Bill may jeopardize CareFirst's Blues license

Involvement by the Maryland government in picking plan board members could violate national Blues rules that licensees be free of influence of outside interests.

By Robert Kazel, amednews staff. May 5, 2003.

An attempt by the state Legislature in Maryland to rein in CareFirst BlueCross BlueShield by changing the way its board is selected has prompted warnings from the national Blues association that it might pull the company's Blues license.

The Maryland General Assembly on April 7 voted unanimously for a bill that attempts to reform CareFirst and prevent it from again seeking for-profit status.

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The bill would hasten changes in the composition of the CareFirst board by providing for the appointment of many of CareFirst's board members by state officials. But the national Blue Cross Blue Shield Assn. is worried that undue influence by a state government in the selection of a Blues plan's board is tantamount to control of the plan and runs counter to Blues interests. National Blues association rules require licensees such as CareFirst to be free of influence from outside special interests, which may include state governments.

Maryland Gov. Robert L. Ehrlich Jr. has until May 22 to decide whether to sign the bill.

A Maryland majority

CareFirst's board includes a majority of members representing Maryland and a smaller number from the two markets where CareFirst has subsidiaries, the District of Columbia and Delaware.

The legislation would change the face of the board and increase the influence of Maryland government. It calls for a nominating committee selected by the governor, state Senate president and speaker of the state House to choose replacements for 10 of Maryland's 12 members on the CareFirst board this year. The other two Maryland members would be replaced in 2004 and would be selected by the full board.

"We think it may be in violation of our licensing requirements," said Iris Shaffer, spokeswoman of Chicago-based Blue Cross Blue Shield Assn.

The association is concerned CareFirst's board ultimately could be essentially stacked by a combination of Maryland state appointees and those members later selected by a Maryland-dominated board.

"It's not just a numerical equation, it just goes to the heart of the issue of control of the company," Shaffer said.

Maryland Insurance Commissioner Steve Larsen earlier rejected CareFirst's request to become a publicly traded company, scuttling its plans to be acquired by California-based WellPoint Health Networks. Larsen said that the sale would have fattened the wallets of CareFirst's management team through hefty bonus and severance packages that violated state law.

The Maryland legislation putting tight controls on CareFirst was an outgrowth of Larsen's jabs at the company's management and public demands for the CareFirst board to resign or be replaced.

Blues President and CEO Scott Serota met in Maryland April 18 with Larsen and key state legislators but no resolution to the licensing matter was announced.

The loss of the Blues mark would be "disastrous" to CareFirst from a marketing standpoint, said company spokesman Jeff Valentine, comparing the brand's recognizability to "Kleenex and Coca-Cola."

D.C., Delaware not pleased

Arguments between Maryland and insurance officials in Delaware and the District of Columbia also have been simmering. Officials in both regions argue that the Maryland legislation might, if signed by the governor there, unfairly give influence to CareFirst's Maryland delegation by creating a majority of board members loyal to Maryland.

Lawrence H. Mirel, Washington D.C.'s insurance commissioner, has sent a letter to Maryland's governor urging him to veto the bill.

"It's sort of like a Maryland takeover of an operation of something we consider to be a D.C. operation," Mirel said, speaking of the board's potential influence over the Washington, D.C., subsidiary of CareFirst, which insures 60% of District of Columbia residents who have health coverage.

Delaware Insurance Commissioner Donna Lee H. Williams signed an order April 10 prohibiting any assets of Delaware's CareFirst subsidiary from being transferred to the Maryland-based parent company until she is convinced that the pending legislation is not going to undermine interests of Delaware's CareFirst subscribers by undercutting their representatives' influence on the board.