(Updated on Dec. 20)
Healthcare industry and patient advocacy groups are bracing for the impact of a sweeping tax cut bill passed by Senate Republicans early Wednesday on a 51-48 vote.
The bill is headed back to the U.S. House of Representatives after the Senate parliamentarian determined that three provisions violated Senate budget reconciliation rules. One provision relates to the bill's excise tax on endowments of private universities and academic medical centers.
That decision nixed the House's 227-203 vote approving the measure after several hours of bitter debate, in which Republicans touted the bill as a long-needed boost to the economy while Democrats blasted it as a scam that would provide a windfall to the rich and hurt middle- and working-class Americans. No House Democrats supported the bill and 12 House Republicans also voted against the measure.
The Tax Cuts and Jobs Act could dramatically alter the healthcare landscape by repealing the Affordable Care Act's individual mandate starting in 2019. It also could result in tighter access to capital and greater margin pressure for not-for-profit health systems.
Experts caution that the legislation 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 $1.5 trillion increase in the federal budget deficit resulting from the tax cuts would put pressure on Congress to slash healthcare spending.
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 it would prohibit advance re-funding of prior tax-exempt bond issues, which make up a significant portion of municipal bond activity.
The repeal of the ACA's individual mandate, which was 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 bill. It 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.
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.
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.
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.