Are Nonprofit Insurers “Legal Fictions” Too?

NPQ Non Profit Quarterly January 5, 2016
by Ruth McCambridge

As NPQ readers know, in a recent court ruling, a New Jersey judge dubbed the modern nonprofit hospital a “legal fiction,” which brought its property tax status into immediate question. This ruling highlights the question, “When is a nonprofit not a nonprofit?”

Another category of nonprofit increasingly in the spotlight for its corporate behavior comprises nonprofit insurers like Blue Cross and Blue Shield, which have been under scrutiny for years but are now showing their true colors under fire. We have covered the case against the tax status of Blue Shield of California extensively.

The Chicago-based Health Care Service Corp. is the parent corporation of the Blue Cross and Blue Shield plans in Texas, Illinois, Oklahoma, New Mexico, and Montana, and it says that its reserves are not for such uses as smoothing out the transition to care under the ACA. Instead, in Texas, the company is cutting off its PPO customers and raising its rates by 20 percent.

HCSC in 2015 bested its previous year’s revenue by 22 percent and is now sitting on $9.9 billion in surplus funds, so why not reward the CEO with a $10 million bonus? Maybe because it is a mutual benefit corporation. It operates through nonprofit insurers, but as Rick Cohen described here in 2013, it in no way shows as a nonprofit.