The House and Senate are gearing up to vote Tuesday on a joint tax reform bill that would effectively eliminate the Affordable Care Act's (ACA) individual mandate penalty.
The measure currently includes a permanent cut in the corporate tax rate to 21%, as well as temporary tax reductions for most of the seven individual tax brackets, which expire after 2025.
Individual mandate repeal
The bill would, effective Jan. 1, 2019, eliminate the penalty most U.S. residents who do not have health insurance must pay under the ACA's individual mandate. The Congressional Budget Office (CBO) has estimated that removing that penalty due to the provision, about 13 million fewer U.S. residents would have health coverage in 2027, with eight million fewer U.S. residents enrolled in exchange coverage and five million fewer U.S. residents enrolled in Medicaid. Exchange premiums would rise by approximately 10%, CBO estimated, due largely to a less healthy risk pool.
Potential automatic cuts in Medicare, other federal programs
The $1.5 trillion measure as written would trigger automatic, offsetting spending cuts under the Statutory Pay-As-You-Go Act of 2010, commonly known as "pay-go." Industry experts have said it could lead to $136 billion in automatic spending cuts in fiscal year (FY) 2018, including $25 billion in cuts to Medicare spending, $900 million to the Prevention and Public Health Fund, and $715 million to the Federal Hospital Insurance Trust Fund.
However, some Senate GOP leaders have expressed confidence that lawmakers would reach a separate deal to avoid the pay-go requirement, which would require 60 votes to pass the Senate. Senate Majority Leader Mitch McConnell (R-Ky.) on Monday said the Senate planned to include a waiver for the pay-go rules in an upcoming continuing resolution to fund the government.
Deductibility of health care expenses maintained
In addition, the bill would maintain U.S. residents' ability to deduct certain health care expenses from their taxes. For 2017 and 2018, the bill would lower the deduction threshold to medical expenses that exceed 7.5% of adjusted gross income (AGI) and eliminate the minimum tax preference. The threshold would return to current 10% in 2019.
The bill also would significantly increase the standard deduction that all U.S. residents can take on their taxes—meaning that fewer would benefit from itemizing their tax deductions, so fewer likely would claim health care expenses as itemized deductions.
Additional provisions targeted at drugmakers
In addition, the bill 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 have said the provision is partially aimed at drugmakers, which sometimes register their patents abroad in order to avoid paying U.S. taxes.
Further, the bill would scale back a 50% tax credit for pharmaceutical companies that develop drugs for rare diseases, known as the Orphan Drug Credit, to 25%.
Congress gears up for tax reform votes
House GOP aides said the House vote on the joint tax reform measure could begin around 1:30 p.m., Reuters reports.
If the bill passes, as it is expected to do, the bill will immediately go to the Senate, where Senate Majority Whip John Cornyn (R-Texas) said it could be brought for a vote as early as Tuesday evening or Wednesday morning. Roll Call reporter Joseph Williams tweeted that McConnell on Tuesday confirmed the Senate would vote on the bill Tuesday evening.
The measure reportedly has the support needed to pass the Senate after two holdouts—GOP Sens. Mike Lee (Utah) and Susan Collins (Maine)—said they would support the bill.
Collins on Monday said the final bill contains provisions she sought regarding retirement savings and medical expenses. Collins also has said her vote is contingent on a promise that Congress will later pass two health reform bills. Sen. Lamar Alexander (R-Tenn.) on Friday said one of those bills—which he crafted with Sen. Patty Murray (D-Wash.)—would be included in a must-pass continuing resolution.
Lee also came out in favor of the bill Monday, saying it "will cut taxes for working Utah families."
According to CNBC, the Sen. Jeff Flake (R-Ariz.) is now the only Republican senator who has not publicly stated his position on the bill. With Sen. John McCain (R-Ariz.) expected to miss the vote as he recovers from a recent procedure, Senate GOP leaders can afford to lose up to one additional vote if Vice President Mike Pence casts a tie-breaking vote.
According to Bloomberg, Senate Democrats could impede passage by using some of their debate time to challenge provisions that they feel violate the Senate's so-called Byrd rule. Any provisions found to be in conflict would likely need to be removed from the bill, which would require another House vote before the bill could be sent to President Trump (Edgerton/Litvan, Bloomberg, 12/18; AP/Washington Post, 12/18; Sullivan, The Hill, 12/18; Pramuk, CNBC, 12/18; Reuters, 12/19; Jagoda, The Hill, 12/18; Phillips Erb, Forbes, 12/15; Taylor, AP/Washington Post, 12/18).
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