Facebook logoTwitter logoYouTube logo

Nonprofit Insurers: Reaping Profits at the Expense of the Consumer

By Wendell Potter for MichaelMoore.com

Nowhere are health insurers working harder to thwart reforms that could save consumers billions of dollars than in California. One measure they are especially determined to kill is a bill that would give state regulators the authority to reject rate increases that were excessive or discriminatory.

The California Assembly passed a bill to do just that earlier this month over the intense opposition of insurers, including 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.

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.

So just how did it happen that Kaiser and many of the country’s other nonprofit health plans, especially the Blue Cross and Blue Shield plans, get to be so profitable?

According to Andy Kurz, former chief financial officer of Blue Cross of Wisconsin who, like me, has become a vocal critic of insurance companies, you can blame it on Wall Street, even though the nonprofits are not publicly traded companies.

Several years ago, Kurz told me, Wall Street financial wizards figured out a new way to make money by getting a lot of the Blues plans to convert to for-profit status.

“They scared the bejesus out of many of the nonprofit health insurers, several of which had slim reserves at the time,” Kurz said. “They explained that by changing to for-profit, they could raise equity, add that to their reserves and go out and get more business. It would be a win-win. Except that now for-profits also had to raise premium rates more to pay off public shareholders and provide higher compensation for their executives.

“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.” State regulators require insurers to keep a percentage of revenues in reserve for solvency purposes.

“Of course with fat reserves, you can afford more generous compensation and perks and still have money to spare,” Kurz added. “Net-net: far too much fat and waste in the whole system.”

Indeed.

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 well, thank you.

As a Consumers Union analysis found last year, seven 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.

That’s why they don’t want state insurance commissioners having any more regulatory authority than they currently do, which is really precious little.

And that’s also why they’re spending millions of their policyholders’ premiums lobbying lawmakers to keep things just as they are.

Comments

2 Responses to “Nonprofit Insurers: Reaping Profits at the Expense of the Consumer”
  1. The Economic Pyramid CTC3
    ______CONSUMER
    _____RECREATION
    ____COMMUNICATION
    ___TRANSPORTATION
    __BUSINESS
    _INDUSTRY
    AGRICULTURE
    |SOIL|MINERALS|FORESTS|WATER|
    |WIND|SOLAR|GEOTHERMAL|ETC._|
    Our economy rest on a base of natural resources.
    Conservation is the wise-use, management, & development of the Earths natural resources, including the wise-use of CONSUMER health care money!!!

  2. Expose the Truth says:

    Check out the facts:

    Excessive healthcare costs stem directly from the fact that health care in the US is not about caring for people, it’s about corporate profits.

    Want to know what is really going on? Check out any of these articles:

    1. “Five Reasons Health Insurance Companies Should Roll Back Rates Now”
    http://www.huffingtonpost.com/ethan-rome/five-reasons-health-insur_b_882770.html

    The health insurance industry continues reporting record-setting profits while socking consumers with unjustified and excessive rate hikes. Insurers, awash in billions of dollars in record profits and excess capital, should give consumers their money back.

    2. “Health Insurers Making Record Profits as Many Postpone Care”
    Published: May 13, 2011
    http://www.nytimes.com/2011/05/14/business/14health.html?_r=1

    The nation’s major health insurers are barreling into a third year of record profits, enriched in recent months by a lingering recessionary mind-set among Americans who are postponing or forgoing medical care.. . . Yet the companies continue to press for higher premiums, even though their reserve coffers are flush with profits and shareholders have been rewarded with new dividends.

    3. “Insurance company profits up 41 percent”
    http://www.healthinsurance.org/blog/2010/11/15/insurance-company-profits-up-41-percent/

    Rep. Pete Stark (D-Calif.), chairman of the House Ways and Means Health Subcommittee, reported that the collective $9.3 billion in profits for the first nine months of 2010 is up an average of 41 percent over the same period last year.
    See the accompanying chart: For-profit insurance –Profits for the first nine months of 2010 here:
    http://www.healthinsurance.org/_wordpress/wp-content/uploads/blog/2010/11/chart.jpg