CAREFIRST RECENTLY announced its intention to convert from a nonprofit to a for-profit company and to be acquired by WellPoint Health Networks of California.
The proposed transaction contemplates the disposition of substantial charitable assets and, given CareFirst's significant share of the health insurance market, will undoubtedly have far-reaching ramifications to the Maryland health care system.
By an act of the General Assembly in 1937, Blue Cross, CareFirst's predecessor, was created as a "charitable and benevolent institution" and was exempt from most taxes.
For many years, Blue Cross was operated by a board of directors that served without compensation and considered itself to be a trustee for the public.
Over the years, Blue Cross was considered the "insurer of last resort." Blue Cross earned this appellation by providing insurance to all who needed coverage, including high-risk individuals.
While Maryland's health care system is not perfect, it is considered innovative, effective and a model for other states. In certain respects, CareFirst, the state's only local, nonprofit health insurer and a dominant force in the market, has been critical to the creation and preservation of the Maryland health care system.
In recent years, however, CareFirst has altered its practices, raising many questions regarding the company's direction. CareFirst has abandoned its participation in the Medicaid and Medicare programs and scaled back its commitment to insuring the individual and high-risk population.
CareFirst's most recent action in consolidating its HMOs has resulted in the imminent demise of the "open enrollment" program through which high-risk individuals may acquire reasonably priced coverage. At the same time, CareFirst continues to stockpile cash reserves, and the compensation for its executives and board members dwarfs the pay of similar nonprofits in the state. Should the conversion be denied, we need to address CareFirst's conduct as a nonprofit.
We must consider how the proposed transaction will affect the accessibility, availability and affordability of health care services in Maryland, and particularly the potential consequences for those vulnerable individuals who have difficulty obtaining health insurance.
I am concerned that the replacement of our only local, nonprofit health insurer with a national, for-profit company may result in less attention to the needs of Maryland's citizens as well as a decreased level of service to this state's customers. I am also unsettled about the possible loss of Maryland jobs moved out of state under the guise of increased efficiency or profit.
The continuation of the state's "all-payer" system, through which hospital rates are regulated, may also be in jeopardy. Not only does that system result in a Medicare and Medicaid exemption worth $400 million annually to the state, it also permits every patient to receive care at any hospital regardless of ability to pay. The loss of the all-payer system would be a serious blow to Maryland's health care system and to the welfare of Marylanders.
We must also consider whether the funds that CareFirst proposes to pay to the state will be sufficient to compensate for the loss of our only Maryland-based nonprofit health insurer. The CareFirst transaction contemplates a payment of $1.3 billion, which must be divided between Maryland, the District of Columbia and Delaware.
Maryland's share will not come close to making up for the potential loss of the annual $400 million exemption the state receives from Medicare and Medicaid that subsidizes the all-payer system. It is also generally agreed that the amount received by the state would not be nearly enough to build a new insurer of last resort.
It would take far too much money and time to rebuild a plan with the same size network and with the same name recognition and public trust as CareFirst. Estimates for a new plan that would provide health insurance to the uninsured in Maryland are as high as $1 billion per year.
As with any major transaction of highly regulated businesses, state regulators not only have the authority but also an obligation to the public to examine the proposed CareFirst transaction to determine how the deal will affect our communities. To blindly accept the money and allow the conversion without a thorough review would be nothing less than irresponsible.
J. Joseph Curran Jr. is the attorney general of Maryland.
