Larsen's blocking of premium rise upheld

CareFirst loses appeal of denied 50% increase

February 11, 2003|By M. William Salganik | M. William Salganik,SUN STAFF

State Insurance Commissioner Steven B. Larsen acted within his authority in 2001 when he blocked a 50 percent premium increase sought by CareFirst BlueCross BlueShield for its "open enrollment" policies, the state Court of Special Appeals ruled yesterday.

Larsen said the ruling could be significant, even though the state is dropping the open enrollment program, because "CareFirst was trying to impose a very narrow construction on our ability to consider what we think is relevant information in the context of a rate filing."

David M. Funk, the lawyer who represented CareFirst in the case, said he had not had time to analyze the 46-page opinion, but "we continue to believe our interpretation is correct."

The open enrollment policies - also known as SAAC policies, because they are supposed to offer "substantial, available and affordable coverage" - are designed for people who have difficulty getting health insurance because of their medical histories. Insurers who offer the policies, which do not require health exams, get a discount on hospital rates in Maryland.

In 2001, CareFirst sought a premium increase of 50 percent on existing policies - from $131 to $197 a month - saying they were losing money on them.

Larsen turned down the rate request. He said that taking the hospital discount into account, CareFirst actually made tens of millions of dollars on the SAAC program, and that the proposed new premiums would not be affordable.

CareFirst challenged Larsen's ruling, and the Baltimore Circuit Court ruled that Larsen should not have considered the hospital discount in evaluating the rate filing.

In an opinion written by Judge Sally D. Adkins, the Court of Special Appeals overturned the lower court decision. The appeals court said it was within Larsen's authority to consider the hospital discount.

"When a large economic benefit accrues to the insurers as a result of a state program designed to promote affordable insurance for high-risk individual subscribers," Judge Adkins wrote, "it can be considered inequitable to ignore that benefit when calculating rates."

In July, the SAAC program will be replaced by a state-administered insurance pool for people considered high risk according to their medical histories. CareFirst has been covering about 7,500 people under the program.

Funk agreed with Larsen that the ruling has broader application than open enrollment policies. "It has less to do with SAAC than with interpretation of the commissioner's rate-setting authority over nonprofit health service plans," Funk said. He said CareFirst has 45 days to decide whether to appeal to the state's highest court.

Larsen, who is to rule next week on CareFirst's plan to switch to for-profit operation, said he considered it an "irony" that "CareFirst is suing the insurance department over rates we had held to be excessive. That is probably not a position they would choose to pursue."

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