Managed Care - August 2008 - (Page 16) Health Plan Foundations How Well Are They Spending the Money? By Maureen Glabman Contributing Editor he subscriber battles began in the 1980s. Blues and other not-for-profit health plans went up against for-profit plans like Cigna. With no obligation to act as the health insurer of last resort and flush with fresh cash from capital markets, Cigna and others gained ground. Dozens of not-for-profits strategically determined that the best path to survival was to ditch their restrictive not-for-profit status so they, too, could expand by tapping a generous cash spigot by selling stock. An added impetus to become for-profit corporations came in 1986 when the federal government removed the full tax exemption for not-for-profit Blues plans because it determined that the Blues had been operating de facto as for-profit organizations. The floodgates opened in 1994 when the national Blue Cross & Blue Shield Association changed it policies, allowing its licensees to convert. More than a dozen Blues in New Hampshire, New Mexico, New York, Kentucky, Georgia, and Maine, among others, made a beeline for Wall Street. Regulators stepped in and demanded that notfor-profit plans that wished to change course establish independent philanthropic foundations with the value of their assets. It was tit for tat. After all, not-for-profit plans had for decades, in some cases, received generous tax abatements — subsidies from the communities where they operated. The benefits accrued were perceived as the public’s money. As a result, about 30 health plan conversion foundations were endowed with billions of dollars between 1984 and 2006, irrevocably altering the health landscape. The unprecedented shift in assets from combined not-for-profit health plans, hospitals, and health systems was termed by researchers “the largest redeployment of charitable assets in T U.S. history.” Moreover, a system that had once consisted almost exclusively of not-for-profit plans became increasingly for-profit under names like WellPoint, Humana, and Health Net. Today, the number of enrollees in for-profit plans surpasses not-for-profits, 48 percent to 41 percent, according to HealthLeaders-InterStudy, which studies the segments of the health care industry. For 11 percent of enrollees, the health plan status is not known. Some states required even merged companies to forward assets to charity. When Blue Cross Blue Shield of Illinois and Blue Cross Blue Shield of Texas merged in 1998, $10 million was given to Texas Healthy Kids, a not-for-profit that provides primary care to about 1.3 million uninsured Texas children. Today, health plan conversion foundations flourish in 15 states and the District of Columbia, boasting assets of $9 billion. That’s the amount Microsoft recently offered for Yahoo. The California Endowment, the largest conversion foundation (more than $3.5 billion in assets derived from the 1996 conversion of Blue Cross of California to WellPoint), ranks among the 12 largest foundations in the country, keeping company with the Bill and Melinda Gates Foundation with $37.3 billion and the Ford Foundation with $13.7 billion, the two largest. State requirements Many states require some or all conversion foundation assets to continue to be used charitably, usually relating to the original health organization’s mission. In addition, like all foundations, plan foundations are designed to exist in perpetuity. Under federal law, they must distribute 5 percent of their endowments annually, including administrative costs. As a result, $450 million is dispensed yearly to support widely diverse causes under a broad interpretation of the word “health.” For example, the California Endowment and California HealthCare, sister foundations formed 16 MANAGED CARE / AUGUST 2008
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