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Montana Governor signs nonprofit healthcare conversion law

Friday, April 8, 2005

New Law Protects Nonprofit Health Assets and Montana Consumers

Governor Brian Schweitzer of Montana signed into law SB 317, which regulates the conversion of nonprofit health insurers into for-profit businesses. The bill was passed by overwhelming majorities in both houses of the Montana Legislature and is being hailed by consumer advocates as a model for other states to emulate.
“This bill protects consumers by establishing clear directions for regulators and clear rules for nonprofit health organizations planning to convert to for-profit corporations,” stated Schweitzer. “It is among the strongest in the nation; it’s good for consumers and good for business.”
Senators Greg Lind (D-Missoula) and John Cobb (R-Augusta) and Representative Tom Facey (D-Missoula) sponsored the bill. “My colleagues in the Legislature and I have learned from the problems faced by regulators in states without clear nonprofit conversion laws,” said Senator Lind. “This new law will provide consumers and regulators with the tools they need to evaluate a health insurer’s proposal to convert to a for-profit business. And the health insurer itself will be aware from the outset of the roadmap it must follow if it embarks upon a conversion.”
Because of tax advantages bestowed upon nonprofit organizations, their assets are essentially owned by the public. Montana common law already requires such assets to continue to be used for a charitable health purpose if a nonprofit converts to a for-profit business. As a result of health conversions nationwide, over $18 billion has been preserved in more than 170 independent foundations that carry on the charitable mission of addressing community health needs.
According to Scott Benbow, staff attorney in Consumers Union’s West Coast Office, “Montana’s bill provides strong protections for consumers in Montana, reduces the likelihood of litigation against the state, speeds up the conversion proposal review process, and prevents the depletion of the charitable assets. We applaud Governor Schweitzer and Montana lawmakers for protecting consumers and preserving nonprofit charitable assets.”
Montana’s conversion legislation:
• establishes a clear application process for nonprofit health plans seeking to become for-profit companies;
• requires public notice, the opportunity for the public to submit comments, public hearings across the state, clear discovery powers of regulators, and unfettered public access to conversion proposals and all accompanying documents;
• creates a transparent system for distributing the assets to a foundation or another nonprofit organization, if the regulators authorize a nonprofit health insurer to become for-profit companies; and
• is revenue neutral because it requires a company proposing a conversion to pay reasonable costs by state regulators reviewing the proposal.
According to Claudia Clifford of the AARP Montana, “This law will strengthen and clarify common law protections of nonprofit dollars. In the event of a health insurer conversion, the legislation will prevent nonprofit assets from slipping into private pockets and will preserve dollars for critical healthcare needs. Our membership and all Montana consumers will benefit from this protection.”
While Montana nonprofit health plans maintain that they have no intention of converting, legislators acted to protect consumers and preserve health assets in advance. Rumors that one of the health plans might have been preparing to convert several years ago may have prompted lawmakers to act in the current legislative session. In so doing, they have provided clear guidance for nonprofit health insurers who might eventually consider converting to for-profit companies as well as clear criteria by which regulators must examine a proposal.
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Scott Benbow
415) 431-6747
Consumers Union, publisher of Consumer Reports, is an independent, nonprofit testing and information organization serving only the consumer. We are a comprehensive source of unbiased advice about products and services, personal finance, health nutrition, and other consumer concerns. Since 1936, our mission has been to test products, inform the public, and protect consumers.
For more than a decade, Consumers Union has engaged in a national effort that seeks to preserve community health assets at risk in health sector restructuring, with a particular focus on the conversion of nonprofit health institutions to for-profit corporations. It has helped to preserve billions of dollars in community health assets and has advocated for the creation of independent health foundations.