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Subsidies worsen healthcare ‘system’ dysfunction

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Megan McArdle writes in Bloomberg View that taxing hospitals is a bad way to fix the U.S. healthcare mess. Among her observations:

“Obamacare was supposed to increase utilization of the health-care system — which means utilization of hospitals, and therefore, their profitability. It was supposed to reduce the number of people who had medical bills they couldn’t pay. If you supported Obamacare, this is good news for your position: It shows the law working roughly as it was supposed to. So what’s the issue?

“Well, many hospitals have non-profit status, which means they don’t pay taxes on their revenue. To keep that nonprofit status, they are supposed to provide community benefits. One of the major benefits they provided was health care for people without insurance. Now that fewer people are without insurance, there is a question about just what constitutes a community benefit that would justify leaving these hospitals untaxed.  National Nurses United, a union that the article cites repeatedly, would like that community benefit to be defined as providing charity care. Hospitals would like it defined as ‘Anything we want to call community benefit.”’

“The labor union seems to be seeking to turn this provision of the tax code into a jobs program for nurses, by mandating that non-profit hospitals spend a certain amount of their revenue on charity care, an activity which will, of course, require the employment of many nurses. The hospitals, meanwhile, are trying to avoid paying a large tax bill, while avoiding any government interference in their operations. Both sides have wrapped themselves in the banner of the public good, as special interests are apt to do while they are sliding their hands into the taxpayer’s pocket.

“Neither side is necessarily wrong: Sometimes lobbyists promote good ideas that just happen to make their clients some money. And I find it all too easy to believe that hospitals are benefitting from a nice tax subsidy while not really doing much worth subsidizing.

“But if that’s the case, then the best solution is probably to stop subsidizing it, not to make the subsidy more complex. A lot of the current mess in the American health-care system can be traced back to the thicket of hidden subsidies and fiddling regulations we’ve enacted over the years, trying to fine-tune the system into some platonic ideal where nothing ever goes wrong and no one ever makes an unseemly amount of money. But fine tuning has not delivered us the platonic ideal of anything, except perhaps the word ‘dysfunction.’ It might be time to step back and rethink our approach.”

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