Public Health Law Watch
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GOP Tax Bill Would Inflict Real Pain on Nonprofit Hospitals [From]

Nonprofit hospitals have had much to fear from Congress recently. The Senate came within one vote of repealing much of the Affordable Care Act, which would have left millions of patients uninsured and unable to pay for hospital care. And Congress may soon consider major cuts to Medicare and Medicaid, which could slash reimbursement for many hospital services.

Now, nonprofit hospitals face a new threat in the tax reform plan unveiled recently by House Republicans. Nonprofit hospitals include most of the largest and most prestigious ones in the Philadelphia area.

Like all major tax changes, the Republican proposal would create winners and losers.  Some of those winners and losers had been expected, but the changes that put nonprofit hospitals in the loser’s column came as a surprise. They would be in for significant hits in at least two ways.

First, they would lose an important source of financing for expansion. Nonprofit hospitals raise money for construction projects by issuing tax-exempt bonds that allow investors to avoid paying tax on the interest. This reduces the interest rates they have to pay to attract investors, which saves them large amounts in project costs. The tax plan would eliminate the exemption for interest on many of these bonds, which would force the hospitals to pay prevailing market rates. For many of them, major new construction could become unaffordable.

Second, they stand to lose many of their donations. Donors to nonprofit hospitals receive a tax deduction for their contributions but only if they itemize deductions on their tax returns. Itemization is worthwhile only if deductible expenses add up to more than a standardized amount. The tax plan would raise that amount to almost double its present size —  $12,200 for individuals and $24,400 for couples — which would take away the benefit of itemizing for many. Without itemizing, the tax incentive for making smaller donations would disappear.

Tax-exemptions for bonds and donations are benefits that for-profit hospitals do not enjoy. In that regard, the changes would put nonprofits and for-profit facilities on a more equal footing. But for-profit hospitals can raise money by issuing stock to private investors, a funding source they rely on extensively. Nonprofits have no stock to sell, so the proposed changes would put them at a significant disadvantage.

On top of these threats, some in Congress, as well as President Trump, would like to add a provision to the tax plan repealing the individual mandate under the Affordable Care Act. The Congressional Budget Office estimates that this would cause 13 million Americans to lose coverage over the next 10 years. Without insurance, these people would lack the means to pay for hospital care.

And if a tax bill were followed by cuts to Medicare and Medicaid, the financial losses for many hospitals would be substantial.

Tax reform has been billed as a way to stimulate economic growth. But for one major industry that serves as a major source of employment, not to mention its role as a guardian of our lives and health, it would do just the opposite.