December 12, 2017
Members of the House and Senate will meet on December 13 to begin reconciling differences between their two tax reform proposals, and much is at stake for doctors, nurses, hospitals, and graduate medical education.
The House and Senate have approved different versions of the Tax Cuts and Jobs Act (HR 1). It will now be molded into a final bill by a panel of 17 Republicans and 12 Democrats who come from committees that oversee key government spending areas.
Congress is expected to complete work on the bill before the Christmas recess.
The bill is not without controversy, even among Republicans, in part because of various reports that conclude that the bill could generate new deficits by $1 trillion or more.
Here are five ways that HR 1 could affect healthcare ? and, likely, the practice of medicine.
1. Automatic Cuts to Medicare
Under a rule in the Senate known as PAYGO, legislation that increases the deficit can't be considered; in addition, legislation that affects mandatory programs (like Medicare and Medicaid) can't increase the deficit. If it does, automatic spending cuts come into play.
The nonpartisan Congressional Budget Office (CBO) estimates that HR 1 could lead to automatic cuts of $136 billion in fiscal 2018, $25 billion of which would come from Medicare. That's triggered alarm. "A cut of this magnitude will cause increased instability in an already fragile cancer care delivery system and result in decreased access for cancer patients," said ASCO President Bruce Johnson, MD, in a letter to Congress.
American College of Physicians (ACP) President Jack Ende, MD, wrote that PAYGO cuts would reduce payments to physicians by 4% in 2018 ? adding to statutory cuts already in effect. "The College strongly believes that tax cuts and other initiatives should not come at the cost of automatic cuts to programs that serve individual and public health, including Medicare, Medicaid, the Centers for Disease Control and Prevention, and other agencies."
PAYGO would also lead to cuts to graduate medical education, lab fees, and hospital payments and would cut or entirely eliminate hundreds of other federal programs, including programs within the Centers for Disease Control and Prevention, the Health Resources and Services Administration, and the Prevention and Public Health Fund, said the ACP.
The automatic cuts can be averted if 60 senators vote to waive the PAYGO rule.
2. Repeal of Affordable Care Act's Individual Mandate
The requirement that all Americans purchase insurance ? or pay a penalty ? has led to the stabilization of the insurance market, but Senate Republicans want to essentially repeal the penalty (which guts the mandate), and House Republicans could go along. The CBO and the Joint Committee on Taxation (JCT) estimate that repealing that mandate would reduce the deficit by $338 billion over the next decade; decrease the number of people with health insurance by 4 million in 2019 and 13 million in 2027; and increase premiums in the nongroup market by about 10% in almost each year for the next 10 years. If the individual mandate penalty was eliminated but the mandate itself was not repealed, the results would be similar, said the CBO and the JCT.
The American Association of Retired Persons (AARP) says that 64-year-olds could see their premiums increase by an average of $1490 a year.
The American Academy of Family Physicians (AAFP) opposes elimination of the mandate, noting in a statement, "Having health care coverage and a continuous relationship with a physician are the two factors that have been proven the world over to increase quality and decrease cost." Better access to affordable healthcare coverage has also helped curb medical bankruptcies significantly during the past 5 years, said the AAFP.
The ACP's Dr Ende said, "Repeal of the individual mandate that individuals obtain health insurance violates our criteria that any proposed changes to the ACA [Accordable Care Act] should first do no harm to patients." The ACA ? through the mandate, in part ? has reduced the uninsured rate to its lowest level in decades, from 18.2% in 2010 to 10.3% in 2016, said Dr Ende.
3. Elimination of Tuition Deduction for Graduate Medical and Science-Related Education
Along with the Senate's PAYGO rule that threatens cuts to graduate education, the House is proposing to eliminate the deduction for student loan interest and repeal the deduction for college tuition and related expenses. That means that graduate students who teach or work as researchers and get free or reduced tuition, or stipends, will have those benefits taxed as income.
"These waivers can amount to tens of thousands of dollars so that this provision could dramatically increase the tax liability of graduate students who usually receive modest stipends to cover the cost of living during their graduate training," said Jeremy Berg, PhD, editor-in-chief of Science, in an editorial.
"It is not clear what the objective is, as the new policy would disproportionately affect students without additional resources to support their educations and would likely decrease economic viability and competitiveness as talent is lost from the science, technology, engineering, and mathematics (STEM) enterprise," he wrote.
"The tax on tuition waivers for graduate students would undermine the research career pipeline at a time when Congress has identified the need to bolster the next generation of biomedical researchers," said Association of American Medical Colleges (AAMC) President and CEO Darrell G. Kirch, MD, in a statement. "Additionally, the repeal of credits and deductions that make graduate and professional education more affordable would create a hardship for many students."
4. Repeal of Medical Expense Deduction
The medical expense tax deduction ? which began in 1942 ? has been targeted for elimination by the House. The Senate, however, would keep the deduction; it would set the floor for 2018 and 2019 at 7.5% of adjusted gross income (AGI), which is more generous than the 10% of AGI called for under current law.
The proposed elimination has been one of the more controversial aspects of the tax reform debate, as advocates say many people with chronic illness and disabilities ? especially those with low incomes ? depend on the deduction to reduce their tax burden. The AARP says that in 2015, 8.8 million Americans used the deduction and that more than half were older than 65. Nearly three quarters are 50 years old or older and live with a chronic condition or illness, and 70% of those who claimed the medical expense deduction have income below $75,000, according to the AARP.
House and Senate conference leader Rep. Kevin Brady (R-TX) said he's willing to consider scrapping the proposal to eliminate the deduction, according to Politico.
5. No More Tax Breaks for Orphan Drugs, Hospital Bonds
The House is proposing to eliminate a tax credit that has been used as an incentive for pharmaceutical companies to develop therapies for orphan diseases. The Senate is reducing that credit. The National Organization for Rare Disorders and 160 other organizations representing patients with rare conditions wrote to Congress objecting to the repeal and said the Senate proposal was only acceptable as the bare minimum. "In the decade before the Orphan Drug Act [ODA], only 10 medicines were developed by industry for rare diseases," said the group, which added that since that law was passed in 1983, more than 3500 potential treatments have been designated as orphan drugs, and more than 500 orphan therapies have been approved by the US Food and Drug Administration. "This is a direct result of the incentives provided by the ODA, including the tax credit," they said.
Hospitals will be taking hits in multiple areas, but are alarmed about the House proposal to eliminate tax-exempt private activity bonds used by nonprofit hospitals and academic medical centers. The Senate would continue to allow that tax-exempt financing.
The AAMC said in a statement that private activity bonds "are a critical source of funding for our member institutions to secure financing of capital improvements, including new research and clinical facilities."
Elimination "will increase borrowing costs for medical schools and teaching hospitals, making it more expensive to build these vital facilities," said the AAMC.
The American Hospital Association also objects. "The ability to obtain tax-exempt financing is a key benefit of hospital tax-exemption that works to make access to vital hospital services available in communities large and small across America," said AHA Executive Vice President Thomas P. Nickels in a letter to Congress.