tax reform

How Tax Reform Might Impact Healthcare

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The most sweeping overhaul of the U.S. tax code in decades is unfolding in Congress at the moment and could be wrapped up before Christmas. You may have heard about plans to undo the Affordable Care Act individual mandate. If you’re in an employer-sponsored health plan, that won’t affect you. But there are provisions in the Senate and House versions of the legislation that all of us should watch for.

For starters, the bills from both chambers include a change to how tax provisions are indexed for inflation.

That means the ACA “Cadillac” Tax would be tied to the Chained Consumer Price Index (CPI), which tends to rise more quickly than regular CPI (the previous index metric). Therefore, it is likely that more employer-sponsored plans would trigger the tax for employers and insurers sooner.

The good news is that the 40 percent Cadillac tax, which applies to high-cost health insurance plans – $10,200 for individual coverage and $27,500 for family coverage — would be delayed until 2026 in both the Senate and House bills.

Elsewhere, the House version would eliminate taxpayers’ ability to deduct medical expenses that exceed 10 percent of their adjusted gross income.

The medical expense deduction isn’t widely used —under 9 million tax filers took it on their 2015 tax returns, according to the IRS. But those who do use it generally have very high medical expenses or expensive long-term care not covered by health insurance.

The AARP, not surprisingly, is opposed to the idea, saying it “amounts to a health tax on millions of Americans with high medical costs — especially middle-income seniors.”

The House bill, meanwhile, would eliminate the Orphan Drug Credit, adopted by Congress in the early 1980s as part of a package of incentives intended to entice drugmakers to study and develop drugs to treat rare diseases, defined as those affecting fewer than 200,000 people.

To date, about 500 drugs have come to market using the incentive.

The National Organization for Rare Disorders called the proposed change “wholly unacceptable” and said it “would directly result in 33 percent fewer orphan drugs coming to market.”

The problem is that, without the credit, it’s harder for the drug companies to justify spending millions of dollars to develop drugs with such a small potential market.

Regarding the ACA individual mandate, neither the House nor Senate bills would, in fact, eliminate the requirement that most American carry insurance coverage. Instead, the bill would merely end tax penalties for flouting the requirement.

Although unpopular among voters, health insurance companies say they need the mandate to ensure adequate numbers of healthy people are enrolled in plans to help offset the cost of caring for the sickest Americans. Without the mandate, they say, premium hikes will be steeper for those individuals who get their coverage through one of the Obamacare exchanges.

What’s next for tax reform

The job ahead for the Senate and House involves melding the two tax bills into one so it can pass both chambers and go on to President Trump for his signature.

The House could pass the Senate bill as-is and send it to the president or a conference committee consisting of members from both chambers who will negotiate a new compromise bill. Either way, Congress and the administration want to pass tax reform by the end of the year.

Scott McGraw is Vice President of CCIG’s Employee Benefits division. Reach him at 720-330-7924 or scottm@thinkccig.com.

CCIG is a Denver-area insurance brokerage with the full-service capabilities of a national brokerage. We do more than make sure you have the right policy. We also help you manage your long-term cost of insurance with our risk and claims management expertise and a commitment to service excellence.

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