Health Insurance- For-Profit or Nonprofit

If a Government is going to compel you to buy insurance, shouldn’t the insurance be nonprofit?

This article was originally published by "Being Well" on Medium

The concept of a nonprofit organization is a misleading one, as it sounds like the latter system is built solely on humanity and care for others. For that reason, we often hear criticism such as healthcare has become for-profit and insurance companies or healthcare institutions, in general, should be not for profit- if they meant to deliver quality medical care for everyone.

The rhetoric of the notion mentioned above elevates almost every soul; however, it is practically far from reality. Because some of the most robust insurance systems and managed care organizations in the United States are nonprofit (like Kaiser Permanente) yet in 2019, the leading mange care organization had $7.4 billion in revenue. And it is one of the biggest and the first provider of Medicare advantage and participant of the Affordable care Act (ACA). Therefore, most managed care systems that have partnered up with ACA are nonprofit.

But what is non- profit organization?

A nonprofit organization (NPO), (also notorious as a non-business entity, not-for-profit organization, or charitable institution), is traditionally applied to promoting a particular social cause based on shared values. It is a system designed to use its revenue surplus to further reinvest in itself, rather than dividing its proceeds to the organization’s shareholders, leaders, or affiliates. A Nonprofit organization is to serve as the public extensions of a government’s revenue department. For that reason, they are exempted from paying tax on the money that they receive for their organization. They can operate in religious, scientific, research, or educational settings.

Nonprofits’ critical slants apply to liability, trustworthiness, rectitude, and openness to every person who has invested time, money, and faith in the organization. The former is something which is the subject of considerable controversy.

Photo by Kat Yukawa on Unsplash

Not being able to distribute its profits to any private individual is the crucial difference between nonprofits and for-profits. Besides that, the executives of the system still get salaries and salary raise. In reality, the term “nonprofit” is misleading, as numerous nonprofit organizations even take in millions of dollars annually and consistently run in the dark. Just to name a few- vision Service Plan, Red Cross, Volunteers of America, United Way, and Pride Industries.

To fulfill a nonprofit’s mission and vision, the company needs a steady stream of income. Think of programs like “service” and fund development. To support earnings, one must raise awareness. Raising money, ongoing community involvement, finding opportunities for others to help, formulating the annual fund extension & public relations plan, and making it all happen with the support of the Executive Director, Board of Directors, and an army of excellent volunteers.

What is health insurance?

Insurance entails the collection of funds from many insured entities, also known as exposures to pay for the losses that some may acquire. Therefore, the covered entities are immune from price risk. The set value of the latter is dependent upon the frequency and severity of the event occurring. To be an insurable risk, the risk insured against must meet specific characteristics. Insurance as a financial emissary is a money-making enterprise. They are also a noteworthy portion of the financial services industry.

Health insurance is a coverage that embraces the whole or a part of the risk of a person sustaining medical expenses, spreading the risk over many persons. By approximating the overall risk of “health risk” besides “health system costs” over the “risk pool,” an insurer develops a finance structure, such as a once-a-month premium or personnel tax, to provide the money to pay for the healthcare aids specified in the insurance negotiation.

Insurance is a business, hence for-profit

Health Insurance industries are not charity organizations. Just like every other business, they will pivot their strategies and often even their vision and mission to maximize profit. Unfortunately, the mainstream public holds a different mindset. The average soul believes that healthcare costs can only be paid for by the third-party entity, which often pertains to the for-profit insurance industry.

To maximize their profit, insurance executives take decisive strategies to exploit income. Governments and or private organizations regulate the modern insurance industry. Nonetheless, to widen their profit margin, insurers often utilize a variety of avenues including lobbying, manipulating the social determinants of health and sickness, legal kickback privileges, and maintaining non-transparency to factitiously present costs and patient premiums high. For instance, health Insurers are collecting details on public information. They can predict our health costs based on data about more details that happen, and R & D like race, marital status, how much T.V. we watch, whether we smoke, or even buy plus-size clothing. These are data that could raise our health premium rates.

Along the way, insurance companies have partnered up with administrations through subsidies and legislative loopholes. Affordable Care Act and Medicare Advantage are a couple of many scenarios where insurance companies have tapped into the public funds. Even with full access to the taxpayer’s money, 3rd party payers have still maintained flexibility to patients under ACA via co-pays and deductibles. For example, the eligible patient for ACA not uncommonly pays a co-pay as high as $300 for a simple chest Xray.

Photo by CDC on Unsplash

Some advocates of universal healthcare coverage propose Forcing insurance companies to become nonprofit organizations, notwithstanding the possible constitutionality clause of such a move by the administration. Besides, there are already 3rd party payers that are practically not for profit, still making billions of dollars for their executives.

The Insurance Industry will always Strive to keep Healthcare Costs High

The insurance industry will always want to make the public ancillary on their mission. And to prevail, will refuse to be transparent, deter accountability, and manipulate governments to pave their way for ultimate financial reign. Legal kickback is one such example.

Kaiser Permanente (K.P.) in northern California (the frontrunner of the managed care system) functions as a parasol for a large number of medical groups, the Permanente Medical group. While K.P. is seemingly a nonprofit, the medical groups that form the network are for-profit companies. About 50% of the Kaiser Permanente umbrella’s profits return to these for-profit entities. In 1973, the CEO of Kaiser introduced the network’s business model. In the circle of K.P., Permanente Health Plan, and Permanente Medical Group, the total incentives are toward less medical care, because the less attention to patients, the more money kept in the pocket. For instance, based on the experience of a person I know, the agency pocketing $500 per month government subsidy on behalf of the eligible patient, charging $60 per visit of co-pay, and $300 for Chest X-ray. Plus, no charge for Annual holidays and labs, but if labs ordered via wellness program include co-pay. Guess what!? They order the annual labs via wellness programs.

U.S. Government can’t set Prices on Insurance.

Price fixing is an agreement amongst various competitors that raises, lowers, or stabilizes prices or competing terms. Commonly, the antitrust laws dictate that each entity establishes rates and other terms on its own, outwardly agreeing with a competitor, or creating a monopoly. When consumers choose what insurance coverage to buy, they typically expect that the price has been determined unobstructed based on supply and trade, not through behind door agreement among competitors. The latter is something that is often overcome by various indirect strategies. When business rivals agree to restrict competition and create a monopoly, the result is often higher prices, what we are experiencing today. Therefore, price-fixing is a primary concern of government antitrust enforcement.

A plain agreement between competitors to fix rates is not only unethical but almost always illegal.

Illegal price fixing transpires whenever two or more competitors agree to take on raising, lowering, or stabilizing the price of any goods or service deprived of any valid excuse. Price-fixing schemes are every so often worked out in secret and can be hard to uncover.

Invitations to regulate prices also can raise solicitudes, as when one competitor announces that it is willing to end a price war if its rival is prepared to do the same, and the terms are so specific that adversaries may observe this as an offer to set prices collectively.

Price fixing relates not only to prices, but also to other terms that affect prices to buyers, such as shipping fees, warranties, discount programs, or financing rates. The antitrust investigation may occur when competitors discuss such issues as Present or future prices, Pricing policies, Promotions, Bids, Costs, Capacity, Terms or conditions of sale, including credit terms, Discounts.

Identity of customers, Allocation of customers or sales areas, Production quotas, R&D plans, but all happens in the real world, particularly in the face of developing sophisticated technologies such as Artificial Intelligence and Big Data analytics.

Government Partnership with the Insurance Industry is a Mistake

When governments subsidize private companies to provide public benefits, whether part or all of the service’s cost on behalf of the individual, they take certain risks to control — the expense of the insurance premium. Analysis based on 2017 data from more than 9 million people suggests that because of how subsidy amounts are arranged, health insurance companies have an incentive to charge higher premiums in low-income areas. That is because consumers with less money are more likely to qualify for higher tax credits. The government absorbs most of the cost. On the other side, insurers will charge lower prices in higher-income populations. Consumers are less likely to receive a significant tax credit and might become reluctant to buy coverage if they think premiums are too expensive.

The patient premium under the subsidized system will ultimately depend on their neighbors, say some scholars. For instance, If you live near people who are needier than yourself, you will be affected otherwise than if you live near people who are wealthier than you. This system, like the one we see with ACA, has created a new class of Uninsured. The U.S. Census Bureau’s annual report on health insurance coverage shows the number of uninsured Americans rose from 2017 to 2018. The rising uninsured rate stalks largely from Obamacare’s letdown to deliver affordable health insurance premiums. Concomitantly, individual market premiums spiked out of control. Centers for Medicare & Medicaid Services (CMS) data demonstrates a considerable enrollment drop among unsubsidized patients on the single market. The latter does not get federal premium tax extensions. From 2016 to 2018, unsubsidized enrollment declined by 40%.

Insurance Industry Lobby the Government

The insurance industry’s lobbying practice is an open secret. In the year, 2020 insurance companies have spent over $80,428,145 for 166 clients, almost 65% of which were former government employees. The latest does not include managed care systems, such as the Kaiser foundation health plan.

Although lobbying practice is a legal entertainment for corporate entities, particularly given their personification status, nonetheless ethically and logically is an unfair practice. Because it places individuals at a significant disadvantage, not to mention that subsidizing the same entity that has lobbying power over the same government is an utter conflict of interest and Ludacris. That is even more troublesome when they are exempt from tax payments under the, not for profit formation.

The Nonprofit Insurance Industry will neither help the Healthcare Industry nor will it be Practical.

By the numbers, the median pay of health insurance executives in 2018 was $7.7 million. Fourteen CEOs made more than $46 million each. Therefore, whether an entity is nonprofit or not, does not necessarily affect their salaries. (Although they may not have stock options)

According to a survey, total direct compensation (the sum of base salary plus annual incentives and long-term incentives) for health insurance CEOs increased 12% from 2018 to 2019, while the companies themselves experienced a 6% rise in total revenue during the same period. Total direct compensation for health insurance CEO is outpacing most other top executives as much as 1.5 to 2.4 times faster.

As of 2019- St. Louis, Missouri, the chief at Ascension Health earned $13.6 million; the CEO at the “Nonprofit” Kaiser Foundation in Oakland, California, secured $10.7 million.

There’s nothing wrong with companies trying to make the most profits, as long as the market is kept fair, transparent, and accountable. The personification of corporate entities is an utter mistake. It places them at an unfair advantage, more so the sophisticated, or as I like to call it, twisted policymakers need to realize what happens when private markets get involved in public policies and politics.