HomeWashington Letter2017 ▶ Congressional Leaders Consider Elimination of Orphan Drug Tax Credit and Medical Expenses Deduction as Part of Tax Reform
Congressional Leaders Consider Elimination of Orphan Drug Tax Credit and Medical Expenses Deduction as Part of Tax Reform

Congressional Republicans are considering several measures that could affect people with respiratory conditions as part of tax reform legislation in order to pay for some of the costly tax reductions in the plan. These include:

  • Elimination of the federal deduction for unreimbursed medical expenses
  • Elimination of the orphan drug tax credit
  • Repeal of the Affordable Care Act individual insurance mandate.
The current version of the House tax bill includes a repeal of the orphan drug tax credit, which incentivizes the development of therapies for rare diseases by giving drug companies a tax credit for 50 percent of the cost of clinical trials. Since the orphan drug tax credit’s creation in 1983, the Food and Drug Administration has approved 451 orphan drugs for 590 rare disease indications such as Ivacaftor for cystic fibrosis. But repeal of the credit will face opposition from the Senate Orphan Drug Act sponsor, Sen. Orrin Hatch (R-UT), making it a negotiating issue between the House and Senate versions of the bill.

Another proposal currently in the House tax bill, but not in the Senate bill, which would impact some people with chronic costly respiratory conditions such as COPD, is elimination of the medical expenses tax deduction. The current medical deduction allows people who itemize their taxes to deduct medical expenses that exceed 10 percent of their total income. According to the Joint Committee on Taxation, most taxpayers who use the medical deduction have incomes below $100,000 and more than half are over aged 65.

Finally, congressional Republicans continue to consider including a repeal of the Affordable Care Act’s individual insurance mandate in the tax plan, although it is not currently included in either the House or Senate bills. President Trump is supporting the mandate repeal but Senate Republicans are concerned about complicating the bill’s chances of quick passage by linking it to health care. The Congressional Budget Office estimates that repeal of the individual mandate would save $338 billion over 10 years but would cause 4 million Americans to lose health insurance coverage in 2019 and 13 million by 2027.

The House leadership plans to bring the tax bill to House floor votes the week of Nov. 13. Senate Republican leaders released a draft tax proposal late this week, and the Senate Finance Committee is expected to begin consideration of it the week of Nov. 13.
Last Reviewed: November 10, 2017