Blues reform bill put in doubt

Blue Cross association says it may violate rules

Del. freezes any changes

April 12, 2003|By M. William Salganik | M. William Salganik,SUN STAFF

Maryland's legislative effort to reform CareFirst BlueCross BlueShield has run into potential snags.

The national association that controls the Blue Cross and BlueShield plans said yesterday the Maryland bill may violate the association's rules, putting in jeopardy CareFirst's use of its valuable trademark.

In addition, Delaware Insurance Commissioner Donna Lee H. Williams ordered CareFirst not to change its board of directors, bylaws or charter without her approval, so she has "sufficient time to examine the impact of the Maryland events."

Maryland lawmakers voted unanimously Monday to block CareFirst from converting to for-profit operation for at least five years and to replace 10 of the 12 Maryland board members by December. The bill would become law in Maryland if signed by Gov. Robert L. Ehrlich Jr., who has taken no public position on the legislation.

The legislators acted after Insurance Commissioner Steven B. Larsen last month blocked a request by CareFirst to convert to for-profit operation and sell the company.

Iris Shaffer, a spokeswoman for the national Blue Cross and Blue Shield Association, said yesterday that the provisions in the bill about replacing board members "may change control of the plan." The association's rules say a Blue Cross plan cannot be controlled by an outside entity.

Mindful of association rules, the legislature had amended earlier versions of the CareFirst bill so it was not replacing a majority of CareFirst's board at one time. The legislation calls for a nominating committee named by the governor and legislative leaders to chose 10 Maryland replacements this year. The board itself would replace the other two Maryland members next year. Other directors - six from the District of Columbia and three from Delaware - would continue to serve.

Shaffer said other states have some members appointed by legislators, labor or other constituencies. How many can be selected by outside groups, she said, "is not purely a mathematical issue - it's about control."

If the association decided that its rules have been violated, it could stop CareFirst from using the Blue Cross and Blue Shield trademark, considered a valuable asset for CareFirst. "Our hope is that we would never have to implement that," Shaffer said. "We'd like to find a way to work it out."

Larsen said he had learned of the association's concerns yesterday, had telephoned Scott P. Serota, president and chief executive officer of the association, and arranged a meeting for next week.

Larsen said if those concerns deal with the two members to be replaced next year, that could be addressed at next year's legislative session. However, he said, if the association objects to the 10 members to be named this year, it would take a special legislative session to make a fix.

A.G. Newmyer 3rd, president of the Fair Care Foundation, a group that fought the CareFirst conversion, said he thought the association's objections now could have been prompted by William L. Jews, CareFirst's chief executive officer. "Veteran CareFirst watchers will hardly be surprised by Mr. Jews' attempts to end-run a unanimous vote by the legislature," Newmyer said.

On Thursday, Williams, the Delaware insurance commissioner, ordered CareFirst not to make any changes until she reviews the Maryland legislation. CareFirst, based in Owings Mills, operates the Blue Cross plans in Delaware and the District of Columbia as well as in Maryland.

"She just wants to maintain the status quo until she's sure there's no detrimental effect on subscribers in Delaware," Michael Rich, legal counsel to the Delaware Department of Insurance, said yesterday. "This is just a way of saying, `Put the brakes on. I want to see what's going on.' "

Larsen said he didn't think anything in the Maryland legislation was inconsistent with rules set by Williams in 2000 when the Delaware Blue Cross joined CareFirst. "We're headed in the same direction," he said.

Larsen said he hoped to meet next month with Williams and Lawrence Mirel, the District of Columbia insurance commissioner, "to see how we can work together in the future."

Jeffery W. Valentine, a CareFirst spokesman, said yesterday that the insurer believes it is up to the association and the insurance commissioners to determine whether the Maryland legislation violates any rules.

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