Last-minute effort on health care would leave most taxes in place

Senate Majority Leader Mitch McConnell, R-Ky, is pushing a last-minute effort to repeal and replace the Affordable Care Act (ACA) by forcing a vote this week on a bill (H.R. 1628) from Sens. Lindsey Graham, R-S.C., and Bill Cassidy, R-La.

The bill represents a radical departure from the earlier failed attempts at repealing ACA, leaving many of the ACA taxes in place. The bill would repeal only a handful of ACA taxes, including:

  • Excise tax “mandates” on individuals and businesses
  • Premium assistance credits
  • Small business tax credit
  • Medical device excise tax
  • The ban on reimbursements for over-the-counter medication from Health Savings Accounts (HSAs), Flexible Spending Arrangements (FSAs) and Medical Savings Accounts (MSAs)
  • Increased penalties on impermissible HSA and MSA disbursements
  • Limits on employer deductions related to the Medicare Part D subsidy

Many taxes previously unpopular with Republicans would be retained, including some of the biggest revenue raisers, such as:

  • 3.8% Medicare tax on net investment income
  • 0.9% Medicare surtax on earned income
  • Annual fees on health insurers and drug producers

The bill would dedicate most of the ACA spending to states and allow them to administer the funds. It would also allow states to opt out of popular ACA coverage requirements, such as the bans on denying coverage for pre-existing conditions and lifetime caps.

The outlook on this legislation is unclear. Health care reform had appeared all but dead in recent weeks until H.R.1628 gained unexpected momentum. This may be the last opportunity this Congress for Republicans to repeal ACA. The budget reconciliation instructions that allow them to pass a health care bill to pass the Senate with just 50 votes expire when the new federal fiscal year begins on Oct. 1. Republicans could create new reconciliation instructions for health care in their next budget, but have already committed to using the next budget for tax reform. Committees generally cannot receive two sets of reconciliation instructions in the same budget.

With a 52-seat Senate majority, Republicans can lose only two members without Democratic votes. Sen. Rand Paul, R-Ky., has already signaled his opposition. The three Republicans who sunk the last Republican health care bill in the Senate, Sens. Lisa Murkowski, R-Alaska, Susan Collins, R-Maine, and John McCain, R-Ariz., have criticized the bill but not have not announced any final decisions. Procedural rules could also be a hurdle.

Even if it passes the Senate, it would still have to go through the House. House Republicans would have little time or opportunity to change the bill and could be faced to either accept or reject the bill altogether. House Speaker Paul Ryan, R-Wis., is not tipping his hand at this point. Rand Paul objected to retaining many of the tax and spending increases from ACA, but taking the funding out of the hands of the federal government and handing it over to sates may appeal to many House Republicans.

Dustin Stamper
Director, Washington National Tax Office
T +1 202 861 4144

Shamik Trivedi
Senior Manager, Washington National Tax Office
T +1 202 521 1511

Tax professional standards statement
This content supports Grant Thornton LLP’s marketing of professional services and is not written tax advice directed at the particular facts and circumstances of any person. If you are interested in the topics presented herein, we encourage you to contact us or an independent tax professional to discuss their potential application to your particular situation. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein. To the extent this content may be considered to contain written tax advice, any written advice contained in, forwarded with or attached to this content is not intended by Grant Thornton LLP to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.

The information contained herein is general in nature and is based on authorities that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice provided by Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, the reader’s specific circumstances or needs and may require consideration of tax and nontax factors not described herein. Contact Grant Thornton LLP or other tax professionals prior to taking any action based upon this information. Changes in tax laws or other factors could affect, on a prospective or retroactive basis, the information contained herein; Grant Thornton LLP assumes no obligation to inform the reader of any such changes. All references to “Section,” “Sec.,” or “§” refer to the Internal Revenue Code of 1986, as amended.