Nonprofit Health Corporations

Public Benefit Corporations: Typically, nonprofit hospitals and clinics and some nonprofit insurers are incorporated under state laws as “public benefit corporations.” Public benefit corporations are organized as nonprofits and operate for broad charitable or public purposes. They fall within section 501(c)(3) or 501(c)(4) of the Internal Revenue Code and are usually exempt from payment of federal income taxes. Not all states, however, have a category of nonprofit corporations defined as public benefit corporations. Some states simply categorize all nonprofits under a general nonprofit corporation law.

Hospital, Health, and Medical Service Corporations: In the 1930s and 1940s, most states enacted laws to allow insurance companies to organize for the first time as nonprofit corporations, giving rise to Blue Cross and Blue Shield plans. Known as hospital, health, or medical service corporations, many states have preserved these special categories for Blue Cross and Blue Shield plans. Where states have maintained these special categories, many but not all, also are governed by a state’s general nonprofit corporation law. Furthermore, a nonprofit corporation can be a hospital, health or medical service corporation and simultaneously be a public benefit corporation.

Mutual Benefit Corporations: A mutual benefit corporation is a nonprofit organization which is dedicated to serving a particular class of individuals. For example, most chambers of commerce are organized as mutual benefit corporations. As a nonprofit, however, a mutual benefit corporation is not owned by the class of individuals it is organized to serve. The assets cannot be distributed directly to the class. Instead, the assets of a mutual benefit corporation must be preserved for nonprofit activity. (This is in sharp contrast to a mutual insurance company, which can distribute its assets upon dissolution to its members.)