No one should be upset that Medica transferred funds to a for-profit subsidiary
No one does, of course.
That didn't keep Medica from getting pounded by Gov.
If anyone gets worked up about a nonprofit owning a for-profit subsidiary, they are not thinking clearly. What's worse about this whole story of Medica's capital allocation is that all the complaining only reinforces the enduringly popular delusion that nonprofits shouldn't ever make a nickel.
What all nonprofits need is capital. That's true for
It doesn't matter whether it's called the reserve, a surplus or net assets -- it's all capital. There's only one reliable way to get such a cushion: That's consistently spending a little less than they take in.
Yes, that means making a profit.
During the financial crisis of nearly a decade ago and in the years that followed, a lot of nonprofits found themselves financially strapped. From firsthand experience as a volunteer I can tell you that a lot of hand-wringing among board members concerned progress on the annual budget.
What was really needed was a quick look at the balance sheet, too.
In a nonprofit there won't be shareholders equity, but in the lower right there might be something called net assets. That's the capital. And in the upper left -- and in the same place it would appear on the
If the nonprofit had money in the checking account, or at least positive net assets, then it had some time. It could get to work on trimming expenses or figuring out ways to charge for a service or cultivate more donors. No money and zero net assets, well, then it was time to start laying off staff while praying for divine intervention.
Nonprofit managers rarely seem to think about this scenario, because adopting a balanced budget and then hitting it always seem like the right things to do. Yet that's just breaking even. To do better than that at a social service or arts nonprofit takes some unrestricted money, too, as government and foundation grants must get spent on the programs they were meant to fund.
A financial cushion in a neighborhood arts organization plays the same role it does in a big insurance company, like at
Its units include a big nonprofit health plan, a smaller nonprofit health plan organized in
Medica had net assets at the end of last year of more than
Most of the financial pain was felt in its big nonprofit HMO. That's why more than a year ago the company notified the state that it wanted to stop covering people in some state-run programs that had led to much of the consolidated net loss.
So through three quarters of 2017, the latest information available, the Medica Health Plans HMO unit has significantly contracted. By one measure of the people covered by this unit, it's about half the size of what it was in 2016.
As described by
It's true this went into a for-profit unit of Medica, but it's important to point out that
Why? To get an insurance license in the state of
And nonprofit Medica, the parent, hasn't used this for-profit subsidiary to abandon its mission of helping people get high-quality, affordable health care. Medica is the only player in the
I asked Medica to explain all of this in a telephone call with Quist, with an hour blocked out for the call. It could have wrapped up in 10 minutes, as Medica's practices are so straightforward and sensible.
It is a coincidence that this capital transfer took place the same year it became legal for an HMO to be for-profit in the state. There's no reason to expect a flood of for-profit competitors coming in to take on
A state survey from 10 years ago nicely summarized what happened to many of the for-profit insurers that once sold coverage here.
Of the reasons listed for leaving the market, ongoing losses was the most popular response, followed closely by "cannot compete."
Medica, UCare and the other nonprofits are still around. All still without any shareholders pocketing the profits.
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