Monday, December 21, 2009

Non-Profit Health Insurance

So, why is it that we currently seem to think that insurance companies must be some kind of giant, for-profit, mega-corporation or run by the government? Until recently, a lot of companies were self insured. Those insurance programs were usually run as a non-profit-earning segment of the company. Well, why not go one step further. Why can't someone start up a health-insurance company that is entirely not-for-profit? The only real difference would be that the company doesn't earn more than it spends and pay that difference out to investors. Customers would still pay premiums and co-pays. They would simply pay based on what they could afford rather than how badly the insurance company wanted to ream them for profit. The company would still earn a lot of it's money by investing in other things, just like a regular insurance company and just like a non-profit endowment.

But where would such a company get the initial seed money to start operations? Just like any other company, they would get that money from investors. Except those investors would be foundations and individuals who where not expecting a cash return on their investment. As with other non-profits, this is usually called a donation.

But here is the twist: Rather than those "investors" simply giving money to the Non-Profit Insurance Company (NPIC), they would buy what I am going to call "Non-Profit Stock" (NPS). That stock purchase would not be directly tax deductible. Instead, the NPIC would calculate how much money they would have paid out in dividends based on the insurance premiums they received, the claims they paid out, and the average profit earned by other, for-profit, insurance companies with similar premium/claims ratios and volumes. Then, the NPIC would offer that "Non-Profit Dividend" (NPD) back to the "Non-Profit Investor" (NPI) with a choice. The "investor" could use the "dividend" to "purchase" more "stock" in the NPIC, thus ensuring that they would receive an even larger "dividend" in the future. Or the "investor" could simply give that "dividend" to the NPIC as a pure donation, thus taking the tax deduction on the cash value of the "dividend." So, it is a way to defer tax deductions into the future while ensuring that the potential deduction will grow over time.

I realize that this may require a change in the tax code but I think it would be worth it to promote the creation of many different, competing, NPICs. The tax code could even allow for other types of "Non-Profit Stock" in other types of non-profit companies that would normally earn a profit but choose not to in order to serve more of the public. Heck, the code could even allow for people to sell their "stock", thus allowing someone else to take that tax deduction in the future.

The contents of this post is Copyright © 2009 by Grant Sheridan Robertson.
However, anyone is welcome to use this idea to go out and reform health care using the principles of competition that the conservatives pretend to be so fond of.


  1. Grant, couldn't NPS also be used for other nonprofits? For instance, if you created a nonprofit to create free curriculum (or the structure to create and organize it), then you could benefit from having NPS funding system.

  2. "couldn't NPS also be used for other nonprofits?"

    Exactly. This is what I envisioned. However, I don't thing would be a good fit because would not normally earn money and pay out dividends were it a regular company. I believe the concept is a better fit for non-profits that are emulating other for-profit companies which provide a community service. Entities such as hospitals, or non-profit, private schools. DEMML will not have "paying customers" so it would be incredibly difficult to calculate what the profits would have been were it trying to actually earn a profit.

    However, thank you so much for your kind suggestions.