(Washington, DC) – Interim Attorney General Peter J. Nickles announced today that the District has filed a lawsuit against CareFirst, Inc., and its DC-based affiliate, Group Hospitalization and Medical Services, Inc. (GHMSI), to enforce GHMSI’s obligations as a charitable institution. GHMSI does business as CareFirst BlueCross Blue Shield and is the largest provider of health insurance plan services in the DC metro area.
The District’s complaint, filed today in DC Superior Court, states that GHMSI built up a surplus fund for years, exceeding the level required for any legitimate charitable or nonprofit purpose. GHMSI was chartered by Congress in 1939 as a “charitable and benevolent institution” that “shall not be conducted for profit.”
“This company’s charter says its bottom-line mission is to promote public health,” Nickles said. “Continuing to grow an excessive surplus may make GHMSI a more attractive takeover target, but doesn’t serve public health, and it doesn’t serve the people who pay the premiums.”
The District alleges that, absent governmental intervention, GHMSI is unlikely to cease building and maintaining its surplus at the expense of its obligations to serve the public. The lawsuit seeks a court-supervised rehabilitation of GHMSI to “rededicate the company’s operations and surplus to nonprofit purposes and to its charitable, public health mission.”
From a surplus of $159 million at year-end 1998, GHMSI’s surplus increased to $392 million by year-end 2003, when it was nearly four times the level typically required by state insurance regulators and more than two times the level that the Blue Cross and Blue Shield Association requires of its member insurers. GHMSI continued during 2005-2007 to build its surplus, which reached $561 million at year-end 2005, $663 million at year-end 2006, and $754 million at year-end 2007. Since year-end 2003, the gap between the GHMSI’s surplus level and the surplus level required by the Blue Cross and Blue Shield Association has widened by more than $100 million.
In 2002-03, CareFirst sought to convert GHMSI and its Maryland-based affiliate into for-profit companies, which would have merged with the for-profit health insurer WellPoint Health Networks, Inc. The attempted conversion was abandoned after Maryland Insurance Commissioner Steven B. Larsen disapproved it March 5, 2003. In a report accompanying his disapproval order, Larsen concluded: “From 1997 to the present, CareFirst management retreated from, and ultimately abandoned, its mission . . . and assumed all the operating characteristic[s] and corporate goals and mission of a for-profit company.”
A May 15, 2005, report issued by the District’s Department of Insurance, Securities, and Banking concluded that “GHMSI should be engaging in charitable activity significantly beyond its current activities” and that “it appears that GHMSI may reduce its surplus level without negatively impacting its financial strength and viability.”
Select the link below to view a copy of the complaint: