HMO to bill members for tax

In reversal, CareFirst will assess subscribers about $60 extra for cost


CareFirst BlueCross BlueShield, which last year absorbed the cost when the state extended a premium tax to HMOs, isn't repeating the favor.

The company confirmed yesterday that it plans to pass through the tax to customers who renew membership in its BlueChoice HMO beginning Jan. 1. Other insurers increased premiums to cover the tax last spring, when the state began to collect it.

The tax - 2 percent of premiums - will cost BlueChoice members about $20 million, the company estimated.

There are 345,000 Maryland members of BlueChoice, according to CareFirst, so that would mean an added cost of about $60 per year per member for the tax.

By absorbing the tax hit last year, CareFirst garnered praise, particularly from legislators who had been pressing it to do more to fulfill its mission as a nonprofit. Yesterday's action brought disappointment.

"It's very disheartening," said Del. Shane Pendergrass, a Howard County Democrat who was author of a 2003 bill designed to press CareFirst to provide more public benefits.

In addition to absorbing the premium tax last year, CareFirst announced other initiatives to hold down costs on some products and to make grants to community health groups and to improve patient safety.

"I thought they were making progress, that they were taking it seriously," Pendergrass said. "So this is going backwards."

The insurer, the state's largest, declined to provide a spokesman to answer questions about its decision to pass through the cost of the tax to consumers.

"While we don't discuss in detail our rate setting methodologies, it's fair to say that our rates reflect our actual and projected health cost expenditures as well as the competitive marketplace," CareFirst said in a statement.

CareFirst has yet to announce charitable activities next year.

BlueChoice, CareFirst's only HMO in Maryland, made a profit of $16.2 million in the first nine months of this year on nearly $1 billion in premium revenue, according to a company filing with the Maryland Insurance Administration.

For the comparable period in 2004, when it didn't have to pay the tax, BlueChoice booked $24.3 million in profit.

While it is a nonprofit, CareFirst uses the excess of income over costs as reserves against future claims or for expenses such as new equipment.

The state has long had a 2 percent premium tax on other insurance products, but HMOs were exempted until this year. The General Assembly ended that exemption as a way to generate money for a fund to subsidize malpractice premiums for doctors.

The state's largest malpractice insurer had raised premiums 33 percent for last year and 28 percent the year before, prompting doctors to warn that it would force many of them to leave practice or leave the state.

The legislature responded with the subsidy, keeping 2005 charges to doctors close to the 2004 level. The malpractice insurer, Medical Mutual Liability Insurance Society of Maryland, did not seek a premium increase for 2006, after a rise in malpractice claims eased.

CareFirst's behavior as a nonprofit has been under scrutiny since 2001, when the insurer sought permission to convert to for-profit operation and sell the company for $1.3 billion.

That plan was blocked in 2003 by Maryland's insurance commissioner, in part because it would have generated large bonuses for CareFirst executives.

The General Assembly then quickly pushed through legislation to lock in CareFirst's nonprofit status for five years and to replace a majority of the company's board members.

The revamped board responded by saying it would commit more than $90 million this year to public benefits. As part of that initiative, the company said it would forgo $60 million in profits this year to hold down premiums, although it never provided a full accounting of the products and amounts of the rate moderation.

In its statement yesterday, CareFirst said it had not sought to increase BlueChoice premiums in 2005.

For 2006, however, the company sought and received permission from insurance regulators to raise rates to cover increased health costs, the premium tax and other expenses.

Don Brandenberg, chief actuary for the insurance administration, said CareFirst had received approval to raise BlueChoice rates for small employers (up to 50 workers) by about 10 percent, on average, in January, on top of an increase of about 8 percent approved in September. That covers about 200,000 Marylanders.

For individual policies, which cover about 20,000 Marylanders, the rate increase will average about 22 percent, Brandenberg said.

Although the insurance administration does not make initial rate requests public, Brandenberg said the amounts approved were lower than those CareFirst sought.

The cost of medical care per member was 11.5 percent higher this year than through the first three quarters of last year, according to CareFirst's filing.

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