Monday, June 9, 2014

Does universal health care render health care tax exemption unnecessary?

The early indicators regarding the effect of the Affordable Care Act on the demand for free health care  are mixed, but seem to be trending towards decreasing that demand very quickly.  If the trend continues, we should continue seeing a blending of nonprofit and investor owned hospitals.  By that, I mean that the two types of hospitals will continue to morph into indistinguishable sides of the same coin.  The law already allows for insiders of nonprofit hospitals to be compensated on the same scale applied to investor owned hospitals.  And we already know that nonprofit hospitals are allowed -- nay, expected -- to apply the same business practices as investor owned hospitals.  Just as direct government subsidy for health care and the influence of managed care policies have already erased the historical distinctions between "alms houses for the poor" and investor owned hospitals, Obamacare will further eliminate whatever distinctions still exist between nonprofit and for profit hospitals.  When all is said and done, will the "nondistribution constraint" (which may exist as a hard and fast rule in theory more than reality) be enough to justify continued exemption for customer supported health care? I am not the first to make this observation, I'm sure, but as government continues to grow as the primary arbiter of health care -- I'm not saying whether this is a good thing or not -- in effect requiring all health care providers to serve the poor, tax exemption for health care seems less and less justifiable. 

According to this recent NY Times editorial

Some hospital systems have started tightening the requirements for charity care in efforts to push uninsured people into signing up for subsidized health plans on the insurance exchanges created by the reform law. In St. Louis, for example, Barnes-Jewish Hospital has started charging co-payments to uninsured patients no matter how poor they are. Those at or below the poverty level ($11,670 for an individual) are charged $100 for emergency care and $50 for an office visit.  But some medical centers have seen their charity care costs decline. A report late last month in Kaiser Health News and USA Today said that Seattle’s largest “safety net” hospital, run by the University of Washington, saw its proportion of uninsured patients drop from 12 percent last year to a surprisingly low 2 percent this spring, putting the hospital on track to increase its revenue by $20 million this year from annual revenues of about $800 million.

The editorial links to this report by Kaiser, suggesting that the ACA has resulted in a marked decrease in uncompensated health care.

That’s one of the reasons the hospital industry was among the first groups to support President Barack Obama’s health plan,agreeing to Medicare and Medicaid funding cuts exceeding $150 billion over a decade in return for getting more paying patients to reduce their uncompensated care.

Many hospital executives were unnerved, therefore, when the Supreme Court ruled in 2012 that states could not be forced to implement the Medicaid expansion and nearly half of them have refused. As a result, hospitals in non-expansion states are undergoing the funding cuts without a corresponding reduction in uncompensated care.

 

Big Impact On Patients

 

In Seattle, Harborview had projected a $10 million gain in revenue this year because it would be able to recoup payments for services provided to the newly insured. Now, with a 10-percentage-point drop in uninsured patients in one year, the hospital system managed by the University of Washington is projecting a $20 million revenue increase on annual revenue of about $800 million, said Associate Administrator Elise Chayet.

Hospital officials say the biggest impact of the change is on patients themselves. Rather than having to rely on emergency rooms, newly insured patients can see primary care doctors and get diagnostic tests and prescription drugs, among other services.

Some safety-net hospitals say they started to see their numbers of uninsured patients dropping almost immediately after the Medicaid expansion took effect in January.

“We have seen a steady decline in our uninsured visits,” said Roxane Townsend, CEO of UAMS. “We did not anticipate this big a drop this quickly.” 

 About 80 percent of the system’s new Medicaid patients had previously been seen by the hospital as uninsured patients, she said. Their enrollment in coverage means the hospital is paid more for their care and is able to direct them to outpatient services and preventive care.

She said that UAMS has also seen a drop in ER visits by uninsured patients — from 6,000 visits in first three months of 2013 to about 4,000 visits in first three months of this year, calling the decline “significant.”

 An even more comprehensive study published in Health Affairs confirms society's growing resolution of charity care and, without saying so, provides more reason to question the continuing tax exemption of nonprofit hospitals, which are no longer the exclusive providers of charity care:

The Affordable Care Act (ACA) is fundamentally reshaping the nation’s health care landscape, particularly in terms of how care is delivered to the low-income uninsured and how that care is financed. Chief among the ACA’s provisions is the expansion of eligibility for Medicaid, in which states can choose to cover people who have incomes of up to 138 percent of the federal poverty level. The ACA also provides subsidies for people with incomes below 400 percent of poverty to purchase health insurance and establishes health insurance exchanges, known as Marketplaces, through which people can obtain coverage. Over the next decade an estimated twenty-five million people will gain health insurance through the ACA.

Ideally, nonprofit ventures thrive and grow to eliminate a market failure problem.  They should, perhaps, be subsidized only so long as the problem exists and only to the extent necessary to solve the problem.  States, for example, are already in the process of a wholesale reconsideration of the necessity of property tax exemption for health care organizations.  I should think too that income tax exemption for hospitals should be reconsidered. 

dkj

 

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