June 04, 2003|By Dan Thanh Dang and M. William Salganik | Dan Thanh Dang and M. William Salganik,SUN STAFF
Maryland officials and the national Blue Cross and Blue Shield Association struck a tentative agreement late yesterday that would reform the state's largest health insurer and preserve its ability to provide national coverage for 3.2 million subscribers.
The settlement would lock in CareFirst BlueCross Blue- Shield's nonprofit mission for five years, an important reform goal. And, more important to state officials, it would end a threat by the national association to terminate CareFirst's license to operate as a Blues plan.
But CareFirst officials complained last night that they had not been allowed to participate in the talks that led to the deal and did not know its terms.
The agreement, if finalized, would resolve a three-way legal dispute that erupted after Gov. Robert L. Ehrlich Jr. signed a bill to reform the insurer. A federal judge ordered an 11-day stay that ends today of all legal action to allow time for a deal.
The tentative settlement, disclosed by Maryland Attorney General J. Joseph Curran Jr., strikes a compromise between the association, which objected to what it called a state takeover of CareFirst, and lawmakers angered by what they saw as an effort by company managers to enrich themselves by selling the insurer.
The deal would soften the reform law by replacing five instead of 10 board members by December and would limit regulatory control over executive compensation, according to Jervis S. Finney, counsel to Ehrlich.
"Once the agreement is finalized among all parties - the Maryland state team, the Blue Cross and Blue Shield Association and CareFirst - the license remains," Finney said. "There is no break in coverage at all. ... Curran did a fine job of negotiating, with the concurrence of the governor and legislative leaders."
Curran said legislative leaders had approved the deal in principle but had not reviewed the details. Neither the legislative leaders nor Blue Cross association officials could be reached for comment last night.
Written copies of the settlement were being prepared last night to be distributed before a 4 p.m. hearing today before U.S. District Judge J. Frederick Motz, who would have to sign a consent decree for it to take effect.
CareFirst officials signaled that there might be trouble gaining their agreement before the hearing, saying they were unsure that their concerns have been addressed.
"It just doesn't make sense," said CareFirst spokesman Jeffery W. Valentine. "We're pleased that the two parties have come to a tentative agreement. Unfortunately, the third party in this tripartite has not been included in developing the agreement. We haven't heard anything about an agreement. We haven't seen one.
"Apparently, it's being presented to us as a fait accompli," Valentine said. "The state and the association have been talking for 11 days. On the 12th day, they've deigned to bring us into the loop. Frankly, we would be hopeful the judge would acknowledge our need to understand the proposed agreement. It's going to take time for us to analyze all the implications."
But Finney said the state hopes to conclude the deal today.
Any agreement, the company said, must allow CareFirst to continue providing service to its customers, protect the company's license to use the Blues trademark and preserve the company's business affiliation with the District of Columbia and Delaware. CareFirst is the parent firm to Blues subsidiaries in the two jurisdictions.
Curran said the state wanted to resolve issues with the association and then deal with CareFirst's concerns. The attorney general said he contacted insurance commissioners in Delaware and the District of Columbia on Friday to ask for their input in the negotiations. Both jurisdictions have objected to the reform law.
"The association proposed after consideration, and the state agreed, that the negotiations would be most fruitful if they were first between the state and the association," Finney said yesterday. "No one wanted the parties to play themselves off of us. CareFirst gets great benefit from this proposal in our view."
The CareFirst crisis had its origins in 2001, when the nonprofit insurer announced a deal to convert to for-profit operation and sell itself to California-based WellPoint Health Networks Inc. for $1.3 billion.
After a lengthy review, then-Insurance Commissioner Steven B. Larsen struck down the deal in March, criticizing CareFirst's board for failing to get a fair price and for approving lavish and illegal bonus packages for executives.
In the wake of Larsen's report, the legislature unanimously approved reform legislation that called for a nominating panel appointed by state officials to replace 10 of CareFirst's 12 Maryland board members; for the other two members to be replaced next year by the board; for an oversight committee of legislators and others to monitor CareFirst; and for the insurance commissioner to review executive compensation.
