A D.C. regulator ruled Tuesday that the $963 million surplus amassed by nonprofit insurer CareFirst in 2011 was “excessive” and that $56 million should essentially be reinvested into community health efforts in the District.
In his ruling, acting Commissioner Chester A. McPherson of the D.C. Department of Insurance, Securities and Banking said CareFirst’s D.C. subsidiary, Group Hospitalization and Medical Services Inc., or GHMSI, should have had a target surplus of about $696 million, or $267 million less than it had in reserve at the end of 2011. By law as a nonprofit, the insurer must follow requirements that it reinvest in the community and follow certain efficiency standards.
Since CareFirst has customers in D.C., Maryland and Virginia, the District regulator ruled $56 million of that surplus was due in community reinvestment in D.C. and gave CareFirst executives 45 days to submit a plan of how they will do that.
“The department carefully considered GHMSI’s financial condition and its statutory obligation to engage in community health reinvestment,” McPherson said. “This is a complex regulatory and insurance determination that was based on the factual findings and legal conclusions reached after an extensive review.”
Regulators review CareFirst’s surplus every three years at a certain point in time, in part because the surplus fluctuates. At the beginning of this year, the insurer had a surplus of $865 million, a surplus which grew to $894 million by the end of the third quarter. At a hearing earlier this year, CareFirst’s CEO Chet Burrell responded to challenges about the size of those reserves, saying the Affordable Care Act created a number of unknowns in its future costs and said the company needed to acquire a large surplus out of prudence.
“We are still reviewing today’s decision but believe it is flawed and directly conflicts with an order we have received from another jurisdiction,” CareFirst spokesman Scott Graham said in an email. “We believe it will raise serious concerns in both Maryland and Virginia as it may be damaging to subscribers in all three jurisdictions.”
Maryland and Virginia regulators could determine what happens to the remaining surplus McPherson identified in his ruling, said Walter Smith, executive director of the D.C. Appleseed Center for Law and Justice, which challenged the insurer’s surplus. I’ve got a call into those regulators to find out what happens next.
Smith said he believes the allocation to the District is a bit low, but said the decision would benefit community health in the region.
“We’ve started a new chapter. It has taken us a long time to get here,” Smith said.
