Congress Set to Repeal ACA Health Insurance Mandate As Part of Tax ReformDisplay
Congress is expected to vote this week on tax reform legislation. Last Friday, House and Senate leadership released their final tax reform legislation that includes a number of provisions that will impact the physician and patient community. Top among these is a provision to repeal the tax penalties of the Affordable Care Act's (ACA) individual health insurance mandate. The nonpartisan Congressional Budget Office has estimated that repeal of the insurance mandate tax penalty would result in 13 million Americans losing health insurance, and estimated 10 percent increase in insurance premiums. The mandate repeal is also projected to result in destabilization of the individual insurance market through adverse selection of healthy consumers. This insurance mandate tax penalty repeal would take effect in 2019.
The final legislation also makes changes to the tax deduction of medical expenses. Under current law, taxpayers who itemized deductions are able to deduct qualifying medical expenses that exceed 10 percent of their adjusted gross income. Earlier versions of the tax bill had proposed to eliminate the medical expense deduction completely. In a policy reversal, the final tax bill will temporarily make the medical expense deduction more generous by lowering the medical expense threshold from costs that exceed 10 percent of income under current law, to exceeding 7.5 percent of income for tax years 2017 and 2018, then returning back to the current threshold of 10 percent for tax year 2019 and beyond.
The bill also narrows the orphan drug tax credit, which incentivizes rare disease research, by reducing the tax credit from the current 50 percent that drug companies can receive for clinical trial costs to 27 percent. Reducing the orphan drug tax credit may reduce industry incentive to invest in rare disease drug development.
The final bill does not include a proposal to tax the value of waived tuition for graduate students. Earlier versions of the tax bill had proposed requiring graduate students, whose tuition costs are waived by their academic institution, to pay tax on the full value of the waived tuition. This provision received strong opposition from universities and the estimated 145,000 graduate students who would have been subjected to this new tax.
Further, the bill does not include the House provision to allow non-profit organizations to engage in political activity. The initial version of the House bill would have repealed the “Johnson Amendment” – policy developed during the Administration of President Lyndon Johnson that prohibited non-profit charities - or 501(c)(3) tax organizations – from endorsing or opposing elected official for office. The House Republican leadership has expressed support for changing tax policy to allow religious organizations to play a greater role in election politics.
Prospects for enactment of the tax bill received a boost last week when two Republican Senator hold outs – Sen. Bob Corker (R-TN) and Sen. Marco Rubio (R-FL) announced their support for the bill. The bill is expected to be passed by both the House and the Senate this week. President Trump has signaled his support for the bill and is expected to sign the legislation into law.
The ATS has strong reservations with individual mandate repeal and how enactment of that provision will increase the number of uninsured Americans, increase health insurance costs and destabilize the individual health insurance market. The ATS has sent a letter to Congress urging members to vote against the tax bill because of the impact it would have on health insurance.
Last Reviewed: December 18, 2017
