WASHINGTON -- The Senate Finance Committee is scheduled to begin voting today on a new health care reform bill proposed by Sen. Daniel Patrick Moynihan, D-N.Y., that would repeal the $150 million volume cap on all 501(c)(3) bonds and put the bonds more on a par with tax-exempt governmental bonds.
The House Ways and Means Committee, meanwhile, was rushing to complete mark-up of a health care reform measure that will not contain any proposals to ease the $150 million cap.
Reps. Charles Rangel, D-N.Y., and Peter Hoagland, D-Neb., had been poised to offer amendments that would repeal the $150 million cap on the outstanding debt of only nonhospital health care organizations.
But the amendments were referred back to two subcommittees.
Sources following the committee said that there was not enough support for the partial repeal of the cap because of its high cost. The estimated federal revenue losses for the partial repeal would have totaled $400 million to $600 million over a 10year period, depending on whether nursing homes were included, the sources said. The bill is being "scored" according to 10-year revenue estimates rather than five-year estimates typically used for tax bills, they said.
The new Moynihan proposal to completely repeal the $150 million cap is similar to a provision he briefly described in a draft health care plan he proposed in early June.
The proposal, which was detailed in a 143-page summary document that was released late Tuesday, contains an artfully-worded description of the proposal to repeal the cap that appears to focus on health care organizations, but actually would apply to all 501(c)(3) organizations.
Under current tax law, nonhospital 501(c)(3) organizations cannot have more than $150 million of tax-exempt bonds outstanding at any time.
The proposal by Moynihan, who chairs the Finance Committee, "would repeal the $150 million per organization limit on outstanding bonds that applies to nonprofit health care facilities that are not acute care, inpatient facilities, and to other section 501(c)(3) organizations," the summary said.
The Moynihan bill also includes a provision that is similar to one included in a tax simplification bill that was passed by Congress in 1992 but vetoed by President Bush, sources said. The provision would remove some of the post-t985 restrictions that were placed on 501(c)(3) bonds and put them more on a par with governmental bonds.
Under the proposal, the sources said, 501(c)(3) bonds would not be subject to a 2% limit on issuance costs and would be made subject to 10% rather than 5% private use and payment restrictions.
Under current tax law, 501(c)(3) bonds and other private-activity bonds are taxable if more than 2% of the bond proceeds are used for issuance corn. 501(c)(3) bonds may also be taxable if more than 5% of the proceeds are used by a private party, other than thc 501(c)(3) organization, and if more than 5% of the debt service is secured by, or derived from, payments from a private party.
The summary of the bill also suggsts that 501(c)(3) bonds would not be subject to a current tax law provision that prohibits them and other private-activity bonds from being used for skyboxes, airplanes, and gambling, sources said.
The bill, however, would retain several of the restrictions on 501(c)(3) bonds, including low-income housing requirements for residential rental property acquired by 501(c)(3) organizations, the maturity limits applicable to 501(c)(3) bonds, the public approval requirements applicable to private-activity bonds, and the penalties for a change to a nonqualified use of the tax-exempt bond-financed property of a 501 (c)(3) organization.
Moynihan's bill would attach new restrictions that hospitals and other health care organizations would have to meet to obtain tax-exempt status. The restrictions would be tougher than those proposed by the Clinton Administration, but less harsh than those proposed by Rep. Sam Gibbons, D-Fla., the acting chairman of the House Ways and Means Committee.
Under the Moynihan bill, 501(c)(3) health care organizations, to be tax-exempt, would have to:
* Provide "qualified outreach services" -- health care or related educational or social services to medically underserved areas at below cost to poor individuals or at specialty emergency care facilities that normally operate at a loss.
* Annually assess the health care and qualified outreach service needs of the community and develop and disclose a written plan to meet the needs.
* Avoid discriminating in providing health care services to individuals who are covered by governmentsponsored health plans such as Medicare and Medicaid.
* Provide emergency health care services that do not discriminate on the basis of a patient's ability to pay.
Gibbons' bill, which is being marked up by the House Ways and Means Committee, contains virtually the same restrictions, plus two more. One would require that the health care organization be governed by an independent board of directors for which at least 80% of the directors are outsiders and not officers, staff, or doctors receiving compensation from the organization.
The other would require that the health care organization not discriminate against patients who cannot pay for nonemergency services.
Both the Moynihan and Gibbons bills would allow the Internal Revenue Service to impose excise taxes as an intermediate sanction, rather than revoking the tax-exempt status of a health care organization and its bonds, for certain violations of tax laws that result in the "incurement," or enrichment, of an official or other so-called "insider."
The Moynihan bill would follow a proposal made in March by the Treasury Department in allowing excise taxes to be applied for certain transactions involving unreasonable compensation or transfers of assets for something other than fair market value. But it would go further than the Treasury proposal in allowing the taxes to be applied to revenueing arrangements that result in inurement.
The Gibbons bill is even more strict and would allow excise taxes to be imposed for any violation of the prohibition on inurement and for the failure to meet any of the six requirements for tax-exempt status.
Bond proponents were particularly happy about Moynihan's proposed repeal of the $150 million cap. "We're very pleased that Chairman Moynihan has recognized the contribution that tax-exempt bonds can make to the goals of health care reform," said John Vogt, vice-president of external affairs for the Public Securities Association.
