Like most legislation, there’s still distinct differences between Congress’ two halves, and if you ask Ballad Health Executive Chairman Alan Levine, he’s rooting for the Upper House’s latest version.
The House of Representatives already passed its version of the bill earlier this month, and a vote on the Senate’s rendition is expected as early as Thursday.
Like Levine, most healthcare heads generally favor the Senate Republican version, despite its provision that eliminates the individual mandate requiring all Americans have health insurance or be penalized.
What Levine and Ballad Health CEO Bart Hove prefer in the Senate’s version is the preservation of tax-exempt interest paid to bondholders, which the House version did away with.
This provision has drawn the ire of nonprofits across the nation. Most universities, municipalities and hospitals finance large projects, such as the new Boones Creek K-8 school, by selling bonds and paying tax-exempt interest until the principal is paid off.
The House version of tax reform makes the interest paid to bondholders subject to federal or state income tax, effectively raising the borrowing cost of issuers. By eliminating this exemption on tax-exempt financing, the House projects it will save the government $40 billion over 10 years.
“The House bill that just passed, it eliminates your ability to do any tax-exempt financing. So nonprofit hospitals, if it’s the House bill that's adopted, nonprofit hospitals, universities and municipalities can no longer do tax-exempt financing,” Levine said.
It’s been estimated this change could force hospitals to pay between 0.25 percent and 0.50 percent higher interest than the current marketplace.
“Think about this. Because we're BBB1 rated. If we go to market and we're not allowed to do tax-exempt financing, you're talking about a 300-basis point jump in the cost of capital. That's a $6 million to $8 million increase per year in interest expense,” Levine said.
“If Mountain States’ EBITA (earnings before interest, taxes and amortization) was $150 million a year, and you increase our cost of capital by $6 million to $8 million, that’s a big hit. That by itself will hit our bond ratings because we’re barely at two times cash flow right now.”
On the other hand, both the Senate and House versions include provisions prohibiting advance refunding on bond issues.
Similar to refinancing a house, many governments and qualifying nonprofits have been allowed and quite often do refinance outstanding bond debt by taking advantage of low interest rates.
John Cheney, managing director of Ponder & Co., told Modern Healthcare that advance refunding accounted for 25 percent of the municipal tax-exempt bond market in 2017.
“One of the things I was planning for was to do an advance refunding on our debt. We took on all this debt in 2007 and 2008 when the interest rates were 7 or 8 percent. By going back to market and doing an advance refunding on our debt, we could save about $60 million,” Levine said.
Although it does permit it, Levine said the Senate bill requires that advance refunding be subject to taxes, and that by itself, could cost Ballad Health about $35 million of the $60 million it anticipated on saving by refinancing, unless its refinanced before Dec. 31.
A few weeks ago, Levine said he actually met personally with Sens. Bob Corker, R-Tenn., and Bill Cassidy, R-La., as well as staffers on Tennessee Sen. Lamar Alexander’s Senate Health, Education, Labor and Pensions Committee to present his feedback on the legislation.
“I thanked the senators for the Senate position on the tax-cut bill, because it’s better than the House position, but I’m still concerned about advance refunding becoming taxable,” Levine said.
According to the nonpartisan Joint Committee on Taxation, halting advance refunding after Dec. 31 would generate about $16.8 billion in tax revenue over 10 years.
Levine said he’s been told there’s an 80 percent chance the Senate and House differences will be solved in a “conference” and a 20 percent chance the Senate bill will be taken up in its entirety.
Another concern Levine has with the Senate version is the recently-added provision that repeals the individual mandate. He estimated premiums will skyrocket even further as young people will no longer be required to purchase health insurance.
“Our prices only went up 2 percent (last year). It’s not that the price per unit is going up. In fact, it’s almost exclusively happening in the risk pools because of what’s going on with younger people not buying and the actuaries not knowing how to price things,” Levine said.
“Actuaries are risk-averse ... and they have to presume the worst-case scenario. That’s why you’re seeing (premiums) go up.”