Consumers Union's West Coast Regional Office

Kentucky Heading the Wrong Way With Charitable Trust Legislation
By Kathy Lee and Michael McCauley
807 Words
3/23/2000

A major political tug of war has broken out between Kentucky Attorney General Ben Chandler and leaders of the General Assembly over HB629, a new proposal that would give the legislature unusual oversight of the $45 million Anthem settlement.

Chandler has accused the Assembly of an "unprecedented money grab," while legislators maintain they should have some say over how the funds are spent. The bill has already been passed by the General Assembly and will soon be considered by the Senate.

Kentucky lawmakers are correct in asserting that the public has an important role to play in shaping the spending decisions of the state's new conversion foundation. But heavy-handed interference by the state legislature is not the answer. HB629 should be rejected because it raises some very serious constitutional concerns and would undermine the foundation's mission by politicizing its disbursements.

The rationale for protecting the charitable assets recovered from the Anthem settlement is firmly embedded in state common law. The charitable trust doctrine requires that the assets of a nonprofit corporation like Kentucky Blue Cross and Blue Shield (BCBS) must always remain dedicated to the charitable purpose for which it was originally established, even if the corporation dissolves or is reorganized. Since Kentucky BCBS has merged with Anthem, its assets must go to a conversion foundation dedicated to its historical mission of being the health insurer of last resort for low income and working class state residents. But even though these assets have a public purpose, they do not become governmental dollars.

The courts have long recognized that state legislatures cannot exert control over charitable assets. In Trustees of Dartmouth College v. Woodward, the U.S. Supreme Court held that legislative control of charitable assets is inappropriate since it could jeopardize the intent of such funds by subjecting their disbursement to the changing tides of politics. In the court's opinion, the judiciary is best suited to protecting charitable assets for their original purpose. Any action by the Kentucky legislature to control the charitable assets would therefore violate the separation of powers doctrine by trampling the domain of the courts.

HB629 raises additional constitutional concerns because it overrides a key provision of the Anthem settlement, which prohibits governmental entities from controlling the $45 million fund, and it intentionally sets aside hundreds of years of common law that safeguards charitable assets from legislative control. By doing so, it is akin to an ex post facto law, which is outlawed by the U.S. Constitution.

Under HB629, the conversion foundation would have to notify the legislature every time it makes a disbursement. While the bill has been amended so that it no longer gives the legislature veto power over disbursements, it still could force foundation officials to testify before legislative committees to justify expenditures. To make matters worse, the measure provides no clear, objective criteria for how the legislature would evaluate the expenditures. This degree of micromanaging would be highly intrusive and unnecessary, especially since the Attorney General is already empowered to monitor and enforce the laws governing charitable nonprofits such as the foundation.

The House passed another bill (HB502) that gives even broader power to the legislature over nonprofit assets preserved from future conversion transactions -- all such funds would automatically go into the general surplus fund.

Fortunately, there is a better way to ensure that the foundation will be publicly accountable. For the past fifteen years, Consumers Union and Community Catalyst have monitored health care conversions in more than 35 states. During that time we've provided community groups, regulators, and public policymakers with technical assistance that has helped to preserve more than $15 billion in charitable assets from conversion transactions.

States that have done a good job of establishing publicly accountable conversion foundations have made sure that the process for determining the mission, purpose and structure of the foundation has been open and inclusive. These states have established governing boards with a broad representation of interests and diverse experience that is reflective of the community served. And community participation has been a key commitment of the foundation and incorporated into its structure and operations on an ongoing basis.

Community interests can be given ongoing representation through the creation of a Community Advisory Committee (CAC). With responsibility for board nominations, a CAC ensures that the governing board is reflective of the community the foundation serves.

Kentucky should follow the lead of other states by creating a conversion foundation designed to engage the public in decisions about how these funds should be spent rather than adopting onerous legislative controls.

Now is the time to move beyond politics and get on with the business of establishing a charitable foundation that can help address Kentucky's unmet health needs and serve as a model for the rest of the country.