Monday, April 5, 2010

Health Care Reform and Charities: New Rules, Entities, Uncertainty, and Benefits

Several initial observations on the impact of health care reform on charities:

New Charity Hospital Requirements:  Section 9007 of the Patient Protection and Affordable Care Act(H.R. 3590) requires section 501(c)(3) hospitals to conduct tri-annual community health needs assessments, implement strategies to meet the needs identified in those assessments, adopt and publicize a written financial assistance policy, and follow certain billing and collection practices. 

New Tax-Exempt Qualified Nonprofit Health Insurance Issuers:  Section 1322 of the same bill creates a Consumer Operated and Oriented Plan (CO-OP) Program to encourage the creation of nonprofit health insurance issuers that will be tax-exempt under new Internal Revenue Code section 501(c)(29).  Such issuers must meet certain requirements, including (1) substantially all of their activities must "consist of the issuance of qualified health plans in the individual and small group markets in each State in which it is licensed to issue such plans," (2) their "governance" must be subject to a majority vote of its members, (3) their governing documents must "incorporate ethics and conflict of interest standards protecting against insurance industry involvement and interference," (4) they must "operate with a strong consumer focus, including timeliness, responsiveness, and accountability to members," and (5) their profits must "be used to lower premiums, to improve benefits, or for other programs intended to improve the quality of health care delivered to [their] members."

Uncertain Effect on State Charity Care Requirements:  As this Chicago Tribune article highlights, if health care reform is ultimately successful in sharply reducing the rolls of the uninsured, that change will only magnify the uncertainty that charity hospitals in Illinois and a number of other states face regarding what level of free or discounted care they must provide to qualify for various state tax exemptions. 

And Let's Not Forget that Charities are Employers Too:  As the IRS has already highlighted, Section 1421 of the bill provides a health care tax credit for small business.  As the Chronicle of Philanthropy reported, this tax credit is also available to smaller nonprofits - even though tax-exempt - because it applies against payroll taxes.  The size limit is no more than 25 full-time employees with average wages below $50,000, and the credit is phased in from 25 percent in 2010-2013 to 35 percent in 2014, subject to certain conditions.  Of course, large nonprofits (with more than 50 workers), like their for-profit counterparts, will be subject to penalties if they fail to provide health insurance to their workers.


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