Posted by Evan Piccirillo, CPA
Last week, the much-anticipated Senate version of the American Health Care Act (AHCA) was unveiled as a “discussion draft” for all to see. Renamed the Better Care Reconciliation Act, the importance of this bill cannot be overstated. The United States ranks among the very top in healthcare spending in the world, not just in pure dollars, but also as a percentage of GDP. The impact of this bill has extraordinary economic consequences for most Americans.
But this is a tax blog, so why are we talking about healthcare spending?
Great question. Whereas this may be a healthcare bill and it is designed around health insurance, it is also a replacement for the Patient Protection and Affordable Care Act (Obamacare/ACA), which was rife with tax implications and assigned certain administrative duties to the Internal Revenue Service. Many of the ACA provisions were written into the tax code, and as a result this repeal/replace act will have significant tax repercussions. So, putting aside the debate on who loses coverage and the how costs will respond, let’s look at this through a tax lens.
Here are some of the changes the Senate bill would have on the current tax law:
- The 3.8% net investment income tax and Medicaid surtax are both eliminated under this plan. This is great if you make over $200K per year, but that’s less than 10% of Americans, so chances are it probably won’t affect you.
- The penalty enforcing the individual mandate and the employer mandate go away. This is a benefit if you decide you don’t want to have to pay pesky insurance premiums for yourself or your employees.
- The limitation on recapture of overpaid premium credits is removed, because that was actually a loophole that could be easily exploited.
- The small business health insurance tax credit is – you guessed it – eliminated.
- The percentage of federal-poverty-line calculation for the eligibility of receiving credits decreases from 400% to 350%, and the manner in which the credit is applied also changes. This squeezes out some of the folks who were previously eligible for credits.
- The AGI limitation for the income tax deduction for medical expenses goes back to 7.5% from 10%, a small victory for those of us who have very significant out-of -pocket healthcare costs relative to our income.
There are also a handful of changes to the function of Health Savings Accounts and other related plans. Depending on your situation, these changes can range from helpful to insignificant.
The House version of this bill was called “mean” by President Trump, but the Senate version is “going to be very good”, according to our top executive. The differences between the Senate and House versions of the act are slight, but it is important to note that the Senate version is not yet final. Perhaps the distinction between “mean” and “very good” can be hammered out in the next few days in time for a vote before the July 4th Senate recess.
If you think that any of the above may affect you and your tax situation, and you have questions or concerns, you should reach out to your trusted advisor and work through them.