You’ve probably heard of, and may even have, Delta Dental insurance. But did you know that the main entity behind it, Delta Dental of California, which operates plans using the Delta name in 16 states, is a tax-exempt nonprofit? Because of the public good it supposedly does, you subsidize it.
That, however, hasn’t stopped it from paying its CEO as if he ran a for-profit company 20 or 40 times as big. The $14.3 million it paid him in 2016 is more than the CEO compensation paid by 30 of the 100 largest companies in America, including Apple and Anthem, the giant health insurer.
Obscene CEO pay is just one of the ways that Delta Dental flouts its duties as a nonprofit. But the jig could soon be up. Delta Dental needs regulatory approval in order to close a deal it made this summer to acquire a health insurance company, Moda Health Plan, and that gives its California regulator leverage to force it to start acting like a real nonprofit.
Delta Dental’s latest IRS filing shows just how far away it is from doing that now. For starters, there’s the huge pile of money paid to top management, and not just the CEO. In 2016, the organization spent $54 million compensating its leaders, which accounts for over one-fifth of total pay to company personnel. Nonprofit health plans of comparable size spend a fraction of that.
Delta Dental’s board members also make out like bandits. Despite a provision of the corporate bylaws prohibiting director salaries (“Directors, as such, shall not receive any salary for their services...”) they pay themselves up to $220K annually. The bylaws allow per-meeting fees, but the median amount for such fees among S&P 500 companies is just $1,900.
And then there’s all of the pampering of directors and executives on the organization’s dime.
SHIRKING ITS NONPROFIT DUTY
So what public good does Delta Dental do as a tax-exempt nonprofit?
It claims two things: providing “exceptional dental benefits service” and making charitable contributions. But its services are no different from those of tax-paying insurers, and it donated a grand total of just $1.8 million in 2016. The lack of benefit it provides the public is not for lack of resources; it has $1.4 billion in retained earnings, according to it latest financial statement to regulators.
Meanwhile, the dental plans the organization sells to individuals and small businesses come with huge administrative expense margins. Costs of actual dental care account for only 61% of small group premiums and 63% of individual premiums. Compared to the 80% minimum that Obamacare health plans are required to devote to medical care, that truly is “exceptional” service.
Adding insult to injury, Delta Dental used some of its fat expense margin last year to pay lobbyists to kill a legislative proposal to require dental insurers to devote a minimum of 70% of premiums to dental care. California bill SB 1008 would have established that bit of consumer protection, but Delta Dental fought the provision and it was stripped from the measure.
SOON TO FEEL THE REGULATOR’S WHIP?
There’s some hope, though, that Delta Dental won’t be allowed to keep escaping accountability. It made a $155 million deal this summer to acquire Moda, an Oregon health insurer, and in order to complete the deal it needs the California Department of Managed Health Care to approve it.
The DMHC, in addition to regulating health and dental insurance, is charged with enforcing the public benefit duties of nonprofit health plans. In most states, that responsibility lies with the attorney general. But in California, the law authorizes only the DMHC to take enforcement action against nonprofit health plans that disregard their nonprofit obligations.
One of the primary ways that the DMHC is supposed enforce such obligations is by requiring nonprofit plans that seek approval for major transactions, such as acquisitions, to demonstrate that they are, and will continue, doing good for the public. If a plan can’t show that, the DMHC can force it to take concrete steps to start benefiting the public as a condition of approving the deal.
If the DMHC does its job well, Delta Dental could soon be forced to act like the nonprofit “social welfare” organization it claims to the IRS and public to be. But if the regulators drop the ball, nothing will stop Delta Dental management from continuing to lavish themselves with huge paychecks and perks while ignoring their responsibility to do good for the public