After a whirlwind several months in the health care world, many health policy wonks hoped to get a bit of a breather with Congress moving on to tax reform. Well friends, don’t take that sigh of relief just yet. There was no shortage of attention-grabbing provisions in the House-released tax reform package, so the few health provisions managed to fly under the radar for a bit. But the health-related changes to the tax code could have a big impact for a variety of health care stakeholders. Let’s take a look at some of the proposed changes.
- Medical Expense Deduction
The House plan proposes to eliminate the medical expense deduction which allows individuals to deduct qualified medical expenses that exceed 10 percent of a person’s adjusted gross income for the year. A relatively small number of individuals (roughly 6%) take advantage of this deduction, but these are people with very high medical costs including seniors in nursing homes and people with chronic medical conditions.
2. Repeal of the orphan drug tax credit
Under current law, pharmaceutical companies can claim a 50 percent tax credit for the cost of clinical trials for drugs that treat rare conditions, also known as orphan drugs. The tax credit has been criticized in recent months in light of rising prices for many orphan drugs. Some argue that repeal will significantly reduce the number of rare disease therapies brought to market, whereas others think this is a first step towards addressing potential abuse of the credit.
It’s also important to note a few things that weren’t included in the House tax reform package, but could make an appearance before the process is over.
- Individual mandate repeal
Republicans on both sides of the Capitol as well as the President have expressed support for repealing the ACA’s individual mandate as part of tax reform. CBO has estimated that repealing the mandate would result in $400 billion in savings and 15 million fewer people having health insurance. Thus far, House Republican leadership has vowed to keep ACA fights out of tax reform, but it’s unclear if the Senate will follow suit.
2. Other ACA-related taxes
We have seen repeated, bipartisan attempts to repeal or delay several taxes that were enacted as part of the ACA including the medical device tax and health insurance tax. Both taxes have been delayed in previous years and are set to take effect next year unless Congress acts. Keep an eye out for them in an end of the year package.
3. Tax exemption for employer-sponsored health insurance
Earlier in the year, rumors swirled that Republicans were considering removing the tax exemption for employer-sponsored health insurance, a policy that cost the federal government an estimated $260 billion in 2017 in lost revenues. While this would certainly go a long way towards paying for the proposed $1.5 trillion in tax cuts, it’s popularity among the business community ultimately led to it being dropped…for now.
The House Ways and Means tax bill markup is set to run through Thursday, and the Senate Finance Committee is expected to release a bill shortly after and hold its markup early next week. Republican are hoping to put a tax reform bill on the President’s desk before the end of the year, so there is the potential for things to move and change quickly. We will be keeping an eye out here at Capitol Vitals, but if you have any insights let us know at firstname.lastname@example.org.