Is Blue Cross switch a loser for Maryland?

High risk: Critics fight for-profit conversion of nonprofit CareFirst, which has not sold its case.

February 25, 2002

MARYLAND'S General Assembly likes to provide business a friendly forum to work out turf battles and regulatory concerns.

Remarkable it is, then, that a venerable member of the business community - CareFirst BlueCross BlueShield - should encounter unremitting opposition in Annapolis.

The company wants to shed its nonprofit status and accept a $1.3 billion purchase offer from WellPoint Health Network, a California-based firm.

Opposition has come from many directions, including a report by the Abell Foundation of Baltimore that found no "economic or business reasons why Blue Cross of Maryland should be sold."

What some have called a delicate balance between the various players in Maryland's health care system could be upset, leaving subscribers and providers more vulnerable to higher costs and reduced services.

The Abell study worried that Maryland's commitment to protecting the poor and the otherwise uninsurable would be weakened if the Blues were sold.

So far, CareFirst has failed to alleviate this and other concerns.

Company officials concede they underestimated the vehemence of the opposition, and an array of legislative proposals designed to derail the conversion are under consideration in Annapolis.

The company has based its conversion proposal on several factors, including a need for capital to improve an outdated computer infrastructure that it claims cannot support a wider array of insurance options.

Though it has a total cash reserve of $600 million or more, the company says that sum is barely above the minimum required by regulators.

One of the anti-conversion bills in the Assembly attempts to address the capital access issue by providing state-sponsored, low-cost borrowing.

The company also argues that it must grow or be vulnerable to takeover by some national chain that won't be as concerned about Maryland as WellPoint. But who can guarantee such concern?

CareFirst says widespread concerns that a new owner could only make profits by raising premiums - and reducing services - are without basis.

But again, it has not convinced opponents who wonder where profits would be found otherwise. CareFirst argues that its new owner would find profits in more efficient management, an ominous prospect for some.

The company attempts to add urgency to its case by observing that it has built considerable strength and may be at peak value. Maryland would get hundreds of millions of dollars for its depleted general fund, the company says. But that promise seems of dubious value because the money might have to be spent to fill whatever health insurance gaps were created after the sale.

After the March 11 hearing with WellPoint and another round of public hearings, Insurance Commissioner Steven B. Larsen will make his ruling.

In its angry mood, meanwhile, legislators are seeming to relish election-year consideration of bills that might seem to protect voters from a large corporation.

If their proposals are not simply political, and if the sale does not proceed, this debate could help to refine the company as a more sensitive and efficient nonprofit.

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