Federal health reform could force CareFirst to dip deeper into its reserves than had been anticipated with Washington, D.C., officials began investigating its surplus two years ago.
The District Department of Insurance, Securities and Banking’s decision matches an earlier ruling from insurance regulators in Maryland, where CareFirst’s Group Hospital and Medical Services Inc. subsidiary’s reserve of $681 million, as well as CareFirst’s reserve of $394 million, were deemed “neither unreasonably large nor excessive.” Former Maryland Insurance Commissioner Ralph S. Tyler made his ruling on the reserves in January before taking a federal job.
In the District, Commissioner Gennet Purcell’s ruling, which was posted on the department’s website late Oct. 28, hinged on the likely effects of federal health reform, which passed in March and sets new requirements for health insurers. Specifically, insurers must ensure that at least 80% of premiums paid are allocated to medical costs.
“The commissioner concludes that the Federal Health Care Reform Acts [sic] may have a financial impact on GHMSI in the short term that warrants a higher level of surplus than would have been anticipated as of December 31, 2008,” Purcell said in her ruling.
Purcell made her assessment after reviewing several reports, which each indicated that the potential fiscal liabilities are “significant,” according to her order.
The commissioner ruled that “it is important for GHMSI to maintain” a 375% surplus ratio. District law, passed in 2008, established that the insurance department could intervene if any insurer has an “unreasonably large surplus.”
Had the Maryland and District rulings differed, a jurisdictional battle over handling the insurer could have resulted. State regulators in Maryland, where the Owings Mills, Md.-based insurer is domiciled, might have fought actions by the District to rein in the surplus, saying the District’s actions might have adversely affected Maryland policyholders.
CareFirst officials declined comment on the District’s ruling.
GHMSI covers about 150,000 policyholders in the District, 700,000 in Maryland and 300,000 in Northern Virginia.