Tip Sheets

A quick round-up of the tax bill’s impact on health care

Joanne Kenen

By Joanne Kenen

The just-approved tax bill awaiting President Donald Trump’s signature contains provisions that will have a profound impact on health coverage and the health industry. As we reported earlier, the House and Senate bills differed. The Senate prevailed on most health-relevant provisions, and that was generally better for med schools, grad schools, and hospitals. But it was the Senate that paved the way for the repeal of the individual mandate in the Affordable Care Act.

The tax bill that finally cleared Congress on December 20 is expected to balloon the deficit in the neighborhood of $1.5 trillion dollars over the next decade. Mandatory “pay-go cuts” triggered by the tax bill probably – though not definitely – will be waived. That would stop the automatic cuts to Medicare and other domestic programs, which could account to about $23 billion a year alone for Medicare. However, expect many battles in the months to come over the desire to cut both domestic discretionary programs and entitlements such as Medicaid and Medicare in order to keep down the deficit. There will be a lot less money in the federal coffers to go around, and Republicans will push their smaller government vision. States may face similar pressures to cut social services since the deduction for state and local taxes will be limited or ended.

Below are some of the health provisions. Some of the overseas tax provisions – on repatriation of foreign income – affect the pharmaceutical industry, including those with operations in storm-ravaged Puerto Rico. The bill also trims but does not eliminate the orphan drug tax credit.

Repeal of the individual mandate

After months of trying – and ultimately failing – to repeal and replace the Affordable Care Act championed by former President Barack Obama, Congress repealed the individual mandate, a policy lynchpin of the ACA. The repeal is effective in 2019 (That has not been widely reported. People are still required to be covered or face a penalty in 2018.).

The Congressional Budget Office estimates that axing the mandate will mean 4 million fewer people will have health insurance in the first year, 13 million fewer in a decade. That insurance will become more expensive because those who buy it will likely be older and/or sicker than those who drop out of the market. This has implications for people with pre-existing conditions, who will need insurance but find it more expensive. The insurance subsidies will still be available for those who qualify based on their income.

Medical deductions

The House bill would have eliminated the medical expense tax deduction – which would have been a blow to people with significant health expenses, such as people with disabilities (or a family member with a disability); costly chronic diseases; long-term care expenses; home health; or large drug expenses.  The Senate bill initially left the deduction intact – but then in a concession to Sen. Susan Collins made it a bit more generous for two years. Right now, people can deduct expenses that are more than 10 percent of adjusted income. The final bill modified that to 7.5 percent for two years, and then it reverts to 10 percent. About 8.8 million people were able to deduct their expenses in 2015, according to AARP, and they were disproportionately older.

Collins also had obtained a promise from Senate Majority Leader Mitch McConnell to move ahead on the Alexander-Murray bill to restore cost-sharing reduction subsidies and to work on a reinsurance bill. She hoped that will decrease the impact of the premium rise from the mandate repeal. As of late December, the House balked – and the legislation won’t be considered until a spending bill in mid- January – if it’s considered at all.

Fetal rights

House language that enables tax-preferred 529 savings accounts to be established for a fetus (giving some legal rights to the fetus, a long-time goal of some in the anti-abortion movement) was stripped from the Senate bill because it violated the strict rules that govern budget reconciliation. It was not included in the final legislation.

Hospital bonds

The final bill did not eliminate tax-exempt private activity bonds used by nonprofits – including hospitals and academic medical centers (Modern Healthcare has more on this.)

Charitable donations

Donations to qualified charities and nonprofits are still deductible, but fewer people are expected to itemize deductions, because of changes to the standard deduction, mortgage and property tax write-offs, etc. Nonprofits, including health ones, fear the changes may dampen giving.