The long and bitter battle over the direction of CareFirst BlueCross BlueShield ended last night when the Maryland General Assembly unanimously approved legislation that locks the insurer's nonprofit mission into law.
The Senate vote was 46-0. The House of Delegates vote was 139-0.
The legislation also gives state regulators the power to review pay and severance packages for executives and would force the replacement of CareFirst's Maryland board members.
Both chambers of the General Assembly had been working on reform legislation since last month, when Insurance Commissioner Steven B. Larsen rejected CareFirst's application to convert to for-profit operation and sell itself to California-based WellPoint Health Networks Inc. for $1.37 billion.
Larsen backed his rejection with a 200-page report condemning the board for ignoring its nonprofit charter and for approving bonus and severance packages for executives, which he said violated state law.
"This is a very appropriate response to the findings of the report," Larsen said yesterday. "The legislature took the report seriously."
The insurance commissioner reviewed the deal, which was announced Nov. 20, 2001, for more than a year, holding 15 days of formal hearings, hiring 10 consultants and reviewing more than 85,000 pages of board minutes, correspondence and other documents.
Representatives of the two chambers agreed on reform language in two sessions of an unofficial conference committee meeting on Sunday.
The consensus package then sailed through both chambers last night.
"It's as strong a bill - and a statement - as I could have hoped for, coming out of the commissioner's decision," said Pegeen Townsend, a lobbyist for the Maryland Hospital Association.
The MHA had fought the conversion and sale, then pushed for reform legislation. She said the bill should reverse the trend of recent years, in which CareFirst dropped unprofitable customers to make itself more attractive to a buyer.
Jeffery W. Valentine, a spokesman for CareFirst, said the company would have no comment until it has a chance to study the bill.
During legislative deliberations, CareFirst did not oppose the concept of board turnover, but cautioned lawmakers not to take action that would endanger the viability of the company.
Del. Shane E. Pendergrass, a Howard County Democrat who sponsored legislation in the House and participated in the conference with the Senate, said, "I'm optimistic that in 10 years, we will be looking at CareFirst, and it will be a viable company that maintains a not-for-profit mission."
Provisions of the legislation include: Ten of the 12 Maryland board members would be replaced by the end of the year.
New board members would be chosen by a nominating committee appointed by the governor, House speaker and Senate president. The other two Maryland members would be replaced next year.
The other members of the board - six from the District of Columbia and three from Delaware, where CareFirst also operates Blue Cross plans - would be subject to a six-year term limit, as the Maryland members would be.
"The lack of confidence of the public in the board has been addressed," said Sen. Thomas M. Middleton, chairman of the Senate Finance Committee and key sponsor of Senate reform legislation. The bill also adds two nonvoting board members, representing the Senate and House.
CareFirst would be precluded from seeking a conversion for five years. The bill would require board members to remain faithful to the non-profit mission - under penalty of removal by the insurance commissioner.
The board would set compensation policies based on a comparison with similar nonprofit insurers. The insurance commissioner would have to approve the policy, and would review executive pay to make sure it conformed. Some have criticized the pay of William L. Jews, CareFirst's chief executive officer, who collected $2.7 million in salary and bonus in 2001.
The insurance commissioner could also review existing employment agreements, blocking any severance or other payments he considered excessive.
According to testimony at public hearings, Jews would be paid $15.4 million if he were fired. Under the original severance and bonus package, which was tied to the sale of the company, Jews stood to get $39.4 million in cash and tax benefits.
Pay for board members would be set at $12,000 a year ($15,000 for the board chairman and committee chairs). Board members were paid between $33,000 and $46,000 in 2001, depending on how many board and committee meetings they attended.
Board chair Daniel J. Altobello was paid $84,667. Middleton said there was "a lot of perception around here" that high pay led to a board with members who "lost sight of what their mission was."
A 17-member oversight committee, made up of legislators and others, will monitor CareFirst for two years.
Hurson and Middleton said the legislation was modified to meet objections that had been raised by the District of Columbia insurance commissioner, who said Maryland officials shouldn't pre-empt his authority over District operations, and the national Blue Cross and Blue Shield Association, which said it would be a violation of its rules if elected officials replaced a majority of the board.
If those groups still object, Middleton said, "they have not taken advantage of the open process and opportunity we have provided for them."
W. Minor Carter, a lobbyist for Maryland Cares!, a coalition that opposed the conversion, said, "For the next few years, people will be keeping an eye" on CareFirst."