Monday, June 27, 2011

What Happened to the NON in NON-Profit?

Wendell Potter (You remember him.  He is the former Vice President of corporate communications at CIGNA, turned whistleblower) has an interesting article on his blog about the amount of money non-profit health insurance companies are making.

Many people, myself included, have said that we should get the profit out of the health insurance business.  Government and non-profit private companies are the only way to go.  Why profit on someone else's suffering?  Use the money to alleviate the suffering, not line the pockets of insurance executives and rich investors.

California is attempting to rein in excessive health insurance rate increases by giving state regulators the authority to reject rate increases that are excessive or discriminatory.  The insurance industry is fighting the bill to do this.  Those fighting it include the state’s biggest supposedly nonprofit health plans: Blue Shield of California and Kaiser Permanente.
Kaiser alone has spent $700,000 so far this year lobbying lawmakers in Sacramento. It undoubtedly will be spending quite a bit more this summer to persuade state senators to vote against the rate control bill.  And if any health plan can pull it off, it’s Kaiser, which has the biggest market share in the state and is also one of the country’s most profitable insurance companies.
Wait a minute?!?  " of the country’s most profitable insurance companies"?!?  I thought Kaiser was NON-profit.

According to public filings, Kaiser has made a whopping $5 billion in profits since 2009. That’s more than all but a small handful of the country’s for-profit insurance corporations have made. During the first three months of this year, Kaiser made more than $920 million in profits. Yet because it has been able to maintain its legal structure as a nonprofit, it doesn’t pay taxes on that money like the for-profits do.
One of the ways the company has been able to keep profitability strong is by demanding double-digit rate increases from its customers. Earlier this year, Kaiser announced it would raise rates on many of its policyholders in California by as much as 23 percent. No wonder it doesn’t want the state’s insurance commissioner to have the power to say “no” to such increases.
What happened over the decades is that a rising tide lifts all boats,” said Kurz. “Nonprofits found they could raise their rates and still be competitive by riding the coattails of for-profits. Nonprofits can’t pay dividends or buy back stock, so they simply add the surplus to their reserves.
Of course with fat reserves, you can afford more generous compensation and perks and still have money to spare...Kaiser’s CEO’s $8 million in compensation puts him in the same league as the CEOs of the biggest for-profits.  Blue Shield of California and many of the other nonprofit Blues around the country are also doing quite out of 10 nonprofit Blues plans had at least three times more in reserves than regulators required. To be able to maintain that level of profitability, nonprofit health plans have to hike rates just as high and just as often as their for-profit competitors.
So, nonprofits are spending millions of dollars of policyholders premiums just like for-profit companies.  They pay executives high salaries.  They spend millions lobbying politicians.  They charge comparable premiums rates.
How do they maintain non-profit status?  Political contributions?


  1. It sounds (unless I'm missing something here) like a no-brainer to me that they should lose their non-profit status. At the very, VERY, least, we have a hell of an oxymoron at work.

  2. "...they should lose their non-profit status."

    You would think so, BUT...

    This also calls into question the whole idea of competition in the health care insurance market. Rather than using their non-profit status to offer insurance at a lower price, they use it to make more "profits" by charging comparable rates to for-profit companies.

    Of course, health insurance companies are exempt from federal anti-trust laws!

    I smell collusion.

  3. I have long advocated getting rid of all these profiteering leeches and adopting a Canadian-style government-run plan. These insurance companies are greedy criminals.

  4. The sad reality, Jerry, is that we DON'T have competition. Most states have it rigged so you can only buy from a couple of companies; monopolies (within those states) that the government protects. I wish that we DID have more choices out there.

  5. It takes two or more to compete. The fact that there is not competition is not due to the lack of companies. It is because the companies CHOOSE not to compete. Non-profits have an advantage. They choose not to exercise it.

  6. There are thousands of insurance companies, Jerry. As it currently stands, these companies are prohibited from commerce across certain state lines. We're stuck with what we're stuck with in many instances.......Of course companies compete. Our facility just got rid of Connecticare and switched to Oxford (better coverage at a better price).

  7. States have the right to set the standards for companies that do business in the state. My understanding is that any insurance company meeting those standards can do business in the given state.

    I see nothing wrong with that.

  8. Jerry said: "States have the right to set the standards for companies that do business in the state."

    Standards? When states have special sweetheart deals with giant branches of Blue Cross and Blue Shield, these "standards" have nothing to do with protecting consumers, and everything to do with corruption and denying consumer choice.

  9. And what are these sweetheart deals of which you speak?

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