A little less than a week before it was to decide whether the reserves of a CareFirst subsidiary is “unreasonably large,” Washington, D.C., insurance regulators are delaying their final verdict until the end of December.
The District’s Department of Insurance, Securities and Banking (DISB) held a two-day hearing Sept. 10 and 11 on the $687 million in reserves for Group Hospitalization and Medical Services Inc., a subsidiary of Owings Mills, Md.-based CareFirst. According to GHMSI officials, 10% of the non-profit company’s 1 million subscribers live in the District, with the majority residing in Maryland and Northern Virginia.
Gennet Purcell
The Maryland Insurance Administration is conducting its own reserve review of GHMSI that should be complete by the end of October, state insurance commissioner Ralph S. Tyler said at the hearing. Tyler suggested the District delay its decision to incorporate Maryland’s findings on the matter, as these policyholders would likely be affected by her decision.
At the hearing, Acting DISB Commissioner Gennet Purcell said she would take Tyler’s request “under consideration,” but announced that a decision was required by her office on or before Sept. 30. If the DISB found the insurer’s reserves “unreasonably large,” as defined under D.C. law, GHMSI would then have to submit a plan for redistributing the excess funds.
‘The best interest of all parties’
On Thursday (Sept. 24), Purcell told IFAwebnews.com that rather than issuing a decision next week, the DISB will now rule by the end of the year. She said the department will defer its determination until after Maryland issues its findings.
“This will allow the department to appropriately consider all the inherent jurisdictional matters at issue,” Purcell said. “We believe this decision is the best interest of all parties who may be affected by our determination, particularly District of Columbia citizen subscribers who will be affected by the Maryland decision.”
She added that the open record for information will also be extended to a later date, announced later this week.
The DISB had no immediate word whether the deferred decision required the approval of the D.C. Council. A decision on the matter was originally due in July, but the council approved an extension to allow former commissioner Thomas A. Hampton to continue his review. Hampton was replaced by Purcell as head of DISB Aug. 31.
Michael Sullivan, a spokesman for CareFirst, told IFAwebnews.com “the decision before Commissioner Purcell is an important one.”
“Moving in a more deliberate manner will better allow for a thorough consideration of all the relevant facts and data, and we think it’s a prudent move,” he said.
More review work to do
In addition to Tyler’s recommendation for a delay, Chet Burrell, CEO of CareFirst and GHMSI, also urged additional time to make a decision.
Chet Burrell
On the second day of the hearing, Burrell said the insurer was “concerned about the timetable” Purcell was under and suggested asking the D.C. Council for another 30 days “to get it right” and incorporate Maryland’s findings.
“Given the importance of the issue and the complexity of the issue we would hope it would be possible to bring all that insight to bear,” Burrell said according to a transcript. “If at the end of all of that, there is a conclusion that we indeed do have excess which means we overcharged our subscribers, then we would file a plan to give it back to them. And most likely give it to them in the form of rate moderation going forward.”
At the hearing, Burrell estimated that 11.6%, or $79.5 million, of GHMSI’s reserves would be “attributable” to District residents.
Burrell added that CareFirst plans to have healthcare policy research and management consulting firm The Lewin Group do a “full-fledged review” of how the insurer determines its reserve level. Lewin gave a second opinion on the level as determined by Milliman for CareFirst in preparation for the hearing, reaffirming that the method was viable.
In addition to Maryland’s actuarial consultant Invotex, the District has hired its own actuary, Rector & Associates of Columbus, Ohio, to take a look at the reserve level.
Advocates applaud delay
While CareFirst felt an amount to be returned was around $80 million, public policy group DC Appleseed Center said the insurer should drop its surplus from $687 million to $325 million to assist those without health insurance in the District access coverage.
The center’s executive director, Walter Smith, told IFAwebnews.com that “in the long run,” an extension on a decision is “a good thing.”
“Obviously, we want this to be resolved as soon as possible, but the new commissioner has handed a fast track and this makes sense, given the importance of the issue,” he said.
Smith said he hoped in addition to collaborating on the reserve amount, regulators in the District, Maryland and Virginia all address the issue of what is attributable to each jurisdiction. He proposed that CareFirst start programs to aid all three areas, such as a public education program on obesity awareness in schools as one effort that benefits all three locations.
The reserve review is a part of the Medical Insurance Empowerment Amendment Act of 2008, which took effect March 25. In addition granting the power for the District’s insurance regulators to review the non-profits reserves, the law also calls for GHMSI to expand its open enrollment process.
CareFirst and the council are currently in negotiations on a private-public partnership for new programs that would replace that requirement.
For more on this story, see the October print editions of Insurance & Financial Advisor.
District regulators delay CareFirst reserve decision until end of year via IFAwebnews.com .
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