State allegedly gave more to CareFirst than it got back

Expert for Md. details cost of tax status, discounts

January 31, 2003|By M. William Salganik | M. William Salganik,SUN STAFF

CareFirst BlueCross Blue- Shield has collected tax breaks and discounts from the state worth tens of millions of dollars more than the public benefits it has provided, a consultant to the state testified yesterday.

Robert H. Cameron, a director with the consulting firm LECG, said CareFirst's own calculation of its public benefits fell well short of the benefits it received from the state.

For example in 2001, the state gave $50.4 million in benefits to CareFirst vs. $13 million in benefits the insurer gave back to the state.

Cameron's testimony came during another day of hearings before Insurance Commissioner Steven B. Larsen, who is to decide next month whether it is in the public interest for CareFirst to convert to for-profit operation and be sold to WellPoint Health Networks Inc. for $1.37 billion

If CareFirst is sold, the proceeds would go to a health-related trust fund. Among other issues, Larsen is trying to determine whether the benefits from the trust fund outweigh whatever would be lost if CareFirst is no longer a nonprofit.

Among the benefits to the public was CareFirst's absorption of losses in the Medicare and Medicaid programs. It has since dropped out of both.

Under questioning from Larsen, Cameron said the benefits listed by CareFirst did not necessarily fit the legal definition of charitable activity, but "we've taken them at face value."

On the other side of the ledger, Cameron said that from 1997 to 2001, CareFirst received $12 million to $17 million a year in exemptions from premium taxes because it is a nonprofit.

In the same period, the insurer also received $24 million to $33 million a year in hospital discounts in return for offering open enrollment policies to Marylanders who have trouble getting regular health coverage because of their medical histories, he said.

CareFirst officials did not testify on the topic yesterday.

After the hearing, John A. Picciotto, CareFirst executive vice president and general counsel, said Cameron's numbers were accurate, but that CareFirst's savings from the tax break and hospital discounts "were passed on to the customers in lower premiums or lower cost of care."

Much of yesterday's testimony was devoted to the potential of a health "conversion foundation," which is created from the proceeds of the sale of a nonprofit.

Nine such foundations in other states, created when Blue Cross plans went for-profit, have about $5 billion in assets, Cameron said.

While that sounds like a lot of money, he said, it is a "drop in the bucket" compared to total health costs.

For example, he said, a Maryland foundation might generate $40 million a year, but $7.2 billion a year is spent in the state on Medicaid, Medicare and other public programs.

Health foundations "are not going to be vehicles for solving large problems permanently," Cameron said. However, he added, conversion foundations, which generally give large numbers of small grants, can be effective at "solving relatively small problems. ... "

He also said Maryland faces potential complications from a structure set up by the legislature.

The Maryland Healthcare Foundation, which has a board appointed by the governor, could give grants. The conversion money, however, would go not directly to the foundation, but to the Maryland Healthcare Trust, from which it would be doled out by the legislature.

In theory, Larsen asked, the legislature could change how the money is spent?

"Correct," Cameron answered. "This is not to say the current model couldn't work, but your structure makes it hard to envision how it would work, since the rules aren't written yet and can be changed by the General Assembly."

The hearings continue through Wednesday. The public will have its last chance to comment beginning at 3 p.m. that day.

CareFirst and public benefits

Consulting group LECG testified yesterday that CareFirst BlueCross BlueShield generally has gotten more in benefits from the state (tax breaks and discounts) than the value of the public service it has provided.

Year............CareFirst..........CareFirst........Net benefit

........."public benefits".........benefits........to CareFirst*

..........given*................from state*.................

1997............$3.19...........$36.79......... $33.60

1998............$2.09...........$40.56......... $38.485

1999............$21.98.........$42.50..........$20.52

2000............$46.739.......$45.72..........-$0.999

2001............$12.97.........$50.39.........$37.42

*in millions

Source: LECG

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