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“Non-Profit” Healthcare is a Non-Solution

By       Message Mr. Moderate       (Page 1 of 2 pages)     Permalink    (# of views)   4 comments

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Author 22585
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One definition of insanity is doing the exact same thing over and over and expecting the results to be different. Sure, there are situations controlled by random chance where different outcomes are possible. But surely we are not looking to formulate public policies based upon random chance.

This idea becomes important when discussing any use of "not for profit" entities as part of the reform of our health care system in the United States. This has been done before, and we have no good reason to believe that the eventual outcome will be any different.

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It is the greatest irony that the free-market believing Republicans are claiming that "not for profit" entities sponsored by the government will have an advantage over "for profit" entities in the provision of health care and that will end up driving everybody into the care of these government sponsored "not for profit" entities. History tells us that the exact opposite is more likely to occur. We only need to examine the history of the Blue Cross and Blue Shield plans to understand this.

The Blue Cross/Blue Shield system had its roots in a 1929 effort by Baylor University to provide catastrophic hospitalization insurance for Texas teachers. People all around the country liked the idea, and soon a large number of non-profit hospitalization and physician insurance plans sprang up. The Blue Shield plans began with a California non-profit called California Physicians Service. The Blue Cross logo was derived from the logo of the American Hospital Association, with which it was affiliated to various degrees until 1972. For several decades the hospitalization and physician plans were run separately, but in 1982 the national Blue Cross organization merged with the national Blue Shield organization and state organizations similarly merged their hospitalization and physician plans.

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If being a non-profit company had such tremendous market power that "for profit" companies would be driven out of the market, we might never have developed the health care crisis we have today. But in fact, the situation is the reverse: the "for profit" companies managed to use their market power and legislative influence to obtain advantages for themselves. So it came to pass that as part of the Tax Reform Act of 1986, the non-profit health care companies lost their 501(c)(3) charity statuses and were reclassified as taxable entities under section 501(m) of the Internal Revenue Code.

As a result of this reclassification, it became possible to convert a Blue Cross/Blue Shield company into a "for profit" entity, and since 1986, roughly half of the Blue Cross/Blue Shield plans across the country have converted to "for profit" status. Certain plans have converted directly to "for profit" status while others have first converted into a "mutual insurance company" and then gone through the process of demutualization. Some state Attorneys General have successfully sued the resulting "for profit" entities to recover the value of the absorbed charitable entity. Others have let the asset conversions in their states go through with hardly a whimper.

In the beginning, the management of many Blue Cross/Blue Shield plans was dominated by representatives of service providers. Gradually, control passed to consumer representatives, then to professional managers, and finally in many cases to "for profit" corporations, some of which are publicly traded on a stock exchange. Ultimately, what began as a laudable goal to provide an affordable option for sharing risk among members of the middle class morphed into just another business operation designed to extract the maximum amount of money from those who pay the fees while providing the minimum amount of benefits to the service beneficiaries. This is illustrated in the following quote from Colin Gordon's review of a book-length history of the Blue Cross/Blue Shield system:

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"In their largely futile effort to hold to the principal of 'community rating,' the Blues underscored the persistent irony of private health insurance--that it was ultimately an exercise in avoiding risk rather than spreading it. In their increasingly elaborate brokering of the demands of hospitals, employers, and patients, the Blues underscored the limits of private health insurance--which quickly became obsessed with shuffling costs among the covered population and their employers and indifferent to the goal of expanding coverage."

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I am an early baby-boomer, growing up in Orange County California during the 1950s and early 1960s. During the 1964 election, I strongly supported Barry Goldwater, even though I was too young to vote (just 17). I still consider myself to be a (more...)

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