On December 30, the Commissioner of the D.C. Department of Insurance, Securities and Banking determined that the District-based portion of CareFirst BlueCross BlueShield has accumulated excess surplus of $268 million. The Commissioner also determined that approximately 21 percent of this excess ($56 million) is attributable to the District, 26 percent to Virginia ($70 million) and 53 percent to Maryland ($142 million). He ordered CareFirst within 45 days to submit a plan to spend down the $56 million attributable to the District. The Commissioner will have to approve the plan before it can be implemented. Officials in Virginia and Maryland will determine how the $212 million allocable to those jurisdictions will be spent.
It is important that residents of the region understand how this decision came about and what it means to them.
CareFirst is by far the largest health insurance company in the region. Chartered as a charitable and benevolent nonprofit, its obligation is to use the whole of its assets to promote better health for its subscribers and the residents of its service area. But for more than a decade, officials in both Maryland and the District have been critical of the company for failing to meet this obligation.
In 2002, the Maryland Insurance Commissioner denied CareFirst's petition to convert itself to a for-profit operation and sell itself to a west-coast insurance company. In denying the petition, the Commissioner pointed put that the company had lost sight of its nonprofit mission to the community and criticized it for attempting to sell itself for hundreds of millions less than the company was actually worth.
In 2005, the D.C. Insurance Commissioner conducted a hearing to determine whether the District-based portion of the company had built up excessive surplus that should be devoted instead to reducing premiums and addressing community healthcare needs. He concluded that the company "can and should engage in more charitable activity," and that its ability "to do more for the community than it is currently doing is beyond doubt."
Because the company did not respond by increasing its charitable activity, but instead decreased that activity and further increased its surplus, in 2009 the D.C. Council passed legislation requiring the D.C. Insurance Commissioner to conduct a further examination of the company's surplus and to order it spent down if the surplus was found to be excessive. The legislation also set a strict standard for measuring whether the surplus is excessive, specifically that the surplus should be no more than necessary to protect the financial soundness and efficiency of the company, while at the same time maximizing the amount made available to address community healthcare needs.
Applying this standard, the D.C. Insurance Commissioner has now found that the District-based portion of the company has grown its surplus far beyond what it needs to protect the company's soundness and efficiency, with the result that it should reduce the excess amount of $268 million in order to maximize the company's investment in community healthcare needs.
What this means is that the company has more than enough funds to meet all its operating expenses and pay all medical claims, and it has a substantial amount left over to give back to subscribers and the community.
What this also means is that officials in the District, Maryland and Virginia now have a nice problem to address: what is the fairest and most equitable way to spend this money?
One possibility suggested by the company is that it all be spent on across-the-board premium reductions. Another possibility is to target those premium reductions, particularly for those who can least afford those premiums. Still other possibilities might be to invest in hospitals and clinics, or in school-based health programs, or in public health education campaigns, or in other community nonprofits that are addressing healthcare needs. The amount of money involved -- $268 million -- is so large that a combination of these and other things could be done.
D.C.'s Attorney General determined several years ago that CareFirst's assets--including its surplus--belong to the public. This means that all residents of the region served by CareFirst have a stake and interest in how that surplus is spent. As public officials in the region address that issue, DC Appleseed hopes those officials will seek public input to help ensure that the spending is fair and equitable.