Many people in the US who want health care reform are arguing that the profit motive distorts the cost of health care. Here’s my question: couldn’t those who want non-profit health care just buy a public company and turn it into a not-for-profit corporation?
Example: Humana Inc is a company that provides health insurance. It has outstanding stockholders’ equity at $5.5 billion (according to EDGARS online). In 2008, Obama won the election with 69 million votes. Divide the former number by the latter and you’d get a figure of approximately $80 per voter to buy out Humana’s shareholders. Then at the next shareholder’s meeting, they could vote to become a non-profit corp. Would this be feasible?
(Yes, this makes a lot of assumptions about the means and motives of Obama voters, but A, they’d likely not have to buy all the shares to win the votes and B, the average person would need to pay $80, but some would be willing to pay more and others less.)
I suspect they’re not as competitive for the same reason that the biggest insurers in other areas are also for-profits. A corporation that can raise capital can sell cheaper policies and spend more on marketing than a cooperative insurer.
There’s also the added complexity of administering a health insurance plan, which is vastly more complicated than, say, fire or car insurance. It’s easy to investigate a fire or car accident and write a check for the appropriate amount. But a health insurer needs a network of doctors and clinics, a constantly evolving list of treatments they will and won’t cover, and they have to market themselves to a relatively small number of large customers (employers) rather than to individuals.
Interestingly, some googling seems to indicate that there are only two currently active cooperative health insurance companies in existence. (They were apparently much more common in the era before employer-provided plans.)
Another common alternative that has sprung up recently is cooperatives that buy group health insurance plans from regular insurance companies. For example, I belonged to Freelancers Union for a couple years while I was doing consulting work.
The assertion is is that the profit motive is driving up the cost of health care, your premiums are paying a CEO hundreds of millions of dollars. So, if the health care reform people really want change, they could orchestrate a demonstration of their beliefs by buying an existing company and showing how it can be run as pretty much an NGO, and this could be done without too much difficulty, why haven’t they tried?
The formal definition of “non-profit” is (IIRC) consistently not showing a running profit at the end of the year. Unlike Ford or GM. they do this on purpose. There are several ways - lower the charges to customers, use the profits for related work that is chariatbale or complete loss, etc.
The participants could “milk” the group, but I suspect unless the service paid for was consistent with the organization’s goals, close to fair market value, and “reasonable” (calll the lawyers on that one!) someone in some regulatory agency would have a problem with it. A president or board owes a duty to put the company first before lining their own pockets. The duty doesn’t stop just because they are not dedicated to making a profit.
Why aren’t there more “non-profit” groups? Why would their be? Who is motivated in a NP versus a profit company? Most organizations are started by a bunch of do-gooders and without strong will to keep them on the straight-and-narrow will degenerate into iron bureaucracies.
Plus, without the profit motive - where’s the collateral and incentive to get capital to expand? Who’s going to lend money for say, a new hospital, if the current one won’t generate money to cover the payments if the new one is below target? Not to mention the motivation to be ruthless when expenses need to be cut?
Plus when someone sets out to buy out a company, the price gets bid up prety high. Unless it’s a government mandate “we will pay $X and by law, you must deliver the shares” it may get bid up. If it is law, well it would prove what the craziest critics on Fox have been saying about socialism.
That’s not correct. There are some NPOs that operate this way (for example, the local PTA where I grew up would use any surplus funds to buy the students free pizza.) But there is no requirement that an NPO use all its money every year. Indeed, there are quite a few with rather enormous assets. Look at Ivy League university endowments, or the Hughes Medical Institute.
A non-profit has no shareholders or owners, and all funds received must be used in furtherance of its stated mission. (And the IRS has a few broad categories of acceptable missions. “Buy me a boat” is not of them.) So that means any excess income is either saved for a rainy day, added to an endowment fund, or given away somehow, perhaps to another non-profit.
Indeed. One of the most common forms of non-profit fraud is simple embezzlement: NPO pays “consulting fees” to some board member, who doesn’t actually do anything useful, for example. The IRS will audit the hell out of you if they smell malfeasance.
It seems to me that this is why cooperatives generally succeed where there is some kind of defined limit in place. A housing cooperative, for example, is limited to the people who live there. Farming cooperatives are limited to farmers in a certain area who grow a certain crop. Credit unions are often small and local, and were originally formed to cater to certain trade groups (I think this has been significantly loosened in recent years. But they still can’t compete with big national banks.)
Without the pressure to expand, cooperatives don’t need to use their resources to constantly bring in new customers. But it also means you have to have a critical mass in place to begin with.
as well as other major insurers (ie Kaiser). I am not an economist nor a philosopher but from what I see non-profit organizations are neither significantly better nor worse than for-profit. After all, profit in a regulated industry is around 10%, so it isn’t a major cost driver. Right now politicians are using the label for some kind of gain, both for and against health care, but in the real world I don’t see that it makes much difference. If the OP would like to see more non-profit health care companies, there are plenty of models already out there. Setting another one up wouldn’t be that hard-compared to setting up any other kind of large cash-flow business.
If you care to take this out of the health insurer arena for a second, you will find that “non-profit” providers are very apt at playing games with their tax exempt status
for example, in downstate Illinois there are battles that get waged between the Illinois Department of Revenue and these “not-for-profit” healthcare foundations. What effectively happens is that the cheap services are provisioned through the NFP, while all the expensive procedures are billed through the for-profit affiliated entity. The Taxman wants to revoke the NFP tax exemption because of this, the hospital/provider entity disagrees.
So, at least on the supply side, NFP doesn’t really mean much unless you are really familiar with the specific operations of the hospital in question.
Hmm, that’s a shame, I was really just looking for a factual answer as to whether removing the profit motive from insurance would really “fix” health care, and gave a plausible scenario how it could be done without government intervention.
If this isn’t in GQ then close this thread, I have no interest in debating anything about it.
I don’t think there IS such a thing as a factual answer to such a speculative question. The question is too general. What does “really fix health care” mean? We can note that, in many other countries, health care organizations are not profit-oriented and they do very well at providing health care within a balanced budget. We can note organizations in the US (such as the Kaiser Foundation in California) that provide very high quality, high level health care. We can compare statistics on patient/customer/consumer satisfaction with current administration. But whether such a thing would “really” fix health care depends on what one thinks is wrong with health care.
Just because the OP is no longer interested in a thread, that’s not necessarily a valid reason for closing it.