Both the House and Senate this week voted to form a conference committee to work on a compromise tax reform bill that could include language to eliminate the Affordable Care Act's (ACA) individual mandate penalty, as well as language limiting tax-exempt financing for nonprofit hospitals.
Background: Senate, House pass different tax reform bills with health care provisions
The Senate last week voted 51-49 to pass a nearly $1.5 trillion tax reform bill that would permanently reduce the corporate tax rate to 20% and temporarily lower taxes for individuals and pass-through businesses. The bill also includes language that could affect the health care industry, including provisions that would:
- Eliminate the penalty most U.S. residents who do not have health insurance must pay under the ACA's individual mandate;
- 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—a provision observes say is partially aimed at drugmakers;
- Lower the threshold at which U.S. residents can deduct certain health care expenses from their taxes from the current 10% of an individual's annual adjusted gross income to 7.5% for 2017 and 2018; and
- Scale back a 50% tax credit for pharmaceutical companies that develop drugs for rare diseases, known as the Orphan Drug Credit, to 27.5%.
The Senate bill differs from a tax reform bill (HR 1) the House passed in November, which also includes several health care-related provisions. For instance, the House bill as of 2018 would completely eliminate both the individual tax deduction for certain health care expenses and the Orphan Drug Credit.
The House 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.
The House bill does not include provisions to change any of the taxes or penalties implemented under the ACA.
Industry experts have warned that both bills increase the federal budget deficit enough to trigger automatic cuts to domestic programs, including annual cuts of $25 billion to Medicare, $900 million to the Prevention and Public Health Fund, and $715 million to the Federal Hospital Insurance Trust Fund. Congress could pass separate legislation to avert the cuts, which would require 60 votes in the Senate.
Senate, House vote to hold conference committee on tax reform
The House on Monday voted 222-192 to initiate conference negotiations to reconcile the two bills. The Senate on Wednesday voted 51-47 to begin the negotiations.
House Ways and Means Committee Chair Kevin Brady (R-Texas) will lead the conference committee. If lawmakers on the committee agree on and sign a final conference report, or reconciled bill, both the House and Senate would have to vote on that bill before the measure could be sent to President Trump.
According to the Washington Post, Republicans are hoping to finish negotiations and send a reconciled tax bill to Trump by Dec. 22, but Congress could face pressure from the White House to finish negotiations sooner.
Health care provisions could be sticking points
According to CQ News, there are several provisions that will be central to the House and Senate negotiations, and the bills' health care measures could be among them.
For instance, Brady said he "certainly" is receptive to including language to eliminate the ACA's individual mandate penalty in the final bill, but some groups are urging lawmakers not include such a provision. Margaret Murray, CEO of the Association for Community Affiliated Plans, said eliminating the individual mandate penalty would cause insurers "to evaluate whether they can stay in the individual [health insurance] market or not based on what it does to enrollment and the risk profile of people who choose to stay."
In addition, Brady said some GOP House lawmakers have urged him to maintain the tax deduction for individual medical expenses in the final bill, Politico's "Pulse" reports. "That issue is being raised by a lot of our lawmakers as very important," Brady said. According to Modern Healthcare, AARP and other consumer groups are lobbying Congress to maintain the deduction.
Hospitals voice concerns over tax-exempt bond provisions
According to "Pulse," Brady said he could consider preserving certain tax-exempt bonds that nonprofit hospitals often use for construction. Both the House and Senate measures would ban "advance re-funding of prior tax-exempt bond issues," Modern Healthcare reports, although only the Senate measure would preserve the "tax exemption for interest income on new municipal private activity bonds."
Several hospital groups, led by the American Hospital Association, are seeking to ensure the bonds are maintained in the final bill. Hospitals have said either eliminating or scaling back the bonds could cause them to have higher borrowing costs and have a negative effect on their ability to make capital improvements.
In fact, according to the Wall Street Journal, some hospitals and nursing homes in recent weeks have sought out the bonds in anticipation of potential changes under the tax reform bill. For instance, a borrower in North Dakota sought out buyers for $363 million in bonds three weeks ahead of schedule. The proceeds from that sale would help fund a new Trinity Health hospital and replace two buildings originally constructed about a century ago, the Journal reports. Separately, Jerome Judd, SVP of treasury and investment for Mercy Health, decided to "rus[h]" a planned $585 million issuance to market so that the bonds will be priced next week instead of in the first quarter of 2018 (Morgan/Becker, Reuters, 12/4; Baker, "Vitals," Axios, 12/7; Diamond, "Pulse," Politico, 12/7; Paletta, Washington Post, 12/4; McCrimmon, CQ News, 12/6 [subscription required]; Pear/Kaplan, New York Times, 12/6; Meyer, Modern Healthcare, 12/6; Gillers/Evans, Wall Street Journal, 12/7; Rovner, Kaiser Health News, 11/2).
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