Lawmakers hear pitch for CareFirst sale

Company otherwise faces harmful effect, CEO says

Loss of market share feared

Legislators prefer to focus on reforming nonprofit

If not sold, CareFirst faces harmful impact, CEO warns

February 07, 2003|By M. William Salganik | M. William Salganik,SUN STAFF

Facing sometimes-hostile legislators, CareFirst BlueCross BlueShield Chief Executive Officer William L. Jews said yesterday that if his company is not sold, it would be fine in the short term, but its service would deteriorate as it lost market share to larger national competitors.

Members of the House Health and Government Operations committee, however, expressed interest not in CareFirst's potential problems but in ways to help it make health insurance more available and affordable if the proposed sale is blocked. CareFirst is seeking approval from the insurance commissioner and the legislature to convert to for-profit operation and be sold to California-based WellPoint Health Networks Inc.

The committee chairman, Del. John Adams Hurson, a Montgomery County Democrat, said his committee wants to be prepared in case Insurance Commissioner Steven B. Larsen turns the deal down, and will begin drafting legislation to reform CareFirst. He said he is not assuming Larsen will turn thumbs down - the commissioner's decision is expected in two weeks - but wanted to have a contingency plan ready.

Opponents of the deal, who also appeared at the committee session, suggested tighter legislative oversight and efforts to modify the board's operations.

Joseph A. Schwartz, a lobbyist for MedChi, the state medical society, said that a nonprofit CareFirst should have its premium tax exemption restored (in the last legislative session, the money was diverted to a senior prescription program), but that the legislature should impose strict rules on how CareFirst uses the money to subsidize products for the uninsured.

Sean Cavanaugh, representing Maryland Citizens Health Initiative, said that if Larsen turns the deal down, he will have concluded that CareFirst's board and management "wanted to do something that is not in the public interest."

"In the short term, governance is the most important issue," he said.

However, Scott P. Serota, president and chief executive officer of the national Blue Cross and Blue Shield Association, who appeared at the witness table with Jews, said the association's license requirements limit the ability of legislators to modify the board, noting that "a Blue Cross Blue Shield entity needs to be independent of any other body."

Jews advised that, while his company would not be threatened during the next three to five years, approving a sale now would be like "installing a stop light before there's an accident." Over time, he said, "the window of opportunity will begin to narrow" for CareFirst. Without more money to invest in technology to serve customers, he said, CareFirst would lose business to national competitors.

The WellPoint deal, he said, would leave local management in place and bring "more sophisticated products" and "more competitive premiums."

On the other hand, Jews said, whether CareFirst remains nonprofit or is sold to a publicly traded California company, its mission would not change substantially. As a for-profit, he said, it would still have to satisfy customers on price and service, or it would lose business. As a nonprofit, he said, to require CareFirst to provide coverage at low cost to high-risk customers "could bankrupt the company."

Legislators were skeptical.

"Why do you act like a for-profit and leave Medicare and Medicaid?" asked Del. Eric M. Bromwell, a Baltimore County Democrat. "Why did you seek a premium increase of 274 percent?"

Del. Patrick L. McDonough, a Baltimore County Republican, said that CareFirst has made itself "a more attractive acquisition target" as "premiums are going through the roof" and coverage is more difficult to get.

"I'm trying really hard to keep an open mind here," said Del. Michael D. Smigiel Sr., a Cecil County Republican. "How is this going to help the citizens of Maryland?"

Jews calmly defended the performance of his company, and said the sale would benefit the state because the purchase price would go to a health-related foundation, which could help address some of the problems, such as the uninsured, that concerned legislators.

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