How Have New Tax Laws Affected Health Care?

December 15, 2022 - 6:01 am - 3 min read
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Overview of the New Tax Laws and Health Care

The Tax Cuts and Jobs Act (TCJA) of 2017 was enacted with the intention of reducing tax rates for individuals and corporations while simplifying the tax code. While the act has primarily been discussed in terms of its impact on the economy and general taxation, it has also had an effect on health care. The changes to the tax code have affected both individuals and health care providers, with impressive implications for the health care system as a whole.

Impact on Individual Health Care

One aspect of the new tax laws that has affected health care is the repeal of the individual mandate, which required individuals to have health insurance coverage. The individual mandate was part of the Affordable Care Act (ACA) and was intended to promote health insurance coverage by introducing penalties for those who chose not to have insurance. The TCJA repealed the mandate, which may lead to fewer people purchasing insurance. This could have significant implications for health care by reducing revenue streams for providers and increasing the cost of care for those without insurance.

Additionally, the legislation adjusted the medical expense deduction. Prior to the new tax laws, an individual could deduct any medical expenses that totaled more than 7.5% of their adjusted gross income. However, under the TCJA, the medical expense deduction is only available to individuals who have expenses exceeding 10% of their adjusted gross income. This may adversely affect those with high medical expenses, as they are now limited in their ability to claim deductions for those costs.

Impact on Health Care Providers

The new tax laws have also affected health care providers. Notably, the TCJA includes a provision that eliminates the tax penalty for individuals who do not purchase insurance (the Individual Shared Responsibility Payment). This change may result in fewer people enrolling in insurance plans, reducing revenue for insurers and providers.

Additionally, the TCJA changed the calculation of the tax-exempt bond interest rate for nonprofit hospitals. The new rate is based on the Federal Reserve’s short-term interest rate, rather than the long-term rate. This could limit nonprofit hospitals’ ability to finance projects and may lead to increased borrowing costs.

The Future of Health Care Under the New Tax Laws

The impact of the new tax laws on health care is complex and multifaceted. While some of the changes to the tax code may result in increases in costs for individuals and health care providers, others may promote greater flexibility in the health care system. For example, the repeal of the individual mandate may encourage greater innovation and competition among insurers, leading to lower costs for consumers. Additionally, the increase in the standard deduction may make it easier for people to afford out-of-pocket medical expenses while also reducing the tax burden for many Americans.

Regardless of the outcome, it is clear that the new tax laws will have an effect on health care. As the health care system adapts to these changes, policymakers and healthcare providers will need to carefully consider how to maintain access to affordable, high-quality care for all Americans.

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