ANNAPOLIS – CareFirst BlueCross BlueShield removed two of the most significant obstacles to its merger and conversion Tuesday, upping its sale price and canceling planned executive bonuses.
The changes made in an amendment to its application to the Maryland Insurance Administration come just as four new reports evaluating the company’s sale and conversion to for-profit status were released.
CareFirst is seeking to convert from a nonprofit to a for-profit company so it can be sold to WellPoint Health Networks in California. The company’s amended application increases its purchase price by $70 million, for a total of $1.37 billion. In addition, the price would be paid in cash, rather than partly in stock, complying with a bill passed in the 2002 legislative session.
The application change also rescinds CareFirst’s controversial incentive plan that would have given executives more than $33 million in bonuses. The chief executive officer could have received as much as $119 million from the sale of the company.
Under the new plan, CareFirst would not compensate its executives, however the officers would be eligible to enter into two-year retention agreements with WellPoint once the deal was completed. This way, a WellPoint statement says, their compensation would not be shouldered “by any licensed insurance entity in Maryland, D.C., or Delaware.” “I don’t care who pays for the bonuses, it’s all taken out of the value of CareFirst,” said Sen. Andrew Harris, R-Baltimore County, a member of the Education, Health, and Environmental Affairs Committee and a practicing Johns Hopkins physician. Harris said his constituents, along with doctors and hospital administrators, believe that “this second version” of the deal is “still not clean enough” and “all bonuses need to be removed from deal before I give it any serious consideration.” CareFirst and WellPoint said they hoped their changes would address the legality of their compensation programs, an issue raised by consultants to the Maryland Insurance Administration, the General Assembly and the State Insurance Commissioner. “The goal was to be responsive to the concerns of the legislators and regulators and we feel we’ve definitely achieved it,” said Ken Ferber, WellPoint spokesman. State Insurance Commissioner Steven B. Larsen has said the CareFirst compensation program would play a major role in his decision to allow CareFirst to convert to a for-profit company. “The Maryland Insurance Administration has received the revised application for the CareFirst BlueCross BlueShield conversion and acquisition,” said Larsen in a statement released Tuesday. Larsen has asked Jay Angoff, the administration’s compensation expert, to review the proposed changes and report by Feb. 4. Angoff wrote an unfavorable report criticizing CareFirst’s financial practices in November 2002. The commissioner’s final decision is expected Feb. 20. Delegate John A. Hurson, D-Montgomery, chairman of the Health and Government Operations Committee, declined to discuss the changes in WellPoint’s proposal. “We will rely on Commissioner Larsen. He’s taken a much longer look at the issue,” Sen. Hurson said. CareFirst and WellPoint said the amendment is designed to streamline a process that has taken more than a year. “The focus of the discussion now can be on the benefits of this transaction to the citizens of Maryland, Delaware, and the District of Columbia,” said both companies in a joint press release. The conversion could provide the state with an additional $800 million to $1 billion that could be used to reinsure clients unable to pay any possible premium increase. The proposed changes still need approval from both company boards. The four expert reports, totaling at least 300 pages, released Tuesday will be part of the agenda next week during the final round of public hearings before Larsen renders his decision. The General Assembly can review and overturn that decision. – 30 – CNS-1-21-03