CareFirst’s Plan To Convert to For-Profit Status, Sell to WellPoint Would Harm Maryland’s Health System, Study Says

The proposed sale of the not-for-profit insurer CareFirst BlueCross BlueShield to California's WellPoint Health Networks would "jeopardize" Maryland's health financing system, a new report has found. The Baltimore Sun reports that the study -- conducted for the Abell Foundation, a Baltimore-based philanthropic organization -- found "no economic or business reasons why Blue Cross of Maryland should be sold" (Salganik, Baltimore Sun, 12/4). WellPoint has agreed to pay $1.3 billion in a stock and cash deal to acquire CareFirst, the largest health insurer in the Washington-Baltimore area. Because CareFirst is an "insurer of last resort" in Maryland, Delaware and Washington, D.C., insurance regulators and Congress would have to approve the company's conversion to for-profit status before it could be sold to WellPoint (Kaiser Daily Health Policy Report, 11/26). But Maryland lawmakers "are less interested in the company turning into a for-profit insurer than they are in returning [it] to its original mission of covering the poor." Since most of CareFirst's business is in Maryland, approval of the conversion there is "critical" (Kaiser Daily Health Policy Report, 12/3). By selling CareFirst, the health plan's top executives would be "enrich[ed]," while Maryland's health care system is "significantly weakened," the report found.

Key Findings
The study said Maryland legislators should not allow CareFirst to "abandon" its pledge "to offer coverage to all comers, regardless of their health or ability to pay" (Brubaker, Washington Post, 12/4). The report said, "The loss of Maryland's commitment to a system that protects the poor and the otherwise uninsurable, while providing a predictable environment for the state's hospitals and insurance companies, would be an intolerable price to pay for CareFirst's corporate ambitions" (Baltimore Sun, 12/4). The 113-page report details how CareFirst built its almost $800 million cash reserve by "backing away" from its role as an insurer of last resort and "suggests" that CareFirst did so in order to "make itself more attractive for suitors," such as WellPoint (Washington Post, 12/4). The health plan also developed its assets using hospital discounts and tax breaks that Maryland offers to not-for-profit insurers, which should be considered when "placing a value on CareFirst," the study said. If the deal is approved, the report recommended that the state be paid in cash or have "protection" in case its stock value falls (Baltimore Sun, 12/4). Study author Carl Schramm, a health care economist, said that CareFirst is worth "substantially north of $1.3 billion" and that lawmakers should "scrutinize the proposed purchase price."

CareFirst Criticism
CareFirst said the study "makes interesting fiction." CareFirst spokesperson Jeff Valentine said, "Even from a cursory look at the report we believe it is rife with factual errors and misstatements," citing the report's calculations using revenues of for-profit and not-for-profit insurers. Valentine also defended the health plan's record as an insurer of last resort, saying "Frankly, I don't think we have anything to apologize for." Maryland Insurance Commissioner Steven Larsen said, "The report serves to highlight many of the issues that we will have to look at. But the report shouldn't serve as a substitute for a rigorous regulatory process. CareFirst has not had the opportunity to come in and make its case" (Washington Post, 12/4). The study is available online.