Thursday, August 29, 2013

PA judge rules that it's OK for "non-profit" Highmark to make "incidental" profit of $1.2 billion

From the Pittsburgh Post Gazette:

Highmark Inc. has not accumulated "excess profits" in violation of state law, and its executives make a "reasonable" salary, according to a judge's dismissal of a lawsuit that had been filed against the insurer. 
The state's largest health insurer was sued two years ago by Philadelphians Herman Wooden and Thomas Logan, both former nonvoting "lay" members of a since-disbanded Highmark advisory committee serving the company's board of directors. 
Both of the plaintiffs argued that the $1.2 billion in profits that Pittsburgh-based Highmark had earned from 2005 to 2009 was excessive. 
This month, Philadelphia Court of Common Pleas Judge Patricia McInerney also rejected arguments that Highmark shouldn't be able to reinvest money in its for-profit subsidiaries and that the company awarded improper bonuses to its executives. 
In an Aug. 8 order, the judge wrote that the "plaintiffs' argument is logical and compelling. However, the judiciary is not the proper arm of government to restrain this particular charity's acquisitiveness." The legislature and the executive branch "are the ones who must say whether the accumulation of substantial profits by a nonprofit health insurer is improper."
Clearly feeling hamstrung by the letter of the law, Judge McInerney ruled in favor of Highmark of narrow technical grounds, but included in her opinion phrases like:
this particular charity's acquisitiveness... 
the public may look ... aghast at the high level of compensation paid to the executives of this supposedly 'nonprofit' corporation...
And, yes, those of us in Delaware were part of the Highmark "incidental" profits:
In 2012, Highmark reported $432.3 million in profits, a figure that includes assets absorbed when the insurer acquired Blue Cross Blue Shield of Delaware. Much of that income was driven by the company's three main subsidiaries -- vision, dental and reinsurance units -- which, together, had net income of $193.6 million. 
The company's "surplus" reserves grew slightly, from $4.1 billion in 2011 to $4.14 billion in 2012.
One of the reasons that Highmark's "surplus" reserves grew by $30 million in 2012 was being released from a requirement (thanks, Patti Blevins and Karen Weldin Stewart) from a requirement to maintain such a "surplus" reserve in Delaware to the tune of $175 million.

Free markets are a great thing.  But a market in which a company like Highmark can claim non-profit status while racking up $1.2 billion in "incidental" profit from it 35 for-profit subsidiaries is NOT a free market.

It is a market "regulated" (and I use the term with vomit in the back of my throat) by the State government to the advantage of Pittsburgh profiteers (and Delaware sell-outs) who are laughing all the way to the bank.

I think I actually did throw up (just a little) when Judge McInerney described Highmark as a "charity."


Anonymous said...

Are these surpluses part of the regulated RBC they must carry?

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