Health Care Implications of Tax Bill: No More Individual Mandate

Health Care and Taxes

Late yesterday, the U.S. Senate Republicans approved a tax bill, by a vote of 51-48. This bill was previously approved by the U.S. House by a vote of 227-203.  As the bill must be identical in both chambers, this bill now heads back to the U.S. House to correct three provisions. One of these provisions is the actual name of the bill. The Senate version’s short title, the “Tax Cuts and Jobs Act,” must be known as “An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018,” (Not very catchy but accurate). Regardless of the name of the bill, the House expects to “repass” the bill today, with President Donald Trump expected to sign the bill soon after.

The main health care-related change is that the individual mandate under the Affordable Care Act (ACA) is changed to zero, effective beginning January 1, 2019. As a reminder, under the ACA , most individuals who were not covered by a health plan that provided at least minimum essential coverage were required to pay a “shared responsibility payment” (also referred to as the “individual mandate” or a “penalty”) with their federal tax return. Unless an exception applied, the tax was imposed for any month that an individual did not have minimum essential coverage.

Health insurance providers have strenuously objected to this provision of the tax bill, stating that it will destabilize the ACA-created individual health care exchanges. By delaying the timing of the elimination of the individual mandate, insurance companies will have time to assess and address the potential impact on their health insurance products.

Another health care-related change in the tax bill is the change to the medical tax deduction for individual taxpayers. For tax years beginning after Dec. 31, 2016, and ending before Jan. 1, 2019, the tax bill would reduce the medical expense deduction floor to 7.5% of adjusted gross income and eliminate the minimum tax preference, which should allow individuals to deduct a higher portion of their unreimbursed medical expenses. Assuming the bill becomes law, we will be presenting a short webinar on January 10th at 12:30 ET to discuss these and other related changes in the tax bill.

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