Kaiser Family Foundation: Nonprofits Hospitals Collect Almost Two Times Charity Care Costs in Tax Benefits
The Kaiser Family Foundation is out with a report yesterday in which it concludes that nonprofit hospitals get twice the dollar amount in property and income tax benefits than they provide in charity care. The report admits that “community benefit” is more than just charity care. But maybe the implicit question is whether that should be the case. Should community benefit have quantifiable parameters such that charity care accounts for . . . . say 75% of community benefit? Come to think of it, do we expect exempt Opera Houses and fancy Museums of Art to allow free admission for those unable to afford the cost of admission? I know some do but is it required as a condition of tax exemption? What makes healthcare different? Anyway, here is an excerpt from the Results page:
Results
The total estimated value of tax exemption for nonprofit hospitals was nearly $28 billion in 2020 (Figure 1). This represented over two-fifths (43%) of net income (i.e., revenues minus expenses) earned by nonprofit facilities in that year. To put the value of tax exemption in perspective, our estimate is similar to the total value of Medicare and Medicaid disproportionate share hospital (DSH) payments in the same year ($31.9 billion in fiscal year 2020) (i.e., supplemental payments to hospitals that care for a disproportionate share of low-income patients which are intended, in part, to offset the costs of charity care and other uncompensated care).
The estimated value of federal tax-exempt status was $14.5 billion in 2020, which represents about half (52%) of the total value of tax exemption. This is primarily due to the estimated value of not having to pay federal corporate income taxes ($10.4 billion). In addition, we assumed that individuals contribute more to tax-exempt hospitals because they can deduct donations from their income tax base ($2.5 billion) and issue bonds at lower interest rates because the interest is not taxed ($1.6 billion). Our estimates of changes in charitable contributions and interest rates on bonds only account for federal tax rates for simplicity and may therefore understate the total value of tax exemption because they do not account for the effects on state taxes.
The total estimated value of state and local tax-exempt status was $13.2 billion in 2020, which represents about half (48%) of the total value of tax exemption. This amount includes the estimated value of not having to pay state or local sales taxes ($5.7 billion), local property taxes ($4.4 billion) or state corporate income taxes ($3.1 billion).
The total estimated value of tax exemption (about $28 billion) exceeded total estimated charity care costs ($16 billion) among nonprofit hospitals in 2020, though charity care represents only a portion of the community benefits reported by these facilities. Hospital charity care programs provide free or discounted services to eligible patients who are unable to afford their care and represent one of several different types of community benefits reported by hospitals. The Internal Revenue Service (IRS) also defines community benefits to include unreimbursed Medicaid expenses, unreimbursed health professions education, and subsidized health services that are not means-tested, among other activities. One study estimated that the value of tax exemption exceeded the value of community benefits broadly for about one-fifth (19%) of nonprofit hospitals during 2011-2018 or about two-fifths (39%) when considering the incremental value of community benefits provided relative to for-profit facilities. Other research suggests that nonprofit hospitals devote a similar or smaller share of their operating expenses to charity care and unreimbursed Medicaid costs—which accounted for most of the value of community benefits in 2017—when compared to for-profit hospitals.
darryll jones