Md. should take its hands off CareFirst

November 28, 2001|By Jay Hancock

LEGISLATORS and doctors oppose selling CareFirst BlueCross BlueShield to a California company, saying Maryland will lose its nonprofit insurer of last resort.

The fact that CareFirst is neither nonprofit nor an insurer of last resort doesn't seem to matter. The idea of CareFirst as some kind of indispensable charity has launched the company and merger partner WellPoint Health Networks on a bizarre regulatory trip that might not end until 2004.

WellPoint and CareFirst believe their marriage could take 18 months to consummate but have allowed up to three years in their merger contract - just in case. What do they think they need, an act of Congress?

Yes. Also, approval from insurance regulators in Delaware, Maryland and the District of Columbia. Plus the toughest requirement of all: a move by Maryland's legislature to relax its regulatory grip on a big business.

Both WellPoint and CareFirst descend from nonprofit Blue Cross and Blue Shield plans founded in the 1930s to furnish a product that was disdained by commercial insurers: medical coverage.

But that was awhile ago. Plenty of for-profit health insurers exist today, and CareFirst is identical to them in the ways that matter. This isn't Merrill Lynch buying out Albert Schweitzer.

Certainly CareFirst pays attention to profits as closely as any company listed on the New York Stock Exchange. It has to. Without adequate revenues over expenses and sufficient reserves, any modern insurer would be shut down by regulators.

CareFirst rejects claims, pays bills late and beats up on doctors and hospitals just like a real insurance company. So what makes it so special?

Is it the "open enrollment" program, which lets people lacking employer health coverage buy expensive individual policies without a medical checkup? No. Both Mid Atlantic Medical Services and Aetna U.S. Health Care sell similar plans, although they have said they intend to get out.

Is it the lucrative hospital-rate discount CareFirst gets? No. Any insurer offering open-enrollment for individuals gets the deal.

Perhaps CareFirst is unique by virtue of its exemption from Maryland's 2 percent health insurance premium tax. Nope, not that either. All Maryland health maintenance organizations are immune to the tax.

What distinguishes CareFirst is not the nature of its business but rather its heritage and capital structure.

CareFirst has no shareholders - no owners, really. It doesn't pay dividends. All its profits are kept in the company as a cushion against future medical claims. In this sense it is nonprofit, although it doesn't collect donations or dispense largesse the way, say, the Salvation Army does.

CareFirst's non-shareholder status has shielded it from business taxes for decades. Even today, unlike those of its competitors, CareFirst's traditional, non-HMO Maryland plan pays no premium tax.

The upshot is that CareFirst benefited from millions of dollars in Maryland taxpayer subsidies over the years. What has worried the General Assembly for a long time is the thought that outside investors would buy CareFirst and tap its assets for profits without paying back the state.

WellPoint is an outside investor. It converted to for-profit status and sold itself to shareholders a few years ago. And WellPoint proposes to shift CareFirst into for-profit mode, too.

But WellPoint - and this is the difference between the present deal and CareFirst's former flirtation with mammon - is happy to pay the bill.

The company has agreed to comply with a new law by putting CareFirst's $1.3 billion asking price into foundations that would finance health care for the needy or some other public benefit in Maryland, the District of Columbia and Delaware.

Maryland would be paid back for its subsidies. The ledger would balance. Deal done.

What apparently upsets Maryland legislators is the chance that CareFirst will stop offering open-enrollment policies to individuals once it merges with WellPoint. But this is easily fixable.

CareFirst covers only 3,500 open-enrollment members out of 5 million Marylanders. A billion dollars is a lot of medical foundation money - enough to subsidize a new open-enrollment scheme and do a lot more besides.

Legislators imply that an independent CareFirst is the only thing between Maryland and medical chaos. But CareFirst won't go anywhere as a for-profit WellPoint affiliate. It will be highly regulated like every other insurer, and if it doesn't offer good plans, people can fire it and hire its rivals.

With generous hospital care for the poor and good public health clinics, Maryland has one of the firmest medical safety nets in the country. If that fails, there's always Medicaid - the true insurer of last resort. CareFirst's sale to WellPoint won't affect any of that.

The deal would probably some day affect employment at CareFirst's Owings Mills headquarters, but that's life in the merger business.

So here's the choice. We can urge Maryland Insurance Commissioner Steven B. Larsen to approve the CareFirst/Wellpoint plan, which would create a huge pool of do-gooding money and increase state taxes paid by CareFirst.

Or we can say no to $1.3 billion and the extra CareFirst taxes, continue a jerry-built regulatory scheme and, while we're at it, burnish Maryland's reputation for being hostile to business. Take your pick.

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