organizations with charitable obligations. That GHMSI operates with nearly a $400 million surplus and earned $2 billion in premiums last year (CareFirst reported revenue of $7.3 billion in 2003 and a $171 million surplus) does not make it any less a regulated, federally chartered company subject to review and legal scrutiny by officials, who, in the District of Columbia's case, are the D.C. insurance commissioner and the D.C. attorney general. The board must face up to that reality.
Nearly two years ago CareFirst tried to drop its nonprofit status and convert to a for-profit firm. In denying CareFirst's conversion application in March 2003, Steven B. Larsen, then Maryland's insurance commissioner, found that the company was forsaking its mission as a nonprofit and that the deal was "not in the public interest," especially since CareFirst's management, led by Mr. Jews, was to pocket excessive bonuses from the conversion. Apparently, the company's senior management hasn't learned very much since then. It now falls to company directors to set a course that puts their financially viable and highly competitive insurance company on the side that benefits, rather than ignores, the public.
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