Maryland's insurance commissioner yesterday reduced from 20 percent to 8 percent the average rate increase that CareFirst BlueCross BlueShield, the Washington area's largest health insurer, may impose on about 400,000 members in the state beginning Jan. 1.

Commissioner Steven B. Larsen said CareFirst sought "excessive" rate increases for 2003, about 20 percent for individuals and small employers and as much as 247 percent for one small group plan.

"Overall and in almost every specific instance, CareFirst's proposed rate increases were not supported by the data they gave us for their medical and prescription drug expenses," Larsen said in an interview.

Owings Mills, Md.-based CareFirst said in a prepared statement that the rate requests were "actuarially sound and accurately reflected the rising cost of health care."

Nonprofit CareFirst hopes to win the approval of Maryland and District regulators to convert to a for-profit company that would be acquired by California-based WellPoint Health Networks Inc.

Critics of the conversion say a for-profit CareFirst would be likely to reduce payments to doctors and hospitals and move further from its original mission as "insurer of last resort" to disadvantaged Maryland residents. They also cite the large salaries and bonuses paid to CareFirst executives.

CareFirst chief executive William L. Jews has said the proposed $1.3 billion sale would be a "win-win" for everyone because CareFirst would turn over proceeds to local jurisdictions, which could use the money to address health care needs.

Larsen said CareFirst executives suggested "more than once" during the recent rate-review process that "failure to grant these increases could negatively impact the value of the company in the context of the conversion."

The implication, he said, was "If you don't grant this, it may detract from potential proceeds if the deal is improved."

"I was shocked by that suggestion," Larsen said. "It seemed to me to say, 'Hey, the way to fatten Maryland's coffers is to grant large rate increases on the backs of the subscribers.' "

In June, Larsen denied requests for double-digit rate increases for two plans that CareFirst offered to small businesses.

The proposed rate increases would have increased CareFirst's revenue by more than $160 million, a Maryland Insurance Administration official said.

A CareFirst HMO, known as BlueChoice, had sought increases of 27 to 31 percent for plans offered to small employers. Instead, increases of 4 to 7 percent were approved.

A small group plan, open each year for a limited time without regard to the applicant's health, filed for a 247 percent rate increase, Larsen said. The insurance administration granted no rate increase for that plan.

In a separate issue, Larsen said CareFirst may have violated Maryland law by charging the same premiums to members of small-employer groups, whether they enrolled in HMO or preferred provider organization plans.

Larsen said the rate calculation wasn't fair -- and may be illegal -- because HMO members are generally younger and healthier than PPO members and should pay less. He gave CareFirst until Dec. 20 to justify the rates.

Maryland Insurance Commissioner Steven B. Larsen said data did not support CareFirst's request.