Four Important Ways the Tax Bills Affect Healthcare and Education

The tax bills passed by the House and Senate last month are now heading for a conference committee where the differences will be worked out and a final version will then be sent back to both houses for a final vote.  There are several important ways the tax bills will affect healthcare and education.

1. The Senate bill repeals the requirement for most people to get health insurance or pay a  penalty. Republicans tried to end the individual mandate earlier this year when they attempted to pass the Obamacare repeal legislation. The bill would not technically remove the requirement for people to have insurance, but it would eliminate the fine that people would face if they choose to remain uninsured.

The Congressional Budget Office has estimated that dropping the requirement would result in 13 million fewer people having insurance over 10 years.  It also estimates that premiums would rise 10 percent more per year than they would without this change. This is because healthier people would be most likely to drop insurance in the absence of a fine, so insurers would have to raise premiums to compensate for a sicker group of customers. Those consumers, in turn, would be left with fewer affordable choices, according to the CBO. It also becomes more likely that insurers will drop out of the individual market entirely if there is no requirement for healthy people to sign up but they still have to sell to people who know they will need medical care.  Many people who are now covered by a plan that covers mental health would be less likely or able to get treatment because of this change. 

2. The bills would trigger major cuts to the Medicare program

The House and Senate tax bills include no specific Medicare changes, but passing the legislation in its current form would trigger another law that requires cuts to federal programs if the federal budget deficit is increased.

Both the House and Senate would add $1.5 trillion to the deficit over the next 10 years, resulting in automatic cuts under the Statutory Pay-As-You-Go Act.  Federal officials would be required to reduce spending in fiscal year 2018 by the resultant total of $136 billion. Cuts to Medicare are limited under the PayGo law, so the Medicare reduction would be limited to 4 percent of program spending, which is roughly $25 billion of that total. Cuts of a similar size would be required in future years. Most of that would likely come from payments to providers. This hurts Medicare recipients with mental health problems and the counselors who treat them. 

3. Change tax treatment for graduate students and those paying back student loans

The House bill, though not the Senate's, would for the first time require graduate students to pay tax on the value of tuition that universities do not require them to pay. Currently, graduate students in many fields, including counseling, often are paid a small stipend for teaching while they pursue advanced degrees. Many are technically charged tuition, but it is "waived" as long as they are working for the university. The House tax bill would eliminate that waiver and require them to pay taxes on the full value of the tuition that they don't now have to pay, which would result in many students with fairly low incomes seeing very large tax bills.

At the same time, the House tax bill would eliminate the deduction for interest paid on student loans, another blow to counselor education.

4. Repeal the medical expense deduction

The House bill would eliminate taxpayers' ability to deduct medical expenses that exceed 10 percent of their adjusted gross income. The medical expense deduction is not widely used — just under 9 million filers took it on their 2015 tax returns, according to the Internal Revenue Service. But those who do use it generally have very high medical expenses, often for a disabled child, a serious chronic illness or expensive long-term care not covered by health insurance. AARP says that eliminating the deduction "amounts to a health tax on millions of Americans with high medical costs — especially middle income seniors."

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