Maryland regulators remained skeptical yesterday about a deal to sell the region's largest health insurer despite changes that would increase the sales price and drop a controversial $119 million merger incentive package for CareFirst BlueCross BlueShield executives.

Hoping to salvage its bid to purchase CareFirst, WellPoint Health Networks submitted new merger terms yesterday to state Insurance Commissioner Steven B. Larsen. The deal would replace merger bonuses and severance payments for CareFirst's top eight executives with an offer to keep them on the payroll for two years after the merger.

The bonus package had threatened to kill the deal, with state lawmakers questioning whether CareFirst executives were selling the nonprofit cheaply. In hearings last month, Larsen suggested that the bonuses could make the merger illegal under a Maryland law that governs the sale of taxpayer-subsidized health organizations.

WellPoint agreed to pay $1.37 billion in cash to acquire CareFirst, a $70 million increase structured to comply with a new state law that mandated the merger be a cash deal. Because the nonprofit insurer has been heavily subsidized with taxpayer money, the proceeds of the sale would go to the jurisdictions where it is based: Maryland, the District and Delaware.

Larsen said yesterday that he remains concerned about the legality of the deal, given the lack of information about the worth of the two-year retention contracts for executives. "If they just rearranged the numbers and the method of payments, it's not clear that it would constitute a real change," Larsen said. "I had hoped that they would provide a summary of these new arrangements, but to date they haven't done that."

CareFirst referred all questions to David M. Funk, a regulatory lawyer who represents both the nonprofit and WellPoint. Funk said he has no idea how much the two-year retention contracts are worth. He said both companies would be willing to give Larsen that information should he request it.

Ken Ferber, a vice president at WellPoint, said the compensation would be comparable to what was paid to executives at other companies taken over by WellPoint. "We don't have a figure yet," he said.

The agreement, which would need the approval of the boards of both companies, contains one other key change: WellPoint would waive any penalties if CareFirst received and accepted a better offer within 60 days of the agreement.

The Maryland General Assembly has reserved the right to kill the deal, and opponents have a powerful ally in House Speaker Michael E. Busch (D-Anne Arundel).

"No one, it seems to me, has clearly defined why it's a good idea to sell your health insurance company," Busch said. "There's enough evidence out there for Marylanders and legislators to be suspicious of the motivation for the sale in the first place."

William L. Jews, who as CareFirst's chief executive would have received the most generous bonus and severance package, said in a prepared statement that the renegotiated offer should shift the focus of discussion away from compensation and toward "the real heart of the issue -- how this transaction benefits CareFirst members and the communities CareFirst serves."

CareFirst, which has 3.2 million subscribers, has argued that the merger is necessary for its survival in a consolidating industry.

The renegotiated deal comes as experts hired by Larsen raised new questions about the sale's merits. In draft reports released yesterday, experts concluded that CareFirst's board of directors did not exercise its fiduciary responsibility to obtain the highest price for the company.

While CareFirst lobbyists have been attempting to sell the deal as a windfall for cash-strapped governments, testimony at hearings last month suggested that the company might have been undervalued by as much as $1 billion.

Yesterday's report outlines several ways in which the board's conduct allegedly "fell short," including its refusal to allow a second company to enter the bidding process and its apparently preferential treatment of WellPoint over a third competitor. The board broke a bidding tie by considering inappropriate factors such as the CareFirst CEO's position with the company after the merger, the report said.

Funk defended the board, saying that it took three years to study the sale. He said the board concluded that WellPoint would be the best strategic partner, in part because the company was the only bidder willing to guarantee its purchase price for three years in what was expected to be a lengthy regulatory approval process.

Two sets of experts hired by Larsen to study how the merger might affect policyholders and the region's health care system did not reach definitive conclusions.

Meanwhile, CareFirst remains embroiled in a bitter contract dispute with Children's Hospital. The region's premier pediatric facility has threatened to cease seeing CareFirst patients unless the insurer agrees to higher rates. The two sides reached a last-minute deal last month to allow thousands of families to continue using the hospital while they negotiate. Larsen said both are hopeful that a more permanent deal can be reached soon.