Sale of Blues opposed in Kan.

Experts' advice seized upon by foes of CareFirst deal

February 01, 2002|By Michael Dresser | Michael Dresser,SUN STAFF

A recommendation to the Kansas insurance commissioner that she block the sale of its largest health insurer is having a ripple effect in Maryland, giving opponents of CareFirst BlueCross Blue- Shield's proposed sale to a California company new ammunition in their effort to scuttle the deal.

Word was spreading rapidly in Annapolis yesterday that an evaluation team in Kansas had concluded that the sale of Blue Cross and Blue Shield of Kansas Inc. to a for-profit firm would drive premiums up by at least 7 percent more than they would otherwise rise.

The "testimonial team" - made up of state regulators and a consultant who is also advising Maryland's chief insurance regulator - urged Kansas Insurance Commissioner Kathleen Sebelius to reject the $321 million sale to Anthem BCBS Insurance Cos. Inc. Sebelius faces a Feb. 25 deadline to make her decision.

CareFirst insisted the opinion is irrelevant to its proposed conversion to for-profit status, which must be approved by Maryland Insurance Commissioner Steven B. Larsen and regulators in Delaware and the District of Columbia.

"The Kansas and the mid-Atlantic markets are tremendously different, so there really are no comparisons between those two," said company spokesman Jeffrey W. Valentine.

He added that the Kansas transaction was significantly different because the Blue Cross affiliate there is a mutual company - owned by policyholders - rather than a nonprofit.

Opponents, however, said the findings - if upheld by Sebelius - could set an important precedent for the nation and Maryland.

"It's highly significant," said Carl J. Schramm, who wrote a critical analysis for the Abell Foundation of CareFirst's proposal to become profit-making.

"If the Kansas commissioner sustains the findings, which I think is highly likely, it will be the first time in history that a conversion [to a stock corporation] will have been denied by a state insurance regulator," he said.

Schramm, chairman of Greenspring Advisors in Baltimore, briefed members of the House Ways and Means Committee about the Kansas findings, which were issued yesterday.

Meanwhile, one of the General Assembly's toughest critics of the deal was distributing copies to other legislators.

"While they're different deals, I think it has a tremendous amount of relevance," said Del. Michael E. Busch, chairman of the House Economic Matters Committee. "The tide is going to start to turn on some of these acquisitions."

Larsen, the state insurance commissioner, said he has been tracking Blue Cross conversions in Kansas and other states.

The Kansas team found that to meet its profit goals, the acquired Blue Cross company would have to raise premiums - the same argument being advanced by critics of the CareFirst deal.

The report was co-written by Patrick Cantilo, a Texas lawyer who has advised insurance regulators in many conversion cases.

Larsen said Cantilo has been hired to help him find consultants to study the CareFirst deal, but would not be writing recommendations.

Valentine noted that the Kansas recommendations were not a final decision. He said other conversion plans had recently been approved in New York and Missouri.

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