Nonprofits face scrutiny, but tax surpluses may be justified

Many health insurers have been establishing themselves as nonprofit companies since the Depression era, but they may have to make some changes if they hope to continue competing in the current health insurance market, reported Marketplace.

"They've never been that kind of warm and friendly, small mutual-type health insurance," Tom Baker of the University of Pennsylvania Law School told Marketplace. "They were set up as nonprofits as a way of justifying their monopoly power, making doctors more comfortable with the idea that they might be deciding whether to pay for things or not."

Now, nonprofit insurers are under increased scrutiny. Blue Shield of California recently lost its tax-exempt status because its operations weren't exclusively for civic betterment or social welfare. State auditors also pointed to the fact that the insurer boasts more than $4 billion in "extraordinarily high" surpluses, FierceHealthPayer previously reported. 

But some industry experts aren't critical of their decision to stash money. In fact, Jill Horwitz at UCLA School of Law doesn't think nonprofits like Blue Shield of California that are holding onto cash for business reasons are necessarily violating their nonprofit mission.

"I would have been more concerned if we saw a lot of spending on atriums and big bonuses and offices and things like that," she said. "But what we're seeing is cash in the bank being held, and that doesn't strike me, on its face, as such a bad thing."

And given the consolidation trend among big insurers, including the recent Aetna-Humana deal, nonprofit insurers may have to consider mergers and acquisitions to stay competitive.

They could need the M&As to expand their business lines to compete for more contracts with providers and streamline operations, Steve Zaharuk, senior vice president at Moody's Investors Service, told Marketplace

Perhaps that's one reason why Blue Shield of California is acquiring Monterey Park-based nonprofit insurer Care1st.

To learn more:
- read the Marketplace article