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Tax Reform’s Impact on Healthcare Giving

The tax reform passed by the Federal Government in late 2017 was expected to have a significant impact on giving to healthcare institutions in the United States. While the related final giving totals for 2018 have yet to be released, it was forecasted that the number of individuals itemizing deductions for federal income tax purposes would decrease from 46.5 million to 19 million. As a result, overall charitable giving would potentially decline by as much as $13 billion or 3 percent of total giving.

The culprit behind the potential decline? An increase in the standard deduction to $12,000 for individuals and $24,000 for couples.

The tax changes were not expected to affect the wealthiest and most generous of donors. These individuals and families would continue to enjoy the benefits of itemizing deductions, including their charitable contributions. The impact was expected to be felt the most from what many call mid-level donors – mostly, middle-class individuals and families whose combination of state and local taxes and charitable contributions previously allowed them to save on their federal income taxes by itemizing deductions. However, as many as 27 million middle-class Americans will no longer itemize and will thus lose the tax-deduction incentive for making charitable gifts.

In our experience, donors do not give because of tax laws but because they are inspired to help. As a nation we are philanthropic and giving is in our DNA.

Still, for many healthcare charities, mid-level donors support specific funds, special events, crowd-funding activities, and unrestricted giving with gifts from $500 to $5,000 per year. Their importance is disproportionate to the total amount they give each institution due to the following factors:

  • While each gift may not make a substantial impact on the institution, mid-level donors as a whole provide millions of dollars to support individual programs and provide budgetary relief.
  • Many in this population group are younger with both wealth and influence increasing as they age. They are the potential future leaders for many organizations.
  • Older mid-level contributors are either current or potential planned giving donors whose loyalty to the organization may be weakened by a lack of incentive to give annually.

An added challenge in securing philanthropic support for healthcare organizations is the increasing number of mergers and acquisitions in the marketplace. Under these circumstances, grateful patients and their friends and families may become uncertain about the relationships they’ve built with the hospitals that provided their care. Although mergers and acquisitions can be very positive and enable an institution to improve critical care for its community, potential donors may become confused when a hospital that has been supported by the immediate community suddenly becomes absorbed by a larger medical center.

So what are development professionals at healthcare institutions to do? Here are nine strategies:

  1. Reinforce philanthropic messaging in all channels of communication from the institution.
  2. Continuously demonstrate the real impact charitable giving has on specific patients and families. Tell dramatic stories that appeal to both the intellect and the emotion.
  3. Stress the impact and importance of crowd-based and community fundraising, since these events will draw both one-time and regular donors.
  4. Routinely test different messages and packaging in direct marketing. Determine what is resonating with the donors and repeat, repeat, repeat.
  5. Be more aggressive in the use of social media and email communication. Consider how many times you personally hit the delete key each day and remember your donors are doing the same thing.
  6. If your institution has been acquired or has recently merged with another, reinforce the commitment your organization has to the local community in websites, publications, and direct solicitations.
  7. If you have not started one already, consider initiating a loyal donor society. Publicly recognize and thank donors who have given for more than 10, 15, or 20 years.
  8. Be sure to appeal to your donors above age 70 to make gifts directly from their IRAs, 401k’s or 403b’s, which typically have no minimum requirements. Contributing in this manner can feel like giving free money to some degree.
  9. Don’t forget your own employees. Conduct an annual appeal led by popular, long-serving employees who are not in positions of managerial authority.

Currently, nobody knows the true impact that the loss in value of itemized deductions will have on charitable giving, including in the healthcare sector. It will take until at least the spring of 2019 before early returns can be measured. Over time, as middle-class Americans adjust to a new normal, behaviors will begin to shift. Regardless, the strategies outlined above will strengthen any healthcare fundraising program.

Most importantly, hospitals and other healthcare charities depend on the philanthropic support of mid-level donors. More than ever before, we will need to communicate the importance and value of their support, tax reform notwithstanding.

Stuart Sullivan is a Senior Vice President at Graham-Pelton Consulting.  Contact him by email or by calling 1800.608.7955.