Five ways Trump’s tax reform will impact healthcare

In a 51-49 vote, the Senate GOP passed its tax reform bill, which is being hailed as a win for middle class Americans. The bill would cut the corporate tax rate to 20% and change individual tax brackets.

There will be noteworthy changes to the ACA if it is signed into law.

Wolfson

“The ‘Trump’ tax reform legislation is likely to remain essentially intact out of the Senate, with certain expected compromises relative to the House,” says Jay Wolfson, DrPH, JD, distinguished service professor, Public Health, Medicine and Pharmacy, and senior associate dean, Morsani College of Medicine, University of South Florida Health. “It will have substantive impacts on healthcare organizations and on individuals.”

Here are five ways that experts see the Trump tax reform impacting healthcare:

1. It will speed up deconstruction of the ACA.

Bhagat

“This could lead to healthy individuals dropping out, and increase the risk mix of the member pool option for exchange plans, thereby significantly affecting premiums,” says Maulik Bhagat, managing director in the healthcare practice of AArete, a global consultancy specializing in data-informed performance improvement.  

Wolfson says that removing the Obamacare mandate in the tax legislation will destabilize financial services corporations-insurance companies-and healthcare providers.

“It will reduce the number of beneficiaries purchasing policies-especially those without subsidies-resulting in dilution of the risk pool, making it less actuarially stable and creating increased uncertainty for financial services corporations,” Wolfson says. “This will cause premiums and deductibles to rise even more than they have over the past two years, so policies will be less affordable and less practically usable. In addition, premium incomes paid to financial services corporations will decline, adding substantively to the impact of President Trump’s recent executive order curtailing premium subsidies to these companies. Also, more financial services corporations will decide to reduce their participation the ACA marketplace, thus further limiting availability of policies in some U.S. markets.”

The combination of fewer insured persons coupled with continued high deductibles for those who do purchase plans will lead to increased bad debt and charity care for hospitals, physicians and other healthcare organizations, further destabilizing those segments of the healthcare industry, Wolfson says.

Finn 

Changes to the ACA will drive up the number of uninsured, agrees David Finn, executive vice president of strategic innovation at CynergisTek, an information management consulting firm.

“The bill passed by the Senate would essentially repeal the individual mandate, which is the provision in the ACA requiring individuals to have health insurance or face paying a penalty fee,” Finn says. “Without the individual mandate and associated penalty fees, we could see healthy people opting out of buying insurance, which would increase the number of uninsured by around 13 million according to the CBO. The fewer covered lives the higher the premiums. The House version, however, does not end those penalties.”

“The proposed elimination or reduction of the IRS medical deduction affects less than 10% of those filing taxes, but would inordinately impact some non-Medicaid elderly who use long-term care, persons with disabled children and persons with chronic diseases,” Wolfson says. “While that is a post-hoc recovery by taxpayers, it is something upon which hundreds of thousands of persons rely to be able to afford access and care.

“This is a return to the status quo ante of the ACA,” Wolfson continues. ‘Over the past five years, hospitals, clinicians, pharmacies, financial services corporations, and patients have become dependent on what was, from its implementation, an actuarially and operationally flawed ACA that could not be repaired due to the harsh reality of the transition to a Republican Congress immediately after the hasty passage of the law.” 

2. It could trigger sequestration cuts that would impact federal Medicare funding. 

“If implemented, the sequester would impact fee-for-service claims for services covered under Medicare, which wouldn't go well with providers,” Bhagat says. “It could also have some impact on Medicare Advantage and Part D payments since CMS would be forced to reduce its monthly contractual payments to plans.

Next: Budget rules

3. PayGo (pay-as-you-go) budget rules could cut Medicare payments to providers by $25 billion starting next year.

PayGo is designed to encourage Congress to offset the cost of any legislation that increases spending on entitlement programs or reduces revenues so it doesn’t expand the deficit, according to the PayGo website. 

“The tax bill increases federal deficits by about $1 trillion over 10 years,” Finn says. “Even after calculating for stronger economic growth due to the tax cuts, it means more deficit spending. An increased deficit means higher borrowing costs for the government, and increased borrowing costs reduce the options for policymakers when Medicare's long-postponed financial reckoning comes due.”

According to Finn, current estimates indicate that Medicare's huge fund for inpatient care won’t run short until 2029.

“That is just over 10 years from now, but a federal anti-deficit law currently in effect could trigger automatic cuts starting as soon as next year-about $25 billion from Medicare, according to the CBO,” Finn says. “That represents about a 4% reduction on Medicare. These PayGo rules, which trigger the automatic cuts, do not allow Medicare benefits to be touched. That means the funding cuts would be spread among payments to doctors, hospitals, and others that provide care to the program’s 56 million older and disabled Americans. Although in the past Congress has waived the cuts they mandated, and could do so in this case, that will only further increase the pressure to reduce Medicare costs."

4. Health savings accounts (HSAs) will be a permanent part of the health structure.

“There are tens of millions of Americans who utilize the HSAs paired with a HMO plan,” according to John Sarich, vice president of strategy at VUE Software, a firm that specializes in innovating and automating insurance business processes. “This looks to be the structure of healthcare going forward."

5. There will be a focus on selling insurance across state lines.

Sarich

“The opening up of the health market to association group plans-selling insurance across state lines-is a huge disruptor for health insurance,” says Sarich. “Tied to the across-state-lines issue, is also the removal of the individual mandate as well as community rating.”

Also, Sarich says not to underestimate the value of community rating/across state lines. “What this means is that a person can buy a plan that is comprised of some common bond,” he says. “This is sort of like credit unions which always had to have some sort of commonality in their members. Now, for example, let’s say that the University of Michigan Alumni Association develops a plan-that plan is customized actuarially to meet the risk profile of the group. One would expect that University of Michigan grads would have a better risk profile than the average Joe, Jane, or community-rated program. The ability to select on risk is a big part of the Trump plan.”