Tax-Exempt Organizations: Role in Accessibility to Health Care (Research Paper Sample)

Tax-Exempt Organizations: Role in Accessibility to Health Care
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Tax-Exempt Organizations: Role in Accessibility to Health Care
Internal Revenue Code Section 501(c)(3) provides certain federal requirements upon which nonprofit hospitals can qualify for a tax-exempt status (Rosenbaum & Margulies, 2011). Based on this tax exemption system, federal, state, and local governments forego collective tax revenues of about $12.6 billion annually (Hammaker, 2011). In return, such tax-exempt institutions are expected to provide charity care services based on a broad community benefit standard (Rosenbaum & Margulies, 2011). However, such a community benefit standard is difficult to measure and enforce, to the effect that the law does not expressly require tax-exempt organizations to provide free or subsidized care to uninsured individuals (Hammaker, 2011). As a result, significant legal implications exist for tax-exempt organizations in providing health care services to the uninsured, raising a strong case for establishing clearer legislation and practice standards.
Legal Requirements
Based on amendments resulting from the Affordable Care Act (ACA), the Internal Revenue Code (IRC) has an additional 501(r) provision that requires tax-exempt institutions to implement CHNA (community health needs assessment) (Rosenbaum & Margulies, 2011). A tax-exempt organization deemed successful in meeting the provisions in 501(r) must also have planned an implementation strategy that ensures it can meet the health needs of the target community as identified through CHNA. Further, the CHNA must seek input from individuals representing broad community interests (Rosenbaum & Margulies, 2011). Such measures indicate that the Affordable Care Act has sought to implement legal provisions that may benefit the uninsured, as the aforementioned CHNA provides windows of opportunity for tax-exempt organizations to respond to the needs of uninsured populations.
However, the legal requirements raised by IRC 501(r) still do not translate to direct provisions for tax-exempt organizations to cater for the need of the uninsured (Hammaker, 2011). According to Rosenbaum and Margulies (2011), although hospitals have obligations towards low-income and uninsured individuals, the CHNA does not directly address the needs of these individuals. For instance, the CHNA does not address the extent of free care a tax-exempt organization can provide, as well as how to meet uncompensated care needs. Observing that the rule of law does not specifically require tax-exempt hospitals to provide free or subsidized services to the uninsured, Hammaker (2011) argues that such hospitals can also charge the uninsured higher rates than those negotiated by the insurance market. These observations indicate that the legal requirements based on ACA amendments of the IRC provide opportunities for tax-exempt organizations to cater for the needs of the uninsured, but the lack of express statutory provisions means that such organizations have no specific obligation towards the uninsured.
Legal Perils
Whereas IRC Section 501(c)(3) obligated tax-exempt organizations to pursue broad community benefits, it underwent dilution to the extent of non-enforceability (Rosenbaum & Margulies, 2011). The ACA amendments on the Internal Revenue Code through 501(r) seek to improve implementation and regulation among tax-exempt organizations. For instance, organizations that do not implement the aforementioned CHNA provisions face a legal peril embodied by the imposition of a $50,000 excise tax. Tax-exempt organizations have to demonstrate their effectiveness in assessment of community health needs and implementation of appropriate solutions. The legal penalties for failure to implement the 501(r) provisions include the aforementioned excise tax and challenges in achieving a tax exemption status under 501(c)(3) (Hinkle, 2012). Further, multi-facility institutions face challenges in interpreting how 501(r) affects their organization, given that such institutions consist of both health systems and separate facilities.
Under the ACA, Medicaid underwent expansion to reduce the costs incurred in providing medical care to the uninsured, as well as the need for disproportionate share in hospital funding (Hinkle, 2012). This new legal arrangement leads to various legal implications that may affect the financial ability of tax-exempt organizations in serving uninsured individuals. Hinkle (2012) analyzes the various legal dimensions that may lead to financial problems in tax-exempt organizations. The ACA amendments concerning CHNA and accompanied implementation strategies translate t...