Sunday, October 26, 2008

The Oct. 18 editorial "Assault on a Health Insurer" criticized D.C. Council legislation designed to hold CareFirst BlueCross BlueShield accountable to the public. The editorial said that the legislation would force CareFirst "to dip into its coffers to fund the philanthropic priorities of D.C. officials" and "take money" away from subscribers to "satisfy the government's notions of public good." This is not accurate.

CareFirst in the Washington area is governed by a federal charter requiring the company to operate as a "charitable and benevolent" nonprofit -- which means that it must engage in community health benefit programs to the maximum feasible extent consistent with financial soundness and efficiency. The federal charter authorizes the D.C. government to exercise oversight to make sure the company abides by that charter. The pending legislation is designed to do just that.

It establishes a fair, transparent process through which the mayor will ensure that CareFirst remains a financially strong, competitive provider of health insurance to the citizens of Maryland, Virginia and the District who live in the company's service area and commits the maximum possible amount of its profits and surpluses to the health-care needs of its subscribers and its potential subscribers -- rather than accumulating excess surpluses or paying excessive executive salaries. But the legislation does not require excesses to fund the "philanthropic priorities of D.C. officials." Instead, it affords the company wide latitude to determine how those excesses are to be spent to fulfill its charter obligation.

DC Appleseed has long advocated for legislation such as this, particularly in light of the consistent criticism of the company's performance by public officials in Maryland and the District. In March 2003, Maryland's insurance commissioner rejected the company's effort to convert itself to for-profit status by selling itself for hundreds of millions of dollars less than it is actually worth and awarding huge bonuses to company executives -- a clear violation of the company's fiduciary responsibility. Two years later, the District's insurance commissioner determined that the company could and should be spending more on community health-care needs and that it "may reduce its surplus level without negatively impacting its financial strength and viability." Yet, since 2005, the company has significantly decreased its spending on community health-care needs and significantly increased its surplus.

That year, Robert Spagnoletti, then the District's attorney general, determined that the company's obligation to the public cannot be met by simply meeting some "minimum threshold" of spending on community health needs; rather, he said, the company "has a legal obligation to devote its entire operation to serving, directly or indirectly, the charitable, public health purposes for which it was chartered."

This year, Acting Attorney General Peter Nickles sued the company because he found its surpluses excessive and inconsistent with its nonprofit, charitable status. And in July, Maryland's insurance commissioner prohibited the company from giving its outgoing chief executive nearly $19 million in severance pay -- at the very time the company would not spend $5 million to help cover 25,000 uninsured District residents.

The D.C.-based portion of CareFirst is worth well over $1 billion. These assets belong to the public. And a reliable process is needed to ensure that those assets are managed in the public interest. Other jurisdictions have established such a process to hold their Blues accountable. It is time that the Washington region has such a process as well.

-- Walter Smith

Washington

The writer is executive director of the DC Appleseed Center.