The voices of Urban Institute's researchers and staff
January 19, 2016

How a little line in the tax code could matter to your community’s health

January 19, 2016

An understanding that health is affected by where we live—in our homes, schools, and workplaces—is spreading rapidly. The Centers for Medicare and Medicaid Services just announced a five-year $157 million program to test new models of health-related social service delivery for Medicare and Medicaid beneficiaries. Increasingly, state and local policymakers, community groups, and business leaders are recognizing the profound effects of community-level policies and institutions on our individual and collective health, and how decisions about education, development, and transportation are as much about community well-being, as they are about schools, housing, and highways.

We spend close to $3 trillion or 18 percent of our gross domestic product on health care—a huge sum by any standard—and almost twice as much per person as most other advanced nations. And yet, across the board, our health and survival outcomes are lagging. In these other countries, for every $1 spent on health care, $2 is spent on social services (broadly defined to include spending on pensions and support services for older adults; cash benefits for disability and sickness; and employment, family, and housing supports including rent subsidies). In the United States, by contrast, for every $1 we spend on health care, only 55 cents goes to social services. Our inadequate social service system in turn places strains on the US health care system, and our health is suffering as a result.

A potentially powerful bridge for linking our nation’s health care system and the broader array of institutions and social services that shape our well-being is a little known line in the federal tax code: Schedule H of Form 990.

Since 2008, hospitals wishing to maintain their nonprofit tax-exempt status have been required to report their spending on a variety of “community benefit” activities, including charity care, unreimbursed services provided through Medicaid and other means-tested programs, health professional development and research, and (of particular interest here) community health improvement activities. Over three-quarters of hospitals are nonprofit. Historically, most of this spending has gone toward serving uninsured patients but, as their numbers fall thanks to the Affordable Care Act (ACA), hospitals should seek other ways of investing in community health.

What is fairly clear is that we need to learn much more about how hospitals are spending their community benefit dollars, how they are thinking about population and community health more generally, and how well they are assessing community health needs and coordinating with public health systems and other community-based entities.

Other than profiles of individual hospital systems, virtually no systematic work has been done on how well hospitals are working with community-based social service providers, many of whom have deep long-standing ties to their communities. These providers include schools; youth and child care centers; housing providers; and programs that provide food and nutrition, counseling and family supports, and employment and training.

Most important, we need to know whether these investments are driving real improvements in community health. Part of this assessment will be continuing to monitor how hospital community benefit policies are evolving in different states, and how major shifts in the hospital industry are affecting their behaviors. For example, as many hospital systems consolidate across larger geographic areas in the wake of the ACA, there may be more opportunity for redistributing resources from more affluent communities to communities with more urgent health needs. Understanding what investments and approaches are working best, under what regulatory and policy frameworks, and in what types of communities, will be critical to identifying best practices and spreading and scaling them.

Harnessing community benefit expenditures by tax-exempt hospitals and ensuring these funds are spent wisely is one way the nation can drive real improvements in health, especially in socially and economically distressed communities. Despite the branding of this spending as a “benefit” or as “charity care,” these dollars are in fact part of the public’s trust.

The government exempts these hospitals from paying taxes, an exemption valued at a staggering $24.6 billion in 2011 alone. Nonprofit hospitals clearly benefit tremendously from this tax exemption (an exemption that is starting to be challenged). Like universities, hospitals have been characterized as community “anchor institutions”—large, established economic powerhouses that provide critical services, but also employment (both directly and through their purchasing power), investment, and civic leadership in their communities.

It remains to be seen how well these anchor institutions can drive real improvements in community health and what role the community benefit will play. A lot of money and taxes are at stake, as well as the health of many American communities.

As an organization, the Urban Institute does not take positions on issues. Experts are independent and empowered to share their evidence-based views and recommendations shaped by research.

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Couples participate in free tango classes in Central Park by the 1872 Shakespeare statue at Literary Walk July 9, 2011 in New York City.