WASHINGTON -- Who needs 501(c)(3) hospitals or tax-exempt health care bonds in a world where everyone, rich and poor, has access to health insurance coverage?
That's the question asked by the Congressional Research Service in a recent report on health care reform, which indicated that nonprofit hospitals and health care bonds may be superfluous.
"If Congress adopts a health care system with universal coverage, presumably all or almost all individuals will have access to health care regardless of their ability to pay," said the report, released last month.
Therefore, "Congress may want to consider whether, under a health care system with universal coverage, the policy of granting valuable tax exemptions to nonprofit health care providers remains valid," the report said.
A side benefit to ending tax-exempt status would be the elimination of tax-exempt financing for private, nonprofit hospitals, said the report, written by Harry G. Gourevitch, senior specialist in taxation and fiscal policy with the research service.
"Congress may want to consider whether the tax-exempt bond benefits of nonprofit hospitals and nonprofit health maintenance organizations qualifying under section 501(c)(3) should be retained, restricted or repealed," the report said.
"Cutting back on the right of nonprofit hospitals to benefit from the issuance of tax-exempt bonds would increase federal revenues that could be used to help finance the costs of health care reform," the report said.
Release of the report comes as several congressional committees, including the House Ways and Means Committee, are struggling to produce legislation to reform the health care system. President Clinton has said he will insist that any bill that comes out of Congress ensure that all Americans have access to health insurance coverage.
Sources in the hospital industry and in Congress said they doubted that lawmakers, even if they approve universal coverage, would take the extreme step of completely eliminating the tax exemption for nonprofit hospitals. The more likely response would be for Congress to require nonprofit hospitals to go farther than they do now in showing the benefits they provide to the communities they serve.
"One can argue that there's a case for [eliminating the hospital tax exemption] in a world of all-compensated care,' but "that will never happen. They will never eliminate it," said a congressional aide familiar with health care issues.
But the report's conclusion could make lawmakers less inclined to ease curbs on the use of tax-exempt financing for nonprofit hospitals, said a municipal lobbyist.
A group of 501(c)(3) issuers have been pushing the Ways and Means committee to ease limits on hospital advance refundings, bank deductibility, and on the amount of bonds that individual health care institutions may have outstanding at one time.
Bond financing aside, the overall tax exemption for nonprofit hospitals is not likely to be endangered because lawmakers will realize that there will still be a niche for those institutions to fill under a universal coverage system, said Elie Radinsky, an associate director with Standard & Poor's Corp.
"Just because you have universal coverage, in other words, the ability of everyone to pay into a system, not everybody's going to pay into it," Radinsky said. "You'll still probably have that middle ground, the working poor who might want to take the risk of not paying in or who might not be able to afford" the coverage, he said.
Standard & Poor's is operating under the assumption "that the current situation for 501(c)(3)s will continue," Radinsky said. Even if something were to happen to jeopardize hospitals' tax-exempt status, Standard & Poors believes Congress would take care not to endanger the status of outstanding bonds, he said.
Michael Rock, a lobbyist with the American Hospital Association, said he also believes that nonprofit hospitals will have a role to play, even under a universal insurance coverage system. In addition to charity care, nonprofit hospitals provide educational and other benefits to communities, he noted.
"Most people don't really realize that right now the exemption isn't based on charity care solely, he said. "I think it's pretty clear that hospitals and other exempt providers like HMOs have to meet a pretty wide range of requirements," Rock said.
Rock said the association wants to see a tough community-benefit standard in whatever legislation Congress passes. "We're pushing to get more of a stricter process in place that exempt organizations would be required to go through to improve community health status," he said.
