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House, Senate pass tax reform; experts say it is ‘not good news’ for health care
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By a 224-201 vote, the House has passed the tax bill that will result in health care changes categorized as alarming by medical groups such as the AAFP and American College of Physicians. The House's action follows the Senate passing the bill by a 51-48 vote yesterday.
President Donald J. Trump is expected to sign the bill, but an exact date has not been set yet.
According to the 1,011-page document the House Ways and Means Committee released Friday evening, the individual mandate under the Affordable Care Act would be eliminated. While this gives Republicans a partial victory in their long attempt to repeal ACA, the nonpartisan Congressional Budget Office predicted earlier this fall such a repeal would result in 10% yearly increase in premiums and approximately 4 million people dropping insurance by 2019 and 13 million by 2027.
Further, CNBC reports that the medical tax deduction agreed to on Friday will allow taxpayers who itemize deductions to write off qualifying medical expenses that surpass 7.5% of their adjusted gross income for tax years 2017 and 2018. But for tax years 2019 and beyond, the threshold is 10%.
The bill passed Friday also drops the orphan tax credit for testing drugs for orphan or rare diseases that impact small portions of the population from 50% to 25%. “This is better than the 0% that was proposed, but it is still unwelcome news,” Memo Diriker, DBA, MBA, BS, and founding director of the Business, Economic, and Community Outreach Network at the Franklin P. Perdue School of Business at Salisbury University in Maryland told Healio.
When asked what these changes could mean for the health of the American public, Diriker said, “Hard to tell with great precision but, overall, this is not good news. There will be millions without insurance; public health spending will be lower; many trend watchers believe Medicare and Medicaid funding will go down; orphan drug development may also slow.”
The American College of Physicians (ACP) was swift to comment on the most recent votes.
"While ACP remains firm in our opposition to the repeal of the individual mandate, we acknowledge that improvements were made to the tax bill in other areas in response to advocacy from ACP and others," Jack Ende, MD, MACP, president, ACP said in a statement. "The bill does maintain the tax deductibility of student loan interest payments and tuition waivers. In addition, the tax deductibility of high cost medical expenses were not only maintained, but the threshold to qualify for deductions was temporarily lowered from 10 percent of income to 7.5 percent of income as ACP recommended."
He added, "However, despite these improvements, there are additional steps Congress must take to ensure that the bill does not do even greater harm health care. Congress must immediately take action to waive statutory Pay-Go cuts to Medicare, the [CDC], and other vital programs, cuts scheduled to automatically go into effect on Jan. 1, 2018. We urge members of Congress to make a public commitment to not using the deficit increases resulting from the tax bill as a reason to cut Medicare and Medicaid next year to pay for the tax legislation. Supporting fiscally and socially responsible ways to lower health care spending, while opposing such cuts to Medicare and Medicaid, will be one ACP’s top advocacy priorities in 2018."
The American Psychiatric Association shared in the disappointment felt by the ACP, stating the tax bill will inflict “unnecessary damage to the nation’s health care system.”
“This legislation, which calls for the removal of the individual mandate in the [ACA], sacrifices the health care of 13 million Americans who will lose their insurance by 2027,” Saul Levin, MD, MPA, CEO and medical director of the APA, said in a statement. “By significantly raising the federal deficit, this bill sets the stage for future cuts to Medicare and other critical safety net programs. What is being sold as a tax cut bill is also an attack on our health care system. There is no reason for these two issues to be decided by the same vote. We need Congress to pass legislation that will stabilize the ACA markets and shore up our health care system. We stand ready to work with Congress on a thoughtful, bipartisan approach to health care reform.”
AAFP did not immediately issue a statement on the most recent House and Senate votes, but in previous weeks, it had urged lawmakers to vote no.
Diriker told Healio that on Dec. 1, Republican Congressional leaders announced that they will work to ensure the spending cuts to Medicare are avoided. – by Janel Miller
References: “Tax Cuts and Job Act” Available at: http://docs.house.gov/billsthisweek/20171218/CRPT-115HRPT-%20466.pdf. Accessed Dec. 18, 2017.
Disclosure: Diriker reports being an unpaid volunteer board member and trustee of nonprofit regional medical center in the Salisbury, Maryland, area. Ende is president of ACP. Levin is CEO and medical director of the APA.
Perspective
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Philip A. Verhoef, PhD, MD, FAAP, FACP
With regard to the medical expense deduction, I don’t anticipate that this will impact the majority of Americans. Currently, qualifying medical expenses above 10% of adjusted gross income can be deducted, and this bill temporarily lowers that to 7.5%, making it a small tax break. However, this would only apply for 2 years and then it would move back up to 10%. In addition, to take this tax break, the taxpayer must itemize their deductions. According to current IRS data, the higher your income, the more likely you are to itemize deductions, rather than taking the standard deduction. And with the standard deduction nearly doubling for both individuals and couples, vastly fewer middle class Americans will be itemizing; therefore, this is largely a tax break for the upper class with high out of pocket expenses (which they can likely afford), and only for 2 years.
With regard to the orphan tax credit, the new tax bill cuts the credit that pharmaceutical companies can receive for qualifying clinical trial expenses of orphan drugs from 50% to 25%. This move will likely hurt the prospects for patients with rare diseases, but it won’t really hurt pharmaceutical companies because the tax bill also cuts their corporate tax rates from 35% to 21%. Financially, then, a company will be incentivized to generate revenue from the next blockbuster, high-selling medication (which will be much more favorably taxed) and move away from research on rare diseases. Those of us that treat patients with rare diseases can expect to see fewer developments from industry to save these unfortunate patients.
With regard to the individual mandate, the math here is simple. Without the mandate, people will not purchase insurance unless they need it, and the only people that need it are those that are already sick and therefore expensive to insure. In order to cover these sicker patients, they will need to be charged higher premiums (which they won’t likely be able to afford) and there will need to be higher premiums charged to everyone else because vastly fewer healthy people are in the risk pool, since they will have chosen to forego insurance. It is simply wishful thinking to imagine that people will regard it as a civic or personal responsibility to purchase insurance. We have incontrovertible evidence that people without insurance have poorer outcomes when they do become sick (longer hospital stays, less ability to access followup care, increased complications), and thus, physicians in every sector will be impacted as the health of the population falls. More importantly, there is crystal clear evidence that lack of insurance is associated with an increase in deaths. So, I would expect to see more patients dying as a result of this tax bill.
While Congress is attempting to pass tax reform, their failure to reauthorize Children’s Health Insurance Program (CHIP) funding is destabilizing this critical lifeline that covers over 9 million children in the USA. CHIP exists to cover children from low-income families who do not qualify for Medicaid. In my hospital, nearly 70% of our pediatric patients are covered by either Medicaid or CHIP. Destabilizing the foundation of this important program makes it impossible for states to budget for anticipated coverage expenses and will inevitably result in important services being cut. Indeed, some states have already notified CHIP recipients that they may no longer have insurance coverage because the funding for such coverage is in question. Congress’ attempts to use CHIP as a bargaining tool or to attach it to unrelated (and political) spending bills is a direct assault on the most vulnerable in this country.
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