Health care bracing for impact from Senate tax bill

Written on Dec 08, 2017

The Senate passed its version of tax reform on a party-line vote. Now the health care industry is bracing for impact.

The bill still retains several provisions that could dramatically alter the health care landscape, not the least of which is repealing the Affordable Care Act's (ACA) individual mandate. The sprawling tax cut legislation could also result in tighter access to capital, and greater margin pressure for not-for-profit health systems.

The Senate and House must now reconcile their version of the bill before sending it to President Trump. The House could vote as early as Dec. 4.

Experts caution that the legislation will have big downstream effects on funding for Medicare, Medicaid, ACA subsidies and other federal and state health care programs. The projected $1.5 trillion increase in the federal budget deficit resulting from the tax cuts would put pressure on Congress to slash health care spending.

The Congressional Budget Office estimated passing the tax bill would trigger an automatic $25 billion cut in Medicare next year to offset the reduced revenue, under the Pay As You Go rule.

The fate of two separate Senate bills designed to stabilize the individual insurance market remains in doubt, as GOP ultraconservatives voiced opposition to what they consider "bailouts" of insurers. Leaders of the House Freedom Caucus said they won't support a continuing resolution bill next month to fund the federal government if it includes the market stabilization funding measures.

Insurers and providers strongly oppose the Senate tax bill's provision, likely to be adopted by the House, that would immediately repeal the ACA’s tax penalty on people who don't obtain health insurance. They warn that would hurt market stability by leading healthier people to drop coverage, thus driving up premiums and pushing insurers to exit the exchange market.

The Congressional Budget Office said that passing a bill to restore the CSR payments would not substantially reduce the coverage losses and premium increases resulting from repealing the ACA's individual mandate. The CBO previously estimated that axing the mandate would result in 13 million fewer Americans with coverage in 2027, and premiums that were 10% higher on average each year than they would be without the repeal.

On the tax cut bills, health care industry leaders object to provisions in both the Senate and House versions that would limit tax-exempt financing for not-for-profit organizations, restrict deductions for interest payments, impose an added tax on compensation for high-earning executives, and levy an excise tax on endowments at universities and academic medical centers.

Health care industry analysts also are worried about the Senate bill's repeal of the federal deduction for state and local taxes paid by individuals. That likely would create pressure in states with relatively high state and local taxes, like California and New York, to reduce taxes, leading to less revenue for funding Medicaid and other health care programs.

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