CareFirst, But Always Politics The citys largest health insurer comes once again under the Districts scrutiny.

Care Package: Cheh looks to send a message to the District's health-insurance leader.
Darrow Montgomery

In his three-plus years heading the D.C. Council’s health committee, At-Large Councilmember David A. Catania has eschewed his usual smashmouth political style in his dealings with CareFirst BlueCross BlueShield.

By far the District’s largest health insurer, CareFirst has come under fire from folks itching to appropriate some of its hundreds of millions in corporate reserves. In a striking role reversal, Catania has played the role of soother, calming gung-ho colleagues and preaching a softer approach to the monolith.

Well, those days are over now: CareFirst, Catania says, “gave me the middle finger.”

That universally understood gesture popped up in reference to Catania’s “Healthy D.C.” proposal, a plan that in its earliest public incarnation would have meant essentially universal health care for District residents. The 25,000 or so in the city not covered by either private insurance or various government programs would have been required to enroll in a new health plan administered by CareFirst involving a $5 million yearly commitment from the company.

CareFirst, in Catania’s version of events, went back on plans to have it serve as the program’s primary insurer, forcing Healthy D.C. to be scaled back to something less than universal health care. From a strictly ­bottom-line point of view, the company’s move makes sense enough—insuring thousands of low-to-moderate income folks has undeniable, if not unmanageable, risks. From a political standpoint, however, the risks might be even greater.

Some background is in order: This whole rigmarole traces back to the fact that the part of the CareFirst outfit that operates in the District—an outfit called Group Hospitalization and Medical Services Inc.—isn’t like most health insurance companies. Where the likes of Aetna and CIGNA and UnitedHealth are private, for-profit companies, GHMSI is a federally chartered not-for-profit. It has no shareholders to keep fat and happy; rather, the affiliate’s 1939 congressional charter says that the company is to be operated as a “charitable and benevolent institution.”

Now what exactly constitutes “charitable and benevolent” depends on who you ask. CareFirst, which has included GHMSI since 1998, has essentially argued that means it simply has to ensure its million-plus policyholders get satisfactory benefits and service. To that end, it has held on to its surplus revenue over the years to the point that GHMSI’s cash reserves are now well over $700 million; holding on to that massive surplus, the company argues, is essential to managing its risk—especially in a region vulnerable to, say, terrorist attack.

Over the last decade or so, though, various policymakers have argued that “charitable and benevolent” means something much more than that. The biggest bulldog on this issue in recent years has been local policy nonprofit D.C. Appleseed, which in 2004 released a report that held that GHMSI’s ­public-benefit obligations rise to anywhere from $40 million to $100 million yearly. (In 2007, according to Appleseed, GHMSI spent only $14.9 million regionally.) Catania’s Healthy D.C. plan, in other words, would have been a mere pittance of what the real hardliners think the company owes.

Signing on to insure the Healthy D.C. participants, at least, would have taken some heat off of CareFirst, which is currently suffering through another round of bad press, with former CEO William L. Jews’ $18 million severance package currently being challenged by the Maryland state government. Annapolis is arguing that such a sum is completely out of whack for the head of a nonprofit concern; the company responds that amount is in keeping with compensation packages for heads of other nonprofit insurers.

The figure, in any case, introduces a certain unsavory irony. As Appleseed’s executive director, Walter Smith, puts it: “They are prepared to be spending all this money for Bill Jews’ severance package at a time when they’re not prepared to cover uninsured persons in the District.”

CareFirst, in a statement, defends its existing package of community benefits, claiming their 2007 payouts across the company totaled $32 million. The company also touts a recent $1 million pledge to fight childhood obesity. “No other health insurer approaches this level of commitment to the community,” the statement reads.

The company also points out that in 2005, the District’s insurance commissioner ruled after an investigation that GHMSI was not obligated to provide additional community benefits. Unmentioned is that the same commissioner said in the same report that CareFirst “can and should do more.”

Three years later, that’s what the D.C. Council stands to make CareFirst do. The alternative to Catania’s light touch will be the somewhat heavier-handed effort likely to be favored by Ward 3 Councilmember Mary M. Cheh, chair of the committee that oversees the insurance industry in the District. She’s also a legislator who has been on a bona fide tear of late, having in her first council term pushed through big victories on payday loans, noise regulations, and, gasp, Klingle Road.

Cheh, shortly after coming on the council in January 2007, privately expressed early interest in investigating whether CareFirst needed to do more for the District in return for the tax breaks it’s been given over the years. In spring of last year, she ordered representatives from CareFirst and Appleseed to sit down and work out some sort of understanding. No agreement was ever reached.

That’s when Catania’s good-cop act came in. He told Cheh and others that he was hoping to come to an agreement with CareFirst on what would become Healthy D.C. And in order to make it work, he told them, please play nice. “I thought we could get more from them if we constructively engaged them,” he says. “I asked that they simply refrain from taking any steps that would prevent that.”

Now, Catania says, “constructive engagement no longer seems realistic.” If Cheh & Co. want to “step on the gas,” he says, he won’t stand in the way.

What exactly happened with Healthy D.C. behind closed doors is up for debate. The crux of the disagreement is whether CareFirst ever intended to do the actual insuring of the Healthy D.C. program or simply offered to open its provider network and act as a glorified claims processor.

CareFirst’s statement, in support of the latter contention, says that the company “never...altered the parameters under which we could fully support Healthy D.C. At the very start of this worthwhile process, we clearly outlined elements without which the program simply would not work.”

That line of reasoning, Catania says, is “utter horseshit, and I mean that term because there’s no other term to describe it.”

“For months, my staff worked with their staff,” he says. “There was no failure to have a meeting of the minds from my view.” And the involvement on CareFirst’s part went straight to the top; CareFirst CEO Chet Burrell, he says, was “up to his eyeballs in this.”

The first hints of any major problems came in a March 27 letter from Burrell to Catania, which expressed “continued support for the goals of the Healthy DC Act” but, later in the missive, reads, “Given its nature, we do not see the Healthy DC Program as an insured program, but rather as a self-funded effort.” That was the first suggestion, Catania says, that CareFirst would not be doing any actual insuring.

That letter arrived the weekend before the planned rollout of Healthy D.C., and on March 31, Catania went ahead as planned at a Wilson Building press conference. On hand, as he put forth a “cost-sharing partnership between the District and CareFirst,” were a pair of CareFirst execs.

Then on May 5, Catania announced that CareFirst “had, the best way to characterize it, a change of heart.” Instead of creating a new program, the Healthy D.C. that’s ended up in the fiscal 2009 budget simply expands an existing District health care program, leaving about 10,000 District residents uncovered.

Cheh says that CareFirst’s decision not to commit to Healthy D.C. as originally proposed has “energized me to closely examine how well they’re meeting their legal obligation to serve the community.” (However, asked if participating in Healthy D.C. would have let CareFirst off the hook, Cheh says, “Oh, no.”)

“I am going to do something,” she says, offering no details except to say she will offer legislation prior to the council’s summer recess.

Now, this is not the first time that CareFirst has been in the D.C. government’s sights. Back in 2005, Ward 1 Councilmember Jim Graham introduced legislation that would have allowed the District government to force CareFirst to spend “unreasonably large” surpluses. At a six-hour hearing, representatives of the D.C. Chamber of Commerce, the D.C. Hospital Association, and others all stood up for CareFirst, and Graham never moved forward with the bill.

This time around, CareFirst is looking at a different council. Catania, the city’s de facto health czar, won’t be running interference, and reliable pro-biz folks like Sharon Ambrose, Linda Cropp, and Vincent Orange are long gone. Beyond that, Smith says he is confident at least some of the business folks who spoke up for CareFirst last time won’t be in their corner now.

For a hint of what CareFirst might have in store for itself in D.C., they might want to look at what their corporate cousins have gotten themselves into up in Pennsylvania. There, the legislature ordered a study of excessive surpluses by Blue Cross Blue Shield affiliates in the state; the result was a 2004 agreement limiting how much they could raise rates while having excess surpluses and requiring them to spend a given amount of their yearly premium revenues on community benefits. In testimony before the D.C. Council earlier this month, Smith called the Pennsylvania plan a “good model for the District.”

Pressure is not likely to be limited to the legislative branch: Mayor Adrian M. Fenty would not comment on this issue, other than to express support for “strengthening” Healthy D.C., but his interim attorney general and right-hand man, Peter Nickles, seems to have some sympathy for attempts to go after CareFirst; he tells LL he agrees in principle that the company has obligations that it is not meeting.

“They haven’t fulfilled those expectations yet,” Nickles says, “but I assume they will.”

Political Potpourri

• The proposed lottery contract between the District and the W2I might be all but dead, but the drama continues.

A Washington Post story that appeared on May 14, the day after the council voted to table the contract, aired allegations from nightclub mogul Marc Barnes that W2I partner Warren C. Williams Jr. had threatened him the week prior at his downtown establishment Park at 14th. The incident, Barnes said, arose from his support for a member of the partnership who holds the current contract, “very close family friend” Leonard Manning.

But things didn’t end in da club, Barnes says.

The day that story appeared, Barnes posted a letter to Fenty and D.C. police chief Cathy Lanier alleging that a Williams associate had approached Barnes outside the D.C. Council chambers after the vote to re-table the contract. The associate, according to the letter, told Barnes “that he had stopped ‘some people’ from coming to my house 3 or 4 times, and that they were not black, maybe insinuating that they were affiliated with Intralot Inc., the non-black partners in the proposed contract. He further stated that ‘these aren’t the kind of people you want to mess with.’”

Barnes says he sent the letter to send a message: “If there’s going to be a problem,” he says, “let the law handle it.”

As far as the reaction to the letter, Barnes says he’s satisfied; he received a call from Nickles, who promised to investigate the charges. Nickles couldn’t be reached by press time to detail exactly what that entails.

Julie Chase, a spokesperson for W2I, calls the letter, which was forwarded to all 13 members of the council and several reporters—but not LL—“pure slander.”

“That couldn’t be farther from the truth,” she says. “That’s not how our leadership behaves.” Williams’ lawyer, A. Scott Bolden, did not return calls for comment.

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Our Readers Say

CareFirst has royally screwed themselves into a corner. They haven't been spending money as highly and as visibly as they should. They've also not been playing nice-nice sufficiently with councilmembers.

What Walter Smith, Cheh and her merry band of Chehistas want is to get their hands on tens of millions of CareFirst's reserve funds, and then distribute it as they see fit. CareFirst, oddly enough, doesn't want anyone dipping into its wallet. CareFirst has very well-connected lobbyists, but they seem to be clueless as to the level of hostility they have created. And after their attempt to privatize themselves some years back, they created a whole lot of suspicion as to what their gigantic reserves were really all about: were they to provide funds in case of massive catastrophe? Or were they to look very appealing if the company went private and searched for a takeover?

Cheh's bill is likely to be the same bill Appleseed has been shopping around the Council for years - setting up a new bureaucracy that will tell CareFirst how much of its money is "too much", seizing that money, and then spending it on city health matters.
Well, I definitely think that Penn's law of limiting how much an insurer can raise rates while holding hundreds of millions in reserve makes sense. Even if it is a "non-profit," it's unfair to ask paying policyholders to pay more money that's not even being spent. Clearly, if they've been able to amass that sum over the years, they are overcharging policyholders, and should be stopped - or at least slowed down.

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