CareFirst plan draws objections

Medical groups, Assembly leader question profit move

Original purpose at issue

$1.3 billion deal good for the public, CEO of health firm says

November 22, 2001|By M. William Salganik | M. William Salganik,SUN STAFF

The state medical society said yesterday that it opposes CareFirst BlueCross BlueShield's plan to convert to for-profit status in a $1.3 billion deal, and the House speaker, the state hospital association and the leader of a consumer group also expressed strong reservations.

Their questions, they said, centered on concerns that the Blue Cross plan has abandoned its original purpose as a nonprofit insurer.

"That's one of the main questions here," House Speaker Casper R. Taylor Jr. said yesterday. "Blue Cross is our historic insurer of last resort. It has drifted away, for various reasons, from that mission. There's a strong feeling in the legislature that they need to be brought back to their mission."

CareFirst, the state's largest insurer, said Tuesday that it wants to convert to for-profit status and be acquired by WellPoint Health Networks Inc., a for-profit company that operates Blue Cross plans in California and Georgia. WellPoint announced last month a plan to buy the Missouri Blue Cross plan, known as Right- CHOICE, as well.

CareFirst's role as "insurer of last resort" will be just one of the issues to be examined in a complex process involving regulators in Maryland, the District of Columbia and Delaware. And because the D.C. Blue Cross plan was chartered by the federal government, Congress would have to approve the change.

Maryland Insurance Commissioner Steven B. Larsen said yesterday that he expected the review to take a year, with the first public hearing taking place within a month after CareFirst officially files its plan. Under Maryland law, Larsen will decide if the deal is in the public interest. If he rules that it should proceed, he will also decide what conditions to impose and whether the $1.3 billion price - which would be paid to foundations or used for another public purpose - is fair.

CareFirst declined direct comment yesterday on the "insurer of last resort" issue. William L. Jews, CareFirst's chief executive officer, who would head WellPoint's regional operations if the deal goes through, said Tuesday night that the $1.3 billion would "go to fill a lot of health care needs that are not being met in the community."

A CareFirst spokesman, James P. Day, also said yesterday that the company was working on a plan to reform the state's system of providing affordable coverage for those who are difficult to insure because of chronic health problems.

Jews also said, in a conference call with analysts yesterday, that the deal would benefit the public because CareFirst could "increase our competitiveness, and afford an opportunity to expand with innovative products and technology."

Others, however, were focusing on the issue of the historic role of the Blue Cross plans. CareFirst receives millions of dollars in hospital discounts for offering open enrollment policies for the hard-to-insure. Although such policies lose money, the discounts mean that CareFirst benefits by about $15 million a year, according to Robert Murray, executive director of the Health Services Cost Review Commission. CareFirst is suing Larsen for blocking a 50 percent premium increase that the insurer was seeking on its open enrollment product.

As a nonprofit health plan, CareFirst is also exempt from Maryland's 2 percent health insurance premium tax - a benefit Larsen said is worth about $13 million a year. Under legislation passed last year, CareFirst must file a report in March on what public benefit it gives to justify the tax break. The legislature can withdraw the tax exemption if it isn't satisfied.

Calvin Pierson, president of the Maryland Hospital Association, noted yesterday a plan by CareFirst's FreeState HMO to leave the individual market, leaving thousands of members "stranded," and said, "That's the kind of behavior we're likely to see more and more of if they're allowed to convert."

Pierson said of the proposed conversion, "We seriously doubt whether this plan is in the best interest of the business community, providers or the public."

Hal Wallach, chairman of the Coalition for Health Care Accountability, a consumer group, said, "We feel very strongly that, in general, the culture of health care used to value care for the vulnerable. Now it values the care of the shareholder. Maryland citizens should be asking whether it makes sense to turn over our health care to institutions with an obligation to serve the shareholder."

Both Pierson and Wallach said that, despite their reservations, their groups wouldn't take a final position on the CareFirst plan until they had seen it.

As for the legislature, Taylor said, "Without jumping to the end of the process prematurely, we're concluding that what we now have in place is broken. We might end up concluding we can't go back to the traditional model, and maybe the new model will be WellPoint."

T. Michael Preston, executive director of the Medical and Chirurgical Faculty of Maryland, the state medical society, said his organization is opposed to conversion.

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