CareFirst and officials in Washington, D.C., will be working hard this summer to finalize details on open enrollment and reserves issues.

Thomas E. Hampton

The D.C. Council approved a pair of extensions July 14, granting Thomas E. Hampton, the District’s commissioner for its Department of Insurance, Securities and Banking (DISB), another 60 days – until Sept. 25 – to complete his ongoing review of the health insurer’s surplus funds.

Expanded open enrollment provisions under the Medical Insurance Empowerment Act of 2008, which became law in March, become effective 90 days after Hampton completes his review, unless the District and CareFirst finalize an agreement on public-private partnerships before then. The two sides have outlined initial plans.

“This [extension] gives us some breathing room so we can come up with a deal,” said Spencer Maguire, legislative director for Councilmember Muriel Bowser, who proposed the extension. “Our hope is that this window gives us some time to work out some final details.”

Hampton’s office recently released emergency rules, establishing how he will determine if the surplus is excessive and “unreasonably large,” as defined in the District law. If Hampton finds the surplus is excessive, under the rules, a public hearing will be scheduled.  That hearing has been scheduled for Sept. 10.

CareFirst will have 15 days prior to the meeting to submit its actuarially determined risk exposures and its expected and unanticipated contingencies.

Multi-state impact

The commissioner’s decision could dictate how its reserves used for policyholders in Maryland, Virginia and the District of Columbia are divided.

In determining whether the surplus is excessive, Hampton’s office will use the National Association of Insurance Commissioners’ Risk Based Capital Requirements for health insurers, part of D.C. Law, and Blue Cross/Blue Shield Association capital requirements, he said.

According to CareFirst’s 2008 annual report, the company showed a loss in income from operations of $12.3 million and a net income of $9.3 million in 2008, down from $180.5 million in 2007.

CareFirst spokesman Michael Sullivan called the drop “big,” reflecting factors including “the financial environment of 2008, higher-than-anticipated health care costs and a variety of other factors.”

CareFirst’s statutory accounting reserves show a little over $1 billion at the end of 2008, down $200 million from a year prior, with its Group Hospitalization and Medical Services Inc. subsidiary accounting for $686 million of that total, down from $753 million in 2007, Sullivan said.

GHMSI covers about 150,000 policyholders in the District, 700,000 in Maryland and 300,000 in Northern Virginia.

Sullivan said CareFirst’s reserves are “what we believe to be necessary to protect our members.”

‘Excessive’ debate

With the Sept. 10 hearing scheduled, Hampton expressed his thoughts on his meaning of the term “excessive.”

“It is not necessarily a bad thing, but being in excess of the [risk-based capital] requirement,” he said. “The public sees the word ‘excessive’ and thinks ‘wow, that means too much surplus,’ but excessive means the company has more than the required amount.  We want all insurance companies to have surplus excessive of the RBC requirement.”

Hampton said his office believes, based on research, this is the first time any jurisdiction in the nation will attempt to determine how to allocate reserves for an insurer operating in multiple states.

“That is the uniqueness of GHMSI,” he said. “Anything we do could have an effect in Maryland and Virginia.”

While Virginia has no current plans to review CareFirst’s reserves, Maryland is “in the early stages” of its review, the state’s insurance commissioner, Ralph S. Tyler recently said.

This story originally appeared in the August 2009 print edition of Insurance & Financial Advisor; details have been updated since press time.