Final GOP tax cut bill has big loss and smaller wins for healthcare stakeholders
As part of their tax cut bill, House and Senate Republicans have agreed to preserve tax-exempt, municipal private-activity bonds as a way for hospitals and other not-for-profit organizations to raise capital for construction projects.
But the final bill released by the House-Senate conference committee late Friday afternoon would prohibit advance re-funding of prior tax-exempt bond issues, as the House version of the Tax Cuts and Jobs Act had proposed. Advance re-fundings make up a significant portion of municipal bond activity.
As expected, the GOP conferees adopted the Senate's proposed repeal of the Affordable Care Act's tax penalty starting in 2019 for people who do not obtain health insurance. That provision, strongly opposed by health insurers, providers, and consumer groups, is projected to reduce the number of insured Americans by 13 million in 2027 and drive up average premiums each year by 10% more than they otherwise would rise.
Repealing the individual mandate is expected to prompt younger and healthier people to go without coverage, driving up costs for insurers and potentially causing some carriers to exit the individual market in 2019 and beyond.
Despite that big setback, healthcare stakeholders scored a few victories in the final tax cut bill, which GOP leaders hope to bring to a vote in the House and Senate next week.
It will almost certainly pass and be signed by President Donald Trump, now that two GOP senators who previously expressed opposition, Marco Rubio and Bob Corker, have said they will vote yes. No Democrats are expected to support the bill, which would increase the federal budget deficit by more than $1 trillion over 10 years.
The final bill would keep the household deduction for high medical costs, making it more generous in 2018 and 2019 before returning it the current level in 2020. Provider and consumer groups had opposed the House GOP's proposal to eliminate that deduction.
For-profit healthcare corporations' ability to deduct interest payments would be capped at 30% in 2018, and the deduction would be further narrowed starting in 2022. That's of concern to companies carrying large debt loads such as Tenet Healthcare Corp. and Community Health Systems, though the limits are less severe than in the original Senate bill.
The household deduction for state and local income, property and sales taxes would be capped at $10,000. Healthcare industry groups had opposed the House GOP's proposal to eliminate that deduction.
The new $10,000 cap could put pressure on higher-tax states to cut spending on Medicaid and other healthcare programs, as residents who no longer could fully write off state and local taxes clamor for those taxes to be reduced.
The conference bill keeps the tax waiver for reduced tuition for graduate students. Medical schools and academic health centers had pushed for preserving that tax waiver, which makes graduate medical study more affordable.
In a setback for hospitals, not-for-profit organizations would have to pay a 21% excise tax on compensation to executives exceeding $1 million. Compensation paid to certain qualified medical professions for their medical services would be exempted.
The American Hospital Association and others have argued they have to pay market rates for top management talent, and the proposed new excise tax would reduce resources for providing healthcare to their communities.
Despite the opposition of universities and academic medical centers, the final bill would establish a 1.4% excise tax on net investment income earned by private university endowments. Academic medical leaders had argued the new tax would cut into income they use to provide activities that advance their community mission.
Healthcare analysts warn that the tax cut bill overall will have big downstream effects on funding for Medicare, Medicaid, Affordable Care Act subsidies, and other federal and state healthcare programs. That's because the projected $1 trillion-plus increase in the federal deficit resulting from the tax cuts will put pressure on Congress to slash healthcare spending.
In addition, the Congressional Budget Office estimated that passing the tax bill would trigger an automatic $25 billion cut in Medicare in 2018 to offset the reduced revenue, under the pay-as-you-go rule.
Some Republicans have said they will seek to waive the rule to avoid the Medicare cut. But to do that, they would have to win the support of Senate Democrats, who are not inclined to do anything to help the Republicans pass their tax cut bill.
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