The massive health reform legislation approved by Congress and signed by President Obama is bound to result in unintended and unanticipated consequences. These will become apparent as regulations are adopted to implement the provisions of the bill according to the schedule outlined in the legislation.
I believe one such consequence will be increased attention by both federal and state governments to the tax-exempt status of not-for-profit healthcare organizations.
A recent bulletin from the Financial Accounting Standards Board (FASB) notes that it is accepting comments on a proposed accounting standard for disclosing measures of charity care in the financial statements audited by public audit firms. The standard would measure charity care based on the direct and indirect cost of providing charity care services. The statement goes on to emphasize this standard is consistent with the measure of charity care required by the IRS in filing a Form 990.
The result of this proposed FASB standard will be increased attention by auditors to whatever definitions are adopted by federal and state governments to define allowable community benefit and charity care for tax-exempt purposes.
I predict as the cost of healthcare reform exceeds the financial projections developed by the Congressional Budget Office, increasing attention will be directed to redefining measures of community benefit and charity care in order to generate additional revenue to offset budget shortfalls.
Consider this. With the expansion of insurance coverage in 2014, those up to 133 percent of the federal poverty level will be added to the Medicaid rolls. Those between 133 percent and 200 percent will be placed in the health insurance exchange and eligible for premium subsidy. As a result, the uninsured will be: those required by the federal mandate to obtain coverage but who refuse to do so; those who choose to pay the fine rather than purchase insurance; those qualifying for Medicaid and the exchange who never enroll; those legal residents who may qualify but cannot for five years from the time they enter the country; and undocumented residents. How many of these categories will Congress ultimately allow to be designated as charity care?
Look for the fight over the tax-exempt status of not-for-profit healthcare providers to be heated and bitter. Will Congress allow not-for-profit tax exemption to continue? How will the rules change?
I find it difficult to believe that the benefits of tax-exempt status will continue “as is” in light of such a large expansion of health coverage. This is a repercussion we may not be able to avoid.
Mike Stephens blogs regularly at Action for Better Healthcare.