CareFirst BlueCross BlueShield failed to provide public benefits in exchange for $21 million in tax breaks last year, Insurance Commissioner Steven B. Larsen said in an order made public yesterday.

Larsen's order gives CareFirst a year to come into compliance with the state law on premium taxes. The issue is actually moot since another law passed this year will divert the tax money next year to support a prescription drug program for low-income elderly, so there can be no future debate about how CareFirst uses its break.

"This is a just an evaluation for one year," Larsen said. Although CareFirst has received the tax exemption for years, this is the first time the state has required the insurer to account for how it used the money.

CareFirst said yesterday that it believes it has complied with the law. Although CareFirst officials declined to answer questions, the insurer issued a written statement saying it had passed the tax break on to consumers "in the form of lower premiums or administrative charges."

However, Larsen said, "There's no specific demonstration to support that proposition. They have made that argument to the legislature, and the legislature, I think, wanted something more."

CareFirst said through a spokesman that it would provide the commissioner with additional information, and was considering whether to exercise its right to ask for a hearing on the order.

The order has no direct connection to CareFirst's plan to convert to for-profit operation and sell itself for $1.3 billion, which is being reviewed by Larsen. However, the critical finding on the premium tax could provide more ammunition for opponents of the deal.

Minor Carter, a lobbyist for Maryland Cares!, a coalition of groups opposed to the CareFirst deal, said yesterday that his group would cite the report in efforts to get the legislature to block the deal and pass legislation to force CareFirst to adhere to its nonprofit mission.

He said CareFirst officials had not used the tax break to provide coverage for the uninsured but to "make themselves ultracompetitive" on commercial policies. Thus, he said, they had "fattened up their book of business to make themselves more salable."

There has been debate over the use of the premium tax money for several years. As a nonprofit insurer, CareFirst is exempt from a 2 percent premium tax paid by other insurers (but not by HMOs, which are exempt from the tax whether for-profit or nonprofit).

Seeking to nail down the answer to the benefits question, lawmakers passed a law last year requiring CareFirst to report each March, showing that it "has used funds equal to the value of the premium tax exemption ... in a manner that serves the public interest." An insurer can do this, the law says, by showing it has "increased access to, or the affordability of" health insurance. The insurance commissioner is to review the report and rule in November whether the insurer has complied with the law.

In its report, CareFirst said "the value of the premium tax exemption is passed along to our insured subscribers directly by way of premiums that are lower than they would be if [CareFirst] paid the premium tax."

In his ruling, Larsen said CareFirst had received more in premiums than it had paid in claims, "so there has been no demonstrable use of, or subsidy with, the premium tax exemption." He wrote that there is "no evidence that the value of the premium tax exemption was utilized in a manner that serves the public interest" as specified in the law.

CareFirst, in its statement, said lower premiums "clearly and unquestionably increased access to and affordability of" insurance coverage.

Meanwhile, 2002 legislation will require CareFirst to pay out the value of its exemption for seniors' prescriptions.

The insurer will have to either raise premiums to cover the lost tax break or see its profits reduced.