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Testimony of Walter Smith, Executive Director DC Appleseed Center for Law and Justice Before the Council of the District...

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Testimony of Walter Smith, Executive Director DC Appleseed Center for Law and Justice Before the Council of the District of Columbia Committee on the Judiciary October 19, 2006 DC Appleseed strongly supports Bill 17-759 because it gives greater oversight and enforcement power to the Attorney General concerning nonprofits acting in apparent violation of their nonprofit purposes. While we understand that the Attorney General is seeking this additional authority based on his experience with a number of nonprofits, our support for the bill is based on DC Appleseed’s five years’ experience with one particular nonprofit—CareFirst Blue Cross Blue Shield. In our view, the recent performance of CareFirst illustrates the compelling need for the authority the Attorney General seeks in this bill. As you know, CareFirst is by far the largest health insurance company in this region, and CareFirst’s District of Columbia affiliate—GHMSI—is the largest health insurance company in D.C. GHMSI is worth well over a billion dollars, it has annual premiums of over two billion dollars, and it currently retains a surplus in the hundreds of millions of dollars. GHMSI is a federally chartered nonprofit, subject to regulation by the D.C. Attorney General and the D.C. Insurance Commissioner. Its federal charter declares it to be a “charitable and benevolent institution.” In DC Appleseed’s view, however—a view confirmed by both the Insurance Commissioner and the Attorney General—GHMSI has not been meeting its responsibilities as a charitable and benevolent nonprofit. In December 2004, DC Appleseed issued a report demonstrating that GHMSI has an obligation under its charter to spend the maximum feasible amount on community healthcare needs, consistent with remaining a strong, competitive company. Our report calculated that the amount the company could afford to spend on those needs was between $50 and $100 million annually, but in fact it was spending only approximately $1 million annually. In May 2005, the Insurance Commissioner issued a report confirming our view that GHMSI is not meeting it nonprofit responsibilities. He found that “not only does GHMSI have the authority to engage in charitable activity outside the provision of health insurance, it has the responsibility to engage in such activity.” He stated that GHMSI “can and should do more to promote and safeguard the public health of the residents of the District of Columbia,” that “the ability of CareFirst and GHMSI to do more for the community than it is doing currently is beyond doubt,” that GHMSI could “reduce its surplus level without negatively impacting financial strength and viability, and [that] the Department believes that could be achieved by increasing financial contributions to organizations, activities, or joint efforts that will advance the public health in the District of Columbia.”

Testimony of Walter Smith October 19, 2006 Page 2 of 2 The Attorney General has issued two opinions expressing a similar view. In a March 2005 opinion he stated that “under both District and common law, GHMSI’s assets belong to the public” and that “GHMSI has an obligation to use its profits and excess surplus to serve the purpose of promoting health in its service area.” Because GHMSI has consistently denied that it has any responsibilities to the public at all, in an August 2005 opinion the Attorney General stated that “[u]ntil GHMSI acknowledges its obligation as a ‘charitable and benevolent institution’ to operate for the benefit of the public, one cannot presume that its corporate decisions are based on a board determination as to how best to fulfill the corporation’s charitable purposes.” He further stated that “[w]hether or not GHMSI is, in fact, operating consistently with its charitable, public health mission calls for heightened scrutiny, given the company’s stated position that GHMSI’s sole mission is ‘to operate for the benefit of its subscribers’ and not for the benefit of the public at large.’” The result of all this is that notwithstanding these clear determinations by the Attorney General and the Insurance Commissioner, GHMSI continues to refuse to use its publicly-owned assets in a way that best serves the public. As the Attorney General said, this should call for “heightened scrutiny” of the company. In our view, the necessary heightened scrutiny can be accomplished through two bills now pending before the Council. One is this current bill before the Judiciary Committee giving the Attorney General additional powers to investigate and enforce GHMSI’s compliance with its nonprofit responsibilities. The other is the bill recently introduced by Councilmember Graham—the “Medical Insurance Empowerment Amendment Act of 2006”—which would direct the Insurance Commissioner to examine whether GHMSI has excessive surpluses and to determine the percentage of its annual premium revenue it should be spending on community healthcare needs. In our view, both bills are needed to ensure that the public’s interest in GHMSI is adequately protected. We therefore urge that both bills be passed.