Congress Passes Tax Overhaul, Ending Insurance Mandate

Alicia Ault

December 20, 2017

UPDATED December 22, 2017 // Editor's note: President Trump signed the $1.5 trillion bill into law on December 22.

Congress has approved a major overhaul of the US tax code, which signals the end of the Affordable Care Act (ACA) requirement that individuals purchase health insurance. The US House sealed the deal today with a 224 to 201 vote.

Because the legislation ( HR 1) adds to the deficit ― by $1 trillion at least, according to the Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT) ― it could possibly trigger automatic cuts to discretionary programs, such as Medicare, which may see a $25 billion hit next year. Because of that possibility, President Donald J. Trump reportedly has said he will withhold his signature until Congress takes action to avert the cuts. Trump could also wait until January to sign the bill to push the automatic cuts forward to 2019, thus giving Congress all of next year to waive them, according to media reports.

The American College of Physicians (ACP) said the automatic cuts should be avoided. "Congress must immediately take action to waive statutory Pay-Go cuts to Medicare, the Centers for Disease Control and Prevention, and other vital programs, cuts scheduled to automatically go into effect on January 1, 2018," said ACP President Jack Ende, MD, MACP, in a statement. "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," said Dr Ende.

Several other medical organizations also assailed the tax reform plan. "This legislation, which calls for the removal of the individual mandate in the Affordable Care Act, sacrifices the health care of 13 million Americans who will lose their insurance by 2027," said Saul Levin, MD, MPA, CEO, and medical director of the American Psychiatric Association, 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," said Dr Levin.

"The repeal will also cause premiums to rise sharply and insurers to pull out of the health insurance marketplaces," noted Dr Ende.

In the Details

The HR 1 legislation will reduce most income tax rates for individuals, increase the standard deduction and the child tax credit, repeal deductions for personal exemptions, repeal or limit certain itemized deductions, and increase the exemption amounts for the individual alternative minimum tax.

Of special interest to medical students, the final bill did not eliminate the tax deductibility of student loan interest payments or tuition waivers, as had been proposed in earlier versions of the legislation.

Also, individuals will be allowed to continue to deduct medical expenses ― which the House had been hoping to repeal. Instead, in 2017 and 2018, individuals will be allowed to deduct medical expenses up to 7.5% of adjusted gross income; in 2019, that will increase to 10% of income.

The legislation also takes aim at tax incentives given to drug companies to develop therapies for rare diseases. Those will be significantly reduced going forward.

One element that was set up to reduce tax rates for certain types of partnerships ― the small business pass-through provision ― will exclude physicians. The included partnerships will be able to claim income as corporate profits and effectively lower their individual tax rate to the corporate tax rate. But physicians and lawyers were exempted.

The bill repeals the penalty for not complying with the ACA's so-called individual mandate, starting in 2019. The CBO and the JCT estimate that eliminating the penalty would reduce the deficit by $338 billon over the next decade, because it would reduce the number of people who would be receiving government subsidies for insurance.

It would also mean 4 million more uninsured persons in 2019 and another 13 million uninsured persons in 2027. Although the CBO and the JCT say the nongroup market would stay largely stable over the next decade, premiums for those purchasers would rise by about 10% in most years for the next 10 years, said the CBO and the JCT.

Eric Hargan, acting secretary of the US Department Health and Human Services, praised the repeal of the mandate. "This tax reform legislation is a major step toward real healthcare freedom for our country, thanks to its repeal of the individual mandate," he said in a statement. "The mandate tax fell almost entirely on working class Americans, millions of whom decided that they didn't want or can't afford Washington-dictated healthcare plans." Hargan said that the latest figures from the Internal Revenue Service indicated that almost 7 million Americans paid more than $3 billion in penalties in 2015, and that 79% of the households that paid made less than $50,000.

Back and Forth

HR 1 moved swiftly through Congress in a series of votes that were decided largely along party lines. Not a single Democrat in either legislative body voted in favor of the legislation.

In the first vote, the House approved HR. 1 by a vote of 227 to 203. The Senate then voted 51 to 48 to pass the bill. There was one abstention, John McCain (R-AZ), who was recovering from a recent hospitalization related to his glioblastoma.

After the Senate vote, the bill had to go back to the House, because several senators said that portions violated the so-called Byrd rule, named after the late Robert Byrd (D-WV). That rule essentially prohibits legislation that affects the budget from including nonbudgetary items. The Senate stripped out the offending provisions and sent HR 1 back to the House for a final vote on December 20.

House Speaker Paul Ryan (R-WI) commended his colleagues and said the legislation would eventually be heralded. "Americans are going to see relief almost immediately in the form of bigger paychecks and lower taxes," he said in a statement.

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