CareFirst won't fight burden-of-proof bill

Insurer agrees it must make case to convert to for-profit

January 23, 2002|By Michael Dresser | Michael Dresser,SUN STAFF

CareFirst BlueCross Blue- Shield told lawmakers yesterday that it would not fight a bill that would force it to prove its proposed transformation from a nonprofit to a profit-making enterprise is good for Maryland.

The legislation would shift the legal burden of proof from Insurance Commissioner Steven B. Larsen. He must review CareFirst's proposed $1.3 billion sale to WellPoint Health Networks Inc.

Without a change in current law, it would be up to Larsen to show that the deal was not in the interest of the state.

The legislation, which already had strong backing from House Speaker Casper R. Taylor Jr. and Gov. Parris N. Glendening, picked up momentum yesterday after Senate President Thomas V. Mike Miller signed on as a co-sponsor of a companion bill in the Senate.

Miller's support sends a strong message to Senate Finance Committee Chairman Thomas L. Bromwell, who had expressed reluctance to pass legislation altering the conversion process already in place. Miller said he expects the bill to pass.

"This just raises the bar a little higher for CareFirst," said Miller, a Prince George's County Democrat. "If they can't meet this burden of proof, then obviously the conversion should fail."

The burden-of-proof bill is the main legislative vehicle for critics of CareFirst's effort to shed the nonprofit status it has held since its creation in 1937.

Fran Doherty, CareFirst's Annapolis lobbyist, said she didn't believe the legislation was necessary but promised not to oppose it in its current form.

"No one in our company will lobby against that particular proposal," Doherty said during a briefing at the House Appropriations Committee.

Her arguments that CareFirst needs to become for-profit to secure access to needed capital did little to mollify skeptical lawmakers. Panel members raised multiple objections to the deal - from the buyer's California location to concerns that roughly two-thirds of the purchase price would come in the form of WellPoint stock.

The central concern, however, was that the deal would mark a culmination of CareFirst's gradual pullback from its traditional role as "insurer of the last resort" - marked by controversial decisions in recent years to end or scale down its involvement in open-enrollment insurance for individuals and small companies.

Larsen told lawmakers CareFirst's "last resort" role is not explicitly spelled out in law, but that its mission has long been implicit in the company's privileged tax status as a nonprofit.

The insurance commissioner said he would scrutinize all aspects of the conversion plan, including WellPoint's track record and the experience of 17 other states where Blue Cross affiliates have converted or are proposing to convert to for-profit status.

Larsen said he expects to reach a decision within a year.

The commissioner did not take a position on the burden-of-proof shift but told legislators it could be important if the evidence he gathers is inconclusive.

"Essentially a tie goes to the runner, and the tie goes to the state if the burden is on CareFirst," Larsen said.

CareFirst's conversion effort comes at a time when lawmakers are skittish about trusting the valuations delivered by major accounting firms and investment bankers after the collapse of Enron Corp. and the revelation that Enron's auditor had destroyed documents related to its fall.

Del. C. Richard D'Amato, an Anne Arundel County Democrat, invoked the specter of Enron and its accountant, Arthur Andersen, when he asked where the state can look to for an objective valuation of the deal.

Carl J. Schramm, author of an Abell Foundation report critical of the CareFirst conversion, said the answer is basically nowhere.

"It may be impossible to find an investment bank that is not conflicted in this situation," Schramm said.

"I need offer nothing more about accounting firms."

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