Skip to main content

How 4 Healthcare Measures Weathered Tax Bill Reconciliation

News  |  By Steven Porter  
   December 18, 2017

From a linchpin of the Affordable Care Act to a decades-old drug research tax credit, lawmakers had considered several provisions that would impact healthcare. Not all survived.

The healthcare impacts of the GOP’s tax reform plan came into focus over the weekend after lawmakers from the House and Senate unveiled their reconciled version of the bill Friday evening.

Dire headlines had warned that millions could lose health coverage and hospitals could lose access to low-cost financing options if either chamber’s bill were to become law. The reconciled bill—which is widely expected to pass this week—drew a partial sigh of relief from some industry stakeholders.

Here are four key healthcare-related provisions of the nearly 1,100-page bill:

1. Individual mandate repeal included

The House bill had no provision addressing the Affordable Care Act’s individual mandate, which requires most Americans to pay a tax penalty if they don’t have health insurance. But the Senate’s version had called for the tax penalty to be reduced to zero beginning in 2019—language that made it into the reconciled bill.

The Congressional Budget Office and Joint Committee on Taxation estimated last month that repealing the individual mandate beginning in 2019 would reap four key outcomes: It would (1) reduce the federal budget deficit by $338 billion over 10 years, (2) reduce the insured population by 4 million in 2019 and 13 million in 2027, (3) maintain the stability of non-group insurance markets in most of the country for the coming decade, and (4) raise premiums by about 10% annually.

2. Medical expense deduction expansion

Although an earlier version of the bill had called for the elimination of the medical expenses deduction, the reconciled bill would temporarily expand it.

Before the ACA, taxpayers who itemize their deductions were able to write off qualifying medical expenses that exceed 7.5% of their adjusted gross income, CNBC’s Sara O’Brien reported. The ACA raised that threshold in 2013 to 10% for people younger than 65, with an expiration date in 2016. The reconciled bill calls for the 7.5% threshold to be applied across all age groups for tax years 2017 and 2018, before returning to 10% for younger Americans in 2019.

But remember, O’Brien notes, that this deduction is available only to taxpayers who itemize their returns and for whom itemizing exceeds the standard deduction. That’s a significant caveat since the standard deduction would nearly double across the board until 2026.

3. Orphan drug tax credit reduction

Companies are currently permitted to write off half of the research costs to develop new drugs for diseases that affect fewer than 200,000 people, but the reconciled bill calls for that tax credit to be cut in half, to 25%. Drug companies and patient groups are actually counting this as a partial win, since the House version of the tax bill had called for this credit to be done away with altogether, as Science magazine reported.

4. Private activity bonds preserved

Nonprofit hospitals began sounding the alarms last month when news broke that the House version of the tax bill would scrap tax-exempt bonds. Had the government revoked access to this low-cost financing option, it could have made big-ticket infrastructure projects—such as renovating aging hospital infrastructure or building new—significantly more expensive.

The final bill, however, retains the private activity bonds, as The Hill reported.

“Protecting hospitals’ access to tax-exempt private-activity bonds means ensuring access to modern facilities that are better able to provide high quality care in thousands of communities across America,” said American Hospital Association President and CEO Rick Pollack in a statement. "A vital source of low-cost capital financing, which helps keep health care more affordable, private-activity bonds are a proven benefit to the public at large and would be preserved under this legislation.”

Healthcare showdown not over

The Pay-As-You-Go Act of 2010, known as PAYGO, calls for automatic spending cuts when the federal budget deficit is increased. Since the reconciled tax bill is estimated to reduce government revenue by $1.5 trillion, the law is expected to kick in next year, unless Congress steps in to waive the requirement.

Democrats have threatened to allow the spending cuts to take effect if Republicans don’t back away from the repeal of the ACA’s individual mandate, as Bloomberg reported. In a letter to House Speaker Paul Ryan and Senate Majority Leader Mitch McConnell, the Democrats said lawmakers must remove “catalysts of uncertainty” if passing the tax bill triggers PAYGO.

“At a minimum, that must include rejecting the elimination of the individual mandate as well as the use of reconciliation procedures next year for Medicare benefit cuts in order to fill the fiscal gap left by your tax bill,” they wrote.

Steven Porter is an associate content manager and Strategy editor for HealthLeaders, a Simplify Compliance brand.

Get the latest on healthcare leadership in your inbox.