## Facts

- Geisinger Health Plan (GHP) operated as a prepaid health-care plan that contracted with providers to furnish services to its subscribers in exchange for premiums.
- GHP was part of a larger, commonly controlled group of health-care entities (the Geisinger System) serving multiple counties in Pennsylvania.
- The Geisinger Foundation controlled GHP and the other system entities through governance arrangements; it also raised funds for the system.
- Other system entities, including hospitals, were recognized as tax-exempt and provided community-benefit functions such as emergency care open to all and treatment without regard to ability to pay.
- In prior appellate proceedings, GHP was determined not to qualify for § 501(c)(3) exemption on its own because it primarily served paying subscribers.
- On remand from the earlier appeal, the Tax Court denied exemption under the “integral part” theory, and GHP appealed again.

## Issues

1. Whether an HMO that is not independently charitable under 26 U.S.C. § 501(c)(3) can nevertheless be exempt from federal income tax as an “integral part” of a related, tax-exempt health-care system.

## Decision

- The Third Circuit affirmed the Tax Court’s judgment denying exemption to GHP.
- The court held that common control and coordination within an exempt health system did not, without more, make GHP an “integral part” entitled to § 501(c)(3) treatment.
- The court treated GHP’s principal activity—providing prepaid coverage to paying subscribers—as essentially a separate, insurance-like commercial operation rather than the direct performance of the exempt providers’ charitable functions.

## Legal Principles

- An entity that is not itself exempt under § 501(c)(3) may obtain exemption only if it qualifies under the integral-part doctrine by performing activities that are essential to, and carried out for the benefit of, an exempt organization in a manner consistent with exempt purposes.
- Common ownership or control within an exempt group is not dispositive; the inquiry turns on the entity’s own operations, including whether they primarily serve the exempt mission or instead reflect a substantial non-exempt commercial purpose.
- Coordination that channels patients or revenue to exempt providers does not, by itself, convert a payor/plan entity into an exempt “integral part” when the plan principally serves its subscribers in exchange for premiums.

## Conclusion

The Third Circuit concluded that GHP could not obtain § 501(c)(3) status through the integral-part doctrine because its core function was providing prepaid coverage to paying subscribers, not performing the exempt system’s charitable health-care operations as an essential internal component.


Geisinger Health Plan v. Commissioner of Internal Revenue, 30 F.3d 494 (3d Cir. 1994)