House panel arriving at bill on CareFirst board changes

Chairman warns against putting all members `out on the street'

March 29, 2003|By M. William Salganik | M. William Salganik,SUN STAFF

The House Health and Government Operations Committee yesterday reached consensus on reform legislation that would replace most or all of the Maryland members of the board of CareFirst BlueCross BlueShield by December - bringing it close to provisions in a Senate bill.

As the House committee held a hearing on the Senate's version of the CareFirst reform bill, then conducted a lengthy work session on its own bill, the pace of board turnover and how to control executive compensation were the most contentious issues.

Earlier this month, Insurance Commissioner Steven B. Larsen turned down CareFirst's application to convert to for-profit operation and be sold. In a 200-page report, Larsen sharply criticized the state's largest health insurer for disregarding the nonprofit mission in its charter.

Since then, both chambers have been considering legislation that would spell out CareFirst's nonprofit obligations; the Senate passed its version, 46-0, on Monday.

"More and more each day, they're getting closer together," Larsen said yesterday after the House committee session.

In addition to agreeing to the Senate's time frame for replacing board members, the House panel also agreed to adopt Senate language saying CareFirst must be "committed to a nonprofit corporate structure" and provide "the most affordable and accessible health insurance possible."

Key differences remain between the House and Senate versions of the reform bill: whether board members would be appointed directly by the governor and legislative leaders, as in the Senate bill, or by a nominating committee, as in the House version; and whether a new CareFirst oversight committee would be created, as favored by the House but not the Senate.

Del. John Adams Hurson, chairman of the committee, said subscribers could be hurt "if we end up screwing up this company by throwing all the board members out on the street."

Favoring replacing board members in stages through June, 2004, the chairman said: "This company needs to change, but it needs time to implement those changes."

Del. Shane Pendergrass, sponsor of the House reform bill, argued, "If this were a publicly traded company, those people would all be gone after what just happened. Why would we want to keep them?"

A majority of the committee agreed on a December deadline.

Hurson also gave the committee a copy of a letter from the national Blue Cross and Blue Shield Association, received yesterday, saying, under rules of the association designed to keep Blue Cross plans independent, the state - or any other outside group - couldn't name a majority of the board.

The committee discussed, but didn't come to a final conclusion, replacing 10 of the 12 Maryland members by December. With six members from the District of Columbia and three from Delaware, that would mean Maryland wouldn't be replacing a majority of the board.

Both reform bills would cut the pay of the CareFirst board. Board members were paid between $33,000 and $46,000 in 2001, depending on how many board and committee meetings they attended.

Committee chairs were paid more, and board chair Daniel J.. Altobello got $84,667.

The House bill caps board pay at $12,000 a year, the Senate at $10,000.

The Senate also calls for the insurance commissioner to review executive pay and block excessive compensation.

William L. Jews, chief executive officer, was paid $2.7 million in salary and bonuses in 2001. Middleton said he thought executives of comparable nonprofits in Maryland were paid between $300,000 and $800,000.

The House bill calls for CareFirst to develop guidelines for executive pay based on compensation at comparable nonprofit insurers. The insurance commissioner would review those guidelines.

There was considerable discussion about whether the commissioner should review specific salaries or exceptions to the guidelines, and about how to deal with payments considered too high. Larsen said he didn't think any regulator would want to review salaries on a day-to-day basis, or try to collect restitution after overpayments. In a work session earlier in the week, he said he didn't want to be "repossessing hot tubs."

The Senate bill also calls for the commissioner to review executive severance packages. According to testimony at hearings on the CareFirst conversion and sale application, under his current employment agreement, Jews would get $1.7 million if he quit now, and $15.4 million if he were fired.

Middleton told the House he had received an opinion from the attorney general that legislation limiting severance could legally override existing employment contracts.

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