Community Benefit in a NFP Blue Cross Plan: The Case of CareFirst, Inc. Presentation to State Coverage Initiative Works

1. Community Benefit in a NFP Blue Cross Plan: The Case of CareFirst, Inc. Presentation to State Coverage Initiative Workshop John M. Colmers Senior Program Officer, MMF Chairman, CFMI August 3, 2006

2. Outline • History of CareFirst prior to conversion attempt • Conversion Attempt • CareFirst Commitment post-conversion actions • Conclusions

3. Organizational Structure CareFirst, Inc. (Not-For-Profit Maryland Holding Company) (Established in 1998) BCBSD, Inc. (d/b/a Blue Cross Blue Shield of Delaware) (DE Not-For-Profit Health Insurer) (Joined CareFirst in 2000) GHMSI (d/b/a CareFirst BlueCross BlueShield) (D.C. Not-For-Profit Health Insurer) CareFirst of Maryland, Inc. (d/b/a CareFirst BlueCross BlueShield) (MD Not-For-Profit Health Insurer) CareFirst BlueChoice (d/b/a BlueChoice) (MD/DC HMO) (Established by the merger of CapitalCare (DC) & FreeState Health Plan (MD)

4. CareFirst Today A growth-oriented Blues plan with presence in Maryland, Delaware, D.C., Northern Virginia, West Virginia and North Carolina with: CAREFIRST MARKET SHARE BY REGION • Revenue: $5.3 billion • Enrollment: 3.4 million members • Associates: 5,400 • Potential Market: 6.8 million customers • #1 provider network • #1 market position • Product mix • Traditional and managed health care benefits • CDH/HSA • Dental • Vision • TPA • Medicare D Maryland: 43% Delaware: 40% West Virginia DC: 33% Charleston Northern Virginia: 28% North Carolina Charlotte Current CareFirst Presence

5. CareFirst Market Segments Planned Growth • Largest Federal • Employee Plan • (FEP) in the • BCBS system • Administer FEP • Operations • Center for BCBS • System

6. Creation of CareFirst 1990-2000 • Maryland Environment • All payer rate setting/CON • Dominant payer in all market segments • Hospital rate differential • Financial crisis in early 1990s • Failure of WV plan • Nunn Committee hearing on GHMSI and BCBSM • New Management Team/Board • Affiliation agreements

7. BCBS of Maryland CareFirst , Inc. GHMSI CareFirst BCBS of Delaware Highmark Blue Cross Highmark PA Blue Shield Highmark BCBS West Virginia BCBS Texas Health Care Services BCBS Illinois Health Care Services BCBS New Mexico Independence Blue Cross Independence BC La Cruz Azul (Puerto Rico) Consolidation of Blues Plans Major Blues Plans Consolidation and Conversion Activity 2002 2003 1999 2001 1998 2000 1997 1996 Becomes Public Company WellPoint WellPoint Cerulean (BCBSGA) RightCHOICE Becomes Public Company Cobalt Anthem (IN, KY) Anthem BCBS Ohio BCBS Connecticut BCBS Colorado Becomes Public Company Anthem BCBSNew Hampshire BCBS Maine Trigon

8. Consolidation Trend Among Insurers TakeCare FHP FHP PACIFICARE PacifiCare 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Today Kaiser KAISER Community Health Plan (NY) KAISER Kaiser Humana (DC) Permanente Group Health Cooperative (WA) Met Life METRAHEALTH United Travelers Group UNITED MAMSI Healthcare United UNITED Oxford UNITED Humana Humana PCA Aetna AETNA U.S. HEALTHCARE U.S. Healthcare Aetna U.S. NYL CARE Sanus Healthcare Prudential Qual Med HSI Health Net Foundation FHS Foundation Health FOUNDATION Intergroup Systems PHS Cigna Cigna Healthsource Principal Coventry Coventry Health Care WellPoint WellPoint Cerulean (BCBSGA) Health Right Choice (BCBSMO) A Networks Cobalt (BCBSWI) N Anthem BCBS Kentucky ANTHEM T Trigon (BCBSVA) ANTHEM H Community Mutual (69%) ANTHEM E BCBS Connecticut M ANTHEM BCBS New Hampshire BCBS Colorado & Nevada BCBS Maine ANTHEM 8 Plans 37 Plans

9. Conversion Attempt and Initial Aftermath • Attempt to create for profit holding company • Affiliation of CFMI and GHMSI • Legislation creating foundation • Affiliation with DL • Market withdrawals • Conversion proposal submitted • Conversion proposal rejected • Legislation enacted • Federal litigation • DL votes out, GHMSI fails by one vote • 5 new board members appointed • Remaining 7 board members appointed

10. CareFirst’s Broad Mission The mission of CareFirst BlueCross BlueShield is to provide health benefits services of value to customers across the region comprised of Maryland, Delaware, and the National Capital Area. To fulfill this mission, CareFirst BlueCross BlueShield commits to: • Offer a broad array of quality, innovative insurance plans and administrative services that are affordable and accessible to our customers • Fairly address the needs of customers in each of the jurisdictions in which we operate • Conduct business responsibly to ensure long-term financial viability and growth • Collaborate with the community to advance health care effectiveness and quality • Support public and private efforts to meet needs of persons lacking health insurance • Foster health systems integration and health care cost containment to benefit the people in the areas we serve • Promote respect, fairness and opportunity for our associates.

11. CareFirst Commitment Quality & Safety Raising the Bar • Bridges to Excellence • Hospital Safety • Patient Safety Centers • Health Information Technology Access & Affordability Ensuring Affordability Corporate Giving Health Care Diversity Closing the Gaps Community Contributions • Medical Strategies • Communication Strategies • Marketing Strategies • New Product Development & Launch • 2005 Pricing Strategy • HMO Premium Tax • Care Cost Initiatives • 2% of Projected 2005 Net Operating Income • Allocation to GHMSI, BCBSD, and CFMI based on % of Net Profit and Membership

12. 2005 Mission Fulfillment Actions $90.5 million Total

13. Final questions • What does it mean to be NFP in today’s environment? • Tax-exempt versus charity • Does role differ for providers/insurers? • Can any one payer be payer of last resort? • How can or should reserves be used? • How much is enough?