The Tax Cuts and Jobs Act passed by Congress in late 2017 has been a boon to several small and large employers, according to Americans for Tax Reform, a conservative group that is compiling an ongoing list of U.S. employers who have announced plans for pay raises, bonuses, utility rate cuts, or 401(k) increases since the bill was approved. As of March 5, the list of companies offering bonuses, raises and other increases due to the Tax Cuts and Jobs Act stood at 416 and is continuing to grow.
That’s good news for several employers and their employees, including those in the for-profit healthcare sector. Take Express Scripts, for example. The pharmacy benefit management organization expects to see an $850 million reduction in taxes because of the new tax laws. Humana, meanwhile, expects to save $550 million annually from the cuts, and plans to increase wages to at least $15 per hour, accelerate investments in analytics and technology, and create a bonus program for 28,000 employees. Cigna expects to save $150 million in taxes while LifePoint Health, a hospital company providing patient-centered care in rural and non-urban communities, estimates up to $35 million in potential savings, according to comments in a Modern Healthcare article.
But these sweeping tax cuts could have a negative impact on one overlooked sector: nonprofit hospitals.
According to the American Hospital Association, there are nearly three times as many nonprofit hospitals (2,845 nonprofit community hospitals) as for-profit hospitals (1,034 for-profit community hospitals) in the United States.
And according to comments reported in a Healthcare Finance article, the new tax reform law could have negative credit implications for non-profit hospitals and healthcare systems. One reason is because “the repeal of the individual insurance mandate will increase the uninsured population and raise uncompensated care costs, hurting operating margins and cash flow.” The tax cuts are also causing confusion and consternation within the nonprofit hospital sector. The Wall Street Journal referenced Banner Health, a Phoenix-based nonprofit health system that operates 28 hospitals and several specialized facilities across six states. Eleven Banner Health employees earned more than $1M in 2015, but with the structure of the new tax cuts, Banner would only owe taxes on five of those 11.
The Wall Street Journal article said: “Under the new law, a nonprofit will owe a 21% tax on pay exceeding $1 million. But it will owe the tax only on the five highest-paid employees at each tax-exempt entity the nonprofit has registered with the Internal Revenue Service, excluding some doctors.”
A Healthcare Dive article titled Tax bill sows confusion for nonprofit hospitals provided additional feedback and commentary, stating:
“Nonprofit hospitals paying million-dollar salaries are met with suspicion with people questioning how a nonprofit entity — especially one in healthcare — can offer such high salaries. Of course, nonprofits must prove a community benefit to maintain their tax-exempt status, but that doesn’t stop some from wondering how a nonprofit can pay so much and rake in hefty revenues…Nonprofit hospital advocates argue that the community benefits more than outweigh salaries and profits. The American Hospital Association recently released an analysis that said hospital community initiatives outweighed the value of tax exemption 11 to one.”
For now, nonprofits are still trying to grasp the long-term effects of the Tax Bill. The early feedback is that most nonprofits won’t benefit from the tax cuts like their for-profit competitors, which will only give for-profits another advantage in the competitive world of for-profit and nonprofit healthcare.
Bottom line: The tax bill has benefited many companies, but could hurt others…including nonprofit hospitals. At the very least, it’s certainly caused confusion and consternation because the tax benefits don’t appear to be as beneficial and clear for nonprofit hospitals.
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