New York, New Jersey hoping for big payoffs from health plan conversions

Politicians are pondering raising money for their cash-strapped states by greasing the skids for the change to for-profit status.

By Robert Kazel, AMNews staff. March 22/29, 2004.

State officials in New York and New Jersey are considering approving nonprofit health plan conversions to for-profit companies on the condition that most of the initial cash windfall will go to strapped state coffers.

The strategy is controversial. The prospect of conversion funds being used to buttress state budgets is worrisome to some consumer groups and medical associations, which argue that any cash generated should be spent, as it has been in other states, on charitable foundations to ease the burdens of the uninsured. In such conversions, cash is raised by selling stock to private investors in an initial public offering.

"There's a lot of money to be had," said Dawn Touzin, director of Community Catalyst, a Boston-based national health care advocacy organization. "It's a very attractive carrot. I don't minimize the challenge that state legislators are facing, but to prompt a conversion to get money is a very short-sighted solution."

In New York, which will face an estimated $5.1 billion budget deficit next year, Gov. George Pataki on Jan. 24 submitted to the state Legislature a budget proposal that includes blanket permission for all nonprofit health plans to convert to publicly traded corporations.

Under Pataki's plan, 95% of the proceeds of any conversion's IPO would go for state purposes and only 5% would go toward a charitable health care foundation. The first $400 million from a conversion would be pumped into a state pool that helps pay for a variety of health-related programs, including subsidies for hospitals and medical education. But the fate of the rest of the conversion proceeds would be spelled out by future legislation, and the cash might be earmarked for anything from public schools to state employee pensions.