How the New Tax Law Affects Health Care
As part of the tax bill signed into law in December, Congress removed the fine for people who choose not to get healthcare coverage. The fine was an unpopular part of the Patient Protection and Affordable Care Act, also called the ACA and Obamacare, but experts warned that it is important to how that law works. While removing the fine should not directly affect the health coverage you have now, the cost and availability of private insurance in 2019 and in the future will be impacted.
Why the Individual Mandate Matters
The ACA was often described as a stool with three legs because it could only work if its three main parts all stay in place. Those “legs” were:
- rules for what insurers must cover
- assistance to help people pay for insurance and
- a requirement that people have health coverage
Remove any one of these parts and it changes the effect of the law greatly, in a way that could make health coverage inaccessible to millions of people.
The third leg of the stool, requiring people to have health coverage, is called the individual mandate. It was the least popular part of the ACA, since it was a requirement for people and came with a fine, but the mandate made it possible to provide important, and popular, patient protections in the existing American system where people but insurance from private companies.
In order to make a profit, insurance companies need more people with few medical costs than people who have high medical costs enrolled in their plans. Before the ACA, insurers could deny coverage to people for having existing, expensive medical conditions. It was a way of ensuring they would profit.
The ACA prevents insurers from denying people for having pre-existing conditions now. And since companies can no longer limit what or who their plans cover, keeping a group of people in good health enrolled has become more important. Requiring everyone to have insurance helped keep healthy people enrolled in health insurance plans.
What Happens Without the Individual Mandate
Without the individual mandate, more healthy people will choose not to enroll in insurance plans. People who need coverage because of ongoing medical costs and those who are protected by government subsidies will keep buying insurance and, with the costs being spread among fewer people, the price for those plans will rise.
David N. Mendelson of the research and consulting company Avalere Health told the New York Times that losing the individual mandate could transform the Health Insurance Marketplace/Exchange, saying: “What we will have left is a heavily subsidized high-risk pool for low-income people who are not eligible for Medicaid.”
Unable to pass a new healthcare law in 2017, the administration and Republicans in Congress have been trying to change the ACA in smaller ways. The open enrollment period was shortened to half as long as it was in previous years, the outreach to let people know about open enrollment and how to find insurance was cut by 90 percent, certain plans with lower standards are scheduled to count as coverage, and now the new tax law removes the fine for people without insurance.
Though there will not be a direct effect on your coverage now, this latest change will have an impact on the costs and options available for 2019. More people will choose not to buy insurance. The insurance companies will be left with a group that, on average, needs more medical care, resulting in higher premiumsand fewer plan options. And, as the government subsidies rise with the cost of insurance premiums, the cost to the government could also go up. Those with an income just high enough that they don’t qualify for a subsidy will feel the worst effects, especially if they need to keep their coverage because of ongoing medical bills. It’s likely that many may simply stop paying for insurance as premiums become unaffordable.
What Happened With the Medical Deduction
Before the new tax bill, if you spent more than 10 percent of your yearly income on medical expenses – not including monthly premiums – you could take a tax deduction on medical expenses above that 10 percent mark. A tax deduction lowers the amount of income that you have to pay taxes on.
An earlier version of the tax bill proposed to completely end this deduction for medical costs. But the public noticed the provision and pushed back, calling their members of Congress and demonstrating at the Capitol. In the end, the final bill not only kept the deduction, but lowered the threshold for how much of your income must be spent on medical costs to qualify for a deduction. So for 2018 and 2019, the deduction is available for medical costs after you have spent 7.5 percent of your income on them. That part of the bill is scheduled to expire in 2020.