I disagree with Hightower.

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a collection of thoughts, arguments, and observations
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Thursday, May 24, 2012

Healthcare and Nonprofit Organizations

When I suggested some time back that we take the profit motive out of health care with a single payer system administered by a nonprofit organization the uproar was deafening, or as deafening as two responses can get.  Okay so it wasn't deafening as much as it was swift and negative.  As I recall I was corrected in two ways:

1. Health Care professionals would not be happy about taking the profit motive out of their industry nor should they be.
2. Nonprofit organizations strive to make profits also. 

As I pointed out in the first part of this post, a nonprofit organization is allowed to be exempt from taxation and receive other benefits because the purpose for which they were organized meets a perceived need of the society.  And to keep their nonprofit status they must continue to show that their activities are for the purpose of achieving their exempt purpose.

Now, when I was in college back in the old days my professors taught me that the purpose of a business is to meet a need in the community blah blah blah.  I was impressed with the highminded idealism of that concept.  But in my 30 + years of operating in the business world I have learned that my professors were wrong.  NOTHING trumps the purpose of maximizing profits.  Those profits are the property of the owners and the more of it the better.  I don't mean any of this in a derogatory manner.  That's just the way it is and that is one of the most solid tent poles of our capitalist system.  Owners want to maximize their profits and so they are motivated to make decisions that will accomplish that.  Profits are NEVER too high or even high enough.

A nonprofit organization's only purpose is to achieve its exempt purpose.  To provide to society that which society has asked for in exchange for the exempt status the organization enjoys.  The measure of a nonprofit's success is measured by whether or not, and to what extent, it is achieving its purpose.  It only needs to cover the costs of operations.  To be clear, a nonprofit organization needs money to carry out its purpose and most are constantly scurrying for cash.  But the cash they need is for covering costs not covering costs PLUS paying dividends.  As stated above their is no owner to pay dividends to.  No owner to which the profits, if any, must be turned over.  Society is the owner and society only asks that the organization achieve its purpose.

The cost savings is clear if a nonprofit does what a for-profit business does.  A for-profit business cannot compete with a nonprofit.  The for-profit business must make a profit over and above it's operating costs to justify an owner's continued investment.  During the great healthcare debate whenever an option was discussed that involved a nonprofit entity the Republicans cried socialism because for-profit businesses could not compete with a nonprofit insurance provider and it would put them out of business.  They were, ironically, making the best argument FOR the nonprofit provider.  But at the same time labeling it socialistic. 

Is it a perfect solution?  There is no perfect solution.  And certainly nonprofit organizations have had their share of scandal and bad apples.  But they also have achieved great and wonderful things that for-profit businesses could not have achieved.  It makes perfect sense that if we want to get costs under control one of the easiest places to start is by "taking the profit motive out of health care insurance".  Or maybe a better way to say it is taking the profit out of the costs of health care.  I admit that I did not say health care INSURANCE in my posts of some time ago and so I am not suggesting that doctors and nurses and private hospitals give up their for-profit activities. 

Also, I think the efficiencies gained by having a single provider would be tremendous and show up in huge cost savings.  I don't think any of us disagree with that.


  1. I'm not sure the following example is perfectly applicable, but it's one I have a great deal of experience with. Has anyone looked at industries that feature a single government/not-for-profit provider vs a free-market solution? I'm thinking specifically of the electric utility industry in Texas. It was deregulated in 2000-2001, moving from several regions with sole providers to an open market. Since that time, costs have soared, while our costs in Oklahoma have remained relatively stable. I believe today, we pay just a little over half of the average price per Kwh in Texas.

    This difference can largely be attributed to deadbeat customers that run up large balances and then move to another provider, leaving the paying customers to foot the bill, not unlike our current healthcare system. As I said, this is not a perfect example, but perhaps it will provide a little food for thought.

    1. Allen, I think the electric industry is a good reference point here. The REA (Rural Electrification Administration) would in my opinion be a success story in that it brought affordable electricity to rural America years before private enterprise would have done so. The ratio of infrastructure cost necessary to provide electricity to a sparsely populated area is far less attractive than the ratio in a densely populated area. The REA make rural rates comparable to those in metropolitan areas by providing low interest loans available to non-for-profit electrical COOPs. It worked and electrical lights were turned on in rural America.

      I think the REA was a good program, but the costs are what they costs are and the rates to rural farmers were subsidized by the rest of America through low interest loans to COOPs, tax free status to COOPs, and the availability of government grants to COOPs following natural disasters.

      I totally agree that the concept of electrical COOP was good for the country, but I perceive the consequences of non-profit status for COOPs as a cost shuffle as opposed to a saving or economy due to their non-profit status.

      I do not have the stats regarding rates following deregulation of electrical rates in TX readily available, (perhaps you can direct us to a credible web site?) but as a consumer of electricity in TX my perceptions of rate increases following deregulation is favorable.

      On last thought on electrical COOPS. Many of these COOPS now provide electrical service to densely populated areas that could profitable be served by a for profit provider. In cases where the rates between for profit and not-for-profit providers are comparable I would suggest that the continued existence of the non-profit (and subsidized) provider is unfair to tax payers and should be revoked.

      p.s. I was the CFO for a not-for-profit electrical COOP in TX from 1987-1993. During those years our primary motive to control rates was to remain competitive with the for-profits.

  2. Allen thanks for that. I was thinking of the old electric utilities too. But I didn't have any stats. My impression is that deregulation has not provided the benefits advertized.

  3. One question that should be asked is benefits for whom? Have you checked how much the "not-for-profit" was being subsidized? For example I am quite confident that if the TVA were sold to private companies , i.e. deregulated, my rates would go up too. But I think that that would be because the government subsidy that I enjoy would disappear. I would pay more for my electricity and you would pay less - for my electricity.

    PS Bruce said at the beginning of this post he was criticized for an earlier post. Which one was that?

  4. The benefits advertised...the reason we the consumers were given as to why deregulation was something that we should be in favor of...was lower prices for the customers. Benefit to whom? Lower prices for customers.

    I must admit I had to look up "the TVA" but having done so I see that it is a government owned monopoly. And that most definitely is one type of government enforced monopoly, but not the only kind. In my example the nonprofit administrator would be regulated, but not owned by the government.

    If anything outside the box of the free market is a red flag in ones mind, it's not likely that one will be able to get comfortable with any kind of government granted monopoly. I believe that the history shows that the free market is not a magic bullet. Controlled it can accomplish great things, but not ALL things.

    Also, in Wayne's example, I would pay more for my electricity and he would pay less for my electricity. But He would pay more for his electricity and I would less less for his electricity. (Need a flow chart?) Seems like a potential wash. But bottom line, we would BOTH be paying more for our electricity, and to whose benefit? My electricity just got more expensive so that dividends could be paid to an owner.

    The electricity monopoly we used to have in Oklahoma City was not owned by the government, and in fact, I believe it's business form was a corporation (OG&E). So, we were paying for dividends in that particular case, albeit they had to be approved by the oversight board. (And on a personal note, they helped me through college with a couple of small scholarship checks.)

    Monopolies were granted not just for the economies of scale argument but also because the services that were granted monopolies we considered absolutely necessary for the security and economy of our country, and it was felt that the monopoly would not be subjected to the chaotic forces of the market that could effect private providers and perhaps render them less able, or even unable, to adequately provide these necessary services. Can your say "Enron"? Can we all say "rolling blackouts", which I experienced last summer and may experience again this summer I'm told.

    Wayne I apologize if I gave you, or anyone else, the impression that I thought that I was being criticized. That did not cross my mind. My purpose in readdressing this issue was:

    1. I feel strongly that it is the best option, in terms of cost savings and providing healthcare services to the most, of any I have heard or read about.

    2. I inferred from the critiques my previous post received that my statement that we need to get the profit motive out of healthcare was greatly misunderstood. So after giving myself some time to rethink how to present my case, I tried it again. A real time waster, but helpful in that it helped me to gather my thoughts again on the subject.

    1. You said: "Also, in Wayne's example, I would pay more for my electricity and he would pay less for my electricity. But He would pay more for his electricity and I would less less for his electricity. (Need a flow chart?)"

      Your description of my example is not correct unless you also get your electricity from the TVA.

    2. In my example I was a generic TVA customer me for demonstration purposes. Not the real me. You and the fake me would pay higher prices for electricity, but theoretically less in income taxes because of the decrease in government subsidies. Somehow I doubt that you and fake me will feel any difference in our income taxes. At least that's my thought. So, as far as I can tell we would just end up paying more for electricity.

  5. Bruce, There is nothing wrong with being criticized or criticizing I was just asking you to tell me where that had happened because I wanted to see it. I asked for a reference not an apology. I have stated plainly that I favor a single payer plan (which seems to me to be inconsistent with your judgment that I am a conservative masquerading as a centrist). So I wondered what it was that you considered criticism. Could I get the reference?

  6. Having searched through previous comments I don't find that exchange. In fact, it appeared to me that other of my comments were missing. As much as I would love to provide a reference I can't.

    I know that you have stated plainly that you favor a single payer system, as I do. Do you favor a government administrator as with Medicare, a corporate one, or a nonprofit tax-exempt organization, and why? I'm just asking you to flesh out your thoughts out a little more. You have clearly given it a fair amount of thought.

    And Tom is in favor of a national health insurance plan also, but was skeptical about the ability of a government granted monopoly's ability to control costs. Tom, wouldn't any single payer system have that weakness because of lack of competition? Or maybe there is another type of national health insurance plan that would bing competitive forces to bear?

    Just a bit more analysis to help me to understand exactly what is being advocated and why. Single payer system doesn't
    tell me much. Inquiring minds want to know.

    1. I am not opposed to a single payer either.

    2. In your mind what would be the cost minimizing mechanism?

    3. The point of control is whoever has skin in the game. Instead of hiding cost and telling everyone it is free make it painfully clear who pays – at ever point in the process. Make it a goal to never hear the phrase “Oh, insurance will pay for that.”

  7. You can find my statement on national health care in the post national-health-care-1.

    PS I did not delete any of your comments.

  8. Well nuts! Now I am going to develop an obsession about finding it. If I'm the only one that recalls that exchange then there may be some doubt that it even took place. I remember it well. And I did not dream it or imagine it.

    Also Wayne I would point out that your post of April 17 about Centrist includes some quotes from a writer who seems to use centrist interchangeably with moderate. My understanding of the word moderate means moderate conservative or moderate or a liberal moderate. Do you see moderate and centrist as the same thing?

    1. April 17??
      I am indifferent to any difference between the meanings of "moderate" and "centrist".