Here's something that never would have occurred to me. A colleague today suggested that if the President and Congress are successful in eliminating or dramatically reducing the number of uninsured Americans, some in Congress would argue that the tax exemption enjoyed by non-profit hospitals should be the next target. The logic would be that if we were no longer providing free care, there would be no public service rationale for the tax exemption.
This thought left me surprised, but anything is possible. In my view, of course, this is not sound logic. First of all, there are other functions carried out for the public good in academic medical centers and other hospitals, like education and training of future doctors and nurses, and scientific research. And, even if everyone does end up with government-sponsored insurance in the future, there would remain a substantial deficit in those government payments. For example, the states pay Medicaid rates that are substantially below the actual costs of caring for Medicaid patients. These patients are subsidized by hospitals all across the country.
Beyond this, if the tax exemption were revoked, it would just raise the cost of care delivered in hospitals, adding sales tax to the purchase of goods and services; property tax on the value of plant and equipment; taxable interest on bond issues to finance new buildings and equipment; and state and federal income taxes for those hospitals lucky enough to earn a margin at the end of the year. Those costs, in turn, would be built into the rates, undercutting the goal of controlling cost increases in this sector.
If my colleague is right and this kind of sentiment is indeed likely, perhaps those currently deliberating on the health reform bill should put in some safeguard to protect the nation's non-profit hospitals and consumers from this unintended consequence.