Monday, November 11, 2013

The effect of the ACA (Obamacare) on nonprofit revenues

The government-run health insurance law will suck up a lot of nonprofit support dollars. Regardless of whether you like it, hate it, or just don't know very much about it because of the well-publicized website problems, it seems likely that it will have a lot of impact on the amount of money available to nonprofits from government, corporate, individual and foundation sources.

After earned income, government contracts make up the bulk of nonprofit funding in the United States. It is a commonly held misconception that the government gives away money to nonprofits with no strings attached.

In most cases, nonprofits are funded through government-provided contract income for things like childcare. An article in the New York Times details the general squeeze nonprofits are still feeling after the recession, and the role of government dollars and programs in that picture. After earned income, government funding accounts for three times the income from foundations and forty times the income from corporate giving.

Aside from the costs to get the Affordable Care Act website up and running (estimated at half a trillion dollars to date) there is the cost of providing subsidized healthcare insurance under the current law. Often forgotten in all the hyperbole over deductibles and cancelled policies are the ongoing administrative costs. The money to train and pay the so-called navigators, maintain the website even after it is fixed, the personnel required to route and process applications all comes out of tax dollars, which of course come from each taxpayer. While nonprofits often face scrutiny for their administrative costs, the government doesn't face that constraint.

Healthcare comprises one-sixth of the U.S. economy. While not everyone will get insurance through the government-sanctioned exchanges (if you don't qualify for a subsidy, you still need to get government-compliant insurance from a "private" insurance company), the higher deductibles and in many cases higher premiums will impact both individual and corporate incomes, leaving less money available for them to donate.

If the federal deduction for charitable giving goes away, as it has in some states, that will  further impact how much money is available from donations.

From the government's side, there is a high probability that the actual cost of the subsidies may lower federal and state discretionary spending capability.

So far, the Internal Revenue Service has not issued final guidance on how these higher costs may factor into arriving at adjusted gross income. If the allowable deductible amount for healthcare increases, that could potentially impact the final amount owed on both individual and corporate business income, which effectively reduces taxes paid to the government. If the deductible is not raised, then the additional money has to come out of the operating budgets of each business and individual as a direct cost. That too lowers income, with the same net result.

With more money going out and less coming in, it stands to reason that there could be less money available for nonprofits from all of the traditional sources.

If your organization hasn't factored these uncertainties into your five year plan as yet, it might be time to do so. Although many nonprofits find generating earned income and operating like a business to acquire that income to be distasteful and in direct opposition to their mission, survival may dictate that you adapt to that model.

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