THE $33.2 MILLION in severance bonuses slated for CareFirst BlueCross BlueShield executives if their company merges with WellPoint Health Networks may have fatally tainted the deal.
And now it turns out these payments may have been illegal even before the General Assembly banned them earlier this year, according to a consultant's report. If further review upholds this finding, CareFirst's already questionable merger with WellPoint of California should go no further.
A conclusion that the payments were illegal would add weight to the charge that bonuses -- and not the best interest of Marylanders -- were driving this proposed sale.
The consultant's report, requested by Maryland Insurance Commissioner Steven B. Larsen, was made public this week. It finds that the $9.1 million bonus for William L. Jews, CareFirst's chief executive officer, "serves no other purpose than to enrich Mr. Jews." That $9.1 million and the other bonuses should not have been approved by CareFirst's board of directors, according to the consultant, Jay Angoff, the former insurance commissioner of Missouri.
Mr. Angoff also raised questions about CareFirst's basic severance arrangement with its executives. A "change of control" would entitle CareFirst executives to another $48.9 million in severance pay, including $18.9 million for Mr. Jews. That allowance would also be excessive and illegal, the consultant concluded.
A company official called the consultant's assertions "reprehensible." CareFirst's lawyers say the WellPoint bonuses were offered to retain the CareFirst executives.
Commissioner Larsen hired Mr. Angoff to determine whether CareFirst had acted in compliance with applicable legal standards. More hearings on the proposed merger are planned for December, and Mr. Larsen expects to announce a ruling in February. The General Assembly would then have 90 days to review his decision.
Between now and then, Mr. Larsen will receive further consultant reports, at least one of which could be affected by the troubling bonus issue.
It is possible, Mr. Angoff said, that the bonuses resulted in a lower sale price. The sale proceeds would go to a foundation that would provide coverage for the uninsured: more money for bonuses, in other words, means less money from WellPoint -- and a smaller fund for the uninsured.
A merger might still be in the public interest, but the bonus fiasco suggests otherwise.