Tax preferences for nonprofits: from per se exemption to pay-for-performance

Area of Science:

• Health policy analysis
• Nonprofit sector economics
• Public finance

Background:

• Nonprofit hospitals and health plans receive tax preferences, justified by proponents citing greater "community benefit" compared to for-profit entities.
• Key proponents include Mark Schlesinger and Brad Gray, who argue for continued government support based on this premise.

Discussion:

• The argument that nonprofits provide greater community benefit is unconvincing.
• While some evidence suggests marginally higher community benefit from nonprofits, there is no causal link established with tax exemption.
• Tax expenditures for nonprofits are unjustified without proof that they yield social benefits commensurate with taxpayer costs.

Key Insights:

• Nonprofit status does not inherently guarantee greater community benefit.
• Tax exemption's effectiveness as a tool for social good is questionable without performance metrics.
• Current tax expenditures may not be cost-effective for achieving desired health outcomes.

Outlook:

• Future policy should shift towards performance-based payments for nonprofits.
• Tax benefits should be tied to measurable accomplishments in health promotion, quality improvement, and care for underserved populations.
• This approach ensures accountability and optimizes the value of public investment in healthcare.