CareFirst Conversion Update

by Vikki Nelson

I have been following this Blue Cross/Blue Shield of Maryland conversion very closely and this is the latest information that I have found to print in this column. If there are any contradictory findings in this column, I certainly would appreciate any remarks or corrections. It is not an easy thing to follow, but who said it was going to be?

* The legislature passed and the Governor signed three major bills impacting CareFirst/Blue Cross/Blue Shield:

* The burden of proof that conversion is in the public interest was shifted from the Insurance Commissioner to CareFirst.

* New requirements for a conversion - e.g. an all cash sale, no remunerations to directors and executives beyond regular salary;

* The General Assembly is given 90 days after the Insurance Commissioner’s decision to accept or reject that decision;

* A new state health insurance plan authorized to cover the otherwise uninsurable, eliminating the SAAC program and providing certain low income seniors with prescription drug coverage. (You will have to wait until I find out exactly what SAAC stands for. I will presume it is referring to a senior state program in existence. I will make sure to find out.)

* During and after the General Assembly session, the Insurance Commissioner conducted his statutory assignment to oversee a nonprofit insurance plan’s effort to become for-profit. He completed a series of public hearings. There was one held here at South High and many citizens attended and gave testimony in opposition to this “for-profit” status. He also held sessions, open to the public, with CareFirst and WellPoint, questioning their executives closely on the application to convert as well as the terms and conditions of the sale of CareFirst to WellPoint.

* The next step for the Insurance Commissioner was the hiring of expert consultants to help determine the following: Is $1.3 billion a fair price for CareFirst; Was due diligence exercised by the directors and executives of CareFirst in the decision to convert and sell; Will the proposed transaction create a significant adverse effect on the availability and accessibility of health care services; How have other states handled the establishment of foundations resulting from conversions?

* Three of the four consulting firms have begun their work. The Blackstone Group of New York which is handling the fair price issue has been put on “fast track” and should submit its report in mid-August. Although chosen by the Insurance Commissioner, the cost of the experts will be borne by WellPoint, the interested purchaser, and may exceed $4 million.

* Two decisions by the Insurance Commissioner vis-a-vis CareFirst were announced in the latter part of June. 1)A premium rate increase requested by CareFirst, for a 16.5% to 17% rise, was denied because as a nonprofit, state subsidized health insurance plan, CareFirst must spend 75% of every premium dollar income on health care. CareFirst failed to do that for three years, falling as low as 57% in 1999.

* The Insurance Commissioner has objected to the transfer of Maryland consumers to the District of Columbia health plan owned by CareFirst. This has been a dispute of some months’ duration and has involved not only CareFirst but also the D.C. Insurance Commissioner. The implication of such transfers has a direct connection with the allocation of assets, should a conversion and subsequent sale take place.

* Delegate Cas Taylor, in late June, brought forth his own plan to cover a greater number of Maryland’s uninsured. Not yet fully fleshed out, the plan proposes in part to raise the income level for Medicaid coverage, eliminate some Medicaid benefits, revise some insurance requirements (including existing requirements of basic coverage), cut back on state funds already directed to higher education and the environment, and charge HMO’s the same premium taxes presently charged to non-HMO health plans.

What’s ahead? Reports from the consultants are due in the latter part of October of this year. They will be made public and the Insurance Commissioner will hold another set of hearings to get input from the public. His decision on conversion will probably be issued in the beginning of January, 2003. At that point, as mentioned above, the General Assembly may either accept or reject his decision.