Make ‘nonprofit' health insurers do
their duty

As the cost of health insurance has risen, the number of employers offering health care to their workers has fallen. As of 2003, nearly 45 million Americans under age 65 were uninsured, more than 5 million more than in 2000. Yet at some health-insurance companies, consumer dollars are fueling excessive cash surpluses, well in excess of what the organizations need to pay claims.

The situation is particularly alarming when the health-insurance companies in question are nonprofit organizations. Unlike for-profit corporations, nonprofit health insurers are legally bound to fulfill a public-benefit obligation, such as meeting the needs of people without health insurance, in exchange for significant tax advantages and other benefits.

But while consumers are getting squeezed by higher premiums and co-pays, some nonprofit health insurers are quietly abandoning their social-mission obligations. Some are stockpiling cash and spinning off for-profit subsidiaries.

As of December 2003, the 38 nonprofit Blue Cross and Blue Shield plans across the country retained approximately $20 billion in surplus, an increase of 30 percent since 2002. Concerns about “excess surplus” in nonprofit “Blues” plans have recently arisen in several states, including Delaware, Maryland, New Jersey, Pennsylvania, Rhode Island, and in Washington, D.C.

In Pennsylvania, for example, the state's four nonprofit Blues plans and their for-profit subsidiaries hold more than $6 billion in surplus, by one estimate. At the same time, 1.4 million Pennsylvanians are uninsured. Local unions have joined with community advocates for the unemployed and for low-wage earners to challenge the Pennsylvania Blues plans' surplus levels and to question expenditures made on behalf of their mission. Consumers Union, the nonprofit publisher of Consumer Reports, provided technical assistance for those efforts.

In 2004 the Pennsylvania Insurance Department ordered the insurers to submit detailed information on their surplus levels and a proposal for equitable distribution of excess surplus to benefit policyholders, the uninsured, and the underinsured. The state insurance commissioner subsequently decided that the Blues plans' surplus levels were acceptable. Advocates are appealing that decision.

The good news is that in February 2005, the governor of Pennsylvania and the Blue Cross plans reached an agreement under which the four insurers promised to devote almost $1 billion over nearly six years to charitable community health activities. That includes the provision of basic health-care coverage for thousands of the state's low-income and uninsured residents.

Consumers can demand that nonprofit health insurers meet much higher standards of accountability to their communities. State policymakers should consider enacting standards for appropriate ceilings on nonprofit surplus accumulation. Policymakers can establish guidelines for the use of existing “excess surplus.” The National Association of Insurance Commissioners, which advises state insurance regulators, should amend its model legislation to ensure that health insurers do not stockpile excessive surpluses. And regulators should exercise their existing authority to oversee nonprofit health plans' activities to ensure accountability.

then	& now

1956		2005
Camping took off in the 1950s. We touted its virtues in 1956: campsites abounding with nature's beauty, pure drinking water, good fishing and swimming, and forest rangers who check in to offer help. Camping, we said, was one of the most inexpensive and pleasant holidays a family could have, assuming the family members liked one another. There were other caveats: Be ready for anything. Dig a drainage ditch around the tent, because not every model had a “sewed-in” floor, unlike today's tents. Made of nylon or polyester, many are now also rain-resistant and easier to set up. The Eureka Titan, above right, has doors and windows that provide extra ventilation. To keep peace in the family, a second tent might be in order.