D.C. CareFirst Affiliate Could Lose Tax Break

By Susan Levine
Washington Post Staff Writer
Tuesday, October 4, 2005

The District-based affiliate of CareFirst BlueCross BlueShield, already facing legislation that could force it to spend far more on community needs, now risks losing a million-dollar tax benefit it enjoys because of its nonprofit status.

The administration of Mayor Anthony A. Williams (D) is moving to revoke the tax break even as the D.C. Council considers a bill that could subject the health insurer's reserves to outside control. The two proposals, debated during a hearing that stretched almost seven hours yesterday, reflect dissatisfaction over a company that Congress chartered in 1939 as a "charitable and benevolent institution" -- but one that critics in and out of government say acts more like a private, for-profit entity.

They argue that Group Hospitalization and Medical Services Inc. must be forced to demonstrate a greater public commitment. The company, CareFirst's largest and most valuable affiliate, has been in the spotlight since the D.C. Appleseed Center for Law and Justice concluded in December that it shirked its mission and legal obligation by directing less than $1.5 million to community activities despite reserves of a half-billion dollars.

The company and its board vehemently disagree with that contention, maintaining that their first and only legal responsibility is to 1.24 million subscribers in the District, Northern Virginia and the Maryland suburbs. Any measure dictating otherwise would not just be "unwarranted and unnecessary," CareFirst BlueCross BlueShield President and Chief Executive William L. Jews said yesterday, but "an unprecedented intrusion of government into the affairs of a private entity."

"These reserves are held in trust for the benefit of our subscribers," he said during testimony. "They do not belong to the District of Columbia or anyone else."

Especially flagrant, he and several trustees indicated, would be the bill introduced by council member Jim Graham (D-Ward 1) that would require the mayor's office to review the company's reserves annually. If the reserves were deemed "unreasonably large," the insurer would be ordered "to submit a plan of distribution within 60 days" that would benefit subscribers or public health services. Failure to do so would allow the mayor to prepare a plan that the company would be compelled to implement, according to the legislation.

While Williams views the bill as "an important step in the right direction," senior policy adviser Gina Lagomarsino announced that he will push to make the affiliate pay the same 1.7 percent tax on gross premiums as the city's other health insurers.

Since the late 1990s, the nonprofit provider's tax has been 1 percent, with the money going into a special fund to help residents with preexisting medical conditions that put standard coverage out of reach. But year after year, millions of dollars have been put aside and only a fraction spent. As of 2004, fewer than 300 people were enrolled. "It seems to have not been very useful," Lagomarsino said.

Williams would use this revenue -- about $5 million a year at the higher tax rate -- to expand health care options for low- and moderate-income residents who lack insurance, she explained.

Graham made clear his disgust at the fund's failure, urging Jews and the trustees appearing before his Consumer and Regulatory Affairs Committee to total the CareFirst affiliate's savings under the tax break and give that amount to the city. "I sincerely believe you should return this money," Graham said repeatedly.

Scrutiny of the District-based insurer could intensify. A representative of the city attorney general's office told the committee yesterday that it was supporting legislation that would grant the attorney general power to subpoena documents and witnesses to determine whether the company is fulfilling its nonprofit purpose.

CareFirst officials reported last month to the D.C. insurance commissioner that the affiliate would contribute $8.7 million to community and charitable endeavors this. Its newest initiative is a three-year program to increase cervical cancer screenings among Vietnamese women in the Washington region. The program, funded by a $585,000 grant, will begin in Northern Virginia.

© 2005 The Washington Post Company