News Releases

Media Center | News Releases | Contact Info | Mission | Fact Sheet | Leadership Bios | Images | Annual Reports | Legislation & Mandates | Blue Sites & Industry Links | Affiliates | History & Timeline

BALTIMORE, MD and WASHINGTON, DC (October 10, 2008) - Good morning, Chairperson Cheh and members of the Committee. My name is Chet Burrell. I appear before you today in my role as President and Chief Executive Officer of CareFirst BlueCross BlueShield, a not-for-profit health care company which provides health insurance products and administrative services to 3.3 million members through our two operating affiliates serving Maryland and the National Capital Area which is comprised of the District, Northern Virginia and portions of Maryland. Thank you for allowing me to testify on this proposal.

In about six weeks, I will mark my first anniversary at CareFirst. To say the least, it's been an exciting and, in many respects, a tumultuous year. Virtually my entire career has been in health care, beginning some 35 years ago when I managed the State of New York's mammoth Medicaid program. As such, I understand well the many challenges you face as public servants as you seek to provide access to quality and affordable health care for your neediest constituents. I also spent years running several not-for-profit Blues Plans before trying my hand in launching various start-up health companies. I accepted the CareFirst job in large part because I saw the potential that a regional, not-for-profit health insurer like CareFirst could play in addressing the unmet health care needs of the community.

In fact, within days of my arrival, I had the first of many meetings with your colleague, Councilmember Catania, eager to see if CareFirst and the District could forge a partnership to provide health coverage for the estimated 22,000 uninsured District residents who don't qualify for the District's existing Medicaid or Healthcare Alliance programs. Without going into the entire history of what occurred with the Healthy DC Plan, let me note that CareFirst had committed to administer the program on behalf of the District at cost and to contribute an additional $5 million annually to subsidize premiums to make coverage as affordable as possible. For the public record, I want to reiterate that CareFirst stands by the commitments it made toward the success of an appropriately designed Healthy DC initiative. But, in making that commitment, it is not possible for any insurer, especially a not-for-profit entity such as ours, to absorb the unknowable, unlimited and uncontrollable risks of the Healthy DC program as it ultimately was shaped.

All of which brings us to the bill that is before us today that seeks to define CareFirst's community role as a not-for-profit health services company. First, let me say that I deeply believe in the importance of this role as do our Boards of Directors. But, I have been struck by the persistent degree of misinformation and lack of understanding about that role. It seems self-evident that our obligation is to work for the benefit of our policyholders by providing the greatest possible value and service to those who pay the bills. Congress chartered GHMSI, our affiliate serving the National Capital Area, and defined its purpose. The clear intent of Congress (as affirmed by the previous D.C. Insurance Commissioner and Attorney General), was that GHMSI would operate specifically for the benefit of its policyholders, rather than for the public at large.

At the heart of the proposed Medical Insurance Empowerment Act are provisions that would require CareFirst to 1) redistribute a portion of premium revenues paid by policyholders to the District for community health programs and 2) cap the financial reserves we use to protect policyholders, requiring CareFirst to relinquish any reserves that the District determines exceed those set levels. We believe strongly that the proposed legislation is not only contrary to our Federal Charter but reflects a fundamental misunderstanding of the realities of the competitive health insurance marketplace and what CareFirst already contributes to the District and its residents. We do business in one of the nation's most intensely competitive markets, competing against well-financed, for-profit carriers who have ready access to public capital and a national market. As a regional insurer, we cannot spread our risks across the broad geographic territory that a national carrier can. We cannot raise capital by selling shares as our for-profit competitors can. We operate at an extremely low margin. (Our underwriting margin averages only about 2 percent annually.)

We benefit our members by "being there" for them when they need us most in paying their claims. For this, we hold on our members' behalf capital reserves that were built from the premiums and fees paid by those members over the years to ensure that their health care needs are met. CareFirst must maintain sufficient reserves to meet legal and regulatory requirements; underwrite capital improvements to improve services to our members; and pay members' claims no matter what the circumstance. The proposed legislation uses the term "surplus" to refer to CareFirst's reserves. CareFirst does not have "surplus" cash; rather, the reserves CareFirst holds amount to less than $800 per insured member, or a fraction of the cost of a day's stay in the hospital. Investment returns earned on these reserves are important in helping us moderate the premiums policyholders pay.

Among their most important fiduciary duties, our Boards - comprised of respected leaders that include a former D.C. Council Chair, a former superintendent of D.C. public schools and others who are as concerned about this community as any member of the Council - set targets for the level of our reserves based on expert third party advice. Any and all earnings on these reserves go strictly to benefit our members and help stabilize and moderate premium rates, which is only appropriate since those reserves are built on the premiums and fees our policyholders paid. The tumultuous state of the economy and the events of the last few weeks painfully demonstrate the importance of ensuring that companies are financially solvent. When many of the most well-known names in American finance have suffered devastating economic blows due to a lack of sufficient capital, and a major metropolitan area continues to cope with the aftermath of a massive hurricane, this bill's intent to require CareFirst to reduce its level of reserves is not only unwise but is irresponsible.

A basic premise of the proposed legislation is that CareFirst should contribute more to the community at large. I submit that we already give generously. In the past three years, CareFirst has contributed more than $100 million to over 300 worthy community groups throughout our market service area and we expect to give another $40 million in 2008 to such organizations. All other commercial insurers in the region combined do not equal this level of giving. We are extremely pleased to be able to contribute. And, we intend to continue this policy and expand it as our resources allow. But, our ability to do this requires that we remain competitive and viable in our marketplace. The cost of this giving is borne directly by our policyholders, who have a right to expect wise stewardship of their premium and fee dollars as well as effective efforts on our part to keep costs as low as possible.

In fact, the greatest irony with this proposal should it become law is its impact on the premiums your constituents will pay for their health coverage from CareFirst. At a time when health care costs are rising at two to three times the rate of wages, many of the individuals and small employers who contract with CareFirst for their health insurance already are struggling. By effectively imposing an additional "tax" on CareFirst's reserves and the premiums paid by its policyholders, this legislation will likely lead to even higher premiums, forcing many employers to reduce or discontinue coverage altogether. Hit hardest by this will be the almost 20,000 District residents with Individual Market policies and more than 4,500 small employer groups that we insure in the District.

CF believes this proposed legislation is contrary to the express language of the Federal Charter, the clear intent of Congress, and the interests of our policyholders (both in the District and in surrounding areas). With that said, we recognize the concerns that the Council has expressed and stand ready to continue discussions for addressing those issues. For example, we believe that the approach taken in the neighboring State of Maryland for our premium tax and community benefit obligations, as well as for tracking appropriate levels of reserves, offers a workable model for the District of Columbia. In summary, CareFirst fully acknowledges - indeed, we embrace - our role as a not-for-profit health services company. But, this legislation is unnecessary and inappropriate and should be rejected.

Thank you.

E-mail Notifications:

• Sign up to receive news releases by e-mail, or call 1-800-914-6397.
• To unsubscribe from our mailing list, click here.