The Ownership of Health Insurers

Spending by private health insurers exceeds $800 billion and is expected to rise. The Affordable Care Act provides $2 billion in subsidies to jump-start health insurers owned by their policyholders in an attempt to bring these costs under control. Firms with this corporate ownership structure have succeeded in other insurance markets, where Nationwide, Northwestern Mutual, and State Farm are just a few prominent examples. However, the potential of policyholder ownership in health insurance, which is dominated by investor and nonprofit ownership, is poorly understood. This Article applies theories of corporate ownership and control to analyze the strengths and weaknesses of investor, nonprofit, and policyholder health insurer ownership. Theory and an original empirical study of 1,000 individuals' projected healthcare consumption choices reveal policyholder ownership's ability to solve contracting failures, reduce overconsumption of medical services, and contribute to “bending the cost curve” of American health expenditures in ways unattainable by investor-owned or nonprofit insurers. The ACA's provisions for subsidizing policyholder ownership, however, force these firms to adopt restrictive policies that both exacerbate potential governance costs and keep them from maximizing policyholder ownership's advantages. In fact, the ACA's requirements force these firms into nonprofit/policyholder-owned hybrid organizations that capture the advantages of neither. Using additional empirical findings, this Article recommends ways that policyholder-owned health insurers could be promoted consistent with sound corporate governance principles