Commitment phase

THE BALTIMORE SUN

Dr. Patricia Dubyoski spends time each day huddled in a hallway alcove at her Bel Air medical office, sorting through paperwork and stacks of patients' files.

When she needs to make a notation about follow-up care, "I put a little sticky thing on here that says, 'Repeat echocardiogram in spring 2007.' "

That's about to change. Spurred by the prospect of a $100,000 payment from CareFirst BlueCross BlueShield, Dubyoski's six-doctor office is expanding its use of electronic medical records - a computer system that, among other functions, will generate electronic reminders to patients when they need to be retested. The practice, Harford Primary Care, plans to plow that money back into more technology to improve patient care.

The bonus also represents a new phase for CareFirst. The target of a stinging legislative rebuke in 2003 for its attempt to convert to for-profit operation and be sold, Maryland's largest health insurer is stepping up spending to benefit the community. Called the CareFirst Commitment, the $92 million initiative comes at a time when nonprofit Blue Cross and Blue Shield plans are under increasing scrutiny.

After several years of double-digit premium increases, along with mounting numbers of uninsured and budget pressures on state-run health programs, lawmakers and advocates have been asking whether nonprofit Blue Cross and Blue Shield plans are doing enough for their communities.

Blue Cross often holds dominant market positions and has built big cash surpluses, with the aid of years of tax breaks. (The plans are no longer exempt from federal taxes. CareFirst, like many of its peers, also pays state taxes.) State laws and Blues charters generally call for the nonprofits to act in the public good.

Besides looking at what nonprofit Blue Cross and Blue Shield plans are doing to benefit communities, some officials and advocates in other states are eyeing premium rates and accumulated surpluses to see if Blue Cross is socking away too much money.

CareFirst alone has about a billion dollars in surplus. The 38 nonprofit Blue Cross plans had $20 billion in surplus as of the end of 2003 - a 30 percent increase over the previous year, said Laurie Sobel, a staff attorney and policy analyst for Consumers Union.

"The concern has arisen in several states: Does that mean Blues plans are not meeting their charitable mission?" she said.

While there are lots of questions being raised, there is no agreement on answers - on what constitutes charitable activity, on whether Blue Cross has any legal obligation beyond its commitment to subscribers, or on how much charity is enough relative to revenue and income.

"To be candid, we're in uncharted territory," said Jonathan M. Stein, general counsel to Community Legal Services of Philadelphia, one of the groups which challenged Blue Cross surpluses in Pennsylvania as excessive. "This is ripe for litigation."

Recent efforts

Among recent efforts in which public officials have tried to define what Blue Cross plans are obligated to do:

An advocacy group, D.C. Appleseed Center for Law and Justice, challenged CareFirst's charitable efforts in the District of Columbia. In a report in December, Appleseed said CareFirst should devote 2 percent of its revenue to "community benefit" programs. The D.C. insurance commissioner held a hearing in May, ruling that CareFirst "can and should engage in more charitable activity" but didn't have a legal obligation to do so.

The four Blue Cross plans in Pennsylvania reached an agreement with the governor in February to contribute nearly $1 billion dollars over six years to a "community health reinvestment plan." The majority of the money will go to provide coverage for the uninsured; the balance to other community benefit projects. The same week, the insurance commissioner ruled that the surpluses were not excessive, but set guidelines to limit future growth.

In 2002, Hawaii passed a law capping the surplus of its Blue Cross and Blue Shield plan - but at a level well above the then-current surplus. The legislature considered, but rejected, a tighter cap this year.

Under pressure, Blue Cross and Blue Shield of Rhode Island agreed last year to cap its surplus at about then-current levels, and give back $21 million to doctors, hospitals and policy-holders.

North Carolina lawmakers considered this spring, but haven't acted on, bills that would have limited the surplus of Blue Cross and Blue Shield of North Carolina. One bill would have taken $200 million from surplus to use for coverage for the uninsured.

The chairwoman of Michigan's Senate Appropriations Committee threatened to revoke tax breaks for Blue Cross and Blue Shield of Michigan unless Blue Cross coughed up some of their surplus to help the state pay for health care for the poor. "The Blues' own financial statements say the cash surplus belongs to the residents of Michigan," Sen. Shirley Johnson, a Republican, told The Detroit News. "Well, now we want it."

Foundations expanded

Meanwhile, Blue Cross has, over the past few years, started or expanded charitable foundations.

Blue Cross and Blue Shield of Florida, for example, gave $8 million last year to The Blue Foundation for a Healthy Florida, which gives grants designed to help the uninsured. The foundation made $1.5 million in grants, and used the rest to build up its endowment.

Cindy Kopelman, president of Shepherd's Hope, which runs eight free clinics in the Orlando area staffed by volunteers, said a two-year, $85,000 grant from the foundation allowed her organization to increase patient visits by 20 percent. She said the foundation grant helped Shepherd's Hope build a fund-raising operation.

"They're seeding new projects with the understanding you have a plan for long-term sustainability," Kopelman said. "They invest in you upfront."

Blue Shield of California has given $30 million in each of the past two years to the foundation it created, and the foundation gave grants to health clinics ($4 million last year) and to every domestic violence center in the state ($1.5 million).

Giving directly

Others, such as CareFirst, give directly.

CareFirst's budgeted giving this year includes $3.5 million for patient safety initiatives (including the bonuses to doctors for improving their patient records) and $2.6 million in other grants and programs, ranging from launching a health information Web site in Spanish to a grant to a financially-pressed AIDS clinic in Washington.

The largest piece by far is $60 million - the amount by which CareFirst says it is reducing its profit target to hold down premiums. It also spends $22 million on a senior prescription program in Maryland and $2 million on an open enrollment program in Washington - both mandated under local laws in exchange for tax breaks.

The $92 million - though critics challenge whether all that spending is really charity - represents more than half of the company's net earnings last year.

The debate over Blue Cross' obligations to their communities represents a shift in focus. For much of the past decade, the attention was on whether Blue Cross plans, nonprofit since their creation in the Depression, should be allowed to switch to for-profit operation. About a dozen did.

But first Kansas, then Maryland, then Washington state blocked conversion attempts. A conversion request in North Carolina was withdrawn under regulatory pressure. No conversions are pending.

"We think that the plans have stopped converting for the time being," said Sobel, of Consumers Union. "So the next question becomes: 'OK, there's no conversion; what does it mean to have a nonprofit health insurer?' "

There's little agreement on an answer. The Blue Cross and Blue Shield Association, the umbrella group for Blue Cross plans (nonprofit and for-profit) doesn't have a definition and doesn't track members' charitable efforts. Even the advocates pressing Blue Cross plans don't agree on what they need to do.

'The priority'

"The priority should be uninsured and underinsured," said Stein, the Legal Aid lawyer. He said he favored plans, such as one in Pennsylvania, where Blue Cross contributes to a state-run program to expand coverage.

But Adam Searing, director of the North Carolina Health Access Coalition, favors reducing premiums, which he says could mean more businesses and individuals could afford policies.

CareFirst says it's doing just that. But Walter Smith, D.C. Appleseed executive director, said that since CareFirst hasn't detailed how the $60 million is affecting rates, it's impossible to tell where it's charity or a marketing ploy.

The "is-it-charity" debate can be extended to CareFirst's bonuses to doctors to computerize medical records. Some for-profits also have subsidized such technology, which can save money in the long run.

Ann Gallant, vice president, corporate communications, CareFirst BlueCross BlueShield, conceded that CareFirst's business goals and charitable efforts can't be clearly separated.

However, she said, the company is "careful about distinguishing" between charity and efforts to promote the business.

She said that brochures with health information distributed to CareFirst members count as customer service, but brochures distributed to the public through hospitals or clinics count as charitable. When CareFirst gives $1,000 for each Ravens touchdown to Health Care for the Homeless, it's charity. But when it buys an ad on the stadium scoreboard to promote the program, it's marketing.

"It's all intertwined, but from an accounting standpoint, we do separate it," she said. "We are a business, so this model is part of our business plan."

CareFirst's business plan took a U-turn in 2003 after the legislature replaced the majority of its directors, required it to remain a nonprofit for a least five years and ordered the board to create a "mission committee."

Now, Gallant continued, "the mission committee allowed us to carve out these programs and give them priority without them having to compete with normal business initiatives."

The budget for the CareFirst Commitment comes from profits or surplus, not from charging more for policies, she said.

Surplus is what gets built up in years when income exceeds expenses, and despite the term it's not considered "extra." Regulators require minimums in case there is a surge in claims.

Because of the wide variance in sizes of insurers, the level is measured not by dollar amounts but through a complex formula that compares the surplus to a target figure, calculated based on the riskiness of an insurer's book of business. Called a "risk-based capital" formula, it's often referred to as RBC ratio.

The National Association of Insurance Commissioners has set 200 as the minimum RBC ratio - meaning the surplus should be double the minimum calculated by the risk formula. If an insurer falls below that, insurance regulators step in to assure solvency. But the Blue Cross and Blue Shield Association sets a minimum nearly twice as high: 375. No one has set a maximum.

"We don't want a Blue company on any watch list anywhere," said Chris Hamrick, an association spokesman.

Most Blue Cross plans have RBC ratios well above the 375 guideline. The median for Blue Cross plans, for-profit and nonprofit, is 722, and nine nonprofit Blues are over 1,000, according to Weiss Ratings Inc., a Florida company that rates the fiscal soundness of insurers.

"From the perception of a financial strength rating, more is better, but these are pretty darn high," said Melissa Gannon, vice president of Weiss Ratings.

Weiss lists CareFirst of Maryland with an RBC ratio of 638, and CareFirst's D.C. affiliate at 951. CareFirst's Delaware plan comes in at a hefty 1,263.

The companies say large surpluses provide a margin of safety to pay claims in case of an epidemic or terrorism. But consumer groups are suspicious that cash hordes make the nonprofits attractive as acquisitions. "This isn't about them preparing for an epidemic," said Smith. "They're a much more attractive takeover target."

While his group suggested a percentage of revenue devoted to charity as a standard, Smith said other types of measures, including a limit on surplus, could work as well.

What's important, Smith said, is that "there needs to be a clear legal obligation, measurable standards and an agency to enforce that obligation."

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