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Senate Aims To Raise the Bar for Not-for-Profit Status in Health Care

It’s not uncommon for hospitals and health insurers to enjoy not-for-profit status under the federal tax code, exempting them from a number of taxes.  But the Senate is taking a closer look at those organizations, and Senate Majority Leader Harry Reid (D-Nev.) has included provisions in the chamber’s health care reform bill (HR 3590) that would impose new requirements for hospitals and health plans to retain their not-for-profit status.

For example, Section 9016 of the bill would require not-for-profit BlueCross BlueShield plans to spend at least 85% of patient premiums on patient care, in effect capping administration expenses at 15%.  The measure would take effect in the tax year after Dec. 31, 2009.

Insurers that didn’t meet the threshold would lose special federal tax exemptions.  The Joint Committee on Taxation projects that the loss of such exemptions would generate $400 billion in new federal tax revenue from 2010 to 2019.

There currently are 24 not-for-profit BCBS plans in the U.S., including Blue Shield of California. 

Data on Blue Shield’s Web site indicate that the insurer would have met the standard in 2006, 2007 and 2008, but the data also suggest that the proposed requirement would exert added pressure on the health plan to keep a close eye on administrative and general costs, which have risen in recent years.  In 2006, Blue Shield’s general and administrative costs amounted to about 11.8% of operating revenue. By 2006, general and administrative costs accounted for 13.2% of operating revenue. 

Another provision of the Senate bill is reminiscent of a California law (AB 774) that took effect in 2007, prohibiting hospitals from billing underinsured or uninsured patients more for services than they bill Medicare, workers’ compensation or other government programs. Patients whose annual incomes do not exceed 350% of the federal poverty level are eligible for California’s cap on charges for hospital services.

Language in the Senate bill (Section 9007) would bar hospitals from charging patients who qualify for financial assistance more for emergency care or other medically necessary services than they would charge insured patients.

The California law bars hospitals from using some bill collection practices, and the Senate bill includes a language that would bar “extraordinary collection practices” until a hospital has worked to determine if a consumer meets the facility’s financial assistance policy. 

Given that a key priority of the legislation is to expand health insurance coverage, hospitals likely would face fewer cases in which the proposed rules would apply.  That said, the provision leaves it to HHS to write rules determining how the requirements would be enforced, including who would be eligible for the expanded federal consumer protections.  And that detail opens the door to the possibility of a federal policy that is weaker than the policy currently in place in California.

More details on proposed amendments to the Senate bill and other developments in the reform debate appear below.

Rundown on Senate Amendments

Prior to the start of debate, Democrats and Republicans agreed that all amendments to the bill must have 60 votes to be approved.  Highlights of news on proposed amendments to the Senate Health care reform bill (HR 3590) appear below.

  • On Dec. 4, Sens. Susan Collins (R-Maine), Joseph Lieberman (I-Conn.) and Arlen Specter (D-Pa.) unveiled a “tripartisan” amendment aimed at cutting health care costs, Politico‘s “Live Pulse” reports (Budoff Brown, “Live Pulse,” Politico, 12/4). The amendment would create penalties against hospitals for hospital-acquired infections (Werner, AP/San Diego Union-Tribune, 12/4); mandate online reports on physician quality to enable greater comparison of doctors; require insurers to publicly disclose more information about their business practices, such as how often they deny services to enrollees (Edney/Friedman, CongressDaily, 12/4).; expand a pilot program in which the government “bundles” hospital payments for all of a patient’s expenses as opposed to paying for each individual procedure separately; (Herszenhorn, “Prescriptions,” New York Times, 12/4); and let the HHS secretary create pilot programs without first receiving congressional approval (CongressDaily, 12/4).
  • A coalition of one dozen freshmen Democratic senators has created a separate set of cost-containment proposals, CongressDaily reports. The freshmen senators would expand the scope of a proposed Medicare commission — intended to rein in spending growth in the program — to include private insurers. The commission’s recommendations would be nonbinding for the private insurers. Another proposal would create a Web site to compare the quality and cost of insurance companies (CongressDaily, 12/4). In addition, the proposals call for a more aggressive expansion of pilot programs intended to reward quality of treatment rather than the quantity of services provided. The proposal would enable more rapid expansion of accountable care organization pilot programs — in which physicians and hospitals collaborate to improve patient outcomes — if evidence shows that the programs are successful (“Prescriptions,” New York Times, 12/4).
  • An amendment by Sen. Judd Gregg (R-N.H.) that would have prevented many of the Senate bill’s provisions from being implemented unless there was specific language to guarantee that costs would be fully offset failed by a 43-56 vote, CQ Today reports. The amendment would have required the White House Office of Management and Budget and CMS to certify that the bill’s revenue reduction and spending provisions for 10 years would be fully offset by the generated savings before they are allowed to go into effect (Ethridge, CQ Today, 12/7).
  • The Senate voted 98-0 to adopt an amendment by Sen. Mark Pryor (D-Ark.) that would add language to the bill that requires HHS to establish a system to survey consumers’ satisfaction with health plans offered through the proposed health insurance exchange. The survey results would be available online to all U.S. residents, allowing them to compare satisfaction ratings (Scholtes, CQ Today, 12/7).
  • Senate Judiciary Committee Chair Patrick Leahy (D-Vt.) plans to introduce an amendment that would repeal the antitrust exemption for health and medical malpractice insurance companies (Hunter, CQ Today, 12/1).
  • Sen. Robert Casey (D-Pa.) plans to introduce an amendment that would preserve the Children’s Health Insurance Program through 2019 and protect the program from being added to a national health exchange for at least 10 years, CongressDaily reports. The House bill would phase out the program and provide children with coverage through Medicaid or a health exchange. Casey said the Congressional Budget Office is currently analyzing the cost of the amendment (CongressDaily, 12/2).
  • On Dec. 1, Sen. Ben Nelson (D-Neb.) said that he planned to reintroduce an amendment, already rejected by the Senate Finance Committee, that would close the coverage gap in the Medicare prescription drug benefit by offering eligible Medicare beneficiaries the same discounts provided to Medicaid patients (Edney, CongressDaily, 12/2).
  • Numerous amendments to the Senate’s health care reform bill might jeopardize deals that lawmakers made over the summer with certain interest groups, threatening to deter some support for health overhaul efforts, the Washington Post reports. For example, a pending amendment by Sen. Byron Dorgan (D-N.D.) that would allow U.S. pharmacies and drug wholesalers to import lower-priced drugs from other countries could cause drugmakers to lose additional money. Another measure that might cause issues for the industry is an amendment by Sen. Bill Nelson (D-Fla.) that would transfer about six million seniors eligible for Medicare to Medicaid. According to the Post, Medicaid pays lower prices for drugs than Medicare (Montgomery/Murray, Washington Post, 12/6).
  • Sens. Tom Coburn (R-Okla.) and David Vitter (R-La.) are preparing an amendment that would require members of Congress to participate in a public plan if one is enacted, The Hill reports. According to The Hill, Vitter also is considering an amendment to ban physician services offered to lawmakers at the Capitol and at military hospitals (Rushing, The Hill, 12/4).

Timeline for Action

  • Senate Majority Leader Harry Reid (D-Nev.) has started developing a manager’s amendment to the Senate health care reform bill (HR 3590), and he hopes that the final package of adopted amendments will address the concerns of his caucus and secure the 60 votes needed to pass the bill, CQ Today reports. Reid and other top Democratic leaders in the chamber are working toward a self-imposed deadline to complete work on the bill and hold the necessary votes to pass the measure by Christmas (Hunter, CQ Today, 12/7).

Shaping the Debate

  • In a speech to the Detroit Economic Club on Dec. 2, Karen Ignagni, president and CEO of America’s Health Insurance Plans, criticized current health reform bills in Congress for not doing enough to slow the nation’s rising health care costs, Reuters reports. “The bills before Congress settle for timid pilot programs, rather than requiring major changes,” Ignagni said, adding that “as far as cost containment is concerned, it’s as though the house is on fire and the strategy is to rush to the scene with an eight-ounce glass of water” (Woodall/Heavey, Reuters, 12/3).
  • Nineteen surgical organizations — including the American College of Surgeons and groups that represent anesthesiologists, obstetricians and gynecologists — sent a letter to Senate Majority Leader Harry Reid (D-Nev.) informing him of their opposition to the Senate health care bill, CQ HealthBeat reports (Norman, CQ HealthBeat, 12/3).


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