Non-Profit Will Earn $65 Million In Profit, Gave Dismissed CEO $18 Million ‘Golden Parachute’
Washington, D.C. – Earlier today, at a Council hearing on the “Medical Insurance Empowerment Act of 2008,” Councilmember David Catania told the leadership of CareFirst Blue Cross Blue Shield that the company had deviated markedly from its mission. Group Hospitalization and Medical Services, Inc. (GHMSI), the District’s subsidiary of CareFirst, was founded by a federal charter in 1939. For nearly 70 years, it has enjoyed a special tax status in order to fulfill its stated mission to “be a charitable and benevolent institution.” However, in recent years the company has amassed enormous profits while hitting its subscribers with double-digit annual premium increases.
“The evidence is clear. For some time, CareFirst has conducted itself like a for-profit company with little to no regard for its founding mission,” said Catania. “But CareFirst is not a for-profit, was never intended to be a for-profit, and for many years enjoyed special tax advantages based on its non-profit status and its mission to serve the larger community.”
Earlier this year, the District’s Attorney General filed suit against CareFirst for failing to adhere to its charitable mission. The company, according to the suit, had amassed a Risk-Based Capital (RBC) Reserve of over 900 percent by repeatedly raising the premiums of its policyholders. By comparison the National Association of Insurance Commissioners considers any insurance carrier to be adequately capitalized with an RBC Reserve level above 200 percent.
At today’s hearing, Chet Burrell, CEO of CareFirst, said that the company expects a profit of $65 million after all expenses, including salaries, are settled this year. Recently, CareFirst agreed to pay former CEO William Jews $18 million in compensation and benefits upon his departure. The Maryland Department of Insurance, which shares regulatory authority with the District over the company, cut that amount to $12 million.
“GHMSI was founded by Congress to expand access to healthcare to the larger population,” said Catania. “If you fast-forward 70 years, what you will see is a company that is bilking its subscribers, running up massive profits, and offering ousted Executives ‘golden parachutes.’”
In 2002, CareFirst applied to convert to a for-profit insurer and be purchased by Wellpoint Health Networks, Inc. Their application was subsequently denied by the Maryland Insurance Commissioner because the sale price was undervalued by nearly 100 percent and because the terms of the sale included unnecessary enrichment for company executives. At today’s hearing, Catania expressed his concern that the company continues to charge unwarranted premiums and to bank excessive reserves in order to attempt to convert from its non-profit status again in the future.
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