- The Washington Times - Thursday, March 6, 2003

ANNAPOLIS (AP) Maryland's insurance commissioner thwarted a bid to sell the state's largest health insurer, CareFirst, to a California insurer, saying yesterday the sale was not in the public's best interest.
"Appropriate steps were not taken to ensure that the value of CareFirst …" was safeguarded, Insurance Commissioner Steven Larsen said in his order.
In a summary of key points, Mr. Larsen said the sale was "flawed and did not produce fair market value."
Bonuses to executives called for under the deal with Thousand Oaks, Calif.-based WellPoint Health Network violated legal requirements for conversion to a for-profit company, Mr. Larsen said.
The CareFirst board also breached its fiduciary obligations in deciding to convert to a for-profit company because it failed to recognize the nonprofit mission of the company to offer insurance at "minimum cost and expense," Mr. Larsen said.
The Maryland Legislature has 90 days to review the order, and CareFirst has 30 days to file an appeal.
CareFirst officials had hoped to sell the nonprofit to WellPoint for $1.37 billion under the deal first proposed in November 2001. CareFirst and its Blue Cross and Blue Shield affiliates insure about 3.2 million people in Maryland, Delaware and the District.
The General Assembly has the power to veto Mr. Larsen's decision.
"I think this is fantastic," said Ernie Crowfoot, a spokesman for United Seniors, a coalition of 30 seniors' groups that represents about 300,000 Maryland seniors.
CareFirst "absolutely didn't prove that this was for the good of the community," Mr. Crowfoot said. "CareFirst had abandoned the community and abandoned the working people and abandoned the poor and elderly."
Blue Cross and Blue Shield plans are among the oldest health insurers in the nation, created as nonprofit concerns during the Great Depression. However, as competition has increased in the health insurance business, the plans have been shedding their traditional nonprofit status and merging with other health plans.
The process is often complicated by wrangling over how states should be compensated for tax breaks given to Blues as part of their not-for-profit status and historical mission.
In the CareFirst case, however, the value of the deal appeared to be a key issue.
A recent report by a Harvard Business School professor found CareFirst is worth substantially more than the purchase price offered by WellPoint.
The analysis by economist Richard Meyer determined that as of Oct. 31, CareFirst was worth about $2.27 billion.
The report was prepared for the DC Appleseed Center for Law and Justice, a nonprofit advocacy group, and filed Tuesday with the office of the District of Columbia insurance commissioner.
Insurance regulators in the District and Delaware, as well as Maryland, must approve the sale.
Investment bankers last month estimated CareFirst's value at between $1.45 billion and $1.65 billion.
Mr. Larsen was required by state law to decide, on balance, whether the deal was in the public interest. Issues he is directed to consider include impact on affordability and availability of health insurance, the process followed by the CareFirst board, and whether any CareFirst officials are inappropriately enriched.

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