Teaching Moment of the Week #1: United Healthcare’s Profit Transfer
According to Felice J. Freyer in today’s Projo, just about everyone in Rhode Island not on the United Healthcare payroll, including most of the state’s healthcare providers, Attorney General Patrick Lynch, and Governor Donald Carcieri, opposes United’s attempt to transfer $36.8 million from RI to their parent company in Minnesota…
United is seeking state permission to take out $36.8 million in “extraordinary dividends” — profits beyond the “ordinary” profits already taken. Although such permission has long been required, this year United’s request is being considered by the Office of the Health Insurance Commissioner and the Health Insurance Advisory Council, both created by a 2004 law….Consider this story carefully, because it is a perfect illustration of how the healthcare mess faced by our country is NOT the result of impersonal and unstoppable macroeconomic forces, but of a strange system of government regulation maintained in this country out of inertia and not because it serves any public good.
An extraordinary dividend is defined as profits that exceed either 10 percent of the insurer’s surplus or the net income from the insurer’s operations in the previous year. Long-standing law requires insurers to win state permission for such dividends, but never before has the state sought public input on such a request.
Here’s what I mean. Current insurance laws, obviously, allow health insurers to conduct their business across state lines. Yet for individuals, similar activity is forbidden; individuals are restricted to their home states when spending money on health insurance. The restriction is not the result of any iron laws economic of necessity, but of political decisions made by the government.
If corporations have been given the freedom to pick and choose which states provide the best environment for the use of their resources, then why shouldn’t regular people be given the same freedom and be allowed to “transfer” a few thousand dollars to another state in order to buy a health insurance policy, if they can find a company in another state that better meets their needs? What legitimate purpose does the existing regulatory asymmetry between corporations and individuals serve?