Zooming in on new health policies
Focus on health care reform: tax revenue in the near future
May 27, 2010
by Astrid Fiano, DOTmed News Writer
How can health care reform be implemented to contain the deficit impact? That's the question guiding various revenue provisions in the Patient Protection and Affordable Care Act (PPACA) and accompanying Reconciliation Act to take effect this year and in years to come. Here's a look at some of the provisions that will be in effect soon that directly affect the health care industry.
Charitable Hospitals
One provision has new requirements for non-profit, or charitable hospitals. If the hospitals fail to meet these new requirements (below), they will be penalized $50,000 per year, which would be counted as revenue. The requirements include:
-Community health needs assessment: The hospitals must conduct a community health needs assessment at least once every three taxable years, and also adopt an implementation strategy to meet the community needs that have been identified through the assessment. The assessment can include information provided by a public health agency or other nonprofit organization. The assessment must have input from persons who represent the "broad interests" of the community, such as those with special knowledge of public health issues. A hospital will be required to disclose how it is addressing community needs through an annual information report to the IRS. The health needs assessment provision will be in effect in 2012.
-Financial assistance policy: Each hospital is required to implement and publicize a written financial assistance policy for patients. The policies must explain the patient eligibility requirements for financial assistance, which includes any free or discounted costs in care. The hospital must also explain how a patient may apply for financial assistance, and how the hospital will respond if the patient does not pay the hospital bills.
-Limitation on charges: A hospital must bill patients who qualify for financial assistance at the same rate as those with insurance. Hospitals are not allowed to at bill higher rates (called "gross charges") for those patients who are eligible for financial assistance programs.
-Collection processes: A hospital cannot take extreme collection actions against a patient without first making reasonable efforts to see if the patient is eligible for financial assistance.
Health Insurance Providers
Another provision for tax revenue concerns health insurance providers. This provision is a limitation of deductions that can be taken for compensation for personal services. Generally, employers may deduct some employee compensation from their taxes as a business expense. In this new provision, deductions are limited to $500,000 per applicable individual, for taxable years beginning after 2012. An applicable individual can be an officer, director, or employee, and also anyone who has provided services for the health insurance provider, such as a consultant.
Other Revenue Provisions
Other provisions have less direct effect on the health care industry. Effective in July, a ten percent direct tax will be imposed on indoor tanning services. Indoor tanning services are defined as services that use an electronic product with one or more ultraviolet lamps for skin tanning. However, phototherapy services performed by licensed medical professionals are excepted from this tax. The individual purchasing the indoor tanning services will pay the tax. If that individual does not pay the tax, then the tanning service business will pay the tax.
OTHER REFORM NEWS
In other health reform news, the U.S. government has responded to another lawsuit challenging the PPACA. The lawsuit from Virginia was filed in federal court in the Eastern District of Virginia. The case challenges the "minimum coverage provision" of the PPACA--the requirement taking effect in 2014 that individuals without health insurance must obtain coverage or be subject to a financial penalty. The U.S. government is asking the federal court to dismiss the lawsuit. The U.S. is arguing that the lawsuit should be dismissed because, among other reasons, Virginia is not now actually injured by the PPACA, and most likely will not be in the future; that a state cannot sue the federal government to protect state citizens from federal statutes; that suing now is improper because the "minimum coverage" provisions won't actually take effect until 2014; and also that Congress has a constitutional right to enact legislation such as the PPACA.
More on the tax provisions discussed in this article can be found in the Joint Committee on Taxation's analysis: http://www.jct.gov/publications.html?func=startdown&id=3673
Charitable Hospitals
One provision has new requirements for non-profit, or charitable hospitals. If the hospitals fail to meet these new requirements (below), they will be penalized $50,000 per year, which would be counted as revenue. The requirements include:
-Community health needs assessment: The hospitals must conduct a community health needs assessment at least once every three taxable years, and also adopt an implementation strategy to meet the community needs that have been identified through the assessment. The assessment can include information provided by a public health agency or other nonprofit organization. The assessment must have input from persons who represent the "broad interests" of the community, such as those with special knowledge of public health issues. A hospital will be required to disclose how it is addressing community needs through an annual information report to the IRS. The health needs assessment provision will be in effect in 2012.
-Financial assistance policy: Each hospital is required to implement and publicize a written financial assistance policy for patients. The policies must explain the patient eligibility requirements for financial assistance, which includes any free or discounted costs in care. The hospital must also explain how a patient may apply for financial assistance, and how the hospital will respond if the patient does not pay the hospital bills.
-Limitation on charges: A hospital must bill patients who qualify for financial assistance at the same rate as those with insurance. Hospitals are not allowed to at bill higher rates (called "gross charges") for those patients who are eligible for financial assistance programs.
-Collection processes: A hospital cannot take extreme collection actions against a patient without first making reasonable efforts to see if the patient is eligible for financial assistance.
Health Insurance Providers
Another provision for tax revenue concerns health insurance providers. This provision is a limitation of deductions that can be taken for compensation for personal services. Generally, employers may deduct some employee compensation from their taxes as a business expense. In this new provision, deductions are limited to $500,000 per applicable individual, for taxable years beginning after 2012. An applicable individual can be an officer, director, or employee, and also anyone who has provided services for the health insurance provider, such as a consultant.
Other Revenue Provisions
Other provisions have less direct effect on the health care industry. Effective in July, a ten percent direct tax will be imposed on indoor tanning services. Indoor tanning services are defined as services that use an electronic product with one or more ultraviolet lamps for skin tanning. However, phototherapy services performed by licensed medical professionals are excepted from this tax. The individual purchasing the indoor tanning services will pay the tax. If that individual does not pay the tax, then the tanning service business will pay the tax.
OTHER REFORM NEWS
In other health reform news, the U.S. government has responded to another lawsuit challenging the PPACA. The lawsuit from Virginia was filed in federal court in the Eastern District of Virginia. The case challenges the "minimum coverage provision" of the PPACA--the requirement taking effect in 2014 that individuals without health insurance must obtain coverage or be subject to a financial penalty. The U.S. government is asking the federal court to dismiss the lawsuit. The U.S. is arguing that the lawsuit should be dismissed because, among other reasons, Virginia is not now actually injured by the PPACA, and most likely will not be in the future; that a state cannot sue the federal government to protect state citizens from federal statutes; that suing now is improper because the "minimum coverage" provisions won't actually take effect until 2014; and also that Congress has a constitutional right to enact legislation such as the PPACA.
More on the tax provisions discussed in this article can be found in the Joint Committee on Taxation's analysis: http://www.jct.gov/publications.html?func=startdown&id=3673