Explanation of Benefits: Cheh says city health care should gain from insurer?s excess funds. Credit: Darrow Montgomery

Under threatening clouds last Friday, Mayor Adrian M. Fenty introduced his new commissioner of insurance, securities, and banking, 35-year-old Gennet Purcell, at a press conference outside One Judiciary Square.

Fenty then proceeded to lecture reporters on the purpose of said press conference: “The administration is not going to make any policy pronouncements in the nominations press conference,” he said. “The nominations press conference, for those of you in the media, is where I present the credentials of the nominee and you are free to ask, what are the credentials?…Not questions of policy.”

Why so touchy, Mr. Mayor?

Because Fenty and Purcell were asked about a “question of policy” that could assault one of the District’s most powerful corporations.

It all revolves around CareFirst BlueCross BlueShield, the largest health insurer in the city. Like any insurer, CareFirst must maintain extensive cash reserves to handle claims. Critics of CareFirst on the D.C. Council, however, charge that CareFirst keeps too much cash in reserves and has failed to deliver on its role as a “charitable and benevolent institution,” as stipulated in its congressional nonprofit charter.

How much cash are we talking? At the end of 2008, CareFirst had $687 million in reserves. Last year, the D.C. Council passed legislation, signed by Fenty, that empowers the commissioner of the Department of Insurance, Securities, and Banking (DISB) to determine what would be an appropriate level of reserves, and to essentially take any excess for community health needs. That determination will proceed with a Sept. 10 hearing.

Into that gaping imperative steps Purcell, the surprise replacement for longtime DISB commissioner Thomas Hampton. According to the D.C. Appleseed think tank, which engaged three sets of consultants to determine CareFirst’s appropriate reserve level, the company owes District taxpayers $300 million in community benefits. The company, on the other hand, argues that its reserve levels are perfectly appropriate, thank you very much, and suggests that the uncertain course of national health care policy is further reason to keep hands off the funds.

Appleseed executive director Walter Smith says CareFirst “cannot be trusted to fairly represent the public interest.” And, indeed, in recent years, insurance commissioners in Maryland, Pennsylvania, and the District have all rejected nonprofit insurers’ assessments of their own finances. In 2005, a previous D.C. insurance commissioner ruled that CareFirst was keeping more money than it needed to but held that there was nothing forcing them to spend it. Well, now, thanks to the D.C. Council, there’s a law on the books that takes care of the forcing part.

In the midst of a record budget crunch, $300 million is not chump change. If you’re looking for a wellness-related comparable, it’s $50 million more than the 2010 health department budget. “This is a lot of money at a time when people are desperate for a way to address health care needs,” Smith says. “This is an opportunity to spend down a public asset.”

CareFirst holds that its reserves belong solely to its policyholders, not to the public. The company declined to comment on the DISB leadership move, but its timing is certainly interesting: Fenty’s switcheroo with Purcell and Hampton signals that he may be ready to sink his hands into the CareFirst honeypot.

Hampton, after all, looked like an improbable raider of the reserve fund. He’s an insurance industry lifer, having worked for megainsurers CIGNA and AIG before entering District service in 1988. “It had been my hope that he would be replaced before now,” says Ward 3 Councilmember Mary M. Cheh, author of the legislation forcing the DISB review. “I always thought he was much too cozy with industry, including the health industry, including CareFirst.…All I was getting back from them was reluctance and inaction.”

Consider what the soon-to-be-ex-commissioner told the Insurance and Financial Advisor trade rag recently: “It is not necessarily a bad thing…being in excess of the [risk-based capital, or RBC] requirement.…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.”

He added that determining how much surplus to siphon off would be “something that is difficult.” In fact, unlike his colleagues in Pennsylvania or Maryland, Hampton never engaged any independent authority to assess CareFirst’s financial requirements.

Purcell, meanwhile, has no such loyalties. A Howard Law graduate like Fenty and his wife Michelle, Purcell has been acquainted with the couple “for some time,” through various professional groups, says Hizzoner. Unlike Hampton, Purcell hasn’t spent any time inside the insurance industry, having pursued a general business practice in her law career. And Fenty has thus far shown no compunction about targeting CareFirst; in June 2008, Attorney General Peter J. Nickles filed suit against the insurer, targeting the alleged excess reserves. That suit was dropped earlier this year in light of the council legislation.

Cheh considers the jury still out on Purcell. She points out that, until recently, one of Hampton’s top health insurance advisers was Kathy Willis, wife of CareFirst board member Robert M. Willis, aformer D.C. insurance commissioner. “You can change somebody at the top,” Cheh says, “but it depends on who are the supporting actors and actresses.”

At the policy-free press conference last week, Purcell mentioned her priorities included continuing efforts to “increase the presence of DISB in the neighborhoods.” In response to a question about oversight of health insurer rescissions—the practice of canceling the policies of those who are too sick—she said, “Our goal is to provide a fair and efficient regulatory system. I think we have that in place.”

Reached at his home Monday, Hampton said he had “a great run” and that he “enjoyed working for the Fenty administration.” Asked if he got a rationale for his ouster, he said he didn’t. “But I didn’t need one,” Hampton said. “They wanted to go in a different direction and that’s fine.” He declined to explain what he meant by a “different direction.”

For a guy who’d just been fired, Hampton did sound awfully relieved he wouldn’t have to preside over the CareFirst inquiry. “September is going to be very tumultuous,” he says.

“There’s a lot of money at stake,” he adds. “A lot of politics.”

Campaign Finance Hammer Comes Down on Democrats

Not many folks in this town tremble at the prospect of a D.C. Office of Campaign Finance investigation, given its historically light hand when it comes to enforcement. But sometimes trembling is warranted: According to a preliminary report issued last month [PDF], the D.C. Democratic State Committee has got some ’splaining to do.

For one thing, there’s a full account of the mismanagement that took place under former treasurer Lenwood Johnson. Authorities found that from January 2007 through January 2009, the DCDSC failed to report 34 contributions totaling more than $158,000 and 19 expenditures totaling more than $85,000, in addition to nearly $14,000 in bank charges. OCF, in the report, also told the committee that it had not been provided with checks and other records that it is required to keep under the law.

But the more serious matters concern the propriety of the separate committee set up by DCDSC chair Anita Bonds and her allies to collect funds for the committee’s Democratic National Convention expenses last year. That entity collected $216,000 from various corporate and political interests to pay for hotel rooms, delegation breakfasts, and other expenses at the Denver confab. Prior to the OCF investigation, no disclosure of the donations had ever been made; Bonds claimed that its activities were separate from the state committee’s, and thus no disclosure was necessary. There has still been no accounting of how the convention money was spent.

OCF’s initial findings certainly seem to indicate that the convention account was an extension of the Democratic State Committee itself, rather than an independent entity not subject to local campaign finance regulations.

For one thing, bank records cited in the report indicate that the convention account was established at Industrial Bank under “DC Democratic State Committee/DCDSC.” And a “Donor Sheet,” intended to be filled out to accompany contribution checks, bears the DCDSC logo at the top, beside the official convention logo. And, at the bottom, the form indicates that “Our report will be filed with the DC Office of Campaign Finance, Washington, DC.” According to the OCF letter, no such report has ever been filed.

Then there’s the matter of the checks themselves: Well over half of the checks deposited into the convention fund by local companies and politicos were simply written to the “D.C. Democratic State Committee” or some similar name, rather than to “Denver Convention 2008.”

“It is the opinion of the audit staff that the Denver Convention 2008 Committee was in fact soliciting contributions for activities relating to the DCDSC,” the OCF wrote in the letter. That means all the convention donations would be subject to city reporting laws and donation limits.

That latter point is important, since a handful of contributors went over the $5,000 city limit on donations to political committees. The Fenty and Jack Evans campaign accounts both gave $10,000, as did Comcast, Triden Development, and the Squire Sanders law firm. If the OCF finding stands, the State Committee would have to return $37,000 to contributors.

The report has prompted another round of infighting within the DCDSC ranks. To deal with the OCF inquiry, the committee appointed a six-member audit panel loaded with Bonds allies, including national committeeman and former councilmember Vincent Orange. For legal expertise, the committee is relying on its general counsel, Don Dinan, who signed off on the convention committee in the first place.

Last week, given the seriousness of the charges, audit committee member and national committeewoman Deborah Royster recruited überlawyer Fred Cooke to volunteer to serve as an independent counsel of sorts and review the OCF allegations. Only Royster and treasurer Dan Wedderburn voted to engage Cooke’s services. Both later resigned from the audit committee. In the aftermath, a handful of committee members agitated on the DCDSC e-mail list to bring the matter before the full membership before responding to the report.

Bonds says there’s no need to bring the matter before the membership and that Cooke (famous for representing Marion Barry) “comes to the table with a political portfolio”—good point, that—though she says “the time may come” when his services may be needed.

Bonds goes on to stress that the city’s findings are preliminary and that she feels “very confident” that the convention committee was legitimate. “It was not set up as part of the D.C. Democrats. It’s a process that has been used for years,” she says.

A response was due to OCF on Sept. 1. “All information that has been requested will be provided,” Bonds promised last week.

Perhaps the Dems could learn from their Republican counterparts. According to Paul D. Craney, executive director of the D.C. Republican Committee, his outfit raised its $40,000 in convention funds through existing committee accounts, which are fully reported to the appropriate federal and local authorities.

Says Craney, “I’d be happy to sit down with the [DCDSC] to give them a crash course on how to ethically operate a campaign account.”

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