Executives at CareFirst are dangling a $1.37 billion carrot before the people of the District, Maryland and Delaware, the three jurisdictions that would be affected by their plan to turn the nonprofit BlueCross BlueShield health insurer into a private, for-profit company.
The CareFirst executives say that this huge sum -- the supposed value of the nonprofit status of CareFirst -- would be put into a foundation endowment to support health care in the region. The money then could provide increased insurance coverage and services, more mobile clinics and facilities, and better prescription drug coverage, especially for the underserved, the uninsured and otherwise vulnerable populations. All this would come about, the executives say, because the money would fund foundations that in turn would supply such services.
But $1.37 billion, as huge a sum as it sounds, actually wouldn't provide much health care for the region. Big foundations are not long-term health insurers, and they are not designed to supplant basic health insurance. Further, a prudently managed foundation that expects to fund health care in the region perpetually probably would not be able to pay out much more than 5 percent of its assets annually. So the supposedly "huge" $1.37 billion foundation likely would spend about $70 million each year.
How much difference would that make?
Health care spending in the United States totaled $1.3 trillion in 2001. Given that the three jurisdictions covered by CareFirst represent 2.4 percent of the U.S. population, their annual share of the country's health care spending works out to about $31 billion. So the $70 million would be equal to about two-tenths of 1 percent of the region's health care bill.
In other words, we are offered an amount that would hardly even register in our hospitals and clinics. It surely would not make up for the loss that we would suffer from permitting the privatization of CareFirst.
Make no mistake: Allowing the conversion of CareFirst would change the health care system in the region -- and not for the better.
In my experience, newly privatized BlueCross BlueShield plans follow a pattern. They initially lower insurance rates to pick up market share. That appears to be a great outcome. But then they begin to winnow their rolls. By raising deductibles and co-payments and cutting certain benefits, these for-profit companies effectively filter out the sick -- and expensive -- folks.
The result is a profitable insurer that has cherry-picked the most insurable -- read, the youngest and healthiest -- customers. People who are not in that happy state are left out in the cold.
California's experience demonstrates the dangers of conversion. In that state, Wellpoint -- the same company that proposes to buy CareFirst -- pursued the strategy outlined here, while leaving the state with more than $5 billion in foundation endowments.
While the precise causes might be debated, one thing is sure: California is now struggling with the costs of managing an explosion of uninsured people. Most of these people are either poor or very sick. And the foundations set up with the money from the conversion are in no position to take on this problem.
The people of the District, Maryland and Delaware should take California's lesson to heart. The carrot in the form of foundation assets that is being dangled before them will never make up for the loss of benefits and high health insurance premiums that eventually would result from the conversion. It is a $1.37 billion exercise in public relations, not public policy.
-- Terri Langston
is a program officer with the
Public Welfare Foundation.