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Bar Journal - March 1, 2003

NH Based, Non-Profit Health Insurance: The Rise, The Fall & The Legacy



At the corner of South Main and Pillsbury, in Concord, New Hampshire, stands a large brick building. There is no signage except for a large placard stating that the property is "For Sale". An official "No Trespassing" sticker has been applied to one window. An entryway is covered by plywood. Once the headquarters of New Hampshire Blue Cross and Blue Shield, this abandoned edifice reminds us of what this company once was and invites us to comprehend the astonishing change that overtook it in 1999. The structure also embodies an idea, born in a living room in Pembroke, championed by New Hampshire Governors, and sustained by countless citizens who benefited from the services offered by the institution that once inhabited the now abandoned building.

From 1942 through the early seventies, New Hampshire Blue Cross and Blue Shield ruled the New Hampshire health insurance market. No other institution, then or now, has achieved such dominance nor is any company likely to do so in the future. Then, from this lofty pinnacle of success the Blues fell to earth, landing before a judge of the New Hampshire Probate Court who, with a stroke of the pen, served public notice that the charitable mission of New Hampshire Blue Cross and Blue shield was no longer sustainable. Thus, the court’s decision gave final approval to a transaction that enabled Anthem Insurance Company to acquire a New Hampshire icon while, at the same time, leaving behind a substantial endowment whose funds are dedicated to sustaining the goals and values of Blue Cross and Blue Shield.

This is a fascinating story and one that is being repeated in many other states involving not only insurance companies but also nonprofit hospitals. What the eventual impact of this transformation to "for-profit" health insurance will be, we cannot know. Perhaps by recounting how we arrived at this point in time we may be able to understand both the legacy and the future.


New London NH – 1943. New London is a small town. In 1940, the population was 1,039 not counting the seasonal fluctuations associated with the comings and goings of students enrolled at Colby Junior College. Strikingly, this figure exceeded by only 20 the population in 1840, when 1,0191 industrious citizens earned a living in agriculture and sundry trades.

Throughout the summer and fall of 1943, thanks to the tireless efforts of a diminutive but exceptionally energetic housewife who headed a well-organized community group, 146 citizens, or over ten percent of the entire town population, agreed to enroll in an innovative prepaid hospital insurance plan called Blue Cross, said enrollments taking place on November 1st. This accomplishment would, in time, be seen as ". . . one of the first such enrollments in the nation. Mrs. C. Vance Allyn was the chairman . . ."2

Few individuals in New London called Mrs. C. Vance Allyn anything but "Jo" being a shortened version of Josephine. Just what prompted Jo to undertake the chairmanship of the community group that achieved so much is unknown but no one can doubt the evangelical intensity with which she approached her task. Daughter of missionaries who had served for many years in China, perhaps she was driven by the simple desire to address problems that confronted her community. Doubtless using a personal approach, without radio, an advertising budget, TV enticements, employer inducements or any of the other paraphernalia of a modern marketing campaign, Jo convinced her fellow New Londoners that this new enterprise was organized for the sole purpose of answering a personal and family need.

We cannot say if any inquires were made as to whether Jo and her committee would derive any personal benefit from their efforts; but if such a question had been proposed, it is likely that she would have replied with absolute conviction – "nobody, just you and your family." Here, unbeknownst to Jo, was the concept of an economic enterprise we have come to label a "nonprofit." How nonprofits have evolved since Jo’s time is an unusual story, populated by individuals whose concern was for the public good and not for personal economic benefit. It is a story that continues to weave itself into the lives of our citizens, our courts, our executive branch of government, and the halls of legislative power.

The heart and soul of nonprofit organizations is ". . .that they do not distribute any profits they might generate to those who control and/or support them."3 Herein lies the fundamental concept that governs the conduct of a nonprofit organization. Further, implicit in this definition is the fulfillment of a public need or purpose as opposed to investor benefit.

It is a common mistake to define the purpose of a nonprofit organization by its status with the Internal Revenue Service. Today it takes dozens of pages of explanations4 and an entire body of law to explain this idea in contemporary terms. For example, public charities, public foundations and private foundations may all be classified as 501(c)(3) organizations although each may address different social issues. The Internal Revenue Code is like an overgrown jungle through which one hacks in order to reach a single tree.5 Jo Allyn, with simplicity and a fundamental understanding of humanity and public purpose, surpassed modernity.

Editorial Saturday Evening Post – 1926 "The high cost of health care has created a real burden for the great financial class composed of self respecting people who are too proud to accept free service and too poor to be able to afford the costly private rooms highly paid surgeons and the expensive laboratory studies that have done so much to take the guess work out of modern medicine and surgery."6

Newark and Essex County New Jersey – 1931. Frank Van Dyk was not the sort of man whose future accomplishments could be predicted by past successes. Equipped with an eighth grade education, he had held a variety of positions including "working in newspapers, public relations, advertising and fundraising before becoming the executive director of the seventeen-member Essex County Hospital Council."7

His job, to put it simply, was that of a bill collector. Fortunately, Van Dyk combined compassion with employment by noting that the economic climate two years after the great crash of 1929 made it impossible for many patients to meet their financial obligations. Galvanized by these circumstances, he discovered a solution in Texas in the form of a recently created venture between Baylor Hospital and the teachers employed by the Dallas school system. The purpose of this new arrangement was to pool resources to pay for hospital expenses.

One thing seems certain: Frank Van Dyk must have been a supreme salesman. With no actuarial training and confronted by skeptical commercial insurers, he convinced the Essex County Hospital Council to undertake a plan similar to what had been developed in Dallas and so created the first multi-hospital insurance plan resting on a singular principle: "We found out that the idea had to run on a voluntary nonprofit basis."8

Pembroke New Hampshire – 1938. The concept of "prepayment" for hospital services rapidly spread from Dallas to Newark to Minnesota and various other states before entering New Hampshire in 1938 via the living room of Mr. Laurence Whittemore, then head of the New Hampshire Division of the Boston and Maine Railroad. Mr. Whittemore, concerned about access to health care for his employees, invited James Langley of Bow, Richard Sulloway of Franklin along with Joseph Epply and Carl Fuller of Manchester, to his home in Pembroke to address this problem. Fortunately, this discussion was followed by a financial commitment, meaning these five individuals provided $11,500 to begin the project, a sum that was eventually repaid in full. In 1942, the legislature, evidently impressed by Mr. Whittemore’s effort, created the New Hampshire Hospitalization Service that soon negotiated contracts with each of the sixteen New Hampshire Hospitals.9 Over time, this fledging organization would become known as Blue Cross of New Hampshire.

Concord NH - 1942. On November 27, 1942, The Concord Daily Monitor10informed its readers that Adolph Hitler "Ruthlessly Crushes Last of Free France." Along with many other stories describing military events around the world, a prominent photograph in the center of the first page reports on a different event albeit one of singular importance to the citizens of New Hampshire then and for the next sixty years. Here we see Governor Robert O. Blood who, prior his election and following his public service, practiced surgery in Concord, becoming the first subscriber to the services then offered by The New Hampshire Hospitalization Service or, as it would soon become known: Blue Cross.

The accompanying article reports the governor as saying: "a good investment (The New Hampshire Hospitalization Service) for any family irrespective of income, high or low. . . My experience as a doctor convinces me of the soundness of this plan; and the more so, since it is a non-profit service offered in the interest of health and economy to everyone in the state." The reporter goes on to say: "The hospitalization service, a non-profit organization, is designed to meet hospital bills through payment of monthly fees by members. Earlier this week the insurance commissioner issued a license to the service for operation in the state. Looking on are James M. Langley both a founder and later first board president and Fred Sharp, the administrator of the Margaret Pillsbury Hospital and President of the NH Hospital Association."

Two years later, a similar series of events led to the formation of New Hampshire Physicians Service and Blue Shield became a reality.11 Shortly thereafter, Blue Cross and Blue Shield initiated a joint operating agreement and would soon be collectively known as, the Blues.

Concord NH – 1952. Ten years after Governor Blood became the first subscriber and nine years following Jo Allyn’s efforts in New London, the Blues celebrated a decade of effort and achievement described by the company in the following manner: "More than a quarter of a million persons were participants in the organization, and the benefits paid out aggregated in excess of $28,000,000 in the 10 year period. . . . Numerous institutions enrolled as a group, the employer giving Blue Cross and Blue Shield benefits to the employee as part of the latter’s compensation.12 Governor Sherman Adams remarked: ‘. . . it seems to me that the people of New Hampshire have made a substantial contribution to the cause of good government by their enthusiastic participation in the health services known as Blue Cross and Blue Shield.’"13


Mr.Whittemore and his friends could have scarcely imagined the success the new enterprise would achieve. For the year ending December 31, 1962, the revenues were $20,000,000 against claims of $18,400,00014 yielding a profit margin of enviable proportions. "Covered members"15 numbered 424,212, an astonishing achievement given the state’s population of 606,921!16 Very few, if any health insurance carriers, then or now, have achieved, this degree of dominance. In retrospect, a number of unique circumstances may be observed that contributed to this amazing growth. Relatively little competition existed in the health insurance market with the exception of the greater Nashua area where commercial carriers had established a toehold. Blue Cross and Blue Shield enjoyed enormous public confidence and support perhaps related to its genesis along with the fact the company was the "insurer of last resort." This meant that no one could be turned down by virtue of the community rating system that reduced underwriting to a bare minimum, a policy made possible by the still limited technological and pharmaceutical resources that the medical profession could bring to bear on human afflictions. Prior to the mid-1960s, when the Federal Government enacted Medicare, few "public" programs existed and it seems likely that the tax-exempt status must have been beneficial. Finally, the carrier possessed an almost priceless asset – a brand name understood by one and all, as familiar to New Hampshire citizens as the famous shell of Shell Gasoline.

On the fifteenth anniversary of establishment of New Hampshire Blue Cross and Blue shield, the organization described its role in society as follows: "The Blue Cross and Blue Shield plans are profoundly American. They solve a primary public need through free enterprise . . .Growing out of the genius of people accustomed to individual freedom, Blue Cross and Blue Shield help meet the realities of hospital and doctor care through regular budget allowances. The hospital’s social purpose and the doctor’s dedication to human suffering explain the basic strength of Blue Cross and Blue Shield."17 In short, the managers of Blue Cross and Blue Shield considered their organization to be as American as apple pie, the Declaration of Independence and the Constitution all wrapped up in a subscriber certificate. Perhaps, for a brief period, they were correct.

No one had the prescience to understand, much less predict, that many of the circumstances propelling New Hampshire Blue Cross and Blue to the apogee of its success also contained the seeds of its long decline ending with permanent transformation in a New Hampshire Probate Court in 1999.


Nashua NH – 1971. Aside from occasional skirmishes with commercial health insurance carriers, the Blues continued to prosper during the 1960s although the Medicare program diminished the size of its membership and slowed the rate of growth reducing, for the first time, revenues. On a positive note, the company partially offset this revenue decline by becoming a third party administrator for the Medicare program. Possibly due to the escalating costs of health care, the company shifted away from its roots as provider of prepaid insurance into a payment mechanism that attempted to make the subscriber "whole" or, using the specialized language of the insurance industry, an indemnity insurer. Reimbursements could be capped, and individual procedures or tests were sometimes not covered. (Payment for a vasectomy, for example, was denied by many plans.) This shift prompted a number of other significant changes but established, seemingly for all time, the idea of "fee-for-service" or, to put it another way, payment to the provider after the service has been rendered. Further, as competition increased, the practice of underwriting became more prevalent.

The tocsin for a different world sounded, not in the guise of a gigantic commercial enterprise, but in the form of a nonprofit organization that arrived in Nashua in 1971. Initiated by a small group of physicians, the Matthew Thornton Health Plan brought to New Hampshire the idea of a prepaid multispeciality group practice. In part due to the Federal HMO Act of 1973, Matthew Thornton, and similar entities throughout the United States, evolved into a Health Maintenance Organization. But the crucial part of the HMO Act was a requirement that large employers, within the service area of an HMO, were compelled to make available to their employees, the offerings of at least one HMO. In Nashua, for example, Nashua Corporation, long a bastion of New Hampshire Blue Cross and Blue Shield, was opened to competition.

Important as the HMO Act was, the most significant advantage held by the Matthew Thornton Health Plan lay in its ability to control hospital costs. At the time, health insurers measured hospital utilization by calculating the number of hospital days used by every thousand members during a predetermined period of time, usually a year although for internal purposes this was carefully monitored each month. Within a short time, the Matthew Thornton Health Plan was able to substantially reduce this number, giving the Plan the ability to offer a lower premium.

Derry New Hampshire – 1983. The Alexander Eastman Hospital in Derry had, for many years, found itself on the weakest point of a triangle consisting of itself, Greater Nashua, and Manchester. In 1983, in accordance with a Superior Court decree, the assets of the hospital were transferred to a nonprofit foundation (The Alexander Eastman Foundation) as a result of the acquisition of the facility by the Hospital Corporation of America (HCA). In 1984, the same series of events transpired in Portsmouth when HCA acquired the Portsmouth Hospital and established The Foundation for Seacoast Health. Thus began the process of "converting" nonprofit entities into for-profit companies along with a fundamental change in purpose. Over the next eighteen years, throughout the United States, billions of assets would be placed into a variety of foundations by similar transactions.

Concord New Hampshire – 1985. The success of the Matthew Thornton Health Plan did not go unnoticed by those with a different point of view. In 1985, physicians around the state createdHealthsource New Hampshire, a for-profit HMO, putting significant competitive pressure not only on the Matthew Thornton Health Plan but also on New Hampshire Blue Cross and Blue Shield. In contrast to the Blues, and to the Matthew Thornton Health Plan, the for-profit status of Healthsource New Hampshire smoothed the way to its acquisition by CIGNA in 1996 and anticipated a path toward the elimination of nonprofit health insurers in New Hampshire within fourteen years. The one exception was Harvard-Pilgrim Health Care, a Massachusetts-based company, that barely survived a period of state receivership, loses of $177 million, and the failure of its Rhode Island subsidiary.

Washington D.C. – 1986 In retrospect, if the initial undermining of New Hampshire Blue Cross and Blue Shield was the HMO Act of 1973, the final blow was delivered with lethal force by the Federal Government with the passage of the Tax Reform Act of 1986. By stripping away the tax-exempt status of all Blue Cross and Blue Shield Plans and subjecting them to taxation similar to that applicable to property and casualty insurers, Congress effectively erased the distinction between the Blues and commercial carriers with enormous implications for New Hampshire Blue Cross and Blue Shield. In the early 1990s, the New Hampshire Legislature compounded the problem by enacting a 2% premium tax on all nonprofit health insurers. Finally, not to be outdone, the City of Manchester revoked the local tax- exempt status of New Hampshire Blue Cross and Blue Shield adding the burden of a property tax to the company’s burgeoning financial obligations.

Manchester New Hampshire – August 1997. The Matthew Thornton Health Plan was the first nonprofit health insurance carrier to surrender its independence.18 Early in the history of managed care, plan size was considered to be of crucial importance to counter the financial impact of adverse selection. In the end, it didn’t seem to matter. As reported at the time: "Blue Cross Blue Shield and the Matthew Thornton Health Plan announced that Blue Cross plans to buy Matthew Thornton for $46.5 million. Blue Cross already is the state’s largest insurer, with 264,000 members. Matthew Thornton is the state’s oldest and largest HMO with more than 155,000 members in New Hampshire, Massachusetts, Maine and Vermont. The agreement, signed Aug. 29 and submitted to the state insurance department, is expected to be approved. . ."19

Concord New Hampshire – October 1999. Mounting losses posed an almost unbearable burden for New Hampshire Blue Cross and Blue Shield, mirroring the fate of Blue Cross and Blue Shield plans throughout the United States. As a members of the company’s board would put it in 1999: "Back in the ‘70’s there were 139 Blue Cross/Blue Shield plans across the country . . . In 1987 there were only 77 Blue Cross plans left. In 1998, just last year, the number was down to 55, and the forces which are at work across the country, of course, are also present here in New Hampshire. Our company, because of market forces lost about 20 million dollars last year."20

In early 1999, the significance of a transaction proposed by Anthem was evident to many diverse parties including the companies involved, the New Hampshire Department of Insurance, health professionals, the general public and especially to the Division of Charitable Trusts within the Attorney General’s Office of the State of New Hampshire. Established in 1943, statutes governing the Division of Charitable Trusts were the first codification in the United States of the Attorney General’s common law responsibilities regarding charities.21, 22

The central issues were: who owns the assets of a nonprofit organization when it is acquired by a for-profit entity and how should these assets be used going forward? Although tested in New Hampshire with the sale of the hospitals in Portsmouth and Derry, the sale of a nonprofit insurer presented a host of new problems. California provided the precedent.

In 1993, "Blue Cross of California (BCC) transferred a majority of its assets to a for-profit subsidiary . . . State regulators originally approved the transaction without any formal charitable asset distribution. Subsequently, the Department of Corporations determined that the transaction failed to protect the charitable assets of the former nonprofit corporation . . . Ultimately, BCC agreed to distribute all of its assets, over $3.2 billion, to two grant-making health foundations, creating the California Endowment a 501(c)(3) private foundation and the California HealthCare Foundation, a 501(c)(4) entity. . . The for-profit successor to Blue Cross of California is WellPoint Health Networks, Inc that has gone on to purchase a Blue Cross Blue Shield Plan in Georgia and is currently involved in a bitter and contentious negotiation to acquire a similar plan in Maryland."23

In New Hampshire, the issue of who "owned" the assets of Blue Cross and Blue Shield was resolved, although not without considerable discussion and some debate. But how would these assets be used? To settle this, and a variety of other questions, the proposed transaction, subject to the provisions of NH Rev. Stat. Ann. e 7:19-b et seq.24 were laid before the Probate Court of Hillsborough under the cy pres doctrine. As a result, the mission of the soon to be created Endowment for Health was to reflect the "charitable objects" of New Hampshire Blue Cross and Blue Shield as stated in the Endowment’s bylaws.25 The directors would then further define the mission of the new foundation as follows: "The mission of the Endowment for Health is: To improve the health and reduce the burden of illness of the people of New Hampshire. This statement, that was the original mission of Blue Cross Blue Shield of New Hampshire, continues the legacy of that organization and its 60 year history as a nonprofit corporation."26

After months of effort, the end came swiftly. Dateline – Concord, October 27, 1999. "Blue Cross Blue Shield of New Hampshire will soon be the property of an Indiana company. Indianapolis-based Anthem Insurance Co. got the OK yesterday from State Insurance Commissioner Paula Rogers to buy Blue Cross Blue Shield, including its Matthew Thornton Health Plan. The $120 million deal means the end of the last New Hampshire-based, nonprofit insurance company. . . Anthem also yesterday received the approval of the Hillsborough County Probate Court to dissolve the nonprofit health plan, according to the Anthem/Blue Cross statement." (Emphasis added).27


For a brief period, time seemed to slow down. New signage appeared, enrollees continued to receive care and $85 million was deposited in an escrow account awaiting the maturation of the Endowment for Health whose directors, appointed by the Attorney General, would ultimately decide how the funds would be spent. Slowly at first but with an ever-increasing tempo, the appointed board, along with an advisory council, settled into the task of designing and implementing an organization that would faithfully sustain the mission and values of New Hampshire Blue Cross and Blue Shield. Dr. Sylvio Dupuis of Manchester was elected by his fellow directors as the chairperson, Ms. Susan Chollet from Peterborough became the vice chair, Mr. James Oates of New London was the Treasurer and Chair of the Finance and Investment Committee and Ms. Deanna Howard from Lebanon was the Secretary.

The landscape that confronted Dr. Dupuis and his colleagues was distinctly different from the terrain navigated by directors of corporate philanthropy and charitable organizations. Because the Endowment for Health had an obligation to serve the disadvantaged and underserved population of New Hampshire, the ground was dominated by a myriad of governmental agencies at the federal, state, county and local level including, but not limited to: the Department of Health and Human Services, the Medicare and Medicaid Programs, and the Health Resources & Services Administration (HRSA). In addition, one could see an astonishing number of nonprofit organizations and agencies throughout the state all of which were attempting to provide services and programs. These included: New Hampshire Healthy Kids Corporation, ten Community Health Centers, Community Mental Health Centers, the Children’s Alliance, Child Health Services and the New Hampshire Minority Health Coalition, both in Manchester, twenty four nonprofit and two for-profit hospitals, visiting nurse associations throughout the entire state, and regional groups such as the North Country Health Consortium. Here, often far beneath the public eye and political debate, lie the institutions of last resort for the thousands of citizens who often need the most care and have the least ability to obtain it.

Four major concerns became manifest:

  • Should the Endowment’s resources be deployed to relieve state government of its obligations? Initially, there was considerable resistance to using Endowment resources to support programs that the State of New Hampshire could not, or would not, fund although time has softened this approach as the realities of the state’s budget problems become better understood. This question continues to be discussed not only here in New Hampshire but in every other state in which the so-called "conversion" of nonprofit assets has occurred.
  • Should the Endowment’s resources be widely distributed in small amounts to many different organizations or would larger amounts, to a smaller number of organizations, be more effective? After much discussion and examination of how other "Conversion Foundations" had approach this problem, the directors agreed to concentrate the resources of the Endowment for Health in specific areas employing large amounts of money that would sometimes be awarded over several years. Two major "themes" emerged from these deliberations: (1) Oral Health and (2) Three barriers to access including: economic barriers, social and cultural barriers and geographic obstacles. In addition to these two themes, the Endowment for Health welcomed applications for applied research, for planning/convening/technical assistance, and for emergency relief of unanticipated financial emergencies or unexpected opportunities to secure matching funds. The latter category has become a crucial source of help for many small organizations.
  • Should the Endowment welcome any and all applicants or restrict applications to well defined areas? This question was answered, in part, by decisions as to size and duration of the Endowment’s awards. Time has helped to refine this approach by recognizing a continuum28 beginning with passive applications (the foundation responds to unsolicited requests) through various level of specificity (proactive and prescriptive applications) to peremptory applications meaning, in effect: ("don’t call us, we’ll call you.") Currently the Endowment for Health has positioned itself in the proactive and prescriptive categories.
  • Should the Endowment become engaged in public policy discussions or conserve its resources for the operational needs of existing organizations? This decision was made with no difficulty – the Endowment for Health would become an instrument for learning and for education, available to all citizens who wish to understand the significance and consequences of policies that address a broad understanding of health as embodied by the definition of the World Health Organization.29 Within the context of the Endowment’s mission, this definition means that health care, while an important factor in achieving health, is not the same as health.

The Internal Revenue Service requires private foundations to distribute annually a minimum of 5% of the value of the invested portfolio.30 For the Endowment’s fiscal year ending September 30, 2001, approximately $2.6 million would fulfill this requirement. By June 2001, the disparity between existing need and available resources became evident when the $2.6 million was measured against $25 million in requests. For the year ending on September 30, 2002, $3.3 million dollars was available to meet $12 million in requests.

The Endowment for Health has made every attempt to construct a coherent grant program that reflects the broad responses to the questions set forth above. The following awards illustrate this point for the year ending September 30, 2002, support that, under other circumstances, might have been provided by the State of New Hampshire included:

  • $22,767 - Avis Goodwin Community Health Center for emergency assistance;
  • $211,334 - Community Health Institute/JSI Research & Training Institute to implement an on-line, single-point-of-entry system for intake, eligibility screen, referral processing, and care coordination for agencies serving underinsured and underserved populations throughout New Hampshire;
  • $266,479 - New Hampshire Institute for Health Policy and Practice/UNH to continue to develop and evaluate a web-based health data query system for New Hampshire.

The Endowment for Health is the only organization in New Hampshire to make available substantial funds for more than one year for example:

  • $230,495 – ATECH Services – 3 years to help collaboratively provide access to assistive technology products and individuals with severe disabilities;
  • $225,000 – Health First Family Care Center, Inc. – 3 years – To enable the Health First Family Care Center and Lakes Region Health Care to collaboratively develop a comprehensive model system of oral health services in Laconia for the low income population of the Lakes and Twin Rivers area.
  • $370,000 Monadnock Collaborative – 2 years – to create a model comprehensive full-time dental clinic in Keene.

The Endowment for Health is moving toward a more prescriptive approach to grant-making as demand increases and resources diminish. In fiscal year 2002, letters of intent were sought on a voluntary basis and in fiscal year 2003, research proposals dealing with the major themes will be given special priority.

Finally, the Endowment for Health is strongly supporting efforts to better understand certain public policy issues, especially the plight of the uninsured and underinsured as reflected in several awards made between October 1, 2001 and September 30, 2002:

  • $275,000 – New Hampshire Center for Public Policy Studies to complete the first phase of a multi-year project to identify and support public policy proposals that will reduce the percentage of New Hampshire’s population that lacks health insurance.
  • $120,000 – Frameworks Institute to develop a communications plan for the Endowment’s Uninsured Project.
  • $50,000 – New Hampshire Public Radio to support, along with other organizations, a multi-year project to increase the station’s capacity to regularly and extensively cover health news of various disciplines.
  • $150,000 – Coalition for New Hampshire Oral Health Action to collectively develop the first state-level New Hampshire Oral Health Action Plan by 2002.


The success of the Endowment for Health in carrying on the mission of New Hampshire Blue Cross and Blue Shield, in responding to the needs expressed by those who attended the public hearings and in fulfilling the mission set forth by the Attorney General and the Probate Court, will be continually redefined and reevaluated as time moves on. New Hampshire and our nation confront an extraordinary array of problems. The neglected state of our public health infrastructure is accentuated by the threat of terrorism. The economic downturn and persistent bear market, coupled with an escalating Federal deficit, have produced with a sharp decline in state revenues. Finally, the steadily rising costs of New Hampshire’s Medicaid program as well as the anticipated 15-20% rise in health insurance premiums, and the cost of prescription drugs present a convergence of forces that will make it extraordinarily difficult to maintain current levels of public support let alone initiate any increases. Astonishingly, with the exception of the cost of prescription drugs, none of these problems seemed to appear in the rhetoric of the recent election.

Within a short time, two potential turning points are at hand. In 1999, at the time of the Anthem transaction, New Hampshire’s Insurance Commissioner placed eighteen conditions into the agreement for a period of three years including:

  • Continue community benefits at the same level of funding to finance such projects as a vaccine program;
  • Offer a nongroup product;
  • Maintain a provider network comparable to what has been offered;
  • Report on complaints to the Department of Insurance;
  • Maintain employment levels equal to Anthem’s employment rates in other states; and
  • Form a local advisory board to be consulted on any major changes to the above activities.

It has been observed 31 that: "This example, however, raises an important question about the appropriate degree of state regulatory scrutiny. Such an approach moves beyond making sure public assets are protected and requires fairly active regulation." Germane to this discussion is the expiration of these restrictions in October 2002.

The second event will occur on December 19, 2002 when five years will have elapsed since the Immigration Reform Act of 1997 declared that legal immigrants then living in the United States would, if found eligible, be permitted to receive Medicaid benefits on December 19, five years hence. Thereafter, any legal immigrant who has lived in the United States for a minimum of five years will be able to participate in the Medicaid program, if eligible. What impact, if any, this will have on the number of uninsureds as well as on New Hampshire’s General Fund Budget, remains to be seen.

And how will the Endowment for Health and other philanthropic organizations respond to these exquisite pressures? Nonprofit organizations can help and will certainly do so. It must be recognized, however, that only government can sustain existing public programs. We can only hope that our elected office-holders will act on behalf of us all but especially for those who find themselves burdened with poor health, geographic isolation, social/cultural misunderstandings, mental illness, disabilities, and economic handicaps.

What happened to Mr. Whittemore’s dream, to Jo Allyn’s hopes and to the vision of two New Hampshire governors? Why have New Hampshire based nonprofit health insurers ceased to exist? It is, in all likelihood, too soon to say. What can be said, however, is that the insurance concept, as applied to the payment of health care services, bears no resemblance to what existed during the first forty years of this story. Today, 1% of a plan’s enrollees generate 30% of the costs, 5% produce 50% of the costs and 20% account for 80% of expenditures.32 Of course, one answer to this distortion of risk is to demand more payment from those who use more services, a suggestion that has been offered by one legislative leader, similar to the way we pay for electricity. The uncomfortable truth is, more often than not, that individuals who use the most services have the least ability to pay! Perhaps, after all, the number of enrollees really does matter. Is it possible that the ever-escalating costs of medical care demand access to capital beyond the abilities of any nonprofit insurer in a small state like New Hampshire?

The financing of private health insurance by for-profit entities is still in an early stage of development. To place a value judgment on this transformation is premature and is best left to future scholars. Perhaps a recounting of the story of New Hampshire Blue Cross and Blue Shield will help them in their task.



Squires, J. Duane. Mirror to America – A History of New London, New Hampshire 1900 – 1950. Evans Printing Company, Inc. Concord, NH 1952 pg. 23.


Ibid. pg. 128.


Foundation Accountability and Effectiveness. The Aspen Institute Nonprofit Sector Strategy Group, One Dupont Circle, NW Suite 700, Washington, DC 20036, 2000. pg 12.


There are many different nonprofit organizations as described by the Internal Revenue Service. It should come as no surprise that the tax treatment of these entities is of crucial import to those trying to raise funds as well as private foundations that are obligated to distribute funds. Details are available on the Internal Revenue Service Web Site. The Endowment for Health and, New Hampshire Blue Cross Blue Shield prior to its acquisition by Anthem Insurance, are classified as 501(c)(3) organizations covered under Chapter 3 of the section of the Internal Revenue Code dealing with nonprofit organizations.


For further help in understanding specific IRS designations, see: Lotter, Aline H. Tax-Exempt Organizations: A Primer for the Uninitiated. New Hampshire Bar Journal, v 37, number 4, December 1996 pgs 56 – 61.


Cunningham, Robert III and Cunningham, Robert M. Jr. The Blues – A History of the Blue Cross and Blue Shield System. Northern University Press, DeKalb IL 1997 pg. 3.


Ibid pg.11.


Ibid pg 12.


The author is deeply indebted to the staff of Anthem Blue Cross and Blue Shield who kindly provided many documents from their archives including a description of the meeting in Mr. Whittemore’s home and the early legislative history.


The staff of the References and Information Services of the New Hampshire State Library, 20 Park Street, Concord, NH 03301, kindly made available a copy of the front page of the Concord Monitor for November 27, 1942.


Anthem Blue Cross and Blue Shield Archives.




Squires, James Duane. The Granite State Of The United States. The American Historical Society, Inc. New York 1956. Vol. II, pg. 823.


Anthem Blue Cross and Blue Shield Archives.


Anthem Blue Cross and Blue Shield Archives.


US Census Data obtained at:


Anthem Blue Cross and Blue Shield Archives.


In an arrangement that would closely resemble the Anthem transaction, the assets of the Matthew Thornton were set aside for nonprofit purposes including: (1) An endowed chair at the Dartmouth Medical School; (2) The Healthy New Hampshire Foundation whose resources would fund the first few years of the Healthy Kids Program as enacted by the SCHIP legislation and (3) A payment to the Dartmouth Hitchcock Clinic that, at the time of the sale, was the sole member of the Matthew Thornton Health Plan.


AMA News Brief September 15, 1997.


Testimony of Dr. Dennis Meadows at a public hearing held by the Office of the Attorney General on June 17, 1999 at Keene State College. This was one of eight hearings held throughout the State of New Hampshire in regard to the proposed sale of New Hampshire Blue Cross and Blue Shield to the Anthem Insurance Company. Dr. Meadows was a director of New Hampshire Blue Cross and Blue Shield.


Information describing the history, function and statutory authority was taken from the web site of The Division of Charitable Trusts.


Statutory authority for the regulation of charitable institutions in New Hampshire include: RSA 7:19 through 7:32-I. RSA chapter 7:28 I and II.


The most easily accessible source of information describing the status of "conversion" foundation is the web site of Community Catalyst from which the description of the California transaction was taken. The address is:


RSA 7: 19-b became effective on September 1, 1997. The Legislature appears to have exercised unusual foresight with an eye toward future transaction. Entitled Standards for Acquisition Transactions Involving Health Care Charitable Trusts and Review by Director of Charitable Trusts, it provided the Division of Charitable Trusts with enormous authority to oversee the New Hampshire Blue Cross/Blue Shield Transaction – Anthem transaction.


Section 2.3 Mission. In accordance with the provisions of RSA 7:19-b, II(e) the assets of the Foundation shall continue to be devoted to charitable purposes consistent with the charitable objects of BCBS-NH and the needs of the community it serves. In carrying out those objects, the members of the Board and Council and the Officers of the Foundation shall give due consideration to the historical mission of BCBS-NH, the substantial public input received in connection with the seven public hearings conducted during June of 1999 under the auspices of the Office of the Attorney General and the eighth public hearing conducted during September of 1999.


This statement, along with other legal and financial information is available on the Endowment for Health’s web site at


Portsmouth Herald, Wednesday October 27, 1999.


The Insiders Guide to Grant Making. Joel J. Orosz . Josey-Bass Inc., Publishers, 350 Samsone Street, San Francisco, CA 94104. pgs. 25 & 26.


The WHO definition of health is: Health is a state of complete physical, mental and social well being, not merely the absence of disease.


The calculation of the 5% spending requirement is difficult and complex involving a rolling average of the worth of the investment portfolio over the course of a year less operating expenses. It is reported on Federal form 990-PF that is supplied by the Endowment for Health to the Charitable Division of the NH Attorney General’s office and to the Internal Revenue Service. Form 990-PF is also available on the Endowment’s web site


Understanding Health System Change: Local Markets, National Trends. Edited by Paul B. Ginsburg and Cara S. Lesser. (Chicago: Health Administration Press, 2001) pg 58. The list of six conditions is also shown on page 58.


Charles Baker, President and Chief Executive Office, Harvard Pilgrim Health Care in a statement made during the Health Care Symposium 2002 held on October 3, 2002 at Manchester, NH.

The author gratefully acknowledges the thoughtful review and insightful comments by the following individuals whose help immensely appreciated: Commissioner Paula Rogers, New Hampshire Department of Insurance, Attorney James A. Squires, Senior Counsel, Norfolk Southern Railroad Corporation and Ms. Mary Vallier Kaplan, Program Director, Endowment for Health.

The Author

Dr. James Squires is a surgeon and founder of the Matthew Thornton Health Plan in 1971. He served two terms in the New Hampshire State Senate from 1996 to 2000. In January 2001, he became the first president of the Endowment for Health.


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