BlueCross BlueShield may drop its affiliation with the Washington region's largest health insurer because of the Maryland General Assembly's efforts to remake the nonprofit CareFirst, a development CareFirst officials say would be disastrous to the firm and its 3.2 million subscribers.

Legislation approved by Maryland lawmakers ousting members of the nonprofit firm's board "may result in a violation of our license agreement with CareFirst" and lead the national Blue Cross and Blue Shield Association to revoke its coveted trademark, association spokeswoman Iris Shaffer said yesterday.

Loss of the trademark would not only harm CareFirst's ability to market its products to new customers, but it could also lead doctors and hospitals to leave the company's network, said CareFirst spokesman Jeffrey Valentine.

In addition, he said, CareFirst subscribers would no longer have access to health care at "in-network" rates anywhere in the United States where BlueCross BlueShield insurance is accepted.

"We had concerns all along that the legislature, in its zeal, would go too far," Valentine said.

Gov. Robert L. Ehrlich Jr. (R) has yet to decide whether to sign the bill into law. His legal counsel, Jervis S. Finney, said he will take the concerns raised by the national association "under advisement."

Maryland Insurance Commissioner Steven B. Larsen said it would be a "travesty" for Ehrlich to veto the bill, as well as unnecessary. There is plenty of time, he said, to resolve problems before any trademark revocation would take place.

The bill was prompted by Larsen's decision to reject a proposal to sell the company. Larsen blasted the board of directors for agreeing to a deal that he said undervalued the company, was rife with conflicts of interest, and would have enriched executives with bonus and severance packages worth up to $119 million.

In response, the General Assembly passed legislation to oust 10 Maryland members of the 21-member board by December. A nominating commission appointed by the governor, the House speaker and the Senate president would choose their replacements. The remaining two Maryland members would be replaced by fellow board members in June 2004.

At issue is a provision in the Blue Cross and Blue Shield Association's licensure agreements specifying that such boards be independent. No outside entity, government or otherwise, may take control.

Lawmakers, well aware of this provision, believed they had complied by appointing only 10 of 21 members. But the association, in concerns made known to Larsen only yesterday, said its apprehension centers on the two Maryland members who would be chosen next year. The fear is that the 10 state-appointed members could form a bloc on the board and effectively control those two appointments.

"It is our interpretation that the state could effectively take control of CareFirst," Shaffer said.

CareFirst detractors were furious yesterday over the timing of the announcement, saying there was plenty of time during the session to spell out exactly what would and would not be acceptable.

"It's chicanery," said W. Minor Carter, a lobbyist who represented a coalition opposed to the sale of the company. "You would think that in light of [Larsen's] findings they would want to clean up this mess, but it seems they are more interested in protecting the board."

Larsen, too, said lawmakers gave the association ample opportunity to weigh in.

He said he plans to meet with the association's chief executive next week, and he hopes concerns will be more clearly spelled out then. Ehrlich, he said, can allow the bill to become law without risk to CareFirst.

Revoking the trademark would entail a time-consuming process, and any decision can be appealed to the courts. That would give the General Assembly time to amend the legislation, if necessary, next year.

"I hope as it moves forward in its analysis the association will keep in mind the purpose of this legislation," Larsen said. "It was to address rather egregious problems in the management and oversight of this company."

In a written statement, the association promised that it is "committed to working with all parties to find a resolution to this situation."

Maryland Insurance Commissioner Steven B. Larsen is part of the effort to remake CareFirst.