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a-distorted-market

Among the major perverse incentives that distort the US health care market are the tax breaks for immobile employers rather than mobile employees, and for non-profit hospitals instead of patients. Both tax subsidies are partly to blame for spiralling health care expenditures, making non-profit hospitals richer than their for-profit counterparts in the process.

The majority (60%) of the 3,400 US hospitals are not for profit. The 50 largest of them have increased their net income eight-fold between 2001 and 2006 to $4.27 billion, and the 25 richest earn more than $250 million per year. Originally set up to serve the poor, today poor or uninsured patients are billed the highest charges because they don’t benefit from discounts granted to privately insured and Medicaid or Medicare patients. One non-profit hospital group, Ascension Health, has piled up reserves of $7.4 billion, more than many large publicly traded companies. These tax breaks are ‘drawing fire’.

Nonprofits …are faring even better than their for-profit counterparts: 77 percent of the 2,033 US non-profit hospitals are in the black, while just 61 percent of for-profit hospitals are profitable, according to the American Hospital Directory data. The growing gap between many non-profit hospitals wealth and what they give back to their communities is raising questions about the billions of dollars in tax exemptions they receive.

The exact number for 2006 is estimated by the Congressional Budget Office $12.6 billion in tax exemptions plus subsidies from different government levels worth $35 billion for the whole hospital industry. These numbers show better than anything else what damage is caused when third parties instead of consumers run health care. It also shows a high degree of noble cause corruption: ‘non-profits serving the poor’.