Editorial: Tax exemption for hospitals due for review
Things are slowly changing because of the Affordable Care Act, or Obamacare as it’s called by some. One change could be the policy under federal and state law of treating nonprofit hospitals as charities for tax purposes. A hard look at that policy is long overdue.
Under the act, in theory nearly everyone would have health insurance from one source or another. The poor would be covered by Medicaid, which would be expanded to enroll more people; seniors under Medicare. Veterans would earn coverage by serving their country. The majority would, as now, be insured through their employer.
Penalties would force the uninsured who can afford insurance to buy it, and a government subsidy would make insurance affordable for those with incomes too high to qualify for Medicaid and too low to afford insurance.
Nonprofit hospitals are considered charities because they provide a community benefit, a good that has never been clearly defined by the IRS. One of those benefits is charity care, serving for free those who can’t pay and reducing fees for the uninsured who aren’t poor but still can’t pay jaw-dropping charges for medical treatment.
But if everyone has insurance, the need for charity care evaporates. If hospitals are getting paid for every service they provide by someone, and thus no longer providing charity care, why should they be considered tax exempt? Many health care economists and municipalities struggling to make ends meet have been asking that question for some time.
A story last week in the New York Times suggests it’s time for New Hampshire lawmakers to consider the question in earnest.
The story reports on the approaches a number of the nation’s 2,200 nonprofit hospitals are taking with respect to charity care in the age of Obamcare. The act penalizes those who can but won’t buy insurance with a financial penalty that increases every year. That’s as it should be. People who can afford to pay shouldn’t get off free, because that raises prices for everyone else.
Hospitals, as the story explains, are taking a similar approach by raising the threshold to qualify for free or reduced-cost care. Some are requiring even the indigent to pay something; others have raised the income level for free or reduced-cost care, in one case from 400 percent of the federal poverty level to 300 percent. Such changes, if modest and gradual, are justified to encourage people to purchase insurance on a state or federal exchange. Others are extreme and punitive.
The standout in the Times story is Southern New Hampshire Medical Center in Nashua.
It dropped the bar for charity care from 225 percent of the poverty level to the current level, a laughable $11,670 per year for an individual. Try living on that even without a hospital bill to pay and see how it goes. Concord Hospital wisely decided to take a wait-and-see approach and has made no substantive changes to its charity care policies. Southern New Hampshire should have done likewise. Many of the poor in its service area, we fear, will go without hospital care for fear of incurring a huge bill and the attention of debt collectors that follows soon after.
Like Concord Hospital, SNHMC was not included in the network selected by Anthem, the state’s only exchange participant. That means low-income people denied charity care can’t use that hospital even if they do buy subsidized insurance. Nashua is also home to an unknown, but likely large, number of undocumented residents who under federal rules can’t buy insurance on the exchange. That means no charity care for them if they earn more than a poverty level income and have no way to buy affordable coverage.
Health care economics and hospital accounting practices are complicated, the federal rules defining charities murky. Community benefit includes not just charity care but medical education for providers, disease prevention, research and an assessment of the community’s health needs and a plan to meet them. But hospitals are big business, often the biggest employer in town. When they stop or severely reduce the free care they provide the poor, it’s time to reconsider their tax-exempt status.