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CareFirst announces it will absorb Maryland's HMO tax

The state's leading health plan says it won't make corporate customers foot the bill for a 2% levy on premiums.

By Robert Kazel — Posted March 14, 2005

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In what it's calling its latest demonstration of good will inspired by a new dedication to a nonprofit corporate ethic, CareFirst BlueCross BlueShield says it won't follow the lead of some of its competitors and pass on to employers a newly enacted Maryland premium tax.

CareFirst, the state's largest health insurer, said Feb. 21 it would absorb the cost of the 2% tax, enacted by Maryland lawmakers, which applies only to HMOs.

The insurer's "first goal is to serve the needs of our employer accounts," said Jeff Valentine, CareFirst spokesman. After a review of the company's overall financial picture and expected future performance, it was decided that passing the tax on to employers -- who in turn might pass on the costs to plan members -- would not be needed, he said.

CareFirst has been accused by some of holding on to overly large cash reserves at a time of rising insurance premiums. The company reported reserves of $674 million in early 2003. Reserve levels for 2004 were to be reported to government officials in March, Valentine said.

The Owings Mills, Md.-based health plan has committed against passing the tax on to corporations in its HMO plans for this year only, Valentine said, but might do the same in years ahead.

"Market conditions and health care trends will determine if the tax continues to be absorbed in 2006 and beyond," he said.

Aetna Inc., Kaiser Permanente of the Mid-Atlantic Region, and UnitedHealth Group-owned Mid Atlantic Medical Services earlier in 2005 obtained the state insurance commissioner's approval to pass on the tax.

The cost to CareFirst will be about $13.7 million for this year, Valentine said. An employer paying about $10,000 for HMO coverage for a typical family of four would have had to pay about $200 in extra premiums if CareFirst had passed on the tax, he said.

CareFirst's absorption of the tax would not be paid for by tapping current reserves, but can be viewed as reducing the magnitude at which company reserves would grow in the future, Valentine said.

MedChi, the Maryland State Medical Society, praised the decision. "This wasn't too surprising and reflects what appears to be an ongoing effort by the company to make its decisions with its nonprofit mission in mind," said T. Michael Preston, executive director of Med-Chi. "It's a good decision, and we applaud it, and it will undoubtedly serve the company well, not only politically but in the market."

CareFirst in 2003 sought to become a for-profit, investor-owned company, but its proposal was met with criticism by many physicians, consumer groups, and elected officials. The state insurance commissioner turned down the request to convert to a for-profit corporation, blasting the plan as a disregarding of historic obligations to the public good. A somewhat revamped board of directors has since reiterated CareFirst's dedication to its traditional mission, including an announcement earlier in February that it would spend about $92 million on health initiatives over five years.

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