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 Congress Approves Massive Tax Bill, Maintains Key LT/PAC Measures

Beating a Christmas deadline set by President Trump, Republicans in the House and Senate approved a massive overhaul of the nation’s tax code in party-line votes, and will send the legislation to Trump’s desk for his expected signature today. Due to a procedural matter, the House, which voted 227-203 for the tax bill on Dec. 19, was set to vote again on Dec. 20 following the Senate’s 51-48 approval of the legislation early on Wednesday morning.​

No Democrat in either the House or Senate has yet voted for the tax bill.

Although the tax bill polls lowly in national surveys, Republicans said the legislation would gain in popularity once the impact of lowering tax rates for most Americans is felt. For the long term and post-acute care (LT/PAC) profession, the legislation maintains two priority tax issues: the medical expense deduction and private acuity bonds. 

Mark Parkinson, president and chief executive officer for the American Health Care Association/National Center for Assisted Living (AHCA/NCAL), said “We appreciate the maintenance of the medical deductibility and private activity bond provisions in the tax bill conference.” He added that the ability to deduct medical expenses is “critical” for skilled nursing and assisted living residents and families who pay for long term care out of their own pockets. 

Congress actually expanded this deduction in the final version of the bill sent to the president, albeit on a temporary basis. The bill said all taxpayers who itemize their deductions can write off qualifying medical expenses that exceed 7.5 percent of their adjusted gross income for tax years 2017 and 2018. After the 2018 tax year, the deduction’s threshold would return to 10 percent.

AARP estimated that 8.8 million people used the medical expense deduction in 2015, and from doing so saved an aggregate $86.9 billion. Around one-half of this group had annual income below $50,000 and 69 percent had income under $75,000.

On private activity bonds, Parkinson said the bonds are an important source of financing for many AHCA/NCAL members who are attempting to meet the growing need for senior health solutions and housing.

Before the final vote on the tax bill, each chamber had passed separate versions of legislation with the House iteration eliminating the medical expense deduction and bond treatment, while the Senate proposal kept both. In the final version of a combined House-Senate bill, the two key issues for LT/PAC providers remained intact.

Beyond LT/PAC issues, the tax reform effort marks the first overhaul of the tax code since 1986. While Republicans praised the effort, Democrats scoffed at the rapid speed in which the plan worked its way through Congress and said it would aid the wealthy at the expense of lower and middle-class families.
Highlights of the bill include the lowering of the top individual tax rate from 39.6 percent to 37 percent, reduction of the corporate tax rate from 35 percent to 21 percent, and the formulation of a 20-percent tax cut for income of pass-through businesses for those entities that pay taxes through the individual code.

The legislation also increases the exemption amounts for the individual alternative minimum tax and estate tax. In addition, it makes the U.S. tax system a territorial one that generally exempts U.S. companies’ foreign earnings from U.S. taxes.

Importantly for the health care system, specifically the individual market for health insurance, the bill eliminates the Affordable Care Act’s individual mandate that requires people to buy coverage or face a tax penalty. 

The most recent assessment of the overall bill by Joint Committee on Taxation (JCT) said by 2025, those with high incomes would get the largest tax cuts as a share of after-tax income, on average, while households with incomes below $30,000 would on average experience a tax increase. 

When many of the bill’s provisions expire in 2027, high-income earners would still receive large tax reductions, but every income category below $75,000 would face tax increases, on average. 

JCT said the bill would add $1.5 trillion to deficits over the impending decade because of the legislation’s large tax cuts for high-income households and corporations.

Christopher Condeluci, principal at CC Law and Policy and former tax and benefits counsel to the Senate Finance Committee, says from a health care perspective, the end to the individual mandate penalty tax won’t have a material effect on the health insurance markets.

“Yes, premiums will go up to compensate for the fact that all of the ACA’s insurance market reforms will remain intact,” he says. “However, I fear that some insurance carriers will use repeal of the mandate as an excuse to arbitrarily increase premiums more than premiums should otherwise go up. But, people may disagree on that point.”
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