The $300 Million Grab Under new insurance boss, will the city plunder CareFirst's cash reserves?
Explanation of Benefits: Cheh says city health care should gain from insurer’s excess funds.
(Darrow Montgomery )
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Under threatening clouds last Friday, Mayor Adrian M. Fenty introduced his new commissioner of insurance, securities, and banking, 35-year-old Gennet Purcell, at a press conference outside One Judiciary Square.
Fenty then proceeded to lecture reporters on the purpose of said press conference: “The administration is not going to make any policy pronouncements in the nominations press conference,” he said. “The nominations press conference, for those of you in the media, is where I present the credentials of the nominee and you are free to ask, what are the credentials?…Not questions of policy.”
Why so touchy, Mr. Mayor?
Because Fenty and Purcell were asked about a “question of policy” that could assault one of the District’s most powerful corporations.
It all revolves around CareFirst BlueCross BlueShield, the largest health insurer in the city. Like any insurer, CareFirst must maintain extensive cash reserves to handle claims. Critics of CareFirst on the D.C. Council, however, charge that CareFirst keeps too much cash in reserves and has failed to deliver on its role as a “charitable and benevolent institution,” as stipulated in its congressional nonprofit charter.
How much cash are we talking? At the end of 2008, CareFirst had $687 million in reserves. Last year, the D.C. Council passed legislation, signed by Fenty, that empowers the commissioner of the Department of Insurance, Securities, and Banking (DISB) to determine what would be an appropriate level of reserves, and to essentially take any excess for community health needs. That determination will proceed with a Sept. 10 hearing.
Into that gaping imperative steps Purcell, the surprise replacement for longtime DISB commissioner Thomas Hampton. According to the D.C. Appleseed think tank, which engaged three sets of consultants to determine CareFirst’s appropriate reserve level, the company owes District taxpayers $300 million in community benefits. The company, on the other hand, argues that its reserve levels are perfectly appropriate, thank you very much, and suggests that the uncertain course of national health care policy is further reason to keep hands off the funds.
Appleseed executive director Walter Smith says CareFirst “cannot be trusted to fairly represent the public interest.” And, indeed, in recent years, insurance commissioners in Maryland, Pennsylvania, and the District have all rejected nonprofit insurers’ assessments of their own finances. In 2005, a previous D.C. insurance commissioner ruled that CareFirst was keeping more money than it needed to but held that there was nothing forcing them to spend it. Well, now, thanks to the D.C. Council, there’s a law on the books that takes care of the forcing part.
In the midst of a record budget crunch, $300 million is not chump change. If you’re looking for a wellness-related comparable, it’s $50 million more than the 2010 health department budget. “This is a lot of money at a time when people are desperate for a way to address health care needs,” Smith says. “This is an opportunity to spend down a public asset.”
CareFirst holds that its reserves belong solely to its policyholders, not to the public. The company declined to comment on the DISB leadership move, but its timing is certainly interesting: Fenty’s switcheroo with Purcell and Hampton signals that he may be ready to sink his hands into the CareFirst honeypot.
Hampton, after all, looked like an improbable raider of the reserve fund. He’s an insurance industry lifer, having worked for megainsurers CIGNA and AIG before entering District service in 1988. “It had been my hope that he would be replaced before now,” says Ward 3 Councilmember Mary M. Cheh, author of the legislation forcing the DISB review. “I always thought he was much too cozy with industry, including the health industry, including CareFirst.…All I was getting back from them was reluctance and inaction.”
Consider what the soon-to-be-ex-commissioner told the Insurance and Financial Advisor trade rag recently: “It is not necessarily a bad thing...being in excess of the [risk-based capital, or RBC] requirement.…The public sees the word ‘excessive’ and thinks ‘wow, that means too much surplus,’ but excessive means the company has more than the required amount. We want all insurance companies to have surplus excessive of the RBC requirement.”
He added that determining how much surplus to siphon off would be “something that is difficult.” In fact, unlike his colleagues in Pennsylvania or Maryland, Hampton never engaged any independent authority to assess CareFirst’s financial requirements.
Purcell, meanwhile, has no such loyalties. A Howard Law graduate like Fenty and his wife Michelle, Purcell has been acquainted with the couple “for some time,” through various professional groups, says Hizzoner. Unlike Hampton, Purcell hasn’t spent any time inside the insurance industry, having pursued a general business practice in her law career. And Fenty has thus far shown no compunction about targeting CareFirst; in June 2008, Attorney General Peter J. Nickles filed suit against the insurer, targeting the alleged excess reserves. That suit was dropped earlier this year in light of the council legislation.
Cheh considers the jury still out on Purcell. She points out that, until recently, one of Hampton’s top health insurance advisers was Kathy Willis, wife of CareFirst board member Robert M. Willis, aformer D.C. insurance commissioner. “You can change somebody at the top,” Cheh says, “but it depends on who are the supporting actors and actresses.”
At the policy-free press conference last week, Purcell mentioned her priorities included continuing efforts to “increase the presence of DISB in the neighborhoods.” In response to a question about oversight of health insurer rescissions—the practice of canceling the policies of those who are too sick—she said, “Our goal is to provide a fair and efficient regulatory system. I think we have that in place.”
Reached at his home Monday, Hampton said he had “a great run” and that he “enjoyed working for the Fenty administration.” Asked if he got a rationale for his ouster, he said he didn’t. “But I didn’t need one,” Hampton said. “They wanted to go in a different direction and that’s fine.” He declined to explain what he meant by a “different direction.”
For a guy who’d just been fired, Hampton did sound awfully relieved he wouldn’t have to preside over the CareFirst inquiry. “September is going to be very tumultuous,” he says.
“There’s a lot of money at stake,” he adds. “A lot of politics.”
Campaign Finance Hammer Comes Down on Democrats
Not many folks in this town tremble at the prospect of a D.C. Office of Campaign Finance investigation, given its historically light hand when it comes to enforcement. But sometimes trembling is warranted: According to a preliminary report issued last month [PDF], the D.C. Democratic State Committee has got some ’splaining to do.
For one thing, there’s a full account of the mismanagement that took place under former treasurer Lenwood Johnson. Authorities found that from January 2007 through January 2009, the DCDSC failed to report 34 contributions totaling more than $158,000 and 19 expenditures totaling more than $85,000, in addition to nearly $14,000 in bank charges. OCF, in the report, also told the committee that it had not been provided with checks and other records that it is required to keep under the law.
But the more serious matters concern the propriety of the separate committee set up by DCDSC chair Anita Bonds and her allies to collect funds for the committee’s Democratic National Convention expenses last year. That entity collected $216,000 from various corporate and political interests to pay for hotel rooms, delegation breakfasts, and other expenses at the Denver confab. Prior to the OCF investigation, no disclosure of the donations had ever been made; Bonds claimed that its activities were separate from the state committee’s, and thus no disclosure was necessary. There has still been no accounting of how the convention money was spent.
OCF’s initial findings certainly seem to indicate that the convention account was an extension of the Democratic State Committee itself, rather than an independent entity not subject to local campaign finance regulations.
For one thing, bank records cited in the report indicate that the convention account was established at Industrial Bank under “DC Democratic State Committee/DCDSC.” And a “Donor Sheet,” intended to be filled out to accompany contribution checks, bears the DCDSC logo at the top, beside the official convention logo. And, at the bottom, the form indicates that “Our report will be filed with the DC Office of Campaign Finance, Washington, DC.” According to the OCF letter, no such report has ever been filed.
Then there’s the matter of the checks themselves: Well over half of the checks deposited into the convention fund by local companies and politicos were simply written to the “D.C. Democratic State Committee” or some similar name, rather than to “Denver Convention 2008.”
“It is the opinion of the audit staff that the Denver Convention 2008 Committee was in fact soliciting contributions for activities relating to the DCDSC,” the OCF wrote in the letter. That means all the convention donations would be subject to city reporting laws and donation limits.
That latter point is important, since a handful of contributors went over the $5,000 city limit on donations to political committees. The Fenty and Jack Evans campaign accounts both gave $10,000, as did Comcast, Triden Development, and the Squire Sanders law firm. If the OCF finding stands, the State Committee would have to return $37,000 to contributors.
The report has prompted another round of infighting within the DCDSC ranks. To deal with the OCF inquiry, the committee appointed a six-member audit panel loaded with Bonds allies, including national committeeman and former councilmember Vincent Orange. For legal expertise, the committee is relying on its general counsel, Don Dinan, who signed off on the convention committee in the first place.
Last week, given the seriousness of the charges, audit committee member and national committeewoman Deborah Royster recruited überlawyer Fred Cooke to volunteer to serve as an independent counsel of sorts and review the OCF allegations. Only Royster and treasurer Dan Wedderburn voted to engage Cooke’s services. Both later resigned from the audit committee. In the aftermath, a handful of committee members agitated on the DCDSC e-mail list to bring the matter before the full membership before responding to the report.
Bonds says there’s no need to bring the matter before the membership and that Cooke (famous for representing Marion Barry) “comes to the table with a political portfolio”—good point, that—though she says “the time may come” when his services may be needed.
Bonds goes on to stress that the city’s findings are preliminary and that she feels “very confident” that the convention committee was legitimate. “It was not set up as part of the D.C. Democrats. It’s a process that has been used for years,” she says.
A response was due to OCF on Sept. 1. “All information that has been requested will be provided,” Bonds promised last week.
Perhaps the Dems could learn from their Republican counterparts. According to Paul D. Craney, executive director of the D.C. Republican Committee, his outfit raised its $40,000 in convention funds through existing committee accounts, which are fully reported to the appropriate federal and local authorities.
Says Craney, “I’d be happy to sit down with the [DCDSC] to give them a crash course on how to ethically operate a campaign account.”
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Sep. 3 - 9, 2009 (Vol. 29, #36)
Comments
9:11 pm
I'm a Carefirst policyholder. If there's "excess", why isn't that money getting refunded to me and other policyholders since that's OUR money? Why does it become the city's money?
2:29 am
a correction to your story: Lenwood (I am no great fan) did not sign any of the finance committee reports. It was his protest.
When Dan Wedderburn later became treasurer, he too bucked the pressure to sign the reports. He was threatened, and maligned.
Anita had a couple scams---if not illegal were sure unethical.
Many patrons if unable to attend buy tickets with the intention to give them to a student, elderly or other less able in their ward. Anita would resell the ticket. And she often bragged about it--as part of her prowess of a fundraiser.
During the convention, while every other state had the best and the brightest of their youth serving as "Official DNC Pages" we had corporate executives. Why Anita sold that too--many times. Let's say Councilmember Blue gave 5,000 to see student from Spigarn attend the convention, Councilmember White also gave a contribution to see Ballou students...etc etc.
How many actual attended---who knows? But most councilmembers gave something to have youth, elderly and other disadvantage attend and their is little evidence after the money was given it got to them.
9:39 am
@ sally --> it's because carefirst's corporate charter requires it to be run for the benefit of the public, not just policyholders
12:03 pm
Wrack, you are mistaken. Sally is correct, and District law affirms it.
CareFirst's charter is clear on this. The company is run for the benefit of its "certificate holders," which in this case means its subscribers, or members.
2:40 pm
Ugh, this is like the bad old Marion Barry days, where the Council sought new people to tax to fund their corrupt dealings. The CareFirst money came from its members and it belongs to them - how can this be legal?
5:50 pm
The ongoing effort of some DC officials to "avail" themseves of CareFirst reserves is a shameful and blatantly illegal effort to take what is not theirs to take. The DISB role is to assure that "adequate" reserves exist for insurance policies that are written in the Distirct. This is what state insurance commissioners do to provide some level of assurance that insurers can make good on claims.
The DC government''s role is that of "insurance regulator." No more, no less. It is beyond complrehension that the DC Council or the DC AG thinks that somehow CareFirst's reserves belong to the District taxpayers. CareFirst reserves no more belong to the public than do the "excess funds" of any other for-profit or not-for-profit entity in the District. As DeBonis said, this is an attempt by some members of the Council to "dip their hands in CareFirst's honeypot."
The CareFirst Board members and senior management are the ones who get to decide what the reserve levels should be and whether they should be reduced or increased. It is a business decision and a policy decision that only they are authorized and required to make. The DC Council members and the AG have no business attempting to second guess the decisions of the board.
Will the DC Council do the same thing for other non-profits and other for-profit companies in DC? If they gt away with this, "Who's next?" There is no legal basis for this and if they attempt to "legislate" this theft of CareFirst's money, they will be sued and they will lose. If the board determines that there iare "excess reserves" the CareFirst board will determine what to do with those reserves - reduce premiums, increase provider payments, donate to local and regional charities, improve benefits, etc.
The Congressional Charter language is constantly misinterpreted by those who would like to "avail" themselves of CareFirst money. The "charitable and benevolent" language in the Congressional Act only establishes that CareFirst is a "non-profit corporation and that it exists for the benefit of its customers (aka certificate holders). If the District takes this money, every CareFirst customer has a viable cause of action against the Distict.
CareFirst should sue the crap out of the District if they go ahead with this stunt. And those of us who pay taxes should be outraged that our elected officials cannot see how blatantly illegal and unethical this blatant theivery and what will amount to tens of thousands of dollars spent on lawsuits and lost productivity driving up our taxes and CareFirst's operationg costs.
Shameful conduct. Let's see if our new DISB Commissioner has the backbone needed to rise to the occasion. I am hopeful, but not optimistic.
10:42 pm
The previous poster sounds pretty knowledgeable about the innerworkings of CareFirst. Sounds like the former commissioner.
2:43 pm
The separate account for the host committee was set up as the DC Democratic State Committee Denver Convention 2008 account with a separate EIN number. The intent is quite clear the account was set up for host committee purposes and that no funds expended were used to campaign.
4. There has been an accounting of the Convention account it was provided to OCF during this audit, report states on page 8 that “It should be noted that the receipts and expenditures of the Denver Convention 2008 account appear to be in compliance with OCF rules and regulations”…to the credit of the host committee’s Treasurer Dr. Marylin Tyler- Brown. At the time the complaint was filed with OCF, certain members of the DCDSC requested an accounting before was complete, they are the same members who have quite the “special” committee because they are trying to make an issue out of it for their own personal political agendas. If the current Treasurer Dan Wedderburn, would have done the due diligence and work required to initially provide the proper documentation to OCF, OCF’s audit staff would have been shown the account was separate. Remember this is a preliminary report, whereas the OCF is requesting additional information and dialogue; which the Treasurer is not providing, has refused to particpate in. Needless to say the Chair had to provide assistance to ensure OCF got it’s information therefore a Special DCDSC Committee was formed to help in that effort, of which the Treasurer now has quit, showing total disregard and lack of fiduciary responsibility that comes with the office.
As for the “over” contributions. Do people think that some of the brightest, UPenn, Wharton educated politicians are going to knowingly over contribute? NOT
The article doesn’t mention the National Committeewoman Deborah Royster is the one who filed a complaint with OCF over the host committee account? Seems a bit odd not to mention that in the article.
The “Special OCF Audit Committee” DCDSC has 3 lawyers, and 2 accountants and an economist on the committee and has brought in the outside firm an attorney and accountant from Deloitte, Financial Advisory Services LLP’s, Forensic & Dispute Services area to help assist in financial controls of the DCDSC. As for Mr. Carney’s comments, it wasn’t a campaign account nor a slush fund. The GOP has screwed up this country enough, the last thing we need to do is start listening to the GOP!
So be careful to believe only half of what you see and none of what you hear! If you listen to the water running from the sewer pipe at Blue Plains, you’re bound to hear a lot of crap….before the truth comes out the other end. Let OCF complete the audit before the judge and jury are seated, truth has a way of getting out in Washington! Stay tuned!
9:47 am
Cheh will likely to do CareFirst what she's helped do to gas stations in Ward 3 - namely, pass feel-good legislation that winds up putting companies out of business.
4:53 pm
The interesting thing in all of this is how the players all appear to be tied to corruption in some way and how Council members complain of such relationships that hurt their agenda, but still allow those corrupt relationships that will promote the same.
Cheh is as hypocritical as they come. It was not acceptable to these politicians to allow CareFirst's management to raid their own company coffers and corruptly go public a few years back. But miraculoulsy it is okay for the Concil to do essentially the same now that Carefirst has new management!
Cheh wants to raid Carefirst Blue Cross Blue Shield and will turn a blind eye to the link to DC governement corruption the new DISB Commissioner has because she thinks Purcell will come down on her side. Looks like a backroom deal wth Fenty, smells like a backroom deal and if it walks and looks like a duck well, you know the rest. Where there is smoke there is fire and all that jazz.
Cheh's pressure on Fenty induced him to remove a Commissioner which in turn gave him the opportunity to replace him with a personal friend of his wife with no experience to speak of in the insurance industry. Yet she (Cheh) will give this a pass so long as the new appointee gives her the ruling she wants! Cha-ching!
More palms are being and will be greased here than in a JiffyLube giving free lube jobs! Corruption reigns once again in DC!!
Also it is interesting to note that while Kathy Willis was dismissed, it was for her choice of groom not any allegation of wrongdoing! She was married to a past Commissioner a relatively short time, yet a host of other relatives of past Commissioners, etc. are still on the payroll in the department and thorughout DC government. How exactly are some being vetted over others? Not on merit apparently. For instance lets look at the new Commissioner.
"Mayor Fenty's new Commissioner of DISB Gennett Purcell is married to Will Purcell his nominee to "a critical D.C. appeals board" (according to the Washington Examiner), that "was recently disbarred in Maryland for his role in a fraudulent real estate scheme and will not be sworn in." His wife Purcell’s wife, Gennet Purcell, is the deputy commissioner for the D.C. Department of Insurance, Securities and Banking — the agency that regulates the District’s mortgage industry!" [Now she is Commissioner and clealry the replacement for Hampton as intended from the beginning].
As reported by the Washington Examiner:
"Will Purcell’s nomination to the Contract Appeals Board, the panel charged with hearing and resolving contractual disputes, was approved by the D.C. Council [and Cheh] on July 14. A week later, the Maryland Court of Appeals ordered Purcell and a second lawyer, Renard Johnson, disbarred for their participation in an equity-stripping scam." [Surely the Council, having done their job knew full well of this pending case, yet they chose to let it slide. Or didn't the payoffs system work to clear them?]
"On July 31, Purcell contributed $500 to Fenty’s 2010 campaign, according to campaign finance records.
But on Wednesday, Office of Boards and Commissions director Tracy Sandler informed Purcell in writing that he “will no longer meet the statutory requirements and as such we will not be swearing you in as a member,” The Examiner has learned. Purcell’s wife, Gennet Purcell, is the deputy commissioner for the D.C. Department of Insurance, Securities and Banking — the agency that regulates the District’s mortgage industry."
Hey! How about a really independent and comprehensive look at who is related to who and not let some stay while only removing one person's political opponents and percieved opponents in favor of brand new cronies? Do we need to get Congress to do this, or is THAT concept yet another oxymoron in this tale?
We know Councilman Grahams office was corrupted up to the top in the Taxicab scandal [the insuance system for which also is regulated by this Department (DISB)], now lets follow the money through Cheh's office too, shall we? If she is clean what has SHE got to hide?
Absolutely disgusting the whole mess, and the funny thing is if the insurer failed any time along this path they all would have blamed the dismissed and past Commissioners for a failure in the financial system - the very same folks that have overseen CareFirst come from the brink of bankruptcy to the healthy strong state it is in today.
Amazing.