January 24, 2002 | Read Time: 3 minutes
A consumers’ group is considering legal action to contest New York State’s plan to take most of the approximately $1-billion that will become available through the conversion of nonprofit health insurer Empire Blue Cross and Blue Shield into a for-profit corporation.
Under the plan, approved by the New York State Legislature last week at the behest of Gov. George Pataki, Empire would give 95 percent of Blue Cross assets to the state to use for raises for hospital employees and for other health-care expenses. The remaining 5 percent of the assets — about $50-million — would go to create a foundation dedicated to improving health care for poor New Yorkers.
Some local nonprofit leaders have protested the plan, saying that 5 percent of the insurer’s assets is too little for the new foundation, and that the money should not be used to plug state budget gaps. “It’s totally unacceptable,” says Charles Bell, director of programs for Consumers Union, in Yonkers, N.Y., which is considering the court action. “The small foundation is intended as a fig leaf to hide the vast diversion of the nonprofit assets.”
Consumers Union says it plans to argue that the plan is illegal, in part, because it would use the charitable assets for a purpose inconsistent with Blue Cross’s original mission of expanding access to health care. Says Harry Snyder, a lawyer in Consumers Union’s West Coast office who has monitored nonprofit conversions, “This is a threat to all of philanthropy.” He adds, “There is nothing to prevent Governor Pataki from selling the Metropolitan Museum of Art next year to balance his budget, or from taking over the Rockefeller Foundation. This is a taking of private property, and everybody in the nonprofit sector ought to be weighing in on this battle.”
The New York Times also criticized the plan in an editorial last week, saying it appeared to be “the largest fiscal gimmick in New York State history.” It added: “Other states have used such conversions to set up a health-care foundation, an excellent way to assure that the loss of affordable health care is made up by charity or the state.”
Deborah Bohren, vice president of public affairs at Empire Blue Cross and Blue Shield, says the decision over how the assets from the conversion should be handled is “up to the state to determine.” She adds, “We think this is an appropriate use of funds.”
At least 166 foundations have been created as a result of hospital, health-plan, and health-system conversions since 1973, most of which occurred in the mid-1990s, according to Grantmakers in Health. Malcolm Williams, a senior program associate at Grantmakers in Health, said large conversions, such as the one in New York, should receive careful public scrutiny to ensure that the charitable assets are put to best use. While Mr. Williams says he doesn’t “have a problem with states looking for interesting ways to address health-care needs in their communities,” he adds that the creation of foundations “has proven to be a useful component for addressing health care at the local level.”
