Nonprofit hospitals tax exemptions rose estimated 41% over nearly a decade, KFF finds

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Dive Brief:

  • Nonprofit hospitals were exempt from paying nearly $28 billion in estimated taxes in 2020, according to a report out Tuesday from the Kaiser Family Foundation.
  • That’s compared to about $20 billion in 2011, and represents an approximately 41% increase over nine years, according to KFF.
  • For 2020, the value of tax exemptions represented over 43% of net income earned by nonprofit facilities that year, the report found.

Dive Insight:

Nonprofit hospitals must provide charity care, or free or discounted services to patients unable to afford care, along with other community benefits and investments as part of their tax-exempt status.

However, nonprofits have been criticized for receiving tax breaks worth more than the charity and benefits they provide.

A 2022 report from the Lown Institute analyzing 275 community hospitals found that 227 hospitals spent less on charity care and community investment than the value of their tax exemptions.

While charity care represents just a portion of the overall community benefits that nonprofits must provide for their status, nonprofits spent about $16 billion on charity care in 2020, while receiving about $28 billion in tax breaks, according to the KFF report.

Nonprofit hospitals account for 58% of community hospitals in the U.S., and in seven out of the nine years analyzed, the value of tax exemptions rose for them, KFF found.

A $5.7 billion decrease in exemptions occurred in 2018, coinciding with the Tax Cuts and Jobs Act under the Trump administration, which reduced the federal corporate income tax rates and decreased the value that was exempt from federal income taxes, according to KFF.

The largest single year increase happened in 2020, when the value of tax exemptions for nonprofits rose an estimated $4 billion.

That boost was driven by a jump in net income for nonprofit hospitals, from $47 billion in 2019 to $64.5 billion in 2020.

Ultimately in 2020, nonprofit hospitals were exempt from about $14.5 billion in federal taxes, primarily due to not having to pay federal corporate income taxes.

While the pandemic spurred decreases in net income from patient care, government relief and rises in charitable contributions and investment income offset losses, and the boost in net income increased the value of not having to pay taxes, according to KFF.

Nonprofits were also exempt from about $13.2 billion in state and local taxes in 2020.