CareFirst sale to WellPoint seems a deal worth doing

January 26, 2003|By JAY HANCOCK

WELLPOINT Health Networks wants to move into Maryland, broaden medical insurance's reach, improve medical insurance's affordability and give the state as much as $1 billion or so in the bargain.

And we're arguing about whether to say yes?

Insurance Commissioner Steven B. Larsen hired five independent consultants to try to find reasons to stop WellPoint's proposed buyout of CareFirst BlueCross BlueShield of Maryland. They couldn't.

The Delmarva Foundation, a nonprofit consultancy that knows as much about Maryland health care as anybody, says "changes in quality of care and services are likely to be minimal" if the WellPoint deal happens.

Another consultant found that WellPoint's takeover of a Blue Cross plan in Georgia had no effect on insurance prices. Another showed that for-profit companies such as WellPoint charge lower premiums for their health maintenance organizations than do nonprofit plans such as CareFirst.

CareFirst would be converted to for-profit before the sale.

Opponents of the deal talk dreamily about returning CareFirst to "its nonprofit roots" so it can furnish "affordable" health insurance to "the greatest number of Marylanders."

Sounds great, but CareFirst is already nonprofit, and 600,000 Marylanders lack coverage. What would reformers do differently? Summarily cut premiums by, say, 15 percent? Mandate coverage for the uninsured?

What a wonderful world it would be - for a few months, until CareFirst's costs started exceeding its revenues and emptying its reserve pools. The state would put CareFirst into receivership. Some improvement.

What WellPoint opponents don't seem to realize is that Maryland and CareFirst are small patches of a big, messy medical economy over which they have no control.

Why can't liberals who instinctively understand the folly of trying to manipulate complex systems in the natural world see that the same lesson applies to economics?

Rising health costs are driven not by insurers, who are mere middlemen, but by drug companies, technology, certain care providers and an aging population. Insurance profits are a tiny piece of the puzzle.

The WellPoint profit that everybody is so upset about equals 4 percent of its revenue. Big deal. That's less than six months' worth of routine medical price inflation.

And for that 4 percent fee, Maryland subscribers would be hiring an outfit that has shown it can do at least a little about rising medical costs and uninsured families.

Now that the issue of ridiculous bonuses for CareFirst executives seems settled, the two big beefs against WellPoint are that it bargains hard with the medicos and sells so-called "junk insurance" that offers fewer benefits than other policies.

These are actually points in WellPoint's favor. Would you rather have a milquetoast insurer that acquiesced to price boosts from docs and hospitals and then passed the cost along to you?

WellPoint's "junk insurance," which makes up perhaps 2 percent of its business, is stripped-down coverage for the unemployed or other people who can't afford the kind of high-benefit policies typically enjoyed by workers at big companies.

For instance, one particularly lean policy carries a $5,000 deductible, a $7,500 cap on employee costs and $5 million lifetime limit on benefits. It costs about $70 a month for one person and a little over $200 monthly for a family.

Is it a great plan? Will it ever prove popular? No.

But WellPoint's low-benefit coverage is one of its fastest-growing lines and has given thousands of people affordable protection against big expenses for cancer and other severe illness.

And it has shifted the risk for these costs, which can reach hundreds of thousands of dollars per person, from the state of California to a private company.

WellPoint's California membership has doubled since it became a for-profit Blue Cross plan in 1996, to almost 7 million. And the growth didn't come from corporate mergers; it came mainly from pitching products that people wanted to buy.

Selling health insurance doesn't always enrich shareholders. It carries risks, as the owners of Columbia-based Magellan Health Services, which is close to bankruptcy, can tell you. Outsourcing the CareFirst policies to WellPoint would shift this risk from Maryland taxpayers, who might have to rescue quasi-public CareFirst if it got into trouble, to private investors.

These investors are willing to pay at least $1.37 billion - and surely Commissioner Larsen can get that bumped up to $1.5 billion or more - for the privilege.

Maryland's share might be as much as $1 billion, and the money would go into a foundation that one consultant estimated could generate $40 million a year for health care.

And that doesn't count the millions extra in taxes that Maryland would collect after CareFirst becomes for-profit.

Over time, Maryland health insurance will look about the same whether WellPoint comes or not. But in one case, there will be a $1 billion foundation. In the other, there won't.

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