Non-profit Delta Dental from California Under Fire for & # 39; Blatant & # 39; Spending • thedailybeast.com

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By Anna Maria Barry-Jester California Healthline

Dental dentist Delta Dental from California is facing growing criticism for paying exorbitantly his CEO, board members and their companions to Barbados for a meeting and a small part of the income to charity work – and this while providing substantial tax benefits from the state and the federal government receive his nonprofit status.

Now the company hopes – that 36.5 million people have signed up in 15 states and the District of Columbia – to pay $ 155 million to acquire a 49.5 percent stake in Moda Health, a pharmaceutical and dental insurer with a profit objective .

Proponents of consumers call on government agencies to investigate the deal, arguing that the proposed acquisition is only the most recent doubtful step of a non-profit insurer whose business may not fit into its exempt status.

They point out that the company paid its chief executive, Tony Barth, $ 14.3 million in 2016, two years before he was fired because he had a secret relationship with a subordinate. The next nine best-paid Delta executives earned more than $ 1 million that year, bringing the total compensation for the top 10 in 2016 to more than $ 30 million, according to the insurer's most recent tax request.

The company earned $ 5.9 billion in revenue that year.

"They just seem to be nothing else than to cover up the nests of their own managers," said Michael Johnson, a former manager with Blue Shield of California who became a whistleblower who drew attention to what he describes as the violations of non-profit insurers. "I can not imagine a blatant abuse or failure of their duty as a non-profit organization."

The California Department of Managed Health Care (DMHC), in charge of assessing the transaction, could impose conditions on the insurer, or even purchase Moda Health, based on Oregon, if it determines that the money is considered to be good to come to the public. . DMHC said that it does not have the authority to change the nonprofit status of a dental plan.

Advocates agree that the department is authorized to insist that it fulfills its obligations as a non-profit organization. When it comes to non-profit insurers, "the DMHC is the only one who has the right to go to court," Johnson said.

Delta Dental from California stated in a written statement to Kaiser Health News that the investment in Moda Health will increase access to dental care and treatments and that it will use advisers and supervisory boards to ensure that the remuneration of directors is appropriate.

Non-profit organizations can take different forms, but in order to qualify for an exemption from corporation tax, they must generally offer a Community advantage. In the US healthcare system, non-profit hospitals and insurers often meet that requirement by offering free or discounted services or doing charitable work.

Non-profit insurers have raised their eyebrows in the past. In the 1980s, the Congress abolished federal income tax-free status from the Blue Plan Blue Shield health plans across the nation after finding that they did not behave any differently than for profitable insurers.

Dental insurance has historically less critical research than medical insurance and is less strictly regulated. Although health care insurers had to spend 80 or 85 percent of the premiums on health care under the Affordable Healthcare Act, dental insurers do not have the federal requirement. And when the tax code for non-profit insurers was rewritten in the 1980s, non-profit dentists could keep their federal income tax exemption.

"The company paid its chief executive $ 14.3 million in 2016, two years before he was fired because he had a secret relationship with a subordinate."

Part of what is being discussed now is to whom Delta Dental is responsible and to which the money must be spent. It is a mutual benefit company, which means that it responds to its members, not to the wider public. But in the founding documents it promised to "help the people in California".

In December, Consumer Reports, the California Pan-Ethnic Health Network, Health Access and the Western Center on Law & Poverty wrote a letter to the California regulators requesting that it be appropriate for Delta Dental to invest in a profitable business. insurer.

They argued that the non-profit organization has benefited from tax benefits for decades and that more income from consumer premiums should be spent on the public interest.

"We have to ask ourselves whether they may have paid too much in premiums, "said Dena Mendelsohn, a lawyer Reports from the consumer.

Delta Dental has informed the government regulator that although it is a non-profit organization, the assets are not subject to charitable insurance obligations.

The company told Kaiser Health News that its overall mission is to improve dental health and access to care, and that it spent almost $ 16 million across the country last year through the Delta Dental Community Care Foundation – claiming only that the non-profit organization. social obligations.

With approximately 50 cents per customer, that charity also represents a small part of what the company spends on the purchase, lawyers point out quickly.

The state ruled on the side of another non-profit insurer, Blue Shield of California, when it was the subject of a similar debate in 2015. But in a blow to the insurance company, the company also agreed to renounce its tax exemption after a criticized audit the insurer for holding more than $ 4 billion in assets and not providing affordable insurance to the public.

In an e-mail to Kaiser Health News, Rachel Arrezola, a DMHC spokesperson, said the department still needs to prove that Delta Dental's assets are subject to charitable spending, but said the purchase assessment is under way. The deal will be discussed at a public meeting on January 30 in Sacramento.

"They just seem to be nothing else than to cover up the nests of their own managers."

– Michael Johnson, former director at Blue Shield of California, became a whistleblower

In addition to the issue of this specific sale, tax-free non-profit organizations must also spend operating resources carefully. For years, the CEOs of Delta Dental of California have earned millions of dollars, including the $ 14.3 million in 2016. The company refused to announce its remuneration for 2017 or 2018.

"That's a very healthy number," says Marcus Owens, former director of the Internal Revenue Service department, who is responsible for overseeing non-profit organizations, and currently a partner at the Loeb & Loeb law firm. "It is the kind of level that, if the IRS … had the means to investigate cases for compensation, they might be able to follow up on that."

The compensation for the board has also been examined, with members receiving from $ 46,000 to $ 203,000 in 2016 for one to two hours of work per week, according to tax returns. Board chairs received considerably more that year in the range of $ 172,000 to $ 223,000. And traveling for companions and staff to an annual meeting on the Caribbean island of Barbados is part of that compensation for some board members, according to tax applications from Delta Dental from Pennsylvania, a subsidiary of Delta Dental from California.

Compensation for board members is not the norm in the non-profit organization, Owens said, although that does not mean it's inappropriate, especially for a company as big as Delta Dental. According to the articles of association of the corporation, directors are not allowed to receive a salary, but they can compensate the time and costs for preparing and attending meetings of the board of directors.

Critics have drawn attention to high salaries at Delta Dental plans in other states, including those in Washington, Michigan and Missouri.

Delta Dental from California defended its remuneration structure and said: "We need to attract top talent to provide best-in-class service to our employees / members, so we are guided by a pay for performance philosophy, and we use a lot of governance instruments to ensure that the remuneration of directors is suitable. "

This story is produced by Kaiser Health News (KHN), that publishes California Healthline, an editorial independent service of the California Health Care Foundation. KHN is not affiliated with Kaiser Permanente.