Tackling the tax of tribal health care benefits

WASHINGTON – As tribes that offer health care benefits for its members face increased scrutiny from the Internal Revenue Service, tribal leaders are growing increasingly perplexed.

The Senate Committee on Indian Affairs held an oversight hearing Sept. 18 on the matter in order to examine the federal tax treatment of health care benefits provided by tribal governments to citizens.

The issue is connected to the perennial problem of Congress’ underfunding of IHS. The agency of the U.S. Department of Health and Human Services is meant to meet the health needs of tribal members, but, in many instances, its various offices around the country run out of money early in the year, and can’t provide appropriate aid.

“It is well-documented that we, as the federal government, are failing in meeting our obligation to provide health care to Native Americans,” said Sen. Tom Udall, D-N.M., at the start of the hearing.

Many tribes can’t afford to provide supplementary services to make up for IHS shortfalls.

But some can.

The Pechanga Band of Luiseño Indians in California enacted a mandatory group health insurance policy in 2002 for tribal members after studying the health care needs of its members for two years.

Mark Macarro, chairman of the tribe, testified at the hearing that the program has led to “measurable improvement” in the physical health of his people. The program costs about $10 million each year.

Before the implementation of the program, Macarro said the tribe had paid dearly for the failure of the U.S. government to meet its health obligations to Indians.

Other tribes have taken similar steps, deciding to help purchase health insurance for members, or paying the outstanding medical bills of members.

In all instances, the IRS has wanted to take a share of the money, tribal leaders testified. Tax collectors have insisted that tribal members who have received financial health assistance should have to pay taxes on that support.

The IRS is currently investigating dozens of tribal health programs to determine whether they should be treated as taxable.

Jefferson Keel, National Congress of American Indians vice president and a citizen of the Chickasaw Nation, said the investigations have “baffled” many tribal leaders and members who cannot understand why a federal agency would provide a disincentive for tribes to offer health services to members.

Tribal leaders told the committee the situation boils down to the federal government not fulfilling its trust obligation of caring for the health needs of its first people. Some said the government is trying to profit from not living up to its duty.

Macarro testified that the tax of tribal dollars aimed at improving members’ health makes “absolutely no sense. Our Indian people deserve the best health care, and Pechanga has decided not to wait on the federal government to fulfill its trust obligation to our people.

“Waiting for the federal government has not been a winning strategy, and the health of our people is at stake.”

Sarah Hall Ingram, the IRS commissioner for Tax Exempt and Government Entities, testified that there is no provision in current federal tax code that would allow a tribal member who is not a tribal employee to exclude paying taxes on tribally-provided health care coverage. General welfare exclusions are often not applicable, she said.

At the start of Ingram’s testimony, she noted the special government-to-government relationship between the federal and tribal governments. An IRS Indian tribal government outreach office was established almost 10 years ago, she said.

Scott Taylor, a professor of law at the University of St. Thomas in Minnesota with tax law expertise, told the committee there are a couple of ways to address the problem.

One would be for Congress to make the law clear, a solution that IRS officials have said they prefer.

Already, some Congress members have taken note of the problem, and some have crafted legislation to rectify it.

Sen. Max Baucus, D-Mont., the chairman of the Senate Finance Committee, recently released an amendment to America’s Healthy Future Act that would exclude tribal health benefits from being treated as income tax.

The amendment, if enacted, would be prospective, which means it would not address prior tax assessments on tribal members.

Udall does not believe tribes should be penalized for meeting members’ health needs. He said the IRS has the responsibility to understand and carry out its treaty responsibilities.

“In my mind, we should be relieved that some tribal governments are able to fill the void where the federal government has failed.”

Taylor said another solution would be for the IRS to make a change, noting that the agency has already put in place similar exclusions surrounding aid from the Department of Veterans Affairs, Medicare and IHS.

After the hearing, some tribal leaders said they want the White House to pressure the IRS to make immediate changes.