The House and Senate are both advancing tax bills—with radically different implications for providers

The House and the Senate Finance Committee on Thursday separately advanced their respective health reform bills—though the Senate bill's prospects remain unclear as at least one GOP lawmaker has raised concerns about a provision to eliminate the Affordable Care Act's individual mandate.

House advances HR 1

The House on Thursday voted 227-205 to pass a Republican tax reform measure (HR 1) that would eliminate a tax deduction for certain health care expenses and includes several other provisions with major health care implications, Politico reports.

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The bill, which now heads to the Senate, was approved mostly along party lines, with nearly all Republicans voting to approve the measure. According to Politico, all Democrats and 13 Republicans voted against the bill.

The House's tax reform bill would reduce the number of federal income tax brackets from seven to four, increase the standard deduction to $12,000 for individuals and $24,000 for married couples, repeal the estate tax effective in 2024, and reduce the corporate tax rate from 35% to 20% beginning in 2018.

The bill would not change any of the taxes or penalties implemented under the Affordable Care Act (ACA), nor would it change tax exclusions for employer-sponsored health plans. However, the bill does include provisions that would:

  • End as of 2018 a tax deduction for certain individual health care expenses; and
  • Eliminate as of 2018 a tax credit available to drugmakers that develop so-called "orphan drugs."

The bill also includes provisions that do not directly apply to health care, but that experts say could indirectly affect hospital systems that have significant amounts of debt, hospital executives, and hospitals' ability to invest in renovations and technology.

Senate committee advances tax bill amid new analyses

The Senate Finance Committee also on Thursday voted 14-12 to advance Senate Republicans' tax reform bill, with all Republicans on the committee voting for the bill and all Democrats on the committee voting against it.

The Senate's tax reform bill differs from the House bill on various provisions, including some that would affect health care. For instance, the Senate bill would eliminate the penalty most U.S. residents must pay for not having health coverage under the ACA's individual mandate, which a new Standard & Poor's analysis projected would leave three million to five million additional U.S. residents uninsured by 2027 and save the federal government $60 billion to $80 billion over that time period, compared with current law. Those estimates are far lower than the Congressional Budget Office's projections that the change would result in 13 million more uninsured U.S. residents and save the federal government $338 billion from 2018 to 2027, compared with current law.

In another break with the House bill, the Senate's proposal would maintain U.S. residents' ability to deduct from their taxes certain health care expenses. Further, the Senate bill would create a new tax deduction for pass-through businesses, which includes physicians. In comparison, the updated House bill would implement a 9% tax rate on pass-through business entities' first $75,000 in net taxable business income. Under the Senate bill, that new tax rate would be phased in over five years and apply to active shareholders and owners who take in less than $150,000 in taxable income from their businesses.

The Senate bill also would implement a 12.5% tax on income U.S. companies generate from intellectual property, regardless of whether that property is housed in the United States or in another country. Observers say the provision is partially aimed at drugmakers, which sometimes register their patents abroad in order to avoid paying U.S. taxes.

During the committee hearing, panel members discussed a new Joint Committee on Taxation analysis of the latest Senate bill, which found eliminating the ACA's penalty for remaining uninsured would increase low-income residents' total tax liability by 2021. The analysis assumed that eliminating the individual mandate penalty would prompt more U.S. residents, including those who are eligible for federal subsidies to offset the cost of exchange plans, to forgo coverage. As a result, the analysis projected U.S. residents with annual incomes up to $30,000 would see their total tax liability rise, because they would not be claiming the subsidies.

Senate Finance Committee Chair Orrin Hatch (R-Utah) attributed the appearance of a tax increase to federal score-keeping rules. "We're seeing some taxes go up because of a scoring assumption, not because of tax rates or policies," Hatch said, adding, "Anyone who says we're hiking taxes on low-income families is misstating the facts."

However, Democrats on the panel cited the analysis as evidence against the tax reform bill. Sen. Ron Wyden (D-Ore.) said the analysis was "jaw-dropping news," adding, "I believe this process ought to end right here and now."

Tax reform efforts now hinge on Senate

Republican lawmakers are aiming to send a compromise tax reform measure to President Trump before the end of this year. Senate GOP leaders have said they aim to take up their version of the tax reform bill once the chamber returns from its Thanksgiving recess.

But, according to the Washington Post, the Senate could have difficulty passing their tax reform bill in the full chamber, as some GOP senators have said they might not vote in favor of the bill.

Sen. Ron Johnson (R-Wis.) on Wednesday said he opposes both the Senate and House tax reform measures because they would benefit large corporations more than they would benefit small businesses.

Further, Sen. Susan Collins (R-Maine) on Wednesday expressed concerns about the Senate bill's provision to eliminate the individual mandate penalty.

The Senate is seeking to pass the tax reform bill under its budget reconciliation process. That process allows certain bills to pass the Senate by a simple majority of 51 votes, without being subject to a filibuster, meaning Senate Republicans can only afford to lose two votes to pass the bill if all Democrats vote against it, as long as Vice President Pence casts a tie-breaking vote in favor of the bill.

If the Senate does pass its own version of the tax bill, House and Senate lawmakers would have to form a conference committee during which they will seek to produce a compromise bill. Then, both chambers would have to approve that bill in order to advance the measure to Trump (Bade et al., Politico, 11/16; Long, "Wonkblog," Washington Post, 11/16; Rufus Koren, Los Angeles Times, 11/17; Mascaro/Puzzanghera, Los Angeles Times, 11/16; DeBonis/Paletta, Washington Post, 11/16; Morgan/Becker, Reuters, 11/16; Faler, Politico, 11/16; Paletta/Debonis, Washington Post, 11/15; Tankersley/Rappeport, New York Times, 11/16; Diamond, "Pulse," Politico, 11/17; Puzzanghera, Los Angeles Times, 11/16).

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