Читать книгу The Law of Tax-Exempt Healthcare Organizations - Bruce Hopkins R., Bruce R. Hopkins, David Middlebrook - Страница 31
Оглавление§ 9.3 COMMERCIAL‐TYPE INSURANCE PROVIDERS
p. 279, note 102. Insert at end of note:
; FY 1997 Exempt Organizations Continuing Professional Education Technical Instruction Program Textbook, “Insurance: The Rule of ’86.”
p. 287, third complete paragraph, next to last line. Delete February 2013 and insert November 2017.
§ 9.5 RECENT DEVELOPMENTS
p. 289, note 139. Insert at end of note:
The IRS administratively suspended application of the prohibition against the substantial provision of commercial‐type insurance by charitable and social welfare organization entities in HMO examinations in 2003.
p. 290. Insert before second full paragraph:
In October 2017, the IRS published in its e‐newsletter a series of Audit Technique Guides (ATG) on various topics containing material that had previously only been available in the Internal Revenue Manual.145.1 The IRS moved the material to these guides, used by IRS Exempt Organization examiners, to improve access and availability.
One ATG addresses examinations of Health Maintenance Organizations.145.2 It states that the purpose of audits of HMOs is to determine whether the organization qualifies for exemption as a charitable organization or as a social welfare organization; and whether the HMO is precluded from qualifying for exemption by the prohibition against the substantial provision of commercial‐type insurance by such entities. The audit also determines whether any part of the organization's activities is subject to tax as unrelated business activities or as activities of an insurance company.
The ATG provides an explanation of the activities of HMOs, including the difference between direct provider and arranger HMOs that has been central to the ability of HMOs to qualify as charitable organizations in the IRS's view. It also discusses the role of physicians within the HMO structure, HMO contracts with hospitals and enrollment in an HMO, HMO premiums, and HMO governance.
The ATG then analyzes the ability of HMOs to qualify as either a charitable organization or as a social welfare organization, including a discussion of Medicaid HMOs and HMOs as an integral part of a healthcare system. Finally, the ATG explains the application of the rules pertaining to the provision by HMOs of commercial‐type insurance and the application of the unrelated business income rules to such activities.
*p. 292. Insert following the final paragraph:
This case would become central to a 2015 reexamination of the IRS's ruling position as to tax exemption for HMOs. In a ruling dated February 19, 2015, the IRS issued an adverse determination to McLaren Health Plan, a nonprofit health maintenance organization, revoking its favorable determination letter recognizing its status as a tax‐exempt charitable organization and recognizing it going forward as an exempt social welfare organization.149 In so doing, it declined to adopt the conclusions of a lengthy report of examination of the HMO that advocated denial of recognition of exemption under either section of the Internal Revenue Code.
The recipient of this ruling is a state‐licensed nonprofit health maintenance organization that arranges for the provision of medical services to its enrollees who receive Medicaid health benefits. It is not a direct provider of medical services. It was previously recognized by the IRS as a tax‐exempt social welfare organization. It subsequently merged into an organization that was recognized as a tax‐exempt charitable organization. It also began to arrange for the provision of commercial healthcare services to individuals and group subscribers. It does so through contracts with various physician groups, hospitals, and other healthcare providers.
The report of examination found that the organization had significantly increased its focus on commercial (non‐Medicaid) activity. The organization was financially healthy and had low administrative costs, and was seeking to increase membership. To that end, it expanded its sales department and business development efforts, and it sought to increase commercial membership. The report further found that the HMO operated in a commercial manner, earning considerable profits, accumulating a considerable surplus, highly compensating its executives, paying substantial commissions to its sales force, concentrating on its most lucrative clients, engaging in advertising, and receiving no contributions.
This ruling, by itself, reflects a continuation of the truce between the IRS and nonprofit health maintenance organizations structured and operated as arrangers of healthcare services rather than as direct providers of those services (which are the vast majority of them). The IRS has generally recognized such organizations as social welfare organizations rather than as charitable ones for more than 20 years. What is more noteworthy is the report of examination that is included with the ruling. That report advocates for the revocation (or denial) of exemption for arranger‐type HMOs either as charitable organizations or as social welfare organizations.
The report is based largely on two asserted principles: first, organizations that substantially serve their members and not the community as a whole cannot qualify as charitable or social welfare organizations; and second, organizations that are operated in a manner similar to commercial organizations can likewise not qualify for exemption in either category.
The ruling is issued against a backdrop of continuing incremental changes in the operation of nonprofit health maintenance organizations and their increasing resemblance to traditional commercial insurance providers. Also in the mix is the ongoing uncertainty regarding the meaning of a 1986 change in federal law (designed largely to bar continued tax exemption for Blue Cross and Blue Shield plans) that denies tax exemption for substantial providers of commercial‐type insurance, and its application to HMOs.
The primary weapon for the report's conclusion is the court's holding in the Vision Service Plan case to revoke tax exemption as a social welfare organization for an eye‐care service provider due to its substantial member focus and its operation like a for‐profit business. The report readvocates at great length the IRS's winning arguments in the Vision Service Plan case and seeks to extend its reach in a manner that would effectively eliminate tax exemption for HMOs, even for those that significantly serve Medicaid patients. For good measure, the report invokes an oft‐asserted IRS and common law theory—the commerciality doctrine150—to condemn as ineligible for exemption any nonprofit HMO that undertakes those common business methods that are necessary to effectively operate and remain viable in the provision of managed healthcare. This is all curious since it comes at a time when Congress has recently embraced151 the ability of certain types of nonprofit health insurance issuers to qualify for tax‐exempt status and when managed care plans play an important role in extending coverage to uninsured individuals under the Affordable Care Act.
For now, the ruling continues the long‐standing IRS position in favor of recognizing arranger‐type nonprofit HMOs as tax‐exempt social welfare organizations. But the arguments contained in the report on examination are likely to resurface and bear careful monitoring both with the IRS and in the courts.
Also, in a final adverse ruling that was not appealed, the IRS determined that an HMO did not qualify for exemption as a social welfare organization.152 The organization was a new nonprofit corporation that acquired the assets and assumed the business of a for‐profit HMO by merging with it. As a result of the merger, it became affiliated with a group of healthcare entities, including a medical school, a faculty practice plan, an accountable care organization, and a hospital. The organization continued the business of its for‐profit predecessor, including offering healthcare plans through a health insurance exchange under the Affordable Care Act. It was an arranger and administrator of healthcare services through its plans, providing prepaid healthcare services primarily to its subscribers. It also undertook social welfare activities, including providing financial assistance to individuals and families who were unable to afford the plan premiums, making grants for health research and capital improvement projects, hosting mammography screening events, and providing access to clinically based education materials. It also shared health information with a data warehousing initiative formed by its affiliate.
The IRS concluded that the organization was not operated primarily for the promotion of social welfare, since the overwhelming majority of its activities related to providing healthcare plans to its paying subscribers. The number of its subscribers who were low‐income and qualified for subsidies was minor in relation to its subscriber populations as a whole. In addition, its social welfare activities represented a minor component of its overall activities. The IRS stated that to qualify for tax exemption as a social welfare organization, an organization's activities must primarily benefit the community rather than its own members.
The IRS also determined that the organization did not qualify for tax exemption as an integral part of its affiliated medical school. Even though the medical school controlled its operations, and its administrative functions were intermingled with it, the HMO did not provide any necessary or indispensable services exclusively to the medical school. In addition, the organization continued to arrange for healthcare services to be delivered by providers and facilities outside of its health system, and thereby failed to qualify as an integral part of the medical school.
In another ruling, the IRS considered an application for recognition of tax exemption as a charitable organization from an entity formed for the purpose of providing health insurance for every resident of a state for a fee and opening an affordable healthcare facility, also for a fee. The IRS denied recognition of exemption, concluding that the organization was not operated exclusively for charitable purposes, but rather was providing commercial‐type insurance and medical services on a fee‐for‐service basis. In addition, the IRS determined that the organization's provision of commercial‐type insurance was substantial, thereby disqualifying it for recognition of exemption as a charitable organization under the Code.153
The IRS easily concluded that the entity was providing commercial‐type insurance because its articles of incorporation and its description of activities indicated that its purpose was to provide healthcare insurance for a fee. The entity did not meet any of the exceptions to commercial‐type insurance described in the Code and it did not provide insurance substantially below cost or limit the insurance to a class of charitable recipients. With regard to the question of substantiality, the IRS noted that the entity planned to devote 100 percent of its efforts toward establishing and marketing its insurance program in its first year of operations, and would spend 50 percent of its total activities on its insurance program in the second through fourth years of operation. Even after it was established, the entity planned to spend 30 percent of its total activities on its insurance program. Based on applicable case law, the IRS concluded that these amounts are substantial. Furthermore, 94 percent of the entity's revenue was slated to come from insurance sales and 94 percent of its expenses were planned for payments for the healthcare expenses of its insureds. Accordingly, the provision of commercial‐type insurance was deemed substantial, which precluded the entity from securing exemption as a charitable organization.
