The Tax Cuts and Jobs Act introduced this week by House Ways and Means Committee Chairman Kevin Brady, R-Texas, proposes to lower individual tax rates for low- and middle-income Americans, increase the standard deduction, and add a new family tax credit, but the proposed legislation also has far-reaching implications for healthcare.
The Tax Cuts and Jobs Act, introduced this week by House Ways and Means Committee Chairman Kevin Brady, R-Texas, proposes to lower individual tax rates for low- and middle-income Americans, increase the standard deduction, and add a new family tax credit, but the proposed legislation also has far-reaching implications for healthcare.
Below are key ways in which the tax plan could affect patients, drug developers, providers, and payers:
Elimination of the tax deduction for high medical expenses. The medical deduction, claimed by an estimated 8.8 million taxpayers on their 2015 filings, is available to those whose medical expenses exceed 10% of their total income. David Certner, legislative counsel for AARP, told Kaiser Health News that approximately 75% of those who claim the medical expense deduction on their taxes are 50 or older, and more than 70% have incomes at or below $75,000.
"...eliminating the medical expense deduction amounts to a health tax on millions of Americans with high medical costs—especially middle income seniors," AARP's executive vice president, Mancy LeaMond, said in a statement. "AARP is strongly opposed to this provision.
Elimination of the tax credits for orphan drug development. While the Orphan Drug Act of 1983 provides a tax credit of approximately 50% of the costs of clinical testing for drugs that treat diseases that affect fewer than 200,000 people in the United States, the newly proposed tax bill would eliminate that credit. According to the Regulatory Affairs Professional Society, the FDA approved 451 orphan drugs for 590 rare disease indications since the act took effect, and approximately 33% of those drugs would likely not have been developed without the tax credit.
Elimination of the student loan interest deduction. Current law allows those who make less than $80,000 per year to deduct interest paid on student loans from their taxes, even if they do not itemize their deductions. Medical school graduates, whose median income is $54,600 in the first year of residency, typically have high student debt; according to the American Association of Medical Colleges, 75% of medical school students who graduated in 2017 have a median debt of $192,000. Daniel Gouger, MD, education and advocacy fellow for the American Medical Student Association, told STAT that “When you’re thinking about how much interest you’re having to pay when your principal is over $200,000, it’s an incredible amount of money.” Gouger added that the change to the tax code could deter students, especially low-income students, from pursuing careers in medicine, pharmacy, nursing, or physical therapy if the effective costs of education rise.
Potential cuts to healthcare programs. Matt Fiedler, an economist at the Brookings Institution's Center on Health Policy, told Modern Healthcare that "This is clearly a package that will increase the deficit significantly," and added that, because healthcare programs form a large part of the federal budget, there will be added pressure in the days ahead to cut program spending to finance the tax cuts.
No rollback of the individual mandate. The House version of the tax plan is also notable for what it doesn’t include; the proposed legislation does not have a provision to eliminate the Affordable Care Act’s individual mandate to either purchase health care or pay a fine. However, some Republican law makers, including Senator Tom Cotton of Arkansas, hope that revisions to the bill will include such a repeal, as it will make paying for the tax cuts proposed in other parts of the legislation easier to finance. Cotton indicated that eliminating the individual mandate is a "pretty reasonable proposal" that would save approximately $400 billion, according to The Hill.