Delaware Mulls Dissolving CareFirst Affiliation with Blue Cross

March 12, 2004

Delaware’s insurance commissioner moved a step closer to dissolving the existing affiliation between CareFirst and Blue Cross Blue Shield of Delaware.

Commissioner Donna Lee Williams presided over a hearing to determine whether the Delaware affiliation agreement between the two insurers has been violated because of restrictions placed on CareFirst last year by Maryland lawmakers.

Maryland’s commissioner refused to go along with her December approval of a new operating agreement between the Delaware insurer and CareFirst.

Maryland lawmakers took action against CareFirst after that state’s former insurance commissioner rejected the company’s proposed conversion to for-profit status and sale to a California insurer for more than $1 billion. The commissioner said the deal undervalued the company, was rife with conflicts of interest, and would have enriched executives by up to $119 million.

In response, Maryland lawmakers passed legislation to lock CareFirst’s nonprofit mission into law, force out nearly half the board, and add two nonvoting board members named by legislative leaders.

A federal consent decree settling legal disputes over the new law requires CareFirst to continue operating as a nonprofit health plan for at least five years. It also mandates replacement of the 12 Maryland members of the CareFirst board by July 1 of this year and requires that compensation for CareFirst executives be in line with compensation for executives of similar nonprofit organizations.

Attorneys for both Blue Cross Blue Shield of Delaware and the Department of Insurance said that the restrictions imposed upon CareFirst clearly violate the Delaware affiliation agreement.

Williams seemed to agree, but did not go so far as to make a formal finding.

“I’m satisfied that a sufficient question exists as to whether a violation has occurred,” she said in scheduling another hearing on April 15 to consider possible remedies.

The timetable she established accommodates the wishes of CareFirst, which asked Williams to delay any action pending a final decision by Maryland insurance commissioner Alfred Redmer Jr., who conditionally rejected the proposed new agreement in December and asked CareFirst to submit more information for his review.

CareFirst representatives expect Redmer to issue a final decision no later than April 14, assuming their response to his request for more information is deemed complete.

Williams’ initial decision to dissolve the affiliation was prompted by the national Blue Cross Blue Shield Association’s threat to prevent CareFirst from using its trademark. The association contended that the restrictions imposed by Maryland lawmakers violated association rules on control of the health insurer’s board.

CareFirst, which provides health coverage for 3.2 million people in the region, was formed by a 1997 affiliation between the Maryland and District of Columbia Blue Cross and Blue Shield plans. Delaware joined in 2000.

Copyright 2004 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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