California Healthline recently published a highly disturbing report relating to nonprofit dental insurer Delta Dental of California’s allegedly flagrant spending, going into detail about exorbitant CEO and executive salaries, luxurious “business trips” for board members, and tiny percentages of revenue spent on charitable projects, all while benefiting from hefty state and federal tax breaks.
Delta Dental of California is one of the largest and most lucrative operations within the 39 Delta Dental companies. It operates in 15 states and the District of Columbia. The 39 Delta Dental companies overall operate in all 50 states, Washington, DC, and Puerto Rico. Currently under review by California state authorities is Delta Dental of California’s effort to purchase a 49.5% stake in Moda Health, a for-profit medical and dental insurer.
Consumer advocate critics contend this is only the latest effort by a nonprofit company to abuse its nonprofit IRS 501c standing. They hope state regulators will review and squelch the acquisition as an abuse to the obligations of a nonprofit entity. Delta Dental of California, in a written statement to Kaiser Health News, said its investment in Moda Health will increase access to dental care and treatments.
“A major problem with Delta Dental of California, as I see it, is that it appears to be utterly disregarding its duties as a tax-exempt nonprofit to operate for the benefit of the community. Instead of doing good for the public, it does good for its management,” said Michael Johnson, a former executive with Blue Shield of California who is highly knowledgeable about these specific issues.
Johnson, a whistleblower who also was instrumental in Blue Shield of California’s mandated change in status from a tax-exempt nonprofit organization to a for-profit company, now accuses Delta Dental of California of “paltry charitable giving, obscene CEO pay, inappropriate board compensation, and executive perks” in an article for Daily Kos and in a recent Tweet stream.
For example, Delta Dental of California CEO Tony Barth earned $14.3 million in total compensation in 2016. At the time, the company had 2,000 employees and revenues of $6 billion. On October 19, 2018, Delta Dental of California terminated Barth as CEO as a result of his engaging in and failure to report a relationship with a subordinate employee.
Meanwhile, Apple CEO Tim Cook earned $8.7 million in total compensation 2016, managing a company with 116,000 employees and $216 billion in revenues. J. Marino Molina earned $13.6 million in total compensation as CEO of Anthem, where he was in charge of 53,000 employees and $85 billion in revenues, in 2016.
The costs extend beyond the CEO’s salary. Executive and director pay accounts for 21% of Delta Dental of California’s total personnel expenses. Though directors aren’t supposed to receive a salary for their services, according to the company’s bylaws, they can receive up to $220,000 each year anyway.
At Blue Cross Blue Shield of Massachusetts, however, executive and director pay accounts for 4.4% of total personnel costs. At Geisinger Health Plan, executive and director pay accounts for 3.6% of total personnel costs.
Plus, Delta Dental of California’s executives enjoy luxurious perks including first class or charter travel, travel for their companions, tax indemnification and gross up payments, housing allowances or residences for personal use, health or social club dues or initiation fees, and personal services including maids, chauffers, and chefs. Delta Dental, meanwhile, says that it uses consultants and board oversight to ensure that executive pay is appropriate.
And while Delta Dental of California touts its philanthropic efforts, Johnson says the company donated just $1.8 million to charity in 2016, even though it has $1.4 billion in retained earnings. Johnson also reports that Deltal Dental of California lobbied against California legislation that would have required dental insurers to devote a minimum of 70% of premiums to dental care. The lobbyists were successful in removing that requirement from California bill SB 1008.
Delta Dental of California may not be alone in its alleged abuses, Johnson told Dentistry Today, as he plans on turning his attention toward other Delta Dental insurance companies throughout the nation soon.
“I am aware about the other Delta Dental organizations and do plan to raise that,” he said. “I’m focusing now on Delta Dental of California because the California regulatory review of their pending acquisition of Moda Health Plan provides an opportunity to pressure regulators to do something to curb the abuse.”
Dr. Davis practices general dentistry in Santa Fe, NM. He assists as an expert witness in dental fraud and malpractice legal cases. He currently chairs the Santa Fe District Dental Society Peer-Review Committee and serves as a state dental association member to its house of delegates. He extensively writes and lectures on related matters. He may be reached at email@example.com or smilesofsantafe.com.
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