Tax reform efforts will affect healthcare: Senate bill repeals ACA, House bill repeals medical expense deduction
New tax reform legislation under consideration in Congress — beyond impacting financing mechanisms important to counties — are likely to have wide-reaching implications for counties as health care providers. Counties operate on the frontlines of delivering health care services and finance 907 hospitals, 838 nursing homes, 750 behavioral health authorities and 1,943 local health departments to the tune of $83 billion annually.
Most notably, the Senate-passed bill repeals the Affordable Care Act (ACA)’s individual mandate, which requires individuals to either have health insurance or pay a fee when calculating their taxes. While the Congressional Budget Office (CBO) estimates repealing this mandate would reduce the federal deficit by more than $300 billion by decreasing the amount spent on Medicaid and ACA subsidies, the same CBO report predicts the number of uninsured individuals would increase by 13 million in 2027, as compared to current law. This increase in the uninsured population could shift costs to states and counties in the form of uncompensated care if patients are unable to access health insurance and pay their medical bills. The House did not include a repeal of the individual mandate in its bill, but a final conferenced bill is expected to include the provision.
In addition to changes to the ACA, the House-passed bill also includes a repeal of the medical expense deduction, which allows individuals to deduct medical expenses exceeding 10 percent of their adjusted gross income. These individuals usually have high out-of-pocket medical expenses, including nursing home costs, long-term care insurance premiums and other medical bills. Removing this deduction could place greater strain on Medicaid and other public programs that help counties provide long-term services and supports to their residents, especially seniors and individuals with disabilities. The Senate-passed bill not only maintains the medical expense deduction, but lowers the threshold to 7.5 percent of an AGI’s for two years adjusted gross income — allowing more people to access the deduction.
Other lesser known provisions would also have tangential impacts on health care. For instance, the House-passed version would change tax treatment for graduate students and those paying back student loans, including those pursuing and recently employed in medical fields. For instance, new doctors would not be able to deduct the interest paid on student loans. According to the Association of American Medical Colleges, 75 percent of the medical school class of 2017 graduated with student loan debt, with nearly half owing $200,000 or more. The Senate-passed bill keeps this deduction in place. Counties support targeted incentives, including low-interest loan repayment programs, to encourage more health care providers to enter and remain in primary care and public health careers.
Because both tax bills would add $1.5 trillion to the deficit over the next 10 years, they could trigger another law that would require cuts to certain federal programs.
While Medicaid and Social Security are exempt, the Medicare program could be subject to cuts totaling up to $25 billion. Other mandatory non-exempt programs such as the Prevention and Public Health Fund, which helps fund county public health departments, would be similarly impacted.
However, Senate leadership has assured members that these cuts would not go into effect, and the cuts have never been enacted since the original law was passed.
NACo will continue to work with congressional leadership to advocate for county priorities — including those impacting health care — as the House and Senate reconcile differences in their tax bills during the conference deliberations. NACo encourages all county officials to engage with your members of Congress on key issues for your county.