Charity Services: Accounting For Hospitals' Hidden Costs

Charity care is a program that helps patients who are unable to afford their medical bills. Hospitals may provide free or discounted medically necessary health care to those who meet the eligibility criteria. While federal law requires nonprofit hospitals to provide some level of charity care, each hospital establishes its own charity care policies, which vary in terms of eligibility criteria, application processes, and the levels of charity care provided. This introduction will discuss how hospitals account for charity services in terms of their eligibility criteria, application processes, and impact on hospital finances.

Charity care eligibility

Charity care, also known as "financial assistance", is defined by the Internal Revenue Service (IRS) as "free or discounted health services provided to persons who meet the organisation's eligibility criteria for financial assistance and are unable to pay for all or a portion of the services." Depending on their eligibility criteria, hospitals may provide charity care to both uninsured and insured patients.

Federal law requires that nonprofit hospitals provide some level of charity care as a condition of receiving tax-exempt status. Many state governments also require all or a subset of hospitals to extend eligibility for charity care to certain groups of patients. Hospitals establish their own charity care policies, which vary in terms of eligibility criteria, application procedures, and the levels of charity care provided. Hospitals may condition free or discounted care on eligibility criteria in addition to or in lieu of income thresholds, such as requiring patients to have limited assets or reside in the hospital service area.

To determine eligibility for charity care, hospitals will ask for information and documentation to verify income. This generally includes W-2 statements or pay stubs, previous income tax returns, unemployment benefits statements, Social Security benefit statements, or documentation from the state's department of social services. Hospitals typically have dedicated teams of financial counsellors or financial navigators to assist patients through the process. The charity care approval process usually takes two to six weeks, and the patient will receive a letter stating whether their application was approved or denied.

In the United States, about four in ten adults (41%) have some level of medical debt, with about six in ten (57%) of those with household incomes below $40,000 owing an estimated $195 billion or more in total. Charity care programs are an important source of relief for uninsured and underinsured patients, but many Americans continue to have difficulty affording hospital care. Federal, state, and local governments provide funding and tax benefits to support hospital charity care.

Charity care application process

Charity care, also known as "financial assistance", is defined by the Internal Revenue Service (IRS) as "free or discounted health services provided to persons who meet the organisation's eligibility criteria for financial assistance and are unable to pay for all or a portion of the services." Depending on their eligibility criteria, hospitals may provide charity care to both uninsured and insured patients.

The charity care application process may vary across hospitals, but here is a general outline:

Understanding Charity Care and Eligibility

Firstly, it is important to understand what charity care entails and whether you meet the eligibility criteria. Charity care is designed for individuals who cannot afford to pay for medically necessary treatment, including inpatient hospital stays and emergency room visits. Eligibility is often based on income and asset criteria, and some hospitals may have additional requirements, such as residing in the hospital's service area. It is worth noting that each hospital sets its own charity care policies, so be sure to review the specific guidelines of the hospital you are interested in.

Applying for Charity Care

You can apply for charity care as soon as you visit the hospital or after you are discharged. It is recommended to apply as early as possible, as medical bills can start accumulating. You can request a Charity Care application form from the hospital to initiate the process.

Documentation and Verification

As part of the application process, the hospital will request documentation to verify your income and financial situation. This may include W-2 statements, pay stubs, income tax returns, unemployment benefits statements, Social Security benefit statements, or documentation from your state's department of social services. The hospital should have dedicated teams of financial counsellors or navigators to assist you in gathering the necessary documentation.

Approval Process

The charity care approval process typically takes two to six weeks. Once you have submitted your application and supporting documents, the hospital will review your eligibility. If your application is approved, you will be notified, and the hospital will provide free or discounted services as per their charity care policy. If your application is denied, you will receive information on how to appeal the decision.

Alternative Options

If you do not qualify for charity care or have outstanding medical bills, there are other options to explore. You can discuss payment plans with the hospital's billing department or research state assistance programs and private organisations that may be able to help. It is important to stay engaged with the process and regularly check your credit report and score to ensure your creditworthiness is not adversely affected.

Community benefits

Hospitals offer charity care as a form of financial assistance to low-income consumers who are unable to afford the cost of essential medical services. Charity care is defined by the Internal Revenue Service (IRS) as "free or discounted health services" provided to persons who meet the organization's eligibility criteria for financial assistance and are unable to pay for all or a portion of the services. This includes both inpatient and emergency room services.

Nonprofit hospitals are required by federal law to provide some level of charity care as a condition of receiving tax-exempt status. The IRS has defined three types of community benefits that hospitals may provide: patient benefits (such as charity care), system benefits (such as unreimbursed medical education), and community-building activities (such as addressing environmental hazards).

The specific eligibility criteria and application procedures for charity care vary among hospitals, and they may consider factors such as income, the number of people in the household, assets, residency in the hospital service area, and the size of the medical bill. Some hospitals may also offer streamlined application processes for certain groups, such as patients experiencing homelessness.

In 2017, nonprofit hospitals in the United States spent an average of $23 million annually on community benefits, with unreimbursed Medicaid expenses accounting for the largest portion (44%) of these expenses. Charity care accounted for 17% of community benefit expenses, followed by unreimbursed health professions education (15%), subsidized health services (10%), and community health improvement services (4%).

Charity care for insured patients

Charity care is free or discounted medically necessary health care that many hospitals offer to people who cannot afford to pay for treatment otherwise. Even if you have health insurance, you may qualify for charity care to pay the amount of your hospital bill that your insurance doesn't cover. Hospitals may condition free or discounted care on other eligibility criteria in addition to or in lieu of income thresholds. For example, some hospitals require that patients have limited assets or reside in the hospital service area, while others extend eligibility to patients who are unable to afford large medical bills despite exceeding income or asset thresholds.

Federal regulations require that nonprofit hospitals provide some level of charity care and other community benefits as a condition of receiving tax-exempt status. The Internal Revenue Service (IRS) defines "charity care", also known as "financial assistance", as:

> free or discounted health services provided to persons who meet the organization’s eligibility criteria for financial assistance and are unable to pay for all or a portion of the services.

Depending on their eligibility criteria, hospitals may provide charity care to both uninsured and insured patients. Each hospital sets its own guidelines for whether they give financial assistance to patients with insurance. Many hospitals, but not all, will waive copays and deductibles. Under the Affordable Care Act (ACA), nonprofit hospitals must offer charity care to maintain their nonprofit status with the IRS. However, the IRS allows hospitals to set their own rules regarding who qualifies for charity care.

To determine if you're eligible for charity care, the hospital will ask for information and documentation to verify your income. This generally includes W-2 statements or pay stubs, previous income tax returns, unemployment benefits statements, Social Security benefit statements, or documentation from your state's department of social services. The charity care approval process typically takes two to six weeks, depending on the provider's backlog of applications and how long it takes you to provide all the necessary documentation.

Impact of medical debt

Medical debt is a persistent problem in the United States, with about four in ten adults (41%)—and about six in ten (57%) of those with household incomes below $40,000—having some level of medical debt. This amounts to an estimated $195 billion or more in total. Even with health insurance, high deductibles and other forms of cost-sharing can lead to unmanageable medical bills.

The financial impact of medical debt can be substantial and long-lasting. It can exhaust savings, force families to delay or go without basic necessities, and divert resources from other important needs like housing, education, and retirement. People with medical debt are more likely to have other forms of financial distress, such as loans, overdrawn accounts, and little to no savings. They may also have to cut down on spending on food, clothing, and other household items or borrow money from friends and family.

Medical debt is the leading source of unpaid bills on credit reports, and it can negatively affect credit scores. In 2021, medical debt made up 58% of consumer debt on credit reports. Hospitals typically report unpaid medical debt to credit rating agencies after 90 days past due, which can further impact an individual's financial situation.

Certain demographic groups are more vulnerable to medical debt. For instance, Black Americans are more likely than White or Asian Americans to report having medical debt. Women are also more likely to have medical debt than men, partly due to childbirth expenses and lower average incomes. Additionally, adults with lower incomes, those with disabilities or complex health needs, and the uninsured are more susceptible to medical debt.

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