ANNAPOLIS – CareFirst BlueCross BlueShield President William Jews answered questions from the Senate Finance Committee Tuesday with aplomb.
Jews gave a series of thorough responses to lawmakers skeptical about WellPoint Health Networks $1.3 billion offer to buy CareFirst, and the company’s planned conversion from nonprofit to for-profit status.
Senators were particularly concerned about the more than $30 million in compensation Jews and his fellow executives would receive if the sale is successful. Jews alone would make more than $9 million from the deal.
WellPoint, a California company often referred to as the “darling of Wall Street,” provides health care services and has about 16,300 employees with more than 80 offices nationwide.
CareFirst’s proposed sale to WellPoint has caused controversy among legislators and Marylanders wondering what would happen if the provider many regard as the “insurer of last resort” were to go through.
From the start, Thomas Bromwell, D-Baltimore, had specific questions he wanted answered: Why does CareFirst want to convert and merge?
Without the conversion, CareFirst would not be able to stay competitive, Jews contended.
CareFirst needs to be a profit-making venture to have access to capital. That money would be raised through an initial public stock offering.
If the conversion falls through, services would deteriorate and people would seek insurance elsewhere, Jews said.
“If you can’t invest in innovation, they’ll go else where,” Jews said. “If your bank can’t invest in an automated teller machine, would you go to another bank? . . .
“I don’t think this company will crumble in the next two years. But in the next four years, we’ll have to worry about staying competitive.”
Jews responded to another Bromwell question by assuring the panel that CareFirst would continue to be locally regulated.
“Local management will remain in place in many, if not all instances,” he said. WellPoint has even agreed to setup a regional headquarters in the state, he told the panel.
But his confident answers didn’t pacify some lawmakers.
“I’m still under the impression this conversion and sale is not in the best interest of Maryland,” said Sen. George W. Della Jr., D-Baltimore.
People from his district have been telling him their concerns about the proposed deal, especially with the issue of compensation, he said. Many people think that the conversion is motivated by financial incentives, he said.
That skepticism has caused a series of bills to be introduced targeting any financial compensation the CareFirst executives will make. One bill, for example, introduced by Delegate Dan Morhaim, D-Baltimore County, would prohibit executives from making money from the deal.
“Don’t you think this golden parachute issue is an issue?” Della asked Jews.
Jews deflected the question to the man sitting next to him, Daniel J. Altobello, CareFirst’s board chairman.
“We’ve done this conscious of the fact that this would create a firestorm — this red herring of compensation,” Altobello said. “It is controversial, but we still believe it should be done. I’m sorry this has so much attention, but I’m not surprised.”
The compensation is necessary to ensure that the executives are retained, he said.
“When we put a company like this in play . . . you create an instability in management when you need stability,” Altobello said.
Compensation is not the real issue, he said.
“We should spend more time focusing on the $1.3 billion and where it should go.”