Dental insurer going for-profit to pay $471,728

Commissioner's ruling on conversion might shed light on CareFirst future

November 06, 2001|By M. William Salganik | M. William Salganik,SUN STAFF

State Insurance Commissioner Steven B. Larsen ruled yesterday that a nonprofit dental insurer converting to for-profit status must pay $471,728 to the Maryland Health Care Foundation.

A consultant for the insurer had said the payment should be $170,000; a consultant hired by Larsen had said $939,000. Each consultant presented the rationale for his figures at a hearing before Larsen in June.

The case attracted interest because it could give an indication of how Larsen might deal with a conversion of CareFirst BlueCross BlueShield.

However, Larsen said he based his decision by considering the unique facts of the insurer, Dental Benefit Providers of Maryland Inc., and reviewing the assumptions made by the consultants. For example, the two consultants differed on how large a management fee Dental Benefit should have paid to its for-profit parent company; adjusting the fee changed the estimate of the nonprofit's operating surplus.

"It was an evaluation of the assumptions, not a desire to come to the midpoint, that led us to the [final] number," Larsen said.

Ren Tunderman, the lawyer representing Dental Benefit, said yesterday, "He carefully weighed each point, and that's what he has to do in any future conversion." She said the lesson for future conversion was that "both valuations were independent, and they reached very different opinions."

She said her client was "happy to have the process behind us" and had already written a check to the foundation.

The Dental Benefit Providers case is the first since a 1997 state law that established a process for nonprofit health insurers or nonprofit hospitals to convert to for-profit status. Since a nonprofit hospital or insurer belongs, in effect, to the public, when one switches to for-profit operation, assets built up by its nonprofit status are given to the foundation.

CareFirst indicated to state officials earlier this year that it was considering converting, but it has not filed and has consistently refused to comment on its plans. CareFirst could be worth $1 billion or more. Legislators debated last year whether to direct money from a CareFirst conversion to a fund for the difficult-to-insure but deferred any action on the issue.

Marilyn Maultsby, executive director of the Maryland Health Care Foundation, said the foundation did not have specific plans for the $471,728, other than that it would be used for health-related grant projects. The foundation received $1.9 million from the conversion of a psychology insurer and has received funds from the legislature and from grants. In all, it has given $3 million in grants since its inception, she said.

Maultsby said the foundation was conducting a study, to be completed in the next few weeks, of health care needs in the state.

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