A legislative reform of CareFirst BlueCross BlueShield is in danger of being discarded as the health insurer yesterday threatened dire consequences that would disrupt service to its 3.2 million customers.
Gov. Robert L. Ehrlich Jr. must decide by Wednesday whether to veto reform legislation enacted after a scathing critique of the CareFirst board and management by Maryland insurance commissioner Steven B. Larsen.
The legislation would replace nearly half the CareFirst board, a step that the national Blue Cross and Blue Shield Association said would prompt the termination of CareFirst’s Blue Cross license.
CareFirst said that loss would force it to cut nearly 1,500 jobs, lose business and create uncertainty for members in Maryland, Delaware and the District of Columbia as it lost access to the national Blue Cross Blue Shield service network.
Yesterday, Larsen called a letter sent by CareFirst to Ehrlich on Tuesday urging the governor to veto the reform legislation “an amazing reversal.”
“They were in a room at every point in time when the bills were being discussed,” Larsen said. “They certainly did not object to the idea that the board members need to change, and now, suddenly, they’ve raised constitutional issues.
“Clearly, the legislature was led to believe the current version of the bill would be acceptable.”
But CareFirst Inc. Chairman Daniel J. Altobello described the legislation as “unconstitutional” in his letter to the governor.
The protests clearly got Ehrlich’s attention.
More Top Picks Best Desktop Video Magnifiers For Low Vision
The governor called the potential loss of the Blue Cross Blue Shield trademark “catastrophic,” in a letter sent to legislative leaders Tuesday.
“The future viability of Maryland’s dominant health insurer is at risk,” Ehrlich said.
He requested the “wisdom” and “counsel” of Senate President Thomas V. Mike Miller and House Speaker Michael E. Busch in light of the CareFirst warnings.
The CareFirst crisis unfolded in a flurry of letters that began Monday when the national association warned Ehrlich that if government officials take control of the CareFirst board, the company’s license to use the Blues name and trademark would be terminated immediately.
Attorney General J. Joseph Curran Jr. wrote to Ehrlich yesterday, arguing the association could not legally pull its trademark as a response to the legislation – setting the stage for a potential legal showdown between the state and the association.
He also dismissed CareFirst’s arguments that the legislation is unconstitutional. “To equate CareFirst with a typical private corporation,” he argued, “is to rewrite more than 65 years of history.”
Still open to reforms
CareFirst said it was open to reforms in its letter requesting the veto. It offered to replace the company’s 12 Maryland directors on a staggered timeline and hire an independent expert on governance to examine company practices and policies.
Under the reform legislation, 10 new Maryland directors would be chosen by a nominating committee selected by elected officials.
Busch described himself as “frustrated” by the CareFirst protests.
“This thing has a longer running plot line than Gone With the Wind,” he said yesterday.
“You feel very frustrated when you believe you’ve tried to act in good faith,” he said.
“The legislature stepped forward and took on a very tough issue. There has probably never been a more thoroughly vetted process than this,” he said. “We have been very candid and open with CareFirst and tried to accommodate them every step of the way. Now that the legislation is completed, there is a change in direction.”
The trouble began when CareFirst, a nonprofit since its founding in 1937, announced a deal in November 2001 to convert to for-profit operation and sell the company for $1.3 billion to WellPoint Health Networks Inc., a California insurance giant.
Larsen blocked the deal in March of this year, saying it was not in the public interest. In a lengthy and sharply worded report, he criticized CareFirst’s board for ignoring its nonprofit mission and approving an illegal $119.7 million bonus plan for top executives that would have been triggered if the deal had been completed.
After Larsen’s report, the legislature unanimously passed identical bills – one from the House, one from the Senate – that locked CareFirst’s nonprofit mission into law, forced out nearly half the board by December and added two nonvoting board members named by legislative leaders.
Even before the legislation was passed, CareFirst and the national Blue Cross and Blue Shield Association cautioned the legislators not to take control of the CareFirst board. The legislators adjusted the reform bills in an attempt to meet those concerns.
The loss of the trademark “would have draconian consequences for CareFirst, as well as for the citizens of the State of Maryland,” Altobello said in his letter to Ehrlich.
If CareFirst loses the license to operate as a Blues Plan, its members would lose their “Blue Card” health coverage, which includes access to physicians and hospitals throughout the national Blues provider network, Altobello stated.
In Maryland, 134,000 state employees, retirees and dependents and nearly 550,000 federal employees and their families are covered by Blue Cross insurance.
Altobello said loss of the trademark also would place the company at risk for another provider to enter the Maryland market to provide coverage under the Blues trademark.
He said it would also force CareFirst to eliminate jobs in Delaware, Maryland, the District of Columbia and West Virginia; renegotiate existing contracts with its doctors and hospitals; rename its HMO and other health plans; and lose its contract to insure 531,000 federal employees and dependents, costing $1.4 billion in revenue.
It could also cause Delaware and the District Blue Cross to sever their affiliations with CareFirst, Altobello said.
But health care finance experts said it is unclear how the loss of the trademark would affect customers, the company and the state. “It wouldn’t be good, but it wouldn’t be as draconian as Blue Cross is portraying it,” said Gerard Anderson, director of the Johns Hopkins Center for Hospital Finance and Management. “It is a brand name. I don’t know that it is a brand name that has much value any longer.”
“If they have subscribers, doctors will want to work with them,” Anderson said. “They’ll work with CareFirst instead of CareFirst BlueCross. As long as they’re going to get paid reasonably, that’s the bottom line.”
Douglas B. Sherlock, a senior analyst with Sherlock Co. in Gwynedd, Pa., described the possible effects as uncertain.
“My suspicion is that it would probably have a negative effect,” he said. “But the magnitude of it would be anybody’s guess. It would probably affect the company’s bottom line. They would probably have to raise premiums if they lose customers.”
In an attempt to avoid confrontation, legislators, the governor’s aide, Larsen and the national Blue Cross association have met several times during the past few weeks to discuss a possible deal to delay or suspend implementation of portions of the pending law.
More Top Picks Best Dressers
Talks break down
But Del. John Adams Hurson, chairman of the House Health and Government Operations Committee, said the negotiations broke down last week.
“Only afterward, after the bills were passed, were we told of the consequences,” Hurson said. “I don’t know if it was intentional, but it was certainly not the best way to operate.
“The legislature is coming back for another session,” Hurson added. “I don’t think we’re all going to be very happy if this is vetoed. They’re going to have to deal with us next time. It’s not going to be easier because of the way this is being done. It’s going to get harder.”
It is unclear what action Ehrlich will take on the measures, said Kenneth H. Masters, the governor’s chief legislative officer. The last day to sign bills into law is May 22, but vetoes must be made by May 21, he said.
“It appears the ramifications could be fairly profound,” Masters said of the trademark loss. “I’m not sure everyone is convinced it would happen, but I think there is consensus that if it were to happen, it would be a bad thing. … We’re trying to carefully weigh and measure the option in either case of signing or vetoing. I don’t know what [the governor is] going to do.”