Health Care Service Corp. draws scrutiny over $9B surplus

Amid concerns about how Health Care Service Corp. is allocating its surplus, a lawsuit has been filed alleging that HCSC has broken its promise to operate as a nonprofit for the benefit of its members, according to an article in the Houston Chronicle.

In the case, Babbitt Municipalities Inc. vs. Health Care Service Corp., plaintiffs allege that instead of lowering premiums or expanding coverage, the Blue Cross Blue Shield plan operator rewarded top executives with $100 million between 2011 and 2013 for keeping profits high. That goes against what nonprofit insurers are supposed to do, as the law requires that "no person or entity shall receive, directly or indirectly, any profits from the corporation," the article states.

In additon, some industry experts told the newspaper they are skeptical about the insurer's plan to cut programs while maintaining a surplus. HCSC had announced that it would stop offering PPO plans through the individual insurance exchange in Texas.

In a statement to the newspaper, HCSC maintained that it remains strongly committed to the nonprofit model. The company said it had to raise rates and drop some plans for 2016 due to how unsustainable individual plans are in the long-run. Additionally, HCSC has said it already operates on thin margins, and that it experienced an almost $282 million net loss for 2014, the Chronicle noted.

HCSC is not the first insurance company to come under scrutiny regarding its nonprofit status. Earlier this year, Blue Shield of California had its tax exempt status revoked after the California Franchise Tax Board discovered that firm posted $13.6 billion in revenue in 2014. Critics of the insurer also claim it backed out of a charitable pledge of $140 million that was supposed to be part of a deal to win approval for its acquisition of a Medicaid health plan, though Blue Shield argues that it's not obligated to go beyond its normal foundation giving of about $35 million annually.

To learn more:
- here is the Houston Chronicle article