Change in My Pocket

I got a letter from my health insurance company today saying that my employer and I would be getting a rebate because under Obamacare, insurers are required to spend at least 85% of premiums on hospitals and health care services, and no more than 15% on “administrative costs such as salaries, sales, and advertising.”

The overhead ratio has come to healthcare, just as nonprofit leaders are calling for it to be transcended in the social sector.

The kicker: just for New York State, the amount of customer premiums for this one insurer in this one year is $2.2 billion. That would have put it at number 27 in the list of top 50 foundations by assets in 2011. So 0.7% of those premiums is about one-seventh of what that hypothetical foundation’s payout would be – call it one grant program. $15 million, give or take. (Now whether I as a policyholder ever see a dime of that rebate is an open question: my employer subsidizes my premiums, so they may decide to use whatever we get toward defraying those costs.)

I bring that up just as another reminder of the scale of philanthropy relative to other parts of the economy. And to observe that in the aggregate, even relatively small-seeming instances of inefficiency (missing the target by less than 1%!) can conceal some serious dollars.

But the larger issue is, do we want an overhead ratio in healthcare, is that actually a useful thing? For once, the nonprofit sector may be ahead of the game relative to other sectors. I worry we may have to really evangelize some of this thinking beyond our own sector – where it’s hard enough to get the word around. And it’s a tough sell in healthcare – hard to argue that we need more hospital marking. It’ll be interesting to monitor how this “Medical Loss Ratio”, aka the “85/15 rule”, plays out in practice. God, I hope the authors of the healthcare bill didn’t get that number from nonprofit overhead ratios….

Oh, and like everyone in philanthropy, I read and thought and talked about Peter Buffett’s blog on the “Charitable-Industrial Complex.” For me the definitive word on this is from Zack Exley here. The upshot: the unglamorous way to reduce poverty quickly is aggressive state-led development. Viva varieties of capitalism!

Share/Save/Email/Bookmark

Tags: , , ,

Leave a Reply