Non-profit health cooperatives are trojan horses for private insurers

There is yet another Baucus bipartisan health care reform story, this one from Roll Call.  While primarily a story about the fight over funding reform, this nugget is thrown in at the end:

In a sign of a potential détente on another divisive issue – whether to implement a government-run insurance option as a part of health care reform – Baucus hinted that Senate Democratic leaders might be softening their position. Disagreement over the government-run insurance option is one of the main obstacles to a bipartisan health care bill.

Senate Majority Leader Harry Reid (D-Nev.) told reporters Thursday that he could envision a nonprofit medical cooperative plan of some sort being acceptable substitute for a government-run insurance option. And Baucus said he believes Reid is now flexible on the issue, a hopeful sign for his goal of drafting a consensus bill.

If you know the history of the Blue Cross Blue Shield Association and the way the public has been screwed in a number of non-profit conversions to for-profit companies, then you can clearly see what is happening.  Establishing a non-profit co-op leaves the door open for corporate takeovers by private insurers.

Consumers Union has a whole section of its website dedicated to the conversion of non-profit entities to for-profit status.  One area of primary concern is the non-profit health sector.  Among its many documents (PDF link) is a paper detailing the extant pressures pushing non-profit insurers (like most Blue Cross Blue Shield plans) into for-profit status.  The drive toward for-profit status and abandoning its charter for the public benefit was a Reagan era change in tax status for Blue Cross Blue Shield plans. (Historical note: The Senate was controlled by the Republicans and the House was controlled by the Democrats)

Government Policies Create Incentives for Conversions

Changing laws and policies also have played a role in the conversion trend, particularly when government has modified tax preferences and eliminated subsidies for nonprofit institutions. Consider the HMO industry. Federal loans and grants to nonprofit corporations under the HMO Act of 1973 were an important source of capital for development. The end of federal funding in 1983 sparked the first round of conversions in the health care industry. The HMO industry’s subsequent shift to for-profit domination was fast and emphatic. In 1981, 82% of the nation’s HMOs were nonprofit institutions; by 1998, the number of nonprofits had dropped to 26%.

The nation’s Blue Cross and Blue Shield (BCBS) plans, which for decades were nonprofit organizations, are experiencing a similar trend. Like nonprofit HMOs, the BCBS plans lost one of the primary advantages of nonprofit status – full exemption from federal taxes – with the enactment of the 1986 Tax Reform Act. The 1986 law subjected the plans to taxation, but created a special deduction for them not available to for-profit insurers. This change was largely due to the lobbying efforts of for-profit companies, who argued that the BCBS plans did not provide public benefits that justified tax exemption. Even the Internal Revenue Service advised Congress “‘that the significant differences between nonprofit and for-profit insurers that may have justified the initial tax exemptions have been eroded by competitive developments.'”

The loss of the primary benefit of nonprofit status, combined with the competitiveness of the insurance market, made conversion to for-profit status an increasingly attractive option. Historically the national BCBS Association, which controls the valuable blue “cross” and “shield” trademarks, required all Blues plans to be nonprofit organizations in order to use those trademarks. In June 1994, however, the national BCBS association changed the rules to allow its member plans to become for-profit companies, citing changing marketplace dynamics and the plans’ need to access equity capital as reasons for the new policy. Blues plans across the country responded eagerly to the siren song of the stock market.

State government policies have sometimes added to the incentive to convert. Georgia’s legislature, for instance, virtually propelled its state’s BCBS plan towards conversion. In that case, legislation enacted in 1995 authorized the health insurer to convert “into a for-profit company without any obligation to use its assets for public benefit. Rather than requiring a transfer of assets to charitable purposes, the Georgia insurance commissioner approved [the distribution] of stock to Blue Cross Blue Shield policy holders.” Ultimately, several nonprofit community groups sued the BCBS plan for converting charitable assets to private use; the lawsuit was settled when the plan agreed to transfer approximately $80 million to a new charitable foundation.

Consumers Union also has a handy history (PDF link) of the rise of Blue Cross Blue Shield as a non-profit public benefit, the assault on its non-profit status by for-profit insurers, and the virtual giveaway of public assests after its 1994 charter change allowing for-profit ownership.

Highlights include:

* For-profit Wellpoint tried to get away with distributing $100 million for the public benefit upon conversion of Blue Cross of California instead of the $3.2 billion it was eventually forced to distribute.

*Connecticut had to sue Anthem Insurance in an effort to stop the transfer of $41 million in public benefit charitable assets out of the state.

*Consumer organizations in Georgia had to sue to protect charitable assets after the Legislature approved to let them go without compensation. They won between $70-80 million for the establishment of a new charitable foundation.

*The Kentucky Attorney General sued Anthem for the return of $45 million in charitable assets transfered out of the state upon conversion.

*Missouri approved the restructuring of Blue Cross Blue Shield of Missouri without protecting any charitable assets, but subsequently sued to recover those assets. A settlement was reached for BCBSMO to seed a new charitable foundation with $13 million in cash and 15 million shares of common stock (then valued at $400 million). Wellpoint subsequent bought BCBSMO and the the charitable foundation’s value soared to $880 million. (Ed. note: see how truly protecting the public good can eventually profit)

*Nevada didn’t protect the charitable assets of BCBS of Nevada and received no money for its sale to BCBS of Colorado.

*The New York conversion is too long and sordid to spell out in the diary – go check out the terrible details for yourself.

And tucked inside this document is a bit of recent history that likely reveals the REAL reason Kathleen Sebelius faced such strong opposition to her nomination for Secretary of Health and Human Services.  It wasn’t about her stance on abortion, rather it was about her role in denying the merger of non-profit Blue Cross Blue Shield of Kansas with for-profit Anthem Insurance in 2002.

In February 2002, Kansas Insurance Commissioner Kathleen Sebelius formally rejected the proposed conversion and became the first regulator in the nation to reject a for-profit health insurer’s proposal to buy a state’s Blue Cross and Blue Shield Plan. The proposal was found to be, “unreasonable to  policyholders and not in the public interest, and hazardous and prejudicial to the insurance-buying public.” BCBSK appealed the Commissioner’s order.  A few months later, a trial court judge vacated the Commissioner’s order and remanded the case back to the Commissioner.

Undeterred, the Commissioner issued a written statement in which she promised “to protect the families and businesses of Kansas from millions of dollars in increased insurance rates.” Making good on this vow, the Commissioner filed a Notice of Appeal in June 2002 arguing that it was within her statutorily-granted authority to disapprove the proposal as she did. In August 2003, the Kansas Supreme Court upheld the Commissioner’s decision to deny the conversion.

*****************

With 47 million Americans remaining uninsured, it is clear that the private insurance market has not solved the problem on universal coverage.  GOP talking points about letting the market figure it out are just asinine.  

Group insurance is the predominate means for Americans to get health insurance.  A majority of small businesses do not offer health insurance, primarily due to its cost.  Without access to insurance through their employer, employees of small businesses are forced into the individual insurance market.  The individual insurance market denies coverage for pre-existing conditions (unlike group insurance plans under ERISA), and it generally provides fewer benefits per dollar of premium paid for those healthy enough to qualify for coverage.  If this market truly worked, then the only people left uninsured would be the people who CHOOSE not to have coverage.

A non-profit public co-op instead of a government run public option is not the solution.  It leaves for-profit insurers a legislative means for tearing them down.  It is their Trojan Horse.  It is their means for eventually tearing down the co-ops or buying them outright and stripping away any pretense of public benefit.  As the history of Blue Cross Blue Shield conversions shows, it is literally a license to steal.

Social Security and Medicare are the third rail of politics for a reason.  They provide exactly the benefit they claim to provide, and they do so in an efficient manner.  This is what the public option will do.  

Anything less leaves the American people open to the privatization pressures foisted on the Blues by Republican policies.

********************

Make your voices heard.  Let Sen. Baucus and committee members know that non-profit co-ops are a no go:

Senator Max Baucus at (202) 224-2651

Senator Olympia Snowe at (202) 224-5344

Senator John Rockefeller at (202) 224-6472

Senator Ron Wyden at (202) 224-5244

Senator Kent Conrad at (202) 224-2043

Senator Jeff Bingaman at (202) 224-5521

Senator John Kerry at (202) 224-2742

Senator Blanche Lincoln at 202-224-4843

Senator Debbie Stabenow at (202) 224-4822

Senator Maria Cantwell at 202-224-3441

Senator Bill Nelson at 202-224-5274

Senator Robert Menendez at 202-224-4744

Senator Thomas Carper at (202) 224-2441