Treasury Considering More Categories of Health Providers to List of Tax-exempt Organizations

January 25, 2011

Additional organizations may join the roster of tax-exempt organizations, according to Ruth M. Madrigal, attorney-advisor in the office of Tax Policy at Treasury. In her remarks to a panel of health lawyers at the mid-year meeting of the American Bar Association on Jan. 21, 2011, she referred specifically to new categories that were part of the Patient Protection and Affordable Care Act (PPACA) enacted in 2010:

  • Small Business Health Options Programs (SHOPs) are state and regional health benefit exchanges that are to be created before 2014 to help individuals and small business employers enroll their employees in qualified health plans.
  • Nonprofit Health Insurance Issuers (NHIIs) operating under section 501(c)(29) of the IRC created under PPACA to establish requirements for qualified nonprofit health insurance issuers in order to receive grants from the Department of Health and Human Services.
  • Accountable Care Organizations (ACOs) providing managed care for groups of Medicare beneficiaries. Under PPAC, ACOs that meet quality standards would share in any cost savings achieved by more efficient care delivery.
  • Health Insurance Exchanges (HIEs) that assist uninsured individuals to purchase health insurance, and for employees of small businesses that do not provide health benefits. Under PPACA, states are required to include a risk adjustment program for health plans that would compensate insurers handling pools of the insured with higher risks.

Madrigal indicated that there are a lot of challenges in structuring these entities and that “nonprofit does not necessarily mean tax-exempt.” We will have to await further developments regarding Treasury’s developments regarding the administration of the entities.

Treasury and IRS continue to work on guidance under PPACA for the new IRC section 501(r) for nonprofit hospitals. With no further official guidance provided to this point, the ABA’s Health Law Section presented its official comments regarding section 501(r) requirements pursuant to Notice 2010-39. The comments would provide new safe harbors and consistent definitions. Other comments had been previously submitted by the American Hospital Association and other hospital groups. Several ABA comments would lead to a less onerous reporting to the IRS with certain safe harbor provisions. We will report on these comments in a subsequent news alert.

This is just another example of the issues that have arisen in the interpretation of the new health legislation, as Treasury and the IRS struggle to promulgate rules and regulations to implement the new law. We will keep you informed of new developments. For more in this area, see IRS Addresses Hospital Concerns Regarding Section 501(r) and Nonprofit Hospitals in Need of an Aspirin. Health Reform: Is the Hospital Industry Misapplying Congressional Intent? ACOs and the Shared Savings Program – Part II: Unanswered Questions.

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