Tax policy as social policy: cafeteria plans, 1978-1985

Since the passage of Section 125 of the Internal Revenue Code in 1978, cafeteria plans have offered employees a choice of tax-free fringe benefits. Although these plans have been popular with employers and employees, Treasury Department officials and many tax lawyers soon came to regard Section 125 as a mistake. The Treasury has tried to reclaim through regulation the revenue and the fundamental principles of tax law it had asked Congress to give away in 1978. This paper is a history of Section 125 that emphasizes its relationship to health policy. On the basis of interviews and printed primary sources, the paper argues that Treasury officials made a less than rigorous assessment of the impact of cafeteria plans because they were preoccupied with a larger agenda of making tax-free benefits more equitable. Moreover, they saw no reason to collaborate with the health policy community to plan this agenda; they saw themselves as implementing a social policy already in the Internal Revenue Code.     

Al Capone and the Internal Revenue Service: State-sanctioned criminology of organized crime

The story of Al Capone's rise and fall as a Chicago gangster has always depended upon selective dissemination of federal agency records, particularly records of the Internal Revenue Service. Capone history, therefore, is state-sanctioned history. The IRS view of the Capone organization, and of the tax evasion conviction, cannot be easily challenged without access to the corpus of the IRS records. Unfortunately, these records remain sealed from public access, despite the fact that selective releases were made prior to 1977 to journalists, popular authors, film producers and historians. Continued secrecy over the Capone records perpetuates a state-sanctioned criminology of organized crime. Calder v. Internal Revenue Service ¹ attempted without success to unlock the corpus of IRS-Capone records to investigate the state-sanctioned view.     

The who, what, and why of risk adjustment: a technology on the cusp of adoption

Risk adjustment (RA) consists of a series of techniques that account for the health status of patients when predicting or explaining costs of health care for defined populations or for evaluating retrospectively the performance of providers who care for them. Although the federal government seems to have settled on an approach to RA for Medicare Advantage programs, adoption and implementation of RA techniques elsewhere have proceeded much more slowly than was anticipated. This article examines factors affecting the adoption and use of RA outside the Medicare program using case studies in six U.S. health care markets (Baltimore, Seattle, Denver, Cleveland, Phoenix, and Atlanta) as of 2001. We found that for purchasing decisions, RA was used exclusively by public agencies. In the private sector, use of risk adjustment was uncommon and scattered and assumed informal and unexpected forms. The most common private sector use of RA was by health plans, which occasionally employed RA in negotiations with purchasers or to allocate resources internally among providers. The article uses classic technology diffusion theory to explain the adoption and use of RA in these six markets and derives lessons for health policy generally and for the future of RA in particular. For health policy generally, the differing experiences of public and private actors with RA serve as markers of the divergent paths that public and private health care sectors are pursuing with respect to managed care and risk sharing. For the future of RA in particular, its history suggests the need for health service researchers to consider barriers to use adoption and new analytic technologies as they develop them.     

Administering Entitlement: Governance,Public Health Care,and the Early American State

This article explores the federal marine hospitals of the early republic, the first public health care system in US history. Beginning in 1798, the federal government collected twenty cents per month from mariners' wages and used this revenue to subsidize medical care for sick and disabled merchant mariners. Previous studies have traced links between marine hospitals and modern public policy. By studying governance from the bottom up, this article takes a different approach. I argue that jurists, physicians, and officials' regulation of sailors' entitlement to public health care facilitated and reflected a transformation of national authority. Between 1798 and 1816, sailors' entitlement was a local matter, based on the traditional paternalist understandings of maritime laborers as social dependents. By 1836, though, the federal Treasury redefined entitlement around a newly calculus of productivity: only the productive were entitled to care at the marine hospitals. This story about governance, federal law, and political economy in the early United States suggests that the early American state was a more vibrant participant in the market and society than has been previously understood.     

Healthcare organizations and the Internet: impact on federal tax exemption

Tax-exempt healthcare organizations have turned to the Internet as a powerful tool in communicating with the public, medical staff, and patients. Activities as diverse as providing links to the Web sites of other organizations, selling goods and services, soliciting contributions, and hosting forums on the Internet raise unresolved questions concerning the impact of Internet use on such organizations' tax-exempt status. The Internal Revenue Service has provided no guidance to date regarding the manner in which a nonprofit organizations' use of the Internet may affect its tax-exempt status or subject it to federal income tax on some sources of funds. This article suggests analytical approaches for applying existing law in the Internet context and identifies areas that are ripe for additional guidance.     

THE WRONG WAY TO MANDALAY: THE MASSACHUSETTS SELECTIVE PURCHASING ACT AND THE CONSTITUTION

The United States cannot and should not approach the world as fifty states and thousands of municipalities who embark on setting their own foreign policy whenever it suits them. ¹
It's a core principle of democracy that the federal government should not intrude on state powers to spend local tax dollars unless there's an overwhelming federal interest at stake. ²     

The politics of discretionary Medicaid spending, 1980-1993

Why do some states choose to spend more than four times as much as others to provide health care to the disadvantaged? Political scientists who have traditionally explored this question by analyzing trends in overall Medicaid expenditures lumped states' discretionary spending in with other money that states are mandated to spend. Analyses of total expenditures found that socioeconomic factors drove spending but that party control of state legislatures made no difference in health policy making. By isolating discretionary state Medicaid expenditures from total spending figures, I reexamine the influences of political as well as economic and demographic factors. The often-doubted importance of party control becomes clear. This study investigates spending patterns in the discretionary portions of state Medicaid programs in forty-six states from 1980 to 1993 and analyzes both incremental program changes and absolute differences in state spending. To discover how greatly the researcher's choice of dependent variables can affect results, optional spending is separated from total spending levels and the variation is modeled in both. Focusing not on the spending that the federal government requires of state officials but on the policies that state officials actually choose allows a balanced exploration of both political and economic effects on welfare expenditures. This research also provides new insights about which forces will shape policy decisions if more and more control of the public health care system is devolved to the states.     

No room at the inn: a snapshot of an American emergency room

The emergency rooms of American hospitals have frequently become the principal suppliers of nonurgent primary care to the under- and uninsured. Canvassing published reports and using original data obtained from a representative urban hospital, Erik Olson examines the demographics of the American emergency room and analyzes its finances. The costs of providing primary care are shifted, to the extent possible, to those who can pay. The result is escalating health care costs and a deterioration of quality of care due to overcrowding, leading some hospitals to close their emergency rooms and others to turn away ambulances or "dump" patients who still require critical care. Mr. Olson explains that state antidumping laws and the federal COBRA statute have been ineffective at stemming these practices in the face of severe economic pressure to continue them. Pointing out that emergency rooms are an excessively expensive method of treating uninsured nonemergency patients, he proposes a system of primary care clinics created through a public/private partnership between municipalities and existing private health care providers. The partnership is designed to maintain a high standard of care at the clinics. As an incentive to stimulate the appearance of such clinics, a tax would be imposed on private health care providers; the tax on a given provider would be reduced to the extent that provider subsidizes a local primary care clinic that offers universal coverage, regardless of insurance status. Because the existence of such clinics would reduce inefficient use of hospital emergency rooms, in the long run hospitals should find it less expensive to finance local primary care clinics than to continue to sustain unreimbursed expenses due to improper use of their emergency departments.     

New York's Blue Cross and Blue Shield, 1934-1990: the complicated politics of nonprofit regulation.

The story of New York Blue Cross is one of complex interaction with state and federal regulators and also with hospitals, the medical profession, commercial insurers, and the public, who make up the regulatory environment. Negotiation, cooperation, and adaptation among parties whose goals and assumptions were partly parallel characterize the relationships. As we can see from New York Blue Cross's origins and its role in the development and administration of certificate-of-need legislation, Medicare, insurance practice and regulation, and hospital rate setting, this story does not represent the capture of government by a special interest, nor the gradual souring of a public interest organization, nor disinterested and distant government regulation.     

Of Medicine, Race, and American Law: The Bubonic Plague Outbreak of 1900

In March of 1900 several cases of bubonic plague were discovered in San Francisco's Chinatom. In response the health authorities, at the instance of the Surgeon General of the United States, sought to implement a series of extraordinarily coercive measures aimed at the city's Asian inhabitants. The measures provoked an uproar among the Chinese, and they determined to challenge them in the federal Circuit Court for the Northern District of California. This essay, based on extensive research in court records, the archives of the U.S. Public Health Service, and press accounts in English and Chinese, documents the complex events that gave rise to the cases of Wong Wai v. Williamson and Jew Ho v. Williamson and the cases themselves as they unfolded in the courts. The cases raised new and dificult questions of fact and of law and tested as few other cases have before or since a court's capacity to act as arbiter between individual rights (and the rights of an ostracized minority at that) and the public interest in a period of acute health emergency.     

Why we need the independent sector: the behavior, law, and ethics of not-for-profit hospitals

Among the major forms of corporate ownership, the not-for-profit ownership form is distinct in its behavior, legal constraints, and moral obligations. A new empirical analysis of the American Hospital industry, using eleven years of data for all urban general hospitals in the country, shows that corporate form accounts for large differences in the provision of specific medical services. Not-for-profit hospitals systematically provide both private and public goods that are in the public interest, and that other forms fail to provide. Two hypotheses are proposed to account for the findings, one legal and one moral. While no causal claims are made, not-for-profit hospital behavior is consistent with the behavior required by law and morality. The moral argument, developed as a preliminary theory of not-for-profit ethics, also provides a potential reason to prefer not-for-profit hospitals. The findings provide a new justification for the not-for-profit tax exemption for hospitals, and also suggest new uses for ownership categories as regulatory tools.     

Tax-deductible alcohol: an issue of public health policy and prevention strategy

In 1982 U.S. businesses will spend over $10 billion (12 percent of the total retail alcohol market) on alcoholic beverages which will be consumed by top executives, professionals, and other white-collar employees in a variety of business and personal settings. The Internal Revenue Service, through a series of vaguely defined tax deduction categories, permits these expenditures to be deducted from corporate and individual taxes as "ordinary and necessary" to the conduct of business, costing U.S. taxpayers between $3 and $5 billion annually in lost tax receipts. This article examines the scope and legal underpinnings of the IRS tax expenditure policy; its impact on drinking habits and drinking problems among the nation's business and professional elite; the arguments for permitting the subsidization of corporate drinking habits; reform measures that are available to policymakers; and the barriers to effective implementation.     

Health care joint ventures between tax-exempt organizations and for-profit entities

Health care exempt organizations have many options regarding their structure and affiliations with for-profit entities. As long as any joint ventures are carefully structured and the nonprofit retains control over the exempt health care activities, the Internal Revenue Service should not question the structure. However, as outlined above, if the for-profit entity effectively gains control over the activities of the venture, the structure is not likely to be upheld by the IRS or the courts, and either the exempt status of the nonprofit will be denied or revoked, or health care income will be subject to the unrelated business income tax. In summary, the health care industry has been severely impacted by many economic forces, including uncertainty in the area of joint ventures between nonprofits and for-profit health care systems. The uncertainty as to whether the joint venture would negatively impact the nonprofit's tax-exempt status undoubtedly caused many nonprofits to form for-profit subsidiaries and otherwise expanded operations in a for-profit marketplace. Fortunately, with the guidance that is currently available in the form of Revenue Ruling 98-15, Redlands, St. David's, and now Revenue Ruling 2004-51, health care institutions can move forward with properly structured joint ventures with greater confidence that the joint venture will not endanger the tax-exempt status of the nonprofit.     

Holding back the tide: policies to preserve and reconstruct health insurance coverage in Maryland

Over the past decade, state officials have pursued a variety of strategies to protect and expand health insurance coverage for their residents. This article examines the course of action in Maryland, where new initiatives were shaped around the state's unique hospital payment system and its reimbursement of uncompensated care, an evolving Medicaid and children's health program, and regulation of the small group health insurance market. Several important patterns emerge from the Maryland experience. First, even the most incremental initiatives--programs intended to aid a few thousand beneficiaries--bring into play the very issues that hamper comprehensive reforms: who is deserving of mutual aid and what is the proper role of government versus private entities in administering that aid. In Maryland, these issues generate conflict not only between Democrats and Republicans but also urban and rural interests. Second, all of the important reforms of the past decade were undertaken primarily in reaction to federal policy initiatives. Contrary to rhetoric lauding states as the "laboratories of democracy," the political impetus for reform and basic policy options emerge from interaction between federal and state debates. Third, even with budget surpluses and Democrats in control of the governorship and legislature, Maryland did not move aggressively toward universal health insurance. Now, with a much weaker economy and a new, Republican governor, the primary challenge will be to prevent further erosion of insurance coverage. The Maryland experience reiterates that each step toward greater health security, no matter how small, is a major technical and political challenge and that it will be difficult if not impossible to rely on states to secure coverage for all Americans in the foreseeable future.     

IRC § 71 MAY IMPOVERISH CHILDREN,ENDANGER EX‐WIVES,AND DISRUPT FEDERALISM1

The Internal Revenue Code provides that alimony will be deductible to the payor and taxable to the payee. Although this treatment may seem contrary to the payee's interest, compared to making the payments non‐deductible and nontaxable, it can increase the payee's after‐tax income. The payor's deduction will allow larger payments at no after‐tax cost increase; if the payee is in a lower tax bracket, then even after paying taxes the payee will have more resources. Because this favorable treatment of alimony does not apply to child support, children of divorce are poorer. Nor does the favorable treatment apply to lump‐sum payments, making this option less generous, even though many states have phased down the grant of alimony. Because the definition of alimony requires that it end with the payee's death—to protect the treatment provided for lump sums—the tax system is on the wrong side of the issue of violence against ex‐spouses (typically the ex‐wife). The article proposes extending to other similar payments the favorable tax treatment now provided for alimony.     

The Politics of Appointment and the Federal Courts'Role in Regulating America: U.S. Courts of Appeals Judgeships from T.R. to F.D.R.

Historians and political scientists have noted that appointments of judges to the U.S. Courts of Appeals are not determined by senatorial courtesy alone. What has not been adequately explained is why and when a president defers to a senator's choice rather than seek to control the selection. This article attempts to understand the politics of federal appellate court appointments. The author first identifies a major change in the work of the courts of appeals during the years 1900-1945—the growth in review of the actions of newly created federal regulatory agencies. Then, by examining Justice Department files and presidential correspondence, he discoveres three patterns of appointment emerging in the same period. The patterns vary with presidential perceptions of the role of the federal government and of the courts of appeals' ability to affect accomplishment of administration goals. Appointments during the first years of the presidencies of Theodore and Franklin Roosevelt and during the Harding and Coolidge administrations were dominated by patronage concerns. Those administrations yielded to the recommendations of senators and demonstrated no interest in the policy-making potential of these courts. In the two other patterns the White House played a more active role, with senators more often deferring to the president's selection. Concerns about professionalism dominated selections in Taft's and Hoover's administrations: because they recognized the policy importance of those judgeships but saw the role of government as limited, they sought judicial craftsmen who would make policy only incrementally. Policy concerns dominated selections during Wilson's administration and the latter years of both the Roosevelts' administrations: Justice Department officials screened nominees to determine their policy orientation, because federal appellate court judgeships were perceived as crucial policy positions that could affect the president's ability to implement his reform programs.