You're sitting on too much money and have to spend it in the community, says one insurance commissioner, while another state regulator has different, minimum requirements.
Washington D.C. acting insurance commissioner Chester McPherson has ordered CareFirst BlueCross BlueShield to dedicate more of its reserves to community health investments -- a demand that may conflict with reserve requirements in other states.
McPherson reviewed the financials at CareFirst's Group Hospitalization and Medical Services plan serving Maryland, Virginia and D.C.and concluded that its 2011 surplus of $963 million was "excessive" under the District's Medical Insurance Empowerment Amendment Act of 2008 -- the first such ruling in the District's history.
$268 million of those reserves are too much, and about $56 million is attributable to the District and needs to be reinvested, McPherson determined.
The DC Appleseed Center for Law and Justice led the campaign to compel more community spending from the company under local law, which sets community investment requirements for CareFirst's Group Hospitalization and Medical Services, a "charitable and benevolent institution" as chartered by Congress in 1939.
The District considers a surplus excessive if is higher than risk-based capital standards and "is unreasonably large and inconsistent with GHMS's statutory obligation to engage in community health reinvestment," or generally more than 721 percent of authorized control level for risk-based capital.
Modelling the company's past and projected business, the commissioner concluded that CareFirst should have had a target surplus of about $700 million that would devote more to "community health reinvestment but still be consistent with financial soundness and efficiency."
"The department carefully considered GHMSI's financial condition and its statutory obligation to engage in community health reinvestment," said McPherson. "This is a complex regulatory and insurance determination that was based on the factual findings and legal conclusions reached after an extensive review."
CareFirst now has to submit a plan by mid-February to dedicate the $56 million in determined excess surplus to community health reinvestment, which includes corporate giving, open enrollment subsidies, D.C. Healthcare Alliance Program funding, premium rate reductions, and premium taxes. In 2011, CareFirst's GHMS spent $3.4 million on corporate giving, $4.5 million on open enrollment and $5 million on the D.C. Healthcare Alliance.
During the review and public hearings, CareFirst challenged the notion that its reserves were excessive, and now believes it may be in a regulatory Catch-22 of sorts.
A 2012 agreement with Maryland requires CareFirst to keep reserves at between 1,000 percent and 1,300 percent of authorized control level for risk-based capital -- which is more than the 721 percent ARL RBC that Washington D.C.'s insurance commissioner McPherson deems optimal.
"We are still reviewing the decision but believe it is flawed and directly conflicts with an order we have received from another jurisdiction," CareFirst spokesman Scott Graham said. "We believe it will raise serious concerns in both Maryland and Virginia as it may be damaging to subscribers in all three jurisdictions."
McPherson acknowledged the discrepancy between D.C.'s and Maryland's reserve requirements in the order, and said he will try to resolve it.
"The Commissioner acknowledges that his conclusion that a surplus above 721 percent RBC-ACL is excessive conflicts with the Maryland Commissioner's conclusion that GHMSI should maintain a surplus in the range of 1,000-1,300 percent RBC-ACL. The Commissioner will directly inform the Maryland and Virginia Commissioners of this decision."