The tax implications of the GOP health bill
Tax experts are poring over the Senate version of the Republican health care bill, examining the bill's tax provisions and its differences from the House version of the legislation.
The two versions of the Senate and House bills are not that far apart, according to Dustin Stamper, a director in Grant Thornton’s Washington National Tax Office. “The tax titles are pretty similar in a lot of ways,” he said. “They’re proposing to do the same things with ACA taxes, with a number of minor differences here and there. The biggest difference is what to do going forward to continue to offer refundable tax credits for purchasing insurance. The Senate draft is much more generous than the House bill.”
Structurally, there are differences too, Stamper noted. The House repeals the premium tax credit but comes out with its own version, while the Senate keeps the premium tax credit structure but makes some changes to it. “The Senate draft would benchmark the credit to a lower value plan,” said Stamper. “They would also cap it at a lower percentage of the federal poverty level. It’s now at 400 percent, but the Senate would take that down to 350 percent. In addition, it would adjust some of the percentages not only by income but also by age, while the House bill only takes age into consideration.”
“The other differences in the tax area are pretty technical,” said Stamper. The Medicaid changes are significant. Of the two related Medicare taxes, both the House and the Senate would repeal the Net Investment Income tax immediately, while they chose to let wage earners keep paying the surtax on earned income for several years.”
“There are a lot of similarities between the House bill and the discussion draft released yesterday by the Senate,” agreed Nicole Elliott, a partner at Holland & Knight and former IRS senior advisor for the Affordable Care Act.
Elliott, the lead executive responsible for overseeing all aspects of the ACA implementation at the IRS, cautioned that what was released was a discussion draft and is likely to change during negotiations.
“Both the House and Senate effectively repeal the individual and employer mandate,” she said. “And they both make significant changes to Medicaid. While the Code will still require applicable individuals to maintain minimum essential coverage, the penalties for filing to do so will be lowered to zero, effective as of Jan. 1, 2016. This means that individuals who may have paid a penalty in 2016 could obtain retroactive relief from such penalties.”
“Both the House and the Senate versions repeal ACA taxes such as the taxes on medical devices, insurance providers, and the tax on high-interest earners,” she noted. “That’s what’s drawing the ire of critics who are claiming it’s in part a tax break for the rich.”
The discussion draft of the Better Care Reconciliation Act of 2017 expands the Affordable Care Act’s “state innovation waivers,” also known as “Obamacare 1332 Waivers,” to provide states additional flexibility to use waivers that exist in current law to decide the rules of insurance and ultimately better allow customers to buy the health insurance they want. The Department of Health and Human Services is allowed to fast-track applications from states experiencing an Obamacare emergency.
“The BCRA contains an interesting provision which would give states the flexibility of 1332 waivers,” said Elliott. “That’s the provision of the ACA that states can opt out just by filing an application. It hasn’t been used a lot because the bar is high—states have to show that what they are planning will not decrease overall coverage. The Senate draft provides funds to work on 1332 waivers and provides fast-track options.”
“The key provision for individual taxpayers is that both the House and Senate versions repeal the 3.8 percent tax on net investment income,” said Howard Wagner, managing director in Crowe Horwath’s National Tax Office. “And the Senate version follows the House bill in that the 0.9 percent additional Medicare tax on wages and self-employment income is not repealed until 2023.”
“The important issue for individuals is that until something is enacted, everything is subject to change,” he added. “If you’re considering a transaction such as the sale of a business or the sale of stock that would result in the imposition of tax on net investment income, don’t do it today on the assumption that the tax will be gone for 2017. Aside from the fact that the bills don’t make it into law, there is always the possibility that negotiations could result in changes to the effective date. The final bill that ultimately passes might not repeal the NII tax until 2018 or later.”
After Senate Republicans released Thursday, the BCRA is slated for negotiation and a vote as early as next week, but four Republican senators have already said they’re not on board. Senate Majority Leader Mitch McConnell, R-Ken., needs 50 votes out of 52 Republicans in the Senate, assuming every Democrat will vote against the bill.
“Senate passage is not a foregone conclusion,” Stamper noted. “They hope to vote on it by the July 4 recess. The difficulty in passing the House version, the American Health Care Act of 2017 (AHCA) was to keep both conservatives and moderates happy, and that won by only a four-vote margin. In the Senate, some of the changes they make might not be acceptable on the House side. Resolving the House and Senate version will be a big hurdle.”