Possible sale of health insurance provider concerns delegate

February 11, 2002

Possible sale of health insurance provider concerns delegate


ANNAPOLIS - Ask Del. John P. Donoghue why he opposes the sale of Washington County's largest health insurance provider to a California company and you'll get a doomsday scenario.


He says higher premiums, less coverage and more red tape could follow if CareFirst, the company that operates Maryland's Blue Cross/Blue Shield plans, converts to a for-profit company and is sold to WellPoint for $1.3 billion.

"Their main concern will never be the patient and the provider. It will be all about making money," said Donoghue, D-Washington.

Donoghue worries that the company would be less responsive to its 32,000 customers in Washington County because company decisions would be made three time zones away.


CareFirst has an entirely different view.

In order to stay competitive in the market, CareFirst needs the cash flow that a large for-profit company such as WellPoint can offer, spokesman Jim Day said.

WellPoint's money can buy the company greater efficiency, which would be passed on to customers in the form of more plan choices and faster claims processing.

As for lower premiums, Day said no one would be foolish enough to guarantee that.

Health-care costs have been escalating industrywide, forcing health insurance companies to increase premiums, he said.

"It's certainly out of our control. It's a fact of life that costs go up," Day said.

Donoghue and many other state lawmakers aren't buying the CareFirst line.

They can't understand why CareFirst needs more money when it has $600 million in reserves. CareFirst says the reserves are needed to cover possible claims.

And what about the $24 million a year that CareFirst gets in state tax breaks for being a nonprofit? That will be lost in a conversion to for-profit status.

Day called that money a "drop in the bucket" compared to CareFirst's capital needs.

Washington County Hospital President and CEO James Hamill is familiar with the issue. He chaired a task force of the Maryland Hospital Association that examined similar deals in other states.

In those cases, the insurance company has generally become less responsive to its customers, he said.

"We're not terribly encouraged by what we heard," Hamill said.

CareFirst should be required to act as the insurer of last resort, a role the company has been moving away from in recent years, Hamill said.

Donoghue, as chair of the House health insurance subcommittee, is in the middle of the fray on the issue this legislative session.

The Maryland General Assembly could block the sale by stopping CareFirst from becoming a for-profit company.

"If we can pull out all the stops and prevent the conversion, we don't even have to worry about the sale," Donoghue said.

At the very least, the legislature could place several hurdles in the way.

The House of Delegates last week took its first stand on the issue by unanimously passing a bill that requires CareFirst to prove it owns the assets it's planning to sell to WellPoint. Donoghue and other lawmakers believe CareFirst's assets belong to the people of Maryland.

The bill now moves to the Senate, unopposed by CareFirst.

On Thursday, company officials will have to defend themselves against other bills that will affect the sale.

One bill would prevent CareFirst officers from profiting from the sale. Another would prevent CareFirst from paying the state its share of the sale in the form of stock.

The hearings are scheduled for 1 p.m. Thursday before the House Economic Matters Committee on which Donoghue sits.

Donoghue expects the debate to consume most of his time this legislative session, which ends in April.

Locally, people will have the chance to comment about the proposed conversion and sale at a meeting scheduled Wednesday from 5 to 9 p.m. in Hagerstown Community College's Classroom Building auditorium.

The public hearing, sponsored by the Maryland Insurance Commission, is one step in a long and complex sale process.

Insurance Commissioner Steven B. Larsen has to determine that the sale is in the public interest. He expects his review to be done by January 2003.

After he gets public input, Larsen will hold a three-day hearing in March to allow WellPoint and CareFirst to present their case.

Larsen has hired an expert to help him hire a team of experts to comb through CareFirst's application.

For the deal to be approved, it has to be reviewed by Larsen and the Maryland Attorney General's Office, along with officials in Delaware, Virginia, and Washington, D.C.

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